What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-10-13 compared with 2021-10-13 · 148 added, 146 removed, 854 unchanged (26% of the section changed)

73 unchanged sentences

Gross Profit 62,515 65,241

Other Operating Income (2) — 13,000

Selling, General and Administrative Expenses (1) ( 52,050 ) ( 52,205 )

Loss on Impairment of Goodwill ( 5,644 ) —

Income from Operations 4,821 13,036

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(2) See Note 8 of the Notes to the Consolidated Financial Statements for further information about amounts included in this line item.

(3) See Note 9 of the Notes to the Consolidated Financial Statements for further information about amounts included in this line item.

(4) See Note 8 of the Notes to the Consolidated Financial Statements for further information about amounts included in this line item.

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Balance, July 31, 2020 10,886,405 ( 3,426,046 ) $ 1,089 $ 44,993 $ 176,579 $ ( 62,269 ) $ ( 12,254 ) $ ( 174 ) $ 147,964

Net income — — — — 18,900 — — ( 160 ) 18,740

Net income (loss) — — — — 11,113 — — ( 133 ) 10,980

Other comprehensive income — — — — — — 8,137 — 8,137

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Amortization of restricted stock — — — 2,531 — — — — 2,531

Contributions from noncontrolling interests (1)

— — — 142 — — — — 142

Balance, July 31, 2021 10,958,367 ( 3,539,193 ) $ 1,096 $ 48,271 $ 180,443 $ ( 66,154 ) $ ( 4,117 ) $ ( 307 ) $ 159,232

Net income — — — — 11,113 — — ( 133 ) 10,980

Net income (loss) — — — — 5,674 — — ( 62 ) 5,612

Other comprehensive income — — — — — — 1,934 — 1,934

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Balance, July 31, 2022 11,083,824 ( 3,961,579 ) $ 1,108 $ 52,467 $ 178,754 $ ( 79,428 ) $ ( 2,183 ) $ ( 369 ) $ 150,349

(1) On April 1, 2020 we increased our interest in one of our non-wholly owned subsidiaries from 52.0 % to 78.4 % for approximately $ 724,000 when that subsidiary issued shares through a capital call.

Certain other noncontrolling interest holders also purchased shares but to a lesser extent, thereby diluting their collective ownership from 48.0 % to 21.6 %.

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Provision for bad debts and cash discounts ( 227 ) 147

Loss on impairment of goodwill 5,644 —

Loss on impairment of patent applications 323 —

Loss on the disposals of property, plant and equipment 334 52

Curtailment gain on SERP Plan — ( 1,296 )

(Increase) decrease in:

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Principal payments on notes payable ( 1,000 ) ( 1,000 )

Payment of debt issuance costs ( 114 ) —

Dividends paid ( 7,377 ) ( 7,192 )

Purchase of treasury stock ( 11,806 ) ( 3,130 )

Contributions from noncontrolling interests — 142

Net Cash Used in Financing Activities ( 11,322 ) ( 8,750 )

Net Cash Provided by (Used in) Financing Activities 4,703 ( 11,322 )

Effect of exchange rate changes on cash and cash equivalents ( 24 ) 217

Net (Decrease) Increase in Cash and Cash Equivalents ( 16,299 ) 19,028

Net Decrease in Cash and Cash Equivalents ( 8,293 ) ( 16,299 )

Cash and Cash Equivalents, Beginning of Year 24,591 40,890

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Interest payments, net of amounts capitalized $ 767 $ 400

Income tax payments $ 6,151 $ 2,319

Income tax (refunds) payments $ ( 178 ) $ 6,151

Right-of-use assets obtained in exchange for new operating lease liabilities $ 4,377 $ 1,036

Noncash investing and financing activities:

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Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

These immaterial reclassifications had no effect on the previously reported net income.

I MMATERIAL CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the issuance of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020, we identified an error in our historical financial statements related to the classification of certain costs as selling, general and administrative expenses relating to the production of our inventory that should be classified as cost of sales.

These costs generally relate to our annual discretionary bonus and 401(k) employer match for our manufacturing teammates, teammate salaries for individuals in our support functions that spend a portion of their time related to our manufacturing operations such as IT, and other costs mostly related to consultants and outside services.

In accordance with FASB Accounting Standards Codification 250, Accounting Changes and Error Corrections , we evaluated the materiality of the error from both a quantitative and qualitative perspective, and concluded that the error was immaterial to our prior period interim and annual financial statements.

Since the error was not material to any prior period interim or annual financial statements, no amendments to previously filed interim or annual periodic reports are required.

Consequently, we have adjusted for these errors by revising our historical consolidated financial statements presented herein.

The revision to our historical consolidated financial statements did not result in any impact to our consolidated net income.

The effects of the corrections to each of the individual affected line items in our Consolidated Statements of Operations were as follows (in thousands):

Year Ended July 31, 2020

As Previously Reported Corrections As Corrected

Cost of Sales $ ( 207,404 ) $ ( 7,117 ) $ ( 214,521 )

Selling, General and Administrative Expenses $ ( 63,996 ) $ 7,117 $ ( 56,879 )

The related impacts to Inventory in our Consolidated Balance Sheets were not considered material and hence, were not adjusted.

The effects of the corrections to our Notes to the Consolidated Financial Statements for Operating Segments were as follows (in thousands):

Year Ended July 31, 2020

As Previously Reported

Corrections As Corrected

Business to Business Products $ 31,218 $ ( 2,781 ) $ 28,437

Retail and Wholesale Products $ 15,859 $ ( 4,336 ) $ 11,523

Corporate Expenses $ ( 35,250 ) $ 7,117 $ ( 28,133 )

These immaterial reclassifications had no effect on the previously reported net income or cash flows.

M ANAGEMENT U SE OF E STIMATES

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For more information see Critical Accounting Policies and Estimates in Item 7 “ Management's Discussion and Analysis of Financial Condition and Results of Operations.

The COVID-19 pandemic continues to impact business activity across industries in the U.S.

The effects of the COVID-19 pandemic continues to impact business activity across industries in the U.S.

and worldwide, including, but not limited to, workforce and supply chain disruptions.

The Company remains committed to taking actions to address the health, safety and welfare of its employees, customers, agents and suppliers.

Future developments, such as the actions taken by governmental authorities in response to future outbreaks that are highly uncertain and unpredictable, will determine the extent to which COVID-19 continues to impact the Company’s results of operations and financial conditions.

Future developments, such as the actions taken by governmental authorities in response to future outbreaks that are highly uncertain and unpredictable, will determine the extent to which COVID-19 and its effects continue to impact the Company’s results of operations and financial conditions.

See the risk factor captioned “Our business could be adversely affected by a widespread threat to public health," in Item 1A, Risk Factors, included in Part I of this Annual Report on Form 10-K for an additional discussion of risks related to COVID-19.

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We recognize trade receivables when control of finished products are transferred to our customers.

We record an allowance for doubtful accounts based on our historical experience and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific accounts.

We record an allowance for credit losses based on our expectations and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific accounts.

A customer account is determined to be uncollectible when it is probable that a loss will be incurred after we have completed our internal collection procedures, including termination of shipments, direct customer contact and formal demand of payment.

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We recorded inventory obsolescence reserves of approximately $ 842,000 and $ 641,000 as of July 31, 2022 and 2021, respectively.

The lower obsolescence reserve is attributed to our focus on inventory management.

The other category of inventories includes a variety of items including clay, additives, fragrances and other supplies and decreased from July 31, 2020 due to increased production.

Finished goods inventory decreased due to sales volume.

Conversely, packaging inventories increased from July 31, 2020 due to anticipated sales demand as well as an increase in the cost of packaging.

The higher obsolescence reserve is attributed to our focus on inventory management.

The other category of inventories includes a variety of items including clay, additives, fragrances and other supplies and increased from July 31, 2021 due to increased supply chain issues.

Finished goods inventory increased due to sales volume.

Packaging inventories increased from July 31, 2021 due to anticipated sales demand as well as an increase in the cost of packaging.

T RANSLATION OF F OREIGN C URRENCIES

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Much of our goodwill cannot be specifically assigned to one of our operating segments because of the shared nature of our production facilities;

however, for purposes of our most recent impairment analysis we estimated the goodwill allocation and assigned $ 5,497,000 to the Retail and Wholesale Products Group and $ 3,765,000 to the Business to Business Products Group.

however, for purposes of

our most recent impairment analysis we estimated the goodwill allocation and assigned $ 0 to the Retail and Wholesale Products Group and $ 3,618,000 to the Business to Business Products Group.

During the third quarter of fiscal 2022, we determined, as a result of lower share prices and the continued adverse impacts of rising costs and additional expenses to prevent supply chain disruptions, that we had a triggering event that necessitated a goodwill impairment test.

In the third quarter, we performed a goodwill impairment test on our Retail and Wholesale Products Group and Business to Business Products Group reporting units and determined that the carrying value of our Retail and Wholesale Products Group reporting unit was higher than its fair value.

As a result, we recorded goodwill impairment of $ 5,644,000 , which left no remaining goodwill in the Retail and Wholesale Products Group reporting unit.

We performed our annual impairment testing in the fourth quarter of fiscal years 2022 and 2021.

There was no impairment required based on our analysis for fiscal years 2021 or 2020.

There was no additional impairment required based on our analysis for the fourth quarter of fiscal year 2022.

We will continue to consider the need to re-perform impairment testing throughout the year when circumstances such as unexpected adverse economic factors, unanticipated technological changes, competitive activities and acts by governments and courts indicate that an asset may become impaired.

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The CARES Act provides for, among other things, deferral of the employer portion of social security taxes incurred through the end of calendar 2020.

As permitted by the CARES Act, we deferred approximately $ 2,300,000 in payroll taxes in calendar year 2020.

The $ 2,300,000 will be paid equally in the fourth quarters of calendar years 2021 and 2022;

$ 1,150,000 in 2021 and $ 1,150,000 in 2022.

The current portion of the accrual for these payroll taxes is included in Other within Accrued Expenses and the noncurrent portion of the accrual is included in Other within Noncurrent Liabilities on the Consolidated Balance Sheet.

As permitted by the CARES Act, we deferred approximately $ 2,300,000 in payroll taxes in calendar year 2020, $ 1,150,000 was paid in December 2021 and $ 1,150,000 will be paid in December 2022.

The current portion of the accrual for these payroll taxes is included in Other within Accrued Expenses and the noncurrent portion of the accrual, as applicable, is included in Other within Noncurrent Liabilities on the Consolidated Balance Sheet.

T RADE P ROMOTIONS

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Shipping and handling costs are included in cost of sales and were approximately $ 48,487,000 and $ 46,500,000 for fiscal years 2022 and 2021, respectively.

The increase in fiscal year 2021 relates to the increase in freight due to higher transportation rates from tight truck availability.

The increase in fiscal year 2022 relates to the increase in freight due to higher transportation rates from tight truck availability offset by freight we no longer incur related to a significant customer who now picks up its own purchases.

S ELLING , G ENERAL AND A DMINISTRATIVE E XPENSES

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Where unremitted foreign earnings are indefinitely reinvested, no provision for federal or state tax expense is recorded.

When circumstances change and we determine that some or all of the

undistributed earnings will be remitted in the foreseeable future, a corresponding expense is accrued in the current period.

When circumstances change and we determine that some or all of the undistributed earnings will be remitted in the foreseeable future, a corresponding expense is accrued in the current period.

See Note 5 of the Notes to the Consolidated Financial Statements for additional information about income taxes.

O THER O PERATING I NCOME

Included within Other Operating Income in fiscal year 2020 is revenue earned from a confidential license agreement.

Pursuant to this agreement, the Company granted a non-exclusive, perpetual license to develop, manufacture, use, distribute and sell products produced using formulations under certain of our patents until their expiration and agreed to certain limitations on the ability of the parties to bring forth patent infringement claims or challenges relating to certain products in exchange for a one-time payment of $ 13,000,000 .

This revenue is recognized at a point in time as it is considered functional intellectual property.

N EW A CCOUNTING P RONOUNCEMENTS

Recently Issued Accounting Standards

In March 2020, the FASB issued guidance under ASC 848, Reference Rate Reform.

This guidance provides optional expedients and exceptions to account for debt, leases, contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met.

The guidance is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

We have debt agreements that reference LIBOR and to the extent that those agreements are modified to replace LIBOR with another interest rate index, ASC 848 will allow us to account for the modification as a continuation of the existing contract without additional analysis.

We are currently evaluating the potential effects of the adoption of this guidance on our Consolidated Financial Statements.

Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other:

Simplifying the Test for Goodwill Impairment (ASC 350).

The standard eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (the Step 2 test) from the goodwill impairment test.

Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit.

The guidance is effective for us beginning with the first quarter of fiscal year 2023.

Early adoption is permitted.

We adopted this standard for our goodwill impairment test performed on May 1, 2022.

See Note 5 for additional information regarding the results of the impairment test performed.

In December 2019, the FASB issued guidance under ASC 740, Income Taxes , which simplifies the accounting for income taxes.

The guidance removes several specific exceptions to the general principles in ASC 740 and clarifies and makes amendments to improve consistent application of and simplify existing accounting for other areas in ASC 740.

This guidance is effective for our first quarter of fiscal year 2022, with early adoption permitted.

We have performed an initial analysis of the impacts of adopting this requirement and do not anticipate that it will be material to our Consolidated Financial Statements.

We implemented this guidance effective for our first quarter of fiscal year 2022.

The impact of adopting this requirement is not material to our Consolidated Financial Statements.

In June 2016, the FASB issued guidance under ASC 326, Financial Instruments-Credit Losses , which requires companies to utilize an impairment model for most financial assets measured at amortized cost and certain other financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses.

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In general, this guidance will require modified retrospective adoption for all outstanding instruments that fall under this guidance.

This guidance is effective for our first quarter of fiscal year 2023.

We are currently evaluating the impact of the adoption of this requirement on our Consolidated Financial Statements.

Early adoption is permitted and we adopted this standard for the evaluation of bad debt reserves at July 31, 2022.

Accordingly, this guidance is effective for our first quarter of fiscal year 2023.

The impact of adopting this requirement is not material to our Consolidated Financial Statements.

Recently Issued Accounting Standards

In March 2020, the FASB issued guidance under ASC 848, Reference Rate Reform.

The guidance is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

On August 30, 2022 we amended our debt agreements to replace the LIBOR-based reference rate with an adjusted term Secured Overnight Financing Rate (SOFR).

See Note 13 for additional information on the debt amendment subsequent event.

There have been no other accounting pronouncements issued but not yet adopted by us which are expected to have a material impact on our Consolidated Financial Statements.

NOTE 2 – OPERATING SEGMENTS

As a result of a change in management organization during fiscal year 2022 and as part of our routine assessments of our segments, our wholly owned subsidiary located in the United Kingdom is now included in our Business to Business Products Group and our co-packaged coarse cat litter is now included in the Retail and Wholesale Products Group.

Prior year net sales and operating income have also been reclassified to reflect these changes.

The organization change was intended to better serve our customers and the segment information presented reflects the information regularly reviewed by our chief operating decision maker.

We have two reportable operating segments:

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These operating segments are managed separately and each segment's major customers have different characteristics.

The Retail and Wholesale Products Group customers include mass merchandisers, wholesale clubs, drugstore chains, pet specialty retail outlets, dollar stores, retail grocery stores, distributors of industrial cleanup and automotive products, environmental service companies and sports field product users.

The Business to Business Products Group customers include:

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manufacturers of animal feed and agricultural chemicals;

distributors of animal health and nutrition products;

and marketers of consumer products.

and distributors of animal health and nutrition products.

Net sales for our principal products by segment are as follows (in thousands):

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Corporate expenses also include the annual incentive plan bonus accrual.

Other operating income in fiscal year 2020 relates to revenue earned from a license arrangement of our intellectual property.

In addition, Income from our Business to Business and Retail and Wholesale Products as well as Corporate Expenses for the year ended July 31, 2020 were adjusted for an immaterial correction of an error.

See Note 1 of the Notes to the Consolidated Financial Statements.

(in thousands)

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Net Sales $ 348,589 $ 304,981

Other Operating Income — 13,000

Corporate Expenses ( 25,775 ) ( 23,966 )

Income from Operations 4,821 13,036

Total Other Income (Expense), Net 332 ( 1,807 )

Total Other Income, Net 888 332

Income Before Income Taxes 5,709 13,368

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Foreign subsidiaries $ 12,989 $ 12,572

Included within identifiable assets for our foreign subsidiaries is cash held at foreign banks of $ 3,054,000 as of July 31, 2021.

Included within identifiable assets for our foreign subsidiaries is cash held at foreign banks of $ 3,260 and $ 3,054 as of July 31, 2022 and July 31, 2021, respectively.

Sales to Walmart, our largest customer, are included in our Retail and Wholesale Products Group.

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$ 8,000 $ 9,000

Amended and Restated Note Purchase and Private Shelf Agreement.

Annual principal installments on Dec 15:

$ 5,000 in each fiscal year 2028 through 2032.

Interest is payable semi-annually at an annual rate of 3.25 %

Less current maturities of notes payable ( 1,000 ) ( 1,000 )

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Noncurrent notes payable $ 31,798 $ 7,878

We issued senior promissory notes in November 2010 for $ 18,500,000 .

The note agreement provided that the proceeds could be used to fund future principal payments on debt, acquisitions, stock repurchases, capital expenditures, and working capital purposes.

The note agreement contained restrictions against certain activities, among other things and under various conditions, further described below, these notes were amended in May 2020 and paid in full in July 2020.

On May 15, 2020 (the “Effective Date”), we entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the “Amended and Restated Note Agreement”) with PGIM, Inc.

On May 15, 2020 (the “Effective Date”), we entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the “Amended Note Agreement”) with PGIM, Inc.

(“Prudential”) and certain existing noteholders and purchasers affiliated with Prudential named therein.

The Amended Note Agreement amends and restates the Note Agreement between Oil-Dri, Prudential and certain existing noteholders named therein, dated as of November 12, 2010 (the “Prior Note Agreement”), under which our 3.96 % Series A Senior Notes (the “Series A Notes”) were previously issued in an original aggregate principal amount of $ 18,500,000 .

In addition, the Amended Note Agreement provided us with the ability to request, from time to time until May 15, 2023 (or such earlier date as provided for in the Amended Note Agreement), that Prudential affiliate(s) purchase, at Prudential’s discretion and on an uncommitted basis, additional senior unsecured notes of Oil-Dri (the “Shelf Notes,” and collectively with the Series A Notes and Series B Notes, the “Notes”) in an aggregate principal amount of up to $ 75,000,000 minus the aggregate principal amount of Notes then outstanding and Shelf Notes that have been accepted for purchase.

Pursuant to the Amended Note Agreement, (i) the Series A Notes, in an aggregate principal amount of $ 3,100,000 as of immediately prior to the Effective Date, were paid in full in July 2020 and (ii) we issued $ 10,000,000 in aggregate principal amount of our 3.95 % Series B Senior Notes due May 15, 2030 (the “Series B Notes”) and (iii) we issued $ 25,000,000 in aggregate principal amount of our 3.25 % Series C Senior Notes due December 16, 2031 (the “Series C Notes”).

In addition, the Amended Note Agreement provided us with the ability to request, from time to time until May 15, 2023 (or such earlier date as provided for in the Amended Note Agreement), that Prudential affiliate(s) purchase, at Prudential’s discretion and on an uncommitted basis, additional senior unsecured notes of Oil-Dri (the “Shelf Notes,” and collectively with the Series A Notes and Series B Notes, and Series C Notes, the “Notes”) in an aggregate principal amount of up to $ 75,000,000 minus the aggregate principal amount of Notes then outstanding and Shelf Notes that have been accepted for purchase.

Interest payable on any Shelf Note agreed to be purchased under the Amended Note Agreement will be at a rate determined by Prudential and will mature not more than fifteen years after the date of original issue of such Shelf Note.

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Such events of default include payment defaults, covenant defaults and other enumerated defaults.

We have a credit agreement with BMO Harris that expires on January 31, 2024 .

Effective June 3, 2022, we entered into Amendment No.

2 (the “Amendment”) to the Amended and Restated Note Purchase and Private Shelf Agreement (the “Note Agreement”) with PGIM, Inc.

(“Prudential”) and certain existing noteholders affiliated with Prudential named therein.

The Amendment, among other things, revises the definition of Consolidated EBITDA (Earnings Before Interest, Depreciation, and Amortization) within the Note Agreement.

The revised definitions of Consolidated EBITDA are relevant to our covenant calculations based on the amended definitions noted above.

The goodwill impairment recorded in the third quarter was excluded from the quarterly covenant calculations based on the amended definitions summarized above.

See Note 1 of the Notes to the Consolidated Financial Statements for additional information on goodwill impairment.

We have a credit agreement with BMO Harris that expires on January 31, 2024 (the "Credit Agreement").

The agreement provides for a $ 45,000,000 unsecured revolving credit agreement, including a maximum of $ 10,000,000 for letters of credit.

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As of July 31, 2022, the variable rates would have been 5.75 % for the BMO Harris’ prime-based rate or 4.04 % for the LIBOR-based rate.

Effective June 6, 2022, we entered into a modification (the “Modification”) to the credit agreement (the “Credit Agreement”) with BMO Harris N.A.

The Modification, among other things, revises the definition of Consolidated EBITDA and Consolidated EBITR (Earnings Before Interest, Taxes, and Rent) within the Credit Agreement.

The revised definitions of Consolidated EBITDA and consolidated EBITR are relevant to our covenant calculations based on the amended definitions noted above.

The goodwill impairment recorded in the third quarter was excluded from the quarterly covenant calculations based on the amended definitions summarized above.

See Note 1 of the Notes to the Consolidated Financial Statements for additional information on goodwill impairment.

As of July 31, 2022 and 2021, there were no outstanding borrowings under this credit agreement.

However, we had outstanding letters of credit of $ 964,000 and $ 1,284,000 as of July 31, 2021 and 2020, respectively, under this agreement.

However, we had $ 964,000 of letters of credit outstanding at July 31, 2022 and 2021 under this agreement.

The credit agreement contains restrictive covenants that, among other things and under various conditions, limit our ability to incur additional indebtedness or to dispose of assets.

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Our debt agreements also contain provisions such that if we default on one debt agreement, the others will automatically default.

If we default on any guaranteed debt with a balance greater than $ 1,000,000 , our unsecured revolving credit agreement with BMO Harris will be considered in

If we default on any guaranteed debt with a balance greater than $ 1,000,000 , our unsecured revolving credit agreement with BMO Harris will be considered in default.

If we default on any debt with a balance greater than $ 5,000,000 we will also be considered in default with the senior promissory notes.

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The following is a schedule by fiscal year of future principal maturities of notes payable as of July 31, 2022 (in thousands):

On August 30, 2022, the Company entered into (i) the Sixth Amendment to the Credit Agreement (the “Sixth Amendment”), which amends the Credit Agreement, among BMO Harris, the Company and certain domestic subsidiaries of the Company;

and (ii) Amendment No.

3 (the “Third Amendment”) to the Amended Note Agreement with Prudential and certain existing noteholders affiliated with Prudential named therein.

See Note 13 of the Notes to the Consolidated Financial Statements for additional information.

NOTE 4 – FINANCIAL INSTRUMENTS

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Unobservable inputs.

Cash equivalents are classified as Level 1 of the fair value hierarchy because they were valued using quoted market prices in active markets.

There were no cash equivalents as of July 31, 2021 and cash equivalents of $ 6,000 as of July 31, 2020.

Cash equivalents are classified as Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

These cash instruments are primarily money market funds and are included in cash and cash equivalents on the Consolidated Balance Sheets.

There were no cash equivalents as of July 31, 2022 and July 31, 2021.

Accounts receivable and accounts payable balances on the Consolidated Balance Sheets approximate their fair values as of July 31, 2022 and 2021 due to the short maturity and nature of those balances.

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The fair value was estimated using the exit price notion of fair value and is classified as Level 2.

The increase in fair value is attributable to the Amended and Restated Note Purchase and Private Shelf Agreement entered into in May 2020.

See Note 3 of the Notes to the Consolidated Financial Statements for further information about the new debt.

The increase in fair value is attributable to the Amended Note Agreement entered into in December 2021.

See Note 3 of the Notes to the Consolidated Financial Statements for further information about such debt.

We apply fair value techniques on at least an annual basis associated with:

(1) valuing potential impairment loss related to goodwill, trademarks and other indefinite-lived intangible assets and (2) valuing potential impairment loss related to long-lived assets.

See Note 1 of the Notes to Consolidated Financial Statements for further information about goodwill and other intangible assets.

See Note 1 of the Notes to Consolidated Financial Statements for further information about goodwill and other intangible assets, including the goodwill impairment recorded during fiscal year 2022 at our Retail and Wholesale Products Group.

Concentration of Credit Risk

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Prior year income taxes ( 9.5 ) ( 4.0 )

Goodwill impairment 3.1 —

Other 1.8 ( 0.8 )

Effective income tax rate 1.7 % 17.7 %

effective tax rate for the year ended July 31, 2021 and July 31, 2020 were 17.7 % and 18.6 %, based on income before taxes.

The items impacting the effective tax rate were permanent items, return to provision adjustments, a deferred tax asset true-up and an increase in the foreign valuation allowance.

The tax impact of the items comprising the permanent adjustments primarily consisted of depletion, stock-based compensation and tax credits.

effective tax rate for the year ended July 31, 2022 and July 31, 2021 were 1.7 % and 17.7 %, respectively, based on income before taxes.

The items impacting the effective tax rate were permanent items and the return to provision adjustments.

The tax impact of the items comprising the permanent adjustments primarily consisted of depletion, stock-based compensation and goodwill impairment.

The Consolidated Balance Sheets included the following tax effects of cumulative temporary differences as of July 31 (in thousands):

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Other assets 1 — 289 —

Other liabilities — 23 — —

Accrued expenses 2,362 — 2,402 —

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Total deferred taxes $ 10,974 $ 7,297 $ 11,584 $ 9,488

Deferred tax liabilities for depreciation increased due to the election of bonus depreciation that the Company took in fiscal year 2021.

Deferred tax liabilities for depreciation decreased due to the election out of bonus depreciation that the Company took in fiscal year 2021.

Deferred tax assets for post retirement benefits were affected by the freeze of our pension plan as well as the Lump Sum Option both of which significantly reduced our pension liability.

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The state impact of any federal income tax changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

There are a limited number of open state and local income tax audits in which no material issues have been preliminarily identified.

There are a limited number of open state and local income tax audits in which no material

issues have been preliminarily identified.

There are no material open or unsettled foreign income tax audits.

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Balance as of July 31, 2020 $ ( 11,994 ) $ ( 260 ) ( 12,254 )

Other comprehensive (loss) before reclassifications, net of tax ( 4,431 ) a) ( 112 ) ( 4,543 )

Other comprehensive income before reclassifications, net of tax 6,592 a) 571 7,163

Amounts reclassified from accumulated other comprehensive income, net of tax 494 b) — 494

Curtailment/Settlement on Pension Plan 480 c) — 480

Net current-period other comprehensive income (loss), net of tax 2,897 ( 112 ) 2,785

Net current-period other comprehensive income, net of tax 7,566 571 8,137

Balance as of July 31, 2021 $ ( 4,428 ) $ 311 $ ( 4,117 )

Other comprehensive income before reclassifications, net of tax 6,592 a) 571 7,163

Other comprehensive income (loss) before reclassifications, net of tax 2,081 a) ( 252 ) 1,829

Amounts reclassified from accumulated other comprehensive income, net of tax 105 b) — 105

Settlement on Pension Plan 480 c) — 480

Net current-period other comprehensive income, net of tax 7,566 571 8,137

Net current-period other comprehensive income (loss), net of tax 2,186 ( 252 ) 1,934

Balance as of July 31, 2022 $ ( 2,242 ) $ 59 $ ( 2,183 )

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Amounts are included in the components of net periodic benefit cost for the pension and postretirement health plans.

c) Amount is net of taxes of $ 151,000 and $ 2,075,000 in fiscal years 2021 and 2020, respectively.

Amounts are included in the components of net periodic benefit cost for the pension and postretirement health plans.

c) Amount is net of taxes of $ 151,000 in fiscal year 2021.

Amount is included in the components of net periodic benefit cost for the pension and postretirement health plans.

See Note 8 of the Notes to the Consolidated Financial Statements for further information about pension and postretirement health benefits.

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Consequently, the Pension Plan is closed to new participants and current participants will no longer earn additional benefits on or after March 1, 2020.

The amendment of the Pension Plan triggered a pension curtailment, which required a remeasurement of the Pension Plan's obligation.

The remeasurement resulted in a decrease in the benefit obligation of approximately $ 6,632,000 , which was recorded in Other Comprehensive Income, net of taxes of $ 1,592,000 in the second quarter of fiscal year 2020.

During the third quarter of fiscal 2020 we offered terminated participants with vested benefits who have not yet begun receipt of benefits under the Plan the opportunity to receive their pension benefits in a single payment (the “Lump Sum Option”).

We made payments in the fourth quarter of fiscal year 2020 to those participants who elected the Lump Sum Option by the May 15, 2020 election deadline.

The settlement expense was $ 2,012,000 and was recorded net of tax in Other, net in the Consolidated Statements of Operations.

On May 4, 2021, we purchased an annuity for $ 8,530,000 which decreased both our projected benefit obligation and the fair value of plan assets and resulted in no change in the funded status of the pension plan.

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Our contributions to this plan, and to similar plans maintained by our foreign subsidiaries, were $ 2,936,000 and $ 2,784,000 for fiscal years 2022 and 2021, respectively.

During fiscal year 2020, we changed the percentage of employer matching contributions from 50 % of every employee dollar contributed up to 4 % of earnings to 100 % of every employee dollar contributed up to 6 % of earnings.

Obligations and Funded Status

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Interest cost 1,068 1,168 58 51

Actuarial (gain)/loss ( 6,091 ) 8,570 ( 313 ) 247

Actuarial gain ( 8,386 ) ( 6,091 ) ( 1,155 ) ( 313 )

Benefits paid ( 1,208 ) ( 1,603 ) ( 32 ) ( 43 )

Curtailments — ( 6,632 ) — —

Settlements — ( 8,487 ) — —

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Funded status, recorded in Consolidated Balance Sheets $ 1,248 $ ( 1,879 ) $ ( 2,119 ) $ ( 3,125 )

The change in actuarial (gain)/loss from fiscal year 2020 to fiscal year 2021 relates to a change in discount rate as well as actual participant demographic experience vs.

assumed experience.

See “Cash Flows” below for further information about employer contributions and benefits payments.

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Accumulated other comprehensive loss – net of tax:

Net actuarial loss $ 4,311 $ 11,642 $ 117 $ 352

Net actuarial loss (gain) $ 2,998 $ 4,311 $ ( 756 ) $ 117

Benefit Costs and Amortizations

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Amortization of:

Prior service costs (income) — — ( 6 ) ( 6 )

Prior service income — — ( 6 ) ( 6 )

Other actuarial loss 145 653 — 3

Settlement cost — 631 — —

Net periodic benefit cost $ ( 364 ) $ 3,223 $ 187 $ 192

Net periodic benefit (income) cost $ ( 1,373 ) $ ( 364 ) $ 175 $ 187

Service cost is recorded in Other, net within Other Income (Expense) in the Consolidated Statements of Operations.

As the pension plan is frozen, there was no service cost recorded in fiscal year 2021.

As the pension plan is frozen, there was no service cost recorded in fiscal years 2021 or 2022.

The following table shows amounts, net of tax, that are recognized in other comprehensive income by fiscal year (in thousands):

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2022 2021 2022 2021

Net actuarial (gain) loss $ ( 6,355 ) $ 4,243 $ ( 237 ) $ 188

Net actuarial gain $ ( 1,203 ) $ ( 6,355 ) $ ( 878 ) $ ( 237 )

Amortization of:

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Curtailment/Settlement $ — $ ( 480 ) $ — $ —

Total recognized in other comprehensive (income) loss $ ( 7,331 ) $ ( 3,090 ) $ ( 235 ) $ 193

Total recognized in other comprehensive income $ ( 1,313 ) $ ( 7,331 ) $ ( 873 ) $ ( 235 )

We have funded the Pension Plan based upon actuarially determined contributions that take into account the amount deductible for income tax purposes, the normal cost and the minimum contribution required and the maximum contribution allowed under applicable regulations.

During fiscal year 2020, we made two voluntary contributions for $ 5,000,000 and $ 3,000,000 in excess of the minimum required amount.

The voluntary contributions improved our funded status and contributed to a lower net periodic benefit expense.

We made no contributions in fiscal year 2021 and we do not expect to make a contribution to the Pension Plan in fiscal year 2022.

We made no contributions in fiscal years 2021 or 2022 and we do not expect to make a contribution to the Pension Plan in fiscal year 2023.

The postretirement health plan is an unfunded plan.

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Equity — % 64 % 62 %

In anticipation of the Lump Sum Option payments we adjusted our asset allocation in fiscal year 2020 and reverted back to our historical asset allocations in fiscal year 2021.

In anticipation of a termination of the pension plan (See Note 13 of the Notes to Consolidated Financial Statements), we adjusted our asset allocation target for fiscal year 2023.

The following table sets forth by level, within the fair value hierarchy, the Pension Plan's assets carried at fair value (in thousands):

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Commodities (e)

1,137 1,137 —

Fixed Income:

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Money market fund (i)

1,683 — 1,683

Total $ 40,388 $ 5,112 $ 35,276

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The Oil-Dri Corporation of America Annual Incentive Plan provides certain executives with the opportunity to receive a deferred executive bonus award if certain financial goals are met.

Deferred executive bonus awards of $ 818,000 were awarded for fiscal year 2022.

No executive bonus was awarded for fiscal year 2021 as financial targets under the provisions of the plan were not achieved.

$ 1,352,000 was awarded to certain executives for fiscal year 2020.

These awards will vest and accrue interest over a three-year period.

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$ 30,085 $ 24,883

The decrease in salaries, wages, commissions and employee benefits relates primarily to the payment of annual discretionary bonuses related to fiscal year 2020 during the first quarter of fiscal year 2021 and a lower discretionary bonus as of the end of fiscal year 2021.

The increase in salaries, wages, commissions and employee benefits relates primarily to the accrual of annual discretionary bonuses related to fiscal year 2022 that will be paid during the first quarter of fiscal year 2023 and a higher discretionary bonus accrual as of the end of fiscal year 2022 when compared to fiscal year 2021.

The accrual for trade promotions and advertising is lower at July 31, 2022 than at July 31, 2021 due to a shift in timing of advertising programs and expense.

Freight rates increased during fiscal year 2022 resulting in a higher accrual at July 31, 2022 than at July 31, 2021.

Accrued real estate tax at July 31, 2021 is lower than at July 31, 2020 due to timing of payments as well as an adjustment to account for lower real estate taxes for one of our facilities.

Accrued real estate tax at July 31, 2022 is higher than at July 31, 2021 due to the timing of payments.

Other accrued expenses are higher due to an increase in natural gas costs in fiscal year 2022 that will be paid during the first quarter of fiscal year 2023.

NOTE 11 – OTHER CONTINGENCIES

We are party to various legal actions from time to time that are ordinary in nature and incidental to the operation of our business, including ongoing litigation.

While it is not possible at this time to determine with certainty the ultimate outcome of these or other lawsuits, we believe that none of the pending proceedings will have a material adverse effect on our business, financial condition, results of operations or cash flows.

In June 2020, the Company received notice from a former service

provider alleging a breach of contract regarding the payment of a contingency fee.

financial condition, results of operations or cash flows.

In June 2020, the Company received notice from a former service provider alleging a breach of contract regarding the payment of a contingency fee.

Such party subsequently, in July 2020, filed a lawsuit seeking to require the Company to participate in binding mediation regarding this matter.

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NOTE 13 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date the financial statements were issued.

Based on our evaluation no events have occurred that would require recognition in the Consolidated Financial Statements or disclosure in the Notes to the Consolidated Financial Statements.

and (ii) Amendment No.

3 (the “Third Amendment”) to the Amended Note Agreement with Prudential and certain existing noteholders affiliated with Prudential named therein.

The Sixth Amendment amends the Credit Agreement to, among other things to extend the expiration of the agreement until August 20, 2027;

to replace the LIBOR-based reference rate with an adjusted term Secured Overnight Financing Rate ("SOFR");

revise the method for calculating consolidated EBITDA and consolidated debt for purposes of the Credit Agreement;

modify certain restrictive covenants, including increasing the unsecured indebtedness basket from $50 million to $75 million;

and revise the existing financial covenants by replacing the consolidated debt covenant with a covenant to maintain a maximum debt to earnings ratio, lowering the minimum fixed charge coverage ratio level and revising the method for calculating the fixed charge coverage ratio.

The Third Amendment amends the Amended Note Agreement to, among other things, modify the existing fixed charge coverage financial covenant and replace the existing consolidated debt financial covenant with a maximum debt to earnings ratio and effect certain changes consistent with the Sixth Amendment, including modifying the method for calculating consolidated EBITDA and the excess leverage fee.

On September 20, 2022, subsequent to the end of the fiscal year, the Company's Board of Directors approved a resolution to terminate the Company's defined benefit pension plan.

During the first quarter of fiscal year 2023, the Company commenced the plan termination process and expects to complete the termination over a period of eighteen months.

The decision to terminate the Plan follows the 2020 decision to amend and freeze the plan, pursuant to which participation, all future benefit accruals and accrual of benefit service, including consideration of compensation increases, were frozen effective March 1, 2020.

NOTE 14 – RELATED PARTIES

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Total net sales to that customer, including sales to subsidiaries of that customer, were $ 348,827 and $ 326,692 for fiscal years 2022 and 2021, respectively.

There was $ 4,000 of outstanding accounts receivable due from that customer, and its subsidiaries, as of July 31, 2021 and no outstanding accounts receivable as of July 31, 2020.

There was $ 5,608 of outstanding accounts receivable due from that customer, and its subsidiaries, as of July 31, 2022 and $ 4,256 outstanding accounts receivable as of July 31, 2021.

One member of our Board of Directors is currently the President and Chief Executive Officer of a vendor of ours.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Annual goodwill impairment analysis

As described further in Note 1 to the financial statements, the Company’s consolidated goodwill balance was $9,262,000 as of July 31, 2021 and the goodwill assigned to the Retail and Wholesale Products Group and Business to Business Products Group was $5,497,000 and $3,765,000, respectively.

Goodwill is tested annually for impairment in the fourth quarter of the fiscal year or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired.

We identified the Company’s annual goodwill impairment analysis of both of the Company’s reporting units as a critical audit matter.

The principal considerations for our determination that the annual goodwill impairment analysis is a critical audit matter are that the significant estimates and assumptions made by management involve subjectivity and judgment in determining the fair value of the reporting units using the discounted future cash flows valuation technique.

The reporting unit discounted future cash flows include certain management assumptions that are complex and have a higher degree of estimation uncertainty and changes in these assumptions could have a significant impact on the results of the impairment analysis.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill impairment analysis

As described further in Note 1 to the financial statements, during the third quarter of fiscal year 2022, the Company determined that a triggering event necessitated a goodwill impairment test.

The Company performed a goodwill impairment test on both the Retail and Wholesale Products Group and Business to Business Product Groups reporting units and determined that the carrying value of the Retail and Wholesale Products Group reporting unit was higher than its fair value.

As a result, the Company recorded goodwill impairment of $5,644,000 which left no remaining goodwill in the Retail and Wholesale Products Group.

The principal considerations for our determination that the goodwill impairment analysis is a critical audit matter are that the significant estimates and assumptions made by management involve subjectivity and judgment in determining the fair value of the reporting units using the discounted future cash flows valuation technique.

The reporting unit discounted future cash flows include certain management assumptions that are complex and have a higher degree of estimation uncertainty.

Changes in these assumptions could have a significant impact on the results of the impairment analysis.

These assumptions include forward-looking projections related to volume, revenue, and expenses as well as certain allocations between reporting units and determination of discount rates.

Performing audit procedures to evaluate management’s assumptions required a high degree of auditor judgement and an increased extent of effort, including the need to involve valuation specialists.

Our audit procedures related to the annual goodwill impairment analysis included the following, among others:

• We tested the design and operating effectiveness of controls relating to management’s goodwill impairment test, including the controls over the determination of key inputs such as the forecasting of future cash flows and determination of the discount rate;

Performing audit procedures to evaluate management’s assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve valuation specialists.

Our audit procedures related to the goodwill impairment analysis included the following, among others :

We tested the design and operating effectiveness of internal controls relating to management’s goodwill impairment test, including the internal controls over the determination of key inputs such as the forecasting of future cash flows and determination of the discount rate;

We tested the reasonableness of management’s forecasts of future revenues and operating margin by comparing to third-party industry projections and historical operating results;

• We performed sensitivity analysis on the Company’s future revenue, operating margins, and expense allocations to evaluate the reasonableness of management’s forecasts;

• We utilized a valuation specialist to assist in recalculating the Company’s discounted future cash flows model and in evaluating the reasonableness of significant assumptions including the discount rate;

• We evaluated the competency and objectivity of management’s specialists who assisted with preparing the discounted cash flow analysis.

We performed sensitivity analysis on the Company’s future revenues, operating margins, and expense allocations to evaluate the reasonableness of management’s forecasts;

We utilized a valuation specialist to assist in recalculating the Company’s discounted future cash flows model and in evaluating the reasonableness of the significant assumptions including the discount rate;

We evaluated the competency and objectivity of management’s specialists who assisted with preparing the discounted future cash flows analysis.

/s/ GRANT THORNTON LLP

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data