Oil-Dri Corp of America 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included herein and our Consolidated Financial Statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under "Forward-Looking Statements" and Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended July 31, 2022. OVERVIEW We develop, mine, manufacture and market sorbent products principally produced from clay minerals, primarily consisting of calcium bentonite, attapulgite and diatomaceous shale. Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, cat litter, fluid purification and filtration bleaching clays, industrial and automotive floor absorbents and sports field products. Our products are sold to two primary customer groups, including customers who resell our products as originally produced to the end consumer and other customers who use our products as part of their production process or use them as an ingredient in their final finished product. We have two reportable operating segments based on the different characteristics of our two primary customer groups: the Retail and Wholesale Products Group ("Retail and Wholesale" or "R&W") and the Business to Business Products Group ("Business to Business" or "B2B"), as described in Note 11 of the Notes to the unaudited Condensed Consolidated Financial Statements. Each operating segment is discussed individually below. RESULTS OF OPERATIONS OVERVIEW Consolidated net sales reached an all-time high in the third quarter and nine months of fiscal year 2023 as we implemented strategic price increases across multiple principal products in order to restore profitability in both the R&W and B2B products groups, which were supplemented by an increase in sales volume in the B2B products group. Consolidated net sales increased approximately $19.7 million or 23% in the third quarter of fiscal year 2023 and $50.2 million or 20% for the first nine months of fiscal year 2023 compared to the same periods of fiscal year 2022. Consolidated income from operations in the third quarter and first nine months of fiscal year 2023 increased by $18.5 million and $30.0 million, respectively, compared to the same periods in fiscal year 2022. Although expenses continued to increase, consolidated net income for the three and nine months ended April 30, 2023, was $8.5 million and $17.6 million, respectively, compared to a net loss of $2.1 million and net income of $0.5 million in the three and nine months ended April 30, 2022, respectively. In the third quarter of fiscal year 2023 we recognized a loss of $4.8 million in connection with the termination of the Company's pension plan. Refer to Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details. Our Consolidated Balance Sheets as of April 30, 2023, and our Consolidated Statements of Cash Flows for the third quarter of fiscal year 2023 show an increase in total cash and cash equivalents from fiscal year-end 2022. The increase is driven mostly by improved net income and increases in accrued expenses, offset by capital expenditures on property, plant & equipment and increases in accounts receivable and inventories. Refer to the "Liquidity and Capital Resources" section below. NINE MONTHS ENDED APRIL 30, 2023 COMPARED TO NINE MONTHS ENDED APRIL 30, 2022 CONSOLIDATED RESULTS Consolidated net sales for the nine months ended April 30, 2023, were $305.6 million, a 20% increase compared to net sales of $255.4 million for the nine months ended April 30, 2022. Net sales increased for both our R&W and B2B products groups, primarily due to price increases implemented across both product groups and to a lesser extent due to volume growth in our B2B products group. 23 During the first nine months of fiscal year 2023, we have been able to reduce our backlog of orders by $4.2 million, a 64% decrease from July 31, 2022. This was accomplished by increasing personnel, expanding production shifts, optimizing equipment, and utilizing alternative modes of transportation. In order to meet the increase in customer demand, we continue to implement strategies to further reduce labor, manufacturing and freight constraints. Consolidated gross profit for the first nine months of fiscal year 2023 was $72.8 million, or 24% of net sales, compared to $45.0 million, or 18%, of net sales, for the first nine months of fiscal year 2022. The increase is driven by improved selling prices across multiple products helping to mitigate the increases in cost of goods sold. Our domestic cost of goods sold per ton increased 12%, driven primarily by per ton increases in non-fuel manufacturing, freight and natural gas, offset by lower per ton packaging costs. Non-fuel manufacturing costs per ton increased 17% during the first nine months of fiscal year 2023 compared to the first nine months of fiscal year 2022, mainly due to higher per ton costs of labor, including contracted labor for mining, repairs and depreciation. Domestic freight costs per ton increased approximately 7% in the first nine months of fiscal year 2023 compared to the same period of fiscal year 2022. This excludes the impact of a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which further increased our overall freight cost. Ocean freight costs have also increased due to rising fuel prices and fees during the first half of the year and the mix of products and geographic locations during the third quarter. In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. The cost of natural gas per ton used to operate kilns that dry our clay was 23% higher in the first nine months of fiscal year 2023 compared to the first nine months of fiscal year 2022 mostly driven by higher rates in the first half of the year offset by a decrease in the third quarter. Packaging costs per ton decreased by approximately 4% in the first nine months of fiscal year 2023 compared to the first nine months of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices. Total selling, general and administrative expenses of $44.5 million for the first nine months of fiscal year 2023 were higher by $3.4 million, or 8%, compared to $41.1 million for the first nine months of fiscal year 2022. Unallocated corporate expenses were higher by $3.9 million, or 20%, driven by higher bonus accrual due to improved year-to-date results compared to the Company’s performance target under the annual incentive plan and increase in insurance expense, offset by a reduction in research and development expenses now allocated to the operating segments. The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments. Total other expenses were $6.9 million for the first nine months of fiscal year 2023 compared to a net other income of $0.9 million in the same period of fiscal year 2022. This was mostly due to the $4.8 million loss on pension termination recognized in the third quarter and the $2.5 million reserve recorded in the second quarter for anticipated landfill capacity modification costs, offset by other miscellaneous and interest income. Consolidated net income before taxes for the first nine months of fiscal year 2023 was $21.5 million compared to $0.8 million for the first nine months of fiscal year 2022. Results for the first nine months of fiscal year 2023 were driven by the factors discussed above. We had a tax expense for the first nine months of fiscal year 2023 of $3.9 million compared to $1.2 million tax benefit for the first nine months of fiscal year 2022. Our tax expense was driven primarily by higher net income. We used an estimated annual effective tax rate ("ETR") of 19% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax deductions, including depletion. BUSINESS TO BUSINESS PRODUCTS GROUP Net sales of the Business to Business Products Group for the first nine months of fiscal year 2023 were $104.3 million, an increase of $23.1 million, or 28%, from net sales of $81.2 million for the first nine months of fiscal year 2022, with increases across all three of our principal product lines within this group. Net sales of our fluids purification products increased approximately $9.8 million, or 22%, compared to the first nine months of the prior fiscal year. The increase in net sales was driven primarily by price increases across all regions and continued demand for our products used in the filtration of edible oil, renewable diesel, and jet fuel. Net sales increased in all regions with most of the increase driven by sales in North America, the region including Europe, Middle East, and Africa ("EMEA") and Latin America when compared to the first nine months of fiscal year 2022. Net sales of our agricultural and horticultural chemical carrier products increased approximately $9.0 million, or 42%, for the first nine months of fiscal year 2023 compared to the same period in fiscal year 2022. This is a result of quarterly price increases implemented throughout the year and continued strong demand from several large customers. Net sales of our animal health and nutrition products increased $4.3 million, or 30%, during the first nine months of fiscal year 2023 compared to the same period of fiscal year 2022. We saw growth in net sales in all regions except our subsidiaries in China and Indonesia, with the most impact coming from Latin America and North America. Latin American sales were boosted by the 24 European Union's ("EU") initial regulations requiring antibiotic-free foreign protein imports, as a large percentage of meat is exported from that region to the EU. North American sales rose due to a new product line, increased distribution to new and existing customers and a strategic focus on that market. Asia year-to-date net sales increased due to price. Net sales of our subsidiary in China decreased from the prior year, as discussed in the "Foreign Operations" section below. SG&A expenses for the Business to Business Products Group increased approximately 7% or $0.8 million for the first nine months of fiscal year 2023 compared to the same period of the prior fiscal year. The majority of the increase relates to research and development expenses that are now allocated to the animal health business (a change from when existing costs were previously included in unallocated corporate expenses), increase in compensation including bonus and travel-related expenses, offset by a reduction in marketing and patent write-off expenses. The Business to Business Products Group’s operating income for the first nine months of fiscal year 2023 was $24.8 million, an increase of $7.9 million, or 47%, from operating income of $16.9 million for the first nine months of fiscal year 2022. The increase in operating income was mostly driven by higher net sales across all business within this segment. RETAIL AND WHOLESALE PRODUCTS GROUP Net sales of the Retail and Wholesale Products Group for the first nine months of fiscal year 2023 were $201.4 million, an increase of $27.1 million, or 16%, from net sales of $174.3 million for the same period of fiscal year 2022 driven by higher net sales of cat litter, industrial and sport products, slightly offset by a decline in our co-packaged cat litter business. Total global cat litter net sales increased by approximately $22.1 million, or 15% compared to the first nine months of fiscal year 2022 driven mostly by pricing. Domestic cat litter net sales were $145.7 million, an increase of $20.2 million from the first nine months of fiscal year 2022 due to price. Increased sales of branded and private label lightweight and coarse litter were partially offset by a decrease in revenue for private label heavy weight litter. Net sales of co-packaged products decreased by approximately $0.1 million compared to the same period in fiscal year 2022. This decrease was primarily driven by our customer discontinuing export sales to one of their foreign markets as well as softer domestic sales volumes, offset by price increases in the third quarter. Net sales of cat litter by our subsidiary in Canada increased period over period, as discussed in "Foreign Operations" below. Net sales of our global industrial and sports products increased approximately $5.0 million, or 18%, compared to the first nine months of fiscal year 2022, primarily driven by price increases implemented to rebuild margins, and to a lesser extent from higher volumes. SG&A expenses for the Retail and Wholesale Products Group were lower by approximately $1.4 million, or 12%, during the first nine months of fiscal year 2023 compared to the first nine months of fiscal year 2022, primarily due to timing of SG&A spend and the reclassification of certain trade spending charges from SG&A to net sales. These decreases were partially offset by higher broker sales commissions which are a percentage based on net sales, higher bonus accrual, and an increase in our allowance for doubtful accounts due to one customer declaring bankruptcy. We anticipate total advertising expense in fiscal year 2023 to be higher than fiscal year 2022, with a majority of the spend concentrated in the fourth quarter of the fiscal year. The Retail and Wholesale Products Group's operating income for the first half of fiscal year 2023 was $27.0 million, an increase of $26 million, from operating income of $1.0 million for the same period of fiscal year 2022. This was driven primarily by the increase in gross margins due to selling price increases partially offset by higher cost of goods sold, and the goodwill impairment recognized in the third quarter of fiscal year 2022. FOREIGN OPERATIONS Foreign operations include our subsidiary in Canada, which is reported in the Retail and Wholesale Products Group, and our subsidiaries in the UK, Mexico, China and Indonesia, which are reported in the Business to Business Products Group. Net sales by our foreign subsidiaries during the first nine months of fiscal year 2023 were $16.8 million, an increase of $2.3 million, or 16%, compared to net sales of $14.5 million during the first nine months of fiscal year 2022. All of our foreign operations, with the exception of our subsidiaries in China and Indonesia, experienced an increase in net sales during the first nine months of fiscal year 2023 compared to fiscal year 2022. Total net sales of our subsidiary in Canada during this period increased by $2.0 million, or 24%, compared to the same period in fiscal year 2022 driven by higher private label cat litter net sales. The increase in cat litter sales was driven by a combination of volume growth and price increases instituted in response to rising costs. Net sales of our subsidiary in the United Kingdom in the first nine months of fiscal year 2023 increased by $0.3 million, or 21%, compared to net sales in the first nine months of fiscal year 2022. The increase is driven primarily by price increases which offset the impact of softer sale volumes. Net sales of our subsidiary in Mexico increased during the first nine months of fiscal year 2023 compared to the same period of fiscal year 2022 by $0.6 million, or 43% due to growing demand for our animal health products. Net sales of our subsidiary in China decreased $0.5 million, or 19%, during the first nine months of fiscal year 25 2023 compared to the same period of fiscal year 2022 primarily due to the process of transitioning to a master distributor. Net sales by our foreign subsidiaries represented 5% and 6% of our consolidated net sales during the first nine months of fiscal year 2023 and 2022, respectively. Our foreign subsidiaries reported net income of $1.1 million for the first nine months of fiscal year 2023, compared to a net loss of $0.7 million for the first nine months of fiscal year 2022. The net income in the first nine months of fiscal year 2023 was driven by price and volume increases in Canada, UK and Mexico and the reduction of cost of goods sold in China and Indonesia. Identifiable assets of our foreign subsidiaries as of April 31, 2023, were $15.5 million, compared to $13.0 million as of July 31, 2022. THREE MONTHS ENDED APRIL 30, 2023 COMPARED TO THREE MONTHS ENDED APRIL 30, 2022 CONSOLIDATED RESULTS Consolidated net sales for the three months ended April 30, 2023, were $105.4 million, a 23% increase compared to net sales of $85.8 million for the three months ended April 30, 2022. Net sales increased for both our Retail and Wholesale Products Group and Business to Business Products Group, primarily due to price increases implemented across both product groups and to a lesser extent volume growth in the B2B products group. Consolidated gross profit for the three months ended April 30, 2023, was $27.5 million, or 26% of net sales, compared to $15.6 million, or 18%, of net sales, for the three months ended April 30, 2022. The increase is driven by higher selling prices across multiple products thus helping to mitigate the increases in cost of goods sold. Domestic cost of goods sold per ton rose by 12%, driven primarily by per ton increases in freight and non-fuel manufacturing costs offset by a decrease in natural gas and packaging. Per ton non-fuel manufacturing costs rose 12% in the third quarter of fiscal year 2023 compared to the third quarter of fiscal year 2022, due to higher per ton costs of labor, including contracted labor for mining, depreciation, and general supplies, offset by a decrease in per ton costs of purchased materials and repairs. Domestic freight costs per ton increased approximately 19% in the third quarter of fiscal year 2023 compared to the same period of fiscal year 2022 due to a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which increased our overall freight cost. Excluding the impact of this specific customer, per ton domestic freight costs would have decreased 7% quarter over quarter. Ocean freight costs have also increased due to the mix of products and increased volume to a high-priced geographic location. In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. The cost of natural gas per ton used to operate kilns that dry our clay was 27% lower in the third quarter of fiscal year 2023 compared to the third quarter of fiscal year 2022 as fuel prices have decreased. Packaging costs per ton decreased 4% in the three months ended April 30, 2023, when compared to the same period of fiscal year 2022 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices. Total selling, general and administrative expenses of $13.0 million for the three months ended April 30, 2023, were down by $1.0 million, or 7%, compared to $14.0 million for the same period of fiscal year 2022. Unallocated corporate expenses were down by $0.5 million, or 8%, driven by lower legal expenses, recruitment fees, and allocation of research and development costs which are now allocated to operating segments, offset by an increase in insurance expenses. The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments. Total other (expense) income, net of $(4.5) million for the three months ended April, 2023, decreased compared to net other income of $0.2 million in the same period of fiscal year 2022, mainly due to the loss in connection with the pension termination. Refer to Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details regarding the pension termination. Consolidated net income before taxes for the three months ended April 30, 2023, was $10.0 million compared to a net loss of $3.9 million for the same period of fiscal year 2022. Results for the third quarter of fiscal year 2023 were driven by the factors discussed above. We had a tax expense for the third quarter of fiscal year 2023 of $1.5 million compared to a tax benefit of $1.7 million for the third quarter of fiscal year 2022. Our tax expense was driven primarily by higher net income. We used an estimated annual ETR of 19% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax deductions, including depletion. 26 BUSINESS TO BUSINESS PRODUCTS GROUP Net sales of the Business to Business Products Group for the three months ended April 30, 2023, were $35.4 million, an increase of $7.5 million, or 27%, from net sales of $27.9 million for the three months ended April 30, 2022, with increases across all three of our principal product lines within this group. Net sales of our fluids purification products increased approximately $3.1 million, or 21%, compared to the third quarter of fiscal year 2022. Net sales increased in all regions, with most of the increase driven by North America and Latin America. The increase in net sales was driven primarily by price increases in North America, EMEA, and Latin America and to lesser extent by volume growth in Latin America, North America and Asia. Increases in volume were driven due to timing as well as increased demand for our products used in jet fuel and renewable diesel filtration. Net sales of our agricultural and horticultural chemical carrier products increased approximately $2.8 million, or 35%, for the three months ended April 30, 2023, compared to the same period in fiscal year 2022. This is a result of price increases implemented throughout the year and increase in shipments to a key customer. Net sales of our animal health and nutrition products increased $1.7 million, or 32%, during the three months ended April 30, 2023, compared to the same period in fiscal year 2022. The growth was driven primarily by Latin America, North America, and Asia (excluding China). The increase in Latin America was driven mainly by an increase in volume from existing customers due to positive product performance and an increase in new customers. North American sales rose due to increased demand due to an expansion of existing customers and new customers. The increase in Asia (excluding China) sales was driven by price increases. Net sales of our subsidiary in China decreased from the prior year, as discussed in the "Foreign Operations" section below. Total SG&A expenses for the Business to Business Products Group in the three months ended April 30, 2023 remained flat compared to the same period of fiscal year 2022. The Business to Business Products Group’s operating income for the three months ended April 30, 2023, was $9.8 million, an increase of $4.8 million, or 98%, from operating income of $5.0 million for the three months ended April 30, 2022. The overall increase in operating income was driven primarily by higher net sales due to continued strategic price increases and volume growth. RETAIL AND WHOLESALE PRODUCTS GROUP Net sales of the Retail and Wholesale Products Group for the three months ended April 30, 2023, were $70.0 million, an increase of $12.1 million, or 21%, from net sales of $57.9 million for the three months ended April 30, 2022, driven by higher net sales of all product lines included in this group. Global cat litter net sales were higher by approximately $10 million, or 21%, compared to the third quarter of fiscal year 2022 driven by price increases. Domestic cat litter net sales were $49.9 million an increase of $8.9 million driven mainly by price increases. Increased sales of lightweight (branded and private label) and coarse litter were partially offset by a decrease in net sales of private label heavy weight litter. Net sales of co-packaged products increased by approximately $0.4 million compared to the same period in fiscal year 2022. This increase was driven by price increases offset by a decrease in volume as our customer discontinued export sales to one of their foreign markets. Net sales of cat litter by our subsidiary in Canada increased period over period, as discussed in "Foreign Operations" below. Net sales of our global industrial and sports products increased approximately $2.2 million, or 20%, compared to the three months ended April 30, 2022, primarily driven by price increases. SG&A expenses for the Retail and Wholesale Products Group were lower by approximately $0.3 million, or 10%, during the three months ended April 30, 2023, compared to the same period in fiscal year 2022. The decrease was primarily a result of timing of SG&A spend and the reclassification of certain trade spending charges from SG&A to net sales, offset by advertising costs, which began to rise in the third quarter of fiscal year 2023 compared to prior year. We anticipate total advertising expense in fiscal year 2023 to be higher than fiscal year 2022 and more in line with historical levels, with spending concentrated in the fourth quarter. The Retail and Wholesale Products Group's operating income was $10.7 million for the third quarter of fiscal year 2023, an increase of $13.0 million from operating loss of $(2.3) million for the same period of fiscal year 2022. This was driven primarily by the increase in gross margins due to selling price increases, partially offset by higher cost of goods sold, and the goodwill impairment recognized in the third quarter of fiscal year 2022. 27 FOREIGN OPERATIONS Foreign operations include our subsidiary in Canada, which is reported in the Retail and Wholesale Products Group, and our subsidiaries in the UK, Mexico, China and Indonesia, which are reported in the Business to Business Products Group. Net sales by our foreign subsidiaries during the three months ending April 30, 2023 were $5.5 million, an increase of $0.7 million, or 15%, compared to net sales of $4.8 million during the same period of fiscal year 2022 which was driven by increases in net sales in Canada, UK and Mexico offset by reduction in net sales in China and Indonesia. Total net sales of our subsidiary in Canada increased by $0.8 million, or 28%, in the three months ended April 30, 2023, compared to the same period in fiscal year 2022 driven by higher lightweight (private label and branded) cat litter sales and to a lesser extent coarse cat litter and floor absorbents. The increase in Canada net sales was mainly driven by higher demand from existing customers across both cat litter and floor absorbents. Net sales of our subsidiary in the United Kingdom for the three months ended April 30, 2023, increased by $0.1 million, or 27%, compared to the same period in fiscal year 2022. The growth in net sales in the United Kingdom was driven by price increases. Net sales of our subsidiary in Mexico increased during the third quarter of fiscal year 2023 compared to the third quarter of fiscal year 2022 by $0.1 million, or 30% due to growing demand of our animal health products. Net sales of our subsidiary in China decreased $0.1 million, or 12%, during the third quarter of fiscal year 2023 compared to the third quarter of fiscal year 2022 primarily due to the process of transitioning to a sole distributor. Net sales by our foreign subsidiaries represented 5% and 6% of our consolidated net sales during the second quarter of fiscal years 2023 and 2022, respectively. Our foreign subsidiaries reported net income of $0.5 million for the three months ended April 30, 2023, compared to net income of $22 thousand for the three months ended April 30, 2022. The increase in net income was driven by volume growth in Canada and Mexico, price increases in the United Kingdom, and a reduction of costs in Indonesia offset by a reduction in net sales in China. LIQUIDITY AND CAPITAL RESOURCES Our principal liquidity needs are to fund our capital requirements, including funding working capital needs; purchasing and upgrading equipment, facilities, information systems, and real estate; supporting new product development; investing in infrastructure; repurchasing stock; paying dividends; and, from time to time, business acquisitions, and funding our debt service requirements. During the first nine months of fiscal year 2023, we principally funded these short and long-term capital requirements using cash from current operations as well as cash generated in fiscal year 2022 from borrowings under our Series C Senior Notes. We currently anticipate cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements. In addition, we are actively monitoring the timing and collection of our accounts receivable. The following table sets forth certain elements of our unaudited Condensed Consolidated Statements of Cash Flows (in thousands): For the Nine Months Ended April 30, 2023 2022 Net cash provided by operating activities $ 36,791 $ 5,460 Net cash used in investing activities (17,434) (16,012) Net cash (used in) provided by financing activities (5,806) 8,807 Effect of exchange rate changes on cash and cash equivalents (103) (21) Net increase (decrease) in cash and cash equivalents $ 13,448 $ (1,766) Net cash provided by operating activities In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for the first nine months of fiscal years 2023 and 2022 were as follows: Accounts receivable, less allowance for doubtful accounts, increased $5.6 million in the first nine months of fiscal year 2023 compared to an increase of $2.5 million in the first nine months of fiscal year 2022. The increase in accounts receivable was driven primarily by higher net sales as sales prices increased, offset by the level and timing of collections due to payment terms. 28 Inventory increased by $1.2 million in the first nine months of fiscal year 2023 compared to $11.5 million in the first nine months of 2022 due to a combination of rising costs, specifically due to labor, natural gas, repairs, depreciation, electricity and the building of inventory levels for anticipated seasonal demand and to avoid any potential supply chain disruptions. Other assets decreased by $2.6 million in the first nine months of fiscal year 2023 compared to a decrease of $1.0 million in the first nine months of fiscal year 2022. The decrease in other assets in the first nine months of fiscal year 2023 relates mostly to leased assets and the capitalized pre-production costs being transferred to property, plant and equipment as the mines are now in production. Accounts payable increased by $0.3 million in the first nine months of fiscal year 2023 compared to an increase of $1.3 million in the first nine months of fiscal year 2022. The increase is mainly due to payables on capitalized expenditures offset by a decrease in trade and freight payables which vary in both periods due to the timing of payments, cost of goods and services we purchase, production volume levels and vendor payment terms. Accrued expenses increased $5.7 million in the first nine months of fiscal year 2023 compared to a decrease of $1.1 million in the first nine months of fiscal year 2022. The majority of this increase is driven by the $2.5 million reserve added in the second quarter for the Georgia landfill modification as well as higher compensation-related expenses accrued for in fiscal year 2023 compared to fiscal year 2022, and income tax payable. The increases were offset by the payout of the prior fiscal year's bonus which reduced accrued compensation in both fiscal years, but to a greater extent in fiscal year 2023 as the accrual was higher at year end 2022 than the prior fiscal year. The increase in accrued expenses is also impacted by the decrease in advertising expenses and other accruals that vary based on timing. In addition, accrued plant expenses can also fluctuate due to timing of payments, changes in the cost of goods and services we purchase, production volume levels and vendor payment terms. The decrease in accrued expenses for the first nine months of fiscal year 2022 was driven by the payout of the bonuses and real estate taxes offset by higher accrued utilities due to the rising cost of natural gas, higher accrued advertising due to the timing of our advertising programs, and additional accrued capital projects. Other liabilities decreased by $1.7 million in the first nine months of fiscal year 2023 and $1.6 million for the same period in fiscal year 2022. The decreases in both fiscal years 2023 and 2022 relate primarily to a reduction in the operating lease liability. Net cash used in investing activities Cash used in investing activities of $17.4 million in the first nine months of fiscal year 2023 were higher compared to cash used in investing activities of $16.0 million in the first nine months of fiscal year 2022 driven by capital expenditures. During the first nine months of fiscal year 2023 we expanded our plant equipment and improved our facilities to support increased demand for our products as well as made improvements to our IT network. Net cash used in financing activities Cash used in financing activities of $5.8 million in the first nine months of fiscal year 2023 compared to cash provided by financing activities of $8.8 million in the first nine months of fiscal year 2022. The cash used in financing activities for the first nine months of fiscal year 2023 was primarily used for payment of dividends. Cash provided by financing activities in the first nine months of fiscal year 2022 was primarily driven by the issuance of a $25.0 million note offset by treasury stock repurchases and dividend payments. Other Total cash balances held by our foreign subsidiaries of $4.2 million as of April 30, 2023, increased slightly compared to $3.3 million as of July 31, 2022. See further discussion in "Foreign Operations" above. 29 We are party to a credit agreement (as amended, the "Credit Agreement") with BMO Harris Bank N.A. ("BMO Harris"), which terminates on August 30, 2027. The agreement provides for a $45 million unsecured revolving credit facility and a maximum of $10 million for letters of credit. The agreement terms also state that we may select a variable interest rate based on either the BMO Harris prime rate or an adjusted SOFR-based rate, plus a margin that varies depending on our debt to earnings ratio, or a fixed rate as agreed between us and BMO Harris. As of April 30, 2023, the variable rates would have been 8.00% for the BMO Harris prime-based rate or 5.08% for the adjusted SOFR-based rate. 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. The agreement also requires us to maintain a minimum fixed charge coverage ratio and a maximum net debt to earnings ratio. As of April 30, 2023, and 2022, we were in compliance with the covenants. There were no borrowings during the first nine months of either fiscal year 2023 or 2022. We are party to an Amended and Restated Note Purchase and Private Shelf Agreement (as amended, the "Note Agreement") with PGIM, Inc. ("Prudential") and certain existing noteholders and purchasers affiliated with Prudential named therein pursuant to which, among other things, we issued $10 million in aggregate principal amount of our 3.95% Series B Senior Notes due May 15, 2030 of which $8 million aggregate principal amount remained outstanding as of April 30, 2023. Pursuant to the Note Agreement, on December 16, 2021, we issued $25 million in aggregate principal amount of our 3.25% Series C Senior Notes due December 16, 2031. As of April 30, 2023, outstanding notes payable totaled $32.8 million, net of $0.2 million of unamortized debt issuance costs. Under the shelf agreement, no additional debt issuances will occur. See Note 8 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for discussion on amendments made to the credit agreement with BMO Harris and our Senior Note Agreements. As of April 30, 2023, we had remaining authority to repurchase 429,033 shares of Common Stock and 273,100 shares of Class B Stock under a repurchase plan approved by our Board of Directors (the "Board"). Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing, number and manner of share repurchases will be determined by our management pursuant to the repurchase plan approved by our Board. We believe that cash flow from operations, availability under our revolving credit facility, current cash balances and our ability to obtain other financing, if necessary, will provide sufficient liquidity for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments and debt service obligations for at least the next 12 months. We expect capital expenditures in fiscal year 2023 to be greater than in fiscal year 2022. We do not believe that these increased capital expenditures will dramatically impact our cash position; however, our cash requirements are subject to change as business conditions warrant and opportunities arise. Our anticipated advertising expense for fiscal year 2023 is expected to be higher compared to fiscal year 2022 and in line with historical pre-pandemic levels. We continually evaluate our liquidity position and anticipated cash needs, as well as the financing options available to obtain additional cash reserves. Our ability to fund operations, to make planned capital expenditures, to make scheduled debt payments, to contribute to our pension plan and to remain in compliance with all financial covenants under debt agreements, including, but not limited to, the current credit agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors. The timing and size of any new business ventures or acquisitions that we complete may also impact our cash requirements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES This discussion and analysis of financial condition and results of operations is based on our unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP for interim financial information and in compliance with instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and related disclosures. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. Estimates and assumptions are revised periodically. Actual results could differ from these estimates. See the information concerning our critical accounting policies included under "Management’s Discussion of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022. 30