What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-10-12 compared with 2022-10-13 · 230 added, 278 removed, 724 unchanged (41% of the section changed)

9 unchanged sentences

Inventories, net 42,612 40,466

Prepaid repairs expense 7,474 6,088

Prepaid expenses and other assets 2,854 3,664

10 unchanged sentences

Land and mineral rights 22,905 20,106

Capital parts, net 3,292 2,570

Total Property, Plant and Equipment, Net 120,872 110,436

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Notes payable, net of unamortized debt issuance costs of $ 173 and $ 202 in 2023 and 2022, respectively

30,827 31,798

Deferred compensation 4,512 4,559

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Noncontrolling interest — ( 369 )

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Income (Loss)

Pension and postretirement benefits 1,012 ( 2,242 )

Cumulative translation adjustment ( 264 ) 59

Total Accumulated Other Comprehensive Loss ( 2,183 ) ( 4,117 )

Total Accumulated Other Comprehensive Income (Loss) 748 ( 2,183 )

Less treasury stock, at cost ( 3,658,989 Common and 351,641 Class B shares in 2023 and 3,609,938 Common and 351,641 Class B shares in 2022)

8 unchanged sentences

Net Sales $ 413,021 $ 348,589

Cost of Sales ( 286,074 ) ( 239,740 )

Cost of Goods Sold ( 309,794 ) ( 286,074 )

Gross Profit 103,227 62,515

2 unchanged sentences

Income from Operations 41,040 4,821

Other Income (Expense)

Other (Expense) Income

Interest income 465 45

Interest expense ( 1,464 ) ( 1,228 )

Foreign exchange loss ( 303 ) ( 93 )

Loss on pension termination ( 4,652 ) —

Foreign exchange gain (loss) 105 ( 303 )

Other, net ( 816 ) 2,374

Total Other Income (Expense), Net 888 332

Total Other (Expense) Income, Net ( 6,362 ) 888

Income Before Income Taxes 34,678 5,709

5 unchanged sentences

Basic Common $ 4.45 $ 0.83

Basic Class B Common $ 0.63 $ 1.20

Basic Class B $ 3.35 $ 0.63

Diluted Common $ 4.13 $ 0.81

Diluted Class B Common $ 0.62 $ 1.18

Diluted Class B $ 3.35 $ 0.62

Average Shares Outstanding

Basic Common 4,825 4,987

Basic Class B Common 1,934 1,926

Basic Class B 1,959 1,934

Diluted Basic Common 6,784 5,099

Diluted Basic Class B Common 1,962 1,967

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

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

Diluted Basic Class B 1,959 1,962

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

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Amortization of restricted stock — — — 3,147 — — — — 3,147

Contributions from noncontrolling interests — — — ( 685 ) — — — 437 $ ( 248 )

Balance, July 31, 2023 11,147,279 ( 4,010,630 ) $ 1,115 $ 55,624 $ 200,796 $ ( 81,207 ) $ 748 $ — $ 177,076

9 unchanged sentences

Non-cash stock compensation expense 3,147 2,741

Loss on pension termination 4,652 —

Provision for deferred income taxes ( 4,431 ) ( 2,296 )

2 unchanged sentences

Loss on impairment of patent applications 61 323

Loss on impairment of Fixed Assets 914 —

Accretion for asset retirement obligation 161 145

Loss on the disposals of property, plant and equipment 130 334

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Proceeds from sale of property, plant and equipment 70 21

Acquisition of equity in Agromex ( 269 ) —

Net Cash Used in Investing Activities ( 24,567 ) ( 21,989 )

5 unchanged sentences

Purchase of treasury stock ( 1,078 ) ( 11,806 )

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

Net Cash (Used in) Provided by Financing Activities ( 9,518 ) 4,703

Effect of exchange rate changes on cash and cash equivalents ( 223 ) ( 24 )

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

Net Increase (Decrease) in Cash and Cash Equivalents 15,456 ( 8,293 )

Cash and Cash Equivalents, Beginning of Year 16,298 24,591

6 unchanged sentences

Interest payments, net of amounts capitalized $ 1,135 $ 767

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

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

Income tax payments (refunds) $ 7,367 $ ( 178 )

Noncash investing and financing activities:

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Our absorbent clay products include cat litter, industrial floor absorbents, agricultural chemical carriers and animal feed additives.

Our adsorbent products include bleaching clays, which are used for filtration of edible oils and for purification of petroleum-based oils.

Our adsorbent products include bleaching clays, which are used for filtration of edible oils, pre-treatment of renewable diesel, and for purification of petroleum-based oils.

We also sell synthetic sorbents, which are used for industrial cleanup.

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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 or cash flows.

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

M ANAGEMENT U SE OF E STIMATES

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period as well as the related disclosures.

Estimates and assumptions about future events cannot be made with certainty, including the potential impacts and duration of COVID-19 and its aftermath.

Estimates and assumptions about future events cannot be made with certainty.

All of our estimates and assumptions are revised periodically.

Actual results could differ from these estimates.

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 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 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.

C ASH AND C ASH E QUIVALENTS

9 unchanged sentences

Packaging 8,007 9,515

Spare parts, net $ 5,981 $ 4,904

Other 6,681 7,905

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The obsolescence reserve not only considered specific items, but also took into consideration the overall value of the inventory as of the balance sheet date.

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

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.

We recorded inventory obsolescence reserves of approximately $ 0.8 million as of both July 31, 2023 and July 31, 2022, respectively.

The other category of inventories includes a variety of items including clay, additives, fragrances and other supplies.

Spare parts in inventory is recorded net of a valuation reserve based on aging.

The spare parts reserve was $ 2.9 million as of July 31, 2023, and $ 2.7 million as of July 31, 2022.

T RANSLATION OF F OREIGN C URRENCIES

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Our customer list intangible asset is amortized at an accelerated amortization rate in the earlier years to reflect the expected pattern of decline in the related benefits over time.

Intangible amortization was $ 490,000 in fiscal year 2022 and $ 680,000 in fiscal year 2021.

Some intangible assets were determined to have indefinite lives and are not amortized, specifically one acquired trademark recorded at $ 376,000 .

Intangible amortization was $ 0.3 million in fiscal year 2023 and $ 0.5 million in fiscal year 2022.

Some intangible assets were determined to have indefinite lives and are not amortized, specifically one acquired trademark recorded at $ 0.4 million.

Our estimated intangible amortization expense for the next five fiscal years is as follows (in thousands):

The weighted average amortization period of our intangibles subject to amortization is as follows (in years):

The remaining weighted average amortization period of our intangibles subject to amortization is as follows (in years):

Weighted Average Amortization Period

Trademarks and patents 12.0

Customer list 0.3

1 unchanged sentence

We periodically review indefinite-lived intangibles and goodwill to assess for impairment.

Our review is based on cash flow considerations and other approaches that require significant judgment with respect to volume, revenue, expenses and allocations.

Our review entails a qualitative analysis of triggering events and if identified a further analysis is performed based on cash flow considerations and other approaches that require significant judgment with respect to volume, revenue, expenses and allocations.

Impairment occurs when the carrying value exceeds the fair value.

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 $ 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 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.

In addition, although we have not identified any triggering events relating to goodwill or our intangibles, the ultimate effects of COVID-19 could change this assessment in the future, as outlined under Item 1A, Risk Factors, discussed above.

In fiscal year 2023, all of our goodwill was attributed only to the

Business to Business operating segment.

We performed our annual impairment assessment and identified no triggering events that would indicate the need for impairment of the goodwill.

During fiscal year 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.

As a result, it was determined that the carrying value of our Retail and Wholesale Products Group reporting unit was higher than its fair value and recognized a goodwill impairment of $ 5.6 million, which left no remaining goodwill in the Retail and Wholesale Products Group reporting unit.

No impairment was recognized for the Business to Business operating segment in fiscal year 2022.

O VERBURDEN R EMOVAL AND M INING C OSTS

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A significant part of our overall mining cost is incurred during the process of removing the overburden from the mine site, thus exposing the sorbent material used in a majority of our production processes.

These stripping costs incurred during production are treated as a variable inventory production cost and are included in cost of sales in the period they are incurred.

Stripping costs included in cost of sales were approximately $ 2,703,000 and $ 1,920,000 for fiscal years 2022 and 2021, respectively.

These stripping costs incurred during production are treated as a variable inventory production cost and are included in cost of goods sold in the period they are incurred.

Stripping costs included in cost of goods sold were approximately $ 4.0 million and $ 2.7 million for fiscal years 2023 and 2022, respectively.

Pre-production overburden removal costs associated with opening a new mine during the development phase are deferred.

Total pre-production costs, including the overburden removal costs, that were capitalized in fiscal years 2022 and 2021 were $ 1,279,000 and $ 1,810,000 respectively.

Total pre-production costs, including the overburden removal costs, that were capitalized in fiscal years 2023 and 2022 were $ 0.1 million and $ 1.3 million respectively.

The decrease was due to a new mine going into production in fiscal year 2023.

Capitalized development costs are amortized when the sorbent material is removed from the mine and used to produce product for sale.

At the end of fiscal year 2022, the amount of development costs that are being amortized is $ 2,037,000 .

At the end of fiscal year 2023, the amount of development costs that are being amortized is $ 4.3 million.

Additionally, it is our policy to capitalize the purchase cost of land and mineral rights, including associated legal fees, survey fees and real estate fees.

The costs of obtaining mineral rights, including legal fees and drilling expenses, are also capitalized.

The amount of land and mineral rights included in land on the Consolidated Balance Sheets were approximately $ 13,628,000 and $ 2,165,000 , respectively, as of July 31, 2022, and were $ 13,637,000 and $ 2,165,000 , respectively, as of July 31, 2021.

As of both fiscal years ending July 31, 2023 and July 31, 2022 we had $ 13.6 million of land and $ 2.2 million of gross mineral rights included in land and mineral rights on the Consolidated Balance Sheets.

Any prepaid royalties that may be offset against future royalties due upon extraction of the mineral are also capitalized.

Prepaid royalties included in current prepaid expenses and in non-current other assets on the Consolidated Balance Sheets were approximately $ 2,003,000 and $ 1,605,000 as of July 31, 2022 and 2021, respectively.

Prepaid royalties included in current prepaid expenses and in non-current other assets on the Consolidated Balance Sheets were approximately $ 2.0 million for both fiscal years ending July 31, 2023 and July 31, 2022.

We perform ongoing reclamation activities during the normal course of our overburden removal.

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The reclamation liabilities are increased based on a yearly accretion charge over the estimated useful lives of the mines.

As of July 31, 2022 and 2021, we have recorded an estimated net reclamation asset of $ 1,799,000 and $ 1,152,000 , respectively, and a corresponding estimated reclamation liability of $ 3,807,000 as of July 31, 2022 and $ 2,965,000 as of July 31, 2021.

These values represent the discounted present value of the estimated future mining reclamation costs at the production plants.

Additional mining activity in fiscal year 2022 and disturbance of land accounts for the increase in the reclamation liability.

As of July 31, 2023 and 2022, we have recorded an estimated net reclamation asset of $ 2.2 million and $ 1.8 million, respectively, and a corresponding estimated reclamation liability of $ 4.5 million as of July 31, 2023 and $ 3.8 million as of July 31, 2022.

These values represent the discounted present value of the estimated future mining reclamation and landfill closure costs at the production plants.

Additional mining activity in fiscal year 2023 and disturbance of land accounts for a majority of the increase in the reclamation asset and liability.

P ROPERTY , P LANT AND E QUIPMENT

Property, plant and equipment are generally depreciated using the straight-line method over their estimated useful lives which are listed below.

Depreciation expense was $ 12,984,000 and $ 13,497,000 in fiscal years 2022 and 2021, respectively.

Depreciation expense was $ 15.3 million and $ 13.0 million in fiscal years 2023 and 2022, respectively.

Major improvements and betterments are capitalized, while maintenance and repairs that do not extend the useful life of the applicable assets are expensed as incurred.

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When impairment is indicated, an impairment charge is recorded for the difference between the carrying value of the asset and its fair market value.

No impairment was recorded in either fiscal year 2022 or 2021.

O THER C URRENT AND N ONCURRENT L IABILITIES

On March 27, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into U.S.

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, $ 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.

In fiscal year 2023, we recognized $ 0.9 million in impairment losses for fixed assets no longer in use.

The impairment is included in cost of goods sold on the Consolidated Statement of Operations.

There was no impairment recognized in fiscal year 2022.

Capital parts are long-lived spare parts that are recorded net of a valuation reserve based on aging.

The capital parts reserve was $ 2.0 million as of July 31, 2023, and $ 1.8 million as of July 31, 2022.

OTHER CURRENT AND NONCURRENT LIABILITIES

Other liabilities include the accruals for general expenses not yet paid, cash collected not yet vouchered, legal reserves, and reclamation liability accrual.

Current liabilities are due to be paid within the next 12 months.

Included in current liabilities within Accrued Expenses on the Consolidated Balance Sheet is $ 2.5 million for the Georgia landfill modification reserve which began in the third quarter of fiscal year 2023.

Refer to Note 11 for further details.

T RADE P ROMOTIONS

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All advertising costs are part of selling, general and administrative expenses.

Advertising expenses were approximately $ 4,032,000 and $ 8,651,000 in fiscal years 2022 and 2021, respectively.

Advertising expenses were approximately $ 7.4 million and $ 4.0 million in fiscal years 2023 and 2022, respectively.

F AIR V ALUE OF F INANCIAL I NSTRUMENTS

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We may require certain customers to provide payment in advance of product shipment.

We recorded a liability for these advance payments of $ 527,000 and $ 256,000 as of July 31, 2022 and July 31, 2021, respectively.

We recorded a liability for these advance payments of $ 0.5 million as of July 31, 2022.

There is no liability for advance payments as of July 31, 2023.

This liability is reported in Other Accrued Expenses on the Consolidated Balance Sheets.

Revenue recognized during fiscal year 2022 that was included in the liability for advance payments at the beginning of the year was $ 151,000 .

C OST OF S ALES

Cost of sales consists of all manufacturing costs, including depreciation and amortization related to assets used in the manufacturing and distribution process, inbound and outbound freight, inspection costs, purchasing costs associated with materials and packaging used in the production process and warehouse and distribution costs.

Revenue recognized during fiscal year 2023 that was included in the liability for advance payments at the beginning of the year was $ 0.5 million.

C OST OF GOODS SOLD

Cost of goods sold consists of all manufacturing costs, including depreciation and amortization related to assets used in the manufacturing and distribution process, inbound and outbound freight, inspection costs, purchasing costs associated with materials and packaging used in the production process and warehouse and distribution costs.

Natural gas forward contracts are accounted for as normal purchases.

S HIPPING AND H ANDLING C OSTS

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 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.

Shipping and handling costs are included in cost of goods sold and were approximately $ 57.4 million and $ 48.5 million for fiscal years 2023 and 2022, respectively.

The increase is primarily related to a key customer switching from pick up to delivered.

S ELLING , G ENERAL AND A DMINISTRATIVE E XPENSES

1 unchanged sentence

R ESEARCH AND D EVELOPMENT

Research and development costs of approximately $ 2,106,000 and $ 2,539,000 were charged to expense as incurred for fiscal years 2022 and 2021, respectively, and are recorded in selling, general and administrative expenses.

Research and development costs of approximately $ 1.2 million and $ 2.1 million were charged to expense as incurred for fiscal years 2023 and 2022, respectively, and are recorded in selling, general and administrative expenses.

P ENSION AND P OSTRETIREMENT B ENEFIT C OSTS

We provide a defined benefit pension plan for eligible salaried and hourly employees and we make contributions to fund the plan.

We historically provided a defined benefit pension plan for eligible salaried and hourly employees and we made contributions to fund the plan.

We also provide a postretirement health benefit plan to domestic salaried employees who qualify under the plan’s provisions.

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Changes in the funded status that arise during the period but are not recognized as components of net periodic benefit cost are recognized within other comprehensive income, net of income tax.

In fiscal year 2020 we amended the defined benefit pension plan and the plan is now closed to new entrants.

In fiscal year 2023 we terminated the pension plan.

See Note 8 of the Notes to the Consolidated Financial Statements for additional information.

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

EARNINGS PER SHARE

We utilize the two-class method to report our earnings per share ("EPS").

The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings.

Common Stock is entitled to cash dividends equal to at least 133.33 % on a per share basis of the cash dividend paid on Class B Stock.

In computing earnings per share, the Company has allocated dividends declared to Common and Class B shares based on amounts actually declared for each class of stock and 33.33 % more of the undistributed earnings have been allocated to Common Stock than to the Class B shares on a per share basis.

Common Stock is entitled to one vote per share and Class B Stock is entitled to ten votes per share.

Common Stock have no conversion rights.

Class B Stock is convertible on a share-by-share basis into Common Stock at any time and is subject to mandatory conversion under certain circumstances.

Basic EPS is computed by dividing net earnings, reduced for any distributed and undistributed earnings allocated to unvested restricted shares, by the weighted-average number of shares outstanding during the period for each class of share.

Diluted EPS, for each class of common stock, is computed by dividing net earnings by the weighted-average number of common shares and potential common shares outstanding during the period.

Dilution for common stock takes into consideration the effect of both unvested restricted shares and convertible Class B shares, if the effect is dilutive.

Dilution for Class B takes into consideration the effect of unvested restricted shares, if the effect is dilutive.

Below is a reconciliation of the calculation of basic and diluted EPS.

For the year ended July 31, 2023

(in thousands, except for per share data)

Total Common Class B

Net income $ 29,551 $ 22,712 $ 6,839

Distributed and undistributed earnings on restricted shares ( 1,518 ) ( 1,232 ) ( 286 )

Income available to stockholders $ 28,033 $ 21,480 $ 6,553

Net Income (Numerator) $ 21,480 $ 6,553

Weighted Average Shares Outstanding (Denominator) 4,825 1,959

Basic EPS $ 4.45 $ 3.35

Effect of dilution - Net Income (1)

Net income assuming dilution (Numerator) $ 28,033 $ 6,553

Effect of dilution - Shares (1)

Shares assuming dilution (Denominator) 6,784 $ 1,959

Diluted EPS $ 4.13 $ 3.35

(1) The impact of unvested restricted stock was anti-dilutive therefore not included in the calculation of diluted EPS

N EW A CCOUNTING P RONOUNCEMENTS

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.

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.

In addition, this new guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, as well as additional disclosures.

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

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.

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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.

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.

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), ASC 848 will allow us to account for the modification as a continuation of the existing contract without additional analysis.

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.

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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, sports field product users and marketers of consumer products.

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

The Business to Business Products Group customers include:

processors and refiners of edible oils, petroleum-based oils and biodiesel fuel;

processors and refiners of edible oils, renewable diesel, petroleum-based oils and biodiesel fuel;

manufacturers of animal feed and agricultural chemicals;

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The unallocated asset category is the remainder of our total assets.

We have refined the basis of allocation for certain of our assets as of April 30, 2023, and we have restated the allocation of assets as of July 31, 2022 presented below to enhance comparability.

The asset allocation is estimated and is not a measure used by our chief operating decision maker about allocating resources to the operating segments or in assessing their performance.

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Corporate expenses also include the annual incentive plan bonus accrual.

As of July 31,

(in thousands)

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Foreign subsidiaries $ 14,608 $ 12,989

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.

Included within identifiable assets for our foreign subsidiaries is cash held at foreign banks of $ 5.2 million and $ 3.3 million as of July 31, 2023 and July 31, 2022, respectively.

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

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$ 1,000 in each fiscal year 2021 through 2030.

Interest is payable semi-annually at an annual rate of 3.95 %

Interest is payable semi-annually at an annual rate of 3.95 % [Series B]

$ 7,000 $ 8,000

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

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

Interest is payable semi-annually at an annual rate of 3.25 % [Series C]

25,000 25,000

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

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Noncurrent notes payable $ 30,827 $ 31,798

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.

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.

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 .

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.

Like the Prior Note Agreement, the Amended Note Agreement is guaranteed, on an unsecured basis, by certain U.S.

subsidiaries of Oil-Dri, and contains customary covenants, including but not limited to, limitations on our and certain of our subsidiaries’ ability to incur indebtedness, incur liens, engage in mergers, and sell or transfer assets and stock, as well as financial covenants, including a minimum fixed charges coverage ratio and consolidated debt ratio that remain the same as those contained in the Prior Note Agreement.

Upon the occurrence of certain events of default, our obligations under the Amended Note Agreement may be accelerated.

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

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.

Under the credit agreement, we may select a variable rate based on either BMO Harris’ prime rate or a LIBOR-based rate, plus a margin which varies depending on our debt to earnings ratio, or a fixed rate as agreed between us and BMO Harris.

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 $ 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.

The agreement also requires us to maintain a minimum fixed coverage ratio, a minimum consolidated net worth and a minimum consolidated debt ratio.

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 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.

We were in compliance with all restrictive covenants and limitations as of July 31, 2022.

Pursuant to the Note Agreement on May 15, 2021 we issued $ 10 million in aggregate principal amount of our 3.95 % Series B Senior Notes due May 15, 2030 , of which $ 7 million aggregate principal amount remained outstanding as of July 31, 2023.

On December 16, 2021 , under the Note Agreement we issued an additional $ 25 million in aggregate principal amount of our 3.25 % Series C Senior Notes due December 16, 2031 , all of which remained outstanding as of July 31, 2023.

The Amended Note Agreement also provides us with the ability to request, from time to time, 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, Series B Notes, and Series C Notes, the “Notes”) in an aggregate principal amount of up to $ 75 million 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 Note Agreement will be at a rate determined by Prudential and will mature no more than fifteen years after the date of original issue of such Shelf Note.

On August 30, 2022, we entered into Amendment No.

3 (the "Third Amendment") to the Note Agreement.

The Third Amendment modified the existing fixed charge coverage financial covenant and replaced the existing consolidated debt financial covenant with a maximum debt to earnings ratio and effected certain changes consistent with the Sixth Amendment to the Credit Agreement (defined below), including modifying the method for calculating consolidated EBITDA and the excess leverage fee.

On September 21, 2023, the Company entered into Amendment No.

4 (the “Fourth Amendment”) to the Note Agreement.

The Fourth Amendment extended the time frame for issuing and selling Shelf Notes to September 21, 2026.

The following is a schedule by fiscal year of future principal maturities of notes payable as of July 31, 2023 (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.

We are party to the Credit Agreement, dated as of January 27, 2006 (as previously amended, the "Credit Agreement"), among us, BMO Harris Bank N.A (“BMO”), and certain of our domestic subsidiaries.

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

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.

On August 30, 2022, we entered into the Sixth Amendment to the Credit Agreement (the "Sixth Amendment").

The Sixth Amendment extended the facility termination date to August 30, 2027 ;

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

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

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

and revised 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.

As of July 31, 2023, and 2022, we were in compliance with the covenants.

There were no borrowings during either fiscal year 2023 or 2022.

However, we had $ 1.0 million of letters of credit outstanding as of July 31, 2023, and 2022 under this agreement.

The Credit Agreement states 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 July 31, 2023, the variable rates would have been 8.50 % for the BMO Harris prime-based rate or 5.37 % for the adjusted SOFR-based rate.

NOTE 4 – FINANCIAL INSTRUMENTS

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Unobservable inputs.

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.

Notes payable on the Consolidated Balance Sheets are carried at the face amount of future maturities.

The estimated fair value of notes payable was approximately $ 31,784,000 as of July 31, 2022 and $ 10,231,000 as of July 31, 2021.

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.

We had $ 15.4 million cash equivalents as of July 31, 2023 and had no cash equivalents as of July 31, 2022.

Balances of accounts receivable and accounts payable approximated their fair values at July 31, 2023 and July 31, 2022 due to the short maturity and nature of those balances.

Notes payable are reported at the face amount of future maturities.

The estimated fair value of notes payable, including current maturities, was approximately $ 29.7 million as of July 31, 2023 and $ 31.8 million as of July 31, 2022.

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 Note Agreement entered into in December 2021.

The decrease in fair value is attributable to the principal and interest payments.

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

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(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, including the goodwill impairment recorded during fiscal year 2022 at our Retail and Wholesale Products Group.

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

Concentration of Credit Risk

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Tax credits ( 0.3 ) ( 3.1 )

Statutory rate change of foreign subsidiaries — ( 0.7 )

Valuation allowance - foreign ( 0.2 ) 6.9

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effective tax rate for the year ended July 31, 2023 and July 31, 2022 were 15.0 % and 1.7 %, 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 fiscal 2023 effective tax rate was lower than the statutory rate primarily due to favorable depletion deduction and a benefit from an anticipated federal tax return amendment.

The fiscal 2023 effective tax rate was negatively impacted primarily due to nondeductible excess officers compensation.

The fiscal 2022 effective tax rate benefited due to a favorable depletion deduction as well as federal tax return amendments.

The fiscal 2022 effective tax rate was also negatively impacted primarily due to a nondeductible goodwill impairment as well as nondeductible officers compensation.

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

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Deferred compensation 1,246 — 1,499 —

Capitalized R&D 269 — — —

Postretirement benefits 478 — 209 —

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Total deferred taxes $ 14,486 $ 7,285 $ 10,974 $ 7,297

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.

Deferred tax assets for post retirement benefits were affected by the termination of our pension plan.

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

Deferred tax assets and liabilities related to lease decreased as leases are expiring.

Deferred tax assets for accrued expenses reflected a lower accrual for the annual discretionary bonus.

We recorded a valuation allowance of $ 1,761,000 and $ 1,362,000 as of July 31, 2022 and 2021, respectively, for the amount of the deferred tax benefit related to our foreign net operating loss carryforwards since we believe it is unlikely we will realize the benefit of these tax attributes in the future.

As of July 31, 2022, we have total net operating loss carryforwards from state jurisdictions of approximately $ 7,000,000 .

Deferred tax assets for accrued expenses reflected a higher accrual for the annual discretionary bonus.

We recorded a valuation allowance of $ 1.7 million and $ 1.8 million as of July 31, 2023 and July 31, 2022, respectively, for the amount of the deferred tax benefit related to our foreign net operating loss carryforwards since we believe it is unlikely we will realize the benefit of these tax attributes in the future.

As of July 31, 2023, we have total net operating loss carryforwards from state jurisdictions of approximately $ 3.4 million.

The carryforward expiration dates vary by state.

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With the exception of our foreign subsidiary in Canada, none of our foreign subsidiaries have generated any untaxed foreign income, therefore we have not provided for any related income taxes for these subsidiaries.

We had no material liability for unrecognized tax benefits based on tax positions related to the current and prior fiscal years as of July 31, 2022 and 2021;

We had no liabilities for unrecognized tax benefits based on tax positions related to the current and prior fiscal years as of July 31, 2023 and 2022;

correspondingly, no related interest and penalties were recognized as income tax expense and there were no accruals for such items in either of these fiscal years.

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federal income tax as well as income tax in multiple state and foreign jurisdictions.

We have no income tax returns under examination as of July 31, 2022 and federal tax returns for fiscal years 2019-2021 remain open for examination.

We are currently being audited by the Internal Revenue Service ("IRS") for Fiscal Year 2020.

The federal tax returns for fiscal years 2019-2021 remain open for examination.

Foreign and U.S.

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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, 2021 $ ( 4,428 ) $ 311 $ ( 4,117 )

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, net of tax 7,566 571 8,137

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 — 105

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 )

Other comprehensive income (loss) before reclassifications, net of tax 1,736 a) ( 323 ) 1,413

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

Amounts reclassified from accumulated other comprehensive income, net of tax ( 36 ) — ( 36 )

Curtailment/Settlement on Pension Plan 1,554 b) — 1,554

Net current-period other comprehensive income (loss), net of tax 3,254 ( 323 ) 2,931

Balance as of July 31, 2023 $ 1,012 $ ( 264 ) $ 748

a) Amounts are net of taxes of $ 684,000 and $ 2,095,000 in fiscal years 2022 and 2021, respectively, and are included in Other Comprehensive Loss.

b) Amounts are net of taxes of $ 34,000 and $ 156,000 in fiscal years 2022 and 2021, 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.

a) Amounts are net of taxes of $ 0.4 million and $ 0.7 million in fiscal years 2023 and 2022, respectively, and are included in Other Comprehensive Loss.

b) Amount is net of taxes of $ 0.5 million in fiscal year 2023.

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

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The fair value of restricted stock was determined by the closing market price of our Common Stock on the date of grant multiplied by the number of shares granted.

Fair value of shares vested is $ 2.6 million and $ 2.5 million in fiscal year 2023 and 2022, respectively.

A summary of restricted stock transactions under the plans is shown below.

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Non-vested restricted stock outstanding at July 31, 2023 348 $ 32.95 2.3 $ 5,129

Stock-based compensation for restricted stock of $ 2,083,000 and $ 1,924,000 , net of related tax effect, was recognized in fiscal years 2022 and 2021, respectively.

The total restricted stock compensation related tax benefit was $ 658,000 and $ 607,000 in fiscal years 2022 and 2021, respectively.

Stock-based compensation for restricted stock of $ 2.4 million and $ 2.1 million, net of related tax effect, was recognized in fiscal years 2023 and 2022, respectively.

The total restricted stock compensation related tax benefit was $ 0.8 million and $ 0.7 million in fiscal years 2023 and 2022, respectively.

NOTE 8 – PENSION AND OTHER POSTRETIREMENT BENEFITS

The Oil-Dri Corporation of America Pension Plan (“Pension Plan”) is a defined benefit pension plan for eligible salaried and hourly employees.

Pension benefits are based on a formula of years of credited service and levels of compensation or stated amounts for each year of credited service.

On January 9, 2020, we amended the Pension Plan to freeze participation, all future benefit accruals and accrual of benefit service, including consideration of compensation increases, effective March 1, 2020.

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

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.

The settlement expense related to the annuity purchase was $ 631,000 and was recorded net of tax in Other, net in the Consolidated Statements of Operations.

The Oil-Dri Corporation of America Pension Plan ("Pension Plan") was a defined benefit pension plan for eligible salaried and hourly employees.

Pension benefits were based on a formula of years of credited service and levels of compensation or stated amounts for each year of credited service.

On January 9, 2020, Oil-Dri amended the Pension Plan to freeze participation, all future benefit accruals and accrual of benefit service, including consideration of compensation increases, effective March 1, 2020.

Consequently, the Pension Plan was closed to new participants and existing participants no longer earned additional benefits on or after March 1, 2020.

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

On April 20, 2023, Oil-Dri settled $ 14 million of the pension obligation through the purchase of an annuity.

The remaining $ 16 million of the pension obligation was settled on April 28, 2023, via lump-sum payments.

All pension assets were remeasured immediately before settlement resulting in a net surplus amount of $ 3.6 million and net unrealized loss of $ 1.9 million included in accumulated other comprehensive income.

Upon settlement of the pension obligations Oil-Dri recognized through net income all unrealized losses resulting in a $ 1.9 million reduction to net income included in "Loss on pension termination" within "Other Income (Expense), Net".

On April 27, 2023, the Executive Committee of the Company's Board of Directors approved the distribution of the surplus to a qualified defined contribution retirement fund.

A portion of the surplus to be distributed to pension participants was irrevocably distributed to the 401(k) plan on April 28, 2023, which resulted in an additional $ 2.8 million charge to net income included in "Loss on pension termination" within "Other Income (Expense), Net".

The remaining $ 0.8 million to be held by the 401(k) plan to cover qualified future plan expenses was recognized as a prepaid asset.

A postretirement health benefits plan is also provided to domestic salaried employees who meet specific age, participation and length of service requirements at the time of retirement.

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This plan is available to essentially all domestic employees following a specific number of days of employment.

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.

Our contributions to this plan, and to similar plans maintained by our foreign subsidiaries, were $ 3.2 million and $ 2.9 million for fiscal years 2023 and 2022, respectively.

Obligations and Funded Status

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Settlements ( 30,755 ) — — —

Surplus Transfer ( 3,647 ) — — —

Fair value of plan assets, end of year 148 34,989 — —

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

The accumulated benefit obligation for the Pension Plan was $ 33,741,000 and $ 42,267,000 as of July 31, 2022 and July 31, 2021, respectively.

There was no accumulated benefit obligation for the Pension Plan as of July 31, 2023.

The accumulated benefit obligation for the Pension Plan was $ 33.7 million as of July 31, 2022.

The following table shows amounts recognized in the Consolidated Balance Sheets as of July 31 (in thousands):

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Deferred income taxes $ — $ ( 335 ) $ 478 $ 544

Other current assets $ 148 $ — $ — $ —

Other current liabilities $ — $ — $ ( 100 ) $ ( 73 )

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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 years 2021 or 2022.

As the pension plan was frozen, there was no service cost recorded in fiscal years 2022 or 2023.

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

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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.

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.

We made no contributions in fiscal years 2022 or 2023.

The Pension Plan was terminated in fiscal year 2023 and there will be no more contributions to the Pension Plan.

The postretirement health plan is an unfunded plan.

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The following table shows the estimated future benefit payments by fiscal year (in thousands):

Benefits Postretirement

Postretirement

Health Benefits

2029-2033 $ 867

2024 $ 1,258 $ 123

2025 $ 1,342 $ 154

2026 $ 1,476 $ 147

2027 $ 1,596 $ 157

2028-32 $ 9,209 $ 977

Our pension benefit and postretirement health benefit obligations and the related effects on operations are calculated using actuarial models.

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Long-term expected rate of return on assets — % 6.50 % — % — %

The discount rate was based on the FTSE Pension Discount Curve to determine separately for the Pension Plan and the postretirement health plan, the single equivalent rate that would yield the same present value as the specific plan’s expected cash flows.

The discount rate was based on the FTSE Pension Discount Curve to determine for the Pension Plan and the postretirement health plan, the single equivalent rate that would yield the same present value as the specific plan’s expected cash flows.

Our expected rate of return on Pension Plan assets is determined by our asset allocation, our historical long-term investment performance, our estimate of future long-term returns by asset class (using input from our actuaries, investment managers and investment advisors), and long-term inflation assumptions.

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Pension Plan Assets

The investment objective for the Pension Plan assets is to optimize long-term return at a moderate level of risk in order to secure the benefit obligations to participants at a reasonable cost.

To reach this goal, our investment structure includes various asset classes, asset allocations and investment management styles that, in total, have a reasonable likelihood of producing a sufficient level of overall diversification that balances expected return with expected risk over the long-term.

The investment objective for the Pension Plan assets was to optimize long-term return at a moderate level of risk in order to secure the benefit obligations to participants at a reasonable cost.

To reach this goal, our investment structure included various asset classes, asset allocations and investment management styles that, in total, have a reasonable likelihood of producing a sufficient level of overall diversification that balances expected return with expected risk over the long-term.

The Pension Plan does not invest directly in Company stock.

We measure and monitor the plan’s asset investment performance and the allocation of assets through quarterly investment portfolio reviews.

Investment performance is measured by absolute returns, returns relative to benchmark indices and any other appropriate basis of comparison.

The targeted allocation percentages of plan assets is shown below for fiscal year 2023 and the actual allocation as of July 31:

Asset Allocation Target fiscal 2023 2022 2021

We measured and monitored the plan’s asset investment performance and the allocation of assets through quarterly investment portfolio reviews.

Investment performance was measured by absolute returns, returns relative to benchmark indices and any other appropriate basis of comparison.

The Pension Plan was terminated in fiscal year 2023 and there are no targeted allocation percentages of plan assets for 2024.

The actual allocation percentages of plan assets as of July 31, 2023:

Asset Allocation 2023 2022

Cash and accrued income 100 % — %

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Equity — % 64 %

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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Debt securities(f) 1,656 — 1,656

1,656 — 1,656

Government sponsored entities (g)

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Total $ 34,989 $ 15,072 $ 19,917

Fair Value At July 31, 2021

(Level 1) Significant

Cash and cash equivalents (a)

$ 16 $ 16 $ —

Equity securities (b) :

companies 15,241 4,290 10,951

International companies 806 806 —

Equity securities - international mutual funds:

Developed market (c)

5,622 — 5,622

Emerging markets (d)

2,389 — 2,389

Commodities (e)

Fixed Income:

Treasuries 1,543 — 1,543

Debt securities(f) 2,258 — 2,258

Government sponsored entities (g)

1,730 — 1,730

Multi-strategy bond fund (h)

8,257 — 8,257

Money market fund (i)

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

(a) Cash and cash equivalents consists of highly liquid investments which are traded in active markets.

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(g) This class represents a beneficial ownership interest in a pool of single-family residential mortgage loans.

These investments are generally not backed by the full faith and credit of the United States government, except for securities valued at $ 114,000 in our portfolio as of July 31, 2022 and $ 176,000 as of July 31, 2021.

These investments are generally not backed by the full faith and credit of the United States government, except for securities valued at $ 114,000 in our portfolio as of July 31, 2022.

(h) This class invests at least 80% of its net assets in bonds and other fixed income instruments issued by governmental or private-sector entities.

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Oil-Dri's deferred compensation plans permit directors and certain management employees to defer portions of their compensation and to earn interest on the deferred amounts.

Participants have deferred $ 680,000 and $ 1,158,000 into these plans in fiscal years 2022 and 2021, respectively.

We recorded $ 218,000 and $ 187,000 of interest expense associated with these plans in fiscal years 2022 and 2021, respectively.

Payments to participants were $ 440,000 and $ 480,000 in fiscal years 2022 and 2021, respectively, and the total liability recorded for deferred compensation was $ 4,812,000 and $ 4,354,000 as of July 31, 2022 and 2021, respectively.

Participants have deferred $ 0.6 million and $ 0.7 million into these plans in fiscal years 2023 and 2022, respectively.

We recorded $ 0.2 million of interest expense associated with these plans in both fiscal years 2023 and 2022.

Payments to participants were $ 0.9 million and $ 0.4 million in fiscal years 2023 and 2022, respectively, and the total liability recorded for deferred compensation was $ 4.6 million and $ 4.8 million as of July 31, 2023 and 2022, respectively.

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.

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

Deferred executive bonus awards of $ 1.4 million were awarded for fiscal year 2023 and $ 0.7 million executive bonus was awarded for fiscal year 2022 as financial targets under the provisions of the plan were achieved.

These awards will vest and accrue interest over a 3-year period.

Our deferred compensation plans are unfunded.

We fund these benefits when payments are made, and the timing and amount of the payments are determined according to the plans' provisions and, for certain plans, according to individual employee agreements.

Our SERP, which was terminated in fiscal year 2020, provided certain retired participants in the Pension Plan with the amount of benefits that would have been provided under the Pension Plan but for:

(1) the limitations on benefits imposed by Section 415 of the Internal Revenue Code (“Code”), and/or (2) the limitation on compensation for purposes of calculating benefits under the Pension Plan imposed by Section 401(a)(17) of the Code.

The SERP liability was actuarially determined at the end of each fiscal year using assumptions similar to those used for the Pension Plan, see Note 8 of the Notes to the Consolidated Financial Statements.

The SERP liability was $ 0 as of July 31, 2021, and we recorded expense related to the SERP of $ 0 in fiscal year 2021.

On January 9, 2020, we amended the SERP to freeze participation and any excess benefit, supplemental benefit or additional benefit effective March 1, 2020.

Consequently, the SERP was closed to new participants and current participants no longer earned additional benefits on or after March 1, 2020.

The amendment of the SERP triggered a curtailment which required a remeasurement of the SERP's obligation.

The remeasurement resulted in a decrease in the SERP liability and recognition of a curtailment gain of approximately $ 1,296,000 in fiscal year 2020, which was recorded in Selling, General & Administrative Expenses.

Subsequent to the curtailment, the SERP was terminated effective June 30, 2020 and all participants were paid in the form of one lump sum in July 2021.

NOTE 10 - ACCRUED EXPENSES

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Salaries, Wages, Commissions and Employee Benefits 19,054 $ 13,439

Trade promotions and advertising 1,180 1,653

Freight 3,078 4,022

Georgia Landfill Modification Reserve 2,469 —

Trade promotions and advertising 2,292 1,180

Real Estate Tax 1,038 1,006

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$ 36,868 $ 30,085

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, 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.

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

Although we believe this claim to be without merit, as of July 31, 2022, we have determined a reasonable estimate of this liability within a range, with no amount within that range being a better estimate than any other amount, and have therefore recorded that estimate within Other accrued expenses.

Although we believe this claim to be without merit, as of July 31, 2020, we determined a reasonable estimate of this liability within a range, with no amount within that range being a better estimate than any other amount, and therefore recorded that estimate in Other within Accrued Expenses.

In the fourth quarter of fiscal year 2023, we have updated our estimate to reflect the latest developments in this matter.

We believe that any loss related to this matter is unlikely to be material.

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The actual outcome could differ materially from management’s estimates.

In the second quarter of fiscal year 2023, we recorded a reserve of $ 2.5 million for anticipated modification costs that we expect to incur to address capacity issues at our sole landfill located in Ochlocknee, Georgia.

Reserves are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.

The amount of the reserve represents management’s best estimate of the costs for the modification with respect to this matter.

There have been no changes to the reserve estimate throughout the rest of fiscal year 2023.

Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards, and emerging technologies for handling site modification.

Consequently, it is reasonably possible that modification costs in excess of amounts accrued could have a material impact on the Company’s results of operations, financial condition and cash flows.

NOTE 12 – LEASES

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We have no material finance leases, and variable costs for operating leases are immaterial.

Operating lease costs are included in Cost of Sales or SG&A expenses based on the nature of the lease.

Operating lease costs are included in Cost of Goods Sold or SG&A expenses based on the nature of the lease.

The following table summarizes total lease costs for our operating leases (in thousands):

For the Twelve Months Ended July 31, For the Twelve Months Ended July 31,

For the Twelve Months Ended July 31,

Operating Lease Cost

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Supplemental cash flow information related to leases was as follows (in thousands):

For the Twelve Months Ended July 31, For the Twelve Months Ended July 31,

For the Twelve Months Ended July 31,

Other Information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 2,490 $ 2,303

Operating lease ROU assets and operating lease liabilities are separately presented on the Consolidated Balance Sheet, excluding leases with an initial term of twelve months or less.

Right-of-use assets obtained in exchange for new operating lease liabilities 983 4,377

Operating lease ROU assets and operating lease liabilities are separately presented on the unaudited Consolidated Balance Sheet, excluding leases with an initial term of twelve months or less.

Other supplemental balance sheet information related to leases was as follows:

For the Twelve Months Ended July 31, For the Twelve Months Ended July 31,

For the Twelve Months Ended July 31,

Weighted-average remaining lease term - operating leases 7.7 years 7.7 years

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NOTE 13 – SUBSEQUENT EVENTS

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.

On September 21, 2023, the Company entered into Amendment No.

4 (the “Fourth Amendment”) to the Note Agreement with Prudential.

The Fourth Amendment extended the time frame for issuing and selling Shelf Notes to September 21, 2026.

NOTE 14 – RELATED PARTIES

One member of our Board of Directors retired from the role of President and Chief Executive Officer of a customer of ours on September 28, 2019 and is currently party to a post-employment consulting agreement with the customer.

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.

Total net sales to that customer, including sales to subsidiaries of that customer, were $ 0.2 million and $ 0.3 million for fiscal years 2023 and 2022, respectively.

There was $ 10,768 of outstanding accounts receivable due from that customer, and its subsidiaries, as of July 31, 2023 and $ 5,608 outstanding accounts receivable as of July 31, 2022.

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

Total payments to this vendor for fees and cost reimbursements were $ 689,668 and $ 703,098 for fiscal years 2022 and 2021, respectively.

Total payments to this vendor for fees and cost reimbursements were $ 0.2 million and $ 0.7 million for fiscal years 2023 and 2022, respectively.

There were no outstanding amounts due to that vendor as of July 31, 2023 or July 31, 2022.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

of Directors and Shareholders

Board of Directors and Shareholders

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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 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 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 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.

Critical audit matter(s)

Critical audit matters 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.

We determined that there are no critical audit matters.

/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