Oil-Dri Corp of America 10-K

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OIL-DRI CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS July 31, 2024 2023 ASSETS (in thousands) Current Assets Cash and cash equivalents $ 23,481 $ 31,754 Accounts receivable, less allowance of $ 934 and $ 1,087 in 2024 and 2023, respectively 62,171 59,287 Inventories, net 54,236 42,612 Prepaid expenses and other assets 7,270 2,854 Total Current Assets 147,158 136,507 Property, Plant and Equipment Land 13,550 13,619 Buildings and leasehold improvements 41,648 40,940 Machinery and equipment 192,788 184,471 Office furniture and equipment 22,530 18,744 Vehicles 24,617 17,663 Construction in progress 20,974 15,856 Mining assets 9,966 9,286 Capital parts 7,488 5,271 Less accumulated depreciation and amortization ( 195,765 ) ( 184,978 ) Total Property, Plant and Equipment, Net 137,796 120,872 Other Assets Goodwill 15,443 3,618 Trademarks, trade names and patents, net of accumulated amortization of $ 625 and $ 578 in 2024 and 2023, respectively 6,662 1,399 Customer list, net of accumulated amortization of $ 8,149 and $ 7,763 in 2024 and 2023, respectively 20,036 22 Deferred income taxes 1,537 7,201 Operating lease right-of-use assets 18,667 9,386 Other 7,306 7,230 Total Other Assets 69,651 28,856 Total Assets $ 354,605 $ 286,235 42 OIL-DRI CORPORATION OF AMERICA CONSOLIDATED BALANCE SHEETS (continued) July 31, 2024 2023 LIABILITIES AND STOCKHOLDERS’ EQUITY (in thousands) Current Liabilities Current maturities of notes payable $ 1,000 $ 1,000 Accounts payable 15,009 17,101 Dividends payable 2,096 1,927 Operating lease liabilities 4,556 1,872 Accrued expenses 44,016 36,868 Total Current Liabilities 66,677 58,768 Noncurrent Liabilities Long-term debt, net of unamortized debt issuance costs of $ 226 and $ 173 in 2024 and 2023, respectively 49,774 30,827 Deferred compensation 5,667 4,512 Long-term operating lease liabilities 15,391 8,810 Other 6,508 6,242 Total Noncurrent Liabilities 77,340 50,391 Total Liabilities 144,017 109,159 Commitments and contingencies (See Note 12) Stockholders’ Equity Common Stock, par value $ .10 per share, issued 8,843,673 shares in 2024 and 8,750,223 shares in 2023 884 875 Class B Stock, convertible, par value $ .10 per share, issued 2,518,056 shares in 2024 and 2,397,056 shares in 2023 252 240 Additional paid-in capital 60,877 55,624 Retained earnings 232,247 200,796 Accumulated other comprehensive income 769 748 Less treasury stock, at cost ( 3,702,185 Common and 362,649 Class B shares in 2024 and 3,658,989 Common and 351,641 Class B shares in 2023) ( 84,441 ) ( 81,207 ) Total Stockholders’ Equity 210,588 177,076 Total Liabilities and Stockholders’ Equity $ 354,605 $ 286,235 The accompanying notes are an integral part of the Consolidated Financial Statements. 43 OIL-DRI CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended July 31, 2024 2023 (in thousands, except for per share data) Net Sales $ 437,587 $ 413,021 Cost of Goods Sold ( 312,493 ) ( 309,794 ) Gross Profit 125,094 103,227 Selling, General and Administrative Expenses ( 73,449 ) ( 62,187 ) Income from Operations 51,645 41,040 Other (Expense) Income Interest income 873 465 Interest expense ( 1,804 ) ( 1,464 ) Loss on pension termination — ( 4,652 ) Foreign exchange (loss) gain ( 628 ) 105 Other, net ( 435 ) ( 816 ) Total Other Expense, Net ( 1,994 ) ( 6,362 ) Income Before Income Taxes 49,651 34,678 Income Tax Expense ( 10,225 ) ( 5,195 ) Net Income $ 39,426 $ 29,483 Net Loss Attributable to Noncontrolling Interest — ( 68 ) Net Income Attributable to Oil-Dri $ 39,426 $ 29,551 Net Income Per Share Basic Common Stock $ 5.85 $ 4.45 Basic Class B Stock $ 4.40 $ 3.35 Diluted Common Stock $ 5.43 $ 4.13 Diluted Class B Stock $ 4.40 $ 3.35 Average Shares Outstanding Basic Common Stock 4,885 4,825 Basic Class B Stock 1,976 1,959 Diluted Common Stock 6,861 6,784 Diluted Class B Stock 1,976 1,959 Dividends Declared Per Share Common Stock 1.180 1.130 Class B Stock 0.887 0.848 The accompanying notes are an integral part of the Consolidated Financial Statements. 44 OIL-DRI CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended July 31, 2024 2023 (in thousands) Net Income Attributable to Oil-Dri $ 39,426 $ 29,551 Other Comprehensive Income (Loss): Pension and postretirement benefits, net of tax 64 3,254 Cumulative translation adjustment ( 43 ) ( 323 ) Other Comprehensive Income 21 2,931 Comprehensive Income $ 39,447 $ 32,482 The accompanying notes are an integral part of the Consolidated Financial Statements. 45 OIL-DRI CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Number of Shares (in thousands) Common & Class B Stock Treasury Stock Common & Class B Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total Stockholders’ Equity Balance, July 31, 2022 11,083,824 ( 3,961,579 ) $ 1,108 $ 52,467 $ 178,754 $ ( 79,428 ) $ ( 2,183 ) $ ( 369 ) $ 150,349 Net income (loss) — — — — 29,551 — — ( 68 ) 29,483 Other comprehensive income — — — — — — 2,931 — 2,931 Dividends declared — — — — ( 7,509 ) — — — ( 7,509 ) Purchases of treasury stock — ( 25,055 ) — — — ( 1,078 ) — — ( 1,078 ) Net issuance of stock under long-term incentive plans 63,455 ( 23,996 ) 7 695 — ( 701 ) — — 1 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 Net income — — — — 39,426 — — — 39,426 Other comprehensive income — — — — — — 21 — 21 Dividends declared — — — — ( 7,975 ) — — — ( 7,975 ) Purchases of treasury stock — ( 42,554 ) — — — ( 2,778 ) — — ( 2,778 ) Net issuance of stock under long-term incentive plans 214,450 ( 11,650 ) 21 434 — ( 456 ) — — ( 1 ) Amortization of restricted stock — — — 4,819 — — — — 4,819 Balance, July 31, 2024 11,361,729 ( 4,064,834 ) $ 1,136 $ 60,877 $ 232,247 $ ( 84,441 ) $ 769 $ — $ 210,588 The accompanying notes are an integral part of the Consolidated Financial Statements. 46 OIL-DRI CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS Year-Ended July 31, 2024 2023 (in thousands) Cash Flows from Operating Activities Net income $ 39,426 $ 29,483 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,281 15,528 Non-cash stock compensation expense 4,819 3,147 Loss on pension termination — 4,652 Deferred income tax expense (provision) 1,697 ( 4,431 ) Net (decrease) increase to provision for bad debts and cash discounts ( 153 ) 284 Loss on impairment of patent applications — 61 Accretion for asset retirement obligation 211 161 Loss on impairments and disposals of property, plant and equipment 314 1,044 (Increase) decrease in: Accounts receivable 1,453 ( 7,899 ) Inventories ( 4,682 ) ( 2,204 ) Prepaid expenses ( 2,431 ) 1,082 Deferred income taxes ( 115 ) 510 Other assets 3,404 59 Increase (decrease) in: Accounts payable ( 2,794 ) 3,241 Accrued expenses 2,449 6,455 Deferred compensation 1,155 ( 47 ) Other liabilities ( 3,721 ) ( 1,362 ) Total Adjustments 20,887 20,281 Net Cash Provided by Operating Activities 60,313 49,764 Cash Flows from Investing Activities Capital expenditures ( 32,000 ) ( 24,368 ) Proceeds from sale of property, plant and equipment 182 70 Acquisition of business ( 44,298 ) — Acquisition of equity in Agromex — ( 269 ) Net Cash Used in Investing Activities ( 76,116 ) ( 24,567 ) Cash Flows from Financing Activities Proceeds from long-term debt 20,000 — Principal payments on notes payable ( 1,000 ) ( 1,000 ) Payment of debt issuance costs ( 90 ) ( 7 ) Dividends paid ( 7,806 ) ( 7,433 ) Purchase of treasury stock ( 2,778 ) ( 1,078 ) Net Cash Provided by (Used in) Financing Activities 8,326 ( 9,518 ) Effect of exchange rate changes on cash and cash equivalents 204 ( 223 ) Net (Decrease) Increase in Cash and Cash Equivalents ( 7,273 ) 15,456 Cash, Cash Equivalents and Restricted Cash, Beginning of Year 31,754 16,298 Cash, Cash Equivalents and Restricted Cash, End of Year $ 24,481 $ 31,754 The accompanying notes are an integral part of the Consolidated Financial Statements. 47 CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Year-Ended July 31, 2024 2023 (in thousands) Supplemental disclosure: Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 23,481 $ 31,754 Restricted cash in prepaid expenses and other assets $ 1,000 $ — Other cash flows: Interest payments, net of amounts capitalized $ 1,089 $ 1,135 Income tax payments $ 10,006 $ 7,367 Noncash investing and financing activities: Capital expenditures accrued, but not paid $ 7,892 $ 4,279 Cash dividends declared and accrued, but not paid $ 2,096 $ 1,927 The accompanying notes are an integral part of the Consolidated Financial Statements. 48 OIL-DRI CORPORATION OF AMERICA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES N ATURE OF O PERATIONS We are a leader in developing, manufacturing and/or marketing sorbent products. Our sorbent products are principally produced from clay minerals. 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, pre-treatment of renewable diesel, and for purification of petroleum-based oils. We also sell synthetic sorbents, which are used for industrial cleanup and cat litter. P RINCIPLES OF C ONSOLIDATION The Consolidated Financial Statements include the accounts of Oil-Dri Corporation of America and its subsidiaries. All significant intercompany balances and transactions have been eliminated from the Consolidated Financial Statements. R ECLASSIFICATION 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 net cash flows. M ANAGEMENT U SE OF E STIMATES The preparation of financial statements in conformity with U.S. 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. All of our estimates and assumptions are revised periodically. Actual results could differ from these estimates. C ASH, C ASH E QUIVALENTS AND R ESTRICTED C ASH Cash equivalents are highly liquid investments with maturities of three months or less. The following table provides a reconciliation of cash, cash equivalents and restricted cash as of July 31, 2024 and 2023 reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows (in thousands): 2024 2023 Cash and cash equivalents $ 23,481 $ 31,754 Restricted cash included in prepaid expenses and other assets 1,000 — Cash, cash equivalents, and restricted cash $ 24,481 $ 31,754 T RADE R ECEIVABLES We recognize trade receivables when control of finished products are transferred to our customers. We record an allowance for credit losses based on our expectations and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific accounts. A customer account is determined to be uncollectible when it is probable that a loss will be incurred after we have completed our internal collection procedures, including termination of shipments, direct customer contact and formal demand of payment. We retain outside collection agencies to facilitate our collection efforts. Past due status is determined based on contractual terms and customer payment history. We also include an allowance for expected cash discounts to be taken. 49 I NVENTORIES The composition of inventories was as follows as of July 31 (in thousands): 2024 2023 Finished goods $ 31,772 $ 21,943 Packaging 8,995 8,007 Spare parts 7,059 $ 5,981 Other 6,410 6,681 Inventories, net $ 54,236 $ 42,612 Inventories are valued at the lower of cost (first-in, first-out) or net realizable value. Inventory costs include the cost of raw materials, packaging supplies, labor and other overhead costs. We performed a detailed review of our inventory items to determine if an obsolescence reserve adjustment was necessary. The review surveyed all of our operating facilities and sales groups to ensure that both historical issues and new market trends were considered. The obsolescence reserve not only considers specific items, but also takes into consideration the overall value of the inventory as of the balance sheet date. We recorded inventory reserves of approximately $ 3.8 million as of July 31, 2024, and $ 3.6 million as of July 31, 2023. 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. T RANSLATION OF F OREIGN C URRENCIES Assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, are translated to U.S. dollars at the exchange rates in effect at period end. Income statement items are translated at the average exchange rate on a monthly basis. Resulting translation adjustments are recorded as a separate component of stockholders’ equity. I NTANGIBLES AND G OODWILL Our intangible assets are mainly comprised of customer lists, patents, trademarks, trade names and goodwill. We amortize customer lists and patents on a straight-line basis over periods ranging from 18 to 20 years. During fiscal year 2024 we recorded additions of intangible assets of $ 37.4 million related to the acquisition of Ultra Pet, the components of which are customer list of $ 20.4 million amortized over a useful life of 18 years, $ 5.2 million of trade name and $ 11.8 million of goodwill. Intangible amortization was $ 0.5 million in fiscal year 2024 and $ 0.3 million in fiscal year 2023. Our estimated intangible amortization expense for the next five fiscal years is as follows (in thousands): 2025 $ 1,204 2026 $ 1,204 2027 $ 1,204 2028 $ 1,204 2029 $ 1,204 The remaining weighted average amortization period of our intangibles subject to amortization is as follows (in years): Weighted Average Amortization Period Patents 10.1 Customer list 17.8 Total intangible assets subject to amortization 17.6 Trademarks and trade names acquired through acquisition were determined to have indefinite lives. We had $ 5.6 million and $ 0.4 million of indefinite life trademarks and trade names as of July 31, 2024 and 2023, respectively. 50 Goodwill by operating segment was as follows as of July 31 (in thousands): 2024 2023 Business to Business 3,618 3,618 Retail and Wholesale $ 11,825 — Total $ 15,443 $ 3,618 We review indefinite-lived intangibles and goodwill to assess for impairment on the first day of our fiscal fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We also perform a review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit. 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. We performed our impairment assessment and identified no triggering events in that would indicate the need for impairment of indefinite intangible assets or goodwill in either 2024 or 2023. P ROPERTY , P LANT AND E QUIPMENT Property, plant and equipment are depreciated using the straight-line method over their estimated useful lives which are listed below. Depreciation expense was $ 18.8 million and $ 15.3 million in fiscal years 2024 and 2023, respectively. Major improvements and betterments are capitalized, while maintenance and repairs that do not extend the useful life or increase functionality of the applicable assets are expensed as incurred. Interest expense may also be capitalized for assets that require a period of time to get them ready for their intended use. There was no capitalized interest in fiscal years 2024 and 2023. Years Buildings and leasehold improvements 3 - 40 Machinery and equipment Packaging 2 - 20 Processing 2 - 25 Mining and other 2 - 15 Office furniture and equipment 2 - 15 Vehicles 2 - 15 Capital parts 3 - 7 Property, plant and equipment are carried at cost on the Consolidated Balance Sheets and are reviewed for possible impairment on an annual basis or when circumstances indicate that an asset may be impaired. We take into consideration idle and underutilized equipment and review business plans for possible impairment. When impairment is indicated, an impairment charge is recorded for the difference between the carrying value of the asset and its fair market value. In fiscal year 2024, we recognized $ 0.1 million in impairment for fixed assets no longer in use, and $ 0.9 million in fiscal year 2023. Impairment is included in cost of goods sold on the Consolidated Statement of Operations. L AND AND M INING A SSETS Our mining assets include mining properties, mineral rights and reclamation asset. We surface mine sorbent minerals on property that we either own or lease. A significant part of our 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. Pre-production overburden removal costs associated with opening a new mine during the development phase are deferred. There were no capitalized pre-production costs incurred in fiscal year 2024. In fiscal year 2023, $ 0.1 million of pre-production costs, including overburden removal costs, were capitalized. 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 2024, the amount of development costs that are being amortized is $ 4.0 million. Stripping costs incurred during production are treated as a variable inventory production cost and are included in cost of goods sold. Stripping costs included in cost of goods sold were approximately $ 5.4 million and $ 4.0 million for fiscal years 2024 and 2023, respectively. Additionally, it is our policy to capitalize the purchase cost of land and mineral rights, including associated legal, survey, and real estate fees. The costs of obtaining mineral rights, including legal fees and drilling expenses, are also 51 capitalized. As of both fiscal years ending July 31, 2024 and July 31, 2023 we had $ 13.6 million of land and $ 2.2 million of gross mineral rights. 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 $ 2.3 million as of July 31, 2024 and $ 2.0 million as of July 31, 2023. R ECLAMATION We perform ongoing reclamation activities during the normal course of our overburden removal. As overburden is removed from a mine site, it is hauled to previously mined sites and is used to refill the older sites. This process allows us to continuously reclaim older mine sites and dispose of overburden simultaneously, therefore minimizing the costs associated with the reclamation process. On an annual basis we evaluate our potential reclamation liability in accordance with ASC 410, Asset Retirement and Environmental Obligations. Reclamation assets are depreciated over the estimated useful lives of the various mines. Reclamation liabilities are increased based on a yearly accretion charge over the estimated useful lives of the mines. We recorded an estimated net reclamation asset of $ 2.2 million as of both July 31, 2024 and 2023, and a corresponding estimated reclamation liability of $ 4.8 million as of July 31, 2024 and $ 4.5 million as of July 31, 2023. These values represent the discounted present value of the estimated future mining reclamation and landfill closure costs at the production plants. Additional mining activity, disturbance of land, and higher costs account for a majority of the increase in the reclamation liability. T RADE P ROMOTIONS We routinely commit to one-time or ongoing trade promotion programs, primarily in our Retail and Wholesale Products Group. All such costs are netted against sales. We have accrued liabilities at the end of each period for the estimated expenses incurred but not yet paid for these programs. Promotional reserves are provided for sales incentives made directly to consumers, such as coupons, and sales incentives made to customers, including slotting, discounts based on sales volume, cooperative marketing programs and other arrangements. We rely on our historical experience of trade spending patterns and that of the industry, current trends and forecast data to record estimates of our trade spending liabilities. A DVERTISING Advertising costs for the development of printed materials, television commercials, web-based digital banners, web-based social media and sales videos are deferred and expensed upon the first use of the materials. Costs paid for communicating advertising over a period of time, such as television air time, radio commercials and print media advertising space, are deferred and expensed on a pro-rata basis. All other advertising costs, including participation in industry conventions and shows and market research, are expensed when incurred. All advertising costs are part of selling, general and administrative expenses. Advertising expenses were approximately $ 9.1 million and $ 7.4 million in fiscal years 2024 and 2023, respectively. F AIR V ALUE OF F INANCIAL I NSTRUMENTS Non-derivative financial instruments included in the Consolidated Balance Sheets are cash and cash equivalents, short-term investments, credit facilities, and notes payable. These instruments, except for debt, were carried at amounts approximating fair value as of July 31, 2024 and 2023. See Note 5 of the Notes to the Consolidated Financial Statements for additional information regarding the fair value of our financial instruments, including notes payable. R EVENUE R ECOGNITION We recognize revenue when performance obligations under the terms of the contracts with customers are satisfied. Our performance obligation generally consists of the promise to sell finished products to wholesalers, distributors, retailers or consumers and our obligations have an original duration of one year or less. Control of the finished products are transferred upon shipment to, or receipt at, customers' locations, as determined by the specific terms of the contract. We have completed our performance obligation when control is transferred and we recognize revenue accordingly. Taxes collected from customers and remitted to governmental authorities are excluded from net sales. Sales returns are not material nor are warranties or any related obligations. We have an unconditional right to consideration under the payment terms specified in the contract upon completion of the performance obligation. We may require certain customers to provide payment in advance of product shipment. We 52 recorded a liability of $ 0.2 million as of July 31, 2024 for these advance payments. 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. There is no revenue recognized during fiscal year 2024 that was included in the liability for advance payments at the beginning of the year. C OST OF G OODS S OLD 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 goods sold and were approximately $ 59.2 million and $ 57.4 million for fiscal years 2024 and 2023, respectively. S ELLING , G ENERAL AND A DMINISTRATIVE E XPENSES Selling, general and administrative expenses include salaries, wages and benefits associated with staff outside the manufacturing and distribution functions, all marketing related costs, any miscellaneous trade spending expenses not required to be included in net sales, research and development costs, depreciation and amortization related to assets outside the manufacturing and distribution process and all other non-manufacturing and non-distribution expenses. R ESEARCH AND D EVELOPMENT Research and development costs of approximately $ 2.1 million and $ 1.2 million were charged to expense as incurred for fiscal years 2024 and 2023, respectively, and are recorded in selling, general and administrative expenses. P ENSION AND P OSTRETIREMENT B ENEFIT C OSTS 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. The postretirement health benefit plan is unfunded. Our pension and postretirement health benefit plans are accounted for using actuarial valuations required by ASC 715, Compensation – Retirement Benefits . The funded status of our defined pension and postretirement health benefit plans are recognized on the Consolidated Balance Sheets. 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 2023 we terminated the pension plan. See Note 9 of the Notes to the Consolidated Financial Statements for additional information. S TOCK -B ASED C OMPENSATION We account for stock options and restricted stock issued under our long-term incentive plans in accordance with ASC 718, Compensation – Stock Compensation . The fair value of stock-based compensation is determined at the grant date. The related compensation expense is recognized over the appropriate vesting period. Forfeitures are recognized as they occur. See Note 8 of the Notes to the Consolidated Financial Statements for additional information. I NCOME T AXES Deferred income tax assets and liabilities are recorded for the impact of temporary differences between the tax basis of assets and liabilities and the amounts recognized for financial reporting purposes. Deferred tax assets are reviewed and a valuation allowance is established if management believes that it is more likely than not that some portion of our deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In addition to existing valuation allowances, we provide for uncertain tax positions, if necessary, when such tax positions do not meet the recognition thresholds or measurement standards prescribed by ASC 740, Income Taxes . Amounts for uncertain tax positions are adjusted when new information becomes available or when positions are effectively settled. We recognize interest and penalties accrued related to uncertain tax positions in income tax expense. 53 U.S. income tax expense and foreign withholding taxes are provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. Where unremitted foreign earnings are indefinitely reinvested, no provision for federal or state tax expense is recorded. When circumstances change and we determine that some or all of the undistributed earnings will be remitted in the foreseeable future, a corresponding expense is accrued in the current period. See Note 6 of the Notes to the Consolidated Financial Statements for additional information about income taxes. E ARNINGS P ER S HARE 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 shares of Common Stock and Class B Stock based on amounts actually declared for each class of stock and 33.33 % more of the undistributed earnings have been allocated to shares of Common Stock than to shares of Class B Stock 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 by the holders thereof 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 common stock. 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 shares of Class B Stock, if the effect is dilutive. Dilution for Class B Stock 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, 2024 (in thousands, except for per share data) Total Common Class B Net income $ 39,426 $ 29,981 $ 9,445 Distributed and undistributed earnings on restricted shares ( 2,165 ) ( 1,410 ) ( 755 ) Income available to stockholders $ 37,261 $ 28,571 $ 8,690 Net Income (Numerator) $ 28,571 $ 8,690 Weighted Average Shares Outstanding (Denominator) 4,885 1,976 Basic EPS $ 5.85 $ 4.40 Effect of dilution - Net Income (1) $ 8,690 $ — Net income assuming dilution (Numerator) $ 37,261 $ 8,690 Effect of dilution - Shares (1) 1,976 $ — Shares assuming dilution (Denominator) 6,861 $ 1,976 Diluted EPS $ 5.43 $ 4.40 (1) The impact of 158,861 shares of unvested Common Stock and 54,370 shares of unvested Class B Stock, restricted stock was anti-dilutive therefore not included in the calculation of diluted EPS. 54 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 (2) $ 6,553 $ — Net income assuming dilution (Numerator) $ 28,033 $ 6,553 Effect of dilution - Shares (2) 1,959 $ — Shares assuming dilution (Denominator) 6,784 $ 1,959 Diluted EPS $ 4.13 $ 3.35 (2) The impact of 157,032 shares of unvested Common Stock and 35,695 shares of unvested Class B Stock, restricted stock was anti-dilutive therefore not included in the calculation of diluted EPS. N EW A CCOUNTING P RONOUNCEMENTS Recently Issued Accounting Standards Not Yet Adopted In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." These amendments primarily require enhanced disclosures and disaggregation of income tax information by jurisdiction in the annual income tax reconciliation and quantitative disclosures regarding income taxes paid. These amendments are to be applied prospectively, with the option to apply the standard retrospectively, for annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the adoption of this guidance will have on our disclosures. In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." These amendments primarily require enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. In addition, ASU No. 2023-07 also requires all annual disclosures currently required by Topic 280 to be included in interim periods. These amendments are to be applied retrospectively for all periods presented in the financial statements and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact that the adoption of this guidance will have on our disclosures. Recently Adopted Accounting Standards There have been no new accounting pronouncements adopted in the period . NOTE 2 – ACQUISITION Ultra Pet acquisition On May 1, 2024, pursuant to a Stock Purchase Agreement (the “Purchase Agreement”), dated April 16, 2024, we acquired all of the issued and outstanding shares of capital stock of Ultra Pet, in order to enter into the crystal cat litter segment. Ultra Pet became a wholly owned and consolidated subsidiary of Oil-Dri within the Retail and Wholesale Products Group operating segment, upon the closing of the acquisition on May 1, 2024. The purchase was financed through cash on hand, a $ 10 million advance under the Credit Agreement, and the issuance of $ 10 million in aggregate principal amount of 6.47 % Series D Senior Notes due April 30, 2033 pursuant to the shelf facility 55 provisions of the Note Agreement. Debt issuance costs of $ 0.1 million were deferred and are being amortized over the life of the note. Refer to Note 4 of the Consolidated Financial Statements for additional details regarding the debt used in funding the acquisition. As of July 31, 2024, the Company has completed a preliminary assessment to assign fair values to all tangible and intangible assets acquired and liabilities assumed. However, the preliminary purchase price allocation will be subject to further refinement and may change over the measurement period, particularly as it relates to inventory and tax related balances. These changes may relate to the allocation of purchase consideration to all tangible and intangible assets acquired and identified liabilities assumed. The following table summarizes the consideration paid and the assets acquired and liabilities assumed at the acquisition date. Consideration (in thousands) Cash, net of cash acquired and restricted cash $ 44,298 Identifiable assets acquired and liabilities assumed Accounts receivable 4,285 Inventories 7,068 Prepaid expenses and other assets 995 Property, plant and equipment 270 Trade name 5,200 Customer list 20,400 Operating lease right-of-use assets 1,463 Trade and other liabilities ( 1,654 ) Operating lease right-of-use liabilities ( 1,472 ) Deferred tax liabilities ( 4,083 ) Total identifiable net assets 32,472 Goodwill 11,826 Total $ 44,298 Various fair value methodologies were used for the valuation of identifiable intangibles including the 'excess earnings method' used for the valuation of the customer list and 'relief from royalty' method use for the valuation of the trade name. Our fair value was based on the projected financial information and unobservable inputs including revenue growth rate, weighted average cost of capital, royalty rate, and customer attrition rates. Finished goods inventory was valued using the net realizable value approach and approximate the selling price less disposal costs and allowance for a reasonable profit. The goodwill of $ 11.8 million arising from the acquisition consists largely of intangible assets that do not qualify for separate recognition and were fully assigned to our Retail and Wholesale Products Group. None of the goodwill recognized is expected to be deductible for income tax purposes. Ultra Pet contributed net sales of $ 4.8 million and pre-tax income of $ 0.2 million for the period from May 1, 2024, to July 31, 2024, net of acquisition adjustments including non-cash inventory fair value step up amortization included in cost of goods sold and customer list amortization included in SG&A. The total fair value step up adjustment to inventory was $ 0.8 million of which $ 0.4 million was amortized in fiscal year 2024. The following unaudited pro forma summary presents consolidated information of Oil-Dri as if the business combination had occurred on August 1, 2022. (unaudited) Pro forma year ended July 31, 2024 2023 Net Sales $ 455,139 $ 435,093 Pre-Tax Net Income $ 52,999 $ 35,489 56 These pro forma amounts above have been calculated after applying Oil-Dri’s accounting policies and adjusting the results of Ultra Pet, including the following adjustments: (unaudited) Pro forma year ended July 31, 2024 2023 Acquisition related expenses (a) $ 1,172 $ — Interest expense (b) $( 1,158 ) $( 1,323 ) Customer list amortization (c) $( 850 ) $( 1,133 ) Inventory step up adjustment (d) $ 449 $( 783 ) (a) Adjustment for acquisition related expenses reflects the reversal of legal and other professional fees and integration costs incurred in fiscal year 2024. These expenses are included in general and administrative expense on Oil-Dri consolidated income statement. (b) Interest expense adjustments reflects higher interest expense associated with financing the Ultra Pet acquisition assuming financing occurred August 1, 2022. (c) Customer list amortization adjustment reflects additional amortization assuming amortization began at August 1, 2022. (d) Inventory step up adjustment reflects the reversal of the amortization recognized in fiscal year 2024 and recognition of the full step up adjustment in fiscal year 2023. NOTE 3 – OPERATING SEGMENTS We have two reportable operating segments: (1) Retail and Wholesale Products Group and (2) Business to Business Products Group. 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, 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. Given the similar nature of products and customers, sales of our silica gel based crystal litter are included with our cat litter products and reported as part of the Retail and Wholesale products group segment. The Business to Business Products Group customers include: processors and refiners of edible oils, renewable diesel, petroleum-based oils and biodiesel fuel; manufacturers of animal feed and agricultural chemicals; and distributors of animal health and nutrition products. Net sales for our principal products by segment are as follows (in thousands): Business to Business Products Group Retail and Wholesale Products Group Year Ended July 31, Product 2024 2023 2024 2023 Cat Litter $ — $ — $ 241,884 $ 226,335 Industrial and Sports — — 45,232 44,291 Agricultural and Horticultural 33,558 40,275 — — Bleaching Clay and Fluids Purification 92,464 77,643 — — Animal Health and Nutrition 24,449 24,477 — — Net Sales $ 150,471 $ 142,395 $ 287,116 $ 270,626 Net sales and operating income for each segment are provided below. The accounting policies of the segments are the same as those described in the Note 1 of the Notes to the Consolidated Financial Statements. We do not rely on any operating segment asset allocations and do not consider them meaningful because of the shared nature of our production facilities; however, we have estimated the segment asset allocations below for those assets for which we can reasonably determine. The unallocated asset category is the remainder of our total assets. 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. 57 As of July 31, Assets 2024 2023 (in thousands) Business to Business Products $ 92,300 $ 84,424 Retail and Wholesale Products 200,187 136,262 Unallocated assets 62,118 65,549 Total Assets $ 354,605 $ 286,235 Net sales and operating income for each segment are provided below. The corporate expenses line in the table below represents certain unallocated expenses, including primarily salaries, wages and benefits, purchased services, rent, utilities and depreciation and amortization associated with corporate functions such as research and development, information systems, finance, legal, human resources and customer service. Corporate expenses also include the annual incentive plan bonus accrual. We have recast 2023 segment income to conform with current year presentation. Year Ended July 31, Net Sales Income 2024 2023 2024 2023 (in thousands) Business to Business Products $ 150,471 $ 142,395 $ 45,589 $ 37,678 Retail and Wholesale Products 287,116 270,626 43,804 33,791 Net Sales $ 437,587 $ 413,021 Corporate Expenses ( 37,748 ) ( 30,429 ) Income from Operations 51,645 41,040 Total Other Expense, Net ( 1,994 ) ( 6,362 ) Income Before Income Taxes 49,651 34,678 Income Tax Expense ( 10,225 ) ( 5,195 ) Net Income $ 39,426 $ 29,483 Net Loss Attributable to Noncontrolling Interest $ — $ ( 68 ) Net Income Attributable to Oil-Dri $ 39,426 $ 29,551 58 The following is a summary by fiscal year of financial information by geographic region (in thousands): 2024 2023 Sales to unaffiliated customers by: Domestic operations $ 416,603 $ 390,963 Foreign subsidiaries $ 20,984 $ 22,058 Sales or transfers between geographic areas: Domestic operations $ 6,102 $ 6,436 Foreign subsidiaries $ — $ 69 Income before income taxes: Domestic operations $ 48,995 $ 33,686 Foreign subsidiaries $ 656 $ 992 Net Income (Loss) attributable to Oil-Dri: Domestic operations $ 39,729 $ 28,494 Foreign subsidiaries $ ( 303 ) $ 1,057 Identifiable assets: Domestic operations $ 345,934 $ 271,627 Foreign subsidiaries $ 8,671 $ 14,608 Included within identifiable assets for our foreign subsidiaries is cash held at foreign banks of $ 4.5 million and $ 5.2 million as of July 31, 2024 and July 31, 2023, respectively. Sales to Walmart, our largest customer, are included in our Retail and Wholesale Products Group. The percentage of consolidated net sales and net accounts receivable attributed to Walmart are shown in the table below: 2024 2023 Net sales for the years ended July 31 20 % 19 % Net accounts receivable as of July 31 23 % 26 % There are no other customers with sales equal to or greater than 10% of our total sales. NOTE 4 – DEBT The composition of long-term debt is as follows as of July 31 (in thousands): 2024 2023 Amended and Restated Note Purchase and Private Shelf Agreement. Annual principal installments on May 15: $ 1,000 in each fiscal year 2021 through 2030. Interest is payable semi-annually at an annual rate of 3.95 % [Series B] $ 6,000 $ 7,000 Amended and Restated Note Purchase and Private Shelf Agreement. Annual principal installments on Dec 15: $ 5,000 in each fiscal year 2028 through 2032. Interest is payable semi-annually at an annual rate of 3.25 % [Series C] 25,000 25,000 Amended and Restated Note Purchase and Private Shelf Agreement. Annual principal installments on April 30: $ 5,000 in each fiscal year 2032 through 2033. Interest is payable semi-annually at an annual rate of 6.47 % [Series D] 10,000 — Seventh Amendment to Credit Agreement. Full principal amount is due on May 1, 2026 10,000 — Less current maturities of notes payable ( 1,000 ) ( 1,000 ) Less unamortized debt issuance costs ( 226 ) ( 173 ) Long-term debt $ 49,774 $ 30,827 59 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 the Note Agreement on May 15, 2020 we issued $ 10 million in aggregate principal amount of our 3.95 % Series B Senior Notes due May 15, 2030 , of which $ 6 million aggregate principal amount remained outstanding as of July 31, 2024. 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, 2024. On April 30, 2024 , we issued $ 10 million in aggregate principal amount of our 6.47 % Series D Senior Notes due April 30, 2033 , all of which remained outstanding as of July 31, 2024. 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, Series C Notes, and Series D 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, 2024 (in thousands): 2025 $ 1,000 2026 1,000 2027 1,000 2028 6,000 2029 6,000 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. On April 16, 2024, we entered into the Seventh Amendment to the Credit Agreement (the “Seventh Amendment”). The Seventh Amendment amends the Credit Agreement to, among other things, revise the method for calculating consolidated EBITDA for purposes of financial covenant compliance under the Credit Agreement, provide specific conditions precedent to advance funds for the acquisition of Ultra Pet, and modify certain covenants and other provisions to permit certain indebtedness and liens of Ultra Pet and facilitate the acquisition. As of July 31, 2024, and 2023, we were in compliance with the covenants. As of July 31, 2024 we had $ 10 million drawn at a 6.66 % interest rate, $ 2.9 million in outstanding letters of credit and $ 32.1 million remaining available under the revolving credit facility. As of July 31, 2023 we had $ 1 million in outstanding letters of credit and $ 44.0 million remaining available under the revolving credit facility. 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, 2024, the variable rates would have been 8.50 % for the BMO Harris prime-based rate or 6.49 % for the adjusted SOFR-based rate. 60 NOTE 5 – FINANCIAL INSTRUMENTS Fair Value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized into one of three categories based on the lowest level of input that is significant to the fair value measurement. Categories in the hierarchy are as follows: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs for similar assets or liabilities or valuation models whose inputs are observable, directly or indirectly. Level 3: 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. We had $ 3.0 million cash equivalents as of July 31, 2024 and had $ 15.4 million cash equivalents as of July 31, 2023. Balances of accounts receivable, short-term investments and accounts payable approximated their fair values at July 31, 2024 and July 31, 2023 due to the short maturity and nature of those balances. Debt is reported at outstanding face value, less unamortized debt issuance costs. The estimated fair value of debt, including current maturities, was approximately $ 51.1 million as of July 31, 2024 and $ 29.7 million as of July 31, 2023. The fair value was estimated using the exit price notion of fair value and is classified as Level 2. See Note 4 of the Notes to the Consolidated Financial Statements for further information about such debt. We apply fair value techniques on at least an annual basis associated with: (1) valuing potential impairment loss related to goodwill, trademarks and other indefinite-lived intangible assets and (2) valuing potential impairment loss related to long-lived assets. See Note 1 of the Notes to Consolidated Financial Statements for further information about goodwill and other intangible assets. Concentration of Credit Risk Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. Our cash is held in banks which are covered by the Federal Deposit Insurance Corporation; however, our cash balances are in excess of the maximum amount that is insured. Concentrations of credit risk with respect to accounts receivable are subject to the financial condition of certain major customers, principally the customer referred to in Note 3 of the Notes to the Consolidated Financial Statements. We generally do not require collateral to secure customer receivables. 61 NOTE 6 – INCOME TAXES The provision for income tax expense by fiscal year consists of the following (in thousands): 2024 2023 Current Federal $ 6,059 $ 7,503 State 2,243 2,119 Foreign 226 4 Current Income Tax Total 8,528 9,626 Deferred Federal 934 ( 3,864 ) State 778 ( 567 ) Foreign ( 15 ) — Deferred Income Tax Total 1,697 ( 4,431 ) Total Income Tax Expense $ 10,225 $ 5,195 Principal reasons for variations between the statutory federal rate and the effective rates by fiscal year were as follows: 2024 2023 U.S. federal income tax rate 21.0 % 21.0 % Depletion deductions allowed for mining ( 5.3 ) ( 7.7 ) State income tax expense, net of federal tax expense 3.5 2.9 Nondeductible officer compensation 2.2 1.5 Stock Based Compensation ( 2.1 ) — U.S. Tax Impacts of Foreign Branch 1.3 ( 0.2 ) Tax credits ( 0.2 ) ( 0.3 ) Valuation allowance - foreign 0.4 ( 0.2 ) Statutory rate change of foreign subsidiaries 0.3 — Prior year income taxes ( 0.3 ) ( 1.3 ) Foreign tax differential 0.1 ( 0.6 ) Other ( 0.3 ) ( 0.1 ) Effective income tax rate 20.6 % 15.0 % The U.S. effective tax rate for the year ended July 31, 2024 and July 31, 2023 were 20.6 % and 15.0 %, respectively, based on income before taxes. The items contributing to a higher effective tax rate in fiscal 2024 were a higher net income and certain permanent items. 62 The Consolidated Balance Sheets included the following tax effects of cumulative temporary differences as of July 31 (in thousands): ` 2024 2023 Assets Liabilities Assets Liabilities Amortization $ — $ 6,307 $ 935 $ — Depreciation — 5,692 — 4,338 Lease liabilities 5,105 — 2,747 — Lease right of use assets — 4,778 — 2,412 Accrued expenses 4,347 — 5,303 — Federal & State NOL carryforward 2,975 — — — Stock-based compensation 1,894 — 1,634 — Foreign NOL carryforward 1,889 — 1,698 — Deferred compensation 1,603 — 1,246 — Capitalized R&D 783 — 269 — Reclamation 712 — 627 — Other assets 584 — 608 — Postretirement benefits 454 — 478 — Inventories 435 — 203 — Depletion — 141 — 158 Goodwill 109 — — 24 Allowance for credit losses 85 — 135 — Deferred marketing expenses — 33 — 11 Other liabilities — — — 301 Tax credits — — 301 — Other liabilities - foreign — 17 — 41 Valuation allowance ( 2,470 ) — ( 1,698 ) — Total deferred taxes $ 18,505 $ 16,968 $ 14,486 $ 7,285 Deferred tax assets for postretirement benefits were affected by the termination of our pension plan. See Note 9 of the Notes to the Consolidated Financial Statements for further information about postretirement benefits. Deferred tax assets and liabilities related to leases decrease as leases expire. Deferred tax assets for accrued expenses reflected a higher accrual for the annual discretionary bonus. We recorded a valuation allowance of $ 2.5 million and $ 1.7 million as of July 31, 2024 and July 31, 2023, respectively, for the amount of the deferred tax benefit related to our foreign net operating loss carryforwards and certain state 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, 2024, we have total net operating loss carryforwards from state jurisdictions of approximately $ 12.6 million. The carryforward expiration dates vary by state. 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 liabilities for unrecognized tax benefits based on tax positions related to the current and prior fiscal years as of July 31, 2024 and 2023; 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. We are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. We were audited by the Internal Revenue Service ("IRS") for fiscal year 2020 with no adjustments upon closure of the audit. The federal tax returns for fiscal years 2021-2023 remain open for examination. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years . 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 63 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. We believe our accrual for tax liabilities is adequate for all open audit years. NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes in accumulated other comprehensive income by component (in thousands): Pension and Postretirement Health Benefits Cumulative Translation Adjustment Total Accumulated Other Comprehensive (Loss) Income 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 ( 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 Other comprehensive income (loss) before reclassifications, net of tax 150 — 150 Amounts reclassified from accumulated other comprehensive income, net of tax ( 86 ) ( 43 ) ( 129 ) Net current-period other comprehensive income (loss), net of tax 64 ( 43 ) 21 Balance as of July 31, 2024 $ 1,076 $ ( 307 ) $ 769 a) Amount is net of $ 0.4 million of tax in fiscal years 2023. b) Amount is net of $ 0.5 million of tax in fiscal year 2023. Amount is included in the components of net periodic benefit cost for the pension and postretirement health plans. See Note 9 of the Notes to the Consolidated Financial Statements for further information about pension and postretirement health benefits. NOTE 8 – STOCK-BASED COMPENSATION The Oil-Dri Corporation of America 2006 Long Term Incentive Plan, as amended (the “2006 Plan”), permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based and cash-based awards. Our employees and outside directors are eligible to receive grants under the 2006 Plan. The total number of shares of stock subject to grants under the 2006 Plan may not exceed 1,719,500 . As of July 31, 2024, there were 626,730 shares of Common Stock or Class B Stock available for future grants under this plan. RESTRICTED S TOCK All non-vested restricted stock as of July 31, 2024 was issued under the 2006 Plan with vesting periods generally from one to five years . 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 in fiscal year 2024 and 2023 is $ 9.8 million and $ 2.2 million, respectively as of their vesting dates. 64 A summary of restricted stock transactions under the plans is shown below. Number of Shares (in thousands) Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (Years) Unamortized Expense (in thousands) Non-vested restricted stock outstanding at July 31, 2022 382 $ 33.63 3.0 $ 7,064 Granted 63 $ 29.88 Vested ( 73 ) $ 35.06 Forfeited ( 24 ) $ 29.22 Non-vested restricted stock outstanding at July 31, 2023 348 $ 32.95 2.3 $ 5,129 Granted 214 $ 63.06 Vested ( 153 ) $ 31.30 Forfeited ( 11 ) $ 39.08 Non-vested restricted stock outstanding at July 31, 2024 398 $ 49.63 3.4 $ 13,360 Stock-based compensation for restricted stock of $ 3.7 million and $ 2.4 million, net of related tax effect, was recognized in fiscal years 2024 and 2023, respectively. The total restricted stock compensation related tax benefit was $ 1.2 million and $ 0.8 million in fiscal years 2024 and 2023, respectively. NOTE 9 – PENSION AND OTHER POSTRETIREMENT BENEFITS The Oil-Dri Corporation of America Pension Plan ("Pension Plan") was a defined benefit pension plan for eligible salaried and hourly employees. 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. During fiscal year 2024 we did not have an active pension plan, therefore there was no accumulated benefit obligation for the Pension Plan as of July 31, 2024 or July 31, 2023. A postretirement health benefits plan is provided to domestic salaried employees who meet specific age, participation and length of service requirements at the time of retirement. Eligible employees may elect to continue their health care coverage under the Oil-Dri Corporation of America Employee Benefits Plan until the date certain criteria are met, including attaining the age of Medicare eligibility. We have the right to modify or terminate the postretirement health benefit plan at any time. A 401(k) savings plan is maintained under which we match a portion of employee contributions. 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 $ 3.9 million and $ 3.2 million for fiscal years 2024 and 2023, respectively. Obligations and Funded Status 65 The following tables provide a reconciliation of changes in the plan's benefit obligations, asset fair values and funded status by fiscal year (in thousands): Postretirement Health Benefits 2024 2023 Change in benefit obligation : Benefit obligation, beginning of year $ 1,853 $ 2,119 Service cost 74 84 Interest cost 83 73 Actuarial gain ( 200 ) ( 429 ) Benefits paid ( 25 ) 6 Benefit obligation, end of year 1,785 1,853 Change in plan assets: Fair value of plan assets, beginning of year — — Employer contribution 25 6 Benefits paid ( 25 ) ( 6 ) Fair value of plan assets, end of year — — Funded status, recorded in Consolidated Balance Sheets $ ( 1,785 ) $ ( 1,853 ) See “Cash Flows” below for further information about employer contributions and benefits payments. The following table shows amounts recognized in the Consolidated Balance Sheets as of July 31 (in thousands): Postretirement Health Benefits 2024 2023 Deferred income taxes $ 454 $ 478 Other current liabilities $ ( 125 ) $ ( 100 ) Other noncurrent liabilities $ ( 1,660 ) $ ( 1,753 ) Accumulated other comprehensive loss – net of tax: Net actuarial gain $ ( 1,076 ) $ ( 1,012 ) Benefit Costs and Amortizations The following table shows the components of the net periodic postretirement health benefit costs by fiscal year (in thousands): Postretirement Health Benefit Cost 2024 2023 Service cost $ 74 $ 84 Interest cost 83 73 Amortization of: Prior service income ( 6 ) ( 6 ) Other actuarial gain ( 107 ) ( 83 ) Net periodic benefit cost $ 44 $ 68 Service cost is recorded in Other, net within Other Income (Expense) in the Consolidated Statements of Operations. 66 The following table shows amounts, net of tax, that are recognized in other comprehensive income by fiscal year (in thousands): Postretirement Health Benefits 2024 2023 Net actuarial gain $ ( 150 ) $ ( 324 ) Amortization of: Prior service income 5 5 Amortization of actuarial loss 81 63 Total recognized in other comprehensive income $ ( 64 ) $ ( 256 ) Cash Flows The postretirement health plan is an unfunded plan. Our policy is to pay health insurance premiums and claims from our assets. The following table shows the estimated future benefit payments by fiscal year (in thousands): Postretirement Health Benefits 2025 $ 125 2026 $ 108 2027 $ 114 2028 $ 118 2029 $ 166 2030-2034 $ 809 Assumptions Our postretirement health benefit obligations and the related effects on operations are calculated using actuarial models. Critical assumptions that are important elements of plan expenses and asset/liability measurements include discount rate and health care cost trend for the postretirement health plan. We evaluate these critical assumptions at least annually. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience and to meet regulatory requirements. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors. The discount rate was based on the FTSE Pension Discount Curve to determine the single equivalent rate that would yield the same present value as the specific plan’s expected cash flows. The discount rates for net periodic benefit costs were 4.90 % and 3.82 % in fiscal years 2024 and 2023, respectively. The discount rates for year-end obligations were 5.03 % and 4.90 % as of July 31, 2024 and 2023, respectively. For fiscal year 2024, the medical cost trend assumption used for the postretirement health benefit cost was 7.9 %. The graded trend rate is expected to decrease to an ultimate rate of 4.9 % in fiscal year 2044 . NOTE 10 – DEFERRED COMPENSATION 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 deferred $ 0.3 million and $ 0.6 million into these plans in fiscal years 2024 and 2023, respectively. We recorded $ 0.2 million of interest expense associated with these plans in both fiscal years 2024 and 2023. Payments to participants were $ 0.4 million and $ 0.9 million in fiscal years 2024 and 2023, respectively, and the total liability recorded for deferred compensation was $ 5.0 million and $ 4.6 million as of July 31, 2024 and 2023, respectively. 67 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 $ 1.9 million and $ 1.4 million were awarded for fiscal year 2024 and fiscal year 2023, respectively 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. NOTE 11 - ACCRUED EXPENSES Accrued expenses is as follows (in thousands): July 31, 2024 July 31, 2023 Salaries, Wages, Commissions and Employee Benefits $ 20,711 $ 19,054 Payables 11,586 5,658 Freight 2,928 3,078 Trade promotions and advertising 2,743 2,292 Taxes 1,736 1,776 Georgia Landfill Modification Reserve 1,208 2,469 Other 3,104 2,541 $ 44,016 $ 36,868 NOTE 12 – OTHER CONTINGENCIES We are party to various legal actions that arise 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 the second quarter of fiscal year 2023, we recorded a reserve of $ 2.5 million for anticipated modification costs that we expected 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 represented management’s best estimate of the costs for the modification with respect to this matter, at the time. During fiscal year 2024, work began on the modifications and we recorded an additional reserve of $ 0.6 million to reflect an update to our best estimate. This has been offset by $ 1.9 million of payments made to date. The modification work is expected to be completed during fiscal year 2025. 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 13 – LEASES We have operating leases primarily for real estate properties, including corporate headquarters, customer service and sales offices, manufacturing and packaging facilities, warehouses, and research and development facilities, as well as for rail tracks, railcars and office equipment. Certain of our leases for a shared warehouse and office facility, rail track and railcars have options to extend which we are reasonably certain we will exercise and, accordingly, have been considered in the lease term used to recognize our ROU assets and lease liabilities. To determine the present value of the lease liability, we use an incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow (on a collateralized basis over a similar term) an amount equal to the lease payments in similar economic environments. As provided in ASC 842, we have elected not to apply these measurement and recognition requirements to short-term leases (i.e., leases with a term of 12 months or less). Short-term leases will not be recorded as ROU assets or lease liabilities on our consolidated balance sheet, and the related lease payments will be recognized in net earnings on a straight-line basis over the lease term. 68 We have no material finance leases, and variable costs for operating leases are immaterial. 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, 2024 2023 Operating lease cost $ 3,791 $ 2,640 Supplemental cash flow information related to leases was as follows (in thousands): For the Twelve Months Ended July 31, 2024 2023 Other Information Cash paid for amounts included in the measurement of lease liabilities: $ 3,112 $ 2,229 Right-of-use assets obtained in exchange for new operating lease liabilities 11,471 983 Operating lease ROU assets and operating lease liabilities are separately presented on the Consolidated Balance Sheets. Other supplemental balance sheet information related to leases was as follows: For the Twelve Months Ended July 31, 2024 2023 Weighted-average remaining lease term - operating leases 5.4 years 7.7 years Weighted-average discount rate - operating leases 5.10 % 4.03 % The following table summarizes scheduled minimum future lease payments due within twelve months for operating leases with terms longer than one year for which cash flows are fixed and determinable as of July 31, 2024 (in thousands): 2025 $ 5,441 2026 4,724 2027 3,758 2028 2,949 2029 2,356 Thereafter 3,480 Total 22,708 Less: imputed interest ( 2,761 ) Net lease obligation $ 19,947 69 NOTE 14 – RELATED PARTIES 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 $ 2.0 million and $ 0.2 million for fiscal years 2024 and 2023, respectively. There were $ 0.1 million of outstanding fees due to that vendor as of July 31, 2024. There were no outstanding amounts due to that vendor as of July 31, 2023. 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 sales to that customer, including sales to subsidiaries of that customer, were $ 0.2 million for both fiscal year 2024 and 2023. There were no outstanding amounts due from that customer as of July 31, 2024 or 2023. 70 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15f. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013 framework) issued by the Committee Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, our management concluded that our internal control over financial reporting was effective as of July 31, 2024. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. Our internal controls over financial reporting as of July 31, 2024 have been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included below under the heading “Report of Independent Registered Public Accounting Firm.” The attestation report of Grant Thornton LLP on the Company’s internal control over financial reporting is also included under this heading below. 71 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM of Directors and Shareholders Board of Directors and Shareholders Oil-Dri Corporation of America Opinions on the financial statements and internal control over financial reporting We have audited the accompanying consolidated balance sheets of Oil-Dri Corporation of America (a Delaware corporation) and subsidiaries (the “Company”) as of July 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended July 31, 2024, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of July 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended July 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. Basis for opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Ultra Pet Company Inc. (“Ultra Pet”), a wholly-owned subsidiary, whose financial statements reflect total assets and net sales constituting 3% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended July 31, 2024. As indicated in Management’s Report, Ultra Pet, was acquired during 2024. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Ultra Pet. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and 72 dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Acquisition of Ultra Pet Company Inc. - Valuation of Trade Name and Customer List Intangible Assets As described further in Note 2 to the financial statements, the Company acquired Ultra Pet Company Inc. (“Ultra Pet”), on May 1, 2024 for a total purchase price of approximately $44.3 million, net of cash acquired. The Company has recorded, on a preliminary basis, the assets acquired and liabilities assumed based on their estimated fair values, including customer list and trade name intangible assets of $20.4 million and $5.2 million, respectively. We identified the valuation of acquired Ultra Pet customer list and trade name intangible assets as a critical audit matter. The principal considerations for our determination that the valuation of acquired Ultra Pet customer list and trade name intangible assets is a critical audit matter are (i) the significant judgment by management when determining assumptions used in the fair value measurement of acquired intangible assets (ii) the high degree of auditor judgment and subjectivity in performing procedures and evaluating management’s significant assumptions relating to the projected financial information including revenue growth rate, weighted average cost of capital (WACC), royalty rate, and customer attrition rates and (iii) the audit effort involved the use of professionals with specialized skills and knowledge. Our audit procedures related to the valuation of the acquired customer list and trade name intangible assets included the following, among others: • we tested the design and operating effectiveness of the controls over the Company’s acquisition and valuation process, including review of the valuation model, significant assumptions used, and the completeness and accuracy of the underlying data used • we tested the projected financial information including forecasted revenue growth rate by assessing the reasonableness of management’s forecasts compared to historical results and forecasted industry trends • with the assistance of our valuation specialists, we assessed the assumptions and methodologies used in developing the WACC, royalty rate, and customer attrition rates by developing a range of independent estimates and comparing those to the rates selected by management. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2014. Chicago, Illinois October 10, 2024 73 ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.