Oil-Dri Corp of America

(continued)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

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.

PRINCIPLES OF CONSOLIDATION

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.

RECLASSIFICATION

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.

MANAGEMENT USE OF ESTIMATES

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.

CASH, CASH EQUIVALENTS ANDR ESTRICTEDCASH

Cash equivalents are highly liquid investments with maturities ofthree 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):

TRADE RECEIVABLES

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.

INVENTORIES

The composition of inventories was as follows as of July 31 (in thousands):

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.

TRANSLATION OF FOREIGN CURRENCIES

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.

INTANGIBLES AND GOODWILL

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):

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

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.

Goodwill by operating segment was as follows as of July 31 (in thousands):

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.

PROPERTY, PLANT AND EQUIPMENT

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 wasno capitalized interest in fiscal years 2024 and 2023.

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.

LAND ANDM ININGA 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 wereno 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 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.

RECLAMATION

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.

TRADE PROMOTIONS

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.

ADVERTISING

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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.

REVENUE RECOGNITION

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 recorded a liability of $0.2 million as of July 31, 2024 for these advance payments. There isno liability for advance payments as of July 31, 2023. This liability is reported in Other Accrued Expenses on the Consolidated Balance Sheets. There isno revenue recognized during fiscal year 2024 that was included in the liability for advance payments at the beginning of the year.

COST OFGOODSSOLD

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.

SHIPPING AND HANDLING COSTS

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.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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.

RESEARCH AND DEVELOPMENT

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.

PENSION AND POSTRETIREMENT BENEFIT COSTS

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.

STOCK-BASED COMPENSATION

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.

INCOMET 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.

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.

EARNINGSPERS 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 toone vote per share and Class B Stock is entitled toten 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.

NEW ACCOUNTING PRONOUNCEMENTS

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 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.

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 forthe period from May 1, 2024, to July 31, 2024, net ofacquisition 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.

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:

(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 havetwo 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):

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.

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.

The following is a summary by fiscal year of financial information by geographic region (in thousands):

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:

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):

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):

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.

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.

NOTE 6 –INCOME TAXES

The provision for income tax expense by fiscal year consists of the following (in thousands):

Principal reasons for variations between the statutory federal rate and the effective rates by fiscal year were as follows:

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.

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

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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 hadno 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 wereno 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 tofive 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 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):

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 STOCK

All non-vested restricted stock as of July 31, 2024 was issued under the 2006 Plan with vesting periods generally fromone tofive 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.

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

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 wasno 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

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):

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):

Benefit Costs and Amortizations

The following table shows the components of the net periodic postretirement health benefit costs by fiscal year (in thousands):

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

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

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):

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.

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):

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.

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):

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

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:

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):

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 wereno 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 wereno outstanding amounts due from that customer as of July 31, 2024 or 2023.