UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D. C.D.C. 20549


FORM 10-Q
(Mark One)
☒        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended January 31, 2024
or
x
Quarterly Report Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
For the Quarterly Period Ended January 31, 2018
or
o☐
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to ______________


Commission File Number 001-12622


OIL-DRI CORPORATION OF AMERICA
(Exact name of the registrant as specified in its charter)

Delaware
36-2048898
Delaware
(State  (State or other jurisdiction of incorporation or
organization)
36-2048898
(I.R.S. (I.R.S. Employer
Identification No.)
410 North Michigan Avenue, Suite 400
60611-4213
Chicago, Illinois
(Address
   (Zip Code)
 (Address of principal executive offices)
The registrant's telephone number, including area code: (312) 321-1515
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
60611-4213
(Zip Code)
Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.10 per shareODCNew York Stock Exchange


The registrant's telephone number, including area code: (312) 321-1515

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for at least the past 90 days. Yes x☒ No o☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o
Non-accelerated Filer o
Large accelerated filer oAccelerated Filer x
Accelerated filer  Smaller Reporting Company x
Non-accelerated filer o
Smaller reporting company o
Emerging growth company Growth Company o


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒


Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of January 31, 2018.February 29, 2024.
Common Stock – 5,138,4585,125,142 Shares and Class B Stock – 2,178,9372,161,907 Shares





TABLE OF CONTENTS
 
PART I – FINANCIAL INFORMATION
Page
Item 1:
3
Item 2:
2024
Item 3:4:
27
Item 4:
Controls and Procedures
2830
PART II – OTHER INFORMATION
Item 1:1A:
2931
Item 2:
32
Item 4:
2932
Item 6:5:
3032
Item 6:
33
3134


FORWARD-LOOKING STATEMENTS


Certain statements in this report, including, but not limited to, those under the heading “Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations," and those statements elsewhere in this report and other documents that we file with the Securities and Exchange Commission (“SEC”("SEC"), contain forward-looking statements, within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. WordsForward-looking statements can be identified by words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words"expect," "outlook," "forecast," "would," "could," "should," "project," "intend," "plan," "continue," "believe," "seek," "estimate," "anticipate," "may," "assume," "potential," "strive," and similar expressions are intendedreferences to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.future periods.


Such statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially, including, but not limited to, those described herein and in Item 1A, Risk"Risk Factors, of" in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023, and from time to time in our other filings with the SEC. Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, intended, expected, believed, estimated, projected, planned or planned.otherwise expressed in any forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except to the extent required by law, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.
 
TRADEMARK NOTICE


Cat’s Pride, Fresh & Light and Oil-Dri are"Oil-Dri" is a registered trademarkstrademark of Oil-Dri Corporation of America.

2


PART I - FINANCIAL INFORMATION


ITEM 1.  Financial Statements


OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Balance Sheet
(in thousands, except share and per share amounts)(Unaudited)


(in thousands, except for share and per share amounts)
ASSETSJanuary 31,
2024		July 31,
2023
Current Assets  
Cash and cash equivalents$27,800 $31,754 
Accounts receivable, net allowances of
  $1,072 and $1,087 at January 31, 2024 and July 31, 2023, respectively
59,336 59,287 
Inventories, net46,230 42,612 
Prepaid expenses6,067 2,854 
Total Current Assets139,433 136,507 
Property, Plant and Equipment  
Cost315,908 305,851 
Less accumulated depreciation and amortization(190,881)(184,979)
Total Property, Plant and Equipment, Net125,027 120,872 
Other Assets  
Goodwill3,618 3,618 
Intangible assets, net of accumulated amortization
 of $8,383 and $8,341 at January 31, 2024 and July 31, 2023, respectively
1,454 1,421 
Deferred income taxes6,820 7,201 
Operating lease right-of-use assets12,649 9,386 
Other7,151 7,230 
Total Other Assets31,692 28,856 
Total Assets$296,152 $286,235 
 (unaudited)  
ASSETSJanuary 31,
2018		 July 31,
2017
Current Assets   
Cash and cash equivalents$9,381
 $9,095
Short-term investments21,894
 23,576
Accounts receivable, less allowance of
  $901 and $748 at January 31, 2018 and July 31, 2017, respectively		32,309
 32,750
Inventories22,603
 22,615
Prepaid repairs expense3,827
 3,890
Prepaid expenses and other assets4,140
 2,304
Total Current Assets94,154
 94,230
    
Property, Plant and Equipment 
  
Cost229,957
 224,444
Less accumulated depreciation and amortization(145,668) (140,411)
Total Property, Plant and Equipment, Net84,289
 84,033
    
Other Assets 
  
Goodwill9,034
 9,034
Trademarks and patents, net of accumulated amortization
of $251 and $238 at January 31, 2018 and July 31, 2017, respectively		1,300
 1,223
Customer list, net of accumulated amortization
of $5,070 and $4,601 at January 31, 2018 and July 31, 2017, respectively		2,715
 3,184
Deferred income taxes9,106
 14,396
Other4,937
 6,475
Total Other Assets27,092
 34,312
    
Total Assets$205,535
 $212,575







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



3


OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Balance Sheet (continued)
(in thousands, except share and per share amounts)(Unaudited)


(in thousands, except for share and per share amounts)
LIABILITIES & STOCKHOLDERS’ EQUITYJanuary 31,
2024		July 31,
2023
Current Liabilities  
Current maturities of notes payable$1,000 $1,000 
Accounts payable12,009 17,101 
Dividends payable1,963 1,927 
Operating lease liabilities2,637 1,872 
Accrued expenses28,554 36,868 
Total Current Liabilities46,163 58,768 
Noncurrent Liabilities  
Notes payable, net of unamortized debt issuance costs
 of $149 and $173 at January 31, 2024 and July 31, 2023, respectively
30,851 30,827 
Deferred compensation5,423 4,512 
Long-term operating lease liabilities11,251 8,810 
Other6,426 6,242 
Total Noncurrent Liabilities53,951 50,391 
Total Liabilities100,114 109,159 
Commitments and contingencies (See note 7)
Stockholders’ Equity  
Common Stock, par value $.10 per share, issued 8,817,723 shares at January 31, 2024
  and 8,750,223 shares at July 31, 2023
882 875 
Class B Stock, par value $.10 per share, issued 2,524,556 shares at January 31, 2024
  and 2,397,056 shares at July 31, 2023
252 240 
Additional paid-in capital58,205 55,624 
Retained earnings219,995 200,796 
Accumulated other comprehensive income733 748 
Less Treasury Stock, at cost (3,694,081 Common and 362,649 Class B shares at
January 31, 2024 and 3,658,989 Common and 351,641 Class B shares at July 31, 2023)
(84,029)(81,207)
Total Stockholders’ Equity196,038 177,076 
Total Liabilities & Stockholders’ Equity$296,152 $286,235 
 (unaudited)  
LIABILITIES & STOCKHOLDERS’ EQUITYJanuary 31,
2018		 July 31,
2017
Current Liabilities   
Current maturities of notes payable$3,083
 $3,083
Accounts payable8,089
 9,594
Dividends payable1,559
 1,553
Accrued expenses:   
Salaries, wages and commissions5,724
 7,459
Deferred compensation5,996
 458
Trade promotions and advertising1,074
 2,253
Freight950
 1,606
Other6,859
 6,948
Total Current Liabilities33,334
 32,954
    
Noncurrent Liabilities 
  
Notes payable, net of unamortized debt issuance costs
of $75 and $89 at January 31, 2018 and July 31, 2017, respectively
6,092
 9,161
Deferred compensation6,281
 11,537
Pension and postretirement benefits29,392
 29,161
Other4,174
 3,725
Total Noncurrent Liabilities45,939
 53,584
    
Total Liabilities79,273
 86,538
    
Stockholders’ Equity 
  
Common Stock, par value $.10 per share, issued 8,049,050 shares at January 31, 2018
  and 8,015,166 shares at July 31, 2017		805
 802
Class B Stock, par value $.10 per share, issued 2,503,678 shares at January 31, 2018
  and 2,513,512 shares at July 31, 2017		250
 251
Additional paid-in capital37,253
 36,242
Retained earnings153,571
 154,735
Accumulated other comprehensive loss: 
  
Pension and postretirement benefits(9,909) (10,327)
Cumulative translation adjustment105
 35
Total accumulated other comprehensive loss(9,804) (10,292)
Less Treasury Stock, at cost (2,910,592 Common and 324,741 Class B shares at
 January 31, 2018 and 2,907,370 Common and 324,741 Class B shares at July 31, 2017)		(55,813) (55,701)
Total Stockholders’ Equity126,262
 126,037
    
Total Liabilities & Stockholders’ Equity$205,535
 $212,575


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


OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Income and Retained Earnings
(in thousands, except for per share amounts)
 (unaudited)
 For the Six Months Ended January 31,
 2018 2017
    
Net Sales$135,540
 $131,786
Cost of Sales(96,931) (91,936)
Gross Profit38,609
 39,850
Selling, General and Administrative Expenses(29,936) (31,217)
Income from Operations8,673
 8,633
    
Other Income (Expense) 
  
Interest expense(400) (489)
Interest income119
 16
Other, net518
 (237)
Total Other Income (Expense), Net237
 (710)
    
Income Before Income Taxes8,910
 7,923
Income Tax Expense(6,956) (1,664)
Net Income1,954
 6,259
    
Retained Earnings:   
Balance at beginning of period154,735
 149,945
Cash dividends declared and treasury stock issuances(3,118) (2,964)
Balance at End of Period$153,571
 $153,240
    
Net Income Per Share   
Basic Common$0.29
 $0.93
Basic Class B Common$0.22
 $0.70
Diluted Common$0.26
 $0.86
Average Shares Outstanding   
Basic Common5,030
 5,011
Basic Class B Common2,097
 2,077
Diluted Common7,215
 7,145
Dividends Declared Per Share   
Basic Common$0.4600
 $0.4400
Basic Class B Common$0.3460
 $0.3300


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

4



OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except for per share amounts)For the Six Months Ended January 31,
 20242023
Net Sales$217,106 $200,208 
Cost of Goods Sold(155,173)(154,882)
Gross Profit61,933 45,326 
Selling, General and Administrative Expenses(33,612)(31,451)
Income from Operations28,321 13,875 
Other (Expense) Income  
Interest expense(723)(731)
Interest income472 115 
Other, net(558)(1,783)
Total Other Expense, Net(809)(2,399)
Income Before Income Taxes27,512 11,476 
Income Tax Expense(4,388)(2,400)
Net Income23,124 9,076 
Net Loss Attributable to Noncontrolling Interest— (21)
Net Income Attributable to Oil-Dri$23,124 $9,097 
Earnings Per Share
Basic Common$3.44 $1.37 
Basic Class B Common$2.58 $1.03 
Diluted Common$3.19 $1.34 
   Diluted Class B Common$2.58 $1.02 
Average Shares Outstanding
Basic Common4,856 4,817 
Basic Class B Common1,971 1,953 
Diluted Common6,827 4,937 
   Diluted Class B Common1,971 1,975 
Dividends Declared Per Share
Basic Common$0.580 $0.560 
Basic Class B Common$0.436 $0.420 


The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
5

OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

(in thousands)For the Six Months Ended January 31,
 20242023
Net Income Attributable to Oil-Dri$23,124 $9,097 
Other Comprehensive Loss:
Pension and postretirement benefits (net of tax)(43)(13)
Cumulative translation adjustment28 (129)
Other Comprehensive Loss(15)(142)
Total Comprehensive Income$23,109 $8,955 

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







































6

OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Operations
(in thousands, except for per share amounts)
(unaudited)
 For the Three Months Ended January 31,
 20242023
Net Sales$105,668 $101,669 
Cost of Goods Sold(74,726)(78,653)
Gross Profit30,942 23,016 
Selling, General and Administrative Expenses(15,777)(15,710)
Income from Operations15,165 7,306 
Other (Expense) Income  
Interest expense(362)(367)
Interest income297 59 
Other, net(418)(1,959)
Total Other Expense, Net(483)(2,267)
Income Before Income Taxes14,682 5,039 
Income Tax Expense(2,300)(1,193)
Net Income12,382 3,846 
Net Loss Attributable to Noncontrolling Interest— (10)
Net Income Attributable to Oil-Dri$12,382 $3,856 
Net Income Per Share
Basic Common$1.84 $0.58 
Basic Class B Common$1.38 $0.44 
Diluted Common$1.70 $0.56 
   Diluted Class B Common$1.38 $0.43 
Average Shares Outstanding
Basic Common4,883 4,829 
Basic Class B Common1,977 1,964 
Diluted Common6,860 4,965 
   Diluted Class B Common1,977 1,985 
Dividends Declared Per Share
Basic Common$0.290 $0.280 
Basic Class B Common$0.218 $0.210 


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

7

OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Comprehensive Income
(in thousands of dollars)
(unaudited)
 For the Three Months Ended January 31,
 20242023
Net Income Attributable to Oil-Dri$12,382 $3,856 
Other Comprehensive Income:
Pension and postretirement benefits (net of tax)(24)(5)
Cumulative translation adjustment194 256 
Other Comprehensive Income170 251 
Total Comprehensive Income$12,552 $4,107 
 (unaudited)
 For the Six Months Ended January 31,
 2018 2017
    
Net Income$1,954
 $6,259
    
Other Comprehensive Income:   
Pension and postretirement benefits (net of tax)418
 578
Cumulative translation adjustment70
 49
Other Comprehensive Income488
 627
Total Comprehensive Income$2,442
 $6,886


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

8




OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Income and Retained EarningsStockholders' Equity
(in thousands, except for per share amounts)(Unaudited)

For the Three Months Ended January 31
(unaudited)
Number of Shares
Common
& Class B
Stock		Treasury
Stock		Common
& Class B
Stock		Additional
Paid-In
Capital		Retained
Earnings		Treasury
Stock		Accumulated
Other
Comprehensive
Loss		Non-Controlling InterestTotal
Stockholders’
Equity
Balance, October 31, 202211,122,674 (3,968,939)$1,112 $53,385 $182,135 $(79,648)$(2,576)$(380)$154,028 
Net Income (Loss)— — — — 3,856 — — (10)3,846 
Other Comprehensive Income— — — — — — 251 — 251 
Dividends Declared— — — — (1,858)— — — (1,858)
Purchases of Treasury Stock— (4,133)— — — (133)— — (133)
Net issuance of stock under long-term incentive plans18,605 (3,246)2 103 — (105)— — — 
Amortization of Restricted Stock— — — 840 — — — — 840 
Balance, January 31, 202311,141,279 (3,976,318)$1,114 $54,328 $184,133 $(79,886)$(2,325)$(390)$156,974 
Balance, October 31, 202311,329,279 (4,026,459)$1,133 $56,746 $209,585 $(82,111)$563 $— $185,916 
Net Income (Loss)— — — — 12,382 — — — 12,382 
Other Comprehensive Income— — — — — — 170 — 170 
Dividends Declared— — — — (1,972)— — — (1,972)
Purchases of Treasury Stock— (24,746)— — — (1,703)— — (1,703)
Net issuance of stock under long-term incentive plans13,000 (5,525)1 213 — (215)— — (1)
Amortization of Restricted Stock— — — 1,246 — — — — 1,246 
Balance, January 31, 202411,342,279 (4,056,730)$1,134 $58,205 $219,995 $(84,029)$733 $— $196,038 
For the Six Months Ended January 31
(in thousands, except share amounts)
Number of Shares
Common & Class B StockTreasury StockCommon & Class B StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossNon-controlling InterestTotal Stockholders' Equity
Balance, July 31, 202211,083,824 (3,961,579)$1,108 $52,467 $178,754 $(79,428)$(2,183)$(369)$150,349 
Net Income (Loss)— — — — 9,097 — — (21)9,076 
Other Comprehensive Loss— — — — — — (142)— (142)
Dividends Declared— — — — (3,718)— — — (3,718)
Purchases of Treasury Stock— (7,493)— — — (225)— — (225)
Net issuance of stock under long-term incentive plans57,455 (7,246)6 227 — (233)— — — 
Amortization of Restricted Stock— — — 1,634 — — — — 1,634 
Balance, January 31, 202311,141,279 (3,976,318)$1,114 $54,328 $184,133 $(79,886)$(2,325)$(390)$156,974 
Balance, July 31, 202311,147,279 (4,010,630)$1,115 $55,624 $200,796 $(81,207)$748 $— $177,076 
Net Income (Loss)— — — — 23,124 — — — 23,124 
Other Comprehensive Loss— — — — — — (15)— (15)
Dividends Declared— — — — (3,925)— — — (3,925)
Purchases of Treasury Stock— (40,075)— — — (2,575)— — (2,575)
Net issuance of stock under long-term incentive plans195,000 (6,025)19 227 — (247)— — (1)
Amortization of Restricted Stock— — — 2,354 — — — — 2,354 
Balance, January 31, 202411,342,279 (4,056,730)$1,134 $58,205 $219,995 $(84,029)$733 $— $196,038 
 (unaudited)
 For the Three Months Ended January 31,
 2018 2017
    
Net Sales$68,894
 $65,174
Cost of Sales(49,254) (46,049)
Gross Profit19,640
 19,125
Selling, General and Administrative Expenses(14,883) (13,538)
Income from Operations4,757
 5,587
    
Other Income (Expense) 
  
Interest expense(199) (238)
Interest income65
 8
Other, net448
 (113)
Total Other Income (Expense), Net314
 (343)
    
Income Before Income Taxes5,071
 5,244
Income Tax Expense(6,167) (994)
Net (Loss) Income(1,096) 4,250
    
Net (Loss) Income Per Share   
Basic Common$(0.17) $0.63
Basic Class B$(0.12) $0.47
Diluted Common$(0.15) $0.58
Average Shares Outstanding   
Basic Common5,035
 5,019
Basic Class B2,104
 2,088
Diluted Common7,139
 7,155
Dividends Declared Per Share   
Basic Common$0.2300
 $0.2200
Basic Class B$0.1730
 $0.1650




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




9

OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Comprehensive IncomeCash Flows
(in thousands of dollars)(Unaudited)


(in thousands)For the Six Months Ended January 31,
CASH FLOWS FROM OPERATING ACTIVITIES20242023
Net Income$23,124 $9,076 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization8,854 7,274 
Non-cash stock-based compensation2,354 1,634 
Deferred income taxes381 166 
Provision for bad debts and cash discounts(16)207 
    Accretion of Asset Retirement Obligation105 80 
Loss on the disposals of property, plant and equipment141 15 
(Increase) Decrease in assets:  
Accounts receivable(64)(5,738)
Inventories(3,666)(2,717)
Prepaid expenses(3,217)626 
Other assets311 1,000 
Increase (Decrease) in liabilities:  
Accounts payable(3,243)180 
Accrued expenses(7,582)3,891 
Deferred compensation911 (118)
Other liabilities(448)(1,359)
Total Adjustments(5,179)5,141 
Net Cash Provided by Operating Activities17,945 14,217 
CASH FLOWS FROM INVESTING ACTIVITIES  
Capital expenditures(15,546)(12,640)
Proceeds from sale of property, plant and equipment— 5 
Net Cash Used in Investing Activities(15,546)(12,635)
CASH FLOWS FROM FINANCING ACTIVITIES  
Dividends paid(3,889)(3,711)
Purchases of treasury stock(2,575)(225)
Net Cash Used in Financing Activities(6,464)(3,936)
Effect of exchange rate changes on Cash and Cash Equivalents111 7 
Net Decrease in Cash and Cash Equivalents(3,954)(2,347)
Cash and Cash Equivalents, Beginning of Period31,754 16,298 
Cash and Cash Equivalents, End of Period$27,800 $13,951 
 (unaudited)
 For the Three Months Ended January 31,
 2018 2017
    
Net (Loss) Income$(1,096) $4,250
    
Other Comprehensive Income:   
Pension and postretirement benefits (net of tax)237
 309
Cumulative translation adjustment144
 63
Other Comprehensive Income381
 372
Total Comprehensive (Loss) Income$(715) $4,622


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

10



OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Cash Flows
(in thousands)
 (unaudited)
 For the Six Months Ended January 31,
CASH FLOWS FROM OPERATING ACTIVITIES2018 2017
Net Income$1,954
 $6,259
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and amortization6,413
 6,389
Amortization of investment net discount(57) (5)
Stock-based compensation770
 777
Excess tax benefits for share-based payments—
 (207)
Deferred income taxes5,312
 354
Provision for bad debts and cash discounts155
 131
Loss on the sale of fixed assets31
 276
Life insurance benefits(334) —
(Increase) Decrease in assets: 
  
Accounts receivable362
 (1,829)
Inventories75
 11
Prepaid expenses(51) (3,784)
Other assets55
 (156)
Increase (Decrease) in liabilities: 
  
Accounts payable(743) 852
Accrued expenses(3,637) (1,698)
Deferred compensation268
 487
Pension and postretirement benefits649
 1,001
Other liabilities407
 235
Total Adjustments9,675
 2,834
Net Cash Provided by Operating Activities11,629
 9,093
    
CASH FLOWS FROM INVESTING ACTIVITIES 
  
Capital expenditures(6,850) (7,279)
Proceeds from sale of property, plant and equipment11
 2
Purchases of short-term investments(24,101) (11,555)
Dispositions of short-term investments25,840
 14,386
Net Cash Used in Investing Activities(5,100) (4,446)
    
CASH FLOWS FROM FINANCING ACTIVITIES 
  
Principal payments on notes payable(3,083) (3,083)
Dividends paid(3,112) (2,956)
Purchase of treasury stock(27) (122)
Proceeds from issuance of common stock—
 170
Excess tax benefits for share-based payments—
 207
Net Cash Used in Financing Activities(6,222) (5,784)
Effect of exchange rate changes on cash and cash equivalents(21) 68
Net Increase (Decrease) in Cash and Cash Equivalents286
 (1,069)
Cash and Cash Equivalents, Beginning of Period9,095
 18,629
Cash and Cash Equivalents, End of Period$9,381
 $17,560




OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Cash Flows - Continued
(in thousands)(Unaudited)


(in thousands)For the Six Months Ended January 31,
20242023
Supplemental disclosures:
Other cash flows:
    Interest payments, net of amounts capitalized$545 $567 
    Income tax payments, net of refunds8,072 1,323 
Non-cash investing and financing activities:
Capital expenditures accrued, but not paid$1,727 $1,283 
Cash dividends declared and accrued, but not paid$1,963 $1,858 
 (unaudited)
 For the Six Months Ended January 31,
 2018 2017
Supplemental disclosure of non-cash investing and financing activities:   
Capital expenditures accrued, but not paid$890
 $657
Cash dividends declared and accrued, but not paid$1,559
 $1,485




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






11

OIL-DRI CORPORATION OF AMERICA
Notes To Condensed Consolidated Financial Statements
(Unaudited)


1.BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation


The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“("U.S. GAAP”GAAP") for interim financial information and in compliance with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial statements and the related notes are condensed and should be read in conjunction with the Consolidated Financial Statements and related notes for the fiscal year ended July 31, 2017included in our Annual Report on Form 10-K filed withfor the SEC.fiscal year ended July 31, 2023.


The unaudited Condensed Consolidated Financial Statements include the accounts of Oil-Dri Corporation of America and its subsidiaries. All significant intercompany transactions are eliminated. Except as otherwise indicated herein or as the context otherwise requires, references to “Oil-Dri,”"Oil-Dri," the “Company,” “we,” “us”"Company," "we," "us" or “our”"our" refer to Oil-Dri Corporation of America and its subsidiaries.


The unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals and reclassifications which are, in the opinion of management, necessary for a fair presentation of the statements contained herein. In addition, certain prior year reclassifications were made to conform to the current year presentation. Operating results for the three and six months ended January 31, 20182024 are not necessarily an indication of the results that may be expected for the fiscal year ending July 31, 2018.2024.


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.

Management Use of Estimates


The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires the use ofmanagement to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period, as well as the related disclosures. See Note 10 for additional discussion regarding tax legislation enacted by the U.S. government in December 2017, the impact of which may affect the estimatesEstimates and assumptions used to determine the expectedabout future tax consequences of events recognized in our consolidated financial statements.cannot be made with certainty. All of our estimates and assumptions are revised periodically. Actual results could differ from these estimates.


Summary of Significant Accounting Policies


Except as described herein, ourOur significant accounting policies, which are detailedsummarized in detail in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017,2023, have not materially changed. However, the unaudited Condensed Consolidated Financial Statements reflect changes required upon adoption of new accounting guidance, as described in Note 2, and the effects of changes from recent U.S. tax legislation, as described in Note 10. The following is a description of certain of our significant accounting policies.policies:


Revenue Recognition.Trade Receivables. We recognize revenuetrade receivables when riskcontrol of loss and titlefinished products are transferred under the terms ofto our sales agreements with customers at a fixed and determinable price and collection of payment is probable. Trade promotion reserves are provided for sales incentives made directly to consumers, such as coupons, and sales incentives made to customers, such as slotting, discounts based on sales volume, cooperative marketing programs and other arrangements. Such trade promotion costs are netted against sales. Sales returns and allowances are not material.

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.

Trade Receivables.customers. We record an allowance for doubtful accountscredit losses based on our historical experienceexpectations 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 customer 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.



Property, Plant and Equipment. Property, plant and equipment includes depreciable assets such as building, machinery, equipment, furniture, vehicles, and capitalized spare parts. These assets are depreciated using the straight-line method over their estimated useful lives. Major improvements are capitalized, while maintenance and repairs that do not extend the useful life 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.


Overburden RemovalThese assets are carried at cost on the Consolidated Balance Sheets and are reviewed for possible impairment on an annual basis or when circumstances indicate impairment that an asset may become 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.
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Land, Mining Costs.Property and Mineral Rights. We surface mine sorbent materials on property that we either own or lease as part of our overall operations. A significant part of our overall mining cost is incurred during the process of removing the overburden (non-usable material) from the mine site, thus exposing the sorbent material used in a majority of our production processes. These stripping costs are treated as a variable inventory production cost and are included in cost of salesgoods sold in the period they are incurred. We defer and amortize the pre-production overburden removal costs during the development phase associated with opening a new mine.


Additionally, it is our policy to capitalize the purchase cost of land and mineral rights, including associated legal fees, survey fees and real estate fees. The costs of obtaining mineral patents, including legal fees and drilling expenses, are also capitalized. Pre-production development costs on new mines and any prepaid royalties that may be offset against future royalties due upon extraction of the minerals are also capitalized. All exploration related costs are expensed as incurred.


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

Leases. ASC 842, Leases, provides that a contract is, or contains, a lease if it conveys the right to control the use of an identified asset and, accordingly, a lease liability and a related right-of-use ("ROU") asset is recognized at the commencement date on our consolidated balance sheet. 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. For leases other than short-term leases, the lease liability is equal to the present value of unpaid lease payments over the remaining lease term. The lease term may reflect options to extend or terminate the lease when it is reasonably certain that such options will be exercised. To determine the present value of the lease liability, we used an incremental borrowing rate, which is defined as the rate of interest we 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. The ROU asset is based on the corresponding lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Both operating and finance lease ROU assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a ROU asset is impaired, any remaining balance of the ROU asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life. After the lease commencement date, we evaluate lease modifications, if any, that could result in a change in the accounting for leases.

Certain of our leases provide for variable lease payments that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., the Consumer Price Index) are included in the initial measurement of the lease liability and the ROU asset. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset, are expensed as incurred. Our variable lease payments primarily include common area maintenance charges based on the percentage of the total square footage leased and the usage of assets, such as photocopiers.

Some of our contracts may contain lease components as well as non-lease components, such as an agreement to purchase services. As allowed under ASC 842, we have elected not to separate the lease components from non-lease components for all asset classes and we will not allocate the contract consideration to these components. This policy was applied to all existing leases upon adoption of ASC 842 and will be applied to new leases on an ongoing basis.

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 and 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 and any related obligations.


13

We have an unconditional right to consideration under the payment terms specified in the contracts upon completion of the
performance obligation. We may require certain customers to provide payment in advance of product shipment. We recorded a
liability for these advance payments of $0.2 million as of January 31, 2024, and no liability as of July 31, 2023. This liability is reported in Other within Accrued Expenses on the unaudited Condensed Consolidated Balance Sheet. There was no revenue recognized during the six months ended January 31, 2024, that was included in the liability for advance payments at the beginning of the period.

We routinely commit to one-time or ongoing trade promotion programs directly with consumers, such as coupon programs, and with customers, such as volume discounts, cooperative marketing and other arrangements. We estimate and accrue the expected costs of these programs. These costs are considered variable consideration under ASC 606, Revenue from Contracts with Customers, and are netted against sales when revenue is recorded. The accruals are based on our best estimate of the amounts necessary to settle future and existing obligations on products sold as of the balance sheet date. To estimate these accruals, we rely on our historical experience of trade spending patterns and that of the industry, current trends and forecasted data.

Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") 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.

Other Current and Noncurrent Liabilities. Other liabilities include the accruals for general expenses not yet paid, cash collected not yet vouchered, legal reserves, postretirement health benefit obligations, and reclamation liability accrual. Current liabilities are due to be paid within the next 12 months. Other noncurrent liabilities on the unaudited Condensed Consolidated Balance Sheet includes $4.6 million for the reclamation liability as of January 31, 2024 and $4.5 million as of July 31, 2023 and $1.8 million for postretirement health benefit as of both January 31, 2024 and July 31, 2023, respectively.

Earnings Per Share. We utilize the two-class method to report our earnings per share ("EPS"). The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings. Common Stock is entitled to cash dividends equal to at least 133.33% on a per share basis of the cash dividend paid on Class B Stock. In computing earnings per share, the Company has allocated dividends declared to Common and Class B shares based on amounts actually declared for each class of stock and 33.33% more of the undistributed earnings have been allocated to Common Stock than to the Class B shares on a per share basis. Common Stock is entitled to one vote per share and Class B Stock is entitled to ten votes per share. Common Stock have no conversion rights. Class B Stock is convertible on a share-by-share basis into Common Stock at any time and is subject to mandatory conversion under certain circumstances. Basic EPS is computed by dividing net earnings, reduced for any distributed and undistributed earnings allocated to unvested restricted shares, by the weighted-average number of shares outstanding during the period for each class of share. Diluted EPS, for each class of common stock, is computed by dividing net earnings by the weighted-average number of common shares and potential common shares outstanding during the period. Dilution for common stock takes into consideration the effect of both unvested restricted shares and convertible Class B shares, if the effect is dilutive. Dilution for Class B takes into consideration the effect of unvested restricted shares, if the effect is dilutive. Below is a reconciliation of the calculation of basic and diluted EPS.
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For the Six Months Ended January 31, 2024
(in thousands, except for per share data)
TotalCommonClass B
Net income$23,124 $17,597 $5,527 
Distributed and undistributed earnings on restricted shares(1,339)(905)(434)
Income available to stockholders$21,785 $16,692 $5,093 
Net Income (Numerator)$16,692 $5,093 
Weighted Average Shares Outstanding (Denominator)4,856 1,971 
Basic EPS$3.44 $2.58 
Effect of dilution - Net Income (1)
$5,093 $— 
Net income assuming dilution (Numerator)$21,785 $5,093 
Effect of dilution - Shares (1)
1,971 $— 
Shares assuming dilution (Denominator)6,827 $1,971 
Diluted EPS$3.19 $2.58 
For the Three Months Ended January 31, 2024
(in thousands, except for per share data)
TotalCommonClass B
Net income$12,382 $9,415 $2,967 
Distributed and undistributed earnings on restricted shares(698)(453)(245)
Income available to stockholders$11,684 $8,962 $2,722 
Net Income (Numerator)$8,962 $2,722 
Weighted Average Shares Outstanding (Denominator)4,883 1,977 
Basic EPS$1.84 $1.38 
Effect of dilution - Net Income (1)
$2,722 $— 
Net income assuming dilution (Numerator)$11,684 $2,722 
Effect of dilution - Shares (1)
1,977 $— 
Shares assuming dilution (Denominator)6,860 $1,977 
Diluted EPS$1.70 $1.38 
(1) The impact of unvested restricted stock was anti-dilutive therefore not included in the calculation of diluted EPS


15

2.NEW ACCOUNTING PRONOUNCEMENTS AND REGULATIONS

Recently Issued PronouncementsAccounting Standards Not Yet Adopted

In May 2014,December 2023, the Financial Accounting Standards Board (“FASB”)(FASB) issued guidance under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which establishes a single comprehensive revenue recognition model for all contracts with customersUpdate (ASU) No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." These amendments primarily require enhanced disclosures and will supersede most existing revenue guidance. This guidance was subsequently amended several times to further clarifydisaggregation of income tax information by jurisdiction in the principles for recognizing revenue. The guidance requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expectsannual income tax reconciliation and quantitative disclosures regarding income taxes paid. These amendments are to be entitledapplied prospectively, with the option to receive in exchange. Oil-Dri's revenue is generated from the sale of finished goods to customers. Those sales predominantly contain a single delivery obligation. Under Oil-Dri's current accounting policy, revenue is recognized at a single point in time when ownership, risks and rewards transfer. We are currently in the process of performing a comprehensive evaluation of the revenue requirements, including the impact on how we record certain incentives and advertising arrangements, as well as significant new disclosure requirements. We plan to adoptapply the standard at theretrospectively, for annual periods beginning of our first quarter of fiscal year 2019. Transition options to implement this guidance include either a full or modified retrospective approach and early adoption is permitted. We expect to use the modified retrospective implementation method.

In January 2016, the FASB issued guidance under ASC 825, Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The provisions relevant to us at this time require the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, as well as eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value in such disclosure. This guidance is effective for our first quarter of fiscal year 2019 and early adoption is generally not permitted. We are currently evaluating the impact of the adoption of this requirement on our Consolidated Financial Statements.
In February 2016, the FASB issued guidance under ASC 842, Leases, which provides that, for leases with a term greater than 12 months, a lessee must recognize in the statement of financial position both a liability to make lease payments and an asset representing its right to use the underlying asset. Other requirements describe expense recognition, as well as financial statement presentation and disclosure. This guidance is effective for our first quarter of fiscal year 2020 using a modified retrospective approach, which includes a number of optional practical expedients.after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact ofthat the adoption of this requirementguidance will have on our Consolidated Financial Statements.disclosures.
In June 2016,November 2023, the FASB issued guidance under ASC 326, Financial Instruments-Credit Losses, which requires companiesASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to utilize an impairment model for most financial assets measured at amortized costReportable Segment Disclosures." These amendments primarily require enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker and certain other financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses.included within each reported measure of segment profit or loss. In addition, this new guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, as well as additional disclosures. In general, this guidance will require modified retrospective adoptionASU 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 outstanding instruments that fall under this guidance. This guidance isperiods presented in the financial statements and are effective for our first quarter of fiscal year 2021. We are currently evaluating the impact of the adoption of this requirement on our Consolidated Financial Statements.
In March 2017, the FASB issued guidance under ASC 715, Improving the Presentation of Net Periodic Pension Costyears beginning after December 15, 2023, and Net Periodic Postretirement Benefit Cost, which requires presenting the service cost component of net periodic benefit cost in the


same income statement line item(s) as other employee compensation costs arising from services rendered during the period. This standard also requires that other components of the net periodic benefit cost be presented separately from the line item(s) that includes service costs and outside of any subtotal of operating income, if one is presented, on a retrospective basis. Additionally, the new guidance limits the components that are eligible for capitalization in assets to only the service cost component. The new guidance is effective for our first quarter ofinterim periods within fiscal year 2019,years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ofthat the adoption of this requirementguidance will have on our Consolidated Financial Statements.disclosures.
In February 2018, the FASB issued guidance under ASC 220, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Current U.S. GAAP requires deferred tax liabilities and assets to be adjusted for a change in tax laws or rates with the effect included in income from continuing operations, even when the deferred taxes being remeasured were established through other comprehensive income. As a result, a disproportionate tax effect may remain in accumulation other comprehensive Income. The new guidance under ASC 220 provides an option to reclassify from accumulated other comprehensive income to retained earnings these stranded tax effects resulting from the Tax Cuts and Jobs Act (the “2017 Tax Act”), which was enacted on December 22, 2017. This guidance is effective for our first quarter of fiscal year 2019, with early adoption permitted. We are currently evaluating the impact of the adoption of this requirement on our Consolidated Financial Statements. See Note 10 for further information about the impact of the 2017 Tax Act.Recently Adopted Accounting Standards
There have been no othernew accounting pronouncements issued but not yet adopted by us which are expected to have a material impact on our Consolidated Financial Statements.

Recently Adopted Pronouncements
In the first quarter of fiscal year 2018, we adopted the FASB guidance under ASC 718, Compensation-Stock Compensation that simplified several aspects of the accounting for share-based payment transactions, including accounting for income taxes and classification of excess tax benefits in the statement of cash flows. As a result of implementing this guidance, we recognized $14,000 and $157,000 of excess tax benefits as a reduction of income tax expense for the second quarter and first six months of fiscal year 2018, respectively, rather than in Stockholders' Equity on the unaudited Condensed Consolidated Balance Sheet, and classified in operating activities on the unaudited Condensed Consolidated Statements of Cash Flows. These changes have been applied prospectively in accordance with the guidance and prior period presentations have not been adjusted. The adoption resulted in approximately a 0% and 2% benefit to our effective tax rate for the second quarter and first six months of fiscal year 2018, respectively. In addition, we excluded the excess tax benefits from the assumed proceeds available to repurchase shares under the treasury stock method for the computation of diluted earnings per share. This change did not have a material impact on our diluted earnings per share for the second quarter or first six months of fiscal year 2018. The guidance allows for a policy election to either use estimated forfeitures or account for them as they occur to determine the amount of compensation cost to be recognized each period. We have elected to continue to account for forfeitures on an estimated basis. No other material changes resulted from the adoption of this standard..


In the first quarter of fiscal year 2018, we adopted the FASB guidance under ASC 740, Balance Sheet Classification of Deferred Taxes, which required deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. Prior periods presented were also restated. We reclassified $2,787,000 from Total Current Assets to Total Other Assets on the unaudited Condensed Consolidated Balance Sheet as of July 31, 2017.

3.INVENTORIES
In the first quarter of fiscal year 2018, we adopted the FASB guidance under ASC 330, Simplifying the Measurement of Inventory. The new guidance required inventory to be measured at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. Adoption of this guidance did not have a material impact on our unaudited Condensed Consolidated Financial Statements.

3.INVENTORIES


The composition of inventories is as follows (in thousands):

January 31,
2018		 July 31,
2017
January 31,
2024		January 31,
2024		July 31,
2023
Finished goods$14,037
 $14,704
Packaging5,635
 4,988
Spare parts
Other2,931
 2,923
Total Inventories$22,603
 $22,615





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 performThe Company maintains reserves against inventory to reduce the carrying value to the expected net realizable value. These reserves are based upon a detailed reviewcombination of our inventory items to determine if an obsolescence reserve adjustment is necessary. The review surveys all of our operating facilities and sales groups to ensure that bothfactors including historical issues and new market trends are considered. The obsolescence reserve not only considers specific items, but also takes into consideration the overall value of the inventorytrends. Inventory reserves were $3.5 million and $3.6 million as of the balance sheet date. The inventory obsolescence reserve values at January 31, 20182024 and July 31, 2017 were $1,080,000 and $619,000,2023, respectively.



4.FAIR VALUE MEASUREMENTS


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 categories based on the lowest level of input that is significant to the fair value measurement. The categories in the fair value 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 of $3,281,000 and $3,814,000 as of January 31, 2018 and July 31, 2017, respectively, were classified as Level 1. These cash instruments are primarily money market mutual funds and are included in cash andclassified as Level 1. We had $15.6 million cash equivalents on the unaudited Condensed Consolidated Balance Sheet.

Short-term investments included U.S. Treasury securities and certificates of deposit. We intend and have the ability to hold our short-term investments to maturity; therefore, these investments were reported at amortized cost, which approximated fair value as of January 31, 20182024 and $15.4 million cash equivalents as of July 31, 2017.2023.


Accounts
16

Balances of accounts receivable and accounts payable balances approximated their fair values at January 31, 20182024 and July 31, 20172023 due to the short maturity and nature of those balances.


Notes payable are reported at the face amount of future maturities. The estimated fair value of notes payable, including current maturities, was $9,680,000$30.1 million and $13,001,000$29.7 million as of January 31, 20182024 and July 31, 2017, respectively. Our debt does not trade on a daily basis in an active market, therefore the fair value estimate is based on market observable borrowing rates currently available for debt with similar terms2023, respectively, and average maturities and isare classified as Level 2. The fair value was estimated using the exit price notion by discounting future cash flows based on an observable market rate.


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 5 of the Notes to the unaudited Condensed Consolidated Financial Statements for further information about goodwill and other intangible assets.



5. GOODWILL AND OTHER INTANGIBLE ASSETS


Intangible amortization expense was $253,000assets, other than goodwill, include trademarks, patents, and $307,000 in the second quarter of fiscal years 2018 and 2017, respectively. Intangible amortization expense was $507,000 and $612,000 for the first six months of fiscal years 2018 and 2017, respectively.customer lists. Estimated intangible amortization for the remainder of fiscal year 20182024 is $510,000.$0.1 million. Estimated intangible amortization for each of the next five fiscal years is as follows (in thousands):
2019$835
2020$666
2021$482
2022$332
2023$200

$0.1 million. We have one acquired trademark recorded at a cost of $376,000$0.4 million that was determined to have an indefinite life and is not amortized.


We performed our annual goodwill impairment analysis in the fourth quarter of fiscal year 2017 and no impairment was identified. There have been no triggering events in fiscal years 2024 or 2023 that would indicate a new impairment analysis is needed.





6. ACCRUED EXPENSES

Accrued expenses is as follows (in thousands):

January 31,
2024		July 31,
2023
Salaries, Wages, Commissions and Employee Benefits$11,831 $19,054 
Georgia Landfill Modification Reserve2,762 2,469 
Freight2,196 3,078 
Trade Promotions and Advertising1,722 2,292 
Real Estate Tax266 1,038 
Other9,777 8,937 
$28,554 $36,868 


7.OTHER CONTINGENCIES

We are party to various legal actions from time to time that are ordinary in nature and incidental to the operation of our business, including ongoing litigation. While it is not possible at this time to determine with certainty the ultimate outcome of these or other lawsuits, we believe that none of the pending proceedings will have a material adverse effect on our business, financial condition, results of operations or cash flows.

In the second quarter of fiscal year 2023, we recorded a reserve of $2.5 million for anticipated modification costs that we expect to incur to address capacity issues at our sole landfill located in Ochlocknee, Georgia. Reserves are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The amount of the reserve represents management’s best estimate of the costs for the modification with respect to this matter. Work began on the modifications in the second quarter of fiscal year 2024 and we increased our reserve by $0.5 million to reflect an update to our best estimate, offset by $0.3 million of payments made. 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.


17

8. DEBT

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, 2021 we issued $10 million in aggregate principal amount of our 3.95% Series B Senior Notes due May 15, 2030, of which $7 million aggregate principal amount remained outstanding as of January 31, 2024. Pursuant to the Note Agreement, on December 16, 2021, 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 January 31, 2024. The 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 Senior Notes, Series B Senior Notes, and Series C Senior 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 September 21, 2023, the Company entered into Amendment No. 4 to the Note Agreement extending the time frame for issuing and selling Shelf Notes to September 21, 2026.

We are party to the Credit Agreement, dated as of January 27, 2006 (as previously amended, the "Credit Agreement"), among us, BMO Harris Bank N.A (“BMO”), and certain of our domestic subsidiaries. The agreement provides for a $45 million unsecured revolving credit facility, including a maximum of $10 million for letters of credit.

The Credit Agreement contains restrictive covenants that, among other things and under various conditions, limit our ability to incur additional indebtedness or to dispose of assets. On August 30, 2022, we entered into the Sixth Amendment to the Credit Agreement (the "Sixth Amendment").The Sixth Amendment extended the facility termination date to August 30, 2027; replaced the LIBOR-based reference rate with an adjusted term Secured Overnight Financing Rate ("SOFR"); revised the method for calculating consolidated EBITDA and consolidated debt for purposes of the Credit Agreement; modified certain restrictive covenants, including increasing the unsecured indebtedness basket from $50 million to $75 million; and revised the existing financial covenants by replacing the consolidated debt covenant with a covenant to maintain a maximum debt to earnings ratio, lowering the minimum fixed charge coverage ratio level and revising the method for calculating the fixed charge coverage ratio. As of January 31, 2024, and July 31, 2023, we were in compliance with the covenants. There were no borrowings during the second quarter of fiscal year 2024. However, we had $1.0 million of letters of credit outstanding under the Credit Agreement as of January 31, 2024 and July 31, 2023.
The Credit Agreement states that we may select a variable interest rate based on either the BMO 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. As of January 31, 2024, the variable rates would have been 8.50% for the BMO prime-based rate or 5.32% for the adjusted SOFR-based rate.


9. 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. Further information about our accounting policy for leases is included in Note 1 of the Notes to the unaudited Condensed Consolidated Financial Statements.

We have no material finance leases, and variable costs for operating leases are immaterial for the three and six months ended January 31, 2024. 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):
18

For the Three Months Ended January 31,For the Six Months Ended January 31,
2024202320242023
Operating lease cost$1,084 $687 $1,630 $1,383 

Supplemental cash flow information related to leases was as follows (in thousands):
For the Three Months Ended January 31,For the Six Months Ended January 31,
2024202320242023
Cash paid for amounts included in the measurement of operating lease liabilities:$1,062 $585 $1,686 $1,180 
Right-of-use assets obtained in exchange for new operating lease liabilities$3,699 $— $3,699 $21 

Operating lease ROU assets and operating lease liabilities are separately presented on the unaudited Condensed Consolidated Balance Sheet, excluding leases with an initial term of twelve months or less. Other supplemental balance sheet information related to leases was as follows:
January 31, 2024July 31, 2023
Weighted-average remaining lease term - operating leases6.3 years7.7 years
Weighted-average discount rate - operating leases4.84%4.03%



Lease liability maturities as of January 31, 2024, are as follows (in thousands):
Fiscal year 2024 (remaining six months)$1,621
Fiscal year 20253,165
Fiscal year 20262,845
Fiscal year 20272,416
Fiscal year 20281,551
Thereafter4,502
Total16,100
Less: imputed interest(2,212)
Net lease obligation$13,888


19

10.PENSION AND OTHER POSTRETIREMENT BENEFITS


The componentsOil-Dri Corporation of net periodicAmerica Pension Plan ("Pension Plan") was a defined benefit pension plan for eligible salaried and hourly employees. Pension benefits were based on a formula of years of credited service and levels of compensation or stated amounts for each year of credited service. On January 9, 2020, Oil-Dri amended the Pension Plan to freeze participation, all future benefit accruals and accrual of benefit service, including consideration of compensation increases, effective March 1, 2020. Consequently, the Pension Plan was closed to new participants and existing participants no longer earned additional benefits on or after March 1, 2020. On September 20, 2022, the Company's Board of Directors (the "Board") approved a resolution to terminate the Company's defined benefit pension plan. The pension obligations were fully settled in April 2023.

A postretirement health benefits plan is also provided to domestic salaried employees who meet specific age, participation and length of service requirements at the time of retirement. 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 costs were as follows:
 Pension Benefits
 (in thousands)
 For the Three Months Ended January 31, For the Six Months Ended January 31,
 2018 2017 2018 2017
Service cost$438
 $446
 $862
 $913
Interest cost517
 474
 1,014
 931
Expected return on plan assets(485) (411) (971) (887)
Amortization of:       
  Prior service costs—
 —
 1
 1
  Other actuarial loss354
 485
 641
 914
Net periodic benefit cost$824
 $994
 $1,547
 $1,872
        
 Postretirement Health Benefits
 (in thousands)
 For the Three Months Ended January 31, For the Six Months Ended January 31,
 2018 2017 2018 2017
Service cost$25
 $33
 $54
 $63
Interest cost19
 21
 43
 39
Amortization of:       
  Prior service costs(1) (1) (3) (3)
  Other actuarial (gain) loss(5) 14
 —
 20
Net periodic benefit cost$38
 $67
 $94
 $119

plan at any time. The postretirement health plan is an unfunded plan. We pay insurance premiums and claims from our assets.





The components of net periodic pension plan is funded based upon actuarially determined contributions that take into accountand postretirement health benefit costs were as follows:

Pension Benefits
 (in thousands)
 For the Three Months Ended January 31,For the Six Months Ended January 31,
 2024202320242023
Interest cost$— $338 $— $673 
Expected return on plan assets— (558)— (1,116)
Amortization of:
  Other actuarial loss— 19 — 28 
Net periodic benefit cost$— $(201)$— $(415)
Postretirement Health Benefits
 (in thousands)
 For the Three Months Ended January 31,For the Six Months Ended January 31,
 2024202320242023
Service cost$18 $20 $37 $42 
Interest cost19 16 41 36 
Amortization of:
  Other actuarial loss(29)(23)(53)(41)
  Prior service costs(1)(1)(3)(3)
Net periodic benefit cost$7 $12 $22 $34 

The non-service cost components of net periodic benefit cost are included in Other Income (Expense) in the amount deductible for income tax purposes,line item Other, net on the normal cost and the minimum contribution required and the maximum contribution allowed under applicable regulations.We contributed $435,000 and $770,000 to our pension plan during the second quarter and first six monthsunaudited Condensed Consolidated Statements of fiscal year 2018, respectively. We estimate contributions will be $1,372,000Income.

The discount rate for the remainder of fiscal year 2018. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of the potential impact of financial market fluctuations on pension plan assets and future funding contributions.

Assumptionsnet periodic benefit cost used in the previous calculations were as follows:
 Pension Benefits Postretirement Health Benefits
 For the Three and Six Months Ended January 31,
 2018 2017 2018 2017
Discount rate for net periodic benefit cost3.75% 3.36% 3.26% 2.71%
Rate of increase in compensation levels3.50% 3.50% —
 —
Long-term expected rate of return on assets7.00% 7.00% —
 —

calculation of the postretirement health benefits was 4.90% for the three and six months ended January 31, 2024, and 3.82% for the three and six months ended 2023. The medical cost trend assumption for postretirement health benefits was 7.20%8.20%. The graded trend rate is expected to decrease to an ultimate rate of 4.50%4.90% in fiscal year 2036.2044.






20
7.

11. OPERATING SEGMENTS


We have two 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:include mass merchandisers; wholesale clubs;merchandisers, the farm and fleet channel, drugstore chains;chains, pet specialty retail outlets;outlets, dollar stores;stores, retail grocery stores;stores, distributors of industrial cleanup and automotive products;products, environmental service companies; andcompanies, sports field product users.users and marketers of consumer products. 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; and marketers of consumer products.

Our operating segments are also our reportable segments. Net sales and operating income for each segment are provided below. Revenues by product line are not provided because it would be impracticable to do so. The accounting policies of the segments are the same as those described in Note 1 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023.


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

Business to Business Products GroupRetail and Wholesale Products Group
For the Six Months Ended January 31,
Product2024202320242023
Cat Litter$— $— $120,187 $110,580 
Industrial and Sports— — 21,524 $20,787 
Agricultural and Horticultural19,593 19,788 — — 
Bleaching Clay and Fluids Purification45,115 37,241 — $— 
Animal Health and Nutrition10,687 11,812 — — 
Net Sales$75,395 $68,841 141,711 $131,367 
Business to Business Products GroupRetail and Wholesale Products Group
For the Three Months Ended January 31,
Product2024202320242023
Cat Litter$— $— $59,326 $56,382 
Industrial and Sports— — 10,108 10,133 
Agricultural and Horticultural9,278 9,785 — — 
Bleaching Clay and Fluids Purification22,709 19,012 — — 
Animal Health and Nutrition4,247 6,357 — — 
Net Sales$36,234 $35,154 $69,434 $66,515 

We do not rely on any segment asset allocations and we 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. 
 Assets
January 31, 2024July 31, 2023
 (in thousands)
Business to Business Products Group$88,681 $84,424 
Retail and Wholesale Products Group143,962 136,262 
Unallocated Assets63,509 65,549 
Total Assets$296,152 $286,235 
21


Net sales and operating income for each segment are provided below. The corporate expenses line includes 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 estimated annual incentive plan bonus accrual.

 For the Six Months Ended January 31,
 Net SalesIncome
 2024202320242023
  (in thousands)
Business to Business Products Group$75,395 $68,841 $22,108 $14,991 
Retail and Wholesale Products Group$141,711 131,367 $23,208 16,256 
Net Sales$217,106 $200,208 
Corporate Expenses(16,995)(17,372)
Income from Operations28,321 13,875 
Total Other Expenses, Net(809)(2,399)
Income before Income Taxes27,512 11,476 
Income Tax Expense(4,388)(2,400)
Net Income23,124 9,076 
Net Loss Attributable to Noncontrolling Interest— (21)
Net Income Attributable to Oil-Dri$23,124 $9,097 
For the Three Months Ended January 31,
Net SalesIncome
2024202320242023
(in thousands)
Business to Business Products Group$36,234 $35,154 $10,985 $7,734 
Retail and Wholesale Products Group$69,434 66,515 $11,877 8,682 
Net Sales$105,668 $101,669 
Corporate Expenses(7,697)(9,110)
Income from Operations15,165 7,306 
Total Other Expenses, Net(483)(2,267)
Income before Income Taxes14,682 5,039 
Income Tax Expense(2,300)(1,193)
Net Income12,382 3,846 
Net Loss Attributable to Noncontrolling Interest— (10)
Net Income Attributable to Oil-Dri$12,382 $3,856 


     Assets
     January 31, 2018 July 31, 2017
     (in thousands)
Business to Business Products $62,698
 $65,337
Retail and Wholesale Products 90,071
 90,508
Unallocated Assets 52,766
 56,730
Total Assets $205,535
 $212,575
        
 For the Six Months Ended January 31,
 Net Sales Income
 2018 2017 2018 2017
  (in thousands)
Business to Business Products$54,442
 $50,734
 $18,635
 $17,223
Retail and Wholesale Products81,098
 81,052
 4,787
 4,480
Total Sales$135,540
 $131,786
    
Corporate Expenses (14,749) (13,070)
Income from Operations 8,673
 8,633
Total Other Income (Expense), Net 237
 (710)
Income before Income Taxes 8,910
 7,923
Income Tax Expense (6,956) (1,664)
Net Income $1,954
 $6,259


        
 For the Three Months Ended January 31,
 Net Sales Income (Loss)
 2018 2017 2018 2017
  (in thousands)
Business to Business Products$27,355
 $23,261
 $9,759
 $7,815
Retail and Wholesale Products41,539
 41,913
 2,422
 4,987
Total Sales$68,894
 $65,174
    
Corporate Expenses (7,424) (7,215)
Income from Operations 4,757
 5,587
Total Other Income (Expense), Net 314
 (343)
Income before Income Taxes 5,071
 5,244
Income Tax Expense (6,167) (994)
Net (Loss) Income $(1,096) $4,250

8.12.STOCK-BASED COMPENSATION


The Amended and Restated Oil-Dri Corporation of America 2006 Long Term Incentive Plan, as amended (the “2006 Plan”"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 937,500.1,719,500. As of January 31, 2024, there were 638,076 Common Stock or Class B shares available for future grants under this plan.

22

Stock Options

No stock options were granted during the first six months of either fiscal year 2017 or 2018. There were no stock options outstanding at the end of fiscal year 2017. The amount of cash received from the exercise of stock options during the first six months of fiscal year 2017 was $170,000 and the related tax benefit was $80,000.

Restricted Stock


All of our non-vested restricted stock as of January 31, 20182024 was issued under the 2006 Plan with vesting periods generally between two yearsone and five years.years. We determinedetermined the fair value of restricted stock as of the grant date. We recognize the related compensation expense over the period from the date of grant to the date the shares vest.


No restricted stock was granted during the second quarter of fiscal year 2018. During the second quarter of fiscal year 2017, 18,000There were 70,000 and 57,000 restricted shares of Common Stock were granted. Stock-based compensation expense related to non-vested restricted stock for the second quarter of fiscal years 2018 and 2017 was $426,000 and $346,000, respectively. Stock-based compensation expense related to non-vested restricted stock forgranted during the first six months of fiscal years 20182024 and 20172023, respectively. There were 125,000 restricted shares of Class B shares granted during the first six months of fiscal year 2024 and none in fiscal year 2023. Stock-based compensation expense was $928,000$1.0 million and $777,000,$0.8 million for the three-months ended January 31, 2024 and 2023 respectively, and $1.8 million and $1.6 million for the six months ended January 31, 2024 and 2023, respectively.

A summary of restricted stock transactions is shown below:
 Restricted Shares
(in thousands)		Weighted Average Grant Date Fair Value
Non-vested restricted stock outstanding at July 31, 2023348 $32.95 
Granted195 $62.51 
Vested(142)$31.07 
Forfeitures(6)$40.95 
Non-vested restricted stock outstanding at January 31, 2024395 $48.11 


 
Restricted Shares
(in thousands)
 Weighted Average Grant Date Fair Value
Non-vested restricted stock outstanding at July 31, 2017185
 $30.96
Granted24
 $42.76
Vested(28) $29.88
Forfeitures(3) $32.74
Non-vested restricted stock outstanding at January 31, 2018178
 $32.70



9.13. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME


The following table summarizes the changes in accumulated other comprehensive (loss) income by component as of January 31, 20182024 (in thousands):

Pension and Postretirement Health BenefitsCumulative Translation AdjustmentTotal Accumulated Other Comprehensive (Loss) Income
Balance as of July 31, 2023$1,012 $(264)$748 
Other comprehensive loss before reclassifications, net of tax— 28 28 
Amounts reclassified from accumulated other comprehensive income, net of tax(43)— (43)
Net current-period other comprehensive loss, net of tax(43)28 (15)
Balance as of January 31, 2024$969 $(236)$733 


 Pension and Postretirement Health Benefits Cumulative Translation Adjustment Total Accumulated Other Comprehensive (Loss) Income
Balance as of July 31, 2017$(10,327) $35
 $(10,292)
Other comprehensive income before reclassifications, net of tax—
 70
 70
Amounts reclassified from accumulated other comprehensive income, net of tax418
a)—
 418
Net current-period other comprehensive income, net of tax418
 70
 488
Balance as of January 31, 2018$(9,909) $105
 $(9,804)

a) Amount is net of tax expense of $221,000. Amount is included in the components of net periodic benefit cost for the pension and postretirement health plans. See Note 6 for further information.

10. INCOME TAXES

On December 22, 2017, the U.S. government enacted the the 2017 Tax Act. The 2017 Tax Act included a number of changes to existing U.S. tax laws that impact us, most notably a reduction of the U.S. corporate income tax rate and acceleration of depreciation for certain assets placed into service after September 27, 2017, as well as prospective changes, including repeal of the domestic manufacturing deduction and capitalization of research and development expenditures.

Staff Accounting Bulletin No. 118 (“SAB 118”), provided further SEC staff guidance for the application of ASC 740, “Income Taxes,” in the reporting period in which the 2017 Tax Act was signed into law. SAB 118 provides that companies (i) should record the effects of the changes from the 2017 Tax Act for which the accounting is complete (not provisional), (ii) should record provisional amounts for the effects of the changes for which the accounting is not complete, and for which reasonable estimates can be determined, in the period they are identified, and (iii) should not record provisional amounts if reasonable estimates cannot be made for the effects of the changes, and should continue to apply guidance based on the tax law in effect prior to the enactment on December 22, 2017. SAB 118 also established a one-year measurement period (through December 22, 2018) where provisional amounts could be subject to adjustment, and requires certain qualitative and quantitative disclosures related to provisional amounts and accounting during the measurement period.

In accordance with ASC 740 and SAB 118, we remeasured our U.S. net deferred tax assets at the reduced U.S. federal corporate tax rate and recognized a provisional charge of $5,091,000 as a discrete item in the provision for income taxes for the three and six months ended January 31, 2018. The measurement of deferred income taxes, as shown in Other Assets on the unaudited Condensed Consolidated Balance Sheet, is provisional. The final remeasurement cannot be determined until the underlying temporary differences are known, rather than estimated.

The 2017 Tax Act also reduced the U.S. federal corporate tax rate from 35.0%% to 21.0% for all corporations effective January 1, 2018. For fiscal year companies, the change in law requires the application of a blended rate for each quarter of the fiscal year of enactment. We will apply a blended tax rate of 26.9% for the fiscal year ending July 31, 2018. Thereafter, the applicable statutory rate is 21.0%. In addition, the 2017 Tax Act included a one-time transition tax on cumulative unrepatriated foreign earnings. Based on information available, we estimate our unrepatriated foreign earnings represent a cumulative loss and therefore no additional income tax expense was recorded related to this provision of the 2017 Tax Act.

We are continuing to analyze the impact of the 2017 Tax Act. As such, our financial results reflect reasonable estimates of items for which the income tax effects of the 2017 Tax Act have not been completed as of January 31, 2018. Adjustments to the provisional charges will be recorded as discrete items in the provision for income taxes in the period in when those adjustments become reasonably estimable and/or the accounting is complete. We will complete our analysis no later than December 22, 2018.



11.14. RELATED PARTY TRANSACTIONS

One member of our Board of Directors is currently the President and Chief Executive Officer of a customervendor of ours. That customer was a customer of ours before the board member joined that customerTotal payments to this vendor for fees and before he became a member of our Board of Directors. Total net sales to that customer, including sales to subsidiaries of that customer,cost reimbursements were $77,000$0.5 million and $100,000 for the second quarters of fiscal years 2018 and 2017, respectively, and were $163,000 and $178,000$0.1 million for the first six months of fiscal years 20182024 and 2017,2023, respectively. Outstanding accounts receivable from that customer, and its subsidiaries, were $16,000 as of January 31, 2018. There were no outstanding amounts due as of July 31, 2017.

One member of our Board of Directors, and of the Compensation Committee of our Board of Directors, is the President and Chief Executive Officer as well as a director and shareholder of a law firm that regularly provides services to us. Total payments to that vendor for fees and cost reimbursements were $53,000 and $54,000 for the second quarters of fiscal years 2018 and 2017, respectively, and were $116,000 and $68,000 for the first six months of fiscal years 2018 and 2017, respectively. Outstanding accounts payable to that vendor were $13,000 and $19,000 as of January 31, 2018 and2024 or July 31, 2017, respectively.2023.





23

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included herein and our Consolidated Financial Statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed herein under “Forward-Looking Statements”"Forward-Looking Statements" and "Risk Factors," and those discussed under Item 1A, Risk Factors of our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023.


OVERVIEW


We develop, mine, manufacture and market sorbent products principally produced from clay minerals, primarily consisting of calcium bentonite, attapulgite and to a lesser extent, other clay-like sorbent materials.diatomaceous shale. Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, bleaching clay andcat litter, fluid purification aids, cat litter,and filtration bleaching clays, industrial and automotive floor absorbents and sports field products. Our products are sold to two primary customer groups, including customers who resell our products as originally produced to the end consumer and thoseother customers who use our products as part of their production process or use them as an ingredient in their final finished product. We have two reportable operating segments based on the different characteristics of our two primary customer groups: the Retail and Wholesale Products Group ("Retail and Wholesale" or "R&W") and the Business to Business Products Group ("Business to Business" or "B2B"), as described in Note 11 of the Notes to the unaudited Condensed Consolidated Financial Statements. Each operating segment is discussed individually below.

RESULTS OF OPERATIONS

OVERVIEW

The three and six months ended January 31, 2024 continued to be very strong with top line growth in both the Retail and Wholesale Products Group and the Business to Business Products Group,Group. Within Retail & Wholesale, higher prices continued to drive the increases in net sales. Within Business to Business, revenue continued to grow driven by a combination of higher prices and increased volumes. Consolidated net sales increased $4.0 million or 4% in the second quarter and $16.9 million or 8% in the six months ended January 31, 2024 compared to the same periods of fiscal year 2023. Consolidated income from operations in the second quarter and first six months of fiscal year 2024 increased by $7.9 million and $14.4 million, respectively compared to the same periods in fiscal year 2023.

Although expenses continued to increase, consolidated net income for the three and six months ended January 31, 2024, were $12.4 million and $23.1 million, respectively, compared to $3.9 million and $9.1 million in the three and six months ended January 31, 2023, respectively.

Our Consolidated Balance Sheets as describedof January 31, 2024 and our Consolidated Statements of Cash Flows for the six months ended January 31, 2024 show a decrease in Note 7 oftotal cash and cash equivalents from fiscal year-end 2023. The decrease was driven mostly by capital expenditures on property, plant & equipment and dividend payments offset by increases in cash from operations. Refer to the Notes to Condensed Consolidated Financial Statements."Liquidity and Capital Resources" section below.


RESULTS OF OPERATIONS

SIX MONTHS ENDED JANUARY 31, 20182024 COMPARED TO
SIX MONTHS ENDED JANUARY 31, 20172023


CONSOLIDATED RESULTS


Consolidated net sales for the six months ended January 31, 20182024 were $135,540,000,$217.1 million, an 8% increase compared to net sales of $131,786,000$200.2 million for the six months ended January 31, 2017.2023. Net sales were upincreased for our Business to Business Products Group and were flat forboth our Retail and Wholesale Products Group. Both operating segments also reported higher operating income,and Business to Business products groups, primarily due to price increases implemented across both product groups and volume growth in our B2B products group.

Consolidated gross profit in the six months ended January 31, 2024 was $61.9 million, an increase of $16.6 million, or 37%, from gross profit of $45.3 million in the six months ended January 31, 2023. Our gross margin (defined as discussed further below.gross profit as a
24

Consolidated
percentage of net income forsales) in the first six months ended January 31, 2024 increased to 29% from 23% in the same period of fiscal year 2018 was $1,954,000, a 69% decrease from net income2023. Our domestic cost of $6,259,000 for the first six months of fiscal year 2017. The reductiongoods sold per ton increased 6%, driven primarily by per ton increases in net income was significantly impactednon-fuel manufacturing and freight offset by a one-time $5,091,000 tax expense adjustment recorded in the second quarter of fiscal 2018 to reflect the impact on deferred income tax assets under the 2017 Tax Act. Diluted net incomelower per share was $0.26 for the first six months of fiscal year 2018, compared to $0.86 for the first six months of fiscal year 2017. The tax expense adjustment effectively reduced diluted net income per share by $0.69 for the first six months of fiscal year 2018.

Consolidated gross profit as a percentage of net sales for the first six months of fiscal year 2018 was 28.5%, compared to 30.2% for the first six months of fiscal year 2017. Gross profit in fiscal year 2018 was negatively impacted by higherton natural gas and other manufacturing costs, as well as by increased freight and packaging costs. The cost of natural gas per manufactured ton was approximately 11% higher than the prior year. OtherNon-fuel manufacturing costs per ton produced were up approximately 8%increased 10% during the six months ended January 31, 2024 compared to six months ended January 31, 2023, mainly due to higher per ton costs of labor, repairs, and depreciation, offset by a decrease in the per ton cost of purchased materials. Domestic freight costs per ton increased 11% in the six months ended January 31, 2024 compared to the same period of fiscal year 2023 due to a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which increased our overall freight cost. Excluding the impact of this specific customer, per ton domestic freight costs would have decreased 7% in the priorsix months ended January 31, 2024 compared to the same period of fiscal year including higher expenses for salaries, wages, repairs2023. Ocean freight costs have also decreased due to both lower rates and depreciation. Freightexport fees. In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. Packaging costs per ton increased approximatelydecreased 5% due primarily to rising rates as demand for freight services exceeded capacity. Packaging costs were approximately 10% higherin the six months ended January 31, 2024 compared to the priorsame period of fiscal year. Significant amountsyear 2023. Many of our contracts for packaging purchases are subject to contractualperiodic price adjustments, throughout the year based onwhich trail changes in underlying commodity prices, including both resin and paper-based packaging. The impactprices. Per ton cost of these higher costs was partially offset by increased selling prices and a favorable product sales mix.

Total selling, general and administrative expenses were 4% lower fornatural gas decreased 42% in the first six months ended January 31, 2024 compared to the same period of fiscal year 20182023 due to a decrease in natural gas prices.

Total SG&A expenses of $33.6 million for the six months ended January 31, 2024 were higher by $2.2 million, or 7%, compared to $31.5 million for the first six months of fiscal year 2017.ended January 31, 2023. The decreaseincrease was driven by lower advertising expense in the Retail and Wholesale Products Group.higher segment SG&A. Corporate unallocated expenses decreased $0.4 million, or 2%. The discussion of the segments' operating incomes below describedescribes the changes in the selling, general and administrativeSG&A expenses that were allocated to the operating segments. The remaining unallocated corporate

Total other expenses were $0.8 million for the six months ended January 31, 2024 compared to $2.4 million in the first six monthssame period of fiscal year 2018 included higher costs for research and development, implementation of our new enterprise resource planning software and outside legal fees associated with ongoing litigation, as described further in Part II. Item 1. “Legal Proceedings” of this Quarterly Report on Form 10-Q. These higher corporate expenses were partially offset by a lower estimated annual incentive bonus accrual compared2023. The decrease was mainly due to the prior year. The incentive bonus accruals were based on performance targets established for each fiscal year.



Tax expense$2.5 million accrual for the first six monthslandfill modification charged in the second quarter of fiscal year 2018 was $6,956,000, compared to $1,664,000 for2023 offset by the first six monthsincrease in the landfill modification accrual in second quarter of fiscal year 2017. Excluding2024 and higher interest income. Refer to Note 7 of the one-time $5,091,000Notes to the unaudited Condensed Consolidated Financial Statements for additional details regarding the landfill modification accrual.

Consolidated net income before taxes for the six months ended January 31, 2024 was $27.5 million compared to $11.5 million for the six months ended January 31, 2023. Results for the six months ended January 31, 2024 were driven by the factors discussed above.

We had a tax expense adjustment to reflect the provisions of the 2017 Tax Act, the effective tax ratewas $4.4 million for the first six months of fiscal year 2018 would have been 21%,ended January 31, 2024 compared to $2.4 million for the same as the first six months of fiscal year 2017.ended January 31, 2023. Our tax expense was driven primarily by higher net income. We used an estimated annual effective tax rate ("ETR") of 16% in determining our quarterly provision for income taxes, which is based on expected annual taxable income and the assessment of various tax deductions, including depletion. In addition, the effective tax rate for the first six months of fiscal year 2018 included a reduction of approximately 2% under new accounting guidance for the recognition of excess tax benefits for share-based compensation. See Notes 2 and 10 of the Notes to Condensed Consolidated Financial Statements for more information about new accounting pronouncements and income taxes, respectively.


BUSINESS TO BUSINESS PRODUCTS GROUP


Net sales of the Business to Business Products Group for the first six months of fiscal year 2018ended January 31, 2024 were $54,442,000,$75.4 million, an increase of $3,708,000,$6.6 million, or 7%10%, from net sales of $50,734,000$68.8 million for the first six months of fiscal year 2017. Netended January 31, 2023, driven by sales of our traditional and engineered agricultural chemical granules increased approximately 19% due primarily to new customers and higher sales to existing customers.fluid purification products. Net sales of our fluids purification products were up approximately 6%. Sales increased due$7.9 million, or 21%, in the six months ended January 31, 2024 compared to normal ordering fluctuationsthe six months ended January 31, 2023. The increase was primarily driven by new customers in the renewable diesel business in North America, as well as continued demand for our products used in the filtration of petroleumedible oil and biodiesel processors.jet-fuel and to a lesser extent pricing. Net sales increased in North America, our subsidiary in the UK, and Asia, partially offset by a decrease in Latin America and in the Europe, Middle East, and Africa ("EMEA") region. Net sales of our animal health and nutrition products were 2% higher thandecreased $1.1 million, or 10%, during the first six months ended January 31, 2024 compared to the same period of fiscal year 2017,2023. The decrease was driven by increasedLatin America and our subsidiary in Mexico, partially offset by an increase in net sales in North America. Both in Latin America. LowerAmerica and Mexico, net sales were down due to softer demand, while North America sales increased due to a combination of animal healthhigher prices and nutrition productsstronger demand by existing customers when compared to the same period in fiscal year 2023. Net sales in Asia, including sales by our subsidiary in China, partially offset this increase, as described in “Foreign Operations” below. Salesremained flat. Net sales of our co-packaged cat litter were down slightlyagricultural and horticultural chemical carrier products decreased $0.2 million, or 1%, for the six months ended January 31, 2024 compared to the prior year.same period in fiscal year 2023. This was a result of softer volumes offset partially by higher prices.


Selling, general and administrativeSG&A expenses for the Business to Business Products Group remained flat for the six months ended January 31, 2024 compared to the same period of the prior fiscal year as higher compensation expenses were approximately 2%offset by lower due primarily to lowerallocated technical service support costs to promote our animal healthfrom the Innovation Center and nutrition products.Microbiology Lab and broker commissions.


25

The Business to Business Products Group’s operating income for the first six months of fiscal year 2018ended January 31, 2024 was $18,635,000,$22.1 million, an increase of $1,412,000,$7.1 million, or 8%47%, from operating income of $17,223,000$15.0 million for the first six months of fiscal year 2017. Higherended January 31, 2023. The increase in operating income was mostly driven by higher sales and lower selling, general and administrative expenses more than offset increased natural gas, manufacturing, freight and packaging costs. See “Consolidated Results” above for further discussion of manufacturing, freight and packaging costs.favorable product mix.


RETAIL AND WHOLESALE PRODUCTS GROUP


Net sales of the Retail and Wholesale Products Group for the first six months ended January 31, 2024 were $141.7 million, an increase of $10.3 million, or 8%, from net sales of $131.4 million for the same period of fiscal year 2018 of $81,098,000 were essentially flat with2023, mainly driven by higher net sales of $81,052,000 for the first six months of fiscal year 2017.from our cat litter products. Total global cat litter net sales were evenfor the six months ended January 31, 2024 increased $9.6 million, or 9%, compared to the six months ended January 31, 2023, of which $9.5 million of the increase was due to pricing actions in North America. Domestic net sales increased across all products except for private label heavy weight litter, with the first six months of the prior year. Branded litter sales were negatively impactedgreatest increase driven by a change in the mix and amount of products sold to a major customer. However, higher e-commerce sales of our branded litter and litter box liners lessened the overall decline. Privateprivate label coarse litters and branded light weight scoopable. Net sales declined due primarily to the loss of a customer. Sales of our private label lightweight scoopableco-packaged cat litter continued to growproducts increased $0.1 million compared to the same period in fiscal year 2023. The increase was driven by price as volumes were still down as a result of the cyberattack on one of our customers, which prevented it from placing and receiving orders during the first quarter of the priorfiscal year due primarily to new distribution and increased sales to current customers.

2024. Net sales of industrial and automotive absorbent products were flat compared to the first six months of fiscal year 2017. Six month sales for our subsidiary in the United Kingdom were higher, while sales forcat litter by our subsidiary in Canada were slightly lower thanincreased period over period, as discussed in "Foreign Operations" below. Net sales of our global industrial and sports products increased $0.7 million, or 4%, compared to the prior year. See “Foreign Operations” below forsix months ended January 31, 2023, primarily driven by increased demand of our synthetic absorbent products and higher prices of our clay-based floor absorbent products, partially offset by a decrease in sports products. This was further discussion about thesupplemented by an increase in net sales and types of industrial products sold by these foreign subsidiaries.our subsidiary in Canada.


Selling, general and administrativeSG&A expenses for the Retail and Wholesale Products Group were 20% lower$2.0 million, or 29%, higher during the six months ended January 31, 2024 compared to the first six months of fiscal year 2017. The decrease was driven by approximately $2,100,000 lowerended January 31, 2023, primarily due to advertising expense to promote our Fresh & Light lightweight cat litter.spend. We plan to continue promoting lightweight litter through the remainder of fiscal year 2018 and we expectanticipate total advertising expense for the full year of fiscal year 2018 to be less than in fiscal year 2017.2024 to be higher than fiscal year 2023, though spread more evenly throughout the year.


The Retail and Wholesale Products Group's operating income for the first six months of fiscal year 2018ended January 31, 2024 was $4,787,000,$23.2 million, an increase of $307,000,$7.0 million, or 7%43%, from operating income of $4,480,000$16.3 million for the first six monthssame period of fiscal year 2017. The reduction2023. This was driven primarily by the increase in selling, general and administrative expenses,gross margins due to price increases, partially offset by higher cost of goods sold as discussed above, more than offset increased natural gas, manufacturing, freight and packaging costs. See “Consolidated Results” above for further discussion of manufacturing, freight and packaging costs.above.


FOREIGN OPERATIONS


Foreign operations include our subsidiariessubsidiary in Canada, and the United Kingdom, which are includedis reported in the Retail and Wholesale Products Group, and our subsidiarysubsidiaries in the UK, Mexico, China and Indonesia, which is includedare reported in the Business to Business Products Group. Net sales by our foreign subsidiaries duringfor the first six months ended January 31, 2024 were $11.5 million, an increase of fiscal year 2018 were $6,047,000, a 7% decrease2%, compared to net sales of $6,475,000$11.2 million during the first six months ended January 31, 2023. All of our foreign operations, with the exception of our subsidiaries in Mexico and Indonesia, experienced an increase in net sales during the six months ended January 31, 2024 compared to the same period of fiscal year 2017. This decrease was driven by approximately 22% fewer tons of animal health and nutrition products sold by our subsidiary in China, primarily as the result of lower sales to the succeeding business after


the merger of two customers. Partially offsetting these lower sales were increased2023. Net sales of fluids purification products by our subsidiary in the United Kingdom. SalesKingdom increased by $0.4 million, or 33%, compared to net sales in the same period in fiscal year 2023. The increase was driven by a combination of higher demand of edible oil filtration products and price increases. Net sales of our subsidiary in China increased $0.4 million, or 29%, in the six months ended January 31, 2024 compared to the same period of fiscal year 2023 due to the sell off of all existing inventory to the new master distributor, which occurred in the first quarter of fiscal year 2024. Future sales to China will be directly through the Company and not through our subsidiary in China. Total net sales of our subsidiary in Canada were essentially even withincreased $0.2 million, or 3%, in the six months ended January 31, 2024 compared to the same period in fiscal year 2023, driven by higher net sales of floor absorbents and private label cat litter. The increase in floor absorbent sales was driven by a combination of higher prices and volume while the increase in cat litter sales was mainly due to price increases instituted in response to rising costs. Net sales of our subsidiary in Mexico decreased $0.7 million, or 44% in the six months ended January 31, 2024 compared to the same period of the prior year.fiscal year 2023. Net sales by our foreign subsidiaries represented 4% and 5% of our consolidated net sales during the firstfor six months of fiscal years 2018 and 2017, respectively.ended January 31, 2024 compared to 6% for the six months ended January 31, 2023.


Our foreign subsidiaries reported net income of $635,000$0.7 million for the first six months of fiscal 2018ended January 31, 2024, compared to $0.6 million in the six months ended January 31, 2023. The increase in net income of $298,000 forwas primarily driven by increases in Canada and the first six months of fiscal 2017. The improved profitability was driven primarily by both a favorable product sales mix and positive changes in foreign currency exchange rates.UK as discussed above.


Identifiable assets of our foreign subsidiaries as of January 31, 20182024, were $8,343,000,$11.9 million, compared to $7,822,000$14.6 million as of JanuaryJuly 31, 2017. The increase was due primarily to higher cash, cash equivalents and accounts receivable.2023.


26

THREE MONTHS ENDED JANUARY 31, 20182024 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 20172023


CONSOLIDATED RESULTS


Consolidated net sales for the three months ended January 31, 2018 were $68,894,000, compared to $65,174,000 for the three months ended January 31, 2017. Net sales were up for the Business to Business Products Group, but were down for the Retail and Wholesale Products Group. Second quarter operating income increased for the Business to Business Products Group, but decreased for the Retail and Wholesale Products Group, as discussed further below.

A consolidated net loss of $1,096,000 was reported for the second quarter of fiscal year 2018, compared to net income of $4,250,000 for the second quarter of fiscal year 2017. The results for the second quarter of fiscal 2018 were significantly impacted by a one-time $5,091,000 tax expense adjustment to reflect the impact on deferred income tax assets under the 2017 Tax Act. A diluted net loss per share of $0.15 was reported for the second quarter of fiscal year 2018,2024 were $105.7 million, a 4% increase compared to diluted net income per sharesales of $0.58$101.7 million for the second quarter of fiscal year 2017.2023. Net sales increased for both our Retail and Wholesale Products Group and Business to Business Products Group. The tax expense adjustment effectively reduced diluted net income per shareincrease in Retail and Wholesale was driven by $0.69higher prices while Business to Business was predominantly driven by volume growth and to a lesser extent pricing, as further discussed below.

Consolidated gross profit for the second quarter of fiscal year 2018.

Consolidated gross profit as a percentage2024 was $30.9 million, or 29% of net sales, compared to $23.0 million, or 23% of net sales, for the second quarter of fiscal year 20182023. The increase was 28.5%driven by higher selling prices across multiple products and improved product mix. Domestic per ton cost of goods sold increased 1%, which was slightly lower thandriven primarily by per ton increases in freight and non-fuel manufacturing costs offset by a decrease in natural gas and packaging costs. Per ton non-fuel manufacturing costs rose 5% in the 29.3% for the second quarter of fiscal year 2017. Gross profit was negatively impacted2024 compared to the second quarter of fiscal year 2023, due to higher per ton costs of labor, repairs, and depreciation, offset by highera decrease in per ton costs of purchased materials. Domestic freight costs per ton increased 8% in the second quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered which increased our overall freight cost. Excluding the impact of this specific customer, per ton domestic freight costs would have decreased 11% in the second quarter of fiscal year 2024 compared to the same period of fiscal year 2023. Ocean freight costs have also decreased due to favorable rates and reduction in export fees when compared to the same period in fiscal year 2023. In addition, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. The cost of natural gas and other manufacturing costs, as well as by increased freight and packaging costs. The cost per manufactured ton for natural gas used to operate kilns that dry our clay was approximately 11% higher24% lower in the second quarter of fiscal year 20182024 compared to the second quarter of fiscal year 2017. Other manufacturing2023 as fuel prices have decreased. Packaging costs per ton produced were up approximately 9%, including higher expenses for salaries, wages, benefits, repairs and depreciation. Freight costs per ton increased approximately 10% due primarily to rising rates as demand for freight services exceeded capacity. Packaging costs were approximately 7% higher compared to the second quarter of the prior fiscal year. Significant amounts of our packaging purchases are subject to contractual price adjustments throughout the year based on underlying commodity prices, including both resin and paper-based packaging. The impact of these higher costs was partially offset by increased selling prices and a favorable product sales mix.

Total selling, general and administrative expenses were 10% higher for the second quarter of fiscal year 2018 compared to the second quarter of fiscal year 2017. The discussion below describes the selling, general and administrative expenses allocated to the operating segments, particularly higher advertising expense in the Retail and Wholesale Products Group. The remaining unallocated corporate expensesdecreased 11% in the second quarter of fiscal year 2018 included higher costs for research and development, implementation of our new enterprise resource planning software and outside legal fees associated with ongoing litigation, as described further in Part II. Item 1. “Legal Proceedings” of this Quarterly Report on Form 10-Q. These higher corporate expenses were partially offset by a lower estimated annual incentive bonus accrual for the second quarter of fiscal year 20182024 compared to the same period of fiscal year 2017. The bonus accruals were based on performance targets established2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for each fiscal year.packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.


Tax expenseTotal selling, general and administrative expenses of $15.8 million for the second quarter of fiscal year 2018 was $6,167,000,2024 remained nearly flat compared to $994,000$15.7 million for the same period of fiscal year 2023. Unallocated corporate expenses were down by $1.4 million, or 16%, compared to the same period in fiscal year 2023 due to a reduction in corporate bonus accrual. The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.

Total net other expense of $0.5 million for the second quarter of fiscal year 2017. Excluding2024 decreased compared to $2.3 million in the one-time $5,091,000 tax expense adjustmentsame period of fiscal year 2023 mainly due to reflect the provisions$2.5 million accrual for the landfill modification charged in the second quarter of fiscal year 2023, offset by the increase in the landfill modification accrual in second quarter of fiscal year 2024 and higher interest income. Refer to Note 7 of the 2017 Tax Act,Notes to the effective tax rateunaudited Condensed Consolidated Financial Statements for additional details regarding the landfill modification accrual.

Consolidated net income before taxes for the second quarter of fiscal year 2018 would have been 21%,2024 was $14.7 million compared to 19%$5.0 million for the same period of fiscal year 2023. Results for the prior year.second quarter of fiscal year 2024 were driven by the factors discussed above.

We had a tax expense was $2.3 million for the second quarter of fiscal year 2024 compared to $1.2 million for the second quarter of fiscal year 2023. Our tax expense was driven primarily by higher net income. We used an estimated annual effective tax rateETR of 16% in determining our quarterly provision for income taxes, which is based on expected annual taxable income and the assessment of various tax deductions, including depletion. See Note 10 of the Notes to Condensed Consolidated Financial Statements for more information about income taxes.




BUSINESS TO BUSINESS PRODUCTS GROUP


Net sales of the Business to Business Products Group for the second quarter of fiscal year 20182024 were $27,355,000,$36.2 million, an increase of $4,094,000,$1.1 million, or 18%3%, from net sales of $23,261,000$35.2 million for the second quarter of fiscal year 2017.2023, driven by an increase in net sales of our fluid purification products. Net sales of our traditional and engineered granules used as agricultural chemical carriersfluids purification products increased approximately 50%$3.7 million, or 19%, compared to the second quarter of fiscal year 2023 driven primarily by the North America region. The increase in North America was due primarily to new customers using our products for renewable diesel filtration as well as higher demand by existing customers in edible oil and jet-fuel filtration. There was also an increase in Asia driven by higher volume and timing of orders. The increase was partially offset by softer sales to existing customers.volumes in EMEA and Latin America. Net sales of fluids purificationour agricultural and horticultural chemical carrier products were up approximately 12%decreased $0.5 million, or 5%, including increased salesfor the second quarter of fiscal year 2024 compared to edible oil producers and higher sales to petroleum oil and biodiesel processorsthe same period in fiscal
27

year 2023, primarily due to normal ordering fluctuations.softer volumes. Net sales of our animal health and nutrition products were approximately 15% higher thandecreased $2.1 million, or 33%, during the second quarter of fiscal year 2024, compared to the priorsame period in fiscal year 2023. The decrease was driven by lower demand and timing of orders in Latin America, Asia (including China), and Mexico, partially offset by an increase in net sales in North America. The increase in North America driven primarily by sales in Latin America. Sales of animal healthprice as customers transition from trial to full price and nutrition products by our subsidiary in China are described in “Foreign Operations” below. Sales of our co-packaged cat litter were slightly lower than the prior year.to a lesser extent volume.


Selling, general and administrativeTotal SG&A expenses for the Business to Business Products Group were 5% higher compared toin the second quarter of fiscal year 2017. Expenditures2024 increased for travel$0.2 million, or 7%, compared to the same period of fiscal year 2023. The increase was mainly driven by compensation-related expenses to teammates and advertisingconsultants, offset by a decrease in allocated technical service support costs to promote our products.from the Innovation Center and Microbiology Lab.


The Business to Business Products Group’s operating income for the second quarter of fiscal year 20182024 was $9,759,000,$11.0 million, an increase of $1,944,000,$3.3 million, or 25%42%, from operating income of $7,815,000 in$7.7 million for the second quarter of fiscal year 2017. Higher2023. The overall increase in operating income was primarily due to higher net sales more than offset increased natural gas, manufacturing, freight, packaging and selling, general and administrative costs. See “Consolidated Results” above for further discussion of manufacturing, freight and packaging costs.favorable product mix.


RETAIL AND WHOLESALE PRODUCTS GROUP


Net sales of the Retail and Wholesale Products Group for the second quarter of fiscal year 20182024 were $41,539,000, a small decrease$69.4 million, an increase of $374,000,$2.9 million, or 1%4%, from net sales of $41,913,000$66.5 million for the second quarter of fiscal year 2017. Total2023, driven by higher net sales of our cat litter products. Global cat litter net sales were slightly lower compared to the second quarter of fiscal year 2017. Lower sales of branded litters were partially offset by higher sales of private label litter. Branded litter sales were negatively impacted by a change in the mix and amount of products sold to a major customer. However, growth in e-commerce sales lessened the overall branded litter decline. Sales of our private label lightweight scoopable litter continued to grow compared to the same quarter of the prior year, due primarily to new distribution and increased sales to current customers. Private label coarse sales declined to a lesser extent due to the loss of a customer.

Net sales of industrial and automotive absorbent products were also slightly lower compare to the second quarter of fiscal year 2017. Sales for our subsidiary in the United Kingdom were slightly higher, while sales for our subsidiary in Canada were lower than the second quarter of the prior year. See “Foreign Operations” below for further discussion about the sales and types of products sold by these foreign subsidiaries.

Selling, general and administrative expenses for the Retail and Wholesale Products Group were 27%$2.9 million, or 5%, higher compared to the second quarter of fiscal year 2017. The2023 driven by price increases. Net sales of co-packaged products increased $1.6 million compared to the same period in fiscal year 2023. This increase was driven by approximately $1,100,000 higher advertising expenseprice increases as well as timing of sales shifting from the first to promotesecond quarter as a result of driven by a cyberattack on one of our Fresh & Light lightweight cat litter. We plan to continue promoting lightweight litter throughcustomers, which prevented it from placing and receiving orders during the remainderfirst quarter of fiscal year 2018; however, we expect advertising expense2024. Domestic cat litter net sales were $50.2 million, an increase of $1.3 million driven mainly by price increases. Domestic net sales increased across all products except for private label heavy weight litter, with the full yeargreatest increase driven by sales of private label coarse litters and branded light weight scoopable. Net sales of our global industrial and sports products were $10.1 million for second quarter of fiscal year 20182024, of which $9.6 million represented domestic net sales, both of which remained flat relative to be less thanthe same period in 2023. Net sales of both cat litter and industrial products by our subsidiary in Canada remained flat in the second quarter of fiscal year 2024 compared to the same period of fiscal year 2023.

SG&A expenses for the Retail and Wholesale Products Group increased by $0.8 million, or 25%, during the second quarter of fiscal year 2024 compared to the same period in fiscal year 2017.2023. The increase was primarily driven by an increase in advertising spend, compensation-related expenses, offset by a reduction in broker commissions. We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023, however spread more evenly throughout the year.


The Retail and Wholesale Products Group's operating income was $11.9 million for the second quarter of fiscal year 2018 was $2,422,000, a decrease2024, an increase of $2,565,000, or 51%, compared to$3.2 million from operating income of $4,987,000$8.7 million for the second quartersame period of fiscal year 2017. The decrease in operating income2023. This was driven primarily by increased natural gas, manufacturing, freight and packaging costs,the increase in gross margins due to selling price increases, partially offset by higher per ton cost of goods sold as well as the higher selling, general and administrative expenses discussed above. See “Consolidated Results” above for further discussion of manufacturing, freight and packaging costs.


FOREIGN OPERATIONS


Foreign operations include our subsidiariessubsidiary in Canada, and the United Kingdom, which are includedis reported in the Retail and Wholesale Products Group, and our subsidiarysubsidiaries in the UK, Mexico, China and Indonesia, which is includedare reported in the Business to Business Products Group. Net sales by our foreign subsidiaries during the second quarter of fiscal year 20182024 were $3,110,000,$4.5 million, a 6%decrease of $1.0 million, or 18%, compared to net sales of $3,324,000$5.5 million during the same period of fiscal year 2023, driven primarily by decreases in net sales in China and Mexico. Sales of our subsidiary in China were down $0.5 million as a result of transitioning to a distributor model in China rather than sales through our subsidiary. Future sales to China will be directly through the Company and captured the Asia region, and not through our subsidiary in China. Net sales of our subsidiary in Mexico decreased during the second quarter of fiscal year 2017. This decrease was driven by approximately 13% fewer tons of animal health and nutrition products sold by our subsidiary in China, primarily as the result of lower sales2024 compared to the succeeding business after the mergersame period of two customers. Sales were also lower for cat litter and industrial absorbent products soldfiscal year 2023 by our subsidiary in Canada. Partially offsetting these lower sales were increased$0.5 million, or 62%. Total net sales of fluids purification products by our subsidiarysubsidiaries in Canada, the UK, and Indonesia remained flat in the United Kingdom.second quarter of fiscal year 2024 compared to the same period in 2023. Net sales by our foreign subsidiaries represented approximately4% and 5% of our consolidated net sales during the second quarters quarter of both fiscal years 20182024 and 2017.2023, respectively.




Our foreign subsidiaries reported net income of $436,000$0.1 million for the second quarter of both fiscal year 2018 compared to2024 and 2023. This was driven by the decrease in sales in China and Mexico, offset by the increase in net income in Canada through the reduction of $267,000 for the second quarter of fiscal year 2017. The improved profitability was driven primarily by both a favorable product sales mix and positive changes in foreign currency exchange rates.manufacturing costs.

28

LIQUIDITY AND CAPITAL RESOURCES


Our principal liquidity needs are to fund our capital requirements, include:including funding working capital needs; purchasing and upgrading equipment, facilities, information systems, and real estate; supporting new product development; investing in infrastructure; repurchasing Common Stock;stock; paying dividends; and, from time to time, business acquisitions.acquisitions, and funding our debt service requirements. During the first six months of fiscal year 2018,ended January 31, 2024, we principally usedfunded these short and long-term capital requirements using cash from current operations as well as cash generated from operations to fund these requirements. We also have the ability to borrowprevious borrowings under our revolving credit agreement with BMO Harris Bank N.A. (“BMO Harris”), as described further below, howeverSeries C Senior Notes.

We currently anticipate cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements. In addition, we have not borrowed underare actively monitoring the credit agreement in recent years.

timing and collection of our accounts receivable.
The following table sets forth certain elements of our unaudited Condensed Consolidated Statements of Cash Flows (in thousands):
 For the Six Months Ended January 31,
 20242023
Net cash provided by operating activities$17,945 $14,217 
Net cash used in investing activities(15,546)(12,635)
Net cash used in financing activities(6,464)(3,936)
Effect of exchange rate changes on cash and cash equivalents111 7 
Net decrease in cash and cash equivalents$(3,954)$(2,347)
 For the Six Months Ended January 31,
 2018 2017
Net cash provided by operating activities$11,629
 $9,093
Net cash used in investing activities(5,100) (4,446)
Net cash used in financing activities(6,222) (5,784)
Effect of exchange rate changes on cash and cash equivalents(21) 68
Net increase (decrease) in cash and cash equivalents$286
 $(1,069)


Net cash provided by operating activities


Both net income and the adjustment to net income for deferred income taxes reflect a one-time, non-cash $5,091,000 adjustment recorded in the second quarter of fiscal 2018 to reflect the provisions of the 2017 Tax Act. See Note 10 of the Notes to Condensed Consolidated Financial Statements for more information about income taxes.

In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for the first six months of fiscal years 2018 and 2017ended January 31, 2024 were as follows:


Accounts receivable, less allowance for doubtful accounts, decreased $517,000Inventory increased by $3.7 million in the first six months ended January 31, 2024 due to a combination of fiscal year 2018 comparedrising costs, specifically due to an increaselabor and repairs and the building of $1,698,000 in the first six months of fiscal year 2017. The change in accounts receivable balances reflected differences in the levelinventory levels for anticipated demand and timing of sales and collections, as well as the payment terms provided to various customers.avoid any potential supply chain disruptions.


Prepaid expenses increased $51,000by $3.2 million in the first six months of fiscal year 2018 compared to anended January 31, 2024. The increase of $3,784,000 in the first six months of fiscal year 2017. Prepayments of annual insurance premiums and computer software licenses contributedis mainly due to the increase in both fiscal years. The increase in the first six months of fiscal year 2018 was moderated by a decrease in prepaid advertising expense, but higher prepaid advertising expenses contributed to the increase in the first six months of fiscal year 2017.timing income tax payments.


Accounts payable decreased $743,000by $3.2 million in the first six months of fiscal year 2018 comparedended January 31, 2024. The decrease was mainly due to an increase of $852,000 in the first six months of fiscal year 2017. Trade and freight payable varied in both periods due to timing of payments, fluctuations in the cost of goods and services we purchased,purchase, production volume levels and vendor payment terms. Current accrued estimated income taxes are also included in accounts payable balances for both years.


Accrued expenses decreased $3,637,000$7.6 million in the first six months of fiscal year 2018 comparedended January 31, 2024. The decrease was mainly due to a decrease of $1,698,000 in the first six months of fiscal year 2017. The payout of the prior fiscal year's discretionary incentive bonus drove lower accrued salaries in the first six months of both fiscal years 2018annual bonuses and 2017. Accrued planttaxes, and other miscellaneous expenses fluctuated in the first six months of both fiscal yearswhich fluctuate due to timing of payments, changes in the cost of goods and services we purchased,purchase, production volume levels and vendor payment terms. In addition, accrued trade promotions and advertising varied due to the timing of marketing programs.terms including freight.


Net cash used in investing activities


Cash used in investing activities was $5,100,000of $15.5 million in the first six months of fiscal year 2018 compared to cash used in investing activities of $4,446,000 inended January 31, 2024 was driven by capital expenditures. During the first six months of fiscal year 2017. Cash usedended January 31, 2024 we expanded our plant equipment and improved our facilities to support increased demand for capital expenditures was $6,850,000 and $7,279,000 in the first six months of fiscal years 2018 and 2017, respectively. Capital expenditures in both periods included spending for anour products.



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enterprise resource planning system implementation, as well as equipment additions and replacement at our manufacturing facilities. Net dispositions of short-term investments provided cash of $1,739,000 and $2,831,000 in the first six months of fiscal years 2018 and 2017, respectively. Purchases and dispositions of investment securities in both periods are impacted by variations in the timing of investment maturities, the operating cash needs of the Company and the availability of investment options.

Net cash used in financing activities


Cash used in financing activities was $6,222,000of $6.5 million in the first six months of fiscal year 2018 compared to cashended January 31, 2024 was primarily used in financing activities of $5,784,000 in the first six months of fiscal year 2017. Scheduledfor dividend payments on long-term debt were $3,083,000 in the first six months of both fiscal years 2018 and 2017. Dividend payments in the first six months of fiscal year 2018 were $3,112,000 compared to $2,956,000 paid during the same period of fiscal year 2017 due to a dividend increase.treasury stock repurchases.


Other


Total cash and investment balances held by our foreign subsidiaries of $2,000,000$5.4 million as of January 31, 2018 were higher than the January2024 increased compared to $5.2 million as of July 31, 2017 balances of $1,653,000.2023. See further discussion in “Foreign Operations”"Foreign Operations" above.


We have a $25,000,000 unsecured revolving credit agreement with BMO Harris which expires on December 4, 2019. The agreement also provides for a maximumAs of $5,000,000 for foreign letters of credit. Under the agreement we may select a variable interest rate based on either the BMO Harris prime rate or a LIBOR-based rate, plus a margin which varies depending on our debt to earnings ratio, or a fixed rate as agreed between us and BMO Harris. At January 31, 2018, the variable rates would have been 4.50% for the BMO Harris prime-based rate or 2.73% for the LIBOR-based rate. The credit agreement contains restrictive covenants that, among other things and under various conditions, limit our ability to incur additional indebtedness or to dispose of assets. The agreement also requires us to maintain a minimum fixed coverage ratio and a minimum consolidated net worth. We did not borrow under the credit agreement during the six months ended January 31, 2018 and 2017, and we were in compliance with its covenants.

As of January 31, 2018,2024, we had remaining authority to repurchase 300,822382,404 shares of Common Stock and 262,092 shares of Class B Stock under a repurchase plan approved by our Board of Directors. These repurchasesBoard. Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing, number and numbermanner of shares repurchasedshare repurchases will be determined by our management.management pursuant to the repurchase plan approved by our Board.


We believe that cash flow from operations, availability under our Note Agreement and revolving credit facility under our Credit Agreement, current cash and investment balances and our ability to obtain other financing, if necessary, will provide adequate cash fundssufficient liquidity for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments and debt service obligations for at least the next 12 months. See Note 8 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. We plan to continue promoting our lightweight products, although we expect advertising expense in fiscal year 2018 to be less than in fiscal year 2017. We anticipate that our capital expenditures in fiscal year 2018 will2024 to be highergreater than in fiscal year 2017, including costs related to our enterprise resource planning software implementation. In addition, approximately $5,996,000 of deferred compensation is payable within the next year.2023. We do not believe that these increased cash outflowscapital expenditures will dramatically impact our cash position; however, our cash requirements are subject to change as business conditions warrant and opportunities arise.


We continually evaluate our liquidity position and anticipated cash needs, as well as the financing options available to obtain additional cash reserves. Our ability to fund operations, to make planned capital expenditures, to make scheduled debt payments and to remain in compliance with all financial covenants under debt agreements, including, but not limited to, the current credit agreement,Credit Agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors. The timing and size of any new business ventures or acquisitions that we complete may also impact our cash requirements.


The following tables summarize our contractual obligations and commercial commitments (in thousands) as of January 31, 2018 for the time-frames indicated.



CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
 Payments Due by Period
Contractual ObligationsTotal Less Than 1 Year 1 – 3 Years 4 – 5 Years After 5 Years
Notes Payable$9,250
 $3,083
 $6,167
 $—
 $—
Interest on Notes Payable733
 366
 367
 —
 —
Operating Leases15,437
 2,099
 3,105
 2,024
 8,209
Total Contractual Cash Obligations$25,420
 $5,548
 $9,639
 $2,024
 $8,209

We made total contributions to our defined benefit pension plan of $770,000 during the first six months of fiscal year 2018. We estimate contributions of approximately $1,372,000 will be made during the remainder of fiscal year 2018. We have not presented this obligation for future years in the table above because the funding requirement can vary from year to year based on changes in the fair value of plan assets and actuarial assumptions. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” below for a discussion of the potential impact of financial market fluctuations on pension plan assets and future funding contributions.
 Amount of Commitment Expiration Per Period
 Total Less Than 1 Year 1 – 3 Years 4 – 5 Years After 5 Years
Other Commercial Commitments$25,263
 $25,263
 $—
 $—
 $—

The other commercial commitments in the table above represent open purchase orders, including blanket purchase orders, for items such as packaging, additives and pallets used in the normal course of operations. The expected timing of payments for these obligations is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


This discussion and analysis of financial condition and results of operations is based on our unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP for interim financial information and in compliance with instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and related disclosures. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. Estimates and assumptions are revised periodically. Actual results could differ from these estimates. See the information concerning our critical accounting policies included under “Management’s"Management’s Discussion of Financial Condition and Results of Operations”Operations" in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023.




ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risk and employ policies and procedures to manage our exposure to changes in the market risk of our cash equivalents and short-term investments. We believe that the market risk arising from holdings of our financial instruments is not material.

We are exposed to foreign currency fluctuation risk, primarily the U.S. Dollar relative to the British Pound, Euro, Canadian Dollar and Chinese Yuan. This risk is related to our foreign subsidiaries' financial results, to certain accounts receivable and to our ability to sell in foreign markets. We are subject to the impact of currency fluctuation upon translation of our foreign subsidiaries’ financial statements from local currencies to U.S. Dollars. In recent years, our foreign subsidiaries have not generated a substantial portion of our consolidated net sales or net income. In addition, the portion of our consolidated accounts receivable denominated in foreign currencies has not been significant. Finally, foreign sales of our products may be influenced by the relative strength of the U.S. dollar compared to various other currencies, which makes our products relatively more or less expensive than our foreign competitors' products in local marketplaces. Foreign currency fluctuations had some bearing on our operating results in the first six months of fiscal year 2018; however, historically the overall foreign currency fluctuation risk has not been material to our Consolidated Financial Statements. During the first six months of fiscal year 2018, we did not enter into any hedge contracts to offset any adverse effect of changes in currency exchange rates.

We are exposed to market risk as it relates to the investments of plan assets under our defined benefit pension plan. The fair value of these assets is subject to change due to fluctuations in the financial markets. A lower asset value may increase our pension expense and may increase the amount and accelerate the timing of future funding contributions.
We are exposed to regulatory risk in the fluid purification, animal health and agricultural markets, principally as a result of the risk of increasing regulation of the food chain throughout the world, but particularly in the United States and Europe. We actively monitor developments in this area, both directly and through trade organizations of which we are a member.
We are exposed to commodity price risk with respect to fuel. Factors that could influence the cost of natural gas used in the kilns to dry our clay include the creditworthiness of our natural gas suppliers, the overall general economy, developments in world events, general supply and demand for natural gas, seasonality and the weather patterns throughout the United States and the world. We monitor fuel market trends and, consistent with our past practice, we may contract for a portion of our anticipated fuel needs using forward purchase contracts to mitigate the volatility of our kiln fuel prices. As of January 31, 2018, we have not purchased any natural gas contracts for our planned kiln fuel needs for the remainder of fiscal year 2018.



ITEM 4.  CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”"Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. The controls evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”("CEO") and Chief Financial Officer (“CFO”("CFO"). Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fiscal quarter ended January 31, 20182024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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Inherent Limitations on Effectiveness of Controls


Our management, including the CEO and CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.




PART II – OTHER INFORMATION


Items 1A, 2,1 and 3 and 5 of this Part II are either inapplicable or are answered in the negative and are omitted pursuant to the instructions to Part II.II of Form 10-Q.


ITEM 1. LEGAL PROCEEDINGS1A. RISK FACTORS


Below is a supplementThe Company's operations and financial results are subject to the description of the litigation undervarious risks and uncertainties, including those described in Part I, Item 3, “Legal Proceedings,”1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2017.

On February 3, 2015, we brought suit in the United States District Court2023. Except for the Northern Districtrisk factor set forth below, there have been no material changes to our risk factors since the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2023.
We will no longer qualify as a "smaller reporting company" and, commencing with our quarterly report on Form 10-Q for the period ending October 31, 2024, we may no longer take advantage of Illinois, Eastern Division, against Nestlé Purina PetCare Company (“Nestlé”) seeking monetary damagesreduced disclosure and injunctive relief based on Nestlé’s alleged infringementreporting requirements applicable to smaller reporting companies.
We currently qualify as a "smaller reporting company" as defined by the SEC and have been able to take advantage of a patent held by us. Discovery in this case is proceeding.

Additionally, Nestlé filed a petition for Inter Partes Review (“IPR”) withreduced disclosure and reporting requirements applicable to smaller reporting companies. However, management performed the Patent Trial and Appeal Board (“PTAB”)annual public float test as of the United States Patent and Trademark Office to challenge certainlast business day of the claims in our patent.Company's second fiscal quarter ended January 31, 2024 and determined that the Company no longer qualifies as a smaller reporting company due to its public float exceeding $250 million. The PTAB agreedCompany will continue to consider Nestlé’s petition, butuse the scaled disclosures permitted for a smaller reporting company through its annual report on June 20, 2016, issued an order stating that Nestlé had not shown by a preponderance of the evidence that any of the challenged claims in our patent are unpatentable. In July 2016, Nestlé filed a motion for reconsideration of the PTAB’s decision, which was denied in February 2017.  Nestlé timely filed an appeal of the PTAB’s decision to the U.S. Court of AppealsForm 10-K for the Federal Circuit.  In November 2017, Nestlé filed a motion in that Courtfiscal year ending July 31, 2024. Beginning with our quarterly report on Form 10-Q for the period ending October 31, 2024, the Company will no longer be eligible to remand the case to the PTAB for consideration of additional evidence that it claims should have been provided to the PTAB.  In December 2017, the Court declined the request for an immediate remand and deferred Nestlé's motion until the case is assigned to its hearing panel. Briefing is now complete.

Due to the nature and current legal standing of the litigation with Nestlé, we cannot estimate the possible damages, if any, and the total expense associated with the lawsuits. Although no assurances can be given as to the results of the lawsuits, basedrely on the present status, management does not believe that such results willreduced disclosure and reporting requirements applicable to smaller reporting companies. The resulting increased disclosure and reporting requirements could have a material adverse effect on our business, financial condition orand results of operations.operations if we are unable to comply on a timely basis or if the attention of our management and personnel is diverted from other business concerns.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended January 31, 2024, we did not sell any securities which were not registered under the Securities Act of 1933, as amended. The following table summarizes our Common Stock purchases by or on behalf of the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Exchange Act) during this period.
ISSUER PURCHASES OF EQUITY SECURITIES1, 2
(a)(b)(c)(d)
Period
Total Number of Shares Purchased3
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that may yet be Purchased Under Plans or Programs4
November 1, 2023 to November 30, 2023—$——407,150
December 1, 2023 to December 31, 202323,063$68.89—384,087
January 1, 2024 to January 31, 20241,683$67.88—382,404

1 The table summarizes repurchases of (and remaining authority to repurchase) shares of our Common Stock. Our Board authorized the repurchase of 300,000 shares of Class B Stock on March 12, 2018, however, there have been no repurchases of Class B Stock for the three months ended January 31, 2024, and the authorized Class B Stock is not included in the table above. 262,092 shares of Class B Stock remain authorized for repurchases as of January 31, 2024. No shares of our Class A Common Stock are currently outstanding. Descriptions of our Common Stock, Class B Stock and Class A Common Stock are contained in Exhibit 4.1 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023.

2 The figures in the table reflect transactions according to the settlement dates. For purposes of our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the impact of repurchases are recorded according to the settlement dates.

3 All 24,746 shares were surrendered by employees to pay taxes related to restricted stock awards.

4 Our Board authorized the repurchase of 750,000 shares of Common Stock on March 11, 2019. This authorization does not have a stated expiration date. The share numbers in this column indicate the number of shares of Common Stock that may yet be repurchased under this authorization. Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing, number and manner of share repurchases will be determined by management.


ITEM 4.  MINE SAFETY DISCLOSURES


Our mining operations are subject to regulation by the Mine Safety and Health Administration under authority of the Federal Mine Safety and Health Act of 1977, as amended. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K isare included in Exhibit 95 to this Quarterly Report on Form 10-Q.





ITEM 5. OTHER INFORMATION

During the three months ended January 31, 2024, none of our officers or directors adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" (each as defined in Item 408 of Regulation S-K).
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ITEM 6.  EXHIBITS

Exhibit
No.		Description
Exhibit
No.
DescriptionSEC Document Reference
10.1
EighthAmendment, dated as of January 25, 2024, to Memorandum of Agreement #1450 “Fresh Step” ™ dated as of March 12, 2001.
Filed herewith.
3
By-Laws of Oil-Dri Corporation of America, as Amended and Restated on December 12, 2017
Filed herewith.
31
11
Statement re: Computation of Earnings per Share.
Filed herewith.
31
Certifications pursuant to Rule 13a–14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
Filed herewith.
32
Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
95Filed herewith.
101.INS101.SCHXBRL Taxonomy Instance DocumentFiled herewith.
101.SCHXBRL Taxonomy Extension Schema DocumentFiled herewith.
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith.
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith.
101.LABXBRL Taxonomy Extension Labels Linkbase DocumentFiled herewith.
101.PREXBRL Taxonomy Extension Presentation LinkbaseFiled herewith.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)Filed herewith.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


OIL-DRI CORPORATION OF AMERICA
(Registrant)


BY /s/ Daniel S. Jaffee                          
Daniel S. Jaffee
Chairman, President and Chief Executive Officer


BY /s/ Daniel T. Smith                         
Daniel T. Smith
Vice President and Chief Financial Officer


Dated:  March 9, 2018


EXHIBITS

Exhibit No.Description
3
By-Laws of Oil-Dri Corporation of America, as Amended and Restated on December 12, 2017
11
Statement re: Computation of Earnings per Share.
31
Certifications pursuant to Rule 13a–14(a).
32
Certifications pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002.
95
Mine Safety Disclosures
101.INS
XBRL Taxonomy Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase


Note: Stockholders may receive copies of the above listed exhibits, without fee, by written request to Investor Relations, Oil-Dri Corporation of America, 410 North Michigan Avenue, Suite 400, Chicago, Illinois 60611-4213, by telephone at (312) 321-1515 or by e-mail to info@oildri.com.



32
33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


OIL-DRI CORPORATION OF AMERICA
(Registrant)


BY /s/ Daniel S. Jaffee                          
Daniel S. Jaffee
Chairman, President and Chief Executive Officer


BY /s/ Susan M. Kreh                         
Susan M. Kreh
Chief Financial Officer


Dated:  March 7, 2024
34