SEC Form 10-Q filed by Oil-Dri Corporation Of America
$ODC
Miscellaneous manufacturing industries
Consumer Discretionary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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 April 30, 2024 or | ||||||||
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
(Exact name of the registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
The registrant's telephone number, including area code: ( | ||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes ☒ No ☐
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.
Large Accelerated Filer o | Non-accelerated Filer o | |||||||||||||
Smaller Reporting Company | ||||||||||||||
Emerging 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.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 31, 2024, 5,130,916 shares of the registrant's Common Stock and 2,155,407 shares of the registrant's Class B Stock were outstanding.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||||||||
| Page | ||||||||
| Item 1: | ||||||||
| Item 2: | ||||||||
| Item 4: | ||||||||
| PART II – OTHER INFORMATION | ||||||||
| Item 1A: | ||||||||
| Item 2: | ||||||||
| Item 4: | ||||||||
| Item 5: | ||||||||
| Item 6: | ||||||||
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including, but not limited to, those under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and those statements elsewhere in this report and other documents that we file with the Securities and Exchange Commission ("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. Forward-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," "potential," "strive," and similar references to 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 Factors," of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 and in Part II, Item 1A, "Risk Factors," of our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024, 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 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
"Oil-Dri" is a registered trademark of Oil-Dri Corporation of America.
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Balance Sheet
(Unaudited)
| (in thousands, except for share and per share amounts) | |||||||||||
| ASSETS | April 30, 2024 | July 31, 2023 | |||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses | |||||||||||
| Total Current Assets | |||||||||||
| Property, Plant and Equipment | |||||||||||
| Cost | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| Total Property, Plant and Equipment, Net | |||||||||||
| Other Assets | |||||||||||
| Goodwill | |||||||||||
Intangible assets, net of accumulated amortization of $ | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other | |||||||||||
| Total Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
3
OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Balance Sheet (continued)
(Unaudited)
| (in thousands, except for share and per share amounts) | |||||||||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | April 30, 2024 | July 31, 2023 | |||||||||
| Current Liabilities | |||||||||||
| Current maturities of notes payable | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Dividends payable | |||||||||||
| Operating lease liabilities | |||||||||||
| Accrued expenses | |||||||||||
| Total Current Liabilities | |||||||||||
| Noncurrent Liabilities | |||||||||||
Notes payable, net of unamortized debt issuance costs of $ | |||||||||||
| Deferred compensation | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Other | |||||||||||
| Total Noncurrent Liabilities | |||||||||||
| Total Liabilities | |||||||||||
Commitments and contingencies (See note 7) | |||||||||||
| Stockholders’ Equity | |||||||||||
Common Stock, par value $ and | |||||||||||
Class B Stock, par value $ and | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income | |||||||||||
Less Treasury Stock, at cost ( April 30, 2024 and | ( | ( | |||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities & Stockholders’ Equity | $ | $ | |||||||||
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)
| (unaudited) | |||||||||||
| (in thousands, except for per share amounts) | For the Nine Months Ended April 30, | ||||||||||
| 2024 | 2023 | ||||||||||
| Net Sales | $ | $ | |||||||||
| Cost of Goods Sold | ( | ( | |||||||||
| Gross Profit | |||||||||||
| Selling, General and Administrative Expenses | ( | ( | |||||||||
| Income from Operations | |||||||||||
| Other (Expense) Income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Interest income | |||||||||||
| Loss on pension termination | ( | ||||||||||
| Other, net | ( | ( | |||||||||
| Total Other Expense, Net | ( | ( | |||||||||
| Income Before Income Taxes | |||||||||||
| Income Tax Expense | ( | ( | |||||||||
| Net Income | |||||||||||
| Net Loss Attributable to Noncontrolling Interest | ( | ||||||||||
| Net Income Attributable to Oil-Dri | $ | $ | |||||||||
| Earnings Per Share | |||||||||||
| Basic Common | $ | $ | |||||||||
Basic Class B | $ | $ | |||||||||
| Diluted Common | $ | $ | |||||||||
Diluted Class B | $ | $ | |||||||||
| Average Shares Outstanding | |||||||||||
| Basic Common | |||||||||||
Basic Class B | |||||||||||
| Diluted Common | |||||||||||
Diluted Class B | |||||||||||
| Dividends Declared Per Share | |||||||||||
| Basic Common | $ | $ | |||||||||
Basic Class B | $ | $ | |||||||||
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 Nine Months Ended April 30, | ||||||||||
| 2024 | 2023 | ||||||||||
| Net Income Attributable to Oil-Dri | $ | $ | |||||||||
| Other Comprehensive (Loss) Income: | |||||||||||
| Pension and postretirement (expenses) benefits (net of tax) | ( | ||||||||||
| Cumulative translation adjustment | ( | ||||||||||
| Other Comprehensive (Loss) Income | ( | ||||||||||
| Total Comprehensive Income | $ | $ | |||||||||
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 April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net Sales | $ | $ | |||||||||
| Cost of Goods Sold | ( | ( | |||||||||
| Gross Profit | |||||||||||
| Selling, General and Administrative Expenses | ( | ( | |||||||||
| Income from Operations | |||||||||||
| Other (Expense) Income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Interest income | |||||||||||
| Loss on pension termination | ( | ||||||||||
| Other, net | ( | ||||||||||
| Total Other Expense, Net | ( | ( | |||||||||
| Income Before Income Taxes | |||||||||||
| Income Tax Expense | ( | ( | |||||||||
| Net Income | |||||||||||
| Net Loss Attributable to Noncontrolling Interest | ( | ||||||||||
| Net Income Attributable to Oil-Dri | $ | $ | |||||||||
| Net Income Per Share | |||||||||||
| Basic Common | $ | $ | |||||||||
Basic Class B | $ | $ | |||||||||
| Diluted Common | $ | $ | |||||||||
Diluted Class B | $ | $ | |||||||||
| Average Shares Outstanding | |||||||||||
| Basic Common | |||||||||||
Basic Class B | |||||||||||
| Diluted Common | |||||||||||
Diluted Class B | |||||||||||
| Dividends Declared Per Share | |||||||||||
| Basic Common | $ | $ | |||||||||
Basic Class B | $ | $ | |||||||||
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 April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
Net Income Attributable to Oil-Dri | $ | $ | |||||||||
| Other Comprehensive (Loss) Income: | |||||||||||
| Pension and postretirement (expenses) benefits (net of tax) | ( | ||||||||||
| Cumulative translation adjustment | ( | ( | |||||||||
| Other Comprehensive (Loss) Income | ( | ||||||||||
Total Comprehensive Income | $ | $ | |||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
8
OIL-DRI CORPORATION OF AMERICA
Consolidated Statements of Stockholders' Equity
(Unaudited)
| For the Three Months Ended April 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 Income | Non-Controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 31, 2023 | ( | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends Declared | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Treasury Stock | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of stock under long-term incentive plans | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of Restricted Stock | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 30, 2023 | ( | $ | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Balance, January 31, 2024 | ( | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends Declared | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Treasury Stock | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of stock under long-term incentive plans | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of Restricted Stock | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 30, 2024 | ( | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| For the Nine Months Ended April 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common & Class B Stock | Treasury Stock | Common & Class B Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income | Non-controlling Interest | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, July 31, 2022 | ( | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends Declared | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Treasury Stock | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of stock under long-term incentive plans | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of Restricted Stock | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 30, 2023 | ( | $ | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Balance, July 31, 2023 | ( | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Loss | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends Declared | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Treasury Stock | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net issuance of stock under long-term incentive plans | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of Restricted Stock | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 30, 2024 | ( | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
9
OIL-DRI CORPORATION OF AMERICA
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| (in thousands) | For the Nine Months Ended April 30, | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | 2024 | 2023 | |||||||||
| Net Income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Non-cash stock-based compensation | |||||||||||
| Loss on pension termination | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Provision for bad debts and cash discounts | |||||||||||
| Impairment of patents | |||||||||||
| Loss on Impairment of Fixed Assets | |||||||||||
| Accretion of Asset Retirement Obligation | |||||||||||
| Loss on the disposals of property, plant and equipment | |||||||||||
| (Increase) Decrease in assets: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses | ( | ||||||||||
| Other assets | |||||||||||
| Increase (Decrease) in liabilities: | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses | ( | ||||||||||
| Deferred compensation | ( | ||||||||||
| Other liabilities | ( | ( | |||||||||
| Total Adjustments | |||||||||||
| Net Cash Provided by Operating Activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Net Cash Used in Investing Activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from issuance of notes payable | |||||||||||
| Payment of debt issuance costs | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Purchases of treasury stock | ( | ( | |||||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ||||||||||
| Effect of exchange rate changes on Cash and Cash Equivalents | ( | ||||||||||
| Net Increase in Cash and Cash Equivalents | |||||||||||
| Cash and Cash Equivalents, Beginning of Period | |||||||||||
| Cash and Cash Equivalents, End of Period | $ | $ | |||||||||
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 - Continued
(Unaudited)
| (in thousands) | For the Nine Months Ended April 30, | ||||||||||
| 2024 | 2023 | ||||||||||
| Supplemental disclosures: | |||||||||||
| Other cash flows: | |||||||||||
| Interest payments, net of amounts capitalized | $ | $ | |||||||||
Income tax payments, net of refunds | |||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Capital expenditures accrued, but not paid | $ | $ | |||||||||
| Cash dividends declared and accrued, but not paid | $ | $ | |||||||||
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") 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 included in our Annual Report on Form 10-K for the 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," the "Company," "we," "us" or "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. Operating results for the three and nine months ended April 30, 2024 are not necessarily an indication of the results that may be expected for the fiscal year ending July 31, 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 management 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. Estimates and assumptions about future events cannot be made with certainty. All of our estimates and assumptions are revised periodically. Actual results could differ from these estimates.
Summary of Significant Accounting Policies
Our significant accounting policies, which are summarized in detail in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023, have not materially changed. The following is a description of certain of our significant accounting policies:
Trade Receivables. We recognize trade receivables when control of finished products are transferred to our customers. We record an allowance for credit losses based on our expectations and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific accounts. A customer account is determined to be uncollectible when it is probable that a loss will be incurred after we have completed our internal collection procedures, including termination of shipments, direct customer contact and formal demand of payment. We retain outside collection agencies to facilitate our collection efforts. Past due status is determined based on contractual terms and customer payment history.
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.
12
Land, Mining 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 goods 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.
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 $0.1 million as of April 30, 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 nine months ended April 30, 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 April 30, 2024 and $4.5 million as of July 31, 2023 and $1.9 million for postretirement health benefit as of April 30, 2024 and $1.8 million as of 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 shares of Common Stock and Class B Stock based on amounts actually declared for each class of stock and 33.33 % more of the undistributed earnings have been allocated to the shares of Common Stock than to the shares of Class B Stock on a per share basis. Common Stock is entitled to one vote per share and Class B Stock is entitled to ten votes per share. Common Stock has 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 shares of Class B Stock, 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.
14
| For the Nine Months Ended April 30, 2024 | |||||||||||||||||
| (in thousands, except for per share data) | |||||||||||||||||
| Total | Common | Class B | |||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Distributed and undistributed earnings on restricted shares | ( | ( | ( | ||||||||||||||
| Income available to stockholders | $ | $ | $ | ||||||||||||||
| Net Income (Numerator) | $ | $ | |||||||||||||||
| Weighted Average Shares Outstanding (Denominator) | |||||||||||||||||
| Basic EPS | $ | $ | |||||||||||||||
Effect of dilution - Net Income (1) | $ | $ | |||||||||||||||
| Net income assuming dilution (Numerator) | $ | $ | |||||||||||||||
Effect of dilution - Shares (1) | $ | ||||||||||||||||
| Shares assuming dilution (Denominator) | $ | ||||||||||||||||
| Diluted EPS | $ | $ | |||||||||||||||
| For the Three Months Ended April 30, 2024 | |||||||||||||||||
| (in thousands, except for per share data) | |||||||||||||||||
| Total | Common | Class B | |||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
| Distributed and undistributed earnings on restricted shares | ( | ( | ( | ||||||||||||||
| Income available to stockholders | $ | $ | $ | ||||||||||||||
| Net Income (Numerator) | $ | $ | |||||||||||||||
| Weighted Average Shares Outstanding (Denominator) | |||||||||||||||||
| Basic EPS | $ | $ | |||||||||||||||
Effect of dilution - Net Income (1) | $ | $ | |||||||||||||||
| Net income assuming dilution (Numerator) | $ | $ | |||||||||||||||
Effect of dilution - Shares (1) | $ | ||||||||||||||||
| Shares assuming dilution (Denominator) | $ | ||||||||||||||||
| Diluted EPS | $ | $ | |||||||||||||||
(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 Accounting Standards Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." These amendments primarily require enhanced disclosures and disaggregation of income tax information by jurisdiction in the annual income tax reconciliation and quantitative disclosures regarding income taxes paid. These amendments are to be applied prospectively, with the option to apply the standard retrospectively, for annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the adoption of this guidance will have on our disclosures.
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." These amendments primarily require enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. In addition, ASU No. 2023-07 also requires all annual disclosures currently required by Topic 280 to be included in interim periods. These amendments are to be applied retrospectively for all periods presented in the financial statements and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact that the adoption of this guidance will have on our disclosures.
Recently Adopted Accounting Standards
There have been no new accounting pronouncements adopted in the period.
3. INVENTORIES
The composition of inventories is as follows (in thousands):
| April 30, 2024 | July 31, 2023 | ||||||||||
| Finished goods | $ | $ | |||||||||
| Packaging | |||||||||||
Spare parts | |||||||||||
| Other | |||||||||||
| Total Inventories | $ | $ | |||||||||
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 are primarily money market mutual funds classified as Level 1. We had $0.9 million in cash equivalents as of April 30, 2024 and $15.4 million in cash equivalents as of July 31, 2023.
16
Balances of accounts receivable and accounts payable approximated their fair values at April 30, 2024 and July 31, 2023 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 $41.1 million and $29.7 million as of April 30, 2024 and July 31, 2023, respectively, and are 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 assets, other than goodwill, include trademarks, patents, and customer lists. Estimated intangible amortization for fiscal year 2024 is $0.1 million. Estimated intangible amortization for each of the next five fiscal years is $0.1 0.4 million that was determined to have an indefinite life and is not amortized.
6. ACCRUED EXPENSES
Accrued expenses is as follows (in thousands):
| April 30, 2024 | July 31, 2023 | |||||||||||||
| Salaries, Wages, Commissions and Employee Benefits | $ | $ | ||||||||||||
| Freight | ||||||||||||||
| Trade Promotions and Advertising | ||||||||||||||
| Georgia Landfill Modification Reserve | ||||||||||||||
| Real Estate Tax | ||||||||||||||
| Other | ||||||||||||||
| $ | $ | |||||||||||||
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.
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, (i) on May 15, 2020 we issued $10 million in aggregate principal amount of our 3.95 % Series B Senior Notes due May 15, 2030 , of which $7 million aggregate principal amount remained outstanding as of April 30, 2024, (ii) 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 April 30, 2024, and (iii) on April 30, 2024 we issued $10 million in aggregate principal amount of our 6.47 % Series D Senior Notes due April 30, 2033 , all of which remained outstanding as of April 30, 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, Series C Senior Notes, and Series D 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. On April 16, 2024, we entered into the Seventh Amendment to Credit Agreement (the “Seventh Amendment”). The Seventh Amendment amends the Credit Agreement to, among other things, revise the method for calculating consolidated EBITDA for purposes of financial covenant compliance under the Credit Agreement; provide specific conditions precedent to advance funds for the Transaction (as defined in Note 15 below); and modify certain covenants and other provisions to permit certain indebtedness and liens of Ultra Pet Company, Inc. (“Ultra Pet”) and facilitate the Transaction. As of April 30, 2024, and July 31, 2023, we were in compliance with the covenants. There were no 1.5 million and $1.0 million of letters of credit outstanding under the Credit Agreement as of April 30, 2024 and July 31, 2023, respectively.
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.
18
We have no material finance leases, and variable costs for operating leases are immaterial for the three and nine months ended April 30, 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):
| For the Three Months Ended April 30, | For the Nine Months Ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating Lease Cost | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Short-term operating lease cost | |||||||||||||||||||||||
Supplemental cash flow information related to leases was as follows (in thousands):
| For the Three Months Ended April 30, | For the Nine Months Ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities: | $ | $ | $ | $ | |||||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | $ | $ | |||||||||||||||||||
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:
| April 30, 2024 | July 31, 2023 | ||||||||||
| Weighted-average remaining lease term - operating leases | |||||||||||
| Weighted-average discount rate - operating leases | |||||||||||
Lease liability maturities as of April 30, 2024, are as follows (in thousands):
| Fiscal year 2024 (remaining three months) | $ | ||||
| Fiscal year 2025 | |||||
| Fiscal year 2026 | |||||
| Fiscal year 2027 | |||||
| Fiscal year 2028 | |||||
| Thereafter | |||||
| Total | |||||
| Less: imputed interest | ( | ||||
| Net lease obligation | $ | ||||
19
10. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Oil-Dri Corporation of America Pension Plan ("Pension Plan") was a defined benefit pension plan for eligible salaried and hourly employees. 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 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 and postretirement health benefit costs were as follows:
| Pension Benefits | |||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| For the Three Months Ended April 30, | For the Nine Months Ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Other actuarial loss | |||||||||||||||||||||||
| Loss on pension termination | $ | $ | $ | $ | |||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
| Postretirement Health Benefits | |||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| For the Three Months Ended April 30, | For the Nine Months Ended April 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Other actuarial loss | ( | ( | ( | ( | |||||||||||||||||||
| Prior service costs | ( | ( | ( | ( | |||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
The non-service cost components of net periodic benefit cost are included in Other Income (Expense) in the line item Other, net on the unaudited Condensed Consolidated Statements of Income.
The discount rate for the net periodic benefit cost used in the calculation of the postretirement health benefits was 4.90 % for the three and nine months ended April 30, 2024, and 3.82 % for the three and nine months ended 2023. The medical cost trend assumption for postretirement health benefits was 8.20 %. The graded trend rate is expected to decrease to an ultimate rate of 4.90 % in fiscal year 2044 .
20
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 mass merchandisers, the farm and fleet channel, drugstore chains, pet specialty retail outlets, dollar stores, retail grocery stores, distributors of industrial cleanup and automotive products, environmental service companies, sports field product users and marketers of consumer products. The Business to Business Products Group customers include: processors and refiners of edible oils, renewable diesel, petroleum-based oils and biodiesel fuel, manufacturers of animal feed and agricultural chemicals, and distributors of animal health and nutrition products. Our operating segments are also our reportable segments. 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, 2023.
Net sales for our principal products by segment are as follows (in thousands):
| Business to Business Products Group | Retail and Wholesale Products Group | ||||||||||||||||||||||
| For the Nine Months Ended April 30, | |||||||||||||||||||||||
| Product | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Cat Litter | $ | $ | $ | $ | |||||||||||||||||||
| Industrial and Sports | $ | ||||||||||||||||||||||
| Agricultural and Horticultural | |||||||||||||||||||||||
| Bleaching Clay and Fluids Purification | $ | ||||||||||||||||||||||
| Animal Health and Nutrition | |||||||||||||||||||||||
| Net Sales | $ | $ | $ | ||||||||||||||||||||
| Business to Business Products Group | Retail and Wholesale Products Group | ||||||||||||||||||||||
| For the Three Months Ended April 30, | |||||||||||||||||||||||
| Product | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Cat Litter | $ | $ | $ | $ | |||||||||||||||||||
| Industrial and Sports | |||||||||||||||||||||||
| Agricultural and Horticultural | |||||||||||||||||||||||
| Bleaching Clay and Fluids Purification | |||||||||||||||||||||||
| Animal Health and Nutrition | |||||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | |||||||||||||||||||
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 | |||||||||||||||||||||||
| April 30, 2024 | July 31, 2023 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Business to Business Products Group | $ | $ | |||||||||||||||||||||
| Retail and Wholesale Products Group | |||||||||||||||||||||||
| Unallocated Assets | |||||||||||||||||||||||
| Total Assets | $ | $ | |||||||||||||||||||||
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 information systems, finance, legal, human resources and customer service.
| For the Nine Months Ended April 30, | |||||||||||||||||||||||
| Net Sales | Income | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Business to Business Products Group | $ | $ | $ | $ | |||||||||||||||||||
| Retail and Wholesale Products Group | $ | $ | |||||||||||||||||||||
| Net Sales | $ | $ | |||||||||||||||||||||
| Corporate Expenses | ( | ( | |||||||||||||||||||||
| Income from Operations | |||||||||||||||||||||||
| Total Other Expenses, Net | ( | ( | |||||||||||||||||||||
| Income before Income Taxes | |||||||||||||||||||||||
| Income Tax Expense | ( | ( | |||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Net Loss Attributable to Noncontrolling Interest | ( | ||||||||||||||||||||||
| Net Income Attributable to Oil-Dri | $ | $ | |||||||||||||||||||||
| For the Three Months Ended April 30, | |||||||||||||||||||||||
| Net Sales | Income | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Business to Business Products Group | $ | $ | $ | $ | |||||||||||||||||||
| Retail and Wholesale Products Group | $ | $ | |||||||||||||||||||||
| Net Sales | $ | $ | |||||||||||||||||||||
| Corporate Expenses | ( | ( | |||||||||||||||||||||
| Income from Operations | |||||||||||||||||||||||
| Total Other Expenses, Net | ( | ( | |||||||||||||||||||||
| Income before Income Taxes | |||||||||||||||||||||||
| Income Tax Expense | ( | ( | |||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Net Loss Attributable to Noncontrolling Interest | ( | ||||||||||||||||||||||
| Net Income Attributable to Oil-Dri | $ | $ | |||||||||||||||||||||
12. STOCK-BASED COMPENSATION
The Amended and Restated Oil-Dri Corporation of America 2006 Long Term Incentive Plan, as amended (the "2006 Plan"), permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based and cash-based awards. Our employees and outside directors are eligible to receive grants under the 2006 Plan. The total number of shares of stock subject to grants under the 2006 Plan may not exceed 1,719,500 . As of April 30, 2024, there were 636,977 shares of Common Stock or Class B Stock available for future grants under this plan.
22
Restricted Stock
All of our non-vested restricted stock as of April 30, 2024 was issued under the 2006 Plan with vesting periods generally between and five years . We determined 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.
There were 73,000 and 59,000 restricted shares of Common Stock granted during the first nine months of fiscal years 2024 and 2023, respectively. There were 125,000 restricted shares of Class B Stock granted during the first nine months of fiscal year 2024 and none in fiscal year 2023. Stock-based compensation expense was $0.9 million and $0.7 million for the three-months ended April 30, 2024 and 2023 respectively, and $2.7 million and $2.3 million for the nine months ended April 30, 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, 2023 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeitures | ( | $ | |||||||||
| Non-vested restricted stock outstanding at April 30, 2024 | $ | ||||||||||
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component as of April 30, 2024 (in thousands):
| Pension and Postretirement Health Benefits | Cumulative Translation Adjustment | Total Accumulated Other Comprehensive Income (Loss) | |||||||||||||||
| Balance as of July 31, 2023 | $ | $ | ( | $ | |||||||||||||
| Other comprehensive income before reclassifications, net of tax | |||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax | ( | ( | |||||||||||||||
| Net current-period other comprehensive (loss) income, net of tax | ( | ( | |||||||||||||||
| Balance as of April 30, 2024 | $ | $ | ( | $ | |||||||||||||
14. RELATED PARTY TRANSACTIONS
One member of our Board is currently the President and Chief Executive Officer of a vendor of ours. Total payments to this vendor for fees and cost reimbursements were $1.2 million and $0.1 million for the first nine months of fiscal years 2024 and 2023, respectively. There were no
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15. SUBSEQUENT EVENTS
On May 1, 2024, pursuant to a Stock Purchase Agreement (the “Purchase Agreement”), dated April 16, 2024, we acquired all of the issued and outstanding shares of capital stock of Ultra Pet for an aggregate cash consideration of approximately $46 million, subject to certain adjustments set forth in the Purchase Agreement, in order to enter into the crystal cat litter segment (the “Transaction”). The purchase price was financed through cash on hand, a $10 million advance under the Credit Agreement, and the issuance of $10 million in aggregate principal amount of 6.47 % Series D Senior Notes due April 30, 2033 pursuant to the shelf facility provisions of the Note Agreement. Going forward, Ultra Pet will operate as a wholly-owned subsidiary of Oil-Dri.
For additional information about the Purchase Agreement and the Transaction, please see the Current Reports on Form 8-K we filed with the SEC on April 16, 2024 and May 1, 2024.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included herein and our Consolidated Financial Statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 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" and "Risk Factors," and those discussed under Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 and those discussed under Part II, Item 1A, "Risk Factors," of our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024.
OVERVIEW
We develop, mine, manufacture and market sorbent products principally produced from clay minerals, primarily consisting of calcium bentonite, attapulgite and diatomaceous shale. Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, cat litter, fluid purification and filtration bleaching clays, industrial and automotive floor absorbents and sports field products. Our products are sold to two primary customer groups, including customers who resell our products as originally produced to the end consumer and other customers who use our products as part of their production process or use them as an ingredient in their final finished product. We have two reportable operating segments based on the different characteristics of our two primary customer groups: the Retail and Wholesale Products Group ("Retail and Wholesale" or "R&W") and the Business to Business Products Group ("Business to Business" or "B2B"), as described in Note 11 of the Notes to the unaudited Condensed Consolidated Financial Statements. Each operating segment is discussed individually below.
RESULTS OF OPERATIONS
OVERVIEW
The three and nine months ended April 30, 2024 continued to be strong with growth in our net sales and gross profit across both the Retail and Wholesale Products Group and the Business to Business Products Group. Both operating segments grew due to higher prices and favorable mix compared to the same periods in fiscal year 2023. Consolidated net sales increased $1.4 million or 1% in the third quarter and $18.3 million or 6% in the nine months ended April 30, 2024 compared to the same periods of fiscal year 2023. Gross margin grew to 28% for the three and nine months ended April 30, 2024 compared to 26% and 24% for the three and nine months ended April 30, 2023, respectively.
Higher third quarter SG&A expenses resulted in a $4.0 million decrease in consolidated income from operations for the three months ended April 30, 2024 compared to the same period in fiscal 2023. However, consolidated income from operations in the first nine months of fiscal year 2024 increased by $10.4 million compared to the same period in fiscal year 2023. Consolidated net income for the three and nine months ended April 30, 2024 was $7.8 million and $30.9 million, respectively, compared to $8.5 million and $17.6 million in the three and nine months ended April 30, 2023, respectively.
Our Condensed Consolidated Balance Sheet as of April 30, 2024 and our Condensed Consolidated Statement of Cash Flows for the nine months ended April 30, 2024 show an increase in total cash and cash equivalents from fiscal year-end 2023. The increase was driven by higher earnings and the issuance of a $10 million in aggregate principal amount of notes to finance a portion of the purchase price paid for the acquisition of Ultra Pet. Refer to the "Liquidity and Capital Resources" section below for more details.
NINE MONTHS ENDED APRIL 30, 2024 COMPARED TO
NINE MONTHS ENDED APRIL 30, 2023
CONSOLIDATED RESULTS
Consolidated net sales for the nine months ended April 30, 2024 were $323.9 million, a 6% increase compared to net sales of $305.6 million for the nine months ended April 30, 2023. Net sales increased due to higher prices and improved product mix partially offset by lower volumes across both product groups.
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Consolidated gross profit in the nine months ended April 30, 2024 was $92.1 million, an increase of $19.3 million, or 27%, from gross profit of $72.8 million in the nine months ended April 30, 2023. Our gross margin (defined as gross profit as a percentage of net sales) in the nine months ended April 30, 2024 increased to 28% from 24% in the nine months ended April 30, 2023. Our domestic cost of goods sold per ton increased 5%, driven primarily by per ton increases in non-fuel manufacturing and freight costs offset by lower per ton natural gas and packaging costs. Non-fuel manufacturing costs per ton increased 9% during the nine months ended April 30, 2024 compared to nine months ended April 30, 2023, mainly due to higher per ton costs of labor, repairs and depreciation, offset by a reduction in purchased material costs. Domestic freight costs per ton increased 8% in the nine months ended April 30, 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 5% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023. Ocean freight costs have also decreased due to both lower rates and export 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 decreased 4% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices. Per ton cost of natural gas decreased 34% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023 due to a decrease in natural gas prices.
Total SG&A expenses of $53.3 million for the nine months ended April 30, 2024 were higher by $8.9 million, or 20%, compared to $44.5 million for the nine months ended April 30, 2023. Corporate unallocated expenses increased $4.6 million, or 20% mainly due to higher anticipated compensation costs including increased performance-based incentives and acquisition-related expenses incurred in the current period. Additional expenses related to the integration of Ultra Pet are expected to be incurred in the fourth quarter of fiscal year 2024. The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.
Total other expenses were $1.1 million for the nine months ended April 30, 2024 compared to $6.9 million in the same period of fiscal year 2023. The decrease was mainly due to the $4.9 million loss from the termination of the Company's pension plan in the third quarter of fiscal year 2023 and the $2.5 million accrual for the landfill modification charged in the second quarter of fiscal year 2023, partially offset by higher interest income. Refer to Note 7 of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details regarding the landfill modification accrual.
Consolidated net income before taxes for the nine months ended April 30, 2024 was $37.7 million compared to $21.5 million for the nine months ended April 30, 2023. Results for the nine months ended April 30, 2024 were driven by the factors discussed above.
We had tax expense of $6.7 million for the nine months ended April 30, 2024 compared to $3.9 million for the nine months ended April 30, 2023. Our tax expense was driven primarily by higher net income. We used an estimated annual effective tax rate ("ETR") of 18% in determining our provision for income taxes, which is based on expected annual taxable income and the assessment of various tax adjustments, including depletion.
BUSINESS TO BUSINESS PRODUCTS GROUP
Net sales of the Business to Business Products Group for the nine months ended April 30, 2024 were $111.6 million, an increase of $7.3 million, or 7%, from net sales of $104.3 million for the nine months ended April 30, 2023, driven by sales of our fluid purification products. Net sales of our fluids purification products increased $12.4 million, or 23%, in the nine months ended April 30, 2024 compared to the nine months ended April 30, 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 edible oil and jet-fuel, and to a lesser extent higher prices. Net sales increased in North America, our subsidiary in the UK, and the Asia region partially offset by a decrease in Latin America and the Europe, Middle East and Africa ("EMEA") regions. Net sales of our agricultural and horticultural chemical carrier products decreased $2.8 million, or 9%, for the nine months ended April 30, 2024 compared to the same period in fiscal year 2023 as a result of softer volumes offset partially by higher prices. This decline in volume was primarily due to reduced demand from a key customer that was still working through inventory from last year. Net sales of our animal health and nutrition products decreased $2.3 million, or 12%, during the nine months ended April 30, 2024 compared to the same period of fiscal year 2023. The decrease was driven by Latin America, our subsidiary in Mexico, and Asia (including China), partially offset by an increase in net sales in North America. Net sales were down in most regions due to softer demand, while North America sales increased due to higher prices when compared to the same period in fiscal year 2023.
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SG&A expenses for the Business to Business Products Group decreased by $0.3 million, or 3%, for the nine months ended April 30, 2024 compared to the same period of the prior fiscal year. The decrease was mainly driven by a reduction in technical service support costs from the Innovation Center and Microbiology Lab.
The Business to Business Products Group’s operating income for the nine months ended April 30, 2024 was $32.7 million, an increase of $7.9 million, or 32%, from operating income of $24.8 million for the nine months ended April 30, 2023. The increase in operating income was mostly driven by higher sales and favorable product mix.
RETAIL AND WHOLESALE PRODUCTS GROUP
Net sales of the Retail and Wholesale Products Group for the nine months ended April 30, 2024 were $212.3 million, an increase of $10.9 million, or 5%, from net sales of $201.4 million for the same period of fiscal year 2023, mainly driven by higher prices from our cat litter products. Total global cat litter net sales for the nine months ended April 30, 2024 increased $10.5 million, or 6%, compared to the nine months ended April 30, 2023, driven by higher pricing and favorable product mix. Domestic net sales increased across all products except for private label heavyweight litter. Net sales of co-packaged cat litter products increased $0.1 million, or 1%, compared to the same period in fiscal year 2023. The increase was driven by price as volumes were impacted by the cyberattack on one of our customers in the first quarter of fiscal year 2024. Net sales of cat litter by our subsidiary in Canada decreased slightly period over period, as discussed in "Foreign Operations" below. Net sales of our global industrial and sports products increased $0.4 million, or 1%, compared to the nine months ended April 30, 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 volume of sports products. This was further supplemented by an increase in pricing of industrial products by our subsidiary in Canada.
SG&A expenses for the Retail and Wholesale Products Group were $3.6 million, or 36%, higher during the nine months ended April 30, 2024 compared to the nine months ended April 30, 2023, primarily due to increased advertising spend and compensation related costs. We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023 as we continue to focus on marketing our retail and wholesale product lines.
The Retail and Wholesale Products Group's operating income for the nine months ended April 30, 2024 was $34.1 million, an increase of $7.1 million, or 26%, from operating income of $27.0 million for the same period of fiscal year 2023. This was driven primarily by the increase in gross margins due to price increases and favorable product mix, partially offset by higher cost of goods sold and elevated SG&A expenses, as discussed above.
FOREIGN OPERATIONS
Foreign operations include our subsidiary in Canada, which is reported in the Retail and Wholesale Products Group, and our subsidiaries in the United Kingdom ("UK"), Mexico, China and Indonesia, which are reported in the Business to Business Products Group. Net sales by our foreign subsidiaries for the nine months ended April 30, 2024 were $16.0 million, a decrease of 5%, compared to net sales of $16.8 million during the nine months ended April 30, 2023. The decrease was driven by all of our foreign operations, with the exception of our subsidiary in the UK which experienced higher net sales when compared to the same period in fiscal year 2023. Net sales of our subsidiary in the UK increased by $0.5 million, or 29%, 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 decreased $0.3 million, or 16%, in the nine months ended April 30, 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. Sales to China are now directly through the Company and not through our subsidiary in China. Total net sales of our subsidiary in Canada decreased $0.1 million, or 1%, in the nine months ended April 30, 2024 compared to the same period in fiscal year 2023, driven by softer sales volumes of cat litter partially offset by higher net sales of floor absorbents due to pricing. Net sales of our subsidiary in Mexico decreased $0.9 million, or 42% in the nine months ended April 30, 2024 compared to the same period of fiscal year 2023. Net sales by our foreign subsidiaries represented 5% of our consolidated net sales for the nine months ended April 30, 2024 and 2023.
Our foreign subsidiaries reported net income of $0.6 million for the nine months ended April 30, 2024, compared to $1.1 million in the nine months ended April 30, 2023. The decrease in net income was primarily driven by revenue decreases in China and Mexico partially offset by increases in net income within Canada and the UK, as discussed above.
Identifiable assets of our foreign subsidiaries as of April 30, 2024, were $11.1 million, compared to $14.6 million as of July 31, 2023.
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THREE MONTHS ENDED APRIL 30, 2024 COMPARED TO
THREE MONTHS ENDED APRIL 30, 2023
CONSOLIDATED RESULTS
Consolidated net sales for the third quarter of fiscal year 2024 were $106.8 million, a 1% increase compared to net sales of $105.4 million for the third quarter of fiscal year 2023. Mainly driven by product mix and pricing in our Business to Business operating segment, and to a lesser extent higher pricing in our Retail and Wholesale operating segment, partially offset by softer volumes across both products groups. Further analysis of the segment sales are discussed below.
Consolidated gross profit for the third quarter of fiscal year 2024 was $30.1 million, or 28% of net sales, compared to $27.5 million, or 26% of net sales, for the third quarter of fiscal year 2023. The increase was driven by higher selling prices across multiple products and improved product mix. Domestic per ton cost of goods sold increased 3%, driven primarily by per ton increases in non-fuel manufacturing and freight costs, partially offset by a decrease in natural gas and packaging costs. Per ton non-fuel manufacturing costs rose 7% in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023, due to higher per ton costs of labor, repairs, depreciation, and purchased materials. Domestic freight costs per ton increased 2% in the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to mix of products sold and additional railcar usage to support our growing renewable diesel business. Ocean freight costs have decreased due to favorable rates and reduction in export fees when compared to the same period in fiscal year 2023. In general, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. The cost of natural gas per ton used to operate kilns that dry our clay was 2% lower in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 as fuel prices have decreased. Packaging costs per ton decreased 2% in the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.
Total selling, general and administrative expenses of $19.7 million for the third quarter of fiscal year 2024 increased by 51% compared to $13.0 million for the same period of fiscal year 2023. Unallocated corporate expenses were up by $5.0 million, or 81%, compared to the same period in fiscal year 2023 due to higher anticipated compensation costs, as well as acquisition-related expenses incurred in the current period. In addition to elevated wages and benefits, the expected annual payout percentage for our performance-based incentives increased in the third quarter resulting in higher compensation costs. Additional expenses related to the integration of Ultra Pet are expected to be incurred in the fourth quarter of fiscal year 2024. 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 $0.3 million for the third quarter of fiscal year 2024 decreased compared to $4.5 million in the same period of fiscal year 2023 mainly due to the loss in connection with the pension termination that occurred in the third quarter of fiscal year 2023.
Consolidated net income before taxes for the third quarter of fiscal year 2024 was $10.1 million compared to $10.0 million for the same period of fiscal year 2023. Results for the third quarter of fiscal year 2024 were driven by the factors discussed above.
Tax expense was $2.4 million for the third quarter of fiscal year 2024 compared to $1.5 million for the third quarter of fiscal year 2023. The year-over-year increase in tax expense was driven primarily by the increase in the estimated annual ETR in the third quarter and higher pre-tax income. Conversely, during the third quarter of fiscal year 2023 we decreased our annual ETR which decreased tax expense for the third quarter of fiscal year 2023. We adjust our ETR quarterly based on expected annual taxable income and our assessment of various tax adjustments.
BUSINESS TO BUSINESS PRODUCTS GROUP
Net sales of the Business to Business Products Group for the third quarter of fiscal year 2024 were $36.2 million, an increase of $0.8 million, or 2%, from net sales of $35.4 million for the third quarter of fiscal year 2023, driven by an increase in net sales of our fluid purification products. Net sales of our fluids purification products increased $4.6 million, or 26%, compared to the third quarter of fiscal year 2023 driven primarily by the North America region. The increase in North America was due 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 EMEA driven by higher volume and timing of orders. The increase was partially offset by softer sales volumes in Latin America and Asia. Net sales of our agricultural and horticultural chemical carrier products decreased $2.6 million, or 24%, for the third quarter of fiscal year 2024 compared to the same period in fiscal year 2023, primarily due to softer volumes. This decline was primarily due to reduced demand from a key customer that was
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still working through inventory from last year. Net sales of our animal health and nutrition products decreased $1.2 million, or 17%, during the third quarter of fiscal year 2024, compared to the same period in fiscal year 2023. The decrease was driven by lower demand in all regions and timing of orders to some foreign countries.
Total SG&A expenses for the Business to Business Products Group in the third quarter of fiscal year 2024 decreased $0.3 million, or 7%, compared to the same period of fiscal year 2023. The reduction was mainly driven by a decrease in technical service support costs from the Innovation Center and Microbiology Lab offset by an increase in compensation-related expenses to teammates and consultants.
The Business to Business Products Group’s operating income for the third quarter of fiscal year 2024 was $10.6 million, an increase of $0.8 million, or 8%, from operating income of $9.8 million for the third quarter of fiscal year 2023. The overall increase in operating income was primarily due to higher pricing and favorable product mix.
RETAIL AND WHOLESALE PRODUCTS GROUP
Net sales of the Retail and Wholesale Products Group for the third quarter of fiscal year 2024 were $70.6 million, an increase of $0.6 million, or 1%, from net sales of $70.0 million for the third quarter of fiscal year 2023, driven by higher prices of domestic and co-packaged cat litter product offerings. Global cat litter net sales were $0.9 million, or 2%, higher compared to the third quarter of fiscal year 2023 driven by higher prices. Domestic cat litter net sales were $51.1 million, an increase of $1.2 million driven mainly by higher prices. Higher net sales of coarse cat litter were partially offset by softer revenue from total lightweight scoopable litter. The decline in lightweight scoopable litter sales was primarily due to reduced demand from a key customer that had temporarily increased purchases last year to avoid out-of-stock items from another supplier. However, Oil-Dri achieved lightweight litter sales gains at several new and existing customers, including the growing e-commerce, dollar, farm & fleet and drug distribution channels, which partially offset these declines. Net sales of co-packaged products remained flat compared to the same period in fiscal year 2023, as higher prices offset the decrease in volume. Net sales of our global industrial and sports products were $12.4 million for third quarter of fiscal year 2024, of which $11.8 million represented domestic net sales. Domestic industrial and sports sales were down $0.4 million due to softer sales across all products except for synthetic floor absorbents, partially offset by higher prices. Net sales by our subsidiary in Canada decreased $0.3 million, as discussed below.
SG&A expenses for the Retail and Wholesale Products Group increased by $1.6 million, or 51%, during the third quarter of fiscal year 2024 compared to the same period in fiscal year 2023. The increase was primarily driven by an increase in advertising spend and compensation-related expenses, partially offset by a reduction in broker commissions. We anticipate total advertising expense in fiscal year 2024 to be higher than fiscal year 2023.
The Retail and Wholesale Products Group's operating income was $10.9 million for the third quarter of fiscal year 2024, an increase of $0.1 million from operating income of $10.7 million for the same period of fiscal year 2023. This was driven primarily by higher prices, partially offset by higher SG&A expenses, as discussed above.
FOREIGN OPERATIONS
Foreign operations include our subsidiary in Canada, which is reported in the Retail and Wholesale Products Group, and our subsidiaries in the UK, Mexico, China and Indonesia, which are reported in the Business to Business Products Group. Net sales by our foreign subsidiaries during the third quarter of fiscal year 2024 were $4.5 million, a decrease of $1.0 million, or 19%, compared to net sales of $5.5 million during the same period of fiscal year 2023, driven primarily by decreases in net sales in China, Canada and Mexico, partially offset by an increase in net sales in the UK. Sales of our subsidiary in China were down $0.7 million as a result of transitioning to a distributor model in China rather than sales through our subsidiary. Sales to China are now sold directly through the Company and captured the Asia region, and not through our subsidiary in China. Net sales by our subsidiary in Canada decreased $0.3 million driven by lower cat litter sales, partially offset by an increase in industrial product sales when compared to the same period of fiscal year 2023. Net sales of our subsidiary in Mexico decreased during the third quarter of fiscal year 2024 compared to the same period of fiscal year 2023 by $0.2 million, or 36%, due to softer volumes. Total net sales of our subsidiary in the UK increased by $0.1 million in the third quarter of fiscal year 2024 compared to the same period in 2023 due to higher pricing. Net sales by our foreign subsidiaries represented 4% and 5% of our consolidated net sales during the third quarter of fiscal years 2024 and 2023, respectively.
Our foreign subsidiaries reported net loss of $0.1 million for the third quarter of fiscal year 2024 compared to net income of $0.5 million in the third quarter of fiscal year 2023. This was driven by the decrease in sales in China, Canada and Mexico, offset by the increase in net income in the UK due to higher net sales.
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LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity needs are to fund our capital requirements, including funding working capital needs; purchasing and upgrading equipment, facilities, information systems, and real estate; supporting new product development; investing in infrastructure; repurchasing stock; paying dividends; and, from time to time, business acquisitions, and funding our debt service requirements. During the nine months ended April 30, 2024, we principally funded these short and long-term capital requirements using cash from current operations as well as cash generated from previous borrowings under our Series C Senior Notes. To meet cash requirements for the Transaction we issued $10 million in aggregate principal amount of Series D Senior Notes during the third quarter of fiscal year 2024. See Note 15 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information relating to the cash requirements for the Transaction.
We currently anticipate cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements. In addition, we are actively monitoring the timing and collection of our accounts receivable.
The following table sets forth certain elements of our unaudited Condensed Consolidated Statements of Cash Flows (in thousands):
| For the Nine Months Ended April 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net cash provided by operating activities | $ | 36,929 | $ | 36,041 | |||||||
| Net cash used in investing activities | (23,536) | (16,735) | |||||||||
| Net cash provided by (used in) financing activities | 1,462 | (5,806) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 212 | (52) | |||||||||
| Net increase in cash and cash equivalents | $ | 15,067 | $ | 13,448 | |||||||
Net cash provided by operating activities
In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flows for the nine months ended April 30, 2024 were as follows:
Inventory increased by $3.0 million in the nine months ended April 30, 2024 due to a combination of rising costs, specifically due to labor and repairs and the building of inventory levels for anticipated demand and to avoid any potential supply chain disruptions.
Prepaid expenses increased by $3.7 million in the nine months ended April 30, 2024. The increase is mainly due to the timing of income tax and insurance payments.
Accounts payable decreased by $1.0 million in the nine months ended April 30, 2024. The decrease was mainly due to the timing of payments, cost of goods and services we purchase, production volume levels and vendor payment terms.
Accrued expenses decreased $3.9 million in the nine months ended April 30, 2024. The decrease was mainly due to the payout of annual bonuses and taxes, and other miscellaneous expenses which fluctuate due to timing of payments, changes in the cost of goods and services we purchase, production volume levels and vendor payment terms including freight.
Net cash used in investing activities
Cash used in investing activities of $23.5 million in the nine months ended April 30, 2024 was driven by capital expenditures. During the nine months ended April 30, 2024 we expanded our plant equipment and improved our facilities to support increased demand for our products.
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Net cash used in financing activities
Cash provided by financing activities of $1.5 million in the nine months ended April 30, 2024 was primarily driven by the issuance of a $10 million note offset by cash used for dividend payments and treasury stock repurchases.
Other
Total cash balances held by our foreign subsidiaries of $5.0 million as of April 30, 2024 decreased compared to $5.2 million as of July 31, 2023. See further discussion in "Foreign Operations" above.
As of April 30, 2024, we had remaining authority to repurchase 380,753 shares of Common Stock and 262,092 shares of Class B Stock under a repurchase plan approved by our Board. Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing, number and manner of share repurchases will be determined by our management pursuant to the repurchase plan approved by our Board.
We believe that cash flow from operations, availability under our Note Agreement and revolving credit facility under our Credit Agreement, current cash balances and our ability to obtain other financing, if necessary, will provide sufficient liquidity for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments and debt service obligations for at least the next 12 months. See Note 8 of the Notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. We expect capital expenditures in fiscal year 2024 to be greater than in fiscal year 2023. We do not believe that these increased capital expenditures will dramatically impact our cash position; however, our cash requirements are subject to change as business conditions warrant and opportunities arise.
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 Credit Agreement, depends on our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors. The timing and size of any new business ventures or acquisitions that we complete may also impact our cash requirements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of financial condition and results of operations is based on our unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP for interim financial information and in compliance with instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and related disclosures. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. Estimates and assumptions are revised periodically. Actual results could differ from these estimates. See the information concerning our critical accounting policies included under "Management’s Discussion of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023.
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")) 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") and Chief Financial Officer ("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.
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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 April 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 1 and 3 of this Part II are either inapplicable or are answered in the negative and are omitted pursuant to the instructions to Part II of Form 10-Q.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 and in Part II, Item 1A, "Risk Factors," of our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024. There have been no material changes to our risk factors since our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended April 30, 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 Share | Total 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 | ||||||||||||||||||||||
| February 1, 2024 to February 29, 2024 | — | $— | — | 382,404 | ||||||||||||||||||||||
| March 1, 2024 to March 31, 2024 | 1,651 | $69.48 | — | 380,753 | ||||||||||||||||||||||
| April 1, 2024 to April 30, 2024 | — | $— | — | 380,753 | ||||||||||||||||||||||
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 April 30, 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 April 30, 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 1,651 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 are included in Exhibit 95 to this Quarterly Report on Form 10-Q.
ITEM 5. OTHER INFORMATION
During the three months ended April 30, 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 | SEC Document Reference | ||||||||||||
| 2.1* | Incorporated by reference to Exhibit 2.1 to Oil-Dri Corporation of America’s Current Report on Form 8-K filed on April 16, 2024 | |||||||||||||
| 10.1 | Incorporated by reference to Exhibit 2.1 to Oil-Dri Corporation of America’s Current Report on Form 8-K filed on April 16, 2024 | |||||||||||||
| 31 | Filed herewith. | |||||||||||||
| 32 | Furnished herewith. | |||||||||||||
| 95 | Filed herewith. | |||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | Filed herewith. | ||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith. | ||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith. | ||||||||||||
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | Filed herewith. | ||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith. | ||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | Filed herewith. | ||||||||||||
* The schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to provide a copy of the omitted schedules and similar attachments on a supplemental basis to the Commission or its staff, if requested.
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 [email protected].
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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: June 6, 2024
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