UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

OR

OIL-DRI CORPORATION OF AMERICA

(State or other jurisdiction of incorporation or organization)            (I.R.S. Employer Identification No.)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

 

 

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

CONTENTS

CONTENTS (CONTINUED)

FORWARD-LOOKING STATEMENTS

 

 

 

TRADEMARK NOTICE

 

PART I

ITEM 1 – BUSINESS

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.

Oil-Dri is a leader in developing, manufacturing and/or marketing sorbent products. Our sorbent products are principally produced from hydrated aluminosilicate minerals, primarily consisting of calcium bentonite, attapulgite and diatomaceous shale, which we refer to collectively as our “clay,” our “minerals,” or “Fuller's Earth.” We surface mine our clay on leased or owned land near our manufacturing facilities in Mississippi, Georgia, Illinois and California. We produce both absorbent and adsorbent products from our clay. Absorbents, like sponges, draw liquids up into their many pores. Examples of our absorbent clay products are Cat’s Pride and Jonny Cat branded premium cat litter, as well as other private label cat litters. Additional examples are our Oil-Dri branded floor absorbents, Amlan branded animal health and nutrition solutions for livestock, and Agsorb and Verge agricultural chemical carriers. Adsorbent products attract impurities in liquids, such as metals and surfactants, and form low-level chemical bonds. Examples of our adsorbent products are our Ultra-Clear clarification clays. Our Pure-Flo, Supreme, Perform and Select bleaching clay products act as filtrationpurification media for edible oils, fats and tallows. Also, our Pure-Flo, Supreme, and Perform lines of bleaching clay products serve as a purification aid for vegetable oil products.non-edible oils. We also sell nonclay-based products, such as our Oil-Dri synthetic sorbents used for automotive, industrial and marine cleanup andas well as plastic cat litter box liners. Our principal products are described in more detail below.

Agricultural and Horticultural Products

We produce a wide range of granules and powders used to enhance agricultural and horticultural products. Our mineral-based absorbent products serve as carriers for biological and chemical active ingredients, drying agents, and growing media. Our brands include: Agsorb, an agricultural and horticultural carrier and drying agent; Verge, an engineered granule used as a carrier and drying agent; and Flo-Fre, a highly absorbent microgranule used as a flowability aid.

Agsorb and Verge carriers are used in products that are alternatives to liquid sprays. These products are sold for lawn and garden and row crop applications. The clay granules absorb active ingredients and are then delivered directly into, or on top of the ground, providing a more precise application than liquid sprays. Verge carriers are spherical, uniform-sized granules with very low dust. Agsorb drying agent is blended into fertilizer-pesticide blends applied to absorb moisture and improve flowability. Flo-Fre microgranules are used by grain processors and other large handlers of bulk products to soak up excess moisture, which prevents caking. These products are sold primarily in the United States by our technical sales force.

Animal Health and Nutrition Solutions

We produce, or use contract processors to produce, Amlan brand name and private label products that support good health and productivity of species in livestock industries. For example, our products, including our Calibrin, Varium and NeoPrime products in our international markets, and Sorbiam, Ambio P and Ambio S products to customers in North America, provide a number of solutions for swine, poultry and dairy cattle livestock production. In addition, our MD-09 moisture manager product is a feed additive for the reduction of wet droppings in poultry and our Pel-Unite and Pel-Unite Plus products are specialized animal feed pellet binders.

Our animal health and nutrition products are sold both directly and through a network of distributors to livestock producers, feed mill operators, nutritionists and veterinarians in the United States, Latin America, Africa, Mexico, the Middle East and Asia. The sales force for our subsidiaries located in China, Mexico and Indonesia also sells these products, as further described in Foreign Operations below.

Bleaching Clay and Purification AidAdsorbent Products

We produce an array of adsorbent products for bleaching, purification and filtration applications that are used around the world by edible oil processors, as well as by refiners of jet fuel and other petroleum-based products. Bleaching clays are used by edible oil processors to adsorb soluble contaminants that createpromote oxidation problems. Our Pure-Flo and Perform bleaching clays remove impurities, such as trace metals, chlorophyll and color bodies, in various types of edible oils. Perform products provide increased activity for hard-to-bleach oils. Our Select adsorbents are used in a pre-treatment process to remove contaminantsmetals and trace soap in vegetable oil processing andprocessing. Our Select adsorbents can also be used to preparepre-treat oil prior toin the creationprocessing of biodiesel fuel. Metal X is abiodiesel. Metal-X and Metal-Z are highly efficient adsorbentadsorbents for the renewable diesel market. Our Ultra-Clear product is used as a purification and filtration medium for jet fuel and other petroleum-based products. These products are sold in the United States and in international markets by our team of technical sales employees, distributors and sales agents.

Cat Litter Products

Industrial and Automotive Products

We manufacture and/or sell products made from clay, polypropylene and recycled materials that absorb oil, acid, paint, ink, water and other liquids. These products have industrial, automotive, marine and home applications. Our clay-based sorbent products, such as Oil-Dri branded and private label floor absorbents, are used for floor maintenance in industrial applications to provide a non-slip and non-flammable surface for workers. These floor absorbents are also used in automotive repair facilities, car dealerships and other industrial applications, as well as for home use in garages and driveways. Our Oil-Dri branded polypropylene-based and recycled products are sold in various forms, such as pads, rolls, socks, booms and spill kits.

Industrial and automotive sorbent products are sold through distribution networks that includes industrial, auto parts, safety, sanitary supply, chemical and paper distributors. These products are also sold through environmental service companies, mass-merchandisers, catalogs and through e-commerce.

We manufacture and sell both branded and private label sports products. Pro’s Choice Sports Field Products are used on baseball, softball, football, cricket, and soccer fields. Pro’s Choice soil conditioners are used in field construction or as top dressing to improve drainage, suppress dust and improve field performance. Pro Mound packing clay is used to construct pitcher’s mounds, catcher's stations and batter’s boxes. Rapid Dry drying agent is used to wick away excess water from the infield. Sports products are used at all levels of play, including professional, college and high school and on municipal fields. These products are sold through distributors of sport turf materials as well as to sports field product users.

We have two reportable operating segments for financial reporting derived from the different characteristics of our two major customer groups: the Retail and Wholesale Products Group and the Business to Business Products Group. The Retail and Wholesale Products Group customers include mass merchandisers, wholesale clubs, drugstore chains, pet specialty retail outlets, dollar stores, retail grocery stores, direct customers through e-commerce, distributors of industrial cleanup and automotive products, environmental service companies and users of sports field products and sports turf materials. The Business to Business Products Group customers include processors and refiners of edible oils, petroleum-based oils and biodiesel fuel; manufacturers of animal feed and agricultural chemicals; distributors of animal health and nutrition products; and marketers of consumer products. Certain financial information on both segments is contained in Note 2 of the Notes to the Consolidated Financial Statements and is incorporated herein by reference.

Our foreign operations are located in Canada, and the United Kingdom, which areis included in the Retail and Wholesale Products Group, and the United Kingdom, China, Switzerland, Mexico and Indonesia, which are included in the Business to Business Products Group.

Our wholly-owned subsidiary, Oil-Dri Canada ULC, is a manufacturer, distributor and marketer of branded and private label cat litter in the Canadian marketplace. Among its leading brands are Saular, Cat’s Pride and Jonny Cat. Our Canadian business also manufactures or purchases and sells industrial granule floor absorbents, synthetic polypropylene sorbent materials and agricultural chemical carriers.

Our wholly-owned subsidiary, Oil-Dri (U.K.) Limited, is a manufacturer, distributor and marketer of industrial floor absorbents, bleaching earth and cat litter. These products are marketed in the United Kingdom and Western Europe. Oil-Dri (U.K.) Limited also sells synthetic polypropylene sorbent materials and plastic containment products.

Our wholly-owned subsidiary, Amlan Trading (Shenzhen) Company, Ltd., located in Shenzhen, China, is dedicated to animal health and provides natural disease management solutions for livestock. This subsidiary sells animal health and nutrition products under our Amlan brand name and under private label arrangements. PT Amlan Perdagangan Internasional, another of our wholly-owned subsidiaries, is located in Indonesia and also distributes our animal health and nutrition products.

Our wholly-owned subsidiary, Oil-Dri SARL, is a Swiss company that performs various management, customer service and administrative functions for some of the international customers of our domestic operations.

We own a 78.4% interest in a distributor in Mexico, Agromex Importaciones, S.A de C.V. This distributor sells, among other products, our animal health and nutrition products and swine feeding equipment and swine fertilization supplies.products.

Our foreign operations are subject to the normal risks of doing business in non-U.S. countries, such as currency fluctuations, restrictions on the transfer of funds and import/export duties; however, historically our operating results have not been materially impacted by these factors. Incorporated herein by reference are Item 1A. Risk Factors, which describes other risks that could impact our foreign operations, and Note 2 of the Notes to the Consolidated Financial Statements, which contains certain financial information about our foreign operations.

Product performance, price, brand recognition, customer service, technical support, and distribution resources are the principal methods of competition in our markets and competition historically has been very vigorous. Advertising, promotion, merchandising and packaging also have a significant impact on retail consumer purchasing decisions, which primarily affects our Retail and Wholesale Products Group. Most of the principal competitors for our Retail and Wholesale Products Group have substantially greater financial resources or market presence than we do and have established brands. These competitors may be able to spend more aggressively on advertising and promotional activities, introduce competing products more quickly and respond more effectively to changing business and economic conditions than us.

We have six principal competitors in our Retail and Wholesale Products Group, including one of which is also our customer. Two of the principal competitors relate to our Industrial and Sports products. The overall cat litter market has grown in recent years. The overwhelming majority of all cat litter is mineral based, including both scoopable and coarse non-clumping litters. Cat litters based on alternative strata such as paper, various agricultural waste products and silica gels have niche positions. Scoopable products have a majority of the cat litter market share followed by coarse non-clumping litters. The market share for scoopable cat litter has been growing, while theand coarse non-clumping litter share has remained stable.decreased slightly during fiscal year 2022.

There is significant competition to attract cat litter consumers across multi-outlet channels, including grocery, mass-merchandiser, dollar, pet and drug stores, as well as through e-commerce. Competition for the scoopable litter market has been particularly intense with new product offerings and increased advertising and promotions by our competitors and by us. We provide our customers with product innovation, a nation-wide distribution network and strong customer service. Our exceptional sales and research and development teams give us a further advantage over smaller and regional manufacturers.

We have six principal competitors in our Business to Business Products Group. Our bleaching clay and fluid purification products are sold in a highly cost competitive global marketplace. Performance is a primary competitive factor for these products. The animal health portion of this segment also operates in a global marketplace with price and performance competition from multi-national and local competitors. Competition for our crop protection products is primarily based on price, but competitor differentiation also exists in the ability to meet customer product specifications and enhancements in engineered granule technologies.

We develop new products and applications and improve existing products at our research and development center in Vernon Hills, Illinois. The center includes a pilot plant that simulates the production processes of our customers and our manufacturing plants. In addition, our microbiology lab is within walking distance of our existing research and development center and is dedicated primarily to the development of our animal health products. Our staff (and various consultants they engage from time to time) have experience in disciplines such as biology, microbiology, chemistry, physics, mathematics, geological and earth science, material science, geochemistry, physical catalysis, animal nutrition, and the animal science, oncological nutrition and transitional medicine.sciences. In the past several years, our research efforts have resulted in a number of new sorbent products and processes. The research and development center produces prototype samples and tests new products for customer trial and evaluation. No significant research and development was customer sponsored, and all research and development costs are expensed in the period in which incurred. See Note 1 of the Notes to the Consolidated Financial Statements for further information about research and development expenses.

As of July 31, 20212022 and 2020,2021, the value of our backlog of orders were approximately $22,543,000$6,622,000 and $15,692,000,$3,729,000 respectively. Certain customers place orders for a full year of orders with future requested ship dates. Accordingly, we define backlog as purchase orders that we have received from customers and that we have accepted, but that have not shipped by the customers’ requested ship dates. This value was determined by the number of tons on backlog order and the net selling prices. AllIn previous periods, we reported backlog values based on the broader definition of backlog as purchase orders are expected to be filled within the next 12 months.that we have received from customers and that we have accepted, but that have not yet shipped. We consider our business, taken as a whole, to be moderately seasonal; however, business activities of certain customers (such as agricultural chemical manufacturers)manufacturers and edible oil producers) are subject to such seasonal factors as crop acreage planted, product formulation cycles and weather conditions.

Inflation generally affects us by increasing the cost of employee wages and benefits, transportation, processing equipment, purchased raw materials and packaging, energy and borrowings under our credit facility. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of these costs.

Patents

We have obtained or applied for patents for certain of our processes and products sold to customers in both the Retail and Wholesale Products Group and the Business to Business Products Group. U.S. patents are currently granted for a term of 20 years from the date the patent application is filed and durations of patents issued outside of the United States vary from country to country. Our patents, particularly our U.S. patents, are highly important to our business and we assert our patent rights and vigorously protect our patents them from apparent infringement where appropriate, although no single patent is considered material to the business as a whole. The risks associated with our patents (and intellectual property, generally), are discussed in Item 1A, Risk Factors.

Reserves

We mine our clay on leased or owned land near our manufacturing facilities in Mississippi, Georgia, Illinois and California; we also have reserves in Nevada, Oregon and Tennessee. We estimate that our proven mineral reserves as of July 31, 20212022 were approximately 102,953,000101,393,000 tons in aggregate and our probable reserves were approximately 176,352,000 tons in aggregate, for a total of 279,305,000277,745,000 tons of mineral reserves. Based on our rate of consumption during fiscal year 2021,2022, and without regard to any of our reserves in Nevada, Oregon and Tennessee, we consider our proven and probable reserves adequate to supply our needs for over 40 years. Although we consider these reserves to be extremely valuable to our business, only a small portion of the reserves, those which were acquired in acquisitions, are reflected at cost on our balance sheet.

It is our policy to attempt to maintain a minimum of forty years of proven and probable reserves of each type of clay at each location. We have an ongoing program of exploration for additional reserves but we cannot assure that additional reserves will continue to become available. Our use of these reserves, and our ability to explore for additional reserves, are subject to compliance with existing and future federal and state statutes and regulations regarding mining and environmental compliance. During fiscal year 2021,2022, we utilized these reserves to produce substantially all of the sorbent products that we sold.

Proven reserves are those reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Probable reserves are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. We use certified professional geologists and mineral specialists who estimate and evaluate existing and potential reserves in terms of quality, quantity and availability.

Mining Operations

We have continuously conducted mining operations in Ripley, Mississippi since 1963, in Ochlocknee, Georgia since 1968, in Blue Mountain, Mississippi since 1989, in Mounds, Illinois since 1998 and in Taft, California since 2002. Our clay is surface mined on a year-round basis, using large earth moving scrapers, bulldozers, or excavators and off-road trucks to strip off overburden (non-usable material atop desired clay). The desired clay is then loaded into dump trucks and transported to the processing facilities. The stripping, mining and hauling of our clay is performed in-house as well as by independent contractors. Our current operating mines range in distance from immediately adjacent to approximately 13 miles from the related processing plants. Processing facilities are generally accessed from the mining areas by private and public roads and in some instances by public highways. Each of our processing facilities maintains inventories of unprocessed clay of approximately one week of production requirements. All key permits have either been obtained by us, or approval is expected to be received in the normal course of business. See Item 2 “Properties” below for additional information regarding our mining properties and operations.

The following schedule summarizes the net book value of land and other plant and equipment for each of our manufacturing facilities as of July 31, 20212022 (in thousands).

Our strength as a company comes from leveraging the uniqueness of all teammates and those in our communities. We strive to promote a diverse and inclusive workforce for all. 

We believe our success largely depends upon our continued ability to attract and retain highly skilled teammates. We have demonstrated a history of investing in our teammates by providing competitive salaries and bonuses at all levels of the Company, including a deferred compensation plan and executive deferred bonuses for our executives, and opportunities for equity ownership through our restricted stock program under our long-term incentive plan. We also provide access to training and development and an attractive employment package that promotes well-being, including health care, retirement plans, and paid time off. We support our employees’ desire to save for retirement by providing a 401(k) savings plan in which we contribute 100% of every employee dollar contributed, up to six percent (6%) of earnings and for which employees are fully vested after two (2) years of employment. The competitive compensation and benefit package have been key to the strong retention of our employees.

We believe that safety must be the first and foremost consideration in the decisions made by and on behalf of the Company. We believe safety is everyone’s responsibility - from senior management to frontline workers. As part of our company-wide safety policies, it is expected that all teammates identify safety risks and take action by implementing interim controls, ensuring that controls are maintained, and recommending permanent solutions. Additionally, as part of our annual budget and capital planning process, our businesses identify additional safety investments required for training, education, equipment, and processes. We are committed to operating in a manner that protects the health and safety of our workforce and our communities and ensures decisions are consistent with a long-term view of sustainability and stewardship.

Through our corporate safety department, we implemented a safety auditing program for adherence to local, state and federal safety standards and regulations including MSHA and OSHA. These audits are conducted annually for global operations by third-party consultants enforcing a rigorous assessment of regulatory standards, internal procedures and program performance. Audit assessments and inspections are scored and are currently indicating high levels of compliance in our operations. The auditing program confirms the Company’s commitment to best management practices and principles. We continually increase the rigor and level of scrutiny to drive continuous improvement in our operations.

In response to COVID-19, we implemented significant safety changes which comply with government regulations. This included having the vast majority ofwork from home arrangements for our teammates who can perform their jobs offsite work from home and additional safety measures (including, among other actions, the provision of PPE and implementation of vigorous cleaning and sanitation protocols) for teammates continuing critical on-site work. We substantially restricted non-essential travel, required social distancing, supplied masks, implemented vigorous cleaning and sanitation protocols, and provided information to all of our teammates on a regular basis regarding the Company’s approach to COVID-19 and other beneficial health and vaccine related information. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations" for information on Human Capital Management actions taken by the Company in response to the COVID-19 pandemic.

In addition to the environmental, health and safety requirements related to our mining and manufacturing operations and facilities, there has been increased federal, state and international regulation with respect to the content, labeling, use, packaging, registration, trade compliance, advertising, and disposal of products that we sell. For example, in the United States, some of our operations, products, product claims, labeling and advertising are regulated by the Food and Drug Administration, the Consumer Product Safety Commission, the Occupational HealthSafety and SafetyHealth Administration, the Mine Safety and Health Administration, the Environmental Protection Agency and the Federal Trade Commission. Most states have agencies that regulate in parallel to these federal agencies. In addition, our international sales and operations are subject to regulation in each of the foreign jurisdictions in which we manufacture, distribute or sell our products. There is increasing federal and state regulation with respect to the content, labeling, use, and disposal after use of various products we sell. Throughout the world, but particularly in the United States and Europe, there is also increasing government scrutiny and regulation of the food chain and products entering or affecting the food chain. We endeavor to be in compliance at all times and in all material respects with those regulations and to assist our customers in that compliance.

This Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to all of the foregoing reports, are made available free of charge on or through the “Investor Information” section of our website at www.oildri.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. Information related to corporate governance at Oil-Dri, including its Code of Ethics and Business Conduct, information concerning executive officers, directors and Board committees, and transactions in Oil-Dri securities by directors and executive officers, is available free of charge on or through the “Investor Information” section of our website at www.oildri.com. The information on our website in not included as a part of, nor incorporated by reference into, this Annual Report on Form 10-K.

ITEM 1A – RISK FACTORS

 

We seek to identify, manage and mitigate risks to our business, but risk and uncertainty cannot be eliminated or necessarily predicted. You should consider the following factors carefully, in addition to other information contained in this Annual Report on Form 10-K, before making an investment decision with respect to our securities. We face risks related to the ongoing COVID-19 pandemic and actions in response thereto, which have exacerbated or could further exacerbate conditions in our other risk factors noted below. The risks described below are not the only risks we face. Our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial in our operations.

 

Risks Related to Our Business

 

Our future growth and financial performance depend in large part on successful new product introductions.

 

 

We face intense competition in our markets.

 

Our markets are highly competitive and we expect that both direct and indirect competition will increase in the future. Our overall competitive position depends on a number of factors including price, customer service, marketing, advertising and trade spending, technical support, product quality and delivery. Some of our competitors, particularly in the sale of cat litter (the largest product in our Retail and Wholesale Products Group), have substantially greater financial resources and market presence with established brands. The competition in the future may, in some cases, lead to price reductions, increased promotional spending, or loss of market share or product distribution, any of which could materially and adversely affect our operating results and financial condition.

 

Our periodic results may be volatile.

 

Our operating results have varied on a quarterly basis during our operating history and are likely to fluctuate significantly in the future. Our expense levels are based, in part, on our expectations regarding future net sales, and many of our expenses are fixed, particularly in the short term. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any significant shortfall of net sales in relation to our expectations could negatively affect our quarterly operating results. Our operating results may be below the expectations of our investors as a result of a variety of factors, many of which are outside our control. The Company has experienced growth in recent periods, which may not be sustainable or indicative of future growth. Factors that may affect our quarterly operating results include:

•    fluctuating demand for our products and services;services, including as a result of changes in the level of pet ownership and spending on pets;

•    size and timing of sales of our products and services;

•    the mix of products with varying profitability sold in a given quarter;

•    changes in our operating costs including raw materials, energy, transportation, packaging, overburden removal, trade spending and marketing, wages and other employee-related expenses such as health care costs, and other costs;

•    our ability to anticipate and adapt to rapidly changing conditions;

•    introduction of new products and services by us or our competitors;

•    our ability to successfully implement price increases and surcharges, as well as other changes in our pricing policies or those of our competitors;

•    variations in purchasing patterns by our customers, including due to weather conditions or other factors outside of our control;

•    the ability of major customers and other debtors to meet their obligations to us as they come due;

•    our ability to successfully manage regulatory, intellectual property, tax and legal matters;

•    litigation and regulatory judgments and charges, settlements, or other litigation and regulatory-related costs;

•    the overall tax rate of our business, which may be affected by a number of factors, including the use of tax attributes, the financial results of our international subsidiaries and the timing, size and integration of acquisitions we may make from time to time;

•    the incurrence of restructuring, impairment or other charges; and

•    general economic conditions and specific economic conditions in our industry and the industries of our customers.

    The Company has experienced an increase in sales as a result of higher levels of pet ownership and spending on pets. Additionally, the continuedeffects from and the continuation of the COVID-19 pandemic and its impactimpacts may exacerbate these factors and cause greater fluctuations in our operating results from quarter-to-quarter. To the extent these factors slow or change, consumer demand for our products may not be sustained or may reverse, and our results could be adversely affected. Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Investors should not rely on the results of one quarter as an indication of our future performance.

 

 

•    uncertainties in assessing the value, strengths, and potential profitability of acquisition candidates, and in identifying the extent of all weaknesses, risks, contingent and other liabilities (including environmental, legacy product or mining safety liabilities) of those candidates;

•    the potential loss of key customers, management and employees of an acquired business;

•    the ability to achieve identified operating and financial synergies anticipated to result from an acquisition;

•    problems that could arise from the integration of the acquired business;business, it's management or other unanticipated problems or liabilities; and

•    unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying our rationale for pursuing the acquisition.

Any one or more of these factors could cause us not to realize the benefits we anticipate to result from an acquisition. Moreover, acquisition opportunities we pursue could materially affect our liquidity and capital resources and may require us to incur indebtedness, seek equity capital or both and there can be no assurances that we can obtain indebtedness or equity capital on terms acceptable to the Company. Increased borrowings would correspondingly increase the Company's financial leverage, and could result in lower credit ratings and increased future borrowing costs. These risks could also reduce the Company's flexibility to respond to changes in its industry or in general economic conditions. In addition, future acquisitions could result in our assuming more long-term liabilities relative to the value of the acquired assets than we have assumed in our previous acquisitions.

 

We depend on a limited number of customers for a large portion of our net sales.

 

A limited number of customers account for a large percentage of our net sales, as described in Item 1 “Business” above. The loss of, or a substantial decrease in the volume of, purchases by Walmart, Clorox or any of our other top customers could harm our sales and profitability. In addition, an adverse change in the terms of our dealings with, or in the financial wherewithal or viability of, one or more of our significant customers could harm our business, financial condition and results of operations.

 

We expect that a significant portion of our net sales will continue to be derived from a small number of customers and that the percentage of net sales represented by these customers may increase. As a result, changes in the strategies of our largest customers may reduce our net sales. These strategic changes may include a reduction in the number of brands or variety of

Price or trade concessions, or the failure to make them to retain customers, could adversely affect our sales and profitability.

 

The products we sell are subject to significant price competition.competition and the price may fluctuate for a variety of reasons. From time to time, we may need to reduce the prices for some of our products to respond to competitive and customer pressures and to maintain market share. These pressures are often exacerbated during an economic downturn. Additionally, we have, from time to time, experienced customer-driven price deductions on our products as a result of delayed shipments of products. Any reduction in prices to respond to these pressures would reduce our profit margins. In addition, if our sales volumes fail to grow sufficiently to offset any reduction in margins, our results of operations would suffer. Because of the competitive environment facing many of our customers, particularly our high-volume mass merchandiser customers, these customers have increasingly sought to obtain price reductions, deductions, specialized packaging or other concessions from product suppliers. These business demands may relate to inventory practices, logistics or other aspects of the customer-supplier relationship. To the extent we provide these concessions, our profit margins are reduced. Further, if we are unable to maintain terms that are acceptable to our customers, these customers could reduce purchases of our products and increase purchases of products from our competitors, which would harm our sales and profitability.

 

Increases in energy, commodity, transportation, labor and transportationother costs would increase our operating costs, and we may be unable to pass all these increases on to our customers in the form of higher prices and surcharges.

If our energy, commodity, and transportation, labor and/or other costs increase disproportionately to our net sales, our earnings could be significantly reduced. Increases in our operating costs may reduce our profitability if we are unable to pass all the increases on to our customers through price increases or surcharges. Sustained price increases, surcharges or price inflation (or inflation pressure generally), in turn, may lead to declines in volume, and while we seek to project tradeoffs between price increases, surcharges and inflation, on the one hand, and volume, on the other, there can be no assurance that our projections will prove to be accurate. In particular, as a result of the COVID-19 pandemic and increased demand in trucking in certain areas of the United States following the reopening of state economies as well as increased shipping demand globally, which has impacted overseas vessel deliveries, the Company has experienced significant increases in transportation costs, decreases in the availability of shipping, and other global supply chain complexities and could experience delays in customer shipments and increased customer deductions for late shipments. Given the varying level of re-openingsSuch increase in transportation costs may be further exacerbated by volatile global oil and the continued spread of the pandemic globally (and uncertainty regarding how areas will respond to a continued or renewed spread), itgas markets. It is possible that significant disruptions could occur if the effects of the COVID-19 pandemic continuesand other global factors continue to put pressure on transportation and shipping as a result of an imbalance of supply and demand or if there are continued increases in costs that we are unable to recover. The duration and magnitude of the increased transportation costs cannot be predicted at this time and there can be no assurances that such costs and/or shipping disruptions will not continue to increase.

We are subject to volatility in the price and availability of natural gas, as well as other sources of energy. Such volatility could be intensified by geopolitical tensions, including war and terrorism, as well as other disruptions and market reactions to such events. From time to time, we may use forward purchase contracts or financial instruments to moderate the volatility of a portion of our energy costs. The success or failure of any such transactions depends on a number of factors, including our ability to anticipate and manage volatility in energy prices, the general demand for fuel by the manufacturing sector, seasonality and the weather patterns throughout the United States and the world.

The prices of other commodities such as paper, plastic resins, synthetic rubber, lumber, and steel significantly influence the costs of packaging, replacement parts and equipment we use in the manufacture of our products and the maintenance of our facilities. Similarly, transportation prices impact our cost of packaging and raw materials we purchase, as well as our cost to deliver finished products to our customers. We have also experienced increases in prices of non-commodity materials we purchase. As a result, increases in the prices of commodities, transportation and transportationother materials may increase our cost of sales and present the same types of risks as described above.

Changes in inventory strategy by our customers as well as other external factors could adversely affect our sales and increase our inventory risk.

From time to time, customers in both our Retail and Wholesale Products Group and our Business to Business Products Group have changed inventory levels as part of managing their working capital requirements. Any decrease in inventory levels by our customers would harm our operating results for the financial periods affected by the reductions. In particular, continued consolidation within the retail industry could potentially reduce inventory levels maintained by our retail customers, which could adversely affect our results of operations for the financial periods affected by the reductions.

The value of our inventory may decline as a result of surplus inventory, packaging changes driven by regulatory requirements or market refreshment, price reductions or obsolescence. We must identify the right product mix and maintain sufficient inventory on hand to meet customer orders. Failure to do so could adversely affect our revenue and operating results. If circumstances change (for example, an unexpected shift in market demand, pricing or customer defaults) there could be a material impact on the net realizable value of our inventory. We maintain an inventory valuation reserve account against diminution in the value or saleability of our inventory; however, there is no guaranty that these arrangements will be sufficient to avoid write-offs in excess of our reserves.

 

Most of our principal raw materials are sorbent minerals mined by us or independent contractors on land that we own or lease. While our mining operations are conducted in surface mines, which do not present many of the risks associated with deep underground mining, our mining operations are nevertheless subject to many conditions beyond our control. Our mining operations are affected by weather and natural disasters (such as earthquakes, tornadoes, hurricanes, heavy rains and flooding), power outages, equipment failures and other unexpected maintenance problems, variations in the amount of rock and soil overlying our reserves, variations in geological conditions, fires and other accidents, fluctuations in the price or availability of supplies, landowner disputes, permit requirements and other matters. Any of these risks could result in significant damage to our mining properties or processing facilities, personal injury to our employees, environmental damage, delays in mining or processing, losses or possible legal liability. We cannot predict whether or the extent to which we will suffer the impact of these and other conditions in the future.

We have an ongoing program of exploration for additional reserves on existing properties as well as through the potential acquisition of new owned or leased properties; however, there can be no assurance that our attempts to acquire additional reserves in the future will be successful. Our ability to acquire additional reserves in the future could be limited by competition from other companies for attractive properties, the lack of suitable properties that can be acquired on terms acceptable to us or restrictions under our existing or future debt facilities. We may not be able to negotiate new leases or obtain mining contracts for properties containing additional reserves or renew our leasehold interests in properties on which operations are not commenced during the term of the lease. Also, requirements for environmental compliance may restrict exploration or use of lands that might otherwise be utilized as a source of reserves.

We rely on intellectual property rights based on trademark, trade secret, patent and copyright laws to protect our brands, products and packaging for our products. We cannot be certain that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that we will not be able to obtain and perfect our own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions. We cannot be certain that these rights, if obtained, will not later be invalidated, circumvented or challenged, and we could incur significant costs in connection with legal actions to assert our intellectual property rights or to defend those rights from assertions of invalidity. In addition, even if such rights are obtained in the United States or in other countries, the laws of some of the other countries in which our products are or may be sold may not protect intellectual property rights to the same extent as the laws of the United States. If other parties infringe our intellectual property rights, they may dilute the value of our brands in the marketplace, which could diminish the value that consumers associate with our brands and harm our sales. Accordingly, we have taken and may need to continue to take legal action in the future to protect our patents, trade secrets or know-how or to assert them against claimed infringement by others. Any legal action of that type could be costly and time consuming and no assurances can be made that any lawsuit will be successful. The failure to perfect or successfully assert our intellectual property rights could make us less competitive and could have a material adverse effect on our business, operating results, and financial condition.

In addition, if our products are found to infringe intellectual property rights of others, the owners of those rights could bring legal actions against us claiming substantial damages for past infringement and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages from past infringement, we could be required to obtain a license in order to continue to manufacture or market the affected products, potentially adding significant costs. Similarly, we have asserted that products sold by our competitors infringe patents owned or licensed by us. We may not prevail in any action brought against us or we may be unsuccessful in securing any license for continued use and therefore have to discontinue the marketing and sale of a product. This could make us less competitive and could have a material adverse impact on our business, operating results and financial condition.

The execution of our business plans depends in part upon the continued service of our senior management team, who possess unique and extensive industry knowledge and experience. The loss or other unavailability of one or more of the key members of our senior management team could adversely impact our ability to manage our operations effectively and/or pursue our business strategy. No Company-owned life insurance coverage has been obtained on current team members. Further, in the event of a loss of a key member of our senior management team, it is uncertain whether COVID-19 and its impact may result in difficulties in recruiting and hiring for such positions.

Environmental, health and safety matters create potential compliance and other liability risks.

 

We are subject to a variety of federal, state, local and foreign laws and regulatory requirements relating to the environment and to health and safety matters. For example, our mining operations are subject to extensive governmental regulation on matters such as permitting and licensing requirements, workplace safety, plant and wildlife protection, wetlands and other environmental protection, reclamation and restoration of mining properties after mining is completed, the discharge, storage and disposal of materials in the environment, and the effects that mining has on air or groundwater quality and water availability. We believe we have obtained all material permits and licenses required to conduct our present operations. We will, however, need additional permits and renewals of permits in the future.

 

The expense, liabilities and requirements associated with environmental, health and safety laws and regulations are costly and time-consuming and may delay commencement or continuation of exploration, mining or manufacturing operations. We have incurred, and will continue to incur, significant capital and operating expenditures and other costs, along with management focus and efforts, in complying with environmental, health and safety laws and regulations. In recent years, regulation and enforcement of environmental, health and safety matters has grown increasingly stringent, a trend that we expect will continue. Substantial penalties and other costs may be imposed if we violate certain of these laws and regulations even if the violation was inadvertent or unintentional. Failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operations could result in substantial operating costs and capital expenditures, in addition to

Government regulation imposes significant costs on us, and future regulatory changes (or related customer responses to regulatory changes) could increase those costs or limit our ability to produce and sell our products.

 

In addition to the regulatory matters described above, our operations are subject to various federal, state, local and foreign laws and regulations relating to the mining, manufacture, packaging, labeling, content, storage, distribution and advertising of our products and the conduct of our business operations. For example, in the United States, some of our products, product claims, labeling and advertising are regulated by the Food and Drug Administration, the Consumer Product Safety Commission, the Occupational HealthSafety and SafetyHealth Administration, the Mine Safety and Health Administration, the Environmental Protection Agency and the Federal Trade Commission. Most states have agencies that regulate in parallel to these federal agencies. In addition, our international sales and operations are subject to regulation in each of the foreign jurisdictions in which we manufacture, distribute or sell our products. There is increasing federal and state regulation with respect to the content, labeling, use, and disposal after use of various products we sell. Throughout the world, but particularly in the United States and Europe, there is also increasing government scrutiny and regulation of the food chain and products entering or affecting the food chain.

If we are found to be out of compliance with applicable laws and regulations in these or other areas, we could be subject to loss of customers and to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on our business. Loss of or failure to obtain necessary permits and registrations could delay or prevent us from meeting product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect operating results. As a result of closures caused by government action taken in response to COVID-19, the Company experienced some delays in obtaining such permits and registrations for its products. While the Company has taken steps to mitigate such delays, there can be no assurances that there will not be further delays as governments and agencies continue to respond toin the wake of the COVID-19 outbreak. Further, if applicable laws or regulations are changed or interpreted differently in the future, it may become more difficult or expensive for us to comply. In addition, investigations or evaluations of our products by government agencies may require us to adopt additional labeling, safety measures or other precautions, or may effectively limit or eliminate our ability to market and sell these products. Accordingly, there can be no assurance that current or future governmental regulation will not have a material adverse effect on our business or that we will be able to obtain or renew required governmental permits and registrations in the future. Further, there can be no assurance that current or future governmental regulation or other rule-making (including proposals regarding increased disclosure on climate-related matters) will not have a material adverse effect on our business. Our efforts to comply with new requirements and regulations could result in increased general and administrative expenses and a diversion of substantial management time and attention from revenue-generating activities to compliance activities.

We are also experiencing increasing customer scrutiny of the content and manufacturing of our products, particularly our products entering or affecting the food chain, in parallel with the increasing government regulation discussed above. Our customers may impose product specifications, certifications or other requirements that are different from, and more onerous than, applicable laws and regulations. As a result, the failure of our products to meet these additional requirements may result in loss of customers and decreased sales of our products even in the absence of any actual failure to comply with applicable laws and regulations. There can be no assurance that future customer requirements concerning the content or manufacturing of our products will not have a material adverse effect on our business.

 

We face risks to our domestic and international sales and business operations due to economic, political, regulatory, economic and other conditions.

 

Unstable economic, political, regulatory and other conditions could adversely affect demand for our products or disrupt our operations in the United States and in international markets. International sales and operations are subject to currency exchange fluctuations, fund transfer and trade restrictions and import/export duties. In some cases, we may have difficulty enforcing agreements and collecting accounts receivable through a foreign country’s legal system. We derived approximately 20%The international nature of our consolidated net sales from sales outsideoperations subjects the Company to numerous risks, including political, civil and/or instability (including acts of the United Statesterrorism, civil or social unrest, labor unrest, violence in fiscal year 2021. Further, an increase in inflation rates could affect the Company's profitabilityconnection with political or social events, and cash flows, due to higher employment costs, higher operating costs, higher financing costs, and/outbreaks of war and pandemics or higher supplier prices. Inflation may also adversely affect foreign exchange rates. The Company may be unable to pass along such higher costs to its customers. In addition, inflation may adversely affect customers' operations. other disease outbreaks).

 

We may incur adverse safety events or product liability claims that may be costly, create adverse publicity and may add further governmental regulation.

 

If any of the products that we sell cause, or appear to cause, harm to any of our customers or to consumers, we could be exposed to product liability lawsuits, heightened regulatory scrutiny, requirements for additional labeling, withdrawal of products from the market, indemnification obligations, imposition of fines or criminal penalties or other governmental actions. Any of these actions could result in material write-offs of inventory, material impairments of intangible assets, goodwill and fixed assets, material restructuring charges and other adverse impacts on our business operations. We cannot predict with certainty the eventual outcome of any pending or future litigation, and we could be required to pay substantial judgments or settlements against us or change our product formulations in response to governmental action. Further, lawsuits can be expensive to defend, whether or not they have merit, and the defense of these actions may divert the attention of our management and other resources that would otherwise be engaged in managing our business and our reputation could suffer, any of which could harm our business.

We may be subjected to increased taxes or fluctuating tax rates, which could adversely affect our results of operations and/or cash flows.

As a corporation operating in various jurisdictions around the world, we are subject to income and other taxes based upon the jurisdictions in which we operate and where our sales and profits are determined to be earned and taxed. Federal, state, and foreign statutory tax rates and taxing regimes have been subject to significant change and continue to evolve. Further, significant uncertainties exist with respect to the application of the various taxes to the businesses in which we engage, often requiring that we make judgments in determining our tax liabilities and worldwide provision for income taxes.

We are also subject to potential reviews, examinations, and audits by the Internal Revenue Service and other taxing authorities with respect to taxes within and outside of the U.S. Although we believe our tax estimates are reasonable, unfavorable resolution of any tax audits and controversies could cause our tax liabilities to increase (including interest and penalties) and may have a significant adverse impact on our provision for income taxes and tax rate. Our effective tax rate is also influenced by the geography, timing, nature, and magnitude of transactions, such as acquisitions and divestitures, restructuring activities, and impairment charges.

 

Risks Related to Our Common Stock

 

Our Board of Directors has previously authorized a share repurchase program. Under these authorizations, the Company has authority to repurchase both shares of our common stock and our Class B stock. The Company has undertaken repurchases of common stock on the open market (including pursuant to a 10b5-1 plan) and is also authorized to undertake repurchases in private, negotiated transactions. The Company has no obligations to repurchase any specific dollar amount or to

Under our Certificate of Incorporation, the holders of our Common Stock are entitled to one vote per share and the holders of our Class B Stock are entitled to ten votes per share; the two classes generally vote together without regard to class (except that any amendment to our Certificate of Incorporation changing the number of authorized shares or adversely affecting the rights of Common Stock or Class B Stock requires the separate approval of the class so affected as well as the approval of both classes voting together). As a result, the holders of our Class B Stock exert control over the Company and thus limit the ability of other stockholders to influence corporate matters. Beneficial ownership of Common Stock and Class B Stock by the Jaffee Investment Partnership, L.P. and its affiliates (including Daniel S. Jaffee, our President, Chief Executive Officer and Chairman of the Board of Directors) provides them with the ability to control the election of our Board of Directors and the outcome of most matters requiring the approval of our stockholders, including the amendment of certain provisions of our Certificate of Incorporation and By-Laws, the approval of any equity-based employee compensation plans and the approval of fundamental corporate transactions, including mergers and substantial asset sales. Through their concentration of voting power, our principal stockholders may be able to delay, deter or prevent a change in control of our company or other business combinations that might otherwise be beneficial to our other stockholders.

We are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

We are a “controlled company” under the New York Stock Exchange Corporate Governance Standards. As a controlled company, we may from time to time rely on exemptions from certain NYSE corporate governance requirements that otherwise would be applicable, including the requirements:

•    that a majority of the board of directors consists of independent directors;

•    that we have a nominating and governance committee comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

•    that we have a compensation committee comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

 

The market price for our Common Stock may be volatile.

 

The market price of our Common Stock could fluctuate substantially in the future in response to a number of factors, including the following:

•    fluctuations in our quarterly operating results or the operating results of our competitors;

•    changes in general conditions in the economy, the financial markets, or the industries in which we operate;

•    announcements of significant acquisitions, strategic alliances or joint ventures by us, our customers, suppliers or competitors;

•    sales of our common stock by the Company, our officer or directors or unaffiliated third party investors;

•    increases in the price of energy sources and other raw materials; and

•    other developments affecting us, our industries, customers or competitors.

In addition, the stock market may experience extreme price and volume fluctuations that have a significant effect on the market prices of securities issued by many companies, including the Company, for reasons unrelated to their operating performance. These broad market fluctuations may materially adversely affect our Common Stock price, regardless of our operating results. Given its

Future sales of our Common Stock could depress its market price.

 

Future sales of shares of our Common Stock could adversely affect its prevailing market price. If our officers, directors or significant stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our Common Stock could significantly decline. Moreover, the perception in the public market that stockholders might sell shares of Common Stock could depress the market for our Common Stock. Our Common Stock’s relatively small public float and average daily trading volume may make it relatively more susceptible to these risks.

We rely on information technology systems to process, transmit, store, and protect electronic information. For example, a significant portion of the communications between the Company's personnel, customers, and suppliers depends on information technology and we rely on access to such information systems for our operations. We cannot guarantee that the security measures in place will prevent disruptions, failures, computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, hacking, and other cyber-attacks or other privacy or security breaches in the information technology, or phone systems or other systems (whether due to third-party action, bugs or vulnerabilities, physical break-ins, employee error, malfeasance or otherwise) of the Company, our customers or third parties, which could adversely affect our communications and business operations. Further, events such as natural disasters, fires, power outages, systems failures, telecommunications failures, employee error or malfeasance or other catastrophic events could similarly cause interruptions, disruptions or shutdowns, or exacerbate the risk of the failures described above. These risks may be increased as more employees work from home as part of our response to the COVID-19 pandemic.home. We may not have the resources or technical sophistication to anticipate, prevent or detect rapidly-evolving types of cyber-attacks and other security risks. Attacks may be targeted at us, our customers and suppliers, or others who have entrusted us with information. To date, the Company has not experienced any material impact to the business or operations resulting from information or cybersecurity attacks; however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, there is the potential for the Company to be adversely impacted. While the Company has policies and procedures in place, including system monitoring and data back-up processes to prevent or mitigate the effects of these potential disruptions or breaches, security breaches and other disruptions to information technology systems could interfere with our operations. Any failure to maintain, or disruption to, our information technology systems, whether as a result of cybersecurity attacks or otherwise, could damage our reputation, subject the Company to legal claims and proceedings, create risks of violations of data privacy laws and regulations, and cause us to incur substantial additional costs. There can be no assurance that existing or emerging threats will not have an adverse impact on our systems or communications networks and, further, technological enhancements to prevent business interruptions could require increased spending. Furthermore, security breaches pose a risk to confidential data and intellectual property, which could result in damage to our competitiveness and reputation.

Additionally, in connection with our global operations, we, from time to time, transmit data across national borders to conduct our business and, consequently, are subject to a variety of laws and regulations in the United States and other jurisdictions regarding privacy, data protection, and data security, including those related to the collection, processing, storage, handling, use, disclosure, transfer, and security of personal data, including the European Union General Data Protection Regulation.Regulation, Personal Information Protection Law in China and similar regulations in states within the United States and in countries around the world. Our efforts to comply with privacy and data protection laws may impose significant costs and challenges that are likely to increase over time.

Our enterprise resource planning system (“ERP”) is designed to accurately maintain our books and records and provide information important to the operation of our business. Any potential disruptions with the ERP system could affect our ability to process orders, ship product and send invoices. These difficulties could, in turn, negatively impact our financial results

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and many factors and uncertainties remain regarding the pandemic and its effects. Inin response to the COVID-19 outbreak and as jurisdictions have experienced resurgences in the spread of COVID-19, countries and local governments across the world implemented “Shelter in Place,” “Safe at Home,” quarantine or similar orders that restricted workforce and/or required closures of “non-essential” businesses along with restrictions on travel. Such restrictions and

Although the disruptions, delays and modifications to our operations caused by COVID-19 have not had a material impact on our results of operations, there continues to bePublic health crises may create significant uncertainty relating to the COVID-19 pandemic and the responses thereto as well as the potential effects of the pandemic on our business whichand could negatively affect our costs, customer orders, and collection of accounts receivable, which may be material. In addition, a public health crisis could result in the deterioration of worldwide economic conditions mayand impact the proper functioning of financial and capital markets, foreign currency exchange rates, and commodity and energy prices, as well as demand for our products. Even as the COVID-19 pandemic subsides, weWe may experience adverse impacts to our business and financial results due to uncertainty regarding the ultimate duration of the COVID-19 pandemic (including increases in COVID-19 case numbers, the duration, scope and efficacy of measures taken by governments in response to the pandemic, the provision of and access to medical responses to the pandemic, and the impact of the pandemic on the economy, including any economic recession and/or depression that may occur as the pandemic continues to evolve,its effects and due to any major public health crises that may occur in the future. Given the uncertainties related to the pandemic, including its continued duration and severity, we cannot reasonably estimate the scope of its impact on our employees, operations, suppliers, or customers, or the full extent to which COVID-19 and actions taken in response to the pandemic could continue to affect the global economy and our results.

Section 404 of the Sarbanes-Oxley Act and related SEC rules require that we perform an annual management assessment of the design and effectiveness of our internal control over financial reporting and obtain an opinion from our independent registered public accounting firm on our internal control over financial reporting. Our assessment concluded that our internal control over financial reporting was effective as of July 31, 20212022 and we obtained from our independent registered public accounting firm an unqualified opinion on our internal control over financial reporting; however, there can be no assurance that we will be able to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time in future periods. Further, as a result of COVID-19, a portion of our workforce has been and continues to work from home, so new processes, procedures, and controls could be required due to the changes in our business environment, which could negatively impact our internal control over financial reporting. Accordingly, we cannot assure that we will be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes- Oxley Act. Moreover, effective internal control is necessary for us to produce reliable financial reports and is important to help prevent financial fraud. If we cannot provide reliable financial reports

In light of evolving expectations around corporate social responsibility, our reputation or brand could be adversely impacted by a failure (or perceived failure) to maintain a level of corporate responsibility. In today’s environment, an allegation or perception regarding quality, safety, or corporate social responsibility can negatively impact our reputation. This may include, without limitation: failure to maintain certain ethical, social and environmental practices for our operations and activities, or failure to require our suppliers or other third parties to do so; our environmental impact, including our mining operations and their impact on the environment; the practices of our employees, agents, customers, suppliers, or other third parties (including others in our industry) with respect to any of the foregoing, actual or perceived; the failure to be perceived as appropriately addressing matters of social responsibility; consumer perception of statements made by us, our employees and

ITEM 1B – UNRESOLVED STAFF COMMENTS

 

ITEM 2 – PROPERTIES

 

In 2018, the SEC adopted new rules updating the disclosure requirements for companies with mining operations. The new mining disclosure rules rescind Industry Guide 7 and Mineral Reservescodify the SEC’s mining property disclosure requirements in new subpart 1300 of Regulation S-K. These rules became applicable to our disclosures on August 1, 2021. Regulation S-K 1300 requires the disclosure of mineral resources for the first time. However, we have no mineral resource estimates as all mineral accumulations of economic interest and with reasonable prospects for eventual economic extraction are either currently on production or subject to an economically viable future development plan and are classified as mineral reserves.

With the exception of our research and development center in Illinois, all properties contain clay mineral reserves or are used in the processing of our clay. We mine sorbent minerals primarily consisting of calcium bentonite, attapulgite and diatomaceous shale which we refer to in the aggregate as “clay,” “minerals,” or “Fuller’s Earth.” We use certified professional geologists and mineral specialists who prepared the estimated reserves of these minerals in the table above. See also Item 1 “Business” above for further information about our reserves. Apart from certain mines in Georgia and Illinois, all of the propertiesmines in Mississippi, Georgia, California and Illinois are currently in active production and collectively produced approximately 832,000 and 781,000 tons of finished product in fiscal yearyears 2022, and 2021, and 756,000 in fiscal year 2020.respectively. Certain of our mines in Georgia are currently in development. Parcels of such land are also sites of manufacturing facilities operated by us. In addition, we own approximately one acre of land in Laval, Quebec, Canada, which is the site of the processing, packaging and distribution facility for our Canadian subsidiary. While we have reserves in Nevada, Oregon and Tennessee we are not actively mining these properties.

 

 

Our mining operations are conducted on both owned and leased land. The Georgia, Illinois and Mississippi mining leases generally require that we pay a minimum monthly rent to continue the lease term. The rental payments are typically applied against a stated royalty related to the number of unprocessed, or in some cases processed, tons of minerals extracted from the leased property. Many of our mining leases have no stated expiration dates. Some of our leases, however, do have expiration dates ranging from 2026 to 2097. We would not experience a material adverse effect from the expiration or termination of any of these leases. We have a variety of access arrangements, some of which are styled as leases, for manufacturing at facilities that are not contiguous with the related mines. We would not experience a material adverse effect from the expiration or termination of any of these arrangements.

 

Certain of our land holdings in California are represented by unpatented mining claims we lease from the Bureau of Land Management. These leases generally give us the contractual right to conduct mining or processing activities on the land covered by the claims. The validity of title to unpatented claims, however, is dependent upon numerous factual matters. We believe the unpatented claims we lease are in compliance with all applicable federal, state and local mining laws, rules and regulations. Future amendments to existing federal mining laws, however, could have a prospective effect on mining operations on federal lands and include, among other changes, the imposition of royalty fees on the mining of unpatented claims, the elimination or restructuring of the patent system and an increase in fees for the maintenance of unpatented claims. To the extent that future proposals may result in the imposition of royalty fees on unpatented lands, the mining of our unpatented claims may become economically unfavorable. We cannot predict the form that any such amendments might take or whether or when such amendments might be adopted. In addition, the construction and operation of processing facilities on these sites would require the approval of federal, state and local regulatory authorities. See Item 1A “Risk Factors” above for a discussion of other risks to our business related to our mining properties.

 

Mining and Hauling

 

We mine clay in open-pit mines in Georgia, Mississippi, Illinois and California. The mining and hauling operations are similar throughout the Oil-Dri locations, with the exception of California. The land to be mined is first stripped. The stripping process involves removing the overburden and preparing the site to allow the excavators to reach the desired clay. When stripping is completed, the excavators dig out and load the clay onto dump trucks. The trucks haul the clay directly to our processing plants where it is dumped in a clay yard and segregated by clay type if necessary. Generally, the mine sites are in close proximity to the processing plants; however, the maximum distance the clay is currently hauled to a plant is approximately 13 miles.

 

At our California mines, the clay is excavated and hauled to a hopper. An initial crushing and screening operation is performed at the mine site before the trucks are loaded for delivery to the processing plant.

 

Processing

 

The processing of our clay varies depending on the level of moisture desired in the clay after the drying process. The moisture level is referred to as regular volatile moisture (“RVM”) or low volatile moisture (“LVM”).

 

RVM Clay: A front end loader is used to load the clay from the clay yard into the primary crusher. The primary crusher reduces the clay chunks to 2.0 inches in diameter or smaller. From the crusher, the clay is transported via a belt conveyor into the clay shed. A clay shed loader feeds the clay into a disintegrator which reduces the clay to particles 0.5 inches in diameter or smaller. The clay then feeds directly into the RVM kiln. The RVM kiln reduces the clay’s moisture content. From the RVM kiln, the clay moves through a series of mills and screens which further size and separate the clay into the desired particle sizes. The sized clay is then conveyed into storage tanks. The RVM processed clay can then be packaged or processed into LVM material.

 

LVM Clay: RVM clay is fed from storage tanks into the LVM kiln where the moisture content is further reduced. The clay then proceeds to a screening circuit which separates the clay into the desired particle sizes.

In addition, certain other products may go through further processing or the application of fragrances and additives. For example, certain fluid purification and animal health products are processed into a powder form. We also use a proprietary process for our engineered granules to create spherical, uniform-sized granules.

 

Packaging

 

Once the clay has been dried to the desired level it will be sized and packaged. Our products have various package sizes and types ranging from bags, boxes, pails, and jugs of cat litter to railcars of agricultural products. We also package some of our products into bulk (approximately one ton) bags or into bulk trucks. The size and delivery configuration of our finished products is determined by customer requirements.

 

We operate clay manufacturing and non-clay production facilities on property owned or leased by us as shown on the map below:

Oil-Dri Plant Site Locations

We have no mortgages on the real property we own. The leases for the locations listed above expire as follows: Shenzhen, China in 2025;2024; Vernon Hills, Illinois in 2026; Wisbech, United Kingdom in 2032 and Chicago, Illinois in 2033. The leases for the Coppet, Switzerland; Jakarta, Indonesia; and Jalisco, Mexico offices are on a year-to-year basis. We consider that our properties are generally in good condition, well maintained and suitable and adequate to carry on our business.

ITEM 3 – LEGAL PROCEEDINGS

 

ITEM 4 – MINE SAFETY DISCLOSURE

PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our Common Stock is traded on the NYSE under the symbol ODC. There is no established trading market for our Class B Stock. There are no shares of Class A Common Stock currently outstanding. See Exhibit 4.1 to this Annual Report on Form 10-K for a description of our Common Stock, Class B Stock and Class A Common Stock. The number of holders of record of Common Stock and Class B Stock on September 30, 20212022 were 696710 and 23,24, respectively, as reported by our transfer agent. In the last three years, we have not sold any securities which were not registered under the Securities Act of 1933.

 

Dividends

 

Issuer Repurchase of Equity Securities

ITEM 7 – 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 Consolidated Financial Statements and the related notes included elsewhere herein. 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 those discussed under “Forward-Looking Statements” and in Item 1A “Risk Factors” in this Annual Report on Form 10-K.

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 and the Business to Business Products Group. Each operating segment is discussed individually below. Additional detailed descriptions of the operating segments are included in Item 1 “Business” above.

Consolidated net sales increased approximately $21,754,000$43,608,000 or 8%14% in fiscal year 20212022 compared to fiscal year 2020.2021. Consolidated income from operations in fiscal year 20212022 decreased compared to fiscal year 20202021 by $11,791,000. The decrease was driven primarily by the inclusion in fiscal year 2020 of a one-time receipt of $13,000,000 related to the licensing of one of our patents as further described in Note 1 of the Notes to the Consolidated Financial Statements. Excluding the aforementioned one-time receipt of $13,000,000 in fiscal 2020, operating income for fiscal 2021 was 10% greater than the prior year. Higher costs of sales in fiscal year 2021 due to rising commodity costs also accounted for the decrease in income from operations and was somewhat offset by lower selling, general and administrative expenses.

Our Consolidated Balance Sheets as of July 31, 20212022 and our Consolidated Statements of Cash Flows for fiscal year 20212022 show a decrease in total cash and cash equivalents from fiscal year-end 20202021 driven by higher cost of goods, increased capital requirements, and stock repurchases. Cash reduction as of July 31, 2022 was offset by an additional $25,000,000 in part, by certain one-time events. The decrease in cash is further described in Liquidity and Capital Resources.

Consolidated net sales in fiscal year 20212022 reached an all-time high of $304,981,000,$348,589,000, an increase of $21,754,000$43,608,000 or 8%14%, from net sales of $283,227,000$304,981,000 in fiscal year 2020.2021. Net sales inincreased for both our Retail and Wholesale Products Group and Business to Business Products Group increaseddue to an increase in sales volume and higher prices instituted in response to rising costs. The increase in demand for our products during the fiscal year 2021 compared2022 has led to an increase in our backlog of orders. We have hired additional manufacturing personnel, expanded our production shifts, increased production equipment and made various repairs to equipment in order to reduce our backlog as well as increase our use of alternate modes of transportation. We continue to analyze the prior fiscal year as did net sales for each ofconstraints on our principal products by segment except for products sold by our subsidiaryoperations and implement strategies to meet the increase in the United Kingdom. Sales fluctuations by operating segmentcustomer demand. Segment results are discussed further discussed below.

2022 compared to fiscal year 2020 driven primarily2021 by 11%. The increase in non-fuel manufacturing costs relate to higher repairs, utility costs, labor and benefit costs, and costs of purchased materials. In addition to the above, during fiscal year 2022, several suppliers started to pass along non-commodity price increases related to cost increases experienced in their own businesses and we expect such increases to persist. While we have experienced an increase infaced higher costs due to the reasons mentioned above, we anticipate being ablecontinue to recover some of these risingstrive to restore our historical margins utilizing various strategies including reducing costs throughwhere possible, increasing sales volume, and implementing price increases.

Total selling, general and administrative expenses (SG&A) were 8%0.3% lower in fiscal year 20212022 compared to fiscal year 2020.2021, effectively flat year over year. An increase in compensation expense was offset by lower pension and other costs. The discussion of each segment's operating income below describe the changes in selling, general and administrative expenses that were allocated to that segment, particularly the lower advertising costs in thesegment.

The loss on impairment of goodwill of $5,644,000 is related to our Retail and Wholesale Products Group. The remaining unallocated corporate expenses in fiscal year 2021 included a lower estimated annual incentive bonus accrual for fiscal year 2021 compared to fiscal year 2020. The incentive bonus accrual wasGroup reporting unit. Our goodwill impairment test is based on actual financial results achieved forcash flow considerations and other approaches that require significant judgment with respect to volume, revenue, expenses and allocations. We determined that, as a result of lower share prices and the continued adverse impacts of rising costs and additional expenses to prevent supply chain disruptions, and despite improving margins, we had a triggering event during the third quarter of fiscal year2022 that necessitated a goodwill impairment test and discretion byresulted in the carrying value of our Chief Executive Officer, in accordance with the incentive plan's provisions. Fiscal year 2021 also included lower pension service costs expense as the pension plan is frozen. In addition, as compared to fiscal year 2020, unallocated corporate expenses are lower in fiscal year 2021 because fiscal year 2020 included a legal contingency offset by a curtailment gain relatedRetail and Wholesale Products Group reporting unit being higher than its fair value which led to the termination of our Supplemental Executive Retirement Plan (SERP). See Notes 8, 9 and 11 of the Notes to the Consolidated Financial Statements for a further description of our pension plan freeze, SERP termination, and legal contingencies.$5,644,000 impairment charge.

Tax expense for fiscal year 20212022 was $97,000 (effective tax rate of 1.7%) compared to $2,388,000 (effective tax rate of 17.7%) compared to $4,280,000 (effective tax rate of 18.6%) in fiscal year 2020.2021. The decrease in tax expense was driven by lower taxable income as well as certain employment related credits we were able to take advantage of and aadditional tax deductiondeductions allowed for foreign-derived income which further reduced our effective tax rate.the mining industry. See Note 5 of the Notes to the Consolidated Financial Statements for additional information about our income taxes.

Net sales of the Business to Business Products Group for fiscal year 20212022 were $110,120,000,$113,379,000, an increase of $5,860,000,$16,241,000, or 6%17%, from net sales of $104,260,000$97,138,000 in fiscal year 2020.2021. Net sales increased in all product categories - agricultural and horticultural products; fluids and purification products; and animal health products; and cat litter. The majority of thisproducts. This growth was the result of both price increases and higher demand for our products. Net sales of fluid purification products increased volume andapproximately $8,715,000 or 16% in fiscal year 2022 compared with the prior year. The increase in net sales occurred for a variety of reasons, including new customer wins, increased sales to some degree,existing customers, increase in air travel in most regions, price increases that were implemented lateinstituted to offset rising costs, and in fiscalsome cases, timing of net sales. The majority of this increase in net sales was concentrated in North America and Latin America. Revenues in Europe remained relatively flat year 2021 for certainover year due to the impact of currency translation on our products.

The Business to Business Products Group’s segment operating income for fiscal year 20212022 was $25,086,000,$24,344,000, a decrease of $3,351,000$1,570,000, or 12%6%, from operating income of $28,437,000 in$25,914,000 for fiscal year 2020. While net sales increased, this increase2021. The decrease in operating income was offsetdriven by higher freight, packaging, natural gas, materials, and non-fuel manufacturing costs per manufactured ton in fiscal year 2021 as discussed in Consolidated Results“Consolidated Results” above as well as higher selling, general and administrative costs. In addition, as previously noted in Note 1 to the Notes to the Consolidated Financial Statements, the allocation of additional costs from selling, general and administrative costs to cost of sales decreased segment operating income in bothSG&A expenses during fiscal years 2021 and 2020.year 2022.

Net sales of the Retail and Wholesale Products Group for fiscal year 20212022 were $194,861,000,$235,210,000, an increase of $15,894,000,$27,367,000, or 9%13%, from net sales of $178,967,000$207,843,000 in fiscal year 20202021 driven by both increases in net sales of our cat litter and our industrial and sports products. Total cat litter net sales increased $13,748,000$20,159,000, or 9%11%, compared to the prior fiscal year with increasedyear. This increase was driven by organic volume growth, expanded distribution, price increases in response to rising costs, and the reduced need for trade spending because of higher demand. Net sales of bothbranded scoopable litter, private label lightweight and branded scoopable litters as we gainedheavyweight litter, and accessories (liners) increased in fiscal year 2022 compared to the prior year. Sales to e-commerce distributors were also higher during the fiscal year 2022 compared to fiscal year 2021. Our co-packaged coarse cat litter business from new customers and from new items being sold to existing customers. Further,experienced an increase of $2,474,300 or 17% in e-commercenet sales where the customer base differs from brick and mortar customers, continuedduring fiscal year 2022 compared to increase cat litter sales. In addition, the impact of COVID-19 on increased pet adoption continuedfiscal year 2021 primarily due to boost sales as well as the overall macro trend of increased spending on pets. Cat litter salesprice increases partially offset by our subsidiarya decrease in Canada further contributed to the sales increase, as discussed in “Foreign Operations” below.volume. Also included in the Retail and Wholesale Products Group's results were increased net sales of our industrial and sports products in fiscal year 2022, compared to fiscal year 2020.2021. Net sales of our industrial and sports products increased approximately $2,689,000$7,208,000 or 9%23% in fiscal year 20212022 compared to fiscal year 2020, mainly driven by2021, due to the continued re-opening of businesses and sports fields in the thirdfiscal 2022, as well as new customers and fourth quarters of fiscal year 2021 in most, but not all, of the United States. Industrial floor absorbent sales by our subsidiary in Canada further contributed to the net salesan increase in fiscal year 2021,selling price per ton as discussed in “Foreign Operations” below. To some extent, the increase in net sales for our Retail and Wholesale Products Group was also driven by price increases.we continue to respond to rising costs.

The Retail and Wholesale Products Group’s segment operating income for fiscal year 20212022 was $11,916,000, an increase$6,252,000, a decrease of $393,000$4,836,000 or 3%44%, from operating income of $11,523,000$11,088,000 in fiscal year 2020.2021. The higher sales and lower selling, general and administrative costs were partially offsetdecrease in segment operating income was driven by the goodwill impairment charge recorded in the third quarter of fiscal year 2022 as well as higher freight, packaging, natural gas, materials, and non-fuel manufacturing costs per manufactured ton,which outpaced the increase in net sales as discusseddescribed in “Consolidated Results” above. In addition, as previously noted in Note 1 to the Notes to the Consolidated Financial Statements, the allocation of additional costs from selling, general and administrative costs to cost of sales decreased segment operating income in both fiscal years 2021 and 2020.

Foreign operations include our subsidiariessubsidiary in Canada, and the United Kingdom, which areis included in the Retail and Wholesale Products Group, and our subsidiaries in the United Kingdom, China, Mexico and Indonesia, which are included in the Business to Business Products Group. Net sales by our foreign subsidiaries during fiscal year 20212022 were $17,406,000,$19,893,000, an increase of $2,186,000,$2,487,000, or 14%, from net sales of $15,220,000 during fiscal year 2020. The increase relates chiefly to higher sales by our subsidiaries in Canada and China$17,406,000 during fiscal year 2021. Cat litterAll of our foreign operations, with the exception of our subsidiary in Mexico, experienced an increase in net sales forduring fiscal year 2022 compared to fiscal year 2021. Total net sales of our subsidiary in Canada increased by approximately $1,521,000 or 28% during fiscal year 20212022 increased by $2,237,000, or 23%, compared to the prior fiscal year due to new product sales;2021 driven by higher cat litter net sales. Cat litter sales to existing customers; in-store promotions; and pantry loading in eastern Canada due to a second wave of COVID-19 infections and lockdown restrictionswere $2,610,000 higher during the first three months offiscal year 2022 than in fiscal year 2021. In additionThe increase in cat litter sales was mainly driven by a key customer carrying three of our products for the first time as well as price increases instituted in response to increasedrising costs. The increase in cat litter sales of cat litter,was partially offset by lower net sales of our industrial absorbent granules in Canada increased by approximately $551,000 or 27% during fiscal year 20212022 compared to fiscal year 2020 due to both price increases and the re-opening of distributors in the second half of the fiscal year 2021. Sales of our animal health products by our foreign operations also grew by $658,000 or 13% as higher sales for our subsidiary in China were somewhat offset by lower sales from our subsidiaries in Mexico and Indonesia. Net sales in China increased approximately $1,149,000 or 54% during fiscal year 2021 compared to fiscal year 2020. Despite the continued impacts of the African Swine Fever to pork consumption, sales of our animal health products in Chinaindustrial absorbent granules were higher during fiscal year 2021 compared to fiscal year 2020 due to a new contract with an existing customer; increased sales to existing customers; winning back several previous distributors; the use of two new distributors; and implementing a concentrated sales and marketing effort. In addition, net sales for our subsidiary in China in fiscal year 2020 were lower due to the outbreak of COVID-19 that impacted the second and third quarters of that fiscal year. Net sales by our subsidiary in Mexico in fiscal year 2020 included a sale of equipment that did not recur in fiscal year 2021 which droveas companies emerged from the decreaseconstraints of the pandemic and there was a surge in net sales in fiscal year 2021 compared to fiscal year 2020. The increase in net sales of our cat litter and animal health products in fiscal year 2021 were somewhat offset by the decrease in our purification products from our subsidiary in the United Kingdom. Sales of industrial floor absorbents by our subsidiary in the United Kingdom increased marginally in the fourth quarter of fiscal year 2021 over fiscal year 2020 but were still lower overall in fiscal year 2021 than 2020. The effect of COVID-19 lockdowns and restrictions on the industry in Europe has, to some extent, reduced demand for our products. The discontinuation by a customer of a product that used our clay granules also contributed to the decrease indemand. Net sales of our subsidiary in the United Kingdom.Kingdom in fiscal year 2022 increased by $396,000, or 21%, compared to net sales in fiscal year 2021. The increase related to timing of net sales and partly due to demand starting to slowly return post pandemic. Net sales of our subsidiary in Mexico decreased during fiscal year 2022 compared to fiscal year 2021 by $408,000 or 16%, as fiscal year 2021 included net sales of products in that region that are no longer part of our business strategy. Despite the negative impacts of COVID-19 in China, net sales of our subsidiary in China increased $40,000, or 1%, during fiscal year 2022 compared to fiscal year 2021 due primarily to the addition of a new customer. Net sales by our foreign subsidiaries represented 6% of our consolidated net sales for both the fiscal years 20212022 and 2020.2021.

For fiscal year 2021,2022, our foreign subsidiaries reported a net loss of $597,000,$756,000, compared to a net loss of $1,308,000$597,000 in fiscal year 2020.2021. The net loss in fiscal year 20212022 was primarily driven by our continued investment inunfavorable exchange rates, lower net sales for our subsidiary in IndonesiaMexico, higher cost of sales, and higher selling, general, and administrativeSG&A expenses by our subsidiary in China due to support increased sales forpersonnel and marketing of our animal feed additives as we continue to invest in our animal health business.and nutrition products.

Identifiable assets of our foreign subsidiaries as of July 31, 20212022 were $12,572,000$12,989,000 compared to $12,586,000$12,572,000 as of July 31, 2020.2021.

Our principal short and long-term capital requirements include: funding working capital needs; purchasing and upgrading equipment, facilities, information systems, and real estate; supporting new product development; spending on marketing and advertising costs; investing in infrastructure; repurchasing stock; paying dividends; making pension contributions; and, from time to time, business acquisitions. During fiscal year 2021,2022, we primarily usedprincipally funded these short and long-term capital requirements using cash from current operations as well as cash generated in the second quarter of fiscal year 2022 from operations to fund these requirements. borrowings under our Series Senior C Notes (described below).

Cash and cash equivalents totaled $24,591,000$16,298,000 and $40,890,000$24,591,000 as of July 31, 2022 and 2021, and 2020, respectively. Contributing to the cash generated in fiscal year 2020 was $10,000,000 of borrowings in the fourth quarter of fiscal year 2020 as well as a one-time receipt of $13,000,000 related to licensing of certain of our patents. These receipts have since been used in our operations in fiscal 2021. See Note 1 of the Notes to the Consolidated Financial Statements for information about the one-time receipt and Note 3 for the borrowings.

The following table sets forth certain elements of our Consolidated Statements of Cash Flows for the fiscal year (in thousands):

We recognizedDuring the third quarter of fiscal 2022, we recorded a curtailment gain on our Supplemental Executive Retirement Plan (“SERP”) plannon-cash goodwill impairment charge of $5,644,000, which left no remaining goodwill in fiscal year 2020 of $1,296,000, which is further discussed inthe Retail and Wholesale Products Group reporting unit. See Note 91 of the Notes to the Consolidated Financial Statements. No such gain was recognized in fiscal year 2021 as the SERP was terminated in fiscal year 2020.Statements for further information about goodwill.

Accounts receivable, less allowance for doubtful accounts and cash discounts, were $10,881,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 due primarily to higher sales in the fourth quarter of fiscal 2022 than in the same period in fiscal year 2021. The same measure of accounts receivable was $5,808,000 higher at fiscal year-end 2021 compared to fiscal year-end 2020 due primarily to higher sales in the fourth quarter of fiscal 2021 thanyear 2021. Accounts receivable increased in the same period inboth fiscal year 2020. The same measure of accounts receivable was $411,000 lower at fiscal year-end 2020 compared to fiscal year-end 2019years 2022 and 2021 due to lowerthe increase in net sales in both periods. In addition, the fourth quarter of fiscal year 2020, an increase in our bad debt reserve for certain uninsured foreign receivables, and for two customers that were slow paying Fluctuationsvariation in accounts receivable balances were impactedreflect differences in all periods by the level and timing of both sales and collections as well as the payment terms provided to various customers in the ordinary course of business.customers.

Inventories were $12,109,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 due primarily to rising costs and building inventory levels to meet demand and thwart potential supply chain disruptions. Inventories were $518,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 due primarily to higher sales of finished goods offset by increased packaging costs and a lower obsolescence reserve. Packaging costs increased due to

Other assets were $2,138,000 higher at fiscal year-end 2022 compared to fiscal year-end 2021 due to an increase in operating lease right-of-use lease assets offset by amortization of said right-of-use assets. Other assets were $544,000 lower at fiscal year-end 2021 compared to fiscal year-end 2020 due to a reduction in our operating right of use lease asset for expiring leases partially offset by higher pre-production costs at certain of our mines. Other assets

Cash provided in financing activities was $4,703,000 in fiscal year 2022 and cash used in financing activities was $11,322,000 in fiscal year 2021 and $8,750,000 in2021. During fiscal year 2020.2022, we issued $25,000,000 in aggregate principal amount of our 3.25% Series C Senior Notes, which provided cash for operations. The primary uses of cash used in financing activities in all periods were for long-term debt, dividend payments, and stock purchases offset by borrowings as further described in Note 3 of the Notes to the Consolidated Financial Statements.

Total cash and investment balances held by our foreign subsidiaries as of July 31, 2022 and 2021 were $3,260,000 and 2020 were $3,054,000, and $3,042,000, respectively. See further discussion in the “Foreign Operations” section above.

On January 31, 2019, we signed a fifth amendment to our credit agreement with BMO Harris, which expires on January 31, 2024. The new agreement provides for a $45,000,000 unsecured revolving credit agreement, including a maximum of $10,000,000 for letters of credit. The remaining terms arewere substantially unchanged from our previous agreement with BMO Harris, including the provision that we may select a variable rate based on either BMO Harris’ prime rate or a LIBOR-based rate, plus a margin which varies depending on our debt to earnings ratio, or a fixed rate as agreed between us and BMO Harris.

See Note 3 and Note 13 of the Notes to the Consolidated Financial Statements for information about our outstanding notes payable and a discussion of the debt instrument that we entered into on May 15, 2020 pursuant to which, among other things, we issued $10,000,000 in aggregate principal amount of our 3.95% Series B Senior Notes due May 15, 2030 and entered into an amended note agreement that provides the Company with the ability to request, from time to time until May 15, 2023 (or such earlier date as provided for in the agreement), additional senior unsecured notes of the Company in an aggregate principal amount of up to $75,000,000 minus the aggregate principal amount of the notes then outstanding and the additional notes that have been accepted for purchase. The issuance of such additional notes is at the discretion of the noteholders and purchasers and on an uncommitted basis.

We believe that cash flow from operations, availability under our revolving credit facility, current cash balances and our ability to obtain other financing, if necessary, will provide adequate cash funds 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. We spent approximately $4,619,000 less for advertising in fiscal year 2022 compared to fiscal year 2021. We spent approximately $1,023,000 less for advertising in fiscal year 2021 compared to fiscal year 2020 and we2020. We expect advertising expense in fiscal year 20222023 to be higher than in fiscal year 2021.2022 and more in line with pre-COVID spending levels. Our expenditures for capital were higher in fiscal year 2022 compared to fiscal year 2021 and also higher in fiscal year 2021 compared to fiscal year 2020. The increased capital expenditures did not 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, to contribute to our pension plan and to remain in compliance with all financial covenants under debt agreements, including, but not limited to, the current 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.

We do not have any unconsolidated special purpose entities. As of July 31, 20212022, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Management’s discussion and analysis of the financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with the generally accepted accounting principles of the United States (“U.S. GAAP”). We review our financial reporting and disclosure practices and accounting policies annually to ensure that our financial reporting and disclosures provide accurate and transparent information relative to the current economic and business environment. We believe that, of our significant accounting policies stated in Note 1 of the Notes to the Consolidated Financial Statements, the policies listed below involve a higher degree of judgment and/or complexity. The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates include income taxes, promotional programs, pension accounting and allowance for doubtful accounts. Actual results could differ from these estimates.

We maintain valuation allowances where it is likely that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the income tax provision in the period of change. In determining whether a valuation allowance is warranted, we take into account such factors as prior earnings history, expected future earnings and other factors that could affect the realization of deferred tax assets.

We recorded valuation allowances of $1,362,000$1,761,000 and $1,029,000$1,362,000 for the amount of the deferred tax benefit related to our foreign net operating loss carryforwards as of July 31, 20212022 and 2020,2021, respectively, because we believe it is unlikely we will realize the benefit of these tax attributes in the future.

In addition to valuation allowances, we may provide for uncertain tax positions when such tax positions do not meet certain recognition thresholds or measurement standards. Amounts for uncertain tax positions are adjusted when new information becomes available or when positions are effectively settled. We did not record a liability for unrecognized tax benefits at either July 31, 20212022 or 2020.2021. See Note 5 of the Notes to the Consolidated Financial Statements for further discussion.

The discount rate is the rate assumed to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments, would provide the necessary future cash flows to pay the pension benefits when due. The discount rate is subject to change each year. We refer to an applicable index and the expected duration of the benefit payments to select a discount rate at which we believe the benefits could be effectively settled. The discount rate was the single equivalent rate that would yield the same present value as the plan’s expected cash flows discounted with spot rates on a yield curve of investment-grade corporate bonds. The yield curve used in both fiscal years 20212022 and 20202021 was the FTSE Pension Discount Curve (formally(formerly called the Citi Pension Discount Curve). Our determination of pension expense or income is based on a market-related valuation of plan assets, which is the fair market value. Our expected rate of return on plan assets is determined based on asset allocations and historical experience. The expected long-term rate of inflation and risk premiums for the various asset categories are based on general historical returns and inflation rates. The target allocation of assets is used to develop a composite rate of return assumption. See Note 8 of the Notes to the Consolidated Financial Statements for additional information.

As further described in Note 8 of the Notes to the Consolidated Financial Statements, we amended and froze participation in our pension plan and supplemental executive retirement plan in the second quarter of fiscal year 2020. The amendment of these plans triggered a curtailment, which required a remeasurement of the plans’ obligations. Both of these remeasurements were based on actuarially determined amounts. In addition, we offered terminated participants with vested benefits who have not yet begun receipt of benefits under the pension plan the opportunity to receive their pension benefits in a single payment (the “Lump Sum Option”). We made payments to those participants in the pension plan who elected the Lump Sum Option by the May 15, 2020 election deadline. This settlement of a portion of the pension plan was recorded as settlement expense based on actuarially determined amounts in the fourth quarter of fiscal year 2020. The pension plan was further settledcompleted in fiscal year 2021 when we purchased an annuity.

Accounting for reclamation obligations requires that we make estimates unique to each mining operation of the future costs we will incur to complete the reclamation work required to comply with existing laws and regulations. Actual future costs incurred could significantly differ from estimated amounts. Future changes to environmental laws could increase the extent of reclamation work required. Any such increases in future costs could materially impact the amount incurred for reclamation costs.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

OIL-DRI CORPORATION OF AMERICA

CONSOLIDATED BALANCE SHEETS

OIL-DRI CORPORATION OF AMERICA

CONSOLIDATED BALANCE SHEETS

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