SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Level 2 (Policies)

12 Months Ended

Jul. 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Principles of Consolidation

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Oil-Dri Corporation of America and its subsidiaries. All significant intercompany balances and transactions have been eliminated from the Consolidated Financial Statements.

Management Use of Estimates

MANAGEMENT USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period as well as the related disclosures. Estimates and assumptions about future events cannot be made with certainty. All of our estimates and assumptions are revised periodically. Actual results could differ from these estimates.

Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS

Cash equivalents are highly liquid investments with maturities of three months or less.

Trade Receivables

TRADE RECEIVABLES

We recognize trade receivables when control of finished products are transferred to our customers. We record an allowance for credit losses based on our expectations and a periodic review of our accounts receivable, including a review of the overall aging of accounts, consideration of customer credit risk and analysis of facts and circumstances about specific accounts. A customer account is determined to be uncollectible when it is probable that a loss will be incurred after we have completed our internal collection procedures, including termination of shipments, direct customer contact and formal demand of payment. We retain outside collection agencies to facilitate our collection efforts. Past due status is determined based on contractual terms and customer payment history.

Inventories

INVENTORIES

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

	2023		2022
Finished goods	$	21,943	$	18,142
Packaging	8,007		9,515
Spare parts, net	$	5,981	$	4,904
Other	6,681		7,905
Inventories	$	42,612	$	40,466

Inventories are valued at the lower of cost (first-in, first-out) or net realizable value. Inventory costs include the cost of raw materials, packaging supplies, labor and other overhead costs. We performed a detailed review of our inventory items to determine if an obsolescence reserve adjustment was necessary. The review surveyed all of our operating facilities and sales groups to ensure that both historical issues and new market trends were considered. The obsolescence reserve not only considered specific items, but also took into consideration the overall value of the inventory as of the balance sheet date. We recorded inventory obsolescence reserves of approximately $0.8 million as of both July 31, 2023 and July 31, 2022, respectively. The other category of inventories includes a variety of items including clay, additives, fragrances and other supplies. Spare parts in inventory is recorded net of a valuation reserve based on aging. The spare parts reserve was $2.9 million as of July 31, 2023, and $2.7 million as of July 31, 2022.

Translation of Foreign Currencies

TRANSLATION OF FOREIGN CURRENCIES

Assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, are translated to U.S. Dollars at the exchange rates in effect at period end. Income statement items are translated at the average exchange rate on a monthly basis. Resulting translation adjustments are recorded as a separate component of stockholders’ equity.

Intangibles and Goodwill

INTANGIBLES AND GOODWILL

We amortize most of our intangibles on a straight-line basis over periods ranging from 10 to 20 years. Our customer list intangible asset is amortized at an accelerated amortization rate in the earlier years to reflect the expected pattern of decline in the related benefits over time. Intangible amortization was $0.3 million in fiscal year 2023 and $0.5 million in fiscal year 2022. Some intangible assets were determined to have indefinite lives and are not amortized, specifically one acquired trademark recorded at $0.4 million.

Our estimated intangible amortization expense for the next five fiscal years is as follows (in thousands):

2024	$	129
2025	$	105
2026	$	102
2027	$	99
2028	$	94

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

	Weighted Average Amortization Period
Patents	11.0
Customer list	0.3
Total intangible assets subject to amortization	10.0

We periodically review indefinite-lived intangibles and goodwill to assess for impairment. Our review entails a qualitative analysis of triggering events and if identified a further analysis is performed based on cash flow considerations and other approaches that require significant judgment with respect to volume, revenue, expenses and allocations. Impairment occurs when the carrying value exceeds the fair value. In fiscal year 2023, all of our goodwill was attributed only to the

Business to Business operating segment. We performed our annual impairment assessment and identified no triggering events that would indicate the need for impairment of the goodwill.

During fiscal year 2022, we determined, as a result of lower share prices and the continued adverse impacts of rising costs and additional expenses to prevent supply chain disruptions, that we had a triggering event that necessitated a goodwill impairment test. As a result, it was determined that the carrying value of our Retail and Wholesale Products Group reporting unit was higher than its fair value and recognized a goodwill impairment of $5.6 million, which left no remaining goodwill in the Retail and Wholesale Products Group reporting unit. No impairment was recognized for the Business to Business operating segment in fiscal year 2022.

Overburden Removal and Mining Costs

OVERBURDEN REMOVAL AND MINING COSTS

We surface mine sorbent minerals on property that we either own or lease as part of our overall operations. A significant part of our overall mining cost is incurred during the process of removing the overburden from the mine site, thus exposing the sorbent material used in a majority of our production processes. These stripping costs incurred during production are treated as a variable inventory production cost and are included in cost of goods sold in the period they are incurred. Stripping costs included in cost of goods sold were approximately $4.0 million and $2.7 million for fiscal years 2023 and 2022, respectively. Pre-production overburden removal costs associated with opening a new mine during the development phase are deferred. Total pre-production costs, including the overburden removal costs, that were capitalized in fiscal years 2023 and 2022 were $0.1 million and $1.3 million respectively. The decrease was due to a new mine going into production in fiscal year 2023. Capitalized development costs are amortized when the sorbent material is removed from the mine and used to produce product for sale. At the end of fiscal year 2023, the amount of development costs that are being amortized is $4.3 million.

Additionally, it is our policy to capitalize the purchase cost of land and mineral rights, including associated legal fees, survey fees and real estate fees. The costs of obtaining mineral rights, including legal fees and drilling expenses, are also capitalized. As of both fiscal years ending July 31, 2023 and July 31, 2022 we had $13.6 million of land and $2.2 million of gross mineral rights included in land and mineral rights on the Consolidated Balance Sheets. Any prepaid royalties that may be offset against future royalties due upon extraction of the mineral are also capitalized. Prepaid royalties included in current prepaid expenses and in non-current other assets on the Consolidated Balance Sheets were approximately $2.0 million for both fiscal years ending July 31, 2023 and July 31, 2022.

Reclamation

RECLAMATION

We perform ongoing reclamation activities during the normal course of our overburden removal. As overburden is removed from a mine site, it is hauled to previously mined sites and is used to refill older sites. This process allows us to continuously reclaim older mine sites and dispose of overburden simultaneously, therefore minimizing the costs associated with the reclamation process.

On an annual basis we evaluate our potential reclamation liability in accordance with ASC 410, Asset Retirement and Environmental Obligations. The reclamation assets are depreciated over the estimated useful lives of the various mines. The reclamation liabilities are increased based on a yearly accretion charge over the estimated useful lives of the mines.

As of July 31, 2023 and 2022, we have recorded an estimated net reclamation asset of $2.2 million and $1.8 million, respectively, and a corresponding estimated reclamation liability of $4.5 million as of July 31, 2023 and $3.8 million as of July 31, 2022. These values represent the discounted present value of the estimated future mining reclamation and landfill closure costs at the production plants. Additional mining activity in fiscal year 2023 and disturbance of land accounts for a majority of the increase in the reclamation asset and liability.

Property, Plant and Equipment

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are generally depreciated using the straight-line method over their estimated useful lives which are listed below. Depreciation expense was $15.3 million and $13.0 million in fiscal years 2023 and 2022, respectively. Major improvements and betterments are capitalized, while maintenance and repairs that do not extend the useful life of the applicable assets are expensed as incurred. Interest expense may also be capitalized for assets that require a period of time to get them ready for their intended use. There was no capitalized interest in fiscal years 2023 and 2022.

	Years
Buildings and leasehold improvements	3	-	40
Machinery and equipment
Packaging	2	-	20
Processing	2	-	25
Mining and other	2	-	15
Office furniture and equipment	2	-	15
Vehicles	2	-	15

Property, plant and equipment are carried at cost on the Consolidated Balance Sheets and are reviewed for possible impairment on an annual basis or when circumstances indicate impairment that an asset may become impaired. We take into consideration idle and underutilized equipment and review business plans for possible impairment. When impairment is indicated, an impairment charge is recorded for the difference between the carrying value of the asset and its fair market value. In fiscal year 2023, we recognized $0.9 million in impairment losses for fixed assets no longer in use. The impairment is included in cost of goods sold on the Consolidated Statement of Operations. There was no impairment recognized in fiscal year 2022.

Capital parts are long-lived spare parts that are recorded net of a valuation reserve based on aging. The capital parts reserve was $2.0 million as of July 31, 2023, and $1.8 million as of July 31, 2022.

Other Current and Noncurrent Liabilities

OTHER CURRENT AND NONCURRENT LIABILITIES    Other liabilities include the accruals for general expenses not yet paid, cash collected not yet vouchered, legal reserves, and reclamation liability accrual. Current liabilities are due to be paid within the next 12 months. Included in current liabilities within Accrued Expenses on the Consolidated Balance Sheet is $2.5 million for the Georgia landfill modification reserve which began in the third quarter of fiscal year 2023. Refer to Note 11 for further details.

Trade Promotions

TRADE PROMOTIONS

    We routinely commit to one-time or ongoing trade promotion programs, primarily in our Retail and Wholesale Products Group. All such costs are netted against sales. We have accrued liabilities at the end of each period for the estimated expenses incurred but not yet paid for these programs. Promotional reserves are provided for sales incentives made directly to consumers, such as coupons, and sales incentives made to customers, such as slotting, discounts based on sales volume, cooperative marketing programs and other arrangements. We use judgment for estimates to determine our trade spending liabilities. We rely on our historical experience of trade spending patterns and that of the industry, current trends and forecast data.

Advertising

ADVERTISING

Advertising costs for the development of printed materials, television commercials, web-based digital banners, web-based social media and sales videos are deferred and expensed upon the first use of the materials, unless such amounts are immaterial. Costs paid for communicating advertising over a period of time, such as television air time, radio commercials and print media advertising space, are deferred and expensed on a pro-rata basis. All other advertising costs, including participation in industry conventions and shows and market research, are expensed when incurred. All advertising costs are part of selling, general and administrative expenses. Advertising expenses were approximately $7.4 million and $4.0 million in fiscal years 2023 and 2022, respectively.

Fair Value of Financial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

Non-derivative financial instruments included in the Consolidated Balance Sheets are cash and cash equivalents and notes payable. These instruments, except for notes payable, were carried at amounts approximating fair value as of July 31, 2023 and 2022. See Note 4 of the Notes to the Consolidated Financial Statements for additional information regarding the fair value of our financial instruments, including notes payable.

Revenue Recognition

REVENUE RECOGNITION

We recognize revenue when performance obligations under the terms of the contracts with customers are satisfied. Our performance obligation generally consists of the promise to sell finished products to wholesalers, distributors and retailers or consumers and our obligations have an original duration of one year or less. Control of the finished products are transferred upon shipment to, or receipt at, customers' locations, as determined by the specific terms of the contract. We have completed our performance obligation when control is transferred and we recognize revenue accordingly. Taxes collected from customers and remitted to governmental authorities are excluded from net sales. Sales returns are not material nor are warranties and any related obligations.

    We have an unconditional right to consideration under the payment terms specified in the contract upon completion of the performance obligation. We may require certain customers to provide payment in advance of product shipment. We recorded a liability for these advance payments of $0.5 million as of July 31, 2022. There is no liability for advance payments as of July 31, 2023. This liability is reported in Other Accrued Expenses on the Consolidated Balance Sheets. Revenue recognized during fiscal year 2023 that was included in the liability for advance payments at the beginning of the year was $0.5 million.

Cost of Sales

COST OF GOODS SOLD

Cost of goods sold consists of all manufacturing costs, including depreciation and amortization related to assets used in the manufacturing and distribution process, inbound and outbound freight, inspection costs, purchasing costs associated with materials and packaging used in the production process and warehouse and distribution costs. Natural gas forward contracts are accounted for as normal purchases.

Shipping and Handling Costs

SHIPPING AND HANDLING COSTS

Shipping and handling costs are included in cost of goods sold and were approximately $57.4 million and $48.5 million for fiscal years 2023 and 2022, respectively. The increase is primarily related to a key customer switching from pick up to delivered.

Selling, General and Administrative Expenses

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include salaries, wages and benefits associated with staff outside the manufacturing and distribution functions, all marketing related costs, any miscellaneous trade spending expenses not required to be included in net sales, research and development costs, depreciation and amortization related to assets outside the manufacturing and distribution process and all other non-manufacturing and non-distribution expenses.

Research and Development

RESEARCH AND DEVELOPMENT

Research and development costs of approximately $1.2 million and $2.1 million were charged to expense as incurred for fiscal years 2023 and 2022, respectively, and are recorded in selling, general and administrative expenses.

Pension and Postretirement Benefit Costs

PENSION AND POSTRETIREMENT BENEFIT COSTS

We historically provided a defined benefit pension plan for eligible salaried and hourly employees and we made contributions to fund the plan. We also provide a postretirement health benefit plan to domestic salaried employees who qualify under the plan’s provisions. The postretirement health benefit plan is unfunded. Our pension and postretirement health benefit plans are accounted for using actuarial valuations required by ASC 715, Compensation – Retirement Benefits. The funded status of our defined pension and postretirement health benefit plans are recognized on the Consolidated Balance Sheets. Changes in the funded status that arise during the period but are not recognized as components of net periodic benefit cost are recognized within other comprehensive income, net of income tax. In fiscal year 2023 we terminated the pension plan. See Note 8 of the Notes to the Consolidated Financial Statements for additional information.

Stock-Based Compensation

STOCK-BASED COMPENSATION

We account for stock options and restricted stock issued under our long-term incentive plans in accordance with ASC 718, Compensation – Stock Compensation. The fair value of stock-based compensation is determined at the grant date. The related compensation expense is recognized over the appropriate vesting period. Forfeitures are recognized as they occur. See Note 7 of the Notes to the Consolidated Financial Statements for additional information.

The fair value of restricted stock was determined by the closing market price of our Common Stock on the date of grant multiplied by the number of shares granted. Fair value of shares vested is $2.6 million and $2.5 million in fiscal year 2023 and 2022, respectively.

Income Taxes

INCOME TAXES

Deferred income tax assets and liabilities are recorded for the impact of temporary differences between the tax basis of assets and liabilities and the amounts recognized for financial reporting purposes. Deferred tax assets are reviewed and a valuation allowance is established if management believes that it is more likely than not that some portion of our deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change.

In addition to existing valuation allowances, we provide for uncertain tax positions, if necessary, when such tax positions do not meet the recognition thresholds or measurement standards prescribed by ASC 740, Income Taxes. Amounts for uncertain tax positions are adjusted when new information becomes available or when positions are effectively settled. We recognize interest and penalties accrued related to uncertain tax positions in income tax expense.

U.S. income tax expense and foreign withholding taxes are provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. Where unremitted foreign earnings are indefinitely reinvested, no provision for federal or state tax expense is recorded. When circumstances change and we determine that some or all of the undistributed earnings will be remitted in the foreseeable future, a corresponding expense is accrued in the current period. See Note 5 of the Notes to the Consolidated Financial Statements for additional information about income taxes.

Earnings Per Share

EARNINGS PER SHARE

We utilize the two-class method to report our earnings per share ("EPS"). The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings. Common Stock is entitled to cash dividends equal to at least 133.33% on a per share basis of the cash dividend paid on Class B Stock. In computing earnings per share, the Company has allocated dividends declared to Common and Class B shares based on amounts actually declared for each class of stock and 33.33% more of the undistributed earnings have been allocated to Common Stock than to the Class B shares on a per share basis. Common Stock is entitled to one vote per share and Class B Stock is entitled to ten votes per share. Common Stock have no conversion rights. Class B Stock is convertible on a share-by-share basis into Common Stock at any time and is subject to mandatory conversion under certain circumstances. Basic EPS is computed by dividing net earnings, reduced for any distributed and undistributed earnings allocated to unvested restricted shares, by the weighted-average number of shares outstanding during the period for each class of share. Diluted EPS, for each class of common stock, is computed by dividing net earnings by the weighted-average number of common shares and potential common shares outstanding during the period. Dilution for common stock takes into consideration the effect of both unvested restricted shares and convertible Class B shares, if the effect is dilutive. Dilution for Class B takes into consideration the effect of unvested restricted shares, if the effect is dilutive. Below is a reconciliation of the calculation of basic and diluted EPS.

	For the year ended July 31, 2023
	(in thousands, except for per share data)
	Total		Common		Class B
Net income	$	29,551	$	22,712	$	6,839
Distributed and undistributed earnings on restricted shares	(1,518)		(1,232)		(286)
Income available to stockholders	$	28,033	$	21,480	$	6,553
Net Income (Numerator)			$	21,480	$	6,553
Weighted Average Shares Outstanding (Denominator)			4,825		1,959
Basic EPS			$	4.45	$	3.35
Effect of dilution - Net Income (1)			$	6,553	$	—
Net income assuming dilution (Numerator)			$	28,033	$	6,553
Effect of dilution - Shares (1)			1,959		$	—
Shares assuming dilution (Denominator)			6,784		$	1,959
Diluted EPS			$	4.13	$	3.35
(1) The impact of unvested restricted stock was anti-dilutive therefore not included in the calculation of diluted EPS

New Accounting Pronouncements

NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued guidance under ASC 848, Reference Rate Reform. This guidance provides optional expedients and exceptions to account for debt, leases, contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. The guidance is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. On August 30, 2022 we amended our debt agreements to replace the LIBOR-based reference rate with an adjusted term Secured Overnight Financing Rate (SOFR), ASC 848 will allow us to account for the modification as a continuation of the existing contract without additional analysis.

There have been no other accounting pronouncements issued but not yet adopted by us which are expected to have a material impact on our Consolidated Financial Statements.