Oil-Dri Corp of America (ODC) FY 2024 MD&A

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.

OVERVIEW

We develop, mine, manufacture and market sorbent products principally produced from clay minerals, primarily consisting of calcium bentonite, attapulgite and diatomaceous shale. Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, cat litter, fluids 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.

RESULTS OF OPERATIONS

OVERVIEW

Oil-Dri experienced another record-breaking year with consolidated net sales, gross profit and net income reaching an all-time high. Record revenues were achieved across both operating segments driven primarily by cat litter sales within the Retail and Wholesale Product Group segment and fluid purification product sales in our Business to Business Product Group segment. Within the Retail and Wholesale group growth from our existing products due to higher prices was further supplemented with the acquisition of Ultra Pet in the fourth quarter and the sales of silica-gel crystal cat litter. Within the Business to Business Products Group, revenue growth was driven by higher prices coupled with increased volumes of our fluid purification products. Despite higher per ton cost of goods sold and SG&A expenses our gross margin and consolidated income from operations increased in fiscal year 2024 when compared to fiscal year 2023.

Consolidated net income for fiscal year 2024 was $39.4 million, or $5.43 per diluted common share, a 33% increase compared to $29.6 million, or $4.13 per diluted common share in fiscal year 2023. Driven primarily by the increase in operating income as well as fewer non-recurring transactions when compared to fiscal year 2023, offset by higher tax expense. Fiscal year 2023 was impacted by the $2.5 million reserve for the Georgia landfill modification costs and the $4.7 million charge in connection with the termination of the Company's pension plan. Refer to Notes 9 and 12 of the Consolidated Financial Statements for additional details.

Our Consolidated Balance Sheets as of July 31, 2024, and our Consolidated Statements of Cash Flows for the fiscal year 2024 show an decrease in total cash and cash equivalents from fiscal year-end 2023. The decrease is mainly due to cash used in the acquisition of Ultra Pet, net of cash proceeds for financing the acquisition, and capital expenditures, off-set by improved net income. Refer to the "Liquidity and Capital Resources" section below.

RESULTS OF OPERATIONS

FISCAL YEAR 2024 COMPARED TO FISCAL YEAR 2023

CONSOLIDATED RESULTS

Consolidated net sales in fiscal year 2024 reached an all-time high of $437.6 million, a 6% increase from net sales of $413.0 million in fiscal year 2023. Net sales increased for both our Retail and Wholesale and Business to Business Products Groups, primarily due to higher price increases implemented across both product groups, stronger sales volumes of fluid purification products, and new business from the Ultra Pet acquisition.

Consolidated gross profit in fiscal year 2024 was $125.1 million, an increase of $21.9 million, or 21%, from gross profit of $103.2 million in the prior fiscal year. Our gross margin (defined as gross profit as a percentage of net sales) in fiscal year 2024 increased to 29% from 25% in fiscal year 2023. Our domestic cost of goods sold per ton increased 6%, driven

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primarily by per ton increases in non-fuel manufacturing and freight, offset by lower per ton natural gas and packaging costs. Non-fuel manufacturing costs per ton increased 8% during fiscal year 2024 compared to fiscal year 2023, mainly due to higher per ton costs of labor and depreciation. Domestic freight costs per ton increased approximately 10% in fiscal year 2024 compared to fiscal year 2023, driven primarily by the impact of a significant customer in our cat litter business that altered shipping terms in January 2023 from collect to delivered as well as the higher per ton freight cost of our crystal cat litter products. Excluding the impact of these two factors, per ton domestic freight costs would have remained flat year over year. Ocean freight costs have also decreased due to both lower rates and export fees. However, our overall freight costs can vary between periods depending on the mix of products sold and the geographic distribution of our customers. Per ton cost of natural gas decreased 28% in fiscal year 2024 compared to fiscal year 2023 due to natural gas prices. Packaging costs per ton decreased by approximately 1% in fiscal year 2024 compared to fiscal year 2023 due to lower commodity costs, particularly as it relates to resin and pallet costs. Many of our contracts for packaging purchases are subject to periodic price adjustments, which trail changes in underlying commodity prices.

Total selling, general and administrative expenses ("SG&A") increased 18% in fiscal year 2024 compared to fiscal year 2023. Unallocated corporate expenses increased by $7.3 million, or 24%, driven by mainly by higher anticipated compensation costs including increased performance-based incentives and acquisition and integration related expenses incurred in the current year. Additional expenses related to the integration of Ultra Pet are expected to be incurred in the first quarter of fiscal year 2025. The discussion of the segments' operating incomes below describes the changes in SG&A expenses that were allocated to the operating segments.

Total other expenses, net were $2.0 million for fiscal year 2024, down $4.4 million compared to $6.4 million in fiscal year 2023. This was mostly driven by higher non-recurring transactions in fiscal year 2023 due to the $4.7 million loss on pension termination and the $2.5 million reserve recorded for anticipated landfill capacity modification costs, offset by higher foreign exchange losses in fiscal year 2024.

Tax expense for fiscal year 2024 was $10.2 million with an effective tax rate of 21% compared to $5.2 million with an effective tax rate of 15% in fiscal year 2023. The increase in tax expense was driven by higher book income. See Note 6 of the Notes to the Consolidated Financial Statements for additional information about our income taxes.

BUSINESS TO BUSINESS PRODUCTS GROUP

Net sales of the Business to Business Products Group for fiscal year 2024 were $150.5 million, an increase of $8.1 million, or 6%, from net sales of $142.4 million in fiscal year 2023, driven by sales of our fluid purification products. Net sales of fluids purification products increased approximately $14.8 million or 19% in fiscal year 2024 compared with the prior year. The increase was primarily driven by new customers in the renewable diesel business in North America, as well as continued demand for our products used in the filtration of edible oil and jet-fuel, and to a lesser extent higher prices. Net sales increased in North America, our subsidiary in the UK, the Asia and the Europe, Middle East and Africa ("EMEA") regions, partially offset by a decrease in Latin America. Net sales of our animal health and nutrition products remained flat in fiscal year 2024 compared to the fiscal year 2023. Higher net sales in Latin America and North America were offset by softer sales in Asia and by our subsidiary in Mexico. Latin America sales grew due to stronger demand while North American sales rose due to a combination of higher prices and favorable mix. Net sales of our agricultural and horticultural chemical carrier products decreased approximately $6.7 million, or 17%, for fiscal year 2024 compared to fiscal year 2023 as a result of softer volumes offset partially by higher prices. This decline in volume was primarily due to reduced demand from a key customer that was still working through inventory from last year. See “Foreign Operations” below for a discussion of net sales for our foreign operations that sell our fluid purification and animal health and nutrition products.

SG&A expenses for the Business to Business Products Group increased approximately $0.3 million, or 2%, for fiscal year 2024 compared to the prior fiscal year. The majority of the increase relates to higher compensation related expenses and research and development costs, offset by a reduction in technical service support costs from the research and development center and Microbiology Lab.

The Business to Business Products Group’s operating income for fiscal year 2024 was $45.6 million, an increase of $7.9 million, or 21%, from operating income of $37.7 million for fiscal year 2023. The increase in operating income was mostly driven by higher net sales of our fluid purification products as discussed above.

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RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for fiscal year 2024 were $287.1 million, an increase of $16.5 million, or 6%, from net sales of $270.6 million in fiscal year 2023 driven by increases of both our cat litter and industrial and sport products. Total cat litter net sales increased $15.5 million, or 7%, compared to the prior fiscal year driven mostly by higher prices. Domestic cat litter net sales were $212.8 million, an increase of $16.4 million from fiscal year 2023 due primarily to higher prices and the incremental sales of crystal cat litter in the fourth quarter. This was supplemented by increases in organic volume growth of both our branded lightweight and branded coarse litters offset by softer volumes of our private label clay-based offerings. Net sales of co-packaged products decreased by approximately $0.7 million compared to fiscal year 2023, mainly due to softer volumes which were partially driven by the cyberattack on one of our customers in the first quarter of fiscal year 2024. Net sales of our global industrial and sports products increased by approximately $0.9 million, or 2%, compared to fiscal year 2023, primarily driven by higher prices implemented to continue to rebuild margins. Net sales by our subsidiary in Canada increased period over period, as discussed in "Foreign Operations" below.

SG&A expenses for the Retail and Wholesale Products Group were $3.5 million, or 21%, higher during fiscal year 2024 compared to fiscal year 2023 due primarily to higher advertising costs, compensation, and the amortization of the customer list acquired through the purchase of Ultra Pet. Advertising spend is expected to be lower in fiscal year 2025 compared to fiscal year 2024.

The Retail and Wholesale Products Group’s segment operating income for fiscal year 2024 was $43.8 million, an increase of $10.0 million or 30%, from operating income of $33.8 million in fiscal year 2023. This was driven primarily by the increase in gross margins due to higher price on existing products and incremental sales of crystal cat litter, partially offset by higher cost of goods sold.

FOREIGN SUBSIDIARIES

Foreign operations include our subsidiary in Canada and Netherlands, which is 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 2024 were $21.0 million, a decrease of $1.1 million, or 5%, from net sales of $22.1 million during fiscal year 2023. The decrease in net sales was driven mainly by our subsidiaries in China, Mexico, and Indonesia, offset by increases in UK and Canada. Net sales of our subsidiary in China decreased $1.0 million, or 38%, during fiscal year 2024 compared to fiscal year 2023 primarily due to the sale of all existing inventory to the new master distributor, which occurred in the first quarter of fiscal year 2024. Beginning January 2023, sales to China went directly through the Company and not through our subsidiary in China. Net sales of our subsidiary in Mexico decreased $0.8 million, or 32% during fiscal year 2024 compared to fiscal year 2023. Net sales of our subsidiary in the United Kingdom in fiscal year 2024 increased by $0.7 million, or 26%, compared to net sales in fiscal year 2023. The increase is driven by an increase in both volume and prices. Total net sales of our subsidiary in Canada during fiscal year 2024 increased by $0.2 million, or 1%, compared to fiscal year 2023, driven by higher prices in our industrial product sales offset by softer cat litter sales. Net sales by our foreign subsidiaries represented 5% of our consolidated net sales in fiscal years 2024 and 2023.

For fiscal year 2024, our foreign subsidiaries reported a pre-tax net income of $0.7 million, compared to $1.0 million in fiscal year 2023. The decrease in 2024 was mainly driven by lower sales in China as we moved to selling to a master distributor directly through the Company and not through our subsidiary, offset by higher income in Canada and the UK as discussed above.

Identifiable assets of our foreign subsidiaries as of July 31, 2024, were $8.7 million compared to $14.6 million as of July 31, 2023.

LIQUIDITY AND CAPITAL RESOURCES

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; and, from time to time, business acquisitions. During fiscal year 2024, we principally funded these short and long-term capital requirements using cash from current operations and additional debt to fund a portion of the acquisition of Ultra Pet.

Cash and cash equivalents totaled $23.5 million and $31.8 million as of July 31, 2024 and 2023, respectively.

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We currently anticipate cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements. In addition, we are actively monitoring the timing and collection of our accounts receivable. Given the current inflationary environment and impacts of supply chain disruption on our business, we continuously assess our liquidity needs and to actively manage our spending.

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

Net cash provided by operating activities

In addition to net income, as adjusted for depreciation and amortization and other non-cash operating activities, the primary sources and uses of operating cash flow for fiscal year 2024 were as follows:

Excluding the impact of accounts receivable acquired through the purchase of Ultra Pet, accounts receivables, less allowance for credit losses and cash discounts, were $1.5 million lower at fiscal year-end 2024 compared to fiscal year-end 2023. The variation in accounts receivable balances reflects differences in the level and timing of collections as well as the payment terms provided to various customers.

Excluding the impact of inventory acquired through the purchase of Ultra Pet, inventories were $4.7 million higher at fiscal year-end 2024 compared to fiscal year-end 2023. The increase is primarily due to rising costs and building inventory levels to meet expected future demand. During fiscal year 2024 we have continued to manage inventory balances primarily focusing on building finished goods inventory offset by decreases in packaging and other through strategic supply chain management. See Note 1 of the Notes to the Consolidated Financial Statements for further information regarding our inventory.

Excluding the impact of prepaid assets acquired through the purchase of Ultra Pet, prepaid expenses were $2.4 million higher at fiscal year-end 2024 compared to fiscal year-end 2023 driven primarily by an increase in prepaid tax and insurance expenses.

Excluding the impact of accounts payable acquired through the purchase of Ultra Pet, accounts payable were $2.8 million lower at fiscal year-end 2024 compared to fiscal year-end 2023. The decrease is due to higher trade payables mainly due to timing. Changes in trade accounts payable in all periods are subject to normal fluctuations in the timing of payments, the cost of goods and services we purchased, production volume levels and vendor payment terms.

Excluding the impact of accrued expenses acquired through the purchase of Ultra Pet, accrued expenses were $2.4 million higher at fiscal year-end 2024 compared to fiscal year-end 2023. The increase in accrued expenses during the fiscal year 2024 was driven by higher compensation-related expenses, higher advertising expense accruals, and accrued payables.

Net cash used in investing activities

Cash used in investing activities was $76.1 million in fiscal year 2024. Cash used in investing activities primarily related to the acquisition of Ultra Pet and capital expenditures to expand our plant equipment and improve our facilities in order to support increased demand for our products.

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Net cash provided by (used in) financing activities

Cash provided by financing activities was $8.3 million in fiscal year 2024, which was driven by a $10 million advance under the Credit Agreement, and the issuance of $10 million in aggregate principal amount Series D Senior Notes. This increase in cash was offset by payments for dividends, stock repurchases and debt repayments. See Note 4 of the Notes to the Consolidated Financial Statements for further information regarding debt.

Other

Total cash and investment balances held by our foreign subsidiaries as of July 31, 2024 and 2023 were $4.5 and $5.2 million, respectively. See further discussion in the “Foreign Operations” section above.

As of July 31, 2024, we had remaining authority to repurchase 379,925 shares of Common Stock and 262,092 shares of Class B Stock under a repurchase plan approved by our Board of Directors. Repurchases may be made on the open market (pursuant to Rule 10b5-1 plans or otherwise) or in negotiated transactions. The timing and number of shares repurchased will be determined by our management pursuant to the repurchase plan approved by our Board of Directors. In fiscal years 2024 and 2023, we made repurchases of stock as further discussed in Item 5 "Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities."

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 continually evaluate our liquidity position and anticipated cash needs, as well as the financing options available to obtain additional cash reserves. Our ability to fund operations, to make planned capital expenditures, to make scheduled debt payments, and to remain in compliance with all financial covenants under debt agreements, including, but not limited to, the current credit agreement, 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. As of July 31, 2024 and 2023, we were in compliance with all debt covenants.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any unconsolidated special purpose entities. As of July 31, 2024, 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 credit losses. Actual results could differ from these estimates.

Income Taxes. Our effective tax rate on earnings was based on income, statutory tax rates and tax planning opportunities available to us in various jurisdictions in which we operate. Significant judgment was required in determining our effective tax rate and in evaluating our tax positions.

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We determine our current and deferred taxes in accordance with Accounting Standards Codification (“ASC”) 740 Income Taxes. The tax effect of the expected reversal of tax differences was recorded at rates currently enacted for each jurisdiction in which we operate. To the extent that temporary differences will result in future tax benefit, we must estimate the timing of their reversal and whether taxable operating income in future periods will be sufficient to fully recognize any deferred tax assets.

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 $2.5 million and $1.7 million for the amount of the deferred tax benefit related to our foreign net operating loss carryforwards and certain state net operating loss carryforwards as of July 31, 2024 and 2023, 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, 2024 or 2023. See Note 6 of the Notes to the Consolidated Financial Statements for further discussion.

Trade Promotions. We routinely commit to one-time or ongoing trade promotion programs in our Retail and Wholesale Products Group. 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. All such trade promotion costs are netted against sales. Promotional reserves are established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. To estimate trade promotion reserves, we rely on our historical experience of trade spending patterns and that of the industry, current trends and forecasted data. While we believe our promotional reserves are reasonable and that appropriate judgments have been made, estimated amounts could differ from future obligations. We have accrued liabilities at the end of each period for the estimated trade spending programs. We recorded liabilities of approximately $2.7 million and $2.3 million for trade promotions as of July 31, 2024 and 2023, respectively.

Pension and Postretirement Benefit Costs. We calculate our pension and postretirement health benefit obligations and the related effects on results of operations using actuarial models. To measure the expense and obligations, we must make a variety of estimates including critical assumptions for the discount rate used to value certain liabilities and the expected return on plan assets set aside to fund these costs. We evaluate these critical assumptions at least annually. Other assumptions involving demographic factors, such as retirement age, mortality and turnover, are evaluated periodically and are updated to reflect actual experience. As these assumptions change from period to period, recorded pension and postretirement health benefit amounts and funding requirements could also change. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

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 2024 and 2023 was the FTSE Pension Discount Curve (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 9 of the Notes to the Consolidated Financial Statements for additional information.

As further described in Note 9 of the Notes to the Consolidated Financial Statements, we terminated the pension plan in fiscal year 2023.

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

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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 believe our allowance for credit losses is reasonable; however, the unanticipated default by a customer with a material trade receivable could occur. We also record an estimated allowance for cash discounts offered in our payment terms to some customers. We recorded a total allowance for credit losses and cash discounts of $0.9 million and $1.1 million as of July 31, 2024 and 2023, respectively.

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.

Inventories. We value inventories 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 perform a detailed review of our inventory to determine if a reserve adjustment is necessary, giving consideration to obsolescence, inventory levels, product deterioration and other factors. The review also surveys all of our operating facilities and sales divisions to give consideration to historic and new market trends. The inventory reserve value was $3.8 million as of July 31, 2024 and $3.6 million as of July 31, 2023.

Reclamation. During the normal course of our mining process we remove overburden and perform on-going reclamation activities. As overburden is removed from a mine site, it is hauled to a previously mined site and 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. We have recorded an estimated net reclamation asset of $2.2 million, as of both July 31, 2024 and 2023, and a corresponding estimated reclamation liability of $4.8 million as of July 31, 2024 and $4.5 million as of July 31, 2023. These values represent the discounted present value of the estimated future mining reclamation and landfill closure and monitoring costs at the production plants. 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.

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.

Impairment of goodwill, trademarks and other intangible assets. We review carrying values of goodwill, trademarks and other indefinite-lived intangible assets periodically for possible impairment in accordance ASC 350, Intangibles – Goodwill and Other. Our impairment review requires significant judgment with respect to factors such as volume, revenue and expenses. Impairment occurs when the carrying value exceeds the fair value. Our impairment analysis is performed in the third quarter of the fiscal year and may be re-performed during the year when indicators such as unexpected adverse economic factors, unanticipated technological changes, competitive activities and acts by governments and courts indicate that an asset may become impaired. No such triggering events or impairment of goodwill was identified in fiscal year 2024 however this could change in the future, as outlined under Item 1A "Risk Factors."

Valuation of acquired goodwill and intangible assets. We account for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The identifiable assets acquired and liabilities assumed are recorded at their fair values on the date of acquisition. The difference in the fair value of consideration transferred over the fair values of the assets and liabilities is recorded as goodwill. We make significant estimates and assumptions when determining the fair values of assets and liabilities obtained through a business combination, especially regarding intangible assets. We utilize various approaches to establish the fair value of intangible assets acquired. The Company believes its estimates of the fair value of intangible assets to be reasonable. However, actual financial results may differ from the estimates because of the inherent uncertainty involved.

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NEW ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." These amendments primarily require enhanced disclosures and disaggregation of income tax information by jurisdiction in the annual income tax reconciliation and quantitative disclosures regarding income taxes paid. These amendments are to be applied prospectively, with the option to apply the standard retrospectively, for annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the adoption of this guidance will have on our disclosures.

In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." These amendments primarily require enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. In addition, ASU No. 2023-07 also requires all annual disclosures currently required by Topic 280 to be included in interim periods. These amendments are to be applied retrospectively for all periods presented in the financial statements and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact that the adoption of this guidance will have on our disclosures.

Recently Adopted Accounting Standards

There have been no new accounting pronouncements adopted in the period.

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