OIL-DRI CORP OF AMERICA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read together with the financial statements and the related
notes included herein and our Consolidated Financial Statements, accompanying
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in our Annual Report on Form 10-K for the fiscal
year ended July 31, 2021. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially
from the results discussed in the forward-looking statements. Factors that might
cause a difference include, but are not limited to, those discussed under
"Forward-Looking Statements" and Item 1A, Risk Factors of our Quarterly Report
on Form 10-Q for the quarter ended January 31, 2022 and of our Annual Report on
Form 10-K for the fiscal year ended July 31, 2021.

OVERVIEW

We develop, mine, manufacture and market sorbent products principally produced
from clay minerals and, to a lesser extent, other clay-like sorbent
materials. Our principal products include agricultural and horticultural
chemical carriers, animal health and nutrition products, bleaching clay and
fluid purification aids, cat litter, 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 those 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: Retail and Wholesale Products Group and Business to
Business Products Group, as described in Note 11 of the Notes to the unaudited
Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

OVERVIEW

In late 2019 and early 2020, COVID-19 was first reported and then declared a
pandemic by the World Health Organization, and continues to have a worldwide
impact. All of our facilities, with the exception of our subsidiary in China
(which experienced certain disruptions in the first half of our fiscal year 2020
but subsequently resumed operations), have continued to operate as essential
businesses during the course of the pandemic as permitted under exceptions in
the applicable shelter-in-place mandates due to our inclusion in the Critical
Manufacturing Sector as defined by the U.S. Department of Homeland Security and
other functions defined as essential by government authorities. Our top priority
has been, and continues to be, the safety and health of our employees,
contractors, and customers. We have adhered, and continue to adhere, to guidance
from the U.S. Centers for Disease Control and Prevention ("CDC") and local
health and governmental authorities with respect to social distancing, physical
separation, and cleaning and sanitation programs at each of our facilities. We
have not experienced any shut downs due to workforce absences or illnesses.

As further discussed below, our consolidated net sales increased in the third
quarter and in the first nine months of fiscal year 2022 compared to the third
quarter and first nine months of fiscal year 2021. Net sales of our industrial
and sports products as well as most of our fluids purification products have
mostly returned to pre-pandemic levels as many businesses and sports have
re-opened and air travel has been increasing. Despite the overall increase in
net sales, we have not experienced any significant issues collecting amounts due
from customers to date. However, parts of our business continue to be negatively
impacted by the pandemic and varying recoveries from and resurgences of the
pandemic in certain areas. Net sales for our industrial granules in the United
Kingdom have just recently started to increase in fiscal year 2022 as a result
of the return of demand following the impact of the pandemic (and also certain
timing impacts). While we have had an overall increase in net sales of our
fluids purification products, not all regions have resumed travel to the same
extent as prior to the pandemic. In addition, net sales of our animal health and
nutrition products have been dampened due to COVID-19 in certain geographic
areas, particularly in China, which has continued to impose restrictions and
quarantine requirements in response to COVID-19 outbreaks. We have also
experienced an increase in backlog due, in part, to supply chain disruptions,
shipping delays and availability of labor amidst unprecedented demand for our
products. We have put in place measures to reduce the backlog that was generated
during the first nine months of fiscal year 2022, including hiring additional
labor, adding additional work shifts, improving operating productivity in our
plants, upgrading our manufacturing facilities and equipment and increasing our
overseas freight forwarders.

As discussed below in "Consolidated Results," gross profit has declined in both
the third quarter and the first nine months of fiscal year 2022 compared to the
same periods in fiscal year 2021 related to rising costs and supply chain
disruptions. We have faced longer lead times for some of our materials
purchases, which have contributed to an increase in our backlog but we have been
able to avoid significant out of stock issues for most of our materials. Where
possible, we have found other suppliers to meet the increase in customer demand
for our products. In addition, the cost of repair parts has increased but this
has not caused any significant disruption to our business. While we have
experienced a shortage of production labor at certain times during the

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first nine months of fiscal year 2022, which has been a contributing factor to
our increase in backlog, we have been able to hire additional labor and reduce
our backlog related to production constraints in the third quarter of fiscal
year 2022. We are closely monitoring the continuation, resurgence in certain
areas, and effects of COVID-19 on all aspects of our business, including how it
has impacted and may impact our suppliers and customers as well as the effects
of the pandemic on economic conditions and the financial markets. In general, we
have seen an increase in costs, particularly as it relates to commodities as the
economy continues to react to, and recover from, the pandemic and demand
surpasses supply. We have also seen costs increasing due to inflation. In
addition to rising commodity costs, several of our suppliers have passed along
non-commodity price increases they have experienced in their own business.
However, we have not experienced any significant interruptions, and we will
continue to closely monitor our inventory levels to mitigate the risk of any
potential supply interruptions or changes in customer demand. It is possible
that significant disruptions could occur if the pandemic and other factors such
as labor shortages, ongoing geopolitical tensions, and other strains on the
supply chain continue to put pressure on production, 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 impacts
of COVID-19 and related economic conditions on our future results are uncertain
at this time. The scope, duration, and magnitude of the direct and indirect
effects of COVID-19 continue to evolve (and in many cases, rapidly) in ways that
are difficult or impossible to anticipate. In addition, although COVID-19 has
not materially impacted our net sales to date, it remains uncertain whether and
how consumers will modify their purchasing habits in response to the ongoing
COVID-19 pandemic and/or the lifting or relaxing and/or re-imposition of
mandates as various geographies experience resurgences and abatement of the
pandemic. As a result, our results to date may not be indicative of the
impact that COVID-19 may have on our results for the remainder of fiscal year
2022.

The impacts of COVID-19 on our specific operating segments are discussed below.

NINE MONTHS ENDED APRIL 30, 2022 COMPARED TO
NINE MONTHS ENDED APRIL 30, 2021

CONSOLIDATED RESULTS

Consolidated net sales for the nine months ended April 30, 2022 were
$255,431,000, a 13% increase compared to net sales of $226,852,000 for the nine
months ended April 30, 2021. Net sales increased for both our Retail and
Wholesale Products Group and Business to Business Products Group due to an
increase in sales volume and higher prices instituted to compensate for rising
costs. The increase in demand for our products during the first nine months of
fiscal year 2022 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 constraints on our operations and implement strategies
to meet the increase in customer demand. Segment results are discussed further
below.
Consolidated gross profit for the first nine months of fiscal year 2022 was
$45,034,000, or 18% of net sales, compared to $50,435,000, or 22%, of net sales,
for the first nine months of fiscal year 2021. Higher freight, packaging,
natural gas, and non-fuel manufacturing costs per ton drove the decrease in
gross profit. We continue to experience high freight costs both domestically and
with respect to ocean freight. Domestic freight costs per ton, excluding the
freight we no longer charge to a significant customer who now picks up its own
purchases, increased approximately 32% in the first nine months of fiscal year
2022 compared to the same period of fiscal year 2021. The increase relates to,
in part, higher transportation rates due to a national driver shortage and tight
trucking capacity. The continued increase in cost of diesel fuel has also
contributed to the higher transportation rates. Currently, availability of
diesel fuel reserves in the United States is tight, which is driving the
increase in cost. Ocean freight costs have increased due to rising fuel costs
and export fees. In addition, our overall freight costs can vary between periods
depending on the mix of products sold and the geographic distribution of our
customers. Packaging costs per ton for the first nine months of fiscal year 2022
were approximately 32% higher compared to the first nine months of fiscal year
2021 due to higher 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.
The cost of natural gas per ton used to operate kilns that dry our clay was 100%
higher in the first nine months of fiscal year 2022 compared to the first nine
months of fiscal year 2021 due to higher natural gas prices, which are being
driven by demand surpassing available supply as well as the ongoing conflict
between Russia and Ukraine. Non-fuel manufacturing costs per ton also increased
during the first nine months of fiscal year 2022 compared to fiscal year 2021 by
13%. 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 the first nine months of 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 faced higher costs due to the reasons mentioned above, we
continue to strive to restore our historical margins utilizing various
strategies including reducing costs where possible, increasing sales volume, and
implementing price increases.

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Total selling, general and administrative ("SG&A") expenses of $41,054,000 for
the first nine months of fiscal year 2022 were higher by $1,971,000, or 5%,
compared to $39,083,000 for the first nine months of fiscal year 2021. SG&A
expenses for the operating segments were essentially flat for the first nine
months of fiscal year 2022 compared to the same period in the prior fiscal year
and unallocated corporate expenses were higher by $1,656,000, or 9%. The
discussion of the segments' operating incomes below describes the changes in
SG&A expenses that were allocated to the operating segments. The increase in
unallocated corporate expenses were driven by higher professional fees related
to costs for various outside services related to growing business needs and
strategic initiatives.

Loss on impairment of goodwill of $5,644,000 related to the impairment of
goodwill at our Retail and Wholesale Products Group reporting unit. Our goodwill
impairment test is based on cash 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, that, despite improving margins, we had a triggering
event during the third quarter of fiscal 2022 that necessitated a goodwill
impairment test and resulted in the carrying value of our Retail and Wholesale
Products Group reporting unit being higher than its fair value which led to the
$5,644,000 impairment charge.

Other income of $892,000 for the first nine months of fiscal year 2022 was
higher than the same period in fiscal year 2021 by $170,000 and included less
periodic benefit costs related to our pension plan and insurance recoveries
related to our property, plant and equipment partially offset by higher interest
expense and exchange rate losses.

Consolidated net (loss) income before taxes for the first nine months of fiscal
year 2022 was a loss of $772,000 compared to net income before taxes of
$12,074,000 for the first nine months of fiscal year 2021. Results for the first
nine months of fiscal year 2022 were driven by the factors discussed above.

We had a tax benefit for the first nine months of fiscal year 2022 of $1,195,000
compared to tax expense of $1,651,000 for the first nine months of fiscal year
2021. Our tax benefit was driven primarily by the tax impact of our goodwill
impairment, lower net income and one-time tax savings identified during the
third quarter of fiscal year 2022. We used an estimated annual effective tax
rate ("ETR") in determining our provision for income taxes, which is based on
expected annual taxable income and the assessment of various tax deductions,
including depletion.

BUSINESS TO BUSINESS PRODUCT GROUP

Net sales of the Business to Business Products Group for the first nine months
of fiscal year 2022 increased compared to the first nine months of fiscal year
2021 for all our products. Net sales were $92,928,000 for the first nine months
of fiscal year 2022, an increase of $12,830,000, or 16%, from net sales of
$80,098,000 for the first nine months of fiscal year 2021. Net sales of our
fluids purification products increased approximately $6,108,000, or 16%,
compared to the first nine months of the prior fiscal year. The increase in net
sales occurred for a variety of reasons, including new customer wins, increased
sales to existing customers, increase in air travel in most regions, price
increases that were instituted to offset rising costs, and in some cases, timing
of net sales. Much of the increase in net sales relates to North America, but
net sales in Latin America and Asia also increased and sales in Europe decreased
slightly during the first nine months of fiscal year 2022 compared to the same
period in fiscal year 2021 due to ocean freight shipping delays. Similar to our
Retail and Wholesale Products Group cat litter business, our co-packaged coarse
cat litter business experienced a significant increase of $2,527,000 or 23% in
net sales during the first nine months of fiscal year 2022 compared to fiscal
year 2021 primarily due to price increases and to some extent, an increase in
volume. Net sales of our agricultural and horticultural chemical carrier
products increased approximately $2,804,000, or 15%, for the first nine months
of fiscal year 2022 compared to the same period in fiscal year 2021 as a result
of continued strong demand for these products as well as price increases. Net
sales of our animal health and nutrition products increased $1,391,000, or 11%,
during the first nine months of fiscal year 2022 compared to the first nine
months of the prior year. The increase in net sales relates to several new
customers, a new product line in North America, and in general, timing of when
sales occur. Despite the overall increase in net sales, ocean freight delays
continue to negatively impact our business as does COVID-19, particularly in
China which has continued to impose restrictions and quarantine requirements in
response to COVID-19 outbreaks. See "Foreign Operations" below for a discussion
of net sales for our foreign operations that sell our animal health and
nutrition products.

SG&A expenses for the Business to Business Products Group increased
approximately 20% or $1,771,000 for the first nine months of fiscal year 2022
compared to the same period of the prior fiscal year. We continued to invest in
our animal health business, which resulted in higher costs due to increased
headcount of sales and leadership personnel, increased travel costs, and
increased marketing efforts associated with our animal feed additives. The
increase in SG&A expenses in the first nine months of fiscal year 2022 also
related to an increase in bad debt expense and a write off of patent
applications. These higher costs were, to some degree, reduced by favorable
exchange rates.

The Business to Business Products Group's operating income for the first nine
months of fiscal year 2022 was $20,052,000, a decrease of $764,000, or 4%, from
operating income of $20,816,000 for the first nine months of fiscal year 2021.
The decrease
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operating income was driven by higher freight, packaging, natural gas and non-fuel manufacturing costs per tonne, as discussed in the “Consolidated Results” section above, as well as higher general and administrative costs.

RETAIL AND WHOLESALE PRODUCT GROUP

Net sales of the Retail and Wholesale Products Group for the first nine months
of fiscal year 2022 were $162,503,000, an increase of $15,749,000, or 11%, from
net sales of $146,754,000 for the first nine months of fiscal year 2021 driven
by higher net sales of both our cat litter and industrial and sports products.
Total cat litter net sales were approximately $10,580,000, or 9%, higher
compared to the first nine months of the prior fiscal year due to increased
sales volume and price increases in response to rising costs. Net sales of
branded scoopable litter, private label lightweight and heavyweight litter, and
accessories (liners) increased in the first nine months of fiscal year 2022 as
we gained business from new customers and existing customers either purchased
certain of our products for the first time or increased the volume of their
purchases from us. E-commerce sales were also higher during the first nine
months of fiscal year 2022 compared to fiscal year 2021. The impact of COVID-19
on increased pet adoption continues to boost sales as well as the overall macro
trend of increased spending on pets. In addition, cat litter net sales increased
despite revising our shipping terms with one of our significant customers in the
fourth quarter of fiscal year 2021 to provide that freight charges are the
responsibility of such customer and are no longer included in the prices
charged. Cat litter net sales by our subsidiary in Canada further contributed to
the net sales increase, as discussed in "Foreign Operations" below. Also
included in the Retail and Wholesale Products Group's results were increased net
sales of our industrial and sports products compared to the first nine months of
fiscal year 2021. Net sales of our industrial and sports products increased
approximately $5,051,000, or 22%, compared to the first nine months of fiscal
year 2021, due to an increase in volume due to the re-opening of businesses and
sports fields as well as new customers and an increase in selling price per ton
as we continue to respond to rising costs.

SG&A expenses for the Retail and Wholesale Products Group were lower by
approximately $1,467,000, or 11%, during the first nine months of fiscal year
2022 compared to the first nine months of fiscal year 2021 primarily due to
lower advertising costs partially offset by compliance penalties caused by
supply chain disruptions, unfavorable exchange rates and higher travel and
personnel costs. We anticipate total advertising expense in fiscal year 2022
will be lower compared to fiscal year 2021.
The Retail and Wholesale Products Group experienced an operating loss for the
first nine months of fiscal year 2022 of $2,113,000, a decrease of $10,596,000,
or 125%, from operating income of $8,483,000 for the first nine months of fiscal
year 2021. The decrease in 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 and non-fuel costs which outpaced the
increase in net sales as described in "Consolidated Results" above.

AWAY OPERATIONS

Foreign operations include our subsidiaries in Canada and the United Kingdom,
which are reported in the Retail and Wholesale Products Group, and our
subsidiaries in China, Mexico and Indonesia, which are reported in the Business
to Business Products Group. Net sales by our foreign subsidiaries during the
first nine months of fiscal year 2022 were $14,353,000, an increase of
$1,341,000, or 10%, compared to net sales of $13,012,000 during the first nine
months of fiscal year 2021. All of our foreign operations, with the exception of
our subsidiary in Mexico, experienced an increase in net sales during the first
nine months of fiscal year 2022 compared to fiscal year 2021.Total net sales of
our subsidiary in Canada during the first nine months of fiscal year 2022
increased by $1,521,000, or 22%, compared to the same period in fiscal year 2021
driven by higher cat litter net sales. Cat litter sales were $1,834,000 higher
during the first nine months of fiscal year 2022 than in the same period in
fiscal year 2021. The 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 rising costs. The increase in cat litter
sales was partially offset by lower net sales of our industrial absorbent
granules in the first nine months of fiscal year 2022 compared to the first nine
months of fiscal year 2021. Net sales of industrial absorbent granules were
higher in the first nine months of fiscal year 2021 as companies emerged from
the constraints of the pandemic and there was a surge in demand. Net sales of
our subsidiary in the United Kingdom in the first nine months of fiscal year
2022 increased by $118,000, or 8%, compared to net sales in the first nine
months of 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 the first nine months of fiscal year 2022
compared to the same period of fiscal year 2021 by $567,000, or 28%, as the
first nine months of 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
$100,000, or 4%, during the first nine months of fiscal year 2022 compared to
the first nine months of 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 during the first nine months of fiscal years 2022 and
2021.

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Our foreign subsidiaries reported a net loss of $847,000 for the first nine
months of fiscal year 2022, compared to a net loss of $177,000 for the first
nine months of fiscal year 2021. The net loss in the first nine months of fiscal
year 2022 was primarily driven by unfavorable exchange rates, lower net sales
for our subsidiary in Mexico, higher cost of sales, and higher SG&A expenses by
our subsidiary in China due to increased sales personnel and marketing of our
animal feed additives as we continue to invest in our animal health and
nutrition products.

Identifiable assets of our foreign subsidiaries in April 30, 2022 were
$12,594,000compared to $12,572,000 of the July 31, 2021.

THREE MONTHS ENDED APRIL 30, 2022 COMPARED TO
THREE MONTHS ENDED APRIL 30, 2021

CONSOLIDATED RESULTS

Consolidated net sales for the three months ended April 30, 2022 were
$85,761,000, a 12% increase compared to net sales of $76,255,000 for the three
months ended April 30, 2021. Net sales increased for both our Retail and
Wholesale Products Group and Business to Business Products Group due to an
increase in sales volume and higher prices instituted to compensate for rising
costs. The increase in demand for our products has continued to result in higher
backlog but we have put in place measures to reduce backlog. See discussion
above in "Results from Operations - Nine Months Ended April 30, 2022 compared to
Nine Months ended April 30, 2021" for more detail on backlog. Segment results
are discussed below.

Consolidated gross profit for the three months ended April 30, 2022 was
$15,630,000, or 18% of net sales, compared to $14,966,000, or 20%, of net sales,
for the three months ended April 30, 2021. Higher freight, packaging, natural
gas, and non-fuel manufacturing costs per ton drove the decrease in gross
profit. Despite the decrease in gross profit compared to the first quarter of
fiscal year 2021, we are starting to experience stronger margins during the
third quarter of fiscal year 2022 as the selling prices of our products are
starting to catch up to rising costs. We continue to experience high freight
costs both domestically and with respect to ocean freight. Domestic freight
costs per ton, excluding the freight we no longer charge to a significant
customer who now picks up its own purchases, increased approximately 27% in the
third quarter of fiscal year 2022 compared to the same period of fiscal year
2021. The increase relates, in part, to higher transportation rates due to a
national driver shortage and tight trucking capacity. The continued increase in
cost of diesel fuel has also contributed to the higher transportation rates.
Currently, availability of diesel fuel reserves in the United States is tight,
which is driving the increase in cost. Ocean freight costs have increased due to
rising fuel costs and export fees. Our overall freight costs can also vary
between periods depending on the mix of products sold and the geographic
distribution of our customers. Packaging costs per ton for the third quarter of
fiscal year 2022 were approximately 24% higher compared to the third quarter of
fiscal year 2021 due to higher 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. The cost of natural gas per ton used to operate kilns that dry
our clay was 115% higher in the third quarter of fiscal year 2022 compared to
the third quarter of fiscal year 2021 due to higher natural gas prices which are
being driven by demand surpassing available supply as well as the ongoing
conflict between Russia and Ukraine. Non-fuel manufacturing costs per ton also
increased during the third quarter of fiscal year 2022 compared to fiscal year
2021 by 12%. 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, several suppliers have passed along
non-commodity price increases related to cost increases experienced in their own
businesses and we expect such increases to persist. While we have faced higher
costs due to the reasons mentioned above, we continue to strive to restore our
historical margins utilizing various strategies including reducing costs where
possible, increasing sales volume and implementing price increases.

Total SG&A expenses of $14,013,000 for the third quarter of fiscal year 2022
were higher by $978,000, or 8%, compared to $13,035,000 for the third quarter of
fiscal year 2021. While unallocated corporate expenses increased 285,000 or 4%
during the third quarter of fiscal year 2022 compared to fiscal year 2021, SG&A
expenses for the operating segments were the primary driver of the increase. The
discussion below describes the SG&A expenses allocated to the operating
segments. Unallocated corporate expenses included higher professional fees
related to costs for various outside services related to growing business needs
and strategic initiatives partially offset by lower personnel costs.

Loss on impairment of goodwill of $5,644,000 related to the impairment of
goodwill at our Retail and Wholesale Products Group reporting unit. Our goodwill
impairment test is based on cash 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, that, despite improving margins, we had a triggering
event during the third quarter of fiscal 2022 that necessitated a goodwill
impairment test and resulted in the carrying value of our Retail and Wholesale
Products Group reporting unit being higher than its fair value which led to the
$5,644,000 impairment charge.

Other income of $175,000 for the third quarter of fiscal year 2022 was lower
than the same period in fiscal year 2021 by $56,000 and included higher interest
expense and exchange rate losses.
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Consolidated net loss before taxes for the third quarter of fiscal year 2022 was
$3,852,000, compared to net income before taxes of $2,162,000 for the third
quarter of fiscal year 2021. Results for the third quarter of fiscal year 2022
were driven by the factors described above.

We had a tax benefit for the third quarter of both fiscal years 2022 and 2021 of
$1,719,000 and $24,000, respectively. Our tax benefit in the third quarter of
fiscal year 2022 was driven primarily by the tax impact of our goodwill
impairment, net operating losses and one-time tax savings identified during the
third quarter of fiscal year 2022. We used an estimated annual ETR in
determining our provision for income taxes, which is based on expected annual
taxable income and the assessment of various tax deductions, including
depletion. The tax benefit in the third quarter of fiscal year 2021 reflected a
decrease in our expected annual taxable income as well as certain employment
related credits we were able to take advantage in addition to a tax deduction
for foreign-derived income.

BUSINESS TO BUSINESS PRODUCT GROUP

Net sales of the Business to Business Products Group for the third quarter of
fiscal year 2022 increased compared to the third quarter of fiscal year 2021 for
all our products. Net sales were $31,375,000, an increase of $5,082,000, or 19%,
from net sales of $26,293,000 for the third quarter of fiscal year 2021. Net
sales of our fluids purification products increased approximately $1,974,000, or
16%, in the third quarter of fiscal year 2022 compared to same period in fiscal
year 2021. The increase in net sales occurred for a variety of reasons,
including new customer wins, increased sales to existing customers, increase in
air travel in most regions, price increases that were instituted to offset
rising costs and in some cases, timing of net sales. In particular, net sales of
our Ultra-Clear products rebounded as global air travel increased compared to
the same period last year in most, but not all, regions. Much of the increase in
net sales relates to North America, but net sales in Latin America, Europe and
Asia either increased or remained essentially flat during the third quarter of
fiscal year 2022 compared to the same period in fiscal year 2021. Net sales of
our agricultural and horticultural chemical carrier products increased
approximately $1,318,000, or 20%, in the third quarter of fiscal year 2022
compared to the same period in fiscal year 2021 driven by both volume and price
increases. While volume is still higher during the third quarter of fiscal year
2022 than the same period in fiscal year 2021, several of our customers are
still experiencing their own supply chain disruptions, which negatively impacts
their demand of our products. Net sales of our animal health and nutrition
products increased approximately $978,000, or 23%, in the third quarter of
fiscal 2022 compared to the third quarter of fiscal year 2021 due to a
significant increase in volume of net sales. The increase in net sales is the
direct result of our focus on our animal health and nutrition products and the
fruition of increased SG&A efforts to grow the animal health and nutrition
business as discussed below. The increase in net sales relates to several new
customers, a new product line in North America, and to some extent, timing of
when net sales occur. Despite the overall increase in net sales, ocean freight
delays continue to negatively impact our business. In addition, while the
impacts of COVID-19 are still dampening sales in China as a result of
restrictions and quarantine requirements imposed in that region in response to
COVID-19 outbreaks, net sales from our subsidiary in China increased during the
third quarter of fiscal year 2022 compared to fiscal year 2021 primarily due to
a new customer. See "Foreign Operations" below for a discussion of net sales for
our foreign operations that sell our animal health and nutrition products.
Similar to our Retail and Wholesale Products Group cat litter business, our
co-packaged coarse cat litter business experienced a significant increase of
$812,000, or 25%, in net sales during the third quarter of fiscal year 2022,
compared to the same quarter in fiscal year 2021, primarily due to price
increases and to some extent, an increase in sales volume.

SG&A expenses for the Business to Business Products Group increased
approximately $1,008,000, or 34%, in the third quarter of fiscal year 2022
compared to the third quarter of fiscal year 2021. We continued to invest in our
animal health business, which resulted in higher costs due to increased
headcount of sales and leadership personnel, increased travel costs, broker
commissions, and increased marketing efforts associated with our animal feed
additives. The increase in SG&A expenses in the third quarter of fiscal year
2022 also related to higher bad debt expense and a write off of patent
applications. These higher costs were, to some degree, reduced by favorable
exchange rates.

The Business to Business Products Group's operating income for the third quarter
of fiscal year 2022 was $5,716,000, a decrease of $705,000, or 11%, from
operating income of $6,421,000 in the third quarter of fiscal year 2021. The
decrease in operating income was driven by the higher sales partially offset by
higher SG&A expenses and an increase in freight, packaging, materials, natural
gas, and non-fuel manufacturing costs discussed in "Consolidated Results" above.

RETAIL AND WHOLESALE PRODUCT GROUP

Net sales of the Retail and Wholesale Products Group for the third quarter of
fiscal year 2022 were $54,386,000, an increase of $4,424,000, or 9%, from net
sales of $49,962,000 for the third quarter of fiscal year 2021 driven by net
sales of both our cat litter and industrial and sports products. Total cat
litter net sales were approximately $3,318,000, or 8%, higher in the third
quarter of fiscal year 2022 compared to the same period in fiscal year 2021 due
to increased sales volume and price increases in response to rising costs. Net
sales of branded scoopable litter, private label lightweight and heavyweight
litter increased in the third quarter of fiscal year 2022 as existing customers
increased the volume of their purchases from us. The impact of COVID-19 on
increased pet adoption continues to boost sales as well as the overall macro
trend of increased spending on pets. In addition, cat litter net sales increased
despite revising our shipping terms with one of our significant customers in the
fourth
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quarter of fiscal year 2021 to provide that freight charges are the
responsibility of such customer and are no longer included in the prices
charged. In addition, net sales of cat litter by our subsidiary in Canada
continue to increase as further discussed in "Foreign Operations" below.
E-commerce sales decreased during the third quarter of fiscal year 2022 compared
to the same period in fiscal year 2021 as we lost one of our customers due to
price increases. Also included in the Retail and Wholesale Products Group's
results were increased net sales of our industrial and sports products compared
to the third quarter of fiscal year 2021. Net sales of our industrial and sports
products increased approximately $1,083,000, or 11%, in the third quarter of
fiscal year 2022 compared to the third quarter of fiscal year 2021, due to both
an increase in volume due to the re-opening of businesses and sports fields and
winning some smaller customers as well as an increase in selling price per ton
in response to rising costs.

SG&A expenses for the Retail and Wholesale Products Group were lower in the
third quarter of fiscal year 2022 than in fiscal year 2021 by 7%, or $293,000,
primarily due to lower advertising costs partially offset by compliance
penalties caused by supply chain disruptions, unfavorable exchange rates and
personnel costs.

The Retail and Wholesale Products Group experienced an operating loss for the
third quarter of fiscal year 2022 of $3,113,000, a decrease of $4,968,000,
compared to operating income of $1,855,000 for the third quarter of fiscal year
2021. The decrease in 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, and non-fuel manufacturing costs which outpaced
the increase in net sales as described above in "Consolidated Results."

AWAY OPERATIONS

Foreign operations include our subsidiaries in Canada and the United Kingdom,
which are reported in the Retail and Wholesale Products Group, and our
subsidiaries in China, Mexico and Indonesia, which are reported in the Business
to Business Products Group. Net sales by our foreign subsidiaries during the
third quarter of fiscal year 2022 were $4,727,000, a 13% increase compared to
net sales of $4,174,000 in the third quarter of fiscal year 2021. All of our
foreign operations, with the exception of our subsidiary in Mexico, experienced
an increase in net sales during the third quarter of fiscal year 2022 compared
to fiscal year 2021. Total net sales of our subsidiary in Canada during the
third quarter of fiscal year 2022 increased by $294,000, or 12%, compared to the
same period in fiscal year 2021 driven by cat litter net sales. Cat litter net
sales for our subsidiary in Canada increased by approximately $605,000, or 35%,
in the third quarter of fiscal year 2022 compared to the same period of fiscal
year 2021 due to both an increase in volume and price increases. Cat litter
sales in Canada experienced increased sales to existing customers, a key
customer carrying three of our products they had not previously purchased, and
to some extent, an increase in sales due to our ability to meet demand that our
competitors could not. Partially offsetting this increase was a decrease in net
sales of our industrial absorbent granules in the third quarter of fiscal year
2022 compared to the same period in fiscal year 2021 because net sales were
particularly strong in the third quarter of fiscal year 2021 as companies were
emerging from the pandemic and were rebuilding stock. Net sales of our absorbent
granules by our subsidiary in the United Kingdom were modestly higher during the
third quarter of fiscal year 2022 compared to the same period in fiscal year
2021 by $24,000 or 5%. This increase related partly to timing of net sales and
partly to demand starting to slowly return in the United Kingdom. Net sales of
our animal health and nutrition products by our subsidiary in China increased in
the third quarter of fiscal year 2022 compared to the same period in fiscal year
2021 by $228,000, or 40%, despite the continued impacts of the pandemic in
China. The increase in net sales related primarily to a new customer. Net sales
by our subsidiary in Mexico decreased $147,000, or 25%, in the third quarter of
fiscal year 2022 compared to the same period in fiscal year 2021 as the third
quarter of fiscal year 2021 included net sales of products that are no longer
part of our business strategy. Our foreign subsidiaries' net sales represented
approximately 6% and 5% of consolidated net sales during the third quarter of
fiscal years 2022 and 2021, respectively.

Our foreign subsidiaries reported a net loss of $34,000 for the third quarter of
fiscal year 2022 compared to a net loss of $134,000 for the third quarter of
fiscal year 2021. The net loss in the third quarter of fiscal year 2022 was
primarily driven by unfavorable foreign exchange rates, higher cost of sales,
and higher SG&A expenses incurred by our subsidiary in China due to increased
sales personnel and marketing of our animal feed additives as we continue to
invest in our animal health and nutrition products.

CASH AND CAPITAL RESOURCES

Our principal liquidity needs are to fund our capital requirements, including
funding working capital needs; purchasing and upgrading equipment, facilities
(including significant renovations at one of our plants), information systems,
and real estate; supporting new product development; investing in
infrastructure; repurchasing stock; paying dividends; making pension
contributions; and, from time to time, business acquisitions, and funding our
debt service requirements. During the first nine months of fiscal year 2022, we
principally funded these requirements using cash from current operations as well
as cash generated in the second quarter of fiscal year 2022 from borrowings
under our Series Senior C Notes (described below).

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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 dynamic nature of COVID-19 and its effects, as well as the current
inflationary environment and impacts of supply chain disruption on our business,
we will continue to assess our liquidity needs and to actively manage our
spending.

The following table sets forth certain items of our unaudited condensed consolidated statements of cash flows (in thousands):

                                                                      For 

nine months ended April 30,

                                                                           2022                     2021
Net cash provided by operating activities                          $            5,460          $     8,340
Net cash used in investing activities                                         (16,012)             (10,753)
Net cash provided by (used in) financing activities                             8,807               (8,324)
Effect of exchange rate changes on cash and cash equivalents                      (21)                 165
Net decrease in cash and cash equivalents                          $        

(1,766) $(10,572)

Net cash flow generated by operating activities

In addition to net income, as adjusted for depreciation and amortization and
other non-cash operating activities, the primary sources and uses of operating
cash flows for the first nine months of fiscal years 2022 and 2021 were as
follows:

Deferred income taxes increased $1,311,000 in the first nine months of fiscal
year 2022 primarily due to the tax benefit related to the deductible portion of
noncash impairment charge of goodwill that is deductible for tax purposes in
future years. Deferred income taxes decreased $716,000 in the first nine months
of fiscal year 2022 due to changes in restricted stock balances in the ordinary
course of business.

Accounts receivable, less allowance for doubtful accounts, increased $2,454,000
in the first nine months of fiscal year 2022 compared to an increase of
$3,971,000 in the first nine months of fiscal year 2021. Accounts receivable
increased in both fiscal years 2022 and 2021 due to the increase in net sales in
both periods. In addition, the variation in accounts receivable balances reflect
differences in the level and timing of collections as well as the payment terms
provided to various customers.

Inventory increased $11,456,000 in the first nine months of fiscal year 2022
compared to a decrease of $524,000 in the first nine months of fiscal year 2021.
Inventory increased during the first nine months of fiscal year 2022 due to
rising costs and building inventory levels to meet demand and thwart potential
supply chain disruptions. We also increased our inventory to be able to meet
demand during a planned shutdown for equipment repairs at one of our plants. The
decrease in inventory in the first nine months of fiscal year 2021 was due to
increased demand, which depleted inventory levels and was partially offset by
higher packaging costs.

Prepaid expenses decreased $181,000 in the first nine months of fiscal year 2022
due to lower prepaid advertising costs partially offset by higher prepaid
insurance costs due to the rising cost of insurance and timing of premium
payments. Prepaid expenses increased $2,117,000 in the first nine months of
fiscal year 2021 driven primarily by prepayment of income taxes. This increase
in fiscal year 2021 was partially offset by lower prepaid advertising costs and
insurance.

Other assets decreased $971,000 in the first nine months of fiscal year 2022
compared to an increase of $1,066,000 in the first nine months of fiscal year
2021. The decrease in other assets in the first nine months of fiscal year 2022
related to capitalized pre-production costs being transferred to property, plant
and equipment as the mines are now in production, partly reduced by an increase
in long-term royalties. The increase in other assets in the first nine months of
fiscal year 2021 related primarily to an increase in capitalized pre-production
mining costs partly offset by amortization of our operating lease right-of-use
lease assets.

Accounts payable increased $1,333,000 in the first nine months of fiscal year
2022 compared to a decrease of $4,227,000 in the first nine months of fiscal
year 2021. Higher trade payables drove the increase in accounts payable in the
first nine months of fiscal year 2022. Lower trade payables drove the decrease
in accounts payable in the first nine months of fiscal year 2021 as well as
income taxes payable being in a prepaid position versus a payable position at
the end of the third quarter of fiscal year 2021. Trade and freight payables
vary in both periods due to the timing of payments, fluctuations in the cost of
goods and services we purchased, production volume levels and vendor payment
terms.

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Accrued expenses increased $1,120,000 in the first nine months of fiscal year
2022 compared to a decrease of $4,070,000 in the first nine months of fiscal
year 2021. The increase in accrued expenses during the first nine months of
fiscal year 2022 is attributable to an increase in freight costs, natural gas
prices and salaries and benefits. These increases were somewhat lessened by
lower accrued advertising costs. Accrued expenses decreased $4,070,000 in the
first nine months of fiscal year 2021 due to decreases in our discretionary
accrued bonus, advertising costs, and real estate taxes offset by an increase in
accrued freight and a reclassification of one of our accruals from long term to
short term. Accrued freight can vary with freight rates, timing of shipments,
and production requirements as well as supply and demand. In addition, accrued
plant expenses can also fluctuate due to timing of payments, changes in the cost
of goods and services we purchase, production volume levels and vendor payment
terms.

Other liabilities decreased $1,593,000 in the first nine months of fiscal 2022
compared to a decrease of $330,000 during the first nine months of fiscal year
2021. The decrease in other liabilities for the first nine months of both fiscal
years 2022 and 2021 relate to the timing of when payments for the deferral of
employer taxes under the CARES Act are due.

Net cash used in investing activities

Cash used in investing activities of $16,012,000 in the first nine months of
fiscal year 2022 were higher compared to cash used in investing activities of
$10,753,000 in the first nine months of fiscal year 2021 driven by capital
expenditures. During the first nine months of fiscal year 2022 we expanded our
plant equipment and improved our facilities to support increased demand for our
products as well as made improvements to our IT network.

Net cash used in financing activities

Cash provided by financing activities of $8,807,000 in the first nine months of
fiscal year 2022 was higher than cash used in financing activities of $8,324,000
in the first nine months of fiscal year 2021. The first nine months of fiscal
year 2022 included the issuance of $25,000,000 of notes payable offset by higher
repurchases of stock than in the first nine months of fiscal year 2021.

Other

Total cash and investment balances held by our foreign subsidiaries of
$3,107,000 of the April 30, 2022 were slightly higher than the April 30, 2021
sales of $3,054,000. See further discussion in “Foreign Operations” above.

On January 31, 2019, we signed a fifth amendment to our credit agreement with
BMO Harris Bank N.A. ("BMO Harris"), which expires on January 31, 2024. The
agreement provides for a $45,000,000 unsecured revolving credit agreement and a
maximum of $10,000,000 for letters of credit. The agreement terms also state
that we may select a variable interest rate based on either the BMO Harris prime
rate or a LIBOR-based rate, plus a margin that varies depending on our debt to
earnings ratio, or a fixed rate as agreed between us and BMO Harris. As of
April 30, 2022, the variable rates would have been 3.75% for the BMO Harris
prime-based rate or 2.58% for the three-month LIBOR-based rate. The credit
agreement contains restrictive covenants that, among other things and under
various conditions, limit our ability to incur additional indebtedness or to
dispose of assets. The agreement also requires us to maintain a minimum fixed
coverage ratio and a minimum consolidated net worth. As of April 30, 2022 and
2021, we were in compliance with the covenants. There were no borrowings during
the first nine months of either fiscal year 2021 or 2022.

On May 15, 2020, we entered into a debt instrument 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. Pursuant to the amended note
agreement, on December 16, 2021, the Company issued $25,000,000 in aggregate
principal amount of its 3.25% Series C Senior Notes due December 16, 2031. As of
April 30, 2022 outstanding notes payable were $33,788,000, net of $212,000 of
unamortized debt issuance costs.

See Note 15 of the Notes to the unaudited Condensed Consolidated Financial
Statements and Item 5 "Other Information" in this Quarterly Report on Form 10-Q
for discussion on amendments made to the credit agreement with BMO Harris and
our Senior Note Agreements.

As of April 30, 2022, we had remaining authority to repurchase 485,196 shares of
Common Stock and 273,100 shares of Class B Stock under a repurchase plan
approved by our Board of Directors (the "Board"). Repurchases may be made on the
open
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market (pursuant to the plans in Rule 10b5-1 or otherwise) or in negotiated transactions. The timing, number and terms of share repurchases will be determined by our management in accordance with the repurchase plan approved by our Board of Directors.

We believe that cash flow from operations, availability under our revolving
credit facility, current cash and investment 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 expect capital expenditures in fiscal year 2022 to
be greater than in fiscal year 2021, including capital expenditures to renovate
one of our plants, estimated to be approximately $6,500,000. We do not believe
that these increased capital expenditures will dramatically impact our cash
position; however our cash requirements are subject to change as business
conditions warrant and opportunities arise. Our anticipated advertising expense
for fiscal year 2022 is expected to be lower compared to fiscal year 2021.
Adjustments to advertising spending for the remainder of the fiscal year may
occur due to any upcoming volatility in the economic environment.

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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of financial condition and results of operations is
based on our unaudited Condensed Consolidated Financial Statements, which have
been prepared in accordance with U.S. GAAP for interim financial information and
in compliance with instructions to Form 10-Q and Article 10 of Regulation S-X.
The preparation of these financial statements requires the use of estimates and
assumptions related to the reporting of assets, liabilities, revenues, expenses
and related disclosures. In preparing these financial statements, we have made
our best estimates and judgments of certain amounts included in the financial
statements. Estimates and assumptions are revised periodically. Actual results
could differ from these estimates. See the information concerning our critical
accounting policies included under "Management's Discussion of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
fiscal year ended July 31, 2021.

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