UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d)of the
Securities Exchange Act of 1934
For the Quarterly Period Ended January 31,April 30, 2003
OR
[ ] Transition Report Pursuant to Section 13 or
15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to ______________
Commission File Number 0-8675
OIL-DRI CORPORATION OF AMERICA
(Exact name of the registrant as specified in its charter)
DelawareDELAWARE 36-2048898
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 North Michigan Avenue 60611-4213
Suite 60611-4213
400 ----------
CHICAGO, ILLINOIS (Zip Code)
Chicago, Illinois-----------------
(Address of principal executive
offices)
The Registrant's telephone number, including area code: (312) 321-1515
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,471,685 Shares (Including 1,292,5381,379,565 Treasury Shares)
Class B Stock - 1,765,083 Shares (Including 342,241 Treasury Shares)
Indicate by check mark whether the Registrant is an accelerated filer:
Yes No X
------- ------
The aggregate market value of the Registrant's Common Stock owned by
non-affiliates as of January 31, 2003 for accelerated filer purposes was
$38,882,000.
2
CONTENTS
PagePAGE
PART I
ItemITEM 1: Financial Statements...............................................3-13
ItemStatements.........................................3 - 16
ITEM 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations.....................................14-17
ItemOperations...............................17 - 21
ITEM 3: Quantitative And Qualitative Disclosures
About Market Risk........17-18
ItemRisk...........................................21 - 22
ITEM 4: Controls And Procedures..............................................18Procedures........................................22
PART II
Item 4: Submission of Matters to a Vote of Security Holders..................19
ItemITEM 6: Exhibits And Reports on Form 8-K.....................................19
Signatures...................................................................20
Certifications............................................................21-228-K...............................23
SIGNATURES.............................................................23
SECTION 302 CERTIFICATIONS..........................................24 - 25
EXHIBITS............................................................26 - 42
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
JANUARY 31APRIL 30
2003 JULY 31
ASSETS (UNAUDITED) 2002
ASSETS ------------------ ----------- ---------
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 3,0374,772 $ 7,154
Investment in Treasury Securities 7,107securities 10,403 9,082
Accounts Receivable, less allowance of $519$596 and
$392 at January 31,April 30, 2003 and July 31, 2002,
respectively 26,637Respectively 23,805 21,415
Other Receivables 5226 1,025
Inventories 12,88712,348 11,798
Prepaid Overburden Removal Expense 3,0082,740 3,678
Prepaid Expenses 3,9624,010 3,392
------------ ----------------- --------
TOTAL CURRENT ASSETS 57,16058,084 57,544
------------ ----------------- --------
PROPERTY, PLANT AND EQUIPMENT - AT COST
---------------------------------------
Cost 143,281142,688 137,306
Less Accumulated Depreciation and Amortization (92,452)(93,653) (88,684)
------------ ----------------- --------
TOTAL PROPERTY, PLANTANDPLANT AND EQUIPMENT, NET 50,82949,035 48,622
------------ ----------------- --------
OTHER ASSETS
- ------------
Goodwill 5,4475,097 5,430
Intangibles, net of accumulated amortization
of $2,228$2,351 and $1,982 at January 31,April 30, 2003
and July 31, 2002,respectively 3,7303,996 3,958
Deferred Income Taxes 4,0284,030 3,972
Other 5,5575,621 5,509
------------ ----------------- --------
TOTAL OTHER ASSETS 18,76218,744 18,869
------------ ----------------- --------
TOTAL ASSETS $ 126,751$125,863 $125,035
============ ================= ========
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
4
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
LIABILITIES & STOCKHOLDERS' EQUITY JANUARY 31APRIL 30
2003 JULY 31
(UNAUDITED) 2002
------------ ---------------------
CURRENT LIABILITIES
- -------------------
Current Maturities of Notes Payable $ 4,350 $ 2,850
Accounts Payable 4,2055,950 5,121
Dividends Payable 472464 473
Accrued Expenses
Salaries, wages and commissions 2,9703,982 3,722
Trade promotions and advertising 3,8642,659 2,595
Freight 1,3061,386 828
Other 5,8364,858 4,303
------------ ----------------- --------
TOTAL CURRENT LIABILITIES 23,00323,649 19,892
------------ ----------------- --------
NONCURRENT LIABILITIES
- ----------------------
Notes Payable 28,90027,400 31,400
Deferred Compensation 2,9393,061 2,954
Other 2,2142,412 1,718
------------ ----------------- --------
TOTAL NONCURRENT LIABILITIES 34,05332,873 36,072
------------ ----------------- --------
TOTAL LIABILITIES 57,05656,522 55,964
------------ ----------------- --------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, par value $.10 per ahare,share, issued
5,471,685 shares at January 31,April 30, 2003
and July 31, 2002 547 547
Class B Stock, par value $.10 per share, issued
1,765,083 shares at January 31,April 30, 2003
and July 31, 2002 177 177
Additional Paid-In Capital 7,6457,636 7,677
Retained Earnings 87,47487,987 86,790
Restricted Unearned Stock Compensation (32)(45) (4)
Cumulative Translation Adjustment (1,193)(1,181) (1,288)
------------ ---------
94,618-------- --------
95,121 93,899
Less Treasury stock, at cost (1,292,538(1,379,565
Common and 342,241 Class B shares at
January 31,April 30, 2003 and 1,279,700 Common
and 342,241 Class B shares
at July 31, 2002) (24,923)(25,780) (24,828)
------------ ----------------- --------
TOTAL STOCKHOLDERS' EQUITY 69,69569,341 69,071
------------ ----------------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 126,751$125,863 $125,035
============ ================= ========
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
5
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE SIXNINE MONTHS ENDED
JANUARY 31
-----------------------APRIL 30
--------------------------
2003 2002
------------ --------- ----------
NET SALES $ 82,186 $ 83,803$128,311 $123,064
Cost of Sales 64,810 67,999
------------ ---------101,020 99,990
-------- --------
GROSS PROFIT 17,376 15,80427,291 23,074
Other Contractual Income 675 ------
Selling, General and Administrative Expenses (14,569) (14,101)
------------ ---------(22,423) (20,745)
-------- --------
INCOME FROM OPERATIONS 3,482 1,7035,543 2,329
OTHER INCOME (EXPENSE)
Interest Expense (1,348) (1,343)(1,953) (1,940)
Interest Income 119 147165 214
Gain on the Sale of Mineral Rights 139 --769
Other, Net (35) (27)
------------ ---------(63) (168)
-------- --------
TOTAL OTHER EXPENSE, NET (1,712) (1,125)
(1,223)
------------ ----------------- --------
INCOME BEFORE INCOME TAXES 2,357 4803,831 1,204
Income Taxes 727 139
------------ ---------1,224 359
-------- --------
NET INCOME 1,630 341$ 2,607 $ 845
RETAINED EARNINGS
Balance at Beginning of Year 86,790 89,778
Less Cash Dividends Declared 946 946
------------ ---------1,410 1,420
-------- --------
RETAINED EARNINGS - JANUARY 31 87,474 89,173
============ =========APRIL 30 $ 87,987 $ 89,203
======== ========
NET INCOME PER SHARE
BasicBASIC $ 0.290.47 $ 0.06
============ =========
Diluted 0.29 0.06
============ =========0.15
======== ========
DILUTED $ 0.46 $ 0.15
======== ========
AVERAGE SHARES OUTSTANDING
Basic 5,615BASIC 5,599 5,614
============ =========
Diluted 5,687 5,643
============ ================= ========
DILUTED 5,695 5,660
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
6
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
For The Six Months
Ended
January 31
-----------------------FOR THE NINE MONTHS ENDED
APRIL 30
-------------------------
2003 2002
------------ ------------------- ----------
NET INCOME $ 1,6302,607 $ 341845
Other Comprehensive Income:
Cumulative Translation Adjustments 95 (17)
------------ ---------107 38
-------- --------
TOTAL COMPREHENSIVE INCOME $ 1,7252,714 $ 324
============ =========883
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
7
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
For The Three Months
Ended January 31
-----------------------FOR THE THREE MONTHS ENDED
APRIL 30
--------------------------
2003 2002
------------ ------------------- -----------
NET SALES $ 44,45646,125 $ 43,78039,261
Cost of Sales 34,833 35,833
------------ ---------36,210 31,991
-------- --------
GROSS PROFIT 9,623 7,947
Other Contractual Income 675 --9,915 7,270
Selling, General and Administrative Expenses (7,952) (7,167)
------------ ---------(7,854) (6,644)
-------- --------
INCOME FROM OPERATIONS 2,346 7802,061 626
OTHER INCOME (EXPENSE)
Interest Expense (661) (664)(605) (597)
Interest Income 55 9545 67
Gain on the Sale of Mineral Rights ---- 769
Other, Net 32 (104)
------------ ---------(27) (141)
-------- --------
TOTAL OTHER EXPENSE, NET (574) (673)
------------ ---------(587) 98
-------- --------
INCOME BEFORE INCOME TAXES 1,772 1071,474 724
Income Taxes 553 33
------------ ---------497 220
-------- --------
NET INCOME 1,219 74$ 977 $ 504
NET INCOME PER SHARE
BASIC $ 0.220.18 $ 0.01
============ =========0.09
======== ========
DILUTED $ 0.210.17 $ 0.01
============ =========0.09
======== ========
AVERAGE SHARES OUTSTANDING
BASIC 5,6165,564 5,614
============ ================= ========
DILUTED 5,701 5,648
============ =========5,714 5,712
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
8
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JANUARY 31
-----------------------APRIL 30
--------------------------
2003 2002
2001
------------ ----------------- --------
NET INCOME (LOSS) $ 1,219977 $ 74504
-------- --------
Other Comprehensive Income:
Cumulative Translation Adjustments 117 (66)
------------ ---------12 55
-------- --------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 1,336989 $ 8
============ =========559
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
9
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
For The Six Months
Ended January 31
-----------------------FOR THE NINE MONTHS ENDED
APRIL 30
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2003 2002
------------- ------------------------------------ --------- ----------
NET INCOME $ 1,6302,607 $ 341
------------ ---------845
-------- --------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 4,174 4,4276,669 6,624
Provision for Bad Debts 242 256
(Gain)322 335
Loss on the Sale of Fixed Assets 30 (7)118 91
(Increase) Decrease in:
Accounts Receivable (5,464) (1,373)(2,712) 1,574
Other Receivables 649 (835)1,019 (1,118)
Inventories 418 771957 2,344
Prepaid Overburden Removal Expense 670 35938 47
Prepaid Expenses (77) (333)(125) 145
Other Assets (140) (269)(218) 217
Increase (Decrease) in:
Accounts Payable (916) (1,084)829 (1,580)
Accrued Expenses 2,382 2,1671,436 (1,462)
Deferred Compensation (15) 107 129
Other Liabilities 496 198
------------ ---------694 (90)
-------- --------
TOTAL ADJUSTMENTS 2,449 4,060
------------ ---------10,034 7,256
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,079 4,401
------------ ---------12,641 8,101
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (2,113) (2,092)(2,956) (2,937)
Proceeds from Sale of Property,
Plant and Equipment 20678 14
PurchasePurchases of Net Assets (6,255)(6,672) ---
Purchases of Investment Securities (18,258) (557)(28,102) (1,267)
Dispositions of Investment Securities 20,233 553
------------ ---------26,782 1,257
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,373) (2,082)
------------ ---------(10,270) (2,933)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (1,000)(2,500) (1,507)
Dividends Paid (946) (946)(1,419) (1,420)
Changes in Treasury Stock (952) (4)
Other 123 (20)
------------ ---------118 114
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,823) (2,473)
------------ ---------(4,753) (2,817)
-------- --------
NET DECREASE(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (4,117) (154)(2,382) 2,351
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,154 4,444
------------ ----------------- --------
CASH AND CASH EQUIVALENTS, JANUARY 31APRIL 30 $ 3,0374,772 $ 4,290
============6,795
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
10
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF STATEMENT PRESENTATION
The financial statements and the related notes are condensed and should be read
in conjunction with the consolidated financial statements and related notes for
the year ended July 31, 2002, included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions are eliminated.
The unaudited financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the statements
contained herein.
Certain items in prior year financial statements have been reclassified to
conform to the presentation used in fiscal 2003.
As part of its overall operations, the Company mines sorbent materials on
property that it either owns or leases. A significant part of the Company's
overall mining cost is incurred during the process of removing the overburden
(non-usable material) from the land,mine site, thus exposing the sorbent material
that is then used in a majority of the Company's production processes. The cost
of the overburden removal is recorded in a prepaid expense account and, as the
usable sorbent material is mined, the prepaid overburden removal expense is
amortized over the estimated available material. As of January 31,April 30, 2003, the
Company had $3,008,000$2,740,000 of prepaid overburden removal expense recorded on its
consolidated balance sheet. During the first sixnine months of fiscal 2003, the
Company amortized to current expense approximately $2,045,000$2,790,000 of previously
recorded prepaid expense. Please also refer to Note 4 for a discussion of a
change in the accounting estimate associated with this prepaid expense.
During the normal course of the Company's overburden removal activities the
Company performs on-going reclamation activities. As overburden is removed from
a pit, it is hauled to a previously mined pit and used to refill the older site.
This process allows the Company to continuously reclaim older pits and dispose
of overburden simultaneously, therefore minimizing the liability for the
reclamation function.
Additionally, it is Oil-Dri's policy to capitalize the purchase cost of land and
mineral rights, including associated legal fees, survey fees and real estate
fees. The cost of obtaining mineral patents, including legal fees and drilling
expenses, are also capitalized. Development costs of determining the nature and
amount of mineral reserves and any prepaid royalties that are offsetable against
future royalties due upon extraction of the mineral are also capitalized. All
exploration related costs are expensed as incurred.
2. INVENTORIES
The composition of inventories is as follows (in thousands of dollars):
-------------------------
January 31 July 31
(Unaudited) (Audited)
-------------------------
2003 2002
-------------------------
Finished goods $ 7,128 $ 6,673
Packaging 4,230 3,368
Other 1,529 1,757
----------- -----------
$ 12,887 $ 11,798
=========== ===========
APRIL 30 JULY 31
(UNAUDITED) (AUDITED)
-------------------------
2003 2002
-------------------------
Finished goods $6,846 $6,673
Packaging 3,999 3,368
Other 1,503 1,757
------- -------
$12,348 $11,798
======= =======
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
3. PURCHASE OF ASSETS RELATED TO THE JONNY CAT(R) BRAND OF CAT LITTER
On December 13, 2002, the Company completed the purchase, for $6,000,000 in
cash, of assets related to the Jonny Cat(R) brand of cat litter (the "Purchase")
from a wholly owned subsidiary of The Clorox Company (NYSE: CLX). The Company
has also spent approximately $255,000$672,000 on various post-closing costs related to
the Purchase. Included in the Purchase were inventories, trademarks, a
manufacturing plant in Taft, CA.,California, and mineral reserves.
The Companyaggregate purchase price has contracted with an independent
asset valuation expert to determine the fair value of the fixed and intangible
assets acquired in the Purchase. Upon completion of the fair evaluation of these
assets, the Company will complete the necessary purchase accounting for the
transaction. As of January 31, 2003, the best available estimates were utilized
to classify and value the assets acquired.initially been allocated as follows:
Inventory $1,507,000
Prepaid Expenses $ 493,000
Property, Plant & Equipment $4,295,000
Trade Marks & Trade Name $ 377,000
----------
Purchase total $6,672,000
==========
In anticipation of the Purchase, the Company and Harris Trust and Savings Bank
executed a second amendment to the Credit Agreement, dated January 29, 1999, as
amended, between them. This amendment, among other things, modified the fixed
charge coverage ratio such that the Company was allowed to incur (and exclude
for purposes of that ratio) up to $6,000,000 of capital expenditures related to
the Purchase on or before March 31, 2003, effectively allowing the Company to
complete the Purchase and remain in compliance with this covenant. As discussed
in the Liquidity and Capital Resources section of this Form 10-Q, the Company
has other credit agreements containing restrictive covenants (which, among other
things, 11
limit the Company's ability to make capital expenditures), none of these
other credit agreements limited the Company's ability to consummate the
Purchase.
The Company has assessed the pro forma disclosure criteria of SFAS No. 141 and
has determined that the Purchase is not material under the asset, investment and
income tests of the pronouncement. Based on that assessment, the Company has
concluded that the pro forma results are not materially different from the
results reported in the current filing.
4. CHANGE IN ACCOUNTING ESTIMATE FOR PREPAID OVERBURDEN REMOVAL EXPENSE
During the second quarter of fiscal 2002, an internal review of the estimated
amount of uncovered mineable clay took place at the Company's Georgia production
complex. The quantity of uncovered clay is one of the key elements in the
amortization of the prepaid overburden removal expense account balance. The
review led to a change in the estimated amount of uncovered clay, which in turn
caused a change in the rate of amortization per ton of the prepaid overburden
removal expense account. The impact of this estimate revision for the first six
months of fiscal 2003 was an additional pre-tax charge to cost of goods sold of
approximately $630,000 versus the previous estimate, or approximately $0.08 per
fully diluted share on an after-tax basis. The estimate change also increased
the amortization rate approximately $1.31 per ton of uncovered mineable clay.
The Company returned to using lower rates, more consistent with its historic
experience at the Georgia complex, to amortize the overburden account at the end
of the second quarter of fiscal 2003.
5. SALE OF MINERAL RIGHTS
During the first quarter of fiscal 2003, the Company recorded a $139,000 pre-tax
gain from the sale of certain mineral leases on land in Tennessee. The land was
geographically located in an area that the Company was not actively planning to
develop. The mineral rights, had they been pursued, wouldcould have been associated
with any or all of the operating segments.
6. OTHER CONTRACTUAL INCOME
During the second quarter of fiscal 2003, the Company recorded $675,000 of other
contractual pre-tax income as a result of a one-time payment from a customer who
failed to meet minimum purchase requirements under a supply agreement with the
Company.
7. NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138,
"Accounting for Derivative Instruments and Certain Hedging Activities, an
Amendment of SFAS No. 133," (SFAS No. 138), which was required to be adopted in fiscal years
beginning after June 15, 2000. In April 2003, the FASB issued SFAS No. 149
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
which amended SFAS No. 133 and SFAS No. 138 and provided additional guidance on
accounting for derivative instruments. One of the primary amendments to SFAS No.
133 establishes a "normal purchases and normal sales" exception. This exception
permits companiesa company to exclude contracts that provide for the purchase or sale of
something other than a financial derivative instrument that will be delivered in
quantities expected to be used or sold by the entitycompany over a reasonable period
of time in the normal course of its business operations. SFAS No. 149 provides
additional guidance for interpretation and evaluation for "normal purchases and
normal sales" contracts. The Company has forward purchase contracts for certain
natural gas commodities that qualify for the "normal purchase" exception
provisions of the amended statement.statements. The adoption of SFAS No. 133 as amended by
SFAS No. 138 and SFAS No. 149 had no material impact on either the Company's
financial position or results of operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning
after December 15, 2001. Under SFAS No. 141, the pooling of interest method is
no longer permitted for business combinations after June 30, 2001. Under SFAS
No. 142, goodwill willis no longer be amortized, but will beis instead subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company adopted SFAS No. 142 in the first quarter of fiscal 2003. Management
conducted a review of the estimated fair market value of the business segments
during the first quarter of fiscal 2003, using a combination of discounted cash
flow techniques and an independent outside appraiser's evaluations. Based upon
management's review, no impairment adjustment was required at October 31, 2002.
Had SFAS No. 142 been in effect for fiscal 2002, net income and earnings per
share, net of tax, would have been as follows:
12
7. NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS (continued)
Three Months Ended
JanuaryApril 31,
-----------------------------------------------
2003 2002
----------- ---------------- -------
Net Income
$ 1,219 $ 74
Net as reported $ 977 $ 504
Add back: Goodwill amortization -- 29
----------- ------------- 28
------ ------
Adjusted net income $ 1,219977 $ 103
=========== ==========532
====== ======
Basic Earnings Per Share
Net as reported $ 0.220.18 $ 0.09
Goodwill amortization --- $ 0.01
Goodwill amortization -- 0.01
----------- ---------------- ------
Adjusted net income $ 0.220.18 $ 0.02
=========== ==========0.10
====== ======
Diluted Earnings Per Share
Net as reported $ 0.210.17 $ 0.010.09
Goodwill amortization -- 0.01
----------- ------------- ---
------ ------
Adjusted net income $ 0.210.17 $ 0.02
=========== ==========0.09
====== ======
Weighted Average Shares Outstanding
Basic 5,6165,564 5,614
Fully diluted 5,701 5,648
Six5,714 5,712
Nine Months Ended
January 31,
-------------------------April 30,
------------------------
2003 2002
----------- ------------------ --------
Net Income
$ 1,630 $ 341
Net as reported $2,607 $ 845
Add back: Goodwill amortization -- 59
----------- ------------- 87
------ ------
Adjusted net income $2,607 $ 1,630 $ 400
=========== ==========932
====== ======
Basic Earnings Per Share
Net as reported $ 0.290.47 $ 0.060.15
Goodwill amortization -- 0.01
----------- ------------- $ 0.02
------ ------
Adjusted net income $ 0.290.47 $ 0.07
=========== ==========0.17
====== ======
Diluted Earnings Per Share
Net as reported $ 0.290.46 $ 0.060.15
Goodwill amortization -- 0.01
----------- ------------- $ 0.02
------ ------
Adjusted net income $ 0.290.46 $ 0.07
=========== ==========0.17
====== ======
Weighted Average Shares Outstanding
Basic 5,6155,599 5,614
Fully diluted 5,687 5,6435,695 5,660
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for fiscal years beginning after June 15, 2002. Under
the new rules, the fair value of a liability for any asset retirement obligation
is recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The Company adopted SFAS No. 143 for the
six months endedas of January 31, 2003.
Mining land reclamation activities occur as
partDuring the normal course of the Company's normal overburden removal process. Therefore,activities the
Company performs on-going reclamation activities. As overburden is removed from
a pit, it is hauled to a previously mined pit and used to refill the older site.
This process allows the Company to continuously reclaim older pits and dispose
of overburden simultaneously, therefore minimizing the liability for the
reclamation function. Consequently, the Company determined that an additional
liability for land reclamation was immaterial to the overall presentation of
the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal or Long-Lived Assets," effective for years beginning after December 15,
2001. Under the new rules, the accounting and reporting for the impairment and
disposal of long-lived assets have been superseded from SFAS No. 121 and APB No.
30. Also, ARB No. 51 has been amended to eliminate the exception for
consolidation for a temporary subsidiary. Adoption is required for fiscal years
13
7. NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS (continued)
beginning after December 15, 2001. Effective October 31, 2002, the Company
adopted SFAS No. 144, which did not have an effect on the financial statements
of the Company.
In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," effective for interim periods
beginning after December 15, 2002. The statement provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, the statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
the annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has adopted the disclosure requirements for the third
quarter of fiscal 2003. Please see Note 9 for a discussion of the Company's
stock-based compensation expense and the disclosure required by SFAS Nos. 123
and 148.
8. SEGMENT REPORTING
The Company has four reportable operating segments: Consumer Products Group,
Specialty Products Group, Crop Production and Horticultural Products Group, and
Industrial and Automotive Products Group. These segments are managed separately
because each business has different economic characteristics.
The accounting policies of the segments are the same as those described in Note
1 of the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended July 31, 2002 filed with the
Securities and Exchange Commission.
Because managementManagement does not rely on any segment asset allocation, information
regardingallocations and does not consider
them meaningful because of the shared nature of the Company's production
facilities. However the Company has estimated the segment assets is not meaningful and therefore is not reported.asset allocations as
follows:
--------------------------------------
Six(in thousands)
APRIL 30, 2003 JULY 31, 2002
-------------- -------------
Consumer Products Group $ 51,924 $ 50,859
Specialty Products Group $ 14,838 $ 15,585
Crop Production and
Horticultural Products Group $ 13,560 $ 10,794
Industrial and Automotive Products Group $ 8,286 $ 8,365
Unallocated Assets $ 37,255 $ 39,432
-------- --------
TOTAL ASSETS $125,863 $125,035
======== ========
Nine Months Ended January 31
--------------------------------------April 30
----------------------------------------------------
Net Sales Operating Income
------------------------------------------------------------ ------------------------
2003 2002 2003 2002
-------- -------- -------- ----------------- --------- --------- ----------
(in thousands)
Consumer Products Group........... $49,978 $53,061 $6,606 $4,154Group $ 76,540 $ 76,107 $ 9,918 $ 5,787
Specialty Products Group.......... 12,627 12,667 2,912 2,634Group 18,970 18,446 4,339 3,819
Crop Production and
Horticultural Products Group................... 9,750 8,296 1,057 896Group 17,325 13,840 2,307 2,038
Industrial and Automotive Products Group............................ 9,831 9,779 (327) 238Group 15,476 14,671 (331) 214
-------- -------- -------- --------------- -------
TOTAL SALES/OPERATING INCOME...... $82,186 $83,803 $10,248 $7,922INCOME $128,311 $123,064 16,233 11,858
======== ======== -------- --------------- -------
Gain on the Sale of Mineral Rights(1).................... 139 --769
Other Contractual Income(2).............................. 675 -----
Less:
Corporate Expenses....................................... 7,477 6,246Expenses 11,428 9,696
Interest Expense,
net of Interest Income................. 1,228 1,196
-------- --------Income 1,788 1,727
------- -------
INCOME BEFORE INCOME TAXES 2,357 480
-------- --------3,831 1,204
Income Taxes 727 139
-------- --------1,224 359
------- -------
NET INCOME $1,630 $341
======== ========
--------------------------------------$ 2,607 $845
======= =======
Three Months Ended January 31
--------------------------------------April 30
----------------------------------------------------
Net Sales Operating Income
------------------------------------------------------------ ------------------------
2003 2002 2003 2002
-------- -------- -------- ----------------- --------- --------- ----------
(in thousands)
Consumer Products Group........... $27,597 $27,864 $3,800 $2,118Group $26,563 $23,046 $3,312 $1,633
Specialty Products Group.......... 5,991 6,237 1,226 1,043Group 6,343 5,779 1,427 1,185
Crop Production and
Horticultural Products Group................... 5,884 4,808 848 695Group 7,574 5,544 1,250 1,142
Industrial and Automotive Products Group ........................... 4,984 4,871 (144) 565,645 4,892 (4) (24)
-------- -------- -------- --------------- -------
TOTAL SALES/OPERATING INCOME...... $44,456 $43,780 $5,730 $3,912INCOME $46,125 $39,261 5,985 3,936
======== ======== -------- --------
Other Contractual Income(2).............................. 675 --======= =======
Gain on the Sale of Mineral Rights(1) --- 769
Less:
Corporate Expenses....................................... 4,027 3,236Expenses 3,951 3,450
Interest Expense, net of Interest Income................. 606 569Income 560 531
------- ---------------
INCOME BEFORE INCOME TAXES TAXES 1,772 107
------- --------1,474 724
Income Taxes 553 33497 220
------- ---------------
NET INCOME $1,219 $74$ 977 $ 504
======= ========
=======
1. See Note 5 for a discussion of the gain on the sale of mineral rights.
2. See Note 6 for a discussion of the other contractual income.
9. STOCK-BASED COMPENSATION DISCLOSURE
The Company currently accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Had the Company accounted for
stock-based compensation in accordance with SFAS No. 123, " Accounting for
Stock-Based Compensation," the Company would have reported the following pro
forma amounts for the quarters and nine-month periods ended April 30, 2003 and
2002:
Quarter Ended April Nine Months Ended
30, April 30,
--------------------- -------------------
2003 2002 2003 2002
---------------------- -------------------
Net income as reported $ 977 $ 504 $ 2,607 $ 845
Stock-based employee 4 3 10 10
compensation expense included in
reported net income, net of tax
Pro forma adjustment-additional
compensation expense had SFAS (163) (189) (485) (541)
No. 123 been adopted, net of tax
----- ----- ------- -----
Pro forma net income $ 818 $ 318 $ 2,132 $ 314
===== ===== ======= =====
Basic earnings per share, as $0.18 $0.09 $0.47 $0.15
reported
Basic earnings per share, pro $0.15 $0.06 $0.38 $0.06
forma
Diluted earnings per share, as $0.17 $0.09 $0.46 $0.15
reported
Diluted earnings per share, pro $0.14 $0.06 $0.37 $0.06
forma
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model, with the following weighted average
assumptions for options granted during the nine months ended April 30, 2003 and
2002, respectively: risk free interest rates of 3.95% and 4.70%; dividend yield
of 4.74% and 5.83%; expected lives of 5.4 years; and volatility of 36.0% and
38.1%. There were no options issued during the third quarter of the fiscal years
ending July 31, 2003 or 2002.
10. KAMTERTER GOODWILL WRITE-OFF
During the third quarter of fiscal 2003, the Company wrote-off its goodwill
asset of $350,000 associated with its equity investment in Kamterter II, LLC, an
agricultural research and development company. The write-off reflected, among
other things, recent continuing operating losses at Kamterter.
11. ASSET DISPOSTIONS
During the third quarter of fiscal 2003, the Company recorded a $270,000 pre-tax
gain from the sale of mineral rights. 2. See
Note 6land owned in Florida. The land was geographically located
in an area that the Company was not actively planning to develop. The Company
also sold a small property in Oregon for a discussionan approximate pre-tax gain of $40,000.
Also during the other contractual income.third quarter, the Company determined that one of its production
lines at its Blue Mountain, Mississippi manufacturing facility was going to be
taken out of service due to existing market conditions and held as an asset
available for sale. The asset was written down to its estimated net sales value,
which generated an approximate $385,000 pre-tax loss.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIXNINE MONTHS ENDED JANUARY 31,APRIL 30, 2003 COMPARED TO
SIXNINE MONTHS ENDED JANUARY 31,APRIL 30, 2002
RESULTS OF OPERATIONS
Consolidated net sales for the sixnine months ended January 31,April 30, 2003 were
$82,186,000, a decrease$128,311,000, an increase of 1.9%4.3% from net sales of $83,803,000$123,064,000 in the first
sixnine months of fiscal 2002. Net income for the first sixnine months of fiscal 2003
was $1,630,000,$2,607,000, an increase of 378%208% from $341,000$845,000 earned in the first sixnine
months of fiscal 2002. Fiscal 2003 net income was positively impacted by a
pre-tax gain of $139,000 on the sale of mineral rights, a pre-tax contractual
payment of $675,000 from a customer that failed to meet minimum purchase
requirements under a supply agreement with the Company, a pre-tax gain on real
estate sales of $310,000, improved sales and reduced productiondistribution costs. The
increase in net income was partially offset by a pre-tax asset write-off of
$385,000 and distribution
costs.a pre-tax goodwill write-off of $350,000. Net income for the first
nine months of fiscal 2002 was positively impacted by a pre-tax $769,000 gain on
the sale of mineral rights and negatively impacted by a pre-tax $100,000 asset
write-off. Basic and diluted net income per share for the first sixnine months of
fiscal 2003 was $0.29were $0.47 and $0.46, respectively, versus $0.06$0.15 basic and diluted
net income per share earned infor the first sixnine months of fiscal 2002.
Net sales of the Consumer Products Group for the first sixnine months of fiscal
2003 were $49,978,000, a decrease$76,540,000, an increase of 5.8%0.6% from net sales of $53,061,000$76,107,000 in the
first sixnine months of fiscal 2002. This segment's operating income however, increased
59.0%71.4% from $4,154,000$5,787,000 in the first sixnine months of fiscal 2002 to $6,606,000$9,918,000 in
the first sixnine months of fiscal 2003. ThereNet sales were a number of factors that drove
these results. The reduction in sales was drivenreduced by the elimination
of unprofitable business with Wal-Mart, which was implemented late in the fourth
quarter of fiscal 2002. In that quarter, Wal-Mart and Oil-Dri agreed on new
terms pursuant to which Oil-Dri stopped shipping private label cat litter to
Wal-Mart distribution centers where the freight cost (a cost borne by Oil-Dri)
was prohibitive. This change caused sales to be reduced but profits to be
increased in terms of both gross profit margin and absolute dollars. The
reduction ofin sales was partiallyto Wal-Mart has essentially been offset by the acquisition of
the Jonny Cat(R) product line. The group tightened its control of
customer deductions and experienced lower incentive compensation expenses.
Finally, the group's gross profit was increased over $1,500,000 dueThat product line addition has also contributed
positively to the elimination of sales to unprofitable geographic areas and improved sales mix of
branded items.Company's gross profit.
Net sales of the Specialty Products Group for the first sixnine months of fiscal
2003 were $12,627,000, a small decrease$18,970,000, an increase of 0.3%2.8% from net sales of $12,667,000$18,446,000 in the
first sixnine months of fiscal 2002. This segment's operating income increased
10.6%13.6% from $2,634,000$3,819,000 in the first sixnine months of fiscal 2002 to $2,912,000$4,339,000 in
the first sixnine months of fiscal 2003. The profit increase was driven by improved
sales of thePelUnite(R) and PelUnite PlusTM animal feed binding agents PelUnite(TM) and PelUnite Plus(TM) and
lower manufacturing costs.by
currency changes, which had a positive impact on selling prices.
Net sales of the Crop Production and Horticultural Products Group for the first
sixnine months of fiscal 2003 were $9,750,000,$17,325,000, an increase of 17.5%25.2% from net sales
of $8,296,000$13,840,000 in the first sixnine months of fiscal 2002. The net sales increase
was
seen in our agricultural chemical businessresulted primarily from increased sales of Agsorb(R) drying agents and ourPro's
Choice(R) sports field products. Crop
Production and Horticultural Products'The sports field products have seen strong
growth in the golf course market place. This segment's operating income
increased by 18.0%13.2% from $896,000$2,038,000 in the first sixnine months of fiscal 2002 to
$1,057,000$2,307,000 in the first sixnine months of fiscal 2003. The increase in operating
profitincome was driven by the gross profit change from increased sales.
Net sales of the Industrial and Automotive Products Group for the first sixnine
months of fiscal 2003 were $9,831,000, which was$15,476,000, an increase of 0.5%5.5% from net sales of
$9,779,000$14,671,000 in the first sixnine months of fiscal 2002. Industrial and
Automotive Products'This segment's operating
income decreased from a profit of $238,000$214,000 in the first sixnine months of fiscal
2002 to a loss of $327,000$331,000 in the first sixnine months of fiscal 2003. The loss was
driven by higher than anticipated manufacturing processing labor and expenses.
The processing inefficiencies are being addressed
through capital investments and maintenance efforts.Also, the recent spike in fuel prices impacted the income of this group,
especially during the third quarter.
Consolidated gross profit as a percentage of net sales for the first sixnine months
of fiscal 2003 increased to 21.1%21.3% from 18.9%18.7% in the first sixnine months of fiscal
2002. A favorable sales mix lead by the acquired Jonny Cat(R)Cat product line in the
Consumer Products Group, and improved sales of PelUnite PlusTMPlus in the Specialty
Product Group, lower fuel costsincreased sales of fine Agsorb and sports field products in the manufacturing areaCrop
Production and Horticultural Products Group and the elimination of sales to
unprofitable geographic areas all contributed to this increase. The Company's
year-to-date fuel costs are down approximately 17%7% for the first nine months due
to a rate reductionlower prices from the same period in fiscal 2002. Offsetting these
factors were higher than anticipated manufacturing processing labor and
expenses.However, recent fuel price
increases drove an 8% fuel rate increase for the third quarter ending April 30,
2003.
Operating expenses as a percentage of net sales for the first sixnine months of
fiscal 2003 increased slightlyremained flat at 16.9% as compared to 16.9% from 16.8% in the first sixnine months of
fiscal 2002. Operating expenses in the first sixnine months of fiscal 2003 were
reduced by other contractual income of $675,000, but were increased overall by
an increase in discretionary compensation expense. Reduced operating expenses inThese two factors along with
the Consumer
Group also helpedincreased sales led to maintain thisa relatively consistent overall expense ratio.
Interest expense and interest income for the first sixnine months of fiscal 2003
did not vary significantly from fiscal 2002.
The Company's effective tax rate was 30.8%32.0% of pre-tax income in the first sixnine
months of fiscal 2003 versus 29.0%29.8% in the first sixnine months of fiscal 2002. OtherThe
other contractual income, the gains from real estate and mineral rights
dispositions, the California state income tax impact on the Taft, California
production facility and the impact of a lower depletion allowance at Taft
compared to the Company's other production facilities all led to the increased
rate. The Company anticipates that the Taft facility will not achieve depletion
allowance values similar to the Company's other facilities for at least the next
few years.
Total assets of the Company increased $1,716,000$828,000 or 1.4%0.7% during the first sixnine
months of fiscal 2003. Current assets decreased $384,000increased $540,000 or 0.7%0.9% from fiscal
2002 year-end balances, primarily due to decreasedincreases in accounts receivable,
inventory and prepaid expenses. The accounts receivable increase was related to
the improved sales results as described previously. Offsetting some of the
increase were decreases in cash and cash equivalents and investments, which were
principally used to consummate the purchase, for $6,000,000 in cash, of assets
related to the Jonny Cat(R) brand of 15
cat litter business (the "Purchase") from a
wholly owned subsidiary of theThe Clorox Company (NYSE: CLX). Offsetting this decrease was an increaseHowever, positive
operating cash flows have driven the combined Cash and Investments in accounts receivable associated with the normal sales seasonalityTreasury
securities balances to 93% of the business. The Company also saw an increase in inventory as a resultfiscal 2002 year-end balances. Also offsetting
some of the Purchase.increase was a decrease in prepaid overburden removal expenses.
Property, plant and equipment, net of accumulated depreciation, increased
$2,207,000$413,000 or 4.5%0.8% during the first six months.nine months of fiscal 2003. The increase was
due to the Purchase, but was partiallysubstantially offset by normal depreciation expense
on the Company's pre-existing fixed asset base.
Total liabilities increased $1,092,000$558,000 or 2.0%1.0% during the first sixnine months of
fiscal 2003. Current liabilities increased $3,111,000$3,757,000 or 15.6%18.9% during the first
sixnine months of fiscal 2003. Increases2003, as a result of increases in current maturities of
notes payable, accruedaccounts payable, freight payables, trade promotions, freight and other
liabilities were partially offset by
decreases in accrued wages and accounts payable.current liabilities.
EXPECTATIONS
The Company believes that sales for the last two quartersquarter of fiscal 2003 should
increase slightly from the same quarter of fiscal 2002. The sales from the Jonny Cat line
of products should substantially offsethelp to drive increased sales in the impact of the Company's decision to
restructure its private label supply arrangement with Wal-Mart, however,
additional sales decreases may occur due to product and geographical
rationalization byupcoming quarter.
However, the Company is not projecting the same quarter over quarter growth in
its continuing effortthe Crop Production and Horticultural Products Group as was experienced in the
third quarter. The inability to increase
profitability. Duringpredict potential rate increases in natural gas
and other fuel sources causes the second halfCompany to be cautious about the results for
the fourth quarter of fiscal 2003 and the Company's overburden
removal cost at its Georgia complex should return to lower levels, positively
impacting profitability.full year of fiscal 2004. In light of
the Company's strong performance during the
first six months of this fiscal year and the one-time, pre-tax gain resulting
from the $675,000 contractual payment described above,nine-month performance, the Company believes that
anis raising its earnings
estimate in theto a range of $0.30$0.45 to $0.50$0.60 per fully diluted earnings
per share range for the full year
of fiscal 2003 is appropriate.2003.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $3,495,000$3,217,000 during the first sixnine months of fiscal 2003
to $34,157,000,$34,435,000, primarily due to a reduction of cash and cash equivalents,
investmentsprepaid overburden removal
expense and increased current notes payable, accounts payable, freight payables,
accrued trade promotions and other current liabilities. This decrease was offset
partially by increased accounts receivables, prepaid expenses and decreased accrued wages and accounts payable.inventories.
During the first sixnine months of fiscal 2003, the balances of cash, cash
equivalents, investments and investment in Treasury securities decreased
$6,092,000$1,061,000 to $10,144,000. Much
of this$15,175,000. This decrease was the result of the Purchase.Purchase, but has
been largely offset since then by continued positive operating cash flow.
Cash provided by operating activities was used to fund capital expenditures of
$2,113,000,$2,956,000, the Purchase, payments on long-term debt of $1,000,000$2,500,000, repurchase
of Treasury Stock of $952,000 and dividend payments of $946,000.$1,419,000. Total cash
and investment balances held by the Company's foreign subsidiaries at January 31,April 30,
2003 and July 31, 2002 were $2,237,000$2,493,000 and $2,187,000, respectively.
Accounts receivable, less allowance for doubtful accounts, increased 24.4%11.2%
during the first sixnine months of fiscal 2003. This increase was in large part
driven by normalimproved sales seasonalityin the Crop Production and Horticultural Products Group
and the additional sales from the Jonny Cat(R)Cat product line. The Company maintains
policies and practices to monitor the creditworthiness of its customers. These
policies include maintaining and monitoring a list of customers whose
creditworthiness has diminished. The total balance of accounts receivable for
accounts on that list represents approximately 9.8%12.5% of the Company's
outstanding receivables at January 31,April 30, 2003.
On November 22 2002, the Company and Harris Trust and Savings Bank executed a
second amendment to the Credit Agreement, dated January 29, 1999, between them.
See Note 3 above.
The table listed below depicts the Company's Contractual Obligations and
Commercial Commitments at January 31,April 30, 2003 for the timeframes listed:
CONTRACTUAL OBLIGATIONS
- -----------------------
PAYMENTS DUE BY PERIOD
----------------------------------------------------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1 - 3 YEARS 4 - 5 YEARS AFTER 5 OBLIGATIONS TOTAL YEAR YEARS
YEARS YEARS
--------------- ---------------- ------------ ---------- ----------- ---------- ----------------------- -------------
Long-Term Debt $33,250,000 $4,350,000 $5,660,000 $7,160,000 $16,080,000$ 31,750,000 $ 4,350,000 $ 7,160,000 $ 8,160,000 $ 12,080,000
Operating Leases 15,025,000 2,226,000 2,923,000 1,972,000 7,904,00014,526,000 2,228,000 2,686,000 1,909,000 7,703,000
Unconditional Purchase
Obligations 1,625,000 1,625,000828,000 828,000 -- -- --
------------ ---------- ----------- ---------- ----------------------- ------------ ------------ ------------
Total Contractual
Cash Obligations $49,900,000 $8,201,000 $8,583,000 $9,132,000 $23,984,000$ 47,104,000 $ 7,406,000 $ 9,846,000 $ 10,069,000 $ 19,783,000
============ ========== =========== ========== ======================= ============ ============ ============
16
OTHER COMMERCIAL COMMITMENTS
- ----------------------------
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
----------------------------------------------------------------------------------------------------------------------------------------------------
TOTAL
OTHER TOTAL
COMMERCIAL COMMITMENTS AMOUNTS COMMITTED LESS THAN 1 YEAR 1 - 3 YEARS 4 - 5 YEARS AFTER 5 COMMITMENTS COMMITTED YEAR YEARS
YEARS YEARS
--------------- ---------------- ------------ ---------- ----------- ---------- ----------------------- -------------
Standby Letters of Credit $2,958,000 $2,958,000$ 2,963,000 $ 2,963,000 -- -- --
Other Commercial Commitments 4,944,000 4,944,0003,133,000 3,133,000 -- -- --
------------ ---------- ----------- ---------- ----------------------- ------------ ------------ ------------
Total Commercial Commitments $7,902,000 $7,902,000$ 6,096,000 $ 6,096,000 $ -- $ -- $ --
============ ====================== ============ =========== ========== ========================
The Company's liquidity needs have been, and are expected to be, met through
internally generated funds and, to the extent needed, borrowings under the
Company's revolving credit facility with Harris Trust and Savings. As of January
31,April
30, 2003, the Company had $7,500,000 available under the credit facility. The
Credit Agreement, as amended, contains restrictive covenants that, among other
things and under various conditions (including a limitation on capital
expenditures), limit the Company's ability to incur additional indebtedness or
to acquire or dispose of assets and to pay dividends.
The Company believes that cash flow from operations and availability under its
revolving credit facility will provide adequate funds for foreseeable working
capital needs, capital expenditures at existing facilities and debt service
obligations. The Company's ability to fund operations, to make planned capital
expenditures, to make scheduled debt payments and to remain in compliance with
all of the financial covenants under debt agreements, including, but not limited
to, the Credit Agreement, depends on its future operating performance, which, in
turn, is subject to prevailing economic conditions and to financial, business
and other factors.
THREE MONTHS ENDED JANUARY 31,APRIL 30, 2003 COMPARED TO
THREE MONTHS ENDED JANUARY 31,APRIL 30, 2002
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended January 31,April 30, 2003 were
$44,456,000,$46,125,000, an increase of 1.5%17.5% from net sales of $43,780,000$39,261,000 in the secondthird
quarter of fiscal 2002. Net income for the secondthird quarter of fiscal 2003 was
$1,219,000,$977,000, an increase of $1,145,00093.8% from $74,000$504,000 earned in the secondthird quarter of
fiscal 2002. Fiscal 2003 net income was positively impacted by the strong sales
performance, which is detailed below, a pre-tax contractual income paymentgain on real estate sales of
$675,000 from a customer that failed to meet
minimum purchase requirements under a supply agreement with the Company,
improved branded sales in the Consumer group, improved sales in the Crop
Production and Horticultural Products Group$310,000 and reduced distribution costs. Basic netThe increase in income per sharewas partially
offset by a pre-tax asset write-off of $385,000 and a pre-tax goodwill write-off
of $350,000. Net income for the secondthird quarter of fiscal 2002 was $0.22positively
impacted by a pre-tax $769,000 gain on the sale of mineral rights and diluted income
per share was $0.21 versus $0.01 basicnegatively
impacted by a pre-tax $100,000 asset write-off. Basic and diluted net income per
share for the secondthird quarter of fiscal 2003 were $0.18 and $0.17, respectively,
versus $0.09 basic and diluted net income per share earned in the third
quarter of fiscal 2002.
Net sales of the Consumer Products Group for the secondthird quarter of fiscal 2003
were $27,597,000, a decrease$26,563,000, an increase of 1.0%15.3% from net sales of $27,864,000$23,046,000 in the
secondthird quarter of fiscal 2002. This segment's operating income however, increased 79.4%103%
from $2,118,000$1,633,000 in the secondthird quarter of fiscal 2002 to $3,800,000$3,312,000 in the secondthird
quarter of fiscal 2003. Sales growth of 37% was seen in the Company's Kat Kit(R)
product line and 27% growth in the Cat's Pride(R) multiple cat scoopable product
offerings. The factors that drove these results includedacquisition of the Jonny Cat product line also added a
significant sales boost to the quarter. Sales were reduced by the elimination of
unprofitable business with Wal-Mart, which was implemented in the fourth quarter
of fiscal 2002. The incremental gross profit from the sales increases and the
reduction of distribution costs associated with the Wal-Mart business change tighter control of customer deductions and gross
profit increases of $1,000,000 related to androve the
improved sales mix of branded items
led byprofits for the acquired Jonny Cat(R) product line.quarter.
Net sales of the Specialty Products Group for the secondthird quarter of fiscal 2003
were $5,991,000, a decrease$6,343,000, an increase of 3.9%9.8% from net sales of $6,237,000$5,779,000 in the secondthird
quarter of fiscal 2002. ThisThe segment's operating income increased 17.5%20.4% from
$1,043,000$1,185,000 in the secondthird quarter of fiscal 2002 to $1,226,000$1,427,000 in the secondthird
quarter of fiscal 2003. The profit increase was driven by currency changes,
which had a positively impact on selling prices and by improved sales of
thedomestic animal feed binding agents PelUnite(TM)health and nutrition products, which include PelUnite, and
PelUnite PlusTMPlus pellet binders and lower
manufacturing costs related to this segment.Poultry Guard(R) litter amendments and
Conditionade(R) binding agents. The Poultry Guard and PelUnite product lines
both reported sales and gross profit increases for the period.
Net sales of the Crop Production and Horticultural Products Group for the secondthird
quarter of fiscal 2003 were $5,884,000,$7,574,000, an increase of 22.4%36.6% from net sales of
$4,808,000$5,544,000 in the secondthird quarter of fiscal 2002. Crop ProductionThe quarterly sales increases
followed the full year trend of growth in Agsorb agricultural products and Horticultural Products'Pro's
Choice sports field products. The sports field products have seen strong growth
in the golf course market place. This segment's operating income increased 22.0%by
9.5% from $695,000$1,142,000 in the secondthird quarter of fiscal 2002 to $848,000$1,250,000 in the
samethird quarter of fiscal 2003. The increase in operating profit was driven by pricethe
gross profit change from increased sales. However, the recent fuel cost
increases inexperienced by the agricultural products area.Company lowered the overall profit increase.
Net sales of the Industrial and Automotive Products Group for the secondthird quarter
of fiscal 2003 were $4,984,000, which was$5,645,000, an increase of 2.3%15.4% from net sales of
$4,871,000 for$4,892,000 in the same periodthird quarter of fiscal 2002. Industrial and Automotive
Products'A large portion of the sales
increase was driven by the Taft plant purchase. This segment's operating income
decreasedimproved from a profitloss of $56,000$24,000 in the secondthird quarter of fiscal 2002 to a loss of
$144,000 for$4,000 in the same periodthird quarter of fiscal 2003. The loss was drivenImprovements in manufacturing
processing labor and expenses and the sales increases were offset by lower selling prices associated with the discontinuation
of the energy surcharge and higher than anticipated manufacturing costs related
to this segment.
17recent
spike in fuel prices.
Consolidated gross profit as a percentage of net sales for the secondthird quarter of
fiscal 2003 increased to 21.6%21.5% from 18.2%18.5% in the secondthird quarter of fiscal 2002. A
favorable sales mix led by the acquired Jonny Cat product line, Kat Kit products
and Cat's Pride products in the Consumer Products Group, and improved sales of
PelUnite(TM)Poultry Guard and PelUnite PlusTMproducts in the Specialty Product Group, improved
pricingincreased
sales of Agsorb and Pro's Choice products in the agricultural products area,Crop Production and
Horticultural Products Group and lower fueldistribution costs indue to the manufacturing
area and reduced distribution expensesWal-Mart
change all contributed to this increase. Offsetting these factorsimprovements were
higher than anticipated manufacturing processing
labor and expenses and price declinesincreases in the Industrial Products Group.energy markets. These market changes drove an 8% fuel
rate increase for the third quarter of fiscal 2003 as compared to the same
quarter in fiscal 2002.
Operating expenses as a percentage of net sales for the secondthird quarter of fiscal
2003 were flat compared to the same period in fiscal 2002 at 16.4%approximately 17%.
Operating
expenses in the secondThe third quarter of fiscal 2003 were reducedwas impacted by other contractual
income of $675,000, but were held flat overall by an increase in incentive
compensation expense based on Company performance.the $350,000 goodwill
write-off.
Interest expense net of interest income for the secondthird quarter of fiscal 2003
increased by $37,000$30,000 compared to the secondthird quarter of fiscal 2002. Interest
income for the secondthird quarter of fiscal 2003 decreased compared to the same
period in fiscal 2002 due to lower yields in the market place and a change in
the portfolio mix.
The Company's effective tax rate was 31.2%33.7% of pre-tax income in the secondthird
quarter of fiscal 2003 versus 30.8%30.4% in the secondthird quarter of fiscal 2002.
Impacting the tax rate were the real estate gains, California's state income tax
impact on the Taft, California production facility and the impact of a lower
depletion allowance at Taft compared to the Company's other production
facilities. It is anticipated that the Taft facility will not achieve depletion
allowance values similar to the other facilities for at least the next few
years.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the sixnine months ended
January 31,April 30, 2003 were $5,396,000$8,380,000 or 6.6%6.5% of total Company sales. This represents
a decreasean increase of 5.0%4.0% from the first sixnine months of fiscal 2002, in which foreign
subsidiary sales were $5,679,000$8,056,000 or 6.8%6.5% of total Company sales. This
decreaseincrease in sales was partially due toseen largely in the Company's Canadian operation where
the addition of the Jonny Cat product line and price increases have exceeded
the loss of private label business from one customer of the Canadian operation.customer. For the sixnine months
ended January 31,April 30, 2003, the foreign subsidiaries reported a loss of $15,000,$44,000,
an improvement of $275,000$396,000 from the $290,000$440,000 loss reported in the first sixnine
months of fiscal 2002. The improvement for the quarteryear was due to a betterimproved sales
mix, selling price
increases,and lower material costs and higher machine efficiencies at the Company's Canadian operation.
Identifiable assets of the Company's foreign subsidiaries as of January 31,April 30, 2003
were $10,202,000$10,126,000 compared to $10,259,000$9,867,000 as of January 31,April 30, 2002.
Net sales by the Company's foreign subsidiaries during the three months ended
January 31,April 30, 2003 were $2,867,000$2,984,000 or 6.5% of total Company sales. This represents
an increase of 3.3%25.6% from the secondthird quarter of fiscal 2002, in which foreign
subsidiary sales were $2,776,000$2,376,000 or 6.3%6.1% of total Company sales. Again, this
increase was driven by the addition of the Jonny Cat product line. For the three
months ended January 31,April 30, 2003, the foreign subsidiaries reported a loss of
$47,000,$29,000, an improvement of $109,000$122,000 from the $156,000$151,000 loss reported in the secondthird
quarter of fiscal 2002. The improvement for the quarter was due to a
betterimproved
sales mix,and lower material costs and higher machine efficiencies at the
Company's Canadian operation.in Canada.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including, but not limited to, those under
the heading "Expectations" and those statements elsewhere in this report that
use forward-looking terminology such as "expect,CERTAIN STATEMENTS IN THIS REPORT, INCLUDING, BUT NOT LIMITED TO, THOSE UNDER
THE HEADING "EXPECTATIONS" AND THOSE STATEMENTS ELSEWHERE IN THIS REPORT THAT
USE FORWARD-LOOKING TERMINOLOGY SUCH AS "EXPECT," "would,"WOULD," "could,"COULD," "should,"SHOULD,"
"estimates,"ESTIMATES," "anticipates" and "believes" are "forward-looking statements"
within the meaning of that term in the Securities Exchange Act of"ANTICIPATES" AND "BELIEVES" ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THAT TERM IN THE SECURITIES EXCHANGE ACT OF 1934, as
amended. Actual results may differ materially from those reflected in these
forward-looking statements, due to uncertainties such as continued vigorous
competition in the grocery, mass merchandiser and club markets and specialty
product markets, the level of success of new products, and the cost of product
introductions and promotions in the consumer market. Forward-looking statements
are also subject to the risk of changes in market conditions in the overall
economy, energy prices, the risk of war or international instability and, for
the fluids purification and agricultural markets, changes in planting activity,
crop quality and overall agricultural demand, including export demand,
increasing regulation of the food chain and foreign exchange rate fluctuations.
Other factors affecting these forward-looking statements may be detailed from
time to time in other reports filed with the Securities and Exchange Commission.AS
AMENDED. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE REFLECTED IN THESE
FORWARD-LOOKING STATEMENTS, DUE TO UNCERTAINTIES SUCH AS CONTINUED VIGOROUS
COMPETITION IN THE GROCERY, MASS MERCHANDISER AND CLUB MARKETS AND SPECIALTY
PRODUCT MARKETS, THE LEVEL OF SUCCESS OF NEW PRODUCTS, AND THE COST OF PRODUCT
INTRODUCTIONS AND PROMOTIONS IN THE CONSUMER MARKET. FORWARD-LOOKING STATEMENTS
ARE ALSO SUBJECT TO THE RISK OF CHANGES IN MARKET CONDITIONS IN THE OVERALL
ECONOMY, ENERGY PRICES, THE RISK OF WAR OR INTERNATIONAL INSTABILITY AND, FOR
THE FLUIDS PURIFICATION AND AGRICULTURAL MARKETS, CHANGES IN PLANTING ACTIVITY,
CROP QUALITY AND OVERALL AGRICULTURAL DEMAND, INCLUDING EXPORT DEMAND,
INCREASING REGULATION OF THE FOOD CHAIN AND FOREIGN EXCHANGE RATE FLUCTUATIONS.
OTHER FACTORS AFFECTING THESE FORWARD-LOOKING STATEMENTS MAY BE DETAILED FROM
TIME TO TIME IN OTHER REPORTS FILED BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk and employs policies and procedures
to manage its exposure to changes in the market risk of its cash equivalents and
short-term investments. The Company had two interest rate swap agreements as of
January 31,April 30, 2003. The Company believes that the market risk arising from holdings
of its financial instruments is not material.
The Company is exposed to regulatory risk in the fluid purification and
agricultural markets. The Company continues to work with its legal
representatives and trade groups to addressmarkets, principally as a result of the risk of increasing
regulation of the food chain.chain in the United States and Europe. The Company
actively monitors developments in this area, both directly and through trade
organizations of which it is a member.
The Company is exposed to commodity price risk with respect to natural gas. The
Company had contracted for a significant portion of its fuel needs for fiscal
2003 using forward purchase contracts to manage the volatility related to this
exposure. These 18 contracts will reduce the volatility in fuel prices, and the
weighted average cost of these contracts has been estimated to be approximately
17% lower than the contracts for fiscal 2002. No contracts were entered into for
speculative purposes.
The table below provides information about the Company's natural gas future
contracts, which are sensitive to changes in commodity prices, specifically
natural gas prices. For the future contracts the table presents the notional
amounts in MMBtu's, the weighted average contract prices, and the total dollar
contract amount, which will mature by July 31, 2003. The Fair Value was
determined using the "Most Recent Settle" price for the "Henry Hub Natural Gas"
option contract prices as listed by the New York Mercantile Exchange on February
27,May 28,
2003.
-------------------------------------------------------------
Commodity Price Sensitivity
Natural Gas Future Contracts
For the Year Ending July 31, 2003
-------------------------------------------------------------
Expected 2003 Fair
Maturity Value
-------------------------------------------------------------
Natural Gas Future Volumes (MMBtu's) 645,000 --
Weighted Average Price (Per MMBtu) $ 3.82 --
Contract Amount ($ U.S.,in thousands) $2,462.9 $3,334.1
-------------------------------------------------------------
- ---------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2003
- ---------------------------------------------------------
Expected 2003 Fair
Maturity Value
- ---------------------------------------------------------
Natural Gas Future 645,000 --
Volumes (MMBtu's)
Weighted Average Price
(Per MMBtu) $ 3.82 --
Contract Amount ($ U.S.,
in thousands) $2,462.9 $3,039.1
- ---------------------------------------------------------
Factors whichthat could influence the fair value of the natural gas contracts,
include, but are not limited to, the creditworthiness of the Company's natural
gas suppliers, the overall general economy, developments in world events, and
the general demand offor natural gas by the manufacturing sector, seasonality and
the weather patterns throughout the United States and the world. Some of these
same events have allowed the Company to mitigate the impact of the natural gas
contracts by the continued and in some cases expanded use of recycled oil in our
manufacturing processes. Accurate estimates of the impact that these contracts
may have on the Company's fiscal 2003 financial results are difficult to make
due to the inherent uncertainty of future fluctuations in option contract prices
in the natural gas options market.
ITEM 4. CONTROLS AND PROCEDURES
(a) Based on their evaluation within 90 days prior to the filing date
of this Quarterly Report on Form 10-Q, the Company's Chief
Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures as
defined in Rule 13a-14(c) under the Securities and Exchange Act of
1934, as amended, are effective for gathering, analyzing, and
disclosing the information we arethe Company is required to disclose
in
our reports filed under the Act.
(b) There were no significant changes in ourthe Company's internal controls or
in other factors that could significantly affect those controls since
the date of last evaluation of those internal controls.
19
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 3, 2002, the 2002 Annual Meeting of Stockholders of Oil-Dri
Corporation of America was held for the purpose of considering and voting
on:
1. The election of nine directors.
ELECTION OF DIRECTORS
The following schedule sets forth the results of the vote to elect
directors. A total of 18,423,967 shares were eligible to vote.
VOTES FOR
DIRECTOR (NOT LESS THAN)
J. Steven Cole 17,905,011
Arnold W. Donald 17,905,011
Ronald B. Gordon 17,905,011
Daniel S. Jaffee 17,905,011
Richard M. Jaffee 17,905,011
Thomas D. Kuczmarski 17,905,011
Joseph C. Miller 17,905,011
Paul J. Miller 17,905,011
Allan H. Selig 17,905,011
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The following documents are an exhibit to this report:
Exhibit (10)(o)(2)Restatement dated April 1, 2003 of the
10(j)(1): Second Amendment,Oil-Dri Corporation of America November 15,
1995 Deferred Compensation Plan
Exhibit Supplemental Executive Retirement Plan
10(l): dated November 22,
2002, to Credit Agreement dated as of January
29,1999.April 1, 2003
Exhibit 11: Statement Re: Computation of per share
earnings
Exhibit 99: Additional Exhibits: Certifications
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K:
The Company filed a Current Report on Form 8-K dated November 19,
2002,February 28,
2003, reporting that it had issued a press release announcing that the Company signed a definitive agreement to
consummate the Purchase.its
second quarter and six month earnings.
The Company filed a Current Report on Form 8-K dated December 13,
2002, announcing that the consummation of the Purchase.
The Company filed a Current Report on Form 8-K dated December 13,
2002,March 14, 2003,
reporting on Item 9 thereof that it had furnished Certifications
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
The Company filed a Current Report on Form 8-K dated January 10,March 28, 2003,
reporting the Company's resumptionthat it had issued a press release announcing its
implementation of repurchases of its
Common Stock.
20price increases.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OIL-DRI CORPORATION OF AMERICA
(Registrant)
BY /s/Jeffrey/S/JEFFREY M. Libert
------------------------LIBERT
Jeffrey M. Libert
Chief Financial Officer
BY /s/Daniel/S/DANIEL S. Jaffee
------------------------JAFFEE
Daniel S. Jaffee
President and Chief Executive Officer
Dated: March 14,June 12, 2003
21
CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED
I. I, Daniel S. Jaffee, Chief Executive Officer of Oil-Dri Corporation of
America, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil-Dri
Corporation of America ("Oil-Dri");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Oil-Dri as of, and for, the periods presented in this
quarterly report;
4. Oil-Dri's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Oil-Dri and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to Oil-Dri, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared.
b. evaluated the effectiveness of Oil-Dri's disclosure controls and
procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date:
5. Oil-Dri's other certifying officer and I have disclosed, based on our
most recent evaluation, to Oil-Dri's auditors and the audit committee
of Oil-Dri's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect Oil-Dri's ability
to record, process, summarize and report financial data and have
identified for Oil-Dri's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Oil-Dri's internal
controls; and
6. Oil-Dri's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 14,June 12, 2003
--------------------------
By: /s/ Daniel S. Jaffee
--------------------------
Daniel S. Jaffee
President and Chief Executive
Officer
22
CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED
I. I, Jeffrey M. Libert, Chief Financial Officer of Oil-Dri Corporation of
America, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil-Dri
Corporation of America ("Oil-Dri");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Oil-Dri as of, and for, the periods presented in this
quarterly report;
4. Oil-Dri's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Oil-Dri and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to Oil-Dri, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared.
b. evaluated the effectiveness of Oil-Dri's disclosure controls and
procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date:
5. Oil-Dri's other certifying officer and I have disclosed, based on our
most recent evaluation, to Oil-Dri's auditors and the audit committee
of Oil-Dri's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect Oil-Dri's ability
to record, process, summarize and report financial data and have
identified for Oil-Dri's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Oil-Dri's internal
controls; and
6. Oil-Dri's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 14,June 12, 2003
--------------------------
By: /s/ Jeffrey M. Libert
--------------------------
Jeffrey M. Libert
Chief Financial Officer
23
EXHIBITS
Exhibit (10)(o)(2)10(j)(1): Second Amendment,Restatement dated April 1, 2003 of the Oil-Dri
Corporation of America November 22, 2002, to Credit
Agreement15, 1995 Deferred
Compensation Plan
Exhibit 10(l): Supplemental Executive Retirement Plan dated as of January 29, 1999April
1, 2003
Exhibit 11: Statement Re: Computation of per share earnings
24
Exhibit (10)(o)(2)
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment99: Additional Exhibits: Certifications pursuant to
Credit Agreement (the "Amendment") dated as of
November 22, 2002, between Oil-Dri Corporation of America (the "Company") and
Harris Trust and Savings Bank (the "Bank").
PRELIMINARY STATEMENTS
A. The Company and the Bank are parties to a Credit Agreement dated as of
January 29, 1999, as amended (the "Credit Agreement"). All capitalized terms
used herein without definition shall have the same meanings herein as such terms
are defined in the Credit Agreement.
B. The Company has requested that the Bank amend the fixed charge coverage ratio
set forth in Section 7.9906 of the Credit Agreement, and the Bank is willing to do
so under the terms and conditions set forth in this Amendment.
SECTION 1. AMENDMENT.
Upon satisfactionSarbanes-Oxley Act of the conditions precedent contained in Section 3
below, Section 7.9 of the Credit Agreement shall be and hereby is amended and
restated to read as follows:
Section 7.9. Fixed Charge Coverage Ratio.
The Company will, as of the last day
of each fiscal quarter of the Company, maintain a ratio of (i) the
amount (if any) by which (a) Consolidated EBITDA for the four fiscal
quarters then ended exceeds (b) the sum of (1) Consolidated Capital
Expenditures for the same such period of four fiscal quarters
(determined exclusive of up to $6,000,000 of capital expenditures
incurred by the Company on or before March 31, 2003, relating to its
acquisition of a clay absorbent plant in Taft, California, and the
Jonny Cat brand, from The Clorox Company) and (2) interest income of
the Company and its Subsidiaries for the same period, all as computed
on a consolidated basis in accordance with GAAP, to (ii) the sum of
(x) Interest Expense for the same period of four fiscal quarters and
(y) Current Debt Maturities during the same period of not less than
1.25 to 1.0.
SECTION 2. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Company hereby represents and warrants to the Bank that each of the
representations and warranties set forth in Section 5 of the Credit Agreement is
true and correct on and as of the date of the Amendment as if made on and as of
the date hereof and as if each reference therein to the Credit Agreement
referred to the Credit Agreement as amended hereby and no Default or Event of
Default exists under the Credit Agreement or shall result after giving effect to
this Amendment.
SECTION 3. CONDITIONS PRECENDENT
This Amendment shall become effective upon satisfaction of the following
conditions precedent:
3.1 The company and the Bank shall have executed and delivered this Amendment.
3.2 Legal matters incident to the execution and delivery of this Amendment
shall be satisfactory to the Bank and its counsel.
25
Exhibit (10)(o)(2) continued
SECTION 4. MISCELLANEOUS
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each of which
when so executed shall be an original but all of which shall constitute one and
the same instrument. Except as specifically amended and modified hereby, all of
the terms and conditions of the Credit Agreement and the other Loan Documents in
any document shall be deemed to be references to the Credit Agreement as
reinstated and hereby amended. All capitalized terms used herein without
definition shall have the same meaning herein as they have in the credit
agreement. This Amendment shall be construed and governed by and in accordance
with the internal laws of the State of Illinois.
This Second Amendment to the Credit Agreement is dated of as of the date
first above written.
OIL-DRI CORPORATION OF AMERICA
By /s/ Jeffrey M. Libert
------------------------------
Name Jeffrey M. Libert
------------------------------
Title Vice President & CFO
------------------------------
HARRIS TRUST AND SAVINGS BANK
By /s/ Daniel K. Sabol
------------------------------
Name Daniel K. Sabol
------------------------------
Title Vice-President
------------------------------
26
Exhibit 11
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
--------------------
SIX MONTHS ENDED
JANUARY 31
--------------------
2003 2002
--------------------
Net income available to Stockholders
(numerator) $ 1,630 $ 341
--------- ---------
Shares Calculation (denominator): 5,615 5,614
Average shares outstanding - basic -- --
Effect of Dilutive Securities: -- --
Potential Common Stock
relating to stock options 72 29
--------- ---------
Average shares outstanding- assuming
dilution 5,687 5,643
========= =========
Earnings per share-basic $ 0.29 $0.06
========= =========
Earnings per share-assuming dilution $ 0.29 $0.06
========= =========