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 April 30, 2002
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)
DELAWARE 36-2048898
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 North Michigan Avenue, Suite 400 60611-4213
CHICAGO, ILLINOIS ----------
----------------- (Zip Code)
(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 - 5,470,435 Shares (Including 1,279,700 Treasury Shares)
Class B Stock - 1,765,083 Shares (Including 342,241 Treasury Shares)
2
CONTENTS
PAGE
PART I
ITEM 1: Financial Statements And Supplementary Data.....................3-9
ITEM 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations..................................10-18
ITEM 3: Quantitative And Qualitative Disclosures About Market Risk.....18-19
PART II
ITEM 6: Exhibits And Reports on Form 8-K..................................20
SIGNATURES................................................................21
3
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
APRIL 30 JULY 31
ASSETS 2002 2001
--------- ---------
CURRENT ASSETS
Cash and Cash Equivalents $ 6,795 $ 4,444
Investment Securities 1,267 1,257
Accounts Receivable, less allowance of $317
and $455 at April 30, 2002 and July 31,
2001, respectively 22,358 24,267
Other Receivables 3,615 2,497
Inventories 13,101 15,445
Prepaid Overburden Removal Expense 3,750 3,797
Prepaid Expenses 3,890 4,035
--------- ---------
TOTAL CURRENT ASSETS 54,776 55,742
--------- ---------
PROPERTY, PLANT AND EQUIPMENT - AT COST
Cost 139,563 139,730
Less Accumulated Depreciation and Amortization (86,847) (83,694)
--------- ---------
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 52,716 56,036
--------- ---------
OTHER ASSETS
Goodwill & Intangibles, net of accumulated
amortization of $4,101and $3,569 at April 30,
2002 and July 31, 2001, respectively 9,240 9,691
Deferred Income Taxes 2,573 3,155
Other 6,185 5,900
--------- ---------
TOTAL OTHER ASSETS 17,998 18,746
--------- ---------
TOTAL ASSETS $ 125,490 $ 130,524
========= ==========
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)
(UNAUDITED)
APRIL 30 JULY 31
LIABILITIES & STOCKHOLDERS' EQUITY 2002 2001
--------- ---------
CURRENT LIABILITIES
Current Maturities of Notes Payable $ 3,150 $ 2,150
Accounts Payable 4,211 5,791
Dividends Payable 473 473
Accrued Expenses
Salaries, wages and commissions 2,098 1,524
Trade promotions and advertising 2,356 4,006
Freight 1,177 1,312
Other 4,135 4,386
--------- ---------
TOTAL CURRENT LIABILITIES 17,600 19,642
--------- ---------
NONCURRENT LIABILITIEs
Notes Payable 31,750 34,256
Deferred Compensation 2,898 2,769
Other 1,921 2,011
--------- ---------
TOTAL NONCURRENT LIABILITIES 36,569 39,036
--------- ---------
TOTAL LIABILITIES 54,169 58,678
--------- ---------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share,
issued 5,470,435 shares at April 30,
2002 and July 31, 2001 547 547
Class B Stock, par value $.10 per share,
issued 1,765,083 shares at April 30,
2002 and July 31, 2001 177 177
Additional Paid-In Capital 7,667 7,667
Retained Earnings 89,203 89,778
Restricted Unearned Stock Compensation (9) (25)
Cumulative Translation Adjustment (1,436) (1,474)
--------- ---------
96,149 96,670
Less Treasury stock, at cost (1,279,700
Common and 342,241 Class B shares at
April 30, 2002 and 1,279,110 Common and
342,241 Class B shares at July 31, 2001) (24,828) (24,824)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 71,321 71,846
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 125,490 $ 130,524
========= =========
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 NINE MONTHS
ENDED APRIL 30
-------------------------
2002 2001
--------- ---------
NET SALES $ 123,064 $ 123,676
Cost of Sales 99,990 100,660
--------- ---------
GROSS PROFIT 23,074 23,016
Non-recurring Fee -- 4,278
Selling, General and Administrative Expenses (20,745) (22,525)
--------- ---------
INCOME FROM OPERATIONS 2,329 4,769
OTHER INCOME (EXPENSE)
Interest Expense (1,940) (2,228)
Interest Income 214 200
Gain on the Sale of Mineral Rights 769 --
Other (Expense) Income, Net (168) 69
--------- ---------
TOTAL OTHER EXPENSE, NET (1,125) (1,959)
INCOME BEFORE INCOME TAXES 1,204 2,810
Income Tax 359 732
--------- ---------
NET INCOME 845 2,078
RETAINED EARNINGS
Balance at Beginning of Year 89,778 90,757
Less Cash Dividends Declared 1,420 1,419
--------- ---------
RETAINED EARNINGS - APRIL 30 $ 89,203 $ 91,416
========= ==========
NET INCOME PER SHARE
BASIC $ 0.15 $ 0.37
========= =========
DILUTIVE $ 0.15 $ 0.37
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,614 5,612
========= =========
DILUTIVE 5,660 5,612
========= =========
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 NINE MONTHS
ENDED APRIL 30
-------------------------
2002 2001
--------- ---------
NET INCOME $ 845 $ 2,078
Other Comprehensive Income:
Cumulative Translation Adjustments 38 (78)
--------- ---------
TOTAL COMPREHENSIVE INCOME $ 883 $ 2,000
========= =========
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 APRIL 30
-------------------------
2002 2001
--------- ---------
NET SALES $ 39,261 $ 39,573
Cost of Sales 31,991 32,727
--------- ---------
GROSS PROFIT 7,270 6,846
Non-recurring Fee -- 4,278
Selling, General and Administrative Expenses (6,644) (7,987)
--------- ---------
INCOME FROM OPERATIONS 626 3,137
OTHER INCOME (EXPENSE)
Interest Expense (597) (714)
Interest Income 67 42
Gain on the Sale of Mineral Rights 769 --
Other Income (Expense) (141) 114
--------- ---------
TOTAL OTHER INCOME (EXPENSE), NET 98 (558)
--------- ---------
INCOME BEFORE INCOME TAXES 724 2,579
Income Tax 220 673
--------- ---------
NET INCOME $ 504 $ 1,906
========= =========
NET INCOME PER SHARE
BASIC $ 0.09 $ 0.34
========= =========
DILUTIVE $ 0.09 $ 0.34
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,614 5,614
========= =========
DILUTIVE 5,712 5,614
========= =========
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 APRIL 30
-------------------------
2002 2001
--------- ---------
NET INCOME $ 504 $ 1,906
Other Comprehensive Income:
Cumulative Translation Adjustments 55 (33)
--------- ---------
TOTAL COMPREHENSIVE INCOME $ 559 $ 1,873
========= =========
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 NINE MONTHS
ENDED APRIL 30
-------------------------
2002 2001
--------- ---------
NET INCOME $ 845 $ 2,078
--------- ---------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 6,624 6,860
Provision for Bad Debts 335 120
Loss on the Sale of Fixed Assets 91 245
(Increase) Decrease in:
Accounts Receivable 1,574 (430)
Other Receivables (1,118) (3,273)
Inventories 2,344 1,183
Prepaid Overburden Removal Expense 47 (1,081)
Prepaid Expenses 145 902
Other Assets 217 428
Increase (Decrease) in:
Accounts Payable (1,580) (1,817)
Accrued Expenses (1,462) 3,527
Deferred Compensation 129 (404)
Other (90) 87
--------- ---------
TOTAL ADJUSTMENTS 7,256 6,347
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,101 8,425
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (2,937) (4,108)
Proceeds from Sale of Property, Plant
and Equipment 14 288
Purchases of Investment Securities (1,267) (1,230)
Dispositions of Investment Securities 1,257 1,220
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,933) (3,830)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (1,507) (4,127)
Dividends Paid (1,420) (1,419)
Other 110 (41)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (2,817) (5,587)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,351 (992)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,444 1,388
--------- ---------
CASH AND CASH EQUIVALENTS, APRIL 30 $ 6,795 $ 396
========= =========
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)
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, 2001, 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 2002.
In the prior year, a temporary clearing account of customer deductions was
classified as part of the allowance for doubtful accounts. During the second
quarter, management reclassed the temporary clearing account of customer
deductions as a direct offset to accounts receivable. This change reduced the
July 31, 2001 allowance for doubtful accounts, previously reported on the
Consolidated Balance Sheet, by approximately $1,400,000.
As part of its overall operations, the Company mines sorbent materials on
property that it either owns or leases. A significant part of the overall
mining cost is incurred during the process of removing the overburden
(non-usable material) from the land, 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 expense is amortized over
the estimated available material. As of April 30, 2002 the Company had
$3,750,000 of prepaid expense recorded on its consolidated balance sheet.
During the first nine months of fiscal 2002 the Company amortized to expense
approximately $2,900,000 of previous recorded prepaid charges. Please also
refer to footnote 3, for a discussion of a change in the accounting estimate
associated with this prepaid expense.
2. INVENTORIES
The composition of inventories is as follows (in thousands):
-------------------------
APRIL 30 JULY 31
(UNAUDITED) (AUDITED)
-------------------------
2002 2001
-------------------------
Finished goods $ 7,951 $ 9,473
Packaging 3,690 4,029
Other 1,460 1,943
-------- --------
$ 13,101 $ 15,445
======== ========
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
3. 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 account
balance. The review led to a change in the estimated amount of uncovered
clay. This estimate change then caused a change in the amortization of the
prepaid overburden removal account. The impact of this estimate revision for
the first three quarters of fiscal 2002 was an additional pre-tax charge to
cost of goods sold of approximately $744,000 versus the previous estimate, or
approximately $0.09 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. Based on
11
the current ending estimate of uncovered clay the Company will have to amortize
the prepaid overburden removal account balance using the increased rate for
approximately the next 7 to 10 months. Thereafter, going forward management
believes that overburden removal expense should return to historical rates.
4. RENO PROCESS PLANT
On February 26, 2002, the Washoe County Commission voted 3 to 2 not to grant
Oil-Dri a special use permit to build the Company's proposed processing plant
in Reno, Nevada. The Company has decided not to appeal the Commission's
decision. On April 11, 2002, the Company filed suit against the County
Commission in Federal District Court in Nevada to recoup damages sustained
when it was denied a special use permit to establish a mining operation in
Hungry Valley. The Suit claims that the County Commission exceeded their
statutory authority in denying the Company the opportunity to mine on federal
land. The suit will be scheduled for a hearing in mid to late summer.
The Company is also considering other possible actions which include but are
not limited to, building a facility on Bureau of Land Management property or
elsewhere, as well as mining and outsourcing the processing of the proven
reserves. At the end of the third quarter, the Company had unamortized
capitalized costs of approximately $3,672,000 related to this project.
Pending decision with respect to its various options, the Company is
presently unable to determine if a loss will be incurred, and, if incurred,
the extent of such loss.
5. SALE OF MINERAL RIGHTS
During the third quarter, the Company reported a $769,000 pre-tax gain when
it elected to sell certain mineral leases on land in northern Florida. The
land contained minerals for a market that the Company was not actively
planning to pursue. The mineral rights, had they been pursued, would have
been associated with THE Specialty Product Group.
6. NON-RECURRING FEE
Included in the income from operations reported for both the third quarter
and year-to-date fiscal 2001 was non-recurring fee income of $4,278,000,
which resulted from the early termination of a supply agreement.
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 years beginning after June 15, 2000. One of the primary amendments to
SFAS No. 133 establishes a "normal purchases and normal sales" exception.
This exception permits companies to exclude contracts which 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
entity over a reasonable period of time in the normal course of business
operations. The Company has forward purchase contracts for certain natural
gas commodities that qualify for the "normal purchase" exception provisions
of the amended statement. The adoption of SFAS No. 133 as amended by SFAS
No. 138 had no material impact on either the financial position or results of
operations.
In September 2000, the Emerging Issues Task Force (EITF) issued EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs." Under the provisions
of EITF 00-10, amounts billed to a customer in a sales transaction related to
shipping and handling should be classified as revenue. Effective May 1,
2001, the Company adopted EITF 00-10, which did not have an effect on the
amounts classified as revenue or costs of other services. The adoption had
no impact on the determination of net income.
Effective May 1, 2001, the Company adopted Staff Accounting Bulletin No. 101
(SAB 101), "Revenue Recognition in Financial Statements." SAB 101 provides
the Securities and Exchange Commission's views in applying accounting
principles generally accepted in the United States to revenue recognition in
the financial statements. The adoption of SAB 101 did not have an effect on
the financial statements of the Company.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets", effective for years
beginning after December 15, 2001. Under the new rules, goodwill will no
longer be amortized, but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives. The pooling of interest method is no
longer permitted for business combinations after June 30, 2001. Adoption is
required for fiscal years beginning after December 15, 2001. Based upon
management's preliminary
12
analysis, the Company does not expect any impairment of goodwill under the new
FASB 142. Upon adoption, the Company's amortization expense will be reduced by
approximately $202,000 annually.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for years beginning after June 15, 2002. Under the
new rules, the fair value of a liability for an asset retirement obligation
is recognized in the period in which it is incurred if a reasonable estimate
of fair value can be made. Adoption is required for fiscal years beginning
after June 15, 2002. Based upon management's preliminary analysis, the
Company does not expect any material implications for the Company's financial
statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
of Disposal of 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 beginning after December 15, 2001. Based upon management's
preliminary analysis, the Company does not expect any material implications
for the Company's financial statements.
In July 2001, the EITF reached a final consensus on Issue 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase
or Promotion of the Vendor's Products." The consensus addresses the
accounting treatment and income statement classification for certain sales
incentives, including cooperative advertising arrangements, buydowns and
slotting fees. The consensus requires that these items classified by the
Company as selling, general and administrative expense, be reclassified as a
reduction of gross sales.
The Company was required to adopt EITF No. 00-25 for the third quarter ending
April 30, 2002, but elected to adopt it for slotting in the second quarter
ending January 31, 2002. The Company then fully completed the adoption for
buydowns and cooperative advertising arrangements in the third quarter ending
April 30, 2002. The effect of the adoption of EITF No. 00-25 resulted in a
reclassification of expenses and a restatement to reduce previously reported
net sales and SG&A expenses. The effect of these reclassifications resulted
in a reduction in net sales and a corresponding decrease in SG&A expenses of
$7,193,000 and $7,688,000 for the fiscal years ended July 31, 2001 and 2000,
respectively.
In 2000, the EITF discussed a number of topics related to certain expenses
that the Company reports in merchandising expenses, a component of SG&A
expenses. In January 2001, the EITF issued No. 00-22, which requires certain
rebate offers and free products that are delivered subsequent to a single
exchange transaction to be recognized when incurred and reported as a
reduction of revenue. EITF No. 00-14 was issued in May 2000 and subsequently
amended in November 2000. This guidance requires certain coupon, rebate
offers and free products offered concurrently with a single exchange
transaction with a customer to be recognized when incurred and reported as
revenue. The Company was required to adopt EITF No. 00-22 and No. 00-14 for
the third quarter ending April 30, 2001, and the fourth quarter ending July
31, 2001, respectively. The effect of the adoptions of EITF No. 00-22 and
No. 00-14 resulted in a reclassification of expenses and a restatement to
reduce previously reported net sales and SG&A expenses. The effect of these
reclassifications resulted in a reduction in net sales and a corresponding
decrease in SG&A expenses of $3,449,000 and $3,388,000 for the years ended
July 31, 2001 and 2000, respectively.
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 Company's Annual Report for the year ended July 31, 2001 on
Form 10-K filed with the Securities and Exchange Commission.
Because management does not rely on segment asset allocation, information
regarding segment assets is not meaningful and therefore is not reported.
13
-------------------------------------
Nine Months Ended April 30
-------------------------------------
Net Sales Operating Income
-------------------------------------
2002 2001 2002 2001
-------- -------- ------- --------
(in thousands)
Consumer Products Group.................. $ 76,107 $ 77,326 $ 5,787 $ 4,996
Specialty Products Group................. 18,446 18,061 3,819 2,797
Crop Production and Horticultural
Products Group......................... 13,840 13,630 2,038 1,361
Industrial and Automotive Products Group. 14,671 14,659 214 124
-------- -------- ------- -------
TOTAL SALES/OPERATING INCOME............. $123,064 $123,676 $11,858 $ 9,278
======== ======== ------- -------
Non-recurring Fee(2)..................... -- 4,278
Less:
Corporate Expenses..................... 9,696 8,719
Interest Expense, net of Interest
Income............................... 1,727 2,027
Gain on the Sale of Mineral
Rights(1).............................. (769) --
------- -------
INCOME BEFORE INCOME TAXES............... 1,204 2,810
------- -------
Income Taxes............................. 359 732
------- -------
NET INCOME............................... 845 2,078
======= =======
-------------------------------------
Quarter Ended April 30
-------------------------------------
Net Sales Operating Income
-------------------------------------
2002 2001 2002 2001
-------- -------- -------- -------
(in thousands)
Consumer Products Group.................. $ 23,046 $ 22,988 $ 1,633 $ 291
Specialty Products Group................. 5,779 5,937 1,185 700
Crop Production and Horticultural
Products Group......................... 5,544 5,590 1,142 900
Industrial and Automotive Products
Group.................................. 4,892 5,058 (24) 111
-------- -------- -------- ------
TOTAL SALES/OPERATING INCOME............. $ 39,261 $ 39,573 $ 3,936 $2,002
======== ======== -------- ------
Non-recurring Fee(2)..................... -- 4,278
Less:
Corporate Expenses..................... 3,450 3,031
Interest Expense, net of Interest
Income............................... 531 671
Gain on the Sale of Mineral
Rights(1)............................ (769) --
------- ------
INCOME BEFORE INCOME TAXES............... 724 2,578
------- ------
Income Taxes............................. 220 672
------- ------
NET INCOME............................... 504 1,906
======= ======
(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 non-recurring fee income recorded in
fiscal 2001.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 2002 COMPARED TO
NINE MONTHS ENDED APRIL 30, 2001
RESULTS OF OPERATIONS
Consolidated net sales for the nine months ended April 30, 2002 were
$123,064,000, a decrease of 0.5% from net sales of $123,676,000 in the first
nine months of fiscal 2001. The year-to-date sales reflect the
reclassification described in footnote 7 for the various new accounting
pronouncements. Net income for the first nine months of fiscal 2002 was
$845,000, a decrease of 59% from $2,078,000 earned in the first nine months of
fiscal 2001. Fiscal 2002 income was positively impacted by a pre-tax gain of
$769,000 on the sale of mineral rights. Fiscal 2001 income was positively
impacted by $4,278,000 of pre-tax income generated from a non-recurring fee,
while being negatively impacted by $920,000 of charges covering developmental
costs and several capital asset programs that the Company no longer intends
to pursue in their original form. Basic and diluted net income per share for
the first nine months of fiscal 2002 was $0.15 versus $0.37 basic and diluted
net income per share earned in the first nine months of fiscal 2001.
Net sales of the Consumer Products Group for the first nine months of fiscal
2002 were $76,107,000, a decrease of 1.6% from net sales of $77,326,000 in
the first nine months of fiscal 2001. This segment's operating income
increased 15.8% from $4,996,000 in the first nine months of fiscal 2001 to
$5,787,000 in the first nine months of fiscal 2002. There were a number of
factors that drove the results. Overall, the group did a much better job of
managing/controlling its selling and administrative expenses. Additional
expense control was also seen in the area of temporary price reductions (i.e.
buydowns or TPRs) and cooperative advertising programs, which are now part of
sales revenue. The cost reductions in TPRs and cooperative advertising
offset over a million dollars of reduced gross profit that was caused by
unfavorable product mix, which was weighted heavily towards private label
versus branded cat litter products, and the deterioration of distribution of
paper cat litter items. Finally, part of the benefit of the expense control
in selling and administrative expenses was offset by reduced product pricing
in the co-manufacturing area.
Net sales of the Specialty Products Group for the first nine months of fiscal
2002 were $18,446,000, an increase of 2.1% from net sales of $18,061,000 in
the first nine months of fiscal 2001. This segment's operating income
increased 36.5% from $2,797,000 in the first nine months of fiscal 2001 to
$3,819,000 in the first nine months of fiscal 2002. The increase was due to
improved gross profit from increased selling prices and lower expenses due to
asset/program write-offs taken in the Rheological products business in fiscal
2001 and lower manufacturing costs.
Net sales of the Crop Production and Horticultural Products Group for the
first nine months of fiscal 2002 were $13,840,000, an increase of 1.5% from
net sales of $13,630,000 in the first nine months of fiscal 2001. Crop
Production and Horticultural Products' operating income increased by 49.7%
from $1,361,000 in the first nine months of fiscal 2001 to $2,038,000 in the
first nine months of fiscal 2002. This increase was driven by price
increases for AGSORB(R) agricultural carriers and generally more favorable
product mix, which added almost $200,000 to operating income.
Net sales of the Industrial and Automotive Products Group for the first nine
months of fiscal 2002 were $14,671,000, which was flat against net sales of
$14,659,000 in the first nine months of fiscal 2001. Industrial and
Automotive Products' operating income increased 72.6% from $124,000 in the
first nine months of fiscal 2001 to $214,000 in the first nine months of
fiscal 2002. The profitability increase was driven by a $280,000 positive
mix impact of selling 30% more synthetic sorbents.
Consolidated gross profit as a percentage of net sales for the first nine
months of fiscal 2002 increased to 18.8% from 18.6% in the first nine months
of fiscal 2001. The year-to-date gross profit reflects the reclassifications
described in footnote 7 for the various new accounting pronouncements. The
small increase in gross profit was due to price increases in the Specialty
and Crop Production and Horticultural Products Groups, improved mix factors
in Crop Production and Industrial and Automotive Products Group, most of
which was offset by reduced product pricing in the co-manufacturing area.
The Company's year-to-date fiscal 2002 fuel costs are down approximately 1.9%
from fiscal 2001. Therefore, fuel costs have had only a small impact on the
change in gross profit.
Operating expenses as a percentage of net sales for the first nine months of
fiscal 2002 decreased to 16.9% from 18.2% in the first nine months of fiscal
2001 due to a reduction of trade and advertising spending in the Consumer
Products Group and lower expenses due to asset/program write-offs taken in
fiscal 2001.
15
Interest expense and interest income for the first nine months of fiscal 2002
were better by $302,000 from fiscal 2001, due to lower levels of debt and
increased cash and cash equivalents balances.
The Company's effective tax rate was 29.8% of pre-tax income in the first
nine months of fiscal 2002 versus 26.0% in the first nine months of fiscal
2001.
Total assets of the Company decreased $5,034,000 or 3.9% during the first
nine months of fiscal 2002. Current assets decreased $966,000 or 1.7% from
fiscal 2001 year-end balances primarily due to decreased accounts receivable
and inventory offset by increases in cash and cash equivalents and other
receivables.
Property, plant and equipment, net of accumulated depreciation, decreased
$3,320,000 or 5.9% during the first nine months as depreciation expense
exceeded capital expenditures.
Total liabilities decreased $4,509,000 or 7.7% during the first nine months
of fiscal 2002. Current liabilities decreased $2,042,000 or 10.4% from
fiscal 2001 year-end balances due to decreases in trade payables and accruals
for trade and promotional spending, offset by increases in current debt
maturities and compensation accruals.
EXPECTATIONS
The Company anticipates that fourth quarter sales will be down compared to
the same quarter a year ago. The impact of the Company's decision to
restructure its private label supply arrangement with Wal-Mart will cause
sales to decline, but should cause profits to increase. This decision
should also lead to lower inventories and receivables, which should enhance
the Company's cash position.
In fiscal 2003 the Company believes that sales will be down, but profits
should be up due to the ongoing product and geographical rationalization.
The profit picture should improve if the current natural gas trends
continue. Also, positively impacting fiscal 2003 would be the Company's
Georgia overburden removal costs should they return to more historical levels
as anticipated.
Because of the uncertainties of the general economy and the increased
overburden removal costs in Georgia, the Company believes it is prudent to
forecast the Company's fully diluted earnings per share in a broad range of
$0.15 to $0.20 per diluted share for fiscal 2002.
16
LIQUIDITY AND CAPITAL RESOURCES
The current ratio of 3.1:1 at April 30, 2002 increased from the 2.8:1 at July
31, 2001. Working capital increased $1,076,000 during the first nine months
of fiscal 2002 to $37,176,000, primarily due to higher cash & cash
equivalents, and lower trade payables and accrued expenses. This increase
was partially offset by lower inventories and receivables. During the first
nine months of fiscal 2002, the balances of cash, cash equivalents and
investment securities increased $2,361,000 to $8,062,000.
Cash provided by operating activities was used to fund capital expenditures
of $2,937,000, payments on long-term debt of $1,507,000 and dividend payments
of $1,420,000. Total cash and investment balances held by the Company's
foreign subsidiaries at April 30, 2002 and July 31, 2001 were $2,232,000 and
$2,241,000, respectively.
Accounts receivable, less allowance for doubtful accounts, decreased 7.9%
during the first nine months of fiscal 2002. Days outstanding receivables
decreased from 60.7 at July 31, 2001 to 54.3 at April 30, 2002. The Company
maintains policies and practices to monitor the creditworthiness of its
customers. Such policies include maintenance of a list of customers whose
creditworthiness has diminished. The total balance of accounts receivable
for accounts on that list represents less than 5.1% of the Company's
outstanding receivables. Also, during the quarter, the Company settled its
lawsuit with The Fleming Companies, Inc. on terms that were satisfactory to
both parties.
Teachers Insurance and Annuity Association and CIGNA Investments, Inc. have
issued a waiver for the loan covenant, as described as the Fixed Charge
Coverage Ratio, contained in the Note Purchase Agreements dated as of April
15, 1998, and April 15, 1993, for the quarter ended April 30, 2002. Future
amendments to the various loan covenants are under discussion with Teachers
Insurance and Annuity Association and CIGNA Investments, Inc.
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. The credit
agreement contains restrictive covenants that, among other things and under
various conditions, limit the Company's ability to incur additional
indebtedness, to acquire (including a limitation on capital expenditures) 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. However, should new facility construction occur, it is
anticipated that additional borrowings of a long-term nature will be required
outside the existing credit facility.
The Company's ability to fund operations, make planned capital expenditures,
including new facility construction, to make scheduled debt payments and to
remain in compliance with all of the financial covenants under debt
agreements 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 APRIL 30, 2002 COMPARED TO
THREE MONTHS ENDED APRIL 30, 2001
RESULTS OF OPERATIONS
Consolidated net sales for the third quarter ended April 30, 2002 were
$39,261,000, a decrease of 0.8% from net sales of $39,573,000 in the third
quarter of fiscal 2001. The quarterly sales reflect the reclassification
described in footnote 7 for the various new accounting pronouncements. The
net income for the third quarter of fiscal 2002 was $504,000, which was a
decrease of $1,402,000 from the $1,906,000 income in the third quarter of
fiscal 2001. Fiscal 2002 income was positively impacted by a pre-tax
$769,000 gain on the sale of mineral rights. Fiscal 2001's third quarter
income was positively impacted by $4,278,000 of non-recurring fee income,
while being negatively impacted by $700,000 of charges covering developmental
costs and several capital asset programs that the Company no longer intends
to pursue in their original form. Basic and diluted net income per share for
the third quarter of fiscal 2002 were $0.09 versus $0.34 basic and diluted
net income per share earned in the third quarter of fiscal 2001.
Net sales of the Consumer Products Group for the third quarter of fiscal 2002
were $23,046,000, flat with net sales of $22,988,000 in the third quarter of
fiscal 2001. This segment's operating income increased 461% from $291,000 in
the third quarter of fiscal 2001 to $1,633,000 in the same period of fiscal
2002. This increase was due to a reduction of selling and administrative
expenses, especially in the trade spending area. Additional expense control
was also seen in the area of TPRs and
17
cooperative advertising programs, which are now part of sales revenue. The
cost reductions in TPRs and cooperative advertising offset approximately
$400,000 of reduced gross profit that was caused by unfavorable product mix,
which was weighted heavily towards private label versus branded cat litter
products, and the deterioration of distribution of paper cat litter items.
General price increases and control of expenses that impact gross profit were
also able to overcome price reductions in the co-manufacturing area.
Net sales of the Specialty Products Group for the third quarter of fiscal
2002 were $5,779,000, a decrease of 2.7% from net sales of $5,937,000 in the
third quarter of fiscal 2001. This segment's operating income increased
69.3% from $700,000 in the third quarter of fiscal 2001 to $1,185,000 in the
third quarter of fiscal 2002 due to increased margins and better cost control
in the selling and administrative area.
Net sales of the Crop Production and Horticultural Products Group for the
third quarter of fiscal 2002 were $5,544,000, a decrease of 0.8% from net
sales of $5,590,000 in the third quarter of fiscal 2001. This segment's
operating income increased 26.9% from $900,000 in the third quarter of fiscal
2001 to $1,142,000 in the third quarter of fiscal 2002 due to improvements in
the Company's manufacturing cost control.
Net sales of the Industrial and Automotive Products Group for the third
quarter of fiscal 2002 were $4,892,000, a decrease of 3.3% from net sales of
$5,058,000 in the third quarter of fiscal 2001. This segment's operating
income decreased 120% from $111,000 of income in the third quarter of fiscal
2001 to a $24,000 loss reported in the third quarter of fiscal 2002.
Manufacturing issues adversely impacted product deliveries, which resulted in
a shortfall in sales and operating income.
Consolidated gross profit as a percentage of net sales for the third quarter
of fiscal 2002 increased to 18.5% from 17.3% in the third quarter of fiscal
2001. The gross profit for the quarter reflects the reclassifications
described in footnote 7 for the various new accounting pronouncements. The
increase in gross profit was due to improved margins in the Consumer,
Specialty and Crop Production and Horticultural Products Groups. For the
quarter, the Company's fiscal 2002 fuel costs are down approximately 2.2%
from fiscal 2001.
Operating expenses as a percentage of net sales for the third quarter of
fiscal 2002 decreased to 16.9% from 20.2% in the third quarter of fiscal 2001
due to a decrease in trade and advertising spending in the Consumer Products
Group.
Interest expense and interest income for the third quarter of fiscal 2002
were better by $142,000 from fiscal 2001, due to lower debt levels.
The Company's effective tax rate was 30.4% of pre-tax income in the third
quarter of fiscal 2002 versus 26.1% in the same period of fiscal 2001.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the nine months ended
April 30, 2002 were $8,056,000 or 6.5% of total Company sales. This
represents a decrease of 5.0% from the same period of fiscal 2001 in which
foreign subsidiary sales were $8,481,000 or 6.9% of total Company sales.
This decrease was due to continued decline of branded cat litter business in
Canada and distribution issues related to our floor absorbent markets in the
United Kingdom. For the first nine months of fiscal 2002, the foreign
subsidiaries experienced a loss of $396,000, an improvement of $499,000 from
the $895,000 loss reported for the same period in fiscal 2001. This
improvement was primarily due to better expense control and lower material
costs in the Canadian operation.
Identifiable assets of the Company's foreign subsidiaries as of April 30,
2002 were $9,867,000, vs. $9,968,000 as of April 30, 2001. This reduction
was seen mostly in inventory.
Net sales by the Company's foreign subsidiaries during the three months ended
April 30, 2002 were $2,376,000 or 6.1% of total Company sales. This
represents a decrease of 14.9% from the third quarter of fiscal 2001, in
which foreign subsidiary sales were $2,793,000 or 7.1% of total Company
sales. For the three months ended April 30, 2002 the foreign subsidiaries
experienced a loss of $136,000, an improvement of $383,000 from the $519,000
loss reported in the third quarter of fiscal 2001. The improvement for the
quarter was again primarily due to better expense control and lower material
costs in the Canadian operation.
18
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," "would," "could," "should,"
"estimates," "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 primarily to 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 also involve the risk of changes in market conditions in the
overall economy, and, for the fluids purification and agricultural markets,
in planting activity, crop quality and overall agricultural demand, including
export demand, fluctuations of energy costs and foreign exchange rate
fluctuations. Other factors affecting these forward-looking statements may
be detailed from time to time in reports filed with the securities and
exchange commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not have any derivative financial instruments as of April 30,
2002. However, the Company is exposed to interest rate risk. The Company
employs policies and procedures to manage its exposure to changes in the
market risk of its cash equivalents and short term investments. The Company
believes that the market risk arising from holdings of its financial
instruments is not material.
The Company is exposed to commodity price risk with respect to natural gas.
The Company has contracted for a major portion of its fuel needs for fiscal
2002 and a smaller portion thus far of its fuel needs for fiscal 2003 using
forward purchase contracts to manage the volatility related to this
exposure. These contracts are consistent with the Company's policy to
contract for approximately 50% of its estimated annual fuel usage prior to
the beginning of the following fiscal year. This determination is made by
the Company depending on the economic conditions and business considerations,
including, but not limited to, the prices of available alternative fuels.
Business custom permits delivery of the fuel to be taken under the monthly
contracts or settlement of the contracts at the then prevailing market
rates. No contracts were entered into for speculative purposes. These
contracts will reduce the volatility in fuel prices, and the weighted average
cost of these contracts will be consistent with the increased prices paid in
fiscal 2001.
The tables below provide information about the Company's fiscal 2002 and 2003
(to April 30, 2002) natural gas future contracts, which are sensitive to
changes in commodity prices, specifically natural gas prices. For the future
contracts the tables present the notional amounts in MMBtu's, the weighted
average contract prices, and the total dollar contract amount, which will
mature by July 31, 2002 and July 31, 2003, respectively. 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
May 30, 2002.
-----------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2002
-----------------------------------------------------------------
Expected 2002 Fair
Maturity Value
-----------------------------------------------------------------
Natural Gas Future Volumes (MMBtu's) 1,420,000
Weighted Average Price (Per MMBtu) $4.61
Contract Amount ($ U.S., in thousands $6,651.3 $3,859.5
-----------------------------------------------------------------
19
-----------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2002
-----------------------------------------------------------------
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 $2,353.6
-----------------------------------------------------------------
Factors which could influence the fair value of the natural gas contracts
include, but are not limited to, the overall general economy, the events
which occurred on September 11, 2001 in New York and Washington and related
international developments, the general demand for 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 2002 and 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.
20
PART II - OTHER INFORMATION
6. (a)EXHIBITS: The following documents are an exhibit to this report.
Exhibit
Index
--------
Exhibit 11: Statement Re: Computation of per share 22
earnings
21
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 M. LIBERT
------------------------------
Jeffrey M. Libert
Chief Financial Officer
BY /S/DANIEL S. JAFFEE
------------------------------
Daniel S. Jaffee
President and Chief Executive Officer
Dated: June 12, 2002
22
Exhibit 11
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
-------------------------
Nine Months Ended
April 30
-------------------------
2002 2001
--------- ---------
Net income available to Stockholders (numerator) $ 845 $ 2,078
Shares Calculation (denominator):
Average shares outstanding - basic 5614 5,612
Effect of Dilutive Securities:
Potential Common Stock
relating to stock options 46 --
--------- ---------
Average shares outstanding- assuming dilution 5,660 5,612
========= =========
Earnings per share-basic $ 0.15 $ 0.37
========= =========
Earnings per share-assuming dilution $ 0.15 $ 0.37
========= =========