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, 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
CHICAGO, ILLINOIS 60611-4213
-------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
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 1,279,110 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
ITEM 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations.....................................15
ITEM 3: Quantitative And Qualitative Disclosures About Market Risk........19
PART II
ITEM 6: Exhibits And Reports on Form 8-K..................................21
SIGNATURES................................................................22
3
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
------------------------
JANUARY 31 JULY 31
ASSETS 2002 2001
------------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 4,290 $ 4,444
Investment Securities 1,261 1,257
Accounts Receivable, less allowance of $359
and $455 at January 31, 2002 and July 31, 2001, 25,384 24,267
respectively
Other Receivables 3,332 2,497
Inventories 14,674 15,445
Prepaid Overburden Removal Expense 3,762 3,797
Prepaid Expenses 4,368 4,035
--------- --------
TOTAL CURRENT ASSETS 57,071 55,742
--------- --------
PROPERTY, PLANT AND EQUIPMENT - AT COST
Cost 141,738 139,730
Less Accumulated Depreciation and (87,678) (83,694)
-------- --------
Amortization
TOTAL PROPERTY, PLANT AND Equipment, Net 54,060 56,036
--------- --------
OTHER ASSETS
Goodwill & Intangibles, net of accumulated
amortization of $3,925 and $3,569 at
January 31, 2002 and July 31, 2001,
respectively 9,406 9,691
Deferred Income Taxes 3,155 3,155
Other 6,097 5,900
--------- --------
TOTAL OTHER ASSETS 18,658 18,746
--------- --------
TOTAL ASSETS $ 129,789 $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)
------------------------
LIABILITIES & STOCKHOLDERS' EQUITY JANUARY 31 JULY 31
2002 2001
------------------------
CURRENT LIABILITIES
Current Maturities of Notes Payable $ 1,650 $ 2,150
Accounts Payable 4,707 5,791
Dividends Payable 473 473
Accrued Expenses
Salaries, wages and commissions 1,751 1,524
Trade promotions and advertising 5,357 4,006
Freight 1,109 1,312
Other 5,178 4,386
-------- --------
TOTAL CURRENT LIABILITIES 20,225 19,642
-------- --------
NONCURRENT LIABILITIES
Notes Payable 33,250 34,256
Deferred Compensation 2,876 2,769
Other 2,209 2,011
-------- --------
TOTAL NONCURRENT LIABILITIES 38,335 39,036
-------- --------
TOTAL LIABILITIES 58,560 58,678
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share, issued
5,470,435 shares at January 31, 2002 and July
31, 2001 547 547
Class B Stock, par value $.10 per share,
issued 1,765,083 shares at January 31, 2002
and July 31, 2001 177 177
Additional Paid-In Capital 7,667 7,667
Retained Earnings 89,173 89,778
Restricted Unearned Stock Compensation (16) (25)
Cumulative Translation Adjustment (1,491) (1,474)
-------- --------
96,057 96,670
Less Treasury Stock, at cost (1,279,110 Common
shares and 342,241 Class B shares at January
31, 2002 and at July 31, 2001) (24,828) (24,824)
--------- --------
TOTAL STOCKHOLDERS' EQUITY 71,229 71,846
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $129,789 $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 SIX MONTHS ENDED
JANUARY 31
-------------------------
2002 2001
-------------------------
NET SALES $ 86,880 $ 87,923
Cost Of Sales 67,999 67,933
--------- ---------
GROSS PROFIT 18,881 19,990
Selling, General And Administrative Expenses (17,178) (18,358)
--------- ---------
INCOME FROM OPERATIONS 1,703 1,632
OTHER INCOME (EXPENSE)
Interest Expense (1,343) (1,514)
Interest Income 147 158
Other, Net (27) (45)
--------- ---------
TOTAL OTHER EXPENSE, NET (1,223) (1,401)
--------- ---------
INCOME BEFORE INCOME TAXES 480 231
Income Tax 139 59
--------- ---------
NET INCOME 341 172
RETAINED EARNINGS
BALANCE AT BEGINNING OF YEAR 89,778 90,757
LESS CASH DIVIDENDS DECLARED 946 946
--------- ---------
RETAINED EARNINGS - JANUARY 31 $ 89,173 $ 89,983
========= =========
NET INCOME PER SHARE
BASIC $ 0.06 $ 0.03
========= =========
DILUTIVE $ 0.06 $ 0.03
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,614 5,611
========= =========
DILUTIVE 5,643 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 SIX MONTHS ENDED
JANUARY 31
-------------------------
2002 2001
-------------------------
NET INCOME $ 341 $ 172
OTHER COMPREHENSIVE INCOME:
Cumulative Translation Adjustments (17) (45)
------- -------
TOTAL COMPREHENSIVE INCOME $ 324 $ 127
======= =======
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
-------------------------
2002 2001
-------------------------
NET SALES $ 45,427 $ 45,468
Cost Of Sales 35,833 35,734
--------- ---------
GROSS PROFIT 9,594 9,734
Selling, General And Administrative Expenses (8,814) (9,514)
--------- ---------
INCOME FROM OPERATIONS 780 220
OTHER INCOME (EXPENSE)
Interest Expense (664) (745)
Interest Income 95 114
Other, Net (104) 60
--------- ---------
TOTAL OTHER EXPENSE, NET (673) (571)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 107 (351)
Income Tax (Benefit) 33 (90)
--------- ---------
NET INCOME (LOSS) 74 (261)
========= =========
NET INCOME (LOSS) PER SHARE
BASIC $ 0.01 $ (0.05)
========= =========
DILUTIVE $ 0.01 $ (0.05)
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,614 5,612
========= =========
DILUTIVE 5,648 5,612
========= =========
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
-------------------------
2002 2001
-------------------------
NET INCOME (LOSS) $ 74 $ (261)
OTHER COMPREHENSIVE INCOME:
Cumulative Translation Adjustments (66) 8
------- -------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 8 $ (253)
======= =======
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
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001
- ------------------------------------
-------------------------
NET INCOME $ 341 $ 172
-------- --------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 4,427 4,564
Provision for Bad Debts 256 80
(Increase) Decrease in:
Accounts Receivable (1,373) (3,875)
Other Receivables (835) 345
Inventories 771 987
Prepaid Overburden Removal Expense 35 (666)
Prepaid Expenses (333) 560
Other Assets (269) (69)
Increase (Decrease) in:
Accounts Payable (1,084) 776
Accrued Expenses 2,167 2,322
Deferred Compensation 107 (401)
Other 198 25
-------- --------
TOTAL ADJUSTMENTS 4,067 4,648
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,408 4,820
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (2,092) (2,641)
Proceeds from Sale of Property, Plant and
Equipment 14 180
Purchases of Investment Securities (557) (1,230)
Dispositions of Investment Securities 553 1,219
Other (7) 128
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,089) (2,344)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (1,507) (2,427)
Dividends Paid (946) (946)
Other (20) (22)
-------- --------
NET CASH (USED IN) FINANCING ACTIVITIES (2,473) (3,395)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH (154) (919)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,444 1,388
-------- --------
CASH AND CASH EQUIVALENTS, JANUARY 31 $ 4,290 $ 469
======== ========
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 current 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.
2. INVENTORIES
The composition of inventories is as follows (in thousands):
-------------------------
JANUARY 31 JULY 31
(UNAUDITED) (AUDITED)
-------------------------
2002 2001
-------------------------
Finished goods $ 9,227 $ 9,473
Packaging 3,733 4,029
Other 1,714 1,943
-------- --------
$ 14,674 $ 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 our 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 in the second quarter of fiscal 2002 was an
additional pre-tax charge to cost of goods sold of approximately
$398,000 versus the previous estimate, or approximately $0.05 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 current ending estimate of uncovered clay
is approximately 1,100,000 tons will have to be amortized using the
increased rate for approximately
11
the next 10 to 13 months. Thereafter, going forward management believes that
overburden removal expense should return to historical rates.
4. SUBSEQUENT EVENT
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 and is considering other possible action, including:
building a facility on Bureau of Land Management property or elsewhere, mining
and outsourcing the processing of the proven reserves, as well as taking legal
action against the County to recover development costs and damages. At the end
of the second quarter, the Company had unamortized capitalized costs of approxi-
mately $3,355,000 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. 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 issues
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 analysis, we do
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
12
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, we do 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,
we do 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 slotting fees, 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 has elected to adopt it in the second
quarter ending January 31, 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 $575,000 and $1,511,000 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.
6. 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
-------------------------------------
Six Months Ended January 31
-------------------------------------
Net Sales Income
-------------------------------------
2002 2001 2002 2001
-------- -------- ------- --------
(in thousands)
Consumer Products Group.................. $ 56,138 $ 58,158 $ 4,154 $ 4,705
Specialty Products Group................. 12,667 12,124 2,634 2,097
Crop Production and Horticultural
Products Group......................... 8,296 8,040 896 461
Industrial and Automotive Products
Group.................................. 9,779 9,601 238 13
======== ======== -------- --------
TOTAL SALES/OPERATING Income............. 86,880 87,923 7,922 7,276
======== ======== -------- --------
Less:
Corporate Expenses.......................................... 6,246 5,689
Interest Expense, net of Interest Income.................... 1,196 1,356
INCOME BEFORE INCOME Taxes.................................... 480 231
-------- --------
Income Taxes.................................................. 139 59
-------- --------
NET INCOME.................................................... $ 341 $ 172
======== ========
------------------------------------
Three Months Ended January 31
------------------------------------
Net Sales Income (Loss)
------------------------------------
2002 2001 2002 2001
-------- -------- -------- -------
(in thousands)
Consumer Products Group.................. $ 29,511 $ 30,785 $ 2,118 $ 2,094
Specialty Products Group................. 6,237 5,652 1,043 900
Crop Production and Horticultural
Products Group......................... 4,808 4,314 695 289
Industrial and Automotive Products
Group.................................. 4,871 4,717 56 (27)
======== ======== -------- -------
TOTAL SALES/OPERATING Income $ 45,427 45,468 3,912 3,256
======== ======== -------- -------
Less:
Corporate Expenses.......................................... 3,236 2,977
Interest Expense, net of Interest Income.................... 569 630
-------- -------
INCOME (LOSS) BEFORE INCOME TAXES............................. 107 (351)
-------- ------
Income Taxes (Benefit)........................................ 33 (90)
-------- ------
NET INCOME (LOSS)............................................. $ 74 $ (261)
======== ======
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 2002 COMPARED TO
SIX MONTHS ENDED JANUARY 31, 2001
RESULTS OF OPERATIONS
Consolidated net sales for the six months ended January 31, 2002 were
$86,880,000, a decrease of 1.2% from net sales of $87,923,000 in the
first six months of fiscal 2001. Net income for the first six months
of fiscal 2002 was $341,000, an increase of 98.0% from $172,000 earned
in the first six months of fiscal 2001. Basic and diluted net income
per share for the first six months of fiscal 2002 was $0.06 versus
$0.03 basic and diluted net income per share earned in the first six
months of fiscal 2001. The fully diluted per share value for the six
months ended January 31, 2002, reflects the $0.05 effect of the change
in accounting estimate for the prepaid overburden removal expense
described in footnote 3 of the notes to the consolidated financial
statements.
Net sales of the Consumer Products segment for the first six months of
fiscal 2002 were $56,138,000, a decrease of 3.5% from net sales of
$58,158,000 in the first six months of fiscal 2001 due to reduced sales
of branded coarse cat litter items and the continued decline of the
paper litter items. These reductions were somewhat offset by increased
sales of private label cat litter, CAT'S PRIDE(R) brand scoopable
products and co-manufactured products. The Consumer Products Group's
operating income decreased 11.7% from $4,705,000 in the first six
months of fiscal 2001 to $4,154,000 in the first six months of fiscal
2002 due to a reduction of gross profit in the mass merchandiser and
co-manufacturing areas, partially offset by better expense control.
The reduction of gross profit was caused by unfavorable product mix and
higher manufacturing costs in the mass merchandiser area. We also saw
higher manufacturing costs and lower prices in the co-manufacturing
area.
Net sales of the Specialty Products Group segment for the first six
months of fiscal 2002 were $12,667,000, an increase of 4.5% from net
sales of $12,124,000 in the first six months of fiscal 2001. Specialty
Products Group's operating income increased 25.6% from $2,097,000 in
the first six months of fiscal 2001 to $2,634,000 in the first six
months of fiscal 2002 due to increased sales of PERFORM(R) bleaching clay
and better expense control due to the closure of the Rheological
products area last year.
Net sales of the Crop Production and Horticultural Products Group for
the first six months of fiscal 2002 were $8,296,000, an increase of
3.1% from net sales of $8,040,000 in the first six months of fiscal
2001, led primarily by an increase in AGSORB(R) carrier and PRO'S CHOICE(R)
sports field product sales. This segment's operating income increased
94.4% from $461,000 in the first six months of fiscal 2001 to $896,000
in the first six months of fiscal 2002 due to selling price increases.
Net sales of the Industrial and Automotive Products Group for the first
six months of fiscal 2002 were $9,779,000, an increase of 1.9% from net
sales of $9,601,000 in the first six months of fiscal 2001. This
segment's operating income increased significantly from $13,000 in the
first six months of fiscal 2001 to $238,000 in the first six months of
fiscal 2002. The increase in lite sorbent sales and the favorable mix
characteristics of this product line helped both sales and income.
Consolidated gross profit as a percentage of net sales for the first
six months of fiscal 2002 decreased to 21.7% from 22.7% in the first
six months of fiscal 2001 due to an unfavorable mix and pricing issues
in our Consumer Products Group.
Operating expenses as a percentage of net sales for the first six
months of fiscal 2002 decreased to 19.8% from 20.9% in the first six
months of fiscal 2001 due to better expense control in our Consumer
Products group.
15
Interest expense and interest income for the first six months of fiscal
2002 were better by $160,000 from fiscal 2001, due to lower debt levels.
The Company's effective tax rate was 28.9% of pre-tax income in the
first six months of fiscal 2002 versus 25.6% in the same period of
fiscal 2001.
Total assets of the Company decreased $735,000 or 0.6% during the first
six months of fiscal 2002. Current assets increased $1,329,000 or 2.4%
from fiscal 2001 year-end balances primarily due to increased accounts
receivable and other receivables, offset by a reduction of
inventories. Property, plant and equipment, net of accumulated
depreciation, decreased $1,976,000 or 3.5% during the first six months
as depreciation expense exceeded capital expenditures.
Total liabilities decreased $118,000 or 0.2% during the first six
months of fiscal 2002. Current liabilities increased $583,000 or 3.0%
from fiscal 2001 year-end balances due to increases in accrued expenses
and trade spending. Non-current liabilities decreased $701,000 or 1.8%
from fiscal 2001 year-end. The decrease was driven by a reduction in
long term debt.
EXPECTATIONS
The Company anticipates that third quarter sales will be in line with
the level achieved in the third quarter of fiscal 2001. The Company
continues to emphasize cost control and productivity improvements in
its processes, which should contribute to profitability in both the
next quarter and over the long term. In fiscal 2003 we believe our
sales will be down, but our profits will be up due to ongoing product
and geographical rationalization. The profit picture should also
improve if the current natural gas trends continue and our Georgia
overburden removal costs return to their historical levels.
Because of the uncertainties of the general economy and our increased
overburden removal costs in Georgia, the Company believes it is prudent
to revise our earnings estimate to a broad range of $0.05 to $0.20 per
fully diluted share for the 2002 fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio of 2.8:1 at January 31, 2002 was consistent with the
2.8:1 at July 31, 2001. Working capital increased $746,000 during the
first six months of fiscal 2002 to $36,846,000, primarily due to higher
receivables and lower payables, offset by lower inventories and higher
accrued expenses. During the first six months of fiscal 2002, the
balances of cash, cash equivalents and investment securities decreased
$150,000 to $5,551,000.
Cash provided by operating activities was used to fund capital
expenditures of $2,092,000, payments on long-term debt of $1,507,000
and dividend payments of $946,000. Total cash and investment balances
held by the Company's foreign subsidiaries at January 31, 2002 and July
31, 2001 were $2,346,000 and $2,241,000, respectively.
Accounts receivable, less allowance for doubtful accounts, increased
4.6% during the first six months of fiscal 2002. Days outstanding
receivables decreased from 58.7 at July 31, 2001 to 53.1 at January 31,
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% of the Company's outstanding receivables.
One adjustment posted to the account receivable balance during the
quarter was a write-off of $100,000 for the amount due to Oil-Dri from
Kmart Corporation. Oil-Dri is filing a proof of claim for such
$100,000 with the bankruptcy court in the Kmart
16
matter. Oil-Dri has no further exposure to Kmart. In a related matter, Oil-Dri
has sued The Fleming Companies, Inc., alleging that a receivable of approxi-
mately $373,000 is due Oil-Dri from Fleming with respect to product sold by
Oil-Dri to them, which, in turn, was sold by them to Kmart. Oil-Dri's
suit also alleges that additional sums in excess of $320,000 are owed
by Fleming for product purchased by them and sold to other customers,
as well as other costs, such as packaging and inventory, plus any
related interest costs.
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 JANUARY 31, 2002 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 2001
RESULTS OF OPERATIONS
Consolidated net sales for the second quarter ended January 31, 2002
were $45,427,000, which was consistent with the net sales of
$45,468,000 in the second quarter of fiscal 2001. The net income for
the second quarter of fiscal 2002 was $74,000, which was an improvement
from the $261,000 loss in the second quarter of fiscal 2001. Basic and
diluted net income per share for the second quarter of fiscal 2002 were
both $0.01 versus $0.05 basic and diluted net loss per share earned in
the second quarter of fiscal 2001. The fully diluted per share value
for the three months ended January 31, 2002, reflects the $0.05 effect
of the change in accounting estimate for the prepaid overburden removal
expense described in footnote 3 of the notes to the consolidated
financial statements.
Net sales of the Consumer Products Group for the second quarter of
fiscal 2002 were $29,511,000, a decrease of 4.1% from net sales of
$30,785,000 in the second quarter of fiscal 2001. This segment's
operating income increased 1.1% from $2,094,000 in the second quarter
of fiscal 2001 to $2,118,000 in the same period of fiscal 2002. This
increase was due to better expense control, but was offset by a
reduction of gross profit from mass merchandiser and co-manufacturing
customers, caused by unfavorable product mix, higher manufacturing
costs and pricing adjustments in the co-manufacturing area.
Net sales of the Specialty Products Group for the second quarter of
fiscal 2002 were $6,237,000, an increase of 10.4% from net sales of
$5,652,000 in the second quarter of fiscal 2001. This segment's
operating income increased 15.9% from $900,000 in the second quarter of
fiscal 2001 to $1,043,000 in the second quarter of fiscal 2002. The
increase was due to stronger demand for bleaching clay in areas that
are more profitable. CONDITIONADE(R), a feed additive, also experienced
increased sales and
17
gross profits during the quarter. However, POULTRY GUARD(R), a poultry
litter amendment, saw reduced demand due to the milder winter season.
Net sales of the Crop Production and Horticultural Products Group for
the second quarter of fiscal 2002 were $4,808,000, an increase of 11.5%
from net sales of $4,314,000 in the second quarter of fiscal 2001, led
primarily by an increase in AGSORB(R) carrier products and PRO'S CHOICE(R)
sports field products. This segment's operating income increased 140%
from $289,000 in the second quarter of fiscal 2001 to $695,000 in the
second quarter of fiscal 2002. The operating income increase was
driven by the increased sales, a better mix and selling price increases.
Net sales of the Industrial and Automotive Products Group for the
second quarter of fiscal 2002 were $4,871,000, an increase of 3.3% from
net sales of $4,717,000 in the second quarter of fiscal 2001 due to
increased sales volume of lite sorbent products. This segment's
operating income increased from $27,000 loss in the second quarter of
fiscal 2001 to income of $56,000 in the second quarter of fiscal 2002
due to a favorable sales mix.
Consolidated gross profit as a percentage of net sales for the second
quarter of fiscal 2002 decreased to 21.1% from 21.4% in the second
quarter of fiscal 2001 due to mix and pricing changes in our consumer
products area.
Operating expenses as a percentage of net sales for the second quarter
of fiscal 2002 decreased to 19.4% from 20.9% in the second quarter of
fiscal 2001 due to a reduction of trade spending and other selling and
administrative expenses in the consumer products area.
Interest expense and interest income for the second quarter of fiscal
2002 were better by $62,000 from fiscal 2001, due lower debt levels.
The Company's effective tax rate was 30.4% of pre-tax income in the
second quarter of fiscal 2002 versus 25.6% of the pre-tax loss in the
same period of fiscal 2001.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the six months
ended January 31, 2002 were $6,126,000 or 7.1% of total Company sales.
This represents a decrease of 0.3% from the same period of fiscal 2001
in which foreign subsidiary sales were $6,147,000 or 7.0% of total
Company sales. For the first six months of fiscal 2002, the foreign
subsidiaries experienced a loss of $260,000, which was an improvement
of $116,000 from the $376,000 loss reported from the same period of
fiscal 2001. This improvement was due to better expense control in the
selling and administration area. Identifiable assets of the Company's
foreign subsidiaries as of January 31, 2002 were $10,259,000 vs.
$9,809,000 as of July 31, 2001. The increase from the fiscal 2001
year-end balance was caused by an increase in cash and accounts
receivable.
Net sales by the Company's foreign subsidiaries during the three months
ended January 31, 2002 were $2,987,000 or 6.6% of total Company sales.
This represents a decrease of 0.4% from the same period of fiscal 2001
in which foreign subsidiary sales were $2,998,000 or 6.6% of total
Company sales. For the first three months of fiscal 2002, the foreign
subsidiaries experienced a loss of $141,000, which was an improvement
of $51,000 from the $192,000 loss reported from the same period of
fiscal 2001. This improvement was due to better expense control in the
selling and administration area.
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
18
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
January 31, 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 January 31, 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 February 28,
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) $6,541.3 $3,436.8
===============================================================
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) 480,000 --
Weighted Average Price (Per MMBtu) $3.63 --
Contract Amount ($U.S., in thousands) $1,741.5 $1,451.8
---------------------------------------------------------------
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
of 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
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
ITEM 4. (A) SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: On
December 4, 2001, the 2001 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 18,419,745 shares were
eligible to vote.
Votes For
DIRECTOR (NOT LESS THAN)
-------- ---------------
J. Steven Cole 17,325,038
Arnold W. Donald 17,325,038
Ronald B. Gordon 17,325,038
Daniel S. Jaffee 17,325,038
Richard M. Jaffee 17,325,038
Thomas D. Kuczmarski 17,325,038
Joseph C. Miller 17,325,038
Paul J. Miller 17,325,038
Allan H. Selig 17,325,038
6. (a)EXHIBITS: The following documents are an exhibit to this
report.
Exhibit
Index
--------
Exhibit 11: Statement Re: Computation of per share 23
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: March 15, 2002
22
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
--------------------
2002 2001
--------------------
Net income available to Stockholders
(numerator) $ 341 $ 172
------- ------
Shares Calculation (denominator): 5,614 5,611
Average shares outstanding - basic
Effect of Dilutive Securities:
Potential Common Stock
relating to stock options 29 1
------- -------
Average shares outstanding- assuming dilution 5,643 5,612
======= =======
Earnings per share-basic $ 0.06 $ 0.03
======= =======
Earnings per share-assuming dilution $ 0.06 $ 0.03
======= =======