UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended July 31, 2002
|_| 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
Delaware 36-2048898
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
410 North Michigan Avenue, Suite 400, Chicago, Illinois
60611-4213
(312) 321-1515
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.10 per share
Securities registered pursuant to Section 12(g) of the Act:
None
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
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the Registrant is an accelerated
filer:
Yes |_| No |X|
2
The aggregate market value of the Registrant's Common Stock owned
by non-affiliates as of January 31, 2002 for accelerated filer
purposes was $33,329,000.
The aggregate market value of the Registrant's Common Stock owned
by non-affiliates as of September 30, 2002 was $32,257,000.
Number of Shares of each class of the Registrant's Common Stock
outstanding as of September 30, 2002:
Common Stock - 5,470,435 shares (including 1,279,700 treasury shares)
Class B Stock - 1,765,083 shares (including 342,241 treasury shares)
Class A Common Stock - 0 shares
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
1. The Registrant's Proxy Statement for its 2002 Annual
Meeting of Stockholders ("Proxy Statement"), which will be filed
with the Securities and Exchange Commission not later than
November 28, 2002 (120 days after the end of the Registrant's
fiscal year ended July 31, 2002), is incorporated into Part III
of this Annual Report on Form 10-K, as indicated herein.
3
CONTENTS
Page
PART I
Item 1: Business................................................. 4-10
Item 2: Properties............................................... 10-11
Item 3: Legal Proceedings........................................ 11
Item 4: Submission of Matters to a Vote of Security Holders...... 11
Executive Officers of the Registrant............................... 12
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 13
Item 6: Selected Financial Data.................................. 14-15
Item 7: Management Discussion and Analysis of Financial
Condition and the Results of Operations.................. 16-20
Item 7a: Quantitative and Qualitative Disclosures About Market
Risk..................................................... 21
Item 8: Financial Statements and Supplementary Data.............. 22-44
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 45
Independent Auditor's Report....................................... 45
PART III
Item 10: Directors and Executive Officers of the Registrant....... 46
Item 11: Executive Compensation................................... 46
Item 12: Security Ownership of Certain Beneficial Owners and
Management............................................... 46
Item 13: Certain Relationships and Related Transactions........... 46
Item 14: Controls and Procedures.................................. 46
PART IV
Item 15: Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................. 47-50
Signatures......................................................... 51-52
Certifications..................................................... 53
Schedule II -- Valuation and Qualifying Accounts................... 54
Exhibit Index...................................................... 55
4
PART I
ITEM 1. BUSINESS
Oil-Dri Corporation of America was incorporated in 1969 in
Delaware as the successor to an Illinois corporation incorporated
in 1946, which was the successor to a partnership, which
commenced business in 1941. Except as otherwise indicated herein
or as the context otherwise requires, references herein to
"Registrant" or to "Company" are to Oil-Dri Corporation of
America and its subsidiaries. The Registrant is a leader in
developing, manufacturing and marketing sorbent products and
related services for the consumer, specialty, crop production and
horticultural and industrial and automotive markets. The
Registrant also has developed a dog treat product category, which
is part of the Consumer products area. The Registrant's sorbent
products are principally produced from clay minerals and, to a
lesser extent, other sorbent materials. Consumer products,
consisting primarily of cat litter, are sold through the grocery
products industry, mass merchandisers, warehouse clubs, and pet
retail outlets. Specialty products, consisting primarily of
bleaching, filtration and clarification clays, are sold to
processors and refiners of edible and petroleum-based oils. Crop
production and horticultural products, which include carriers for
crop protection chemicals and fertilizers, drying agents, soil
conditioners, sports field products, pellet binders for animal
feeds and flowability aids, are sold to manufacturers of
agricultural chemicals and distributors of other agricultural and
sports turf products. Industrial and automotive products,
consisting primarily of oil, grease and water sorbents (both clay
and non-clay), are sold to distributors of industrial cleanup and
automotive products, environmental service companies and retail
outlets.
The Registrant's sorbent technologies include absorbent and
adsorbent products. Absorbents, like sponges, draw liquids up
into their many pores. Examples of the Registrant's absorbent
clay products are CAT'S PRIDE(R) Premium cat litter and other cat
litters, OIL-DRI ALL PURPOSE(R) floor absorbent and other floor
absorbents and AGSORB(R) granular agricultural chemical carriers.
Adsorbent products attract liquids, impurities, metals and
surfactants to themselves and form low-level chemical bonds. The
Registrant's adsorbents are used for cleanup and filtration
mediums. The Registrant's adsorbent products include OIL-DRI
LITE(R) sorbents for industrial cleanup, PURE-FLO(R), PURE-FLO(R)
Supreme, PERFORM(TM) and SELECT(TM) bleaching clays for edible oils,
fats and tallows, and ULTRA-CLEAR(R) clarification aids for
petroleum-based oils and by-products.
The Registrant has pursued a strategy of developing products
for consumer, specialty, crop protection and horticultural and
industrial and automotive uses, where the Registrant's marketing,
manufacturing and research and development capabilities can play
important roles. The Registrant's products are sold through its
specialized divisional sales staffs supported by technical
service representatives and through a network of industrial
distributors and food brokers. The Registrant maintains its own
research and development facility and staff.
Certain financial information on segments is contained in
Note 3 of the "Notes to Consolidated Financial Statements,"
incorporated herein by reference. Information concerning total
revenue of classes of similar products accounting for more than
10% of consolidated revenues in any of the last three fiscal
years is not separately provided because it is the same as the
information on net sales of segments furnished in Note 3 of the
"Notes to Consolidated Financial Statements."
Certain financial information about the Registrant's foreign
and domestic operations is contained in Note 3 of the "Notes to
Consolidated Financial Statements," incorporated herein by
reference.
CONSUMER PRODUCTS
The Registrant's cat litter products, in both coarse
granular and fine granular clumping (scoopable) forms, are sold
under the Registrant's CAT'S PRIDE(R) and LASTING PRIDE(R) brand
names, JONNY CAT(R) and FRESH STEP(R) brands manufactured for The
Clorox Company, Arm & Hammer(R) SUPER CLAY(TM) brand manufactured for
Church & Dwight Co., Inc., and private label cat litters
manufactured for mass merchandisers, wholesale clubs,
5
drugstore chains, pet superstores and retail grocery stores. The
Registrant also packages and markets CAT'S PRIDE(R) KAT KIT cat
litter in a disposable tray. These products are sold through
independent food brokers and the Registrant's representatives to
major grocery outlets such as Publix, Kroger, Stop and Shop and
others. LASTING PRIDE(R) cat litter is principally sold to mass
merchandisers such as Wal-Mart.
The Registrant has several long-term supply agreements under
which it manufactures branded traditional litters for other
marketers. Under these co-manufacturing relationships, the
marketer controls all aspects of sales, marketing, distribution
and the odor control formula the Company is responsible for
manufacturing. The Registrant and The Clorox Company have had
such an arrangement under which they developed FRESH STEP(R)
premium-priced cat litter products and under which the Registrant
has an exclusive right to supply The Clorox Company's
requirements for FRESH STEP(R) coarse cat litter up to certain
levels. During fiscal year 2001, the Company signed a new
long-term agreement with The Clorox Company, such that the
Company will continue to supply The Clorox Company with product.
Additionally, during fiscal year 2001, the Company signed a
long-term agreement with The Clorox Company to produce JONNY CAT(R)
cat litter for the eastern half of the U.S. Production began in
the first quarter of fiscal year 2002. The Registrant also has a
long-term supply agreement with the Church & Dwight Co., Inc.
whereby they are the exclusive manufacturer of the Arm and Hammer
SUPER CLAY(TM) cat litter.
The cat litter market consists of two segments of product,
coarse (traditional) and scoopable. Coarse litters are products
that have absorbent and odor controlling characteristics.
Scoopable litters, in addition to having absorbent and odor
controlling characteristics, also have the characteristic of
clumping when exposed to moisture, allowing the consumer to
dispose of the used portion of the litter selectively. The cat
litter market has expanded at a moderate pace in recent years,
with the larger portion of the growth coming in the scoopable
segment. Introduced in the early 1990's, the scoopable litters
have captured a significant percentage of the market measured in
retail dollars.
The overwhelming majority of all cat litter is mineral
based; however, over the years various alternative litters have
been introduced based on alternative strata such as paper,
various agricultural waste products and most recently, silica
gels. To date, these products have assumed niche positions within
the category.
In fiscal 1998, the Registrant purchased Salubrious, Inc., a
manufacturer of dog biscuits, which was subsequently renamed
Phoebe Products Company. During fiscal 2002 most of the Phoebe
Products sales were achieved in the high-end private label
market. However, branded sales of SMART SNACKS(R) dog treats
experienced expanded distribution in fiscal 2002.
SPECIALTY PRODUCTS GROUP
Specialty products include PURE-FLO(R) and PURE-FLO(R) Supreme
bleaching clays and ULTRA-CLEAR(R) clarification aids. These
products are supported by a team of technical sales and support
representatives employed by the Company as well as agent
representatives and the services of the Registrant's research and
development group. The products are marketed in the United
States and international markets.
PURE-FLO(R) bleaching clays, used in the bleaching of edible
oils, remove impurities and color bodies from these oils. The
primary customers for these products are refiners of food oils.
ULTRA-CLEAR(R) clarification aids are used as filtration and
purification mediums for jet fuel and other petroleum-based
oils. These products adsorb unwanted moisture and other
impurities, and are primarily sold to oil refiners.
The Registrant also produces PERFORM(TM) and SELECT(TM) bleaching
clays, which offer performance advances to refiners. The
PERFORM(TM) products, provide increased activity for hard-to-bleach
oils. The SELECT(TM) line of products is used earlier in the
process stream to remove a variety of impurities from edible
oils. SELECT(TM) bleaching clays can also be used to replace the
water wash step in the caustic refining of edible oils. Other
products include PEL-UNITE PLUSTM and CONDITIONADE(R) pelleting
aids used in the manufacturing of animal feeds and POULTRY GUARD(R)
litter amendments used in controlling ammonia levels in
commercial poultry houses.
6
CROP PRODUCTION AND HORTICULTURAL PRODUCTS GROUP
The Registrant produces and markets a wide range of granular
and powdered mineral absorbent products that are used with crop
protection chemicals, agricultural drying agents, bulk processing
aids, growing media, turf fertilizers and sports field products.
Brands include AGSORB(R) agricultural chemical carriers and drying
agents; FLO-FRE(R), a highly absorbent microgranule flowability
aid; TERRA-GREEN(R) growing media supplement; and SOILMASTER(R) sports
field conditioner.
AGSORB(R) carriers are used as a delivery system for crop
protection chemicals, including herbicides, fungicides,
insecticides, and fertilizers. AGSORB(R) customized carriers are
designed to reduce dust and to facilitate accuracy of
application. The Registrant's AGSORB(R) drying agent is used to
prevent clogging in specialized farm machinery and enables
farmers to evenly apply granular fertilizers and liquid pesticides
to their fields in one application. The Registrant has also
developed the AGSORB(R) product as a blending agent for fertilizers
and chemicals used in the lawn and garden market.
Agricultural products are marketed in the United States by
technical salesmen employed by the Company who sell to crop
protection chemical manufacturers, feed producers and lawn and
garden manufacturers. The Registrant's principal customers for
these products include the agricultural groups of Monsanto,
DowElanco, Syngenta and Bayer.
In October 1999 the Registrant acquired Pro's Choice, Inc.,
a marketer and distributor of sports field products. Previously,
the Registrant had supplied Pro's Choice with specialty clay
products for use in these markets. Products include SOILMASTER(R)
family of infield conditioners. These products improve the
performance and playability of baseball infields and facilitate
root zone growth when used on the soil of soccer and football
fields. The Registrant's principal customers for these products
are managers of baseball, football, soccer fields and golf
courses.
INDUSTRIAL AND AUTOMOTIVE PRODUCTS
Products for industrial applications include the
Registrant's oil, grease and water sorbents, which are cost
effective floor maintenance products that provide a non-slip and
nonflammable surface for workers. These products are sold
through a wide range of distribution channels and have achieved a
high level of brand name recognition. The Registrant distributes
clay-based sorbents sold in granular form and in other
configurations such as socks. The Registrant also distributes
non-clay sorbents including pads and rolls, which are made of
polypropylene.
The Registrant sells its industrial products through a
distributor network that includes industrial, auto parts, safety,
sanitary supply, chemical and paper distributors and
environmental service companies. The Registrant supports the
efforts of the industrial distributors with specialized
divisional sales personnel.
The Registrant also produces for the consumer market
OIL-DRI(R) Automotive, a floor absorbent for home and garage use.
This product is sold through automobile parts distributors and
mass merchandisers.
PATENTS
The Registrant has obtained or applied for patents for
certain of its processes and products. These patents expire at
various times, beginning in 2005. Patented processes and
products are not material to the Registrant's overall business.
FOREIGN
Favorite Products Company, Ltd. (d.b.a. Oil-Dri Canada) is a
manufacturer and marketer of branded and private label cat litter
in the Canadian market place. Among the branded products sold by
Favorite are SAULAR(R), a leading cat litter brand in Canada; and
SAULAR(R) KAT-KIT(TM), a disposable cat litter tray and litter
combination. Certain of the products sold in Canada are blends
of clay and synthetic sorbent materials.
7
The Registrant's wholly owned subsidiary in England,
Oil-Dri, U.K., Ltd., packages clay granules produced by the
Registrant's domestic manufacturing facilities and, for certain
applications, blends a synthetic sorbent material which it
manufactures locally. Oil-Dri, U.K., Ltd. markets these
products, primarily in the United Kingdom, as an oil and grease
absorbent and as a cat litter.
The Registrant's wholly owned subsidiary in Switzerland,
Oil-Dri S.A., performs various management, sales and
administrative functions for the Registrant and its foreign
subsidiaries.
The Company's foreign operations are subject to the normal
risks of doing business overseas, such as currency devaluations
and fluctuations, restrictions on the transfer of funds and
import/export duties. The Registrant was not materially impacted
by these foreign currency fluctuations.
BACKLOG; SEASONALITY
At July 31, 2002 and 2001, the Registrant's backlog of
orders was approximately $2,448,000 and $2,088,000, respectively.
The Registrant does not consider its clay sorbent business, taken
as a whole, to be seasonal to any material extent. However,
certain business activities of certain customers of the
Registrant (such as agricultural) are subject to such factors as
crop acreage planted and product formulation cycles.
CUSTOMERS
Sales to Wal-Mart Stores, Inc. accounted for approximately
22% of the Registrant's net sales for the fiscal year ended July
31, 2002. Sales to The Clorox Company accounted for slightly
below 10% of the Registrant's net sales for the fiscal year ended
July 31, 2002. The Clorox Company and the Registrant are parties
to a long-term supply contract. The loss of any other of the
Registrant's customers would not have a materially adverse effect
on the Registrant.
COMPETITION
The Registrant has approximately six principal competitors
in the United States, some of which have substantially greater
financial resources than the Company, which compete with the
Registrant in certain markets and with respect to certain
products. Price, service and technical support, product quality
and delivery are the principal methods of competition in the
Registrant's markets and competition has historically been very
vigorous.
RESERVES
The Registrant mines sorbent materials, consisting of either
montmorillonite, attapulgite or diatomaceous earth on leased or
owned land near its manufacturing facilities in Mississippi,
Georgia, Illinois and Oregon, and on leased and owned land in
Florida (see "Item 2. Properties" below). The Registrant
estimates that its proven recoverable reserves of these sorbent
materials aggregate approximately 462,940,000 tons. Based on its
rate of consumption during the 2002 fiscal year, without regard
to reserves in Nevada, the Registrant considers its proven
recoverable reserves adequate to supply the Registrant's needs
for over 50 years. It is the Registrant's policy to attempt to
add to reserves in most years, but not necessarily in every year,
an amount at least equal to the amount of reserves consumed in
that year. The Registrant has a program of exploration for
additional reserves and, although reserves have been acquired,
the Registrant cannot assure that such additional reserves will
continue to become available. The Registrant's use of these
reserves will be subject to compliance with existing and future
federal and state statutes and regulations regarding mining and
environmental compliance. Also, requirements for environmental
compliance may restrict exploration or use of lands that might
otherwise be utilized as a source of reserves. During the fiscal
year ended July 31, 2002, the Registrant utilized these reserves
to produce substantially all of the sorbent minerals that it sold.
In 1997, the Registrant acquired rights to mineral reserves
on approximately 5,827 acres in Washoe County, Nevada. This
acreage is in addition to approximately 415 acres acquired in
1991 in Washoe County, Nevada. The Registrant estimates that
there are over 300,000,000 tons of proven reserves of sorbent
materials on the combined acreage. Mining and processing these
reserves requires the approval of federal, state and local
agencies. The Registrant has received federal approval to mine
these properties. However, on February 26, 2002, the Washoe
County
8
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
Company expects that the suit will be scheduled for a hearing in
early fall.
During the latter part of the fourth quarter of fiscal 2002,
the Company reviewed both properties in Washoe County, Nevada for
possible long-term asset impairment. The decision to review the
properties was driven by a combination of the February 26, 2002,
County Commission decision and the successful completion in June
2002 of a significant geographic distribution change with
Wal-Mart. Please refer to Note 2 of the "Notes to Consolidated
Financial Statements" for a detailed disclosure of an impairment
loss on long-lived assets.
In 1998, mineral reserves on approximately 738 acres in
Tennessee and 759 acres in Illinois were acquired in conjunction
with the purchase of Oil-Dri, Mounds Production Company.
MINING OPERATIONS
The Registrant has conducted mining operations in Ripley,
Mississippi since 1963; in Ochlocknee, Georgia since 1971; in
Christmas Valley, Oregon since 1979; in Blue Mountain,
Mississippi since 1989; and in Mounds, Illinois since 1998.
The Registrant's raw materials are surface mined on a
year-round basis, generally using large earth moving scrapers and
bulldozers to remove overburden, and then loaded into dump trucks
with backhoe or dragline equipment for movement to the processing
facilities. The mining and hauling of the Registrant's clay is
performed by the Registrant and by independent contractors.
The Registrant's current operating mines range in distance
from immediately adjacent to several miles from its processing
plants. Access to processing facilities from the mining areas is
generally by private road, and in some instances public highways
are utilized.
Each of the Registrant's processing facilities maintains
inventories of unprocessed clay of approximately one week of
production requirements.
Proven reserves are those reserves for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings
or drill holes; grade and/or quality are computed from results of
detailed sampling, and (b) the sites for inspection, sampling and
measurement are spaced so closely and the geologic character is
so well defined that size, shape, depth and mineral content of
reserves are well established. Probable reserves are computed
from information similar to that used for proven reserves, but
the sites for inspection, sampling, and measurement are farther
apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high
enough to assume continuity between points of observation.
The Registrant employs a staff of geologists and mineral
specialists who estimate and evaluate existing and potential
reserves in terms of quality, quantity and availability.
The following schedule summarizes, for each of the
Registrant's manufacturing facilities, the net book value of land
and other plant and equipment:
9
PLANT AND
LAND EQUIPMENT
------ ---------
(IN THOUSANDS)
Ochlocknee, Georgia.................................. $2,579 $12,881
Ripley, Mississippi.................................. $1,522 $ 8,368
Mounds, Illinois..................................... $ 325 $ 7,418
Blue Mountain, Mississippi........................... $ 952 $ 5,736
Christmas Valley, Oregon............................. $ 98 $ 246
EMPLOYEES
As of July 31, 2002, the Registrant employed 779 persons, 72
of whom were employed by the Registrant's foreign subsidiaries.
The Registrant's corporate offices, research and development
center and manufacturing facilities are adequately staffed and no
material labor shortages are anticipated. Approximately 39 of
the Registrant's employees in the U.S. and approximately 24 of the
Registrant's employees in Canada are represented by labor unions,
which have entered into separate collective bargaining agreements
with the Company. Employee relations are considered satisfactory.
ENVIRONMENTAL COMPLIANCE
The Registrant's mining and manufacturing operations and
facilities in Georgia, Mississippi, Oregon and Illinois are
required to comply with state surface mining statutes and various
federal, state and local statutes, regulations and ordinances
which govern the discharge of materials, water and waste into the
environment and restrict mining on "wetlands" or otherwise
regulate the Registrant's operations. In recent years,
environmental regulation has grown increasingly stringent, a
trend that the Registrant expects will continue. The Registrant
endeavors to stay in substantial compliance with applicable
environmental controls and regulations and to work with
regulators to correct any deficiency. As a result, expenditures
relating to environmental compliance have increased over the
years; however, these expenditures have not been material. The
Registrant continues, and will continue, to incur costs in
connection with reclaiming exhausted mining sites. The costs of
reclamation have not had a material effect on its mining costs.
These costs are treated as part of the Registrant's mining
expense.
In addition to the environmental requirements relating to
mining and manufacturing operations and facilities, there is
increasing federal and state legislation and regulation with
respect to the labeling, use, and disposal after use, of various
of the Registrant's products. The Registrant endeavors to stay
in substantial compliance with that legislation and regulation and
to assist its customers in that compliance.
The Registrant cannot assure that, despite its best efforts,
it will always be in compliance with environmental legislation
and regulations or with requirements regarding the labeling, use,
and disposal after use, of its products; nor can it assure that
from time to time enforcement of such requirements will not have
an adverse impact on its business.
ENERGY
The Registrant uses coal, natural gas and recycled fuel oil
as permitted for energy sources in the processing of its clay
products. In prior years and again in 2002, the Registrant has
switched from natural gas to other energy sources during certain
months due to seasonal unavailability and the higher cost of
natural gas relative to other fuels. See Item 7a. with respect
to the use of forward contracts.
RESEARCH AND DEVELOPMENT
At the Registrant's research facility, the research and
development staff develops new products and applications and
improves existing products. The staff and various consultants
consist of geologists, mineralogists and chemists. In the past
several years, the Registrant's research efforts have resulted in
a number of new sorbent products and processes including PELUNITE
PLUS(TM), PURE-FLO(R) Supreme, PURE-FLO(R) B80, B81, PERFORM(TM), SELECT(TM)
and POULTRY GUARD(TM) absorbents, and CAT'S PRIDE(R) Scoopable and
LASTING PRIDE(R) cat litters. The technical center produces
prototype samples and tests new products for customer trial and
evaluation.
The Registrant spent approximately $1,955,000, $1,953,000
and $1,951,000 during its fiscal years ended July 31, 2002, 2001
and 2000, respectively, for research and development. None of
such research and development was customer sponsored, and all
research and development costs are expensed in the year in which
incurred.
10
ITEM 2. PROPERTIES
The Registrant's properties are generally described below:
Land Holdings & Mineral Reserves
Land Proven Probable
Land Land Unpatented Reserves Reserves Total
Owned Leased Claims Total (000s of (000s of (000s of
(acres)(acres) (acres) (acres) tons) tons) tons)
----- ----- ----- ------ ------- ------- -------
Florida........ 341 -- -- 341 1,062 928 1,990
Georgia........ 1,884 1,556 -- 3,440 28,081 10,424 38,505
Illinois....... 161 598 -- 759 7,572 4,000 11,572
Mississippi.... 2,181 978 -- 3,159 115,134 110,064 225,198
Nevada......... 535 -- 5,827 6,362 306,830 248,874 555,704
Oregon......... 405 -- 100 505 11 292 303
Tennessee...... 738 -- -- 738 4,250 4,250 8,500
----- ----- ----- ------ ------- ------- -------
6,245 3,132 5,927 15,304 462,940 378,832 841,772
===== ===== ===== ====== ======= ======= =======
See "Item 1. Business--Reserves"
There are no mortgages on the property owned by the
Registrant. The Mississippi, Georgia, Oregon, Tennessee, Nevada,
Florida and Illinois properties are primarily mineral in nature.
Parcels of such land are also sites of manufacturing facilities
operated by the Registrant. The Illinois land also includes the
site of the Registrant's research and development facility. The
Registrant owns approximately one acre of land in Laval, Quebec,
Canada, which is the site of the processing and packaging
facility for the Registrant's Canadian subsidiary.
The Registrant's mining operations are conducted on leased
or owned land and, in Oregon, unpatented mining claims. The
Georgia, Illinois and Mississippi mining leases, with expiration
dates ranging from 2005 to 2053, none of the lease expirations
are material, but they generally require that the Registrant pay a
minimum monthly rental to continue the lease term. This rental
payment is applied against a royalty related to the number of
unprocessed, or in some cases processed, tons of mineral
extracted from the leased property.
Of the Registrant's total reserves, certain claims in Nevada
and Oregon are unpatented mining claims leased by the Registrant,
on which the Registrant has the right to conduct mining
activities. The validity of title to unpatented mining claims is
dependent upon numerous factual matters. The Registrant believes the
unpatented mining claims it leases are in compliance with all applicable
federal, state and local mining laws, rules and regulations. In fiscal
2000, the Bureau of Land Management determined that the Registrant's
claim on certain Nevada properties are locatable in nature. This
ruling has the effect of perfecting the Registrant's right to mine
these claims. However, with respect to Nevada, see Note 2 of the "Notes to
Consolidated Financial Statements." In the past, members of
Congress and the executive branch of the federal government have
proposed amendments to existing federal mining laws. These
amendments could have a prospective effect on mining operations
on federal lands and include, among other changes, the imposition
of royalty fees on the mining of unpatented claims, the
elimination or restructuring of the patent system and an increase
in fees for the maintenance of unpatented claims. To the extent
that future proposals may result in the imposition of royalty
fees on unpatented lands, the mining of the Registrant's
unpatented claims may become uneconomic. The Registrant cannot
predict the form that any such amendments might take or whether
or when such amendments might be adopted.
The Registrant operates manufacturing facilities at Ripley,
Mississippi; Ochlocknee, Georgia; Christmas Valley, Oregon; Blue
Mountain, Mississippi and Mounds, Illinois; production and
packaging plants at Laval, Quebec, Canada and Wisbech, United
Kingdom; a non-clay sorbents processing and warehousing facility
in Alpharetta, Georgia; and a dog biscuit manufacturing plant in
Kiel, Wisconsin. The Registrant's facilities at Ripley,
Mississippi; Ochlocknee, Georgia; Christmas Valley, Oregon;
Mounds, Illinois; Alpharetta, Georgia; Laval, Quebec, Canada and
Wisbech, United Kingdom are wholly owned by the Registrant and
the Registrant's facility at Blue Mountain, Mississippi is owned
in part by the Registrant, with the balance leased as hereinafter
described. The Registrant is a party to leases that relate to
11
certain plant acquisition and expansion projects at the
Registrant's facility at Blue Mountain, Mississippi. The Blue
Mountain, Mississippi lease was entered into with the Town of
Blue Mountain, Mississippi in 1988 in connection with the issuance
by the Town of $7,500,000 in aggregate principal amount of
industrial revenue bonds ($5,000,000 of which has been
subsequently retired), full payment of which is guaranteed by the
Registrant. Upon expiration of the leases in 2008, a subsidiary
of the Registrant has the right to purchase the leased property
for $100 upon full payment of the bonds. The land on which the
manufacturing facility at Wisbech, United Kingdom is located is
leased pursuant to a long-term lease arrangement with the Port
Authority of Wisbech, which expires in 2032. The facilities in
Alpharetta, Georgia and Kiel, Wisconsin are leased.
All of the Registrant's domestic manufacturing facilities,
whether owned or leased, consist of related steel frame, sheet
steel covered or brick buildings of various heights, with
concrete floors and storage tanks. The buildings occupy
approximately 208,000 square feet at Ripley, Mississippi; 398,000
square feet at Ochlocknee, Georgia; 129,000 square feet at
Mounds, Illinois; 18,000 square feet at Christmas Valley, Oregon;
26,000 square feet at Alpharetta, Georgia; 16,000 square feet at
Kiel, Wisconsin and 140,000 square feet at Blue Mountain,
Mississippi. The Registrant maintains railroad siding facilities
near the Ripley, Mississippi; Ochlocknee, Georgia; Blue Mountain,
Mississippi; Mounds, Illinois and Laval, Quebec, Canada
manufacturing facilities. Equipment at all facilities is in good
condition, well maintained and adequate for current processing
levels.
All of the Registrant's foreign facilities are owned and
consist of related steel-framed, sheet steel covered or brick
buildings of various heights, with concrete floors and storage
tanks. The buildings occupy 22,500 square feet at Laval, Quebec,
Canada and 66,850 square feet at Wisbech, United Kingdom.
The Registrant's research and development facility is
located on owned land in Vernon Hills, Illinois and consists of
brick buildings of approximately 19,100 square feet, including a
pilot plant facility.
The Registrant's principal office, consisting of
approximately 20,000 square feet in Chicago, Illinois, is
presently occupied under a lease expiring on June 30, 2018.
ITEM 3. LEGAL PROCEEDINGS
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 Company expects that the
suit will be scheduled for a hearing in early fall.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
ITEM 401(B) OF REGULATION S-K. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table gives certain information with respect
to the Executive Officers of the Registrant.
PRINCIPAL OCCUPATION
NAME(1) FOR LAST FIVE YEARS AGE
Daniel S. Jaffee(1)... President and Chief Executive Officer of 38
the Registrant.
Richard V. Hardin(2).. Group Vice-President of Technology of the 63
Registrant.
Eugene W. Kiesel...... Vice-President of Specialty Products Group 45
of the Registrant.
Wade R. Bradley....... Vice-President of Global Consumer Products 42
of the Registrant; Vice-President,
Industrial & Automotive Products Group
from December 1998 to June 2000; General
Manager, Industrial & Automotive Products
Group from June 1995 to December 1998.
Thomas F. Cofsky(2)... Vice-President of Manufacturing and 41
Logistics of the Registrant; Vice-President
of Logistics, Quality & Service from
February 1996 to June 1999.
Jeffrey M. Libert..... Vice-President & Chief Financial Officer of 36
the Registrant Vice-President of Corporate
Development and Planning from June 1998
to April 2000; Manager of Production
Planning from August 1995 to June 1998.
Robert L. Vetere...... Vice-President of Administration, General 53
Counsel and Secretary of the Registrant
until October 1, 2002, when he resigned
his employment; Vice-President Legal and
General Counsel of the Registrant from
June 1999 to November 2000; Secretary of
the Registrant since December
1999; Associate General Counsel and
Director of Government Relations
of First Brands Corporation from April 1996
to April 1999.
Steven M. Azzarello... Vice-President of new Product Development 43
of the Registrant; Vice President of Sales
and Marketing for the Americas of the
Registrant from September 2000 to May 2002;
General Sales Manager for the Americas of
the Registrant from January 2000 to
September 2000: Commercial Director, Latin
America of the Registrant from September
1999 to January 2000; Regional Sales Manager,
Specialty Products of the Registrant from
August 1993 to September 1999.
The term of each executive officer expires at the 2002
Annual Meeting of the Stockholders and when his successor is
elected and qualified.
- ----------------------
(1) Of the persons in this table, only Daniel S. Jaffee is a
director.
(2) Richard V. Hardin and Thomas F. Cofsky are Daniel S. Jaffee's
brothers-in-law.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
Information with respect to holders of Common Stock and
Class B Stock is contained in Note 6 of the "Notes to Consolidated
Financial Statements" incorporated herein by reference.
Information concerning stock prices and dividends with
regard to the Common Stock of the Registrant, which is traded on
the New York Stock Exchange, and information concerning dividends
with regard to the Class B Stock of the Registrant, for which
there is no established public trading market, is contained in
Note 13 of the "Notes to Consolidated Financial Statements,"
incorporated herein by reference. No shares of Class A common
stock are outstanding. The Registrant's 1993 Note Agreement with
Teachers Insurance and Annuity Association and Connecticut
General Life Insurance Company and the Registrant's Credit
Agreement with Harris Trust and Savings Bank dated January 29,
1999 require that certain minimum net worth and tangible net
worth levels are to be maintained. To the extent that these
balances are not attained, the Registrant's ability to pay
dividends may be impaired. See Note 4 of "Notes to Consolidated
Financial Statements," incorporated herein by reference.
Information concerning a private placement of $25,000,000 in
principal amount of notes in April 1998 is incorporated herein by
reference to Note 4 of the "Notes to the Consolidated Financial
Statements." The notes were sold in reliance on the exemption
from registration under the Securities Act of 1933 contained in
Section 4(2) thereof, based on the fact that they were privately
sold in their entirety to two financial institutions.
14
ITEM 6. SELECTED FINANCIAL DATA
TEN YEAR SUMMARY OF FINANCIAL DATA
2002 2001 2000 1999
---- ---- ---- ----
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Summary of Operations...............
Net Sales(1)........................ $162,345 $160,669 $164,044 $163,888
Cost of Sales(1).................... 131,265 131,804 127,434 121,230
-------- -------- -------- --------
Gross Profit(1)..................... 31,080 28,865 36,610 42,658
Non-recurring Fee................... -- 4,278 -- --
Loss on Impaired Long-Lived Assets.. (3,213) -- -- --
Selling, General and
Administrative Expenses(1)........ (27,878) (28,977) (29,617) (30,907)
Restructuring and Special Charges... -- -- (1,239) --
-------- -------- -------- --------
(Loss) Income from Operations....... (11) 4,166 5,754 11,751
-------- -------- -------- --------
Other Income (Expense)
Interest Income................... 295 235 206 480
Interest Expense.................. (2,575) (2,916) (3,185) (3,185)
Foreign Exchange (Losses) Gains... (133) (228) (173) (124)
Gain on the Sale of Mineral
Rights.......................... 769 -- -- --
Other, Net........................ 96 212 446 1,114
-------- -------- -------- --------
Total Other Expense, Net........ (1,548) (2,697) (2,706) (1,715)
-------- -------- -------- --------
Income before Income Taxes.......... (1,559) 1,469 3,048 10,036
Income Taxes........................ (465) 556 821 2,860
-------- -------- -------- --------
Net (Loss) Income................... $ (1,094) $ 913 $ 2,227 $ 7,176
======== ======== ======== ========
Average Shares Outstanding
Basic............................. 5,614 5,613 5,647 5,827
Dilutive.......................... 5,671 5,613 5,677 5,996
Net (Loss) Income per Share
Basic............................. $ (0.19) $ 0.16 $ 0.39 $ 1.23
Dilutive.......................... $ (0.19) $ 0.16 $ 0.39 $ 1.20
Important Highlights
Total Assets...................... $125,035 $130,524 $132,844 $133,750
Long-Term Debt.................... $ 31,400 $ 34,256 $ 39,434 $ 38,150
Working Capital................... $ 37,652 $ 36,100 $ 38,875 $ 37,141
Working Capital Ratio............. 2.9 2.8 3.6 3.3
Book Value per Share.............. $ 12.30 $ 12.80 $ 13.01 $ 13.00
Dividends Declared................ $ 1,894 $ 1,892 $ 1,900 $ 1,904
Capital Expenditures.............. $ 4,096 $ 5,609 $ 6,001 $ 8,495
Depreciation and Amortization..... $ 8,785 $ 9,089 $ 9,099 $ 8,497
Operating Cash Flows, less
Capital Expenditures............ $ 14,399 $ 9,840 $ (42) $ 1,170
Long-Term Debt to Total Capital... 31.3% 32.3% 35.1% 33.9%
Net (Loss) Income as a
Percent of Sales................ (0.7)% 0.6% 1.4% 4.4%
Return on Average
Stockholders' Equity............ (1.6)% 1.3% 3.0% 9.8%
Gross Profit as a Percent of
Net Sales....................... 19.1% 18.0% 22.3% 26.0%
Operating Expenses as a
Percent of Net Sales............ 19.2% 15.4% 18.8% 18.9%
----------------------
(1)Net Sales, Gross Profit and Selling, General and Administrative
Expenses have been reclassified to reflect the direction provided
by EITF 00-25, EITF 00-22 and EITF 00-14 as described in Footnote
1. The reclassification for EITF 00-14 was done for all years
presented. The reclassification for EITF 00-25 and 00-22 was
done for fiscal years 2001-1995.
15
YEAR ENDED JULY 31
------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
$152,194 $148,895 $144,210 $148,861 $146,147 $139,558
111,990 109,906 108,997 109,288 103,457 98,369
-------- -------- -------- -------- -------- --------
40,204 38,989 35,213 39,573 42,690 41,189
-- -- -- -- -- --
-- -- -- -- -- --
(28,646) (28,320) (28,309) (26,863) (28,394) (27,272)
(3,129) -- (921) -- -- --
-------- -------- -------- -------- -------- --------
8,429 10,669 5,983 12,710 14,296 13,917
-------- -------- -------- -------- -------- --------
491 637 587 448 441 452
(2,049) (1,775) (1,917) (1,921) (1,752) (1,729)
(146) -- (7) (5) 3 (88)
-- -- -- -- -- --
(119) (17) 137 (84) 171 (298)
-------- -------- -------- -------- -------- --------
(1,823) (1,155) (1,200) (1,562) (1,137) (1,663)
-------- -------- -------- -------- -------- --------
6,606 9,514 4,783 11,148 13,159 12,254
1,883 2,721 1,409 3,145 3,307 2,834
-------- -------- -------- -------- -------- --------
$ 4,723 $ 6,793 $ 3,374 $ 8,003 $ 9,852 $ 9,420
======== ======== ======== ======== ======== ========
6,125 6,596 6,806 6,932 6,990 6,995
6,165 6,599 6,807 6,936 7,011 7,031
$ 0.77 $ 1.03 $ 0.50 $ 1.15 $ 1.41 $ 1.35
$ 0.77 $ 1.03 $ 0.50 $ 1.15 $ 1.41 $ 1.34
$134,215 $114,558 $117,693 $116,988 $112,267 $102,117
$ 39,976 $ 17,052 $ 18,978 $ 20,422 $ 21,521 $ 17,766
$ 36,283 $ 31,165 $ 30,399 $ 33,074 $ 29,337 $ 26,043
3.1 3.0 2.7 3.1 3.0 2.7
$ 12.15 $ 12.03 $ 11.46 $ 11.35 $ 10.51 $ 9.50
$ 1,808 $ 1,936 $ 2,022 $ 2,047 $ 1,807 $ 1,679
$ 6,496 $ 5,395 $ 7,184 $ 7,032 $ 13,559 $ 9,158
$ 7,832 $ 7,587 $ 7,926 $ 7,808 $ 6,798 $ 5,835
$ 125 $ 8,208 $ 5,941 $ 5,445 $ (3,335) $ 5,080
35.8% 18.1% 19.7% 20.7% 22.8% 21.1%
3.1% 4.6% 2.3% 5.4% 6.7% 6.7%
6.3% 8.8% 4.3% 10.6% 14.1% 14.9%
26.4% 26.2% 24.4% 26.6% 29.2% 29.5%
20.9% 19.0% 20.3% 18.0% 19.4% 19.5%
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 2002 COMPARED TO FISCAL 2001
Consolidated net sales for the year ended July 31, 2002,
were $162,345,000, an increase of 1.0% from net sales of
$160,669,000 in fiscal 2001. The fiscal year sales reflect the
reclassification described in Note 1 of the "Notes to
Consolidated Financial Statements" for the various new accounting
pronouncements. The improvement was due to a sales increase
reported by all of the business segments. Basic and diluted
income per share was a loss of $0.19, versus basic and diluted
net income per share of $0.16 in fiscal 2001. The loss was driven
by a $3,213,000 pre-tax write-off associated with a loss on
impaired long-lived assets. Partially offsetting this loss were
increased sales, a pre-tax gain of $937,000 on a land sale and
the sale of mineral rights, and positive trends in selling,
general & administrative expenses, interest income and interest
expense. Energy costs were stable during the year. The
Company's overall sales mix showed a small negative impact in
fiscal 2002. The Consumer segment's negative mix factors were
offset in large part by the other segments. Driving the fiscal
2001 income was a non-recurring fee of $4,278,000, which was
partially offset by $920,000 of charges covering developmental
costs and several capital asset programs that the Company no
longer intended to pursue in their original form. See Note 2 of
the "Notes to Consolidated Financial Statements" for a discussion
of the loss on impaired long-lived assets; gain on the sale of
mineral rights and the 2001 non-recurring fee.
Net sales for the Consumer Products segment for fiscal 2002
were $101,042,000, an increase of 0.3% from net sales of
$100,728,000 in fiscal 2001. Increased sales of private label cat
litter, dog treats and co-manufactured cat litter items offset
the lower sales of branded clay and paper cat litters. Consumer
Products' operating income increased 35.3% from $7,522,000 in
fiscal 2001 to $10,175,000 in fiscal 2002. This increase was due
to better expense control in the selling, administrative and
advertising areas, improved sales of the dog treat items, offset
partially by reduced product pricing in the co-manufacturing area
and mix weakness in our branded product area.
Net sales of the Specialty Products Group for fiscal 2002
were $24,499,000, an increase of 3.5% from net sales of
$23,678,000 in fiscal 2001. The major change was seen in an
$800,000 increase in sales to Latin America, with CONDITIONADE(R)
and various bleaching clays all experiencing increases. The
balance of the marketing areas remained relatively flat compared
to fiscal 2001. Operating income for the Specialty Products
segment increased 74.6% from $2,451,000 in fiscal 2001 to
$4,280,000 in fiscal 2002. The increase was due to sales growth
in the Latin American market, selling price increases in our
animal health business, the cessation of the unprofitable
Rheological products business and improved profitability in some
of the bleaching earth products. The exchange rate fluctuations
seen between the Euro and the Dollar had a minimal impact on the
Company's marketing to European customers.
Net sales of the Crop Production and Horticultural Products
segment for fiscal 2002 were $17,154,000, an increase of 2.8%
from net sales of $16,691,000 in fiscal 2001. This increase is
due to increased sales of SOILMASTER(R) sports field conditioners
and TERRA-GREEN(R) soil conditioner. Crop Production and
Horticultural Products operating income increased 53.1 % from
$1,535,000 in fiscal 2001 to $2,350,000 in fiscal 2002. The
increase was due to increased selling prices and decreased
selling expenses.
Net sales of the Industrial and Automotive Products segment
for fiscal year 2002 were $19,650,000, an increase of 0.4% from
net sales of $19,572,000 in fiscal 2001. A 29% or approximately
$1,000,000 sales increase of Lites(R) products and general price
increases were offset by lower volumes of clay products.
Industrial and Automotive Products' operating income increased
from a loss of $389,000 in fiscal 2001 to a gain of $18,000 in
fiscal 2002. The selling price increases accounted for much of
this change.
Consolidated gross profit as a percentage of net sales for
fiscal 2002 increased to 19.1% from 18.0% in fiscal 2001. The
year-to-date gross profit reflects the reclassifications
described in Note 1 of the "Notes to Consolidated Financial
Statements" for the various new accounting pronouncements. This
increase was due to several factors. The Specialty segment
contributed additional gross profit from the growth in the Latin
American sales, selling price increases in our animal health
business, the discontinuation of the unprofitable Rheological
products business and improved profitability in some of the
bleaching earth products. The Industrial and Crop Production
segments helped the gross profit picture with price increases.
Finally, the Company saw solid growth in the Consumer segment's
dog treat
17
business. Offsetting some of the positive was the continued
decline of the coarse litter branded business in the Consumer
segment, a reduction of the selling prices in the co-manufactured
products business and a $175,000 increase in our obsolescence
reserve primarily for product sold by our Consumer Products Group.
Operating expenses as a percentage of net sales increased to
19.2% for fiscal 2002 from 15.4% in fiscal 2001. Excluding the
loss on impaired assets in fiscal 2002 and non-recurring fee in
fiscal 2001, operating expenses for fiscal 2002 would have been
17.2% and 18.0% in fiscal 2001. Reductions in trade and
advertising spending in the Consumer segment were key
contributors to the adjusted value of 17.2% for fiscal 2002.
Fiscal 2002 interest expense was down $341,000 from fiscal
2001. Long-term debt was reduced by approximately $2,156,000
during the year. At July 31, 2002 and 2001, the Company did not
have any outstanding borrowing against the revolving line of
credit.
Fiscal 2002 interest income was up $60,000 from fiscal 2001.
The Company's effective tax rate was 29.8 % of income before
tax in fiscal 2002 and 37.9% in fiscal 2001. See Note 5 in the
Notes to the Consolidated Financial Statements for the principal
reasons for the decrease.
Total assets of the Company decreased $5,489,000 or 4.2%
during the year ended July 31, 2002. Current assets increased
$1,802,000 from fiscal 2001 year-end balances primarily due to
increased cash and cash equivalents and investments in Treasury
securities, offset by decreased accounts receivable and
inventories. Property, plant and equipment, net of accumulated
depreciation, decreased $7,414,000 during the year. A
significant part of this reduction was caused by the impairment
loss. However, the fact that depreciation expense continued to
exceed capital expenditures also played a key part in the
reduction.
Total liabilities decreased $2,714,000 or 4.6% during fiscal
2002. A majority of the decrease was reported in non-current
notes payable. However, accrued freight expense, accounts
payable and accrued trade promotions and advertising also
decreased. Increases occurred in current maturities on notes
payable and accrued wages and salaries expense. Current
liabilities increased $250,000 or 1.3% from July 31, 2001
balances.
EXPECTATIONS
The Company anticipates that 2003 sales should be down 4% to
7% compared to fiscal 2002. The impact of the Company's decision
to restructure its private label supply arrangement with Wal-Mart
will reduce sales, but should increase profits. Additional sales
reductions may occur due to continued product and geographical
rationalization. During the second half of fiscal 2003, the
Company's overburden removal cost at its Georgia facility should
return to more historical levels, positively impacting
profitability. However, because of the uncertainties of the
general economy the Company believes it is prudent to forecast
the Company's fully diluted earnings per share in a broad range of
$0.20 to $0.40 per diluted share for fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio of 2.9:1 at July 31, 2002 increased from
the 2.8:1 at July 31, 2001. Working capital increased $1,552,000
during fiscal 2002 to $37,652,000, primarily due to higher cash
and cash equivalents, investments in Treasury securities and
accrued trade promotions and accounts payable. This increase was
partially offset by lower inventories, trade receivables and
increased accrued wages and salaries and current maturities of
notes payable. During fiscal 2002, the balances of cash, cash
equivalents, investment in Treasury and general securities
increased $10,535,000 to $16,236,000.
Cash provided by operating activities was used to fund
capital expenditures of $4,096,000, payments on long-term debt of
$2,156,000 and dividend payments of $1,894,000. Total cash and
investment balances held by the Company's foreign subsidiaries at
July 31, 2002 and July 31, 2001 were $2,187,000 and $2,241,000,
respectively.
18
Accounts receivable, less allowance for doubtful accounts,
decreased 11.8% during fiscal 2002. Days outstanding receivables
decreased from 60.7 at July 31, 2001 to 50.4 at July 31, 2002 due
to reductions in outstanding trade deductions. During fiscal
2002, the Company experienced a $267,000 increase in its bad
debts expense from $142,000 in fiscal 2001 to $409,000 in fiscal
2002. This increase was driven by bankruptcies of several
customers of our Consumer Products Group.
The Company maintains policies and practices to monitor the
creditworthiness of its customers. Such policies include
maintenance of a list of customers whose creditworthiness merits
special monitoring. The total balance of accounts receivable for
accounts on that list represents 7.8% of the Company's
outstanding receivables. Also, during fiscal 2002, the Company
settled a lawsuit with The Fleming Companies, Inc. related to
outstanding receivables, deductions and inventory on terms that
were satisfactory to both parties.
In July 2002, the Teachers Insurance and Annuity Association
1993 and 1998 note agreements were amended to modify the fixed
charge covenant ratio for periods beginning May 1, 2002, as
follows: (i) for the period May 1, 2002 through July 31, 2002 the
ratio test was waived by the noteholders; (ii) for the periods
ending August 1, 2002 through January 31, 2002 to 1.00 to 1.00;
(iii) for the periods ending February 1, 2003 through October 31,
2003 to 1.25 to 1.00; (iv) and for the periods ending November 1,
2003 and thereafter to 1.50 to 1.00. Also, for any fiscal
quarter ending on or after July 31, 2002 an additional interest
charge of 0.25% is imposed if the fixed charge coverage ratio is
less than 1.25 to 1.00 for the quarter ended July 31, 2002 and
1.50 to 1.00 for periods thereafter. Finally, the definition of
Consolidated Net Income was also amended for covenant compliance
purposes to exclude non-cash charges incurred by the Company on
or before July 31, 2003, relating to the write-off of the
Company's equity investments in the Washoe County, Nevada projects
and other costs associated with the possible write-off of a
western production facility. Please see Note 2, "Notes to
Consolidated Financial Statements" for a description of a
write-down totaling $3,213,000 in 2002. The aggregate amount of
these write-offs cannot be in excess of $4,700,000. No decision
has been taken at this time regarding the possible write-off of
the western production facility.
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, build 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 or
acquisition occur, it is possible 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.
RESULTS OF OPERATIONS
FISCAL 2001 COMPARED TO FISCAL 2000
Consolidated net sales for the year ended July 31, 2001,
were $160,669,000, a decrease of 2.1% from net sales of
$164,044,000 in fiscal 2000. The fiscal year sales reflect the
reclassification described in Note 1 of the "Consolidated Notes
to Financial Statements" for the various new accounting
pronouncements. This decline was due to decreased sales in the
Consumer Products and the Specialty Products segments, partially
offset by increased sales in the Crop Production and
Horticultural Products and Industrial Products segments. Basic
and diluted net income per share was $0.16 for fiscal 2001, versus
basic and diluted net income per share of $0.39 in fiscal 2000.
This decrease was due to lower sales, an unfavorable product mix
in our Consumer Products Group, a significant increase
($3,100,000) in energy costs used in the Company's manufacturing
processes, increased mining costs, unfavorable foreign exchange
rate fluctuations and competitive activities which negatively
impacted our Specialty Products Group. Positively impacting
earnings was a non-recurring fee of $4,278,000, which resulted
from the early termination of a supply agreement.
19
Net sales for the Consumer Products segment for fiscal 2001
were $100,728,000, a decrease of 3.6% from net sales of
$104,539,000 in fiscal 2000. Increased sales of private label
product to both grocery and mass merchandisers was overshadowed
by lower sales of branded clay and paper cat litter and
contract-manufactured cat litter. Consumer Products' operating
income declined 44.0% from $13,432,000 in fiscal 2000 to
$7,522,000 in fiscal 2001. This decline was due to significant
increases in energy costs used in the Company's manufacturing
processes, reduced paper litter sales, competitive activities,
unfavorable product mix, reduced co-packaged cat litter sales and
increased material costs in our Canadian operation.
Net sales of Specialty Products Group for fiscal 2001 were
$23,678,000, a decrease of 5.0% from net sales of $24,919,000 in
fiscal 2000. While North American and Latin American sales of
PURE FLO(R) bleaching clays remained flat compared to fiscal 2000
levels, European sales, specifically by the Company's United
Kingdom subsidiary, decreased. Export sales were hampered by the
relative strength of the U.S. dollar versus other currencies,
particularly the Euro. Also, the Specialty Products Group lost a
key European customer late in fiscal 2000. Highlights for this
area were increased sales of ULTRA CLEAR(R) and SELECT(TM) products.
Operating income for the Specialty Products segment decreased
38.0% from $3,951,000 in fiscal 2000 to $2,451,000 in fiscal
2001. This decrease was due to higher fuel costs, competitive
activities and unfavorable exchange rate fluctuations.
Fiscal year 2000 net sales and operating income reflect a
reclassification of $2,250,000 and $(346,000), respectively, for
Animal Health and Nutrition products and customers moved from the
Crop Production and Horticultural Products segment to the
Specialty Products segment.
Net sales of the Crop Production and Horticultural Products
segment for fiscal 2001 were $16,691,000, an increase of 4.7%
from net sales of $15,949,000 in fiscal 2000. This increase is
due to increased sales of SOILMASTER(R) sports field conditioners.
Crop Production and Horticultural Products operating income
increased 3.0% from $1,491,000 in fiscal 2000 to $1,535,000 in
fiscal 2001, due to the increased the increased volume of the
sports field products and increased pricing of agricultural and
sports field products.
Net sales of the Industrial and Automotive Products segment
for fiscal year 2001 were $19,572,000, an increase of 5.0% from
net sales of $18,637,000 in fiscal 2000 due to increased sales of
Lites products and general price increases instituted during the
year. Industrial and Automotive Products' operating income
decreased from a gain of $188,000 in fiscal 2000 to a loss of
$389,000 in fiscal 2001 due to increased energy costs in our
manufacturing processes, offset partially by the increase in
sales and pricing discussed above.
Consolidated gross profit as a percentage of net sales for
fiscal 2001 decreased to 18.0% from 22.3% in fiscal 2000. The
fiscal year gross profit reflects the reclassification described
in Note 1 of the "Consolidated Notes to Financial Statements" for
the various new accounting pronouncements. This decline was due
to an unfavorable sales mix in the Consumer Products, reduction
of contract-manufactured sales, reduced export profitability due
to unfavorable exchange rate fluctuation, competitive activities,
mining costs and a significant increase ($3,100,000) in our
energy costs associated with our manufacturing processes.
Operating expenses as a percentage of net sales decreased to
15.4% for fiscal 2001 from 18.8% in fiscal 2000. Excluding the
restructuring charge recorded in the second quarter of fiscal
2000, operating expenses as a percentage of net sales were
18.1%. The two other major factors, which positively impacted
operating expenses, were the non-recurring fee income and a
reduction in discretionary incentive compensation.
Fiscal 2001 interest expense was down $269,000 from fiscal
2000. Long-term debt was reduced by approximately $4,800,000
during the year. At July 31, 2001, the Company did not have any
outstanding borrowing against the revolving line of credit. At
July 31, 2000 the outstanding borrowings were $3,020,000.
Interest income increased slightly from fiscal 2000.
The Company's effective tax rate was 37.9% of income before
tax in fiscal 2001 and 26.9% in fiscal 2000. See Note 5 in the
Notes to the Consolidated Financial Statements for the principal
reasons for the increase.
20
Total assets of the Company decreased $2,320,000 or 1.7%
during the year ended July 31, 2001. Current assets increased
$1,783,000 from fiscal 2000 year-end balances primarily due to
increased cash and cash equivalents and prepaid overburden,
offset by decreased inventories and prepaid expenses. Property,
plant and equipment, net of accumulated depreciation, decreased
$3,576,000 during the year as depreciation expense exceeded
capital expenditures.
Total liabilities decreased $1,202,000 or 2.0% during the
year due primarily to decreased non-current notes payable
balances, partially offset by increased trade payables and
accrued trade promotion and advertising balances. Current
liabilities increased $4,558,000 or 30.2% from July 31, 2000
balances, due to the increased trade payables and accruals stated
above.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during
fiscal 2002 were $10,754,000 or 6.6% of total Company sales. This
represents a decrease of 1.4% from fiscal 2001 in which foreign
subsidiary sales were $10,908,000 or 6.8% of total Company
sales. Net gain of the foreign subsidiaries for fiscal 2002 was
$93,000, a significant increase from net loss of $325,000 in
fiscal 2001. Much of the improvement was driven by the Company's
Canadian operations through price increases and lower material
costs. Identifiable assets of the Company's foreign subsidiaries
as of July 31, 2002 were $9,542,000, a decrease of $267,000 from
$9,809,000 as of July 31, 2001. The single largest contributor to
this decrease was the reduction of goodwill, associated with
fiscal 2002 normal amortization.
Net sales by the Company's foreign subsidiaries during
fiscal 2001 were $10,908,000 or 6.8% of total Company sales. This
represents a decrease of 12.3% from fiscal 2000 in which foreign
subsidiary sales were $12,433,000 or 7.6% of total Company
sales. This decrease is due to lower sales of Specialty products
in the United Kingdom. Net loss of the foreign subsidiaries for
fiscal 2001 was $325,000, a significant increase from the net
loss of $27,000 in Fiscal 2000. The increased loss was primarily
due to lower gross profit in Canada, which was caused by higher
material and transportation costs and the loss of a key customer
and foreign currency issues in the United Kingdom. Identifiable
assets of the Company's foreign subsidiaries as of July 31, 2001
were $9,809,000, a decrease of $274,000 from $10,083,000 as of
July 31, 2000.
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. These 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.
21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company did not have any derivative financial
instruments as of July 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 significant
portion of its fuel needs for fiscal 2003 using forward purchase
contracts to manage the volatility related to this exposure. 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 have been estimated to
be approximately 17% lower than the contracts for fiscal 2002.
The table below provides information about the Company's
natural gas future contracts, which are sensitive to changes in
commodity prices, specifically natural gas prices. For the future
contracts the table presents the notional amounts in MMBtu's, the
weighted average contract prices, and the total dollar contract
amount, which will mature by July 31, 2003. The Fair Value was
determined using the "Most Recent Settle" price for the "Henry
Hub Natural Gas" option contract prices as listed by the New York
Mercantile Exchange on September 27, 2002.
- -------------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2003
- -------------------------------------------------------------------
Expected 2003 Fair
Maturity Value
- -------------------------------------------------------------------
Natural Gas Future Volumes (MMBtu's) 645,000
Weighted Average Price(Per MMBtu) $3.82
Contract Amount ($ U.S., in thousands) $2,462.9 $2,480.4
- -------------------------------------------------------------------
Factors which could influence the fair value of the natural
gas contracts, include, but are not limited to, the overall
general economy, developments in world events, 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 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.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
July 31,
---------------------
ASSETS 2002 2001
-------- ---------
(IN THOUSANDS OF DOLLARS)
CURRENT ASSETS
Cash and cash equivalents.............. $ 7,154 $ 4,444
Investment in Treasury securities...... 7,807 --
Investment securities.................. 1,275 1,257
Accounts receivable, less allowance of
$392 in 2002 and $455 in 2001........ 21,415 24,267
Other receivables...................... 1,025 2,497
Inventories............................ 11,798 15,445
Prepaid overburden removal expense..... 3,678 3,797
Prepaid expenses....................... 3,392 4,035
-------- --------
Total Current Assets...... 57,544 55,742
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Buildings and leasehold improvements... 22,008 21,647
Machinery and equipment................ 91,943 92,037
Office furniture and equipment......... 9,930 9,994
Vehicles............................... 4,511 4,889
-------- --------
128,392 128,567
Less accumulated depreciation and
amortization......................... (88,684) (83,694)
-------- --------
39,708 44,873
Construction in progress............... 1,797 3,430
Land................................... 7,117 7,733
-------- --------
Total Property, Plant and
Equipment, Net............ 48,622 56,036
-------- --------
OTHER ASSETS
Goodwill and intangibles (Net of
accumulated amortization of $4,272
in 2002 and $3,569 in 2001).......... 9,388 9,691
Deferred income taxes.................. 3,972 3,155
Other.................................. 5,509 5,900
-------- --------
Total Other Assets........ 18,869 18,746
-------- --------
Total Assets........................... $125,035 $130,524
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
23
July 31,
---------------------
2002 2001
-------- ---------
(IN THOUSANDS OF DOLLARS)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of notes payable......... $ 2,850 $ 2,150
Accounts payable............................ 5,121 5,791
Dividends payable........................... 473 473
Accrued expenses
Salaries, wages and commissions........... 3,722 1,524
Trade promotions and advertising.......... 2,595 4,006
Freight................................... 828 1,312
Other..................................... 4,303 4,386
-------- --------
Total Current Liabilities...... 19,892 19,642
-------- --------
NONCURRENT LIABILITIES
Notes payable............................... 31,400 34,256
Deferred compensation....................... 2,954 2,769
Other....................................... 1,718 2,011
Total Noncurrent Liabilities... 36,072 39,036
-------- --------
Total Liabilities.............. 55,964 58,678
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share,
issued 5,470,435 shares in 2002
and 2001.................................. 547 547
Class B Stock, par value $.10 per share,
issued 1,765,083 shares in 2002
and 2001.................................. 177 177
Additional paid-in capital.................. 7,677 7,667
Retained earnings........................... 86,790 89,778
Restricted unearned stock compensation...... (4) (25)
Cumulative translation adjustment........... (1,288) (1,474)
-------- --------
93,899 96,670
Less treasury stock, at cost (1,279,700
common shares and 342,241 Class B
shares at July 31, 2002 and 1,279,110
Common and 342,241 Class B shares at
July 31, 2001)............................ (24,828) (24,824)
-------- --------
Total Stockholders' Equity..... 69,071 71,846
-------- --------
Total Liabilities and Stockholders' Equity.... $125,035 $130,524
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
24
CONSOLIDATED STATEMENTS OF INCOME
Year Ended July 31,
----------------------------------
2002 2001 2000
---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NET SALES............................. $162,345 $160,669 $164,044
COST OF SALES......................... 131,265 131,804 127,434
-------- -------- --------
GROSS PROFIT.......................... 31,080 28,865 36,610
NON-RECURRING FEE..................... -- 4,278 --
LOSS ON IMPAIRED LONG-LIVED ASSETS.... (3,213) -- --
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............. (27,878) (28,977) (29,617)
RESTRUCTURING AND SPECIAL CHARGES..... -- -- (1,239)
-------- -------- --------
(LOSS) INCOME FROM OPERATIONS......... (11) 4,166 5,754
-------- -------- --------
OTHER INCOME (EXPENSE)................
Interest income..................... 295 235 206
Interest expense.................... (2,575) (2,916) (3,185)
Foreign exchange losses............. (133) (228) (173)
Other investment (loss) income...... (187) (76) 254
Gain on the Sale of Mineral
Rights............................ 769 -- --
Other, net.......................... 283 288 192
-------- -------- --------
Total Other Expense, Net.. (1,548) (2,697) (2,706)
-------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES..... (1,559) 1,469 3,048
INCOME TAXES (BENEFIT) PROVISION...... (465) 556 821
-------- -------- --------
NET (LOSS) INCOME..................... $ (1,094) $ 913 $ 2,227
======== ======== ========
NET (LOSS) INCOME PER SHARE...........
Basic............................... $ (0.19) $ 0.16 $ 0.39
======== ======== ========
Dilutive............................ $ (0.19) $ 0.16 $ 0.39
======== ======== ========
AVERAGE SHARES OUTSTANDING............
Basic............................... 5,614 5,613 5,647
======== ======== ========
Dilutive............................ 5,671 5,613 5,677
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Additional
& Class B Paid-In
Stock Capital
-------- --------
(IN THOUSANDS)
BALANCE, JULY 31, 1999 $ 724 $ 7,702
Net Income -- --
Cumulative Translation Adjustments -- --
Total Comprehensive Income
Dividends Declared -- --
Purchases of Treasury Stock -- --
Issuance of Stock Under 1995 Long-Term Incentive Plan -- (4)
Authorization of Restricted Common Stock Compensation -- --
-------- --------
BALANCE, JULY 31, 2000 724 7,698
Net Income -- --
Cumulative Translation Adjustments -- --
Total Comprehensive Income
Dividends Declared -- --
Purchases of Treasury Stock -- --
Issuance of Stock Under 1995 Long-Term Incentive Plan -- (31)
Authorization of Restricted Common Stock Compensation -- --
-------- --------
BALANCE, JULY 31, 2001 724 7,667
Net (Loss)
Cumulative Translation Adjustments
Total Comprehensive (Loss)
Dividends Declared
Purchase of Treasury Stock
Issuance of Stock Under 1995 Long-Term Incentive Plan 10
Authorization of Restricted Common Stock Compensation
-------- --------
BALANCE, JULY 31, 2002 $ 724 $ 7,667
======== ========
RESTRICTED ACCUMULATED TOTAL
UNEARNED OTHER STOCK-
RETAINED STOCK TREASURY COMPREHENSIVE HOLDERS'
EARNINGS COMPENSATION STOCK INCOME EQUITY
- -------- ----- -------- -------- -------
(IN THOUSANDS)
$90,430 $ (9) $(23,181) $ (1,159) $74,507
-------
2,227 -- -- -- 2,227
-- -- (151) (151)
-------
2,076
-------
(1,900) -- -- -- (1,900)
-- (1,751) -- (1,751)
(33) 37 -- -
32 -- -- 32
- -------- ----- -------- -------- -------
90,757 (10) (24,895) (1,310) 72,964
-------
$913 -- -- -- 913
-- -- -- (164) (164)
-------
749
-------
(1,892) -- -- -- (1,892)
-- -- (3) -- (3)
-- (43) 74 -- -
-- 28 -- -- 28
- -------- ----- -------- -------- -------
89,778 (25) (24,824) (1,474) 71,846
-------
(1,094) (1,094)
186 186
-------
(908)
-------
(1,894) (1,894)
(4) (4)
10
-
21 21
- -------- ----- -------- -------- -------
$86,790 $ (4) $(24,828) $ (1,288) $69,071
======== ===== ======== ======== =======
The accompanying statements are an integral part of the consolidated financial
statements.
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended July 31,
---------------------------
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES (IN THOUSANDS OF DOLLARS)
Net (loss) income $(1,094) $ 913 $ 2,227
------- ------- -------
Adjustments to reconcile net (loss)
income to net cash provided by operating
activities:
Depreciation and amortization 8,785 9,089 9,099
Non-cash restructuring and
special charges -- -- 716
Deferred income taxes (817) (549) 439
Provision for bad debts 409 142 23
Loss on impaired assets 3,213 -- --
(Gain) loss on the sale of fixed assets (78) 237 (9)
(Increase) decrease in:
Accounts receivable 2,443 (13) 913
Other receivables 1,472 (187) (1,439)
Inventories 3,647 1,483 (1,763)
Prepaid overburden removal expense 119 (1,411) (683)
Prepaid expenses 643 1,298 (911)
Other assets (8) 377 (2,425)
Increase (decrease) in:
Accounts payable (671) 988 (38)
Accrued expenses 220 3,250 (410)
Deferred compensation 185 (344) (94)
Other (292) (320) 302
------- ------- -------
Total Adjustments 19,270 14,040 3,720
------- ------- -------
Net Cash Provided by
Operating Activities 18,176 14,953 5,947
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,096) (5,609) (6,001)
Proceeds from sale of property,
plant and equipment 319 496 12
Purchases of investment securities (9,639) (2,487) (1,219)
Dispositions of investment securities 1,814 2,450 1,225
------- ------- -------
Net Cash Used in
Investing Activities (11,602) (5,150) (5,983)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (2,156) (4,777) (2,226)
Proceeds from issuance of long-term debt -- -- 3,033
Dividends paid (1,894) (1,892) (1,911)
Purchase of Treasury stock (4) (3) (1,751)
Other 190 (75) (83)
------- ------- -------
Net Cash (Used in) Provided by
Financing Activities (3,864) (6,747) (2,938)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,710 3,056 (2,974)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 4,444 1,388 4,362
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,154 $ 4,444 $ 1,388
======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
27
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of Oil-Dri Corporation of America and its subsidiaries, all of
which are wholly owned. All significant intercompany balances
and transactions have been eliminated from the consolidated
financial statements.
MANAGEMENT USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
REVENUE RECOGNITION
Revenues from sales of products are recognized upon shipment.
INCOME TAXES
Deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for
financial reporting purposes and amounts recognized for tax
purposes.
No provision has been made for possible income taxes which
may be paid on the distribution of approximately $18,391,000 and
$16,082,000 as of July 31, 2002 and 2001, respectively, of
retained earnings of foreign subsidiaries, as substantially all
such amounts are intended to be indefinitely invested in these
subsidiaries or no additional income taxes would be incurred when
such earnings are distributed. It is not practicable to
determine the amount of income taxes or withholding taxes that
would be payable upon the remittance of assets that represent
those earnings.
RECLASSIFICATION
Certain items in prior year financial statements have been
reclassified to conform to the presentation used in fiscal 2002.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of foreign subsidiaries, where the
local currency is the functional currency, are translated at the
exchange rates in effect at period end. Income statement items
are translated at the average exchange rate on a monthly basis.
Resulting translation adjustments are recorded as a separate
component of stockholders' equity.
CASH EQUIVALENTS AND INVESTMENTS IN TREASURY SECURITIES
Cash equivalents are highly liquid investments with
maturities of three months or less when purchased. Investments
in treasury securities are carried at cost, plus accrued
interest, which approximates market.
INVENTORIES
Inventories are valued at the lower of cost (first-in,
first-out) or market. The Company recorded additional inventory
obsolescence reserves of approximately $275,000, $100,000, and $0
in the years 2002, 2001 and 2000, respectively. The composition
of inventories as of July 31, 2002 is as follows:
28
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2002 2001
---- ----
(IN THOUSANDS)
Finished goods.............................. $ 6,673 $ 9,473
Packaging................................... 3,368 4,029
Other....................................... 1,757 1,943
------- -------
$11,798 $15,445
======= =======
PREPAID OVERBURDEN REMOVAL
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. The Company
had $3,678,000 and $3,797,000 of prepaid expense recorded on its
consolidated balance sheet, as of July 31, 2002 and July 31,
2001, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company
to concentrations of credit risk, consist principally of cash
investments and accounts receivable. The Company places its cash
investments in government-backed instruments, both foreign and
domestic, and with other quality institutions. Concentrations of
credit risk with respect to accounts receivable are subject to
the financial condition of certain major customers, principally
the customer referred to in Note 3. The Company generally does
not require collateral to secure customer receivables.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment expenditures are generally
depreciated using the straight-line method over their estimated
useful lives as follows:
Years
-----
Buildings and leasehold improvements........ 5-30
Machinery and equipment..................... 2-20
Office furniture and equipment.............. 2-10
Vehicles.................................... 2-8
RESEARCH AND DEVELOPMENT
Research and development costs of $1,955,000, $1,953,000 and
$1,951,000 were charged to expense as incurred for the years
ended July 31, 2002, 2001 and 2000, respectively.
INTANGIBLES AND GOODWILL
Intangibles and goodwill are amortized on a straight-line
basis over periods ranging from 15 to 40 years. The Company
periodically reviews goodwill and other intangibles to assess
recoverability from projected undiscounted cash flows of the
related operating entities.
29
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company defers recognition of advertising production
costs until the first time the advertising takes place; other
advertising costs are expensed as incurred. Advertising expenses
were $1,227,000, $1,940,000 and $2,518,000 for the years ended
July 31, 2002, 2001 and 2000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Non-derivative financial instruments included in the
consolidated balance sheets are cash and cash equivalents,
investment securities and notes payable. These instruments,
except for notes payable, were carried at amounts approximating
fair value as of July 31, 2002 and 2001. The fair value of notes
payable was estimated based on future cash flows discounted at
current interest rates available to the Company for debt with
similar maturities and characteristics. The fair value of notes
payable as of July 31, 2002 was greater than its carrying value
by approximately $998,000 and less than its carrying value by
approximately $201,000 as of July 31, 2001.
INTEREST RATE SWAP AGREEMENTS
An interest rate swap agreement, which expires on May 1,
2013, is utilized to manage interest rate exposure. Interest
differentials on the swap contract are recorded as interest
expense as incurred. The Company recognized additional interest
expense of $15,000, $7,500 and 7,400 in fiscal years 2002, 2001
and 2000 respectively, as a result of this contract.
NEW ACCOUNTING STANDARDS
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 and certain intangible assets 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
30
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
required for fiscal years beginning after December 15, 2001.
Management is currently conducting a review of the estimated fair
market value of the business segments impacted by the new
pronouncement, using a combination of discounted cash flow
techniques and outside appraiser's evaluations. Management is
still assessing the effects adoption of SFAS No. 142 will have on
its financial position, liquidity, or results of operations.
Upon adoption, the Company's amortization expense will be reduced
by approximately $174,000 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 a preliminary
analysis, management 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 or Disposal of Long-Lived Assets," effective
for years beginning after December 15, 2001, which supersedes the
accounting and reporting for the impairment and disposal of
long-lived assets under 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. Management
has and will continue to evaluate the Company's long-lived assets
in compliance with SFAS 121 and SFAS 144 when effective. Please
see Note 2 of the "Notes to Consolidated Financial Statements"
for a discussion of an impairment loss recorded in the fourth
quarter of fiscal 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." The standard
requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. SFAS No. 146 is
to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. Management is still assessing
the effects adoption of SFAS No. 146 will have on its financial
position, liquidity, or results of operations.
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, buy-downs 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 elected to adopt it for
slotting in the second quarter ending January 31, 2002. The
Company fully completed the adoption for buy-downs 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
31
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 2 - SPECIAL CHARGES, FEES AND CHANGES IN ACCOUNTING ESTIMATES
SPECIAL CHARGES
In the second quarter of fiscal 2000, the Company recorded a
pre-tax restructuring charge of $1,239,000 against income from
operations, as follows (in thousands):
Severance costs $ 604
Non-performing asset 635
--------
Restructuring charge $ 1,239
========
The severance costs were related to a realignment of the
Company's personnel costs to bring them more in line with the
then current levels of sales and profitability. The severance
accrual represented 13 employees that were terminated during
fiscal 2000. The majority of the positions terminated were at
the selling, general and administrative level.
The net book value of the non-performing asset consisted of
specific production equipment that has been decommissioned. The
equipment had been used primarily in the Agricultural Products
segment. The net book value of this asset was approximately 1% of
the net book value of all fixed assets outstanding as of January
31, 2000.
At July 31, 2001, none of the restructuring charges remained in
current liabilities. A summary of the balance sheet activity for
the years ended July 31 is presented below (in thousands):
2002 2001 2000
------ ------ ------
Beginning balance.............. $ -- $ 81 $ --
Restructuring and special charges -- -- 1,239
Utilization of special charges:
Transportation business exit costs...... -- -- --
Write-off of non-performing assets...... -- -- --
Other exit costs........................ -- -- --
Utilization of restructuring charge:
Severance costs......................... -- (81) (523)
Write-off of non-performing assets...... -- -- (635)
------ ------ ------
Balance at end of year...................... $ -- $ -- $ 81
====== ====== ======
NON-RECURRING FEE
On April 23, 2001, the Company signed two new long-term
supply contracts with a major customer. At that time the old
long-term supply contract between the Company and this customer
was terminated and the Company received a pre-tax termination fee
of $4,278,000, of which $2,200,000 was received in fiscal 2001
and the balance was received in fiscal 2002.
32
NOTE 2 - SPECIAL CHARGES, FEES AND CHANGES IN ACCOUNTING ESTIMATES
(CONTINUED)
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 fiscal 2002 was an additional pre-tax charge to cost of goods
sold of approximately $1,092,000 versus the previous estimate.
The estimate change also increased the amortization rate
approximately $1.31 per ton of uncovered mineable clay. Based on
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 4 to 6
months. Thereafter, going forward management believes that
overburden removal expense should return to historical rates.
SALE OF MINERAL RIGHTS
During the third quarter of fiscal 2002, 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 Company's Specialty Products Group.
RENO PROCESSING 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 Company
expects that the suit will be scheduled for a hearing in early
fall.
During the latter part of the fourth quarter of fiscal 2002,
the Company reviewed both properties in Washoe County, Nevada for
possible long-term asset impairment. The decision to review the
properties was driven by a combination of the February 26, 2002,
County Commission decision and the successful completion in June
of 2002 of a significant geographic distribution change with
Wal-Mart.
The accumulated cost of the Reno project that was reviewed
for impairment was approximately $3,734,000. This value included
the cost of purchased land, water and mineral rights, legal fees
associated with the land and water rights purchases, consulting
fees for the design of the proposed facility, fees associated
with an environment impact study, various mining exploration
costs, Company overhead costs for the project, machinery costs and
finally various legal and consulting fees associated with the
preparation and presentation of the special use permit.
The accumulated cost of the other Washoe County property was
approximately $1,114,000. This value included the purchase
price of the land and associated costs and mineral exploration
costs.
Based on the February 26, 2002 determination of the County
Commission and the geographic distribution change with Wal-Mart,
the Company determined that a significant portion of the costs of
both properties was impaired. Therefore, a pre-tax loss on
impaired long-lived assets of $3,213,000 was recognized in the
fourth quarter of fiscal 2002 to write down the accumulated costs
associated with these projects and the reduction in the value of
assets remaining to the current fair market value. The main
business segment impacted by this impairment was the Company's
Consumer Products group.
33
NOTE 3 - OPERATING SEGMENTS
SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" establishes standards for reporting
information about operating segments. Under this standard, 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 the summary of significant accounting policies.
Because management does not rely on segment asset
allocation, information regarding segment assets is not meaningful
and therefore is not reported.
YEAR ENDED JULY 31
-----------------------------------------------------
NET SALES INCOME
--------------------------- ------------------------
2002 2001 2000 2002 2001 2000
-------- -------- -------- ------- ------- -------
(IN THOUSANDS OF DOLLARS)
Consumer Products(3)(4) $101,042 $100,728 $104,539 $10,175 $ 7,522 $13,432
Specialty Products
Group(4) 24,499 23,678 24,919 4,280 2,451 3,951
Crop Production and
Horticulture(4) 17,154 16,691 15,949 2,350 1,535 1,491
Industrial and
Automotive Products(4) 19,650 19,572 18,637 18 (389) 188
-------- -------- -------- ------- ------- -------
TOTAL SALES/OPERATING
INCOME $162,345 $160,669 $164,044 16,823 11,119 19,062
-------- -------- --------
Nonrecurring Fee(2) -- 4,278 --
Gain on the Sale of
Mineral Rights(1) 769 -- --
Less:
Loss on Impaired
Assets 3,213 -- --
Special Charges -- -- 1,239
Corporate Expenses 13,658 11,247 11,796
Interest
Interest Expense, net
of interest income 2,280 2,681 2,979
------- ------- -------
(LOSS) INCOME BEFORE INCOME TAXES (1,559) 1,469 3,048
INCOME TAXES (BENEFIT) PROVISION (465) 556 821
------- ------- -------
NET (LOSS) INCOME $(1,094)$ 913 $ 2,227
======= ======= =======
(1) See Note 2 for a discussion of the gain on the sale of mineral rights.
(2) See Note 2 for a discussion of the non-recurring fee recorded in fiscal
2001.
(3) See Note 1 for a discussion of the restatement of Net Sales for fiscal
2002, 2001 and 2000.
(4) Internal restatement of 2001 and 2000 costs in 2002 resulting in
reallocation of manufacturing variances among the segments.
34
NOTE 3 - OPERATING SEGMENTS (CONTINUED)
The following is a summary of financial information by
geographic region for the years ended July 31:
2002 2001 2000
--------- -------- --------
(IN THOUSANDS)
Sales to unaffiliated customers:
Domestic........................ $151,591 $149,761 $151,611
Foreign subsidiaries............ $ 10,754 $ 10,908 $ 12,433
Sales or transfers between
geographic areas:
Domestic........................ $ 5,000 $ 5,243 $ 6,708
(Loss) Income before income taxes:
Domestic........................ $ (1,614) $ 2,006 $ 3,064
Foreign subsidiaries............ $ 55 $ (537) $ (16)
Net (Loss) Income:
Domestic........................ $ (1,187) $ 1,238 $ 2,254
Foreign subsidiaries............ $ 93 $ (325) $ (27)
Identifiable assets:
Domestic........................ $115,493 $120,715 $122,761
Foreign subsidiaries............ $ 9,542 $ 9,809 $ 10,083
The Company's largest customer accounted for the following
percentage of consolidated net sales and net accounts receivable
under the Consumer Products segment:
2002 2001 2000
--------- -------- --------
Sales for the years ended July 31.... 22% 21% 20%
Accounts receivable as of July 31.... 26% 25% 26%
35
NOTE 4 - NOTES PAYABLE
The composition of notes payable at July 31 is as follows:
2002 2001
-------- --------
(IN THOUSANDS)
Town of Blue Mountain, Mississippi
Principal payable on October 1, 2008. Interest
payable monthly at a variable interest rate set
weekly based on market conditions for similar
instruments. The average rate was 1.95% and
4.00% in fiscal 2002 and 2001, respectively.
Payment of these bonds by the Company is
guaranteed by a letter of credit issued by
Harris Trust and Savings Bank........................ $ 2,500 $ 2,500
Teachers Insurance and Annuity Association of America
Final principal installment payable on November
15, 2001. Interest was payable semiannually
at an annual rate of 9.38%........................... -- 1,000
Teachers Insurance and Annuity Association of America
Payable in annual principal installments on August
15: $1,000,000 in fiscal 2003; and $2,500,000
in fiscal 2004 and 2005. Interest is payable
semiannually at an annual rate of 7.17%.............. 6,000 6,500
Harris Trust and Savings Bank
Payable in annual principal installments on
June 20: $350,000 in fiscal 2003. Interest is
payable quarterly at an annual rate of 7.78%......... 350 1,000
Teachers Insurance and Annuity Association of America and
Connecticut General Life Insurance Company
Payable in annual principal installments on April 15:
$1,500,000 in fiscal 2003, 2004 and 2005; $3,000,000
in fiscal 2006; $4,000,000 in fiscal 2007 and 2008;
$1,500,000 in fiscal 2009; $3,000,000 in fiscal 2010;
$2,000,000 in fiscal 2011; and $1,500,000 in fiscal
2012 and 2013. Interest is payable semiannually at
an annual rate of 6.55%.............................. 25,000 25,000
Other................................................... 400 406
-------- --------
$ 34,250 $ 36,406
Less current maturities of notes payable............. (2,850) (2,150)
-------- --------
$ 31,400 $ 34,256
======== ========
On January 29, 1999, the Company entered into a Credit
Agreement with Harris Trust and Savings Bank, which provides for
up to $15,000,000 in committed unsecured revolving credit loans
and/or letters of credit (not to exceed $5,000,000). In May
2002, the Company reduced this facility to $7,500,000 and amended
the definition of Consolidated EBITDA used for covenant
compliance purposes to exclude non-cash charges, not in excess of
$3,600,000 relating to the write-off of its equity investment in
the Washoe County, Nevada, project and/or certain other costs
associated with the possible write-off of a western production
facility. Please see Note 2, "Notes to Consolidated Financial
Statements" for a description of a write-down totaling $3,213,000
in 2002. However, no decision has been taken at this time
regarding the possible write-off of the western production
facility. This agreement terminates on January 29, 2004, or such
earlier date as provided for in the agreement. Additionally, the
Company decreased its uncommitted line
36
NOTE 4 - NOTES PAYABLE (CONTINUED)
of credit agreement, which is renewable on an annual basis, with
Harris Trust and Savings Bank to $15,000,000 in fiscal 1999.
There were not any outstanding borrowings against this facility
at July 31, 2002 and 2001.
In January 2001, the note agreement for the $25,000,000
private debt placement was amended to modify the fixed charges
ratio covenant contained therein from the original ratio of 1.5
to 1.0 to new ratios as follows: (i) for the period ending
November 1, 2000 through April 30, 2001 to 1.00 to 1.00; (ii) for
the period ending May 1, 2001 through October 31, 2001 to 1.15 to
1.00; (iii) for the period ending November 1, 2001 through July
31, 2002 to 1.25 to 1.00; (iv) and for the period ending August
1, 2002 and thereafter to 1.50 to 1.00. Additionally, prior note
agreements dated as of April 15, 1993 and April 15, 1991 with
Teachers Insurance and Annuity Association have also been amended
to add a fixed charges coverage ratio covenant at substantially
the same terms as those in the note agreement dated as of April
15, 1998 as amended.
In July 2002, the 1993 and 1998 note agreements were further
amended to modify the fixed charge covenant ratio for periods
beginning May 1, 2002, as follows: (i) for the period May 1, 2002
through July 31, 2002 the ratio test was waived by the
noteholders; (ii) for the periods ending August 1, 2002 through
January 31, 2002 to 1.00 to 1.00; (iii) for the periods ending
February 1, 2003 through October 31, 2003 to 1.25 to 1.00; (iv)
and for the periods ending November 1, 2003 and thereafter to
1.50 to 1.00. Also, for any fiscal quarter ending on or after
July 31, 2002 an additional interest charge of 0.25% is imposed if
the fixed charge coverage ratio is less than 1.25 to 1.00 for the
quarter ended July 31, 2002 and 1.50 to 1.00 for periods
thereafter. Finally, the definition of Consolidated Net Income
for covenant compliance purposes also has been amended to exclude
non-cash charges incurred by the Company on or before July 31,
2003, relating to the write-off of the Company's equity
investments in the Washoe County, Nevada projects and other costs
associated with the possible write-off of a western production
facility. Please see Note 2, "Notes to Consolidated Financial
Statements" for a description of a write-down totaling $3,213,000
in 2002. The aggregate amount of these write-offs cannot be in
excess of $4,700.000. No decision has been taken at this time
regarding the possible write-off of the western production
facility.
The agreements with the Town of Blue Mountain, Mississippi,
Teachers Insurance and Annuity Association of America, Harris
Trust and Savings Bank and Connecticut General Life Insurance
Company impose working capital requirements, dividend and
financing limitations, minimum tangible net worth requirements
and other restrictions. The Company's new Credit Agreement with
Harris Trust and Savings Bank indirectly restricts dividends by
requiring the Company to maintain tangible net worth, as defined,
in the amount of $50,000,000 plus 40% of cumulative annual
earnings from July 31, 1998.
In prior years, the Town of Blue Mountain, Mississippi
issued long-term bonds to finance the purchase of substantially
all of the assets of certain plant expansion projects, and leased
the projects to the Company and various of its subsidiaries (with
the Company and various of its wholly owned subsidiaries as
guarantors) at rentals sufficient to pay the debt service on the
bonds.
The following is a schedule by year of future maturities of
notes payable as of July 31, 2002:
(IN THOUSANDS)
2004..................................... $ 4,000
2005 .................................... 4,080
2006..................................... 3,080
2007..................................... 4,080
Later years.............................. 16,160
-------
$31,400
=======
37
NOTE 5 - INCOME TAXES
The provision for income tax expense consists of the
following:
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
Current
Federal....................... $ 426 $ 586 $(1,450)
Foreign....................... (14) (212) 11
State......................... (59) 74 (409)
------ ------ -------
353 448 (1,848)
------ ------ -------
Deferred
Federal....................... 629 65 1,046
Tax effect of operating loss
carryforward, net........... (1,630) -- 1,371
Foreign....................... -- -- --
State......................... 183 43 252
------ ------ -------
(818) 108 2,669
------ ------ -------
Total Income Tax Provision (Benefit) $ (465) $ 556 $ 821
====== ====== =======
Principal reasons for variations between the statutory
federal rate and the effective rates for the years ended July 31
were as follows:
2002 2001 2000
------ ------ ------
U.S. federal income tax rate....... (34.0)% 34.0% 34.0%
Depletion deductions allowed for
mining........................... (11.4) (13.0) (5.0)
State income tax expense (benefit),
net of federal tax (benefit)
/expense. (5.3) 5.3 (3.4)
Valuation allowance without income
tax benefit...................... 22.9 -- (3.3)
Difference in effective tax rate of
foreign subsidiaries............. (2.1) (0.2) (0.1)
Alternative minimum and foreign tax
credits.......................... -- 5.4 3.8
Other.............................. 0.1 6.4 0.9
------ ------ -------
(29.8)% 37.9% 26.9%
====== ====== =======
The consolidated balance sheets as of July 31 included the
following tax effects of cumulative temporary differences:
2002 2001
-------------------- -------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN THOUSANDS)
Depreciation...................... $ -- $ 466 $ -- $ 810
Deferred compensation............. 1,121 -- 1,075 --
Postretirement benefits........... 569 -- 560 --
Allowance for doubtful accounts... 142 -- 721 --
Other assets...................... 417 -- 791 --
Accrued expenses.................. 308 -- 421 --
Tax credits....................... 199 -- 397 --
Other assets...................... 52 -- -- --
Operating loss carryforward....... 1,987 -- -- --
------ ------ ------ ------
4,795 466 3,965 810
Valuation allowance............... (357) -- -- --
------ ------ ------ ------
Total deferred taxes.............. $4,438 $ 466 $3,965 $ 810
====== ====== ====== ======
38
NOTE 5 - INCOME TAXES (CONTINUED)
As of July 31, 2002, for federal income tax purposes there
were alternative minimum tax credit carryforwards of
approximately $199,000 and regular tax operating loss
carryforwards of approximately $5,244,000. The operating loss
carryforward will expire in 2022. A valuation allowance has been
established for $357,000 of the deferred tax benefit related to
those operating losses which it is more likely than not that the
benefit will not be realized.
NOTE 6 - STOCKHOLDERS' EQUITY
The authorized capital stock of the Company at July 31, 2002
and 2001 consisted of 15,000,000 shares of Common Stock,
7,000,000 shares of Class B Stock and 30,000,000 shares of Class A
Common Stock, each with a par value of $.10 per share. There are
no Class A shares currently outstanding.
The Common Stock and Class B Stock are equal, on a per share
basis, in all respects except as to voting rights, conversion
rights, cash dividends and stock splits or stock dividends. The
Class A Common Stock is equal, on a per share basis, in all
respects, to the Common Stock except as to voting rights and
stock splits or stock dividends. In the case of voting rights,
Common Stock is entitled to one vote per share and Class B Stock
is entitled to ten votes per share, while Class A Common Stock
generally has no voting rights. Common Stock and Class A Common
Stock have no conversion rights. Class B Stock is convertible on
a share-for-share basis into Common Stock at any time and is
subject to mandatory conversion under certain circumstances.
Common Stock is entitled to cash dividends, as and when
declared or paid, equal to 133 1/3% on a per share basis of the
cash dividend paid on Class B Stock. Class A Common Stock is
entitled to cash dividends on a per share basis equal to the cash
dividend on Common Stock. Additionally, while shares of Common
Stock, Class A Common Stock and Class B Stock are outstanding,
the sum of the per share cash dividend paid on shares of Common
Stock and Class A Common Stock, must be equal to at least 133
1/3% of the sum of the per share cash dividend paid on Class B
Stock and Class A Common Stock. See Note 4 regarding dividend
restrictions.
Shares of Common Stock, Class A Common Stock and Class B
Stock are equal in respect of all rights to dividends (other than
cash) and distributions in the form of stock or other property
(including stock dividends and split-ups) in each case in the
same ratio except in the case of a Special Stock Dividend. The
Special Stock Dividend, which can be issued only once, is either
a dividend of one share of Class A Common Stock for each share of
Common Stock and Class B Stock outstanding or a recapitalization,
in which half of each outstanding share of Common Stock and Class
B Stock would be converted into a half share of Class A Common
Stock.
The Board of Directors of the Company has authorized the
repurchase of 1,916,771 shares of the Company stock. As of July
31, 2002, 1,127,920 shares of Common Stock and 342,241 shares of
Class B stock have been repurchased under the various
authorizations.
The number of holders of record of Common Stock and Class B
stock on July 31, 2002 was 933 and 33, respectively, as reported
by the Company's transfer agent. The Company's Common Stock is
traded on the New York Stock Exchange. There is no established
trading market for the Class B Stock.
NOTE 7 - STOCK OPTION PLANS
The Company instituted the Oil-Dri Corporation of America
1995 Long Term Incentive Plan during the fiscal year ended July
31, 1996. On December 9, 1997, the stockholders voted to
increase the number of shares available for grant under the 1995
Plan from 500,000 to 1,000,000 and further authorized the grant
of Class B Shares under the Plan to certain members of the Richard
M. Jaffee family. Generally, other than grants to Richard M.
Jaffee family members, shares of stock awarded under the 1995
Plan will be Class A Common Stock, except that, if there is no
Class A Common Stock issued and publicly traded on a securities
exchange when such awards are exercised, the shares awarded would
be Common Stock. On December 7, 1999, the stockholders voted to
increase the number of shares available for grant under the 1995
Plan from 1,000,000 to 1,500,000. On June 9, 2000 the 1995 Plan
was amended to provide 100% vesting and a three-year exercise
period upon the death or disability of a grantee or upon a
grantee's retirement with age plus years of service equal to at
least 80. The Plan provides for various other types of awards.
No restricted stock
39
NOTE 7 - STOCK OPTION PLANS (CONTINUED)
awards were made during the fiscal year ended July 31, 2002.
Awards of restricted stock in the amount of 5,000 and 2,500
shares were made during the fiscal years ended July 31, 2001 and
2000, respectively. All stock option grants awarded to date
under this plan have a term of ten years. Grants vest and become
exercisable gradually between two and seven years.
The Oil-Dri Corporation of America 1988 Stock Option Plan
terminated on December 12, 1995, for purposes of future grants.
The outstanding options under this plan will remain outstanding
and exercisable in accordance with their respective terms. As of
July 31, 2002, all options outstanding are vested and exercisable.
The Company instituted the Oil-Dri Corporation of America
Outside Director's Stock Plan on June 9, 1998. The Plan is
administered by the Stock Option Committee. All shares of stock
issued under this plan will be shares of Common Stock issued from
Treasury Stock. The Plan provides for stock option grants,
Restrictive Stock, Stock Awards and stock units. All awards to
date under this plan are stock options that have a term of ten
years and a vesting period of one year.
EQUITY COMPENSATION PLAN INFORMATION AS OF JULY 31, 2002
- ----------------------------------------------------------------------------
Number
of
securities
Number remaining
of available
securities for
to be further
issued issuance
upon under
exercise Weighted- equity
of average compensation
outstanding exercise plans
options, price of (excluding
warrants outstanding securities
and options, reflected in
rights warrants column (a))
(in and (in
thousands) rights thousands)
Plan category (a) (b) (c)
- ----------------------------------------------------------------------------
Equity compensation plans
approved by security holders 1,206 $10.50 364
Equity compensation plans not
approved by security holders 195 $10.39 5
- ----------------------------------------------------------------------------
A summary of option transactions under the plans follows:
Number Weighted
of Shares Average
(in Exercise
thousands) Price
- ----------------------------------------------------------------------------
Options outstanding at August 1, 1999 1,098 $12.61
Granted 177 $12.50
Exercised -- --
Canceled 280 $12.40
- ----------------------------------------------------------------------------
Options outstanding at August 1, 2000 995 $12.65
Granted 258 $ 9.02
Exercised -- --
Canceled 116 $13.48
- ----------------------------------------------------------------------------
Options outstanding at August 1, 2001 1,137 $11.74
Granted 310 $ 6.18
Exercised 1 $ 8.19
Canceled 45 $12.65
- ----------------------------------------------------------------------------
OPTIONS OUTSTANDING AT AUGUST 1, 2002 1,401 $10.49
40
NOTE 7 - STOCK OPTION PLANS (CONTINUED)
Options exercisable were 576,151, 336,325 and 189,500 as of
July 31, 2002, 2001 and 2000, respectively. The weighted average
exercise price of the options exercisable as of July 31, 2002,
2001 and 2000 was $12.43, $14.10 and $17.33, respectively.
The Company had reserved 350,626, 587,250 and 684,750
shares, respectively, as of July 31, 2002, 2001 and 2000 under the
Oil-Dri Corporation of America 1995 Long Term Incentive Plan.
The Company had reserved 5,000, 40,000 and 120,000 shares of
Common Stock, respectively, as of July 31, 2002, 2001 and 2000,
under the Oil-Dri Corporation of America Outside Director's Stock
Plan.
OPTIONS OUTSTANDING AND EXERCISABLE
BY PRICE RANGE AS OF 7/31/2002
Options Outstanding Options Exercisable
- ----------------------------------------------------- -----------------------
Outstanding Weighted
as of Average Weighted Weighted
Range of 7/31/2002 Remaining Average Shares Average
Exercise (in Contractual Exercise (in Exercise
Prices thousands) Life Price thousands) Price
- --------------- ---------- ---------- ---------- ---------- ----------
$6.01 - $8.00 400 9.0 $ 6.59 80 $ 8.00
$8.01 - $10.00 199 8.0 $ 9.22 14 $ 8.43
$10.01 - $12.00 548 5.8 $11.25 293 $11.25
$14.01 - $16.00 183 6.0 $14.67 118 $14.69
$18.01 - $20.00 71 2.1 $19.28 71 $19.28
- --------------- ---------- ---------- ---------- ---------- ----------
$6.01 - $20.00 1,401 6.9 $10.49 576 $12.43
=============== ========== ========== ========== ========== ==========
The Company has elected to continue to account for
stock-based compensation using the intrinsic value method under
APB Opinion No. 25. Consequently, no compensation expense has
been recognized for stock options. If compensation expense for
the Company's stock options issued in the fiscal years ended July
31, 2002, 2001 and 2000 had been determined based on the fair
value method of accounting, as defined in SFAS No. 123, the
Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
2002 2001 2000
---- ---- ----
(IN THOUSANDS
EXCEPT FOR PER SHARE AMOUNTS)
Net (loss) income as reported.......... $(1,094) $ 913 $2,227
Pro forma.............................. $(1,863) $ 235 $1,651
Net (loss) income per share as reported
Basic................................ $ (0.19) $ 0.16 $ 0.39
Dilutive............................. $ (0.19) $ 0.16 $ 0.39
Pro forma
Basic................................ $ (0.33) $ 0.04 $ 0.29
Dilutive............................. $ (0.33) $ 0.04 $ 0.29
The fair value of issued stock options is estimated on the
grant date using the Black=Scholes Option Pricing Method with the
following assumptions:
2002 2001 2000
---- ---- ----
Dividend Yields.................... 5.8% 4.2% 3.1%
Volatility......................... 38.1% 37.2% 30.9%
Risk=free Interest Rate............ 4.7% 5.8% 6.1%
Expected Life (Years).............. 4.6 5.4 5.4
41
NOTE 7 - STOCK OPTION PLANS (CONTINUED)
The weighted average fair value of the options granted was
$1.40, $2.45 and $3.66 for the fiscal years ended July 31, 2002,
2001 and 2000, respectively.
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have defined benefit
pension plans for eligible salaried and hourly employees.
Benefits are based on a formula of years of credited service and
levels of compensation or stated amounts for each year of
credited service. The assets of these plans are invested in
various high quality marketable securities.
The net periodic pension cost for the years ended July 31
consists of the following:
2002 2001 2000
------- -------- -------
(IN THOUSANDS)
Service cost.................................... $ 534 $ 424 $ 499
Interest cost on projected benefit obligations 763 681 642
Expected return on plan assets.................. (912) (977) (904)
Net amortization and deferral................... 3 (121) (105)
------- -------- -------
Net pension cost................................ $ 388 $ 7 $ 132
======= ======== =======
The funded status of the plans at July 31 is as follows:
2001 2000
-------- -------
(IN THOUSANDS)
Fair Value of Plan Assets (Less) Greater Than Projected
Benefit Obligations..................................... $ (2,159) $ (435)
Unrecognized Net Loss (Gain).............................. 840 (929)
Unrecognized Prior Service Cost........................... 481 526
Unrecognized Net Liability (Asset) at Transition.......... (158) (185)
-------- -------
Accrued Pension Included in Noncurrent Liabilities--Other. $ (996) $(1,023)
======== =======
Reconciliation of the assets and liabilities of the plans at
July 31 is as follows:
2001 2000
-------- -------
(IN THOUSANDS)
Change in Plan Assets:
Plan assets at fair value, beginning of year........ $ 10,201 $11,040
Actual return on plan assets........................ (727) (473)
Contributions....................................... 415 --
Benefits paid....................................... (424) (366)
-------- -------
Plan assets at fair value, end of year.............. $ 9,465 $10,201
======== =======
Change in Projected Benefit Obligation:
Projected benefit obligation, beginning of year..... $ 10,636 $ 8,700
Service cost........................................ 534 424
Interest cost....................................... 763 681
Change in discount rate............................. -- 1,080
Other assumption changes............................ -- --
Plan amendments..................................... 4 39
Actuarial loss...................................... 111 78
Benefits paid....................................... (424) (366)
-------- -------
Projected benefit obligation, end of year........... $ 11,624 $10,636
======== =======
42
NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)
Assumptions used in the previous calculations are as follows:
2002 2001
---- ----
Discount rate.................................... 7.3% 7.3%
Rate of increase in compensation levels.......... 4.5% 4.5%
Long-term expected rate of return on assets...... 9.0% 9.0%
The Company has funded the plans based upon actuarially
determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution
required under the Employee Retirement Income Security Act of
1974 (ERISA), as amended.
For the years ended July 31, 2002, 2001 and 2000, the
Company maintained a 401(k) savings plan under which the Company
matches a portion of employee contributions. The plan is
available to essentially all domestic employees at the beginning
of the month following thirty or sixty days of employment. The
Company's contributions to this plan, and to similar plans
maintained by the Company's foreign subsidiaries, were $435,000,
$445,000 and $489,000 for fiscal years 2002, 2001 and 2000,
respectively.
NOTE 9 - DEFERRED COMPENSATION
In December 1995, the Company adopted the Oil-Dri
Corporation of America Deferred Compensation Plan. This plan has
permitted Directors and certain management employees to defer
portions of their compensation and earn interest on the deferred
amounts. During the period January 1, 1999 through September 30,
2000, participants' returns were tied to the performance of
various investment elections. The compensation, which has been
deferred since the inception of the original plan, has been
accrued as well as earnings thereon.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company became a guarantor of certain leases for
transportation equipment reassigned to CRST International, Inc.
(CRST) during fiscal 1998, when exiting the transportation
business. The remaining payment due under these lease agreements
by CRST is $65,000 for fiscal year 2003.
The Company is involved in various litigation of a nature
that is normal to its business. While it is impossible at this
time to determine with certainty the ultimate outcome of these or
other lawsuits, each lawsuit is either covered by insurance or
adequate provisions have been made for probable losses with
respect thereto as can best be determined at this time.
Management therefore believes that none of the pending litigation
will have a material adverse effect on the financial condition of
the Company or on results of operations.
NOTE 11 - LEASES
The Company's mining operations are conducted on leased or
owned property. These leases generally provide the Company with
the right to mine as long as the Company continues to pay a
minimum monthly rental, which is applied against the per ton
royalty when the property is mined.
The Company leases its corporate offices in Chicago,
Illinois (20,000 square feet), office, production and warehouse
space in Alpharetta, Georgia (26,000 square feet), office and
production facilities in Kiel, Wisconsin (16,000 square feet) and
office facilities in Europe. The office space in Chicago is
subject to a lease expiring in fiscal 2018. The Alpharetta,
Georgia lease expires in fiscal 2003. The facilities in Europe
and Kiel, Wisconsin are leased on a year-to-year basis.
43
NOTE 11 - LEASES (CONTINUED)
In addition, the Company leases vehicles, railcars, mining
property and equipment, warehouse space, data processing
equipment, and office equipment. In most cases, the Company
expects that, in the normal course of business, leases will be
renewed or replaced by other leases.
The following is a schedule by year of future minimum rental
requirements under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of
July 31, 2002:
(IN THOUSANDS)
-------
2003.................................... $ 2,137
2004.................................... 1,948
2005.................................... 1,048
2006.................................... 1,007
2007.................................... 915
Later years............................. 8,065
-------
$15,120
=======
The following schedule shows the composition of total rental
expense for all operating leases, including those with terms of
one month or less which were not renewed, as of the years ended
July 31:
2002 2001 2000
---- ---- ----
(IN THOUSANDS)
Vehicles and Railcars.......... $ 880 $ 941 $1,099
Office facilities.............. 496 485 480
Warehouse facilities........... 379 408 452
Mining properties..............
Minimum................... 181 192 191
Contingent................ 516 430 295
Other.......................... 859 646 594
------ ------ ------
$3,311 $3,102 $3,111
====== ====== ======
Contingent mining royalty payments are determined based on
the tons of raw clay mined.
NOTE 12 - OTHER CASH FLOW INFORMATION
Cash payments (refunds) for interest and income taxes were
as follows:
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
Interest................................. $2,283 $2,619 $2,836
====== ====== ======
Income taxes............................. $1,057 $(743) $2,051
====== ====== ======
44
NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected information for 2002 and 2001 is as
follows:
Fiscal 2002 Quarter Ended
--------------------------
October January April July
31 31 30 31 Total
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net Sales............. $40,023 $43,780 $39,261 $39,281 $162,345
Gross Profit.......... $ 7,857 $ 7,947 $ 7,270 $ 8,006 $ 31,080
Net Income (Loss)..... $ 267 $ 74 $ 504 $(1,939) $ (1,094)
Net Income (Loss) Per Share
Basic............... $ 0.05 $ 0.01 $ 0.09 $ (0.35) $ (0.19)
Dilutive............ $ 0.05 $ 0.01 $ 0.09 $ (0.34) $ (0.19)
Dividends Per Share
Common.............. $ 0.09 $ 0.09 $ 0.09 $ 0.09 $ 0.36
Class B............. $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.27
Company Common Stock Price Range:
High................ $ 8.15 $ 8.20 $ 10.25 $ 10.20
Low................. $ 5.75 $ 6.00 $ 7.67 $ 7.20
Fiscal 2002 Quarter Ended
--------------------------
October January April July
31 31 30 31 Total
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net Sales............. $40,646 $43,457 $39,573 $36,993 $160,669
Gross Profit.......... $ 8,447 $ 7,723 $ 6,846 $ 5,849 $ 28,865
Net Income (Loss)..... $ 433 $ (261) $ 1,906 $(1,165) $ 913
Net Income (Loss) Per Share
Basic............... $ 0.08 $(0.05) $ 0.34 $ (0.21) $ 0.16
Dilutive............ $ 0.08 $(0.05) $ 0.34 $ (0.21) $ 0.16
Dividends Per Share
Common.............. $ 0.09 $ 0.09 $ 0.09 $ 0.09 $ 0.36
Class B............. $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.27
Company Common Stock Price Range:
High................ $ 10.00 $ 9.50 $ 9.20 $ 8.35
Low................. $ 6.50 $ 6.44 $ 6.92 $ 7.50
45
INDEPENDENT AUDITOR'S REPORT
STOCKHOLDERS AND BOARD OF DIRECTORS
OIL-DRI CORPORATION OF AMERICA
We have audited the consolidated balance sheets of OIL-DRI
CORPORATION OF AMERICA AND SUBSIDIARIES as of July 31, 2002 and
2001, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years
in the period ended July 31, 2002. In connection with our audits
of the consolidated financial statements, we have also audited
the financial statement schedule as listed in Item 14(a). These
consolidated financial statements and the financial statement
schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of OIL-DRI CORPORATION OF AMERICA AND
SUBSIDIARIES as of July 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years
in the period ended July 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
BLACKMAN KALLICK BARTELSTEIN, LLP
Chicago, Illinois
September 10, 2002
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is (except for
information set forth below concerning the Board of Directors and
information in Part I, hereof, concerning executive officers)
contained in the Registrant's Proxy Statement for its 2002 Annual
Meeting of stockholders ("Proxy Statement") under the caption
"1. Election of Directors" and is incorporated herein by this
reference.
Board of Directors
Richard M. Jaffee Thomas D. Kuczmarski
CHAIRMAN SENIOR PARTNER AND PRESIDENT,
KUCZMARSKI & ASSOCIATES, INC.
Daniel S. Jaffee
PRESIDENT AND CHIEF Joseph C. Miller
EXECUTIVE OFFICER VICE-CHAIRMAN
J. Steven Cole(1)
PRESIDENT, COLE & ASSOCIATES Paul J. Miller
PARTNER, SONNENSCHEIN NATH & ROSENTHAL
Arnold W. Donald
CHAIRMAN AND CHIEF EXECUTIVE Allan H. Selig(2)
OFFICER, MERISANT COMPANY PRESIDENT AND CHAIRMAN,
SELIG LEASE COMPANY,
COMMISSIONER OF MAJOR LEAGUE BASEBALL
Ronald B. Gordon
PRESIDENT AND CHIEF OPERATING OFFICER
NICE-PAK PRODUCTS, INC.
(1) Audit Committee Chair
(2) Compensation Committee Chair
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is contained in the
Registrant's Proxy Statement under the captions "Executive
Compensation," "Report of the Compensation and the Stock Option
Committees of Oil-Dri Corporation of America on Executive
Compensation," "Compensation Committee Interlocks and Insider
Participation" and "Performance Graph" and is incorporated herein
by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is contained in the
Registrant's Proxy Statement under the captions
"General--Principal Stockholders" and "Security Ownership of
Management" and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is contained in the
Registrant's Proxy Statement under the caption "Compensation
Committee Interlocks and Insider Participation" and is
incorporated herein by this reference.
ITEM 14. CONTROLS AND PROCEDURES
Not applicable.
47
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) The following consolidated financial statements are
contained herein.
Consolidated Balance Sheets as of July 31, 2002 and July
31, 2001.
Consolidated Statements of Income for the fiscal years
ended July 31, 2002, July 31, 2001 and July 31, 2000.
Consolidated Statements of Stockholders' Equity for the
fiscal years ended July 31, 2002, July 31, 2001 and July
31, 2000.
Consolidated Statements of Cash Flows for the fiscal
years ended July 31, 2002, July 31, 2001 and July 31,
2000.
Notes to Consolidated Financial Statements.
Independent Auditor's Report.
(a)(2) The following financial statement schedules are contained herein:
Schedule to Financial Statements, as follows:
Schedule II--Valuation and Qualifying Accounts, years ended
July 31, 2002, July 31, 2001 and July 31, 2000.
(a)(3) The following documents are exhibits to this Report:
(3)(a)[1] Articles of Incorporation of the Registrant, as amended.
(3)(b)[2] Bylaws of the Registrant, as amended June 16, 1995.
(10)(c)(1)[3] Agreement ("Clorox Agreement") dated January 12,
1981 between The Clorox Company and the Registrant,
as amended. (Confidential treatment of certain
portions of this Exhibit has been granted.)
(10)(c)(2)[4] Amendment to Clorox Agreement dated March 3, 1989,
as accepted by the Registrant on March 20, 1989,
between The Clorox Company and the Registrant.
(Confidential treatment of certain portions of this
Exhibit has been granted.)
(10)(c)(3)[5] Amendment to Clorox Agreement dated February 14,
1991, between The Clorox Company and the Registrant.
(Confidential treatment of certain portions of this
Exhibit has been granted.)
(10)(c)(4)[6] Memorandum of Agreement #1450 "Fresh Step"(TM), dated
as of March 12, 2001 between A&M Products
Manufacturing Company and Registrant. (Confidential
treatment of certain portions of this Exhibit has
been granted.)
(10)(c)(5)[7] Memorandum of Agreement #1465 "Jonny Cat"(R), dated as
of April 18, 2001 between A&M Products Manufacturing
Company and Registrant. (Confidential treatment of
certain portions of this Exhibit has been granted.)
48
(10)(d)[8] Description of 1987 Executive Deferred Compensation
Program.*
(10)(e)(1)[9] Salary Continuation Agreement dated August 1, l989
between Richard M. Jaffee and the Registrant ("1989
Agreement").*
(10)(e)(2)[10]Extension and Amendment, dated October 9, 1998, to
the 1989 Agreement.*
(10)(e)(3)[11]Second Amendment, Effective October 31, 2000, to the
1989 Agreement.*
(10)(f)[12] 1988 Stock Option Plan.*
(10)(h)[14] Note Agreement, dated as of April 15, 1993, between
the Registrant and Teacher's Insurance and Annuity
Association of America regarding $6,500,000 7.17%
Senior Notes due August 15, 2004.
(10)(h)(1)[13]First Amendment, dated as of January 15, 2001, to
the Note Agreement dated as of April 15, 1993.
(10)(h)(2) Second Amendment dated July 15, 2003 to Note
Agreement dated as of April 15, 1993.
(10)(i)[15] Credit Agreement, dated as of September 21, 1994,
between the Registrant and Harris Trust and Savings
Bank regarding $5,000,000 7.78% Term Loan Note and
$5,000,000 Revolving Credit Note.
(10)(j) The Oil-Dri Corporation of America Deferred
Compensation Plan adopted November 15, 1995, as
amended and restated effective October 1, 2000.*
(10)(k) The Oil-Dri Corporation of America 1995 Long Term
Incentive Plan as amended and restated effective
June 9, 2000.*
(10)(m)[17] $25,000,000 Note Purchase Agreement dated as of
April 15, 1998 between the Registrant and Teachers
Insurance and Annuity Association of America and
Cigna Investments, Inc.
(10)(m)(5)[16]First Amendment, dated as of January 15, 2001 to the
Note Agreement dated as of April 15, 1998.
(10)(m)(6) Second Amendment dated as of July 15, 2002 to Note
Agreement dated as of April 15, 1998.
(10)(n) The Oil-Dri Corporation of America Outside Director
Stock Plan as amended and restated effective October
16, 1999.*
(10)(o)[18] $15,000,000 unsecured, committed line of credit
agreement dated January 29, 1999 between the Company
and Harris Trust and Savings Bank.
(10)(o)(1) First Amendment, dated May 30, 2002 to Credit
Agreement dated as of January 29, 1999.
(10)(p)[19] $15,000,000 unsecured, uncommitted line of credit
agreement dated January 29, 1999 between the Company
and Harris Trust and Savings Bank.
(10)(q)[20] Split Dollar Life Insurance Agreements dated
February 26, 1999.*
(10)(r)[21] Agreement ("Church & Dwight Agreement") dated May
19, 1999 between Church & Dwight Co., Inc. and the
Registrant. (Confidential treatment of certain
portions of this Exhibit has been granted.)
49
(b)Reports on Form 8-K.
Reports on Form 8-K were filed by the Registrant on
November 13, 2000 and May 1, 2001, reporting on Item 5.,
other events.
(11) Statement re: Computation of Income per Share.
(21) Subsidiaries of the Registrant.
(23) Consent of Blackman Kallick Bartelstein, LLP.
- ------------------
* Management contract or compensatory plan or arrangement.
[1] Incorporated by reference to Exhibit (4.1) to the
Registrant's Registration Statement on Form S-8
(Registration No. 333-57625), made effective on June 24,
1998.
[2] Incorporated by reference to Exhibit (3)(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1995.
[3] Incorporated by reference to Exhibit (10)(f) to the
Registrant's Registration Statement on Form S-2
(Registration No. 2-97248) made effective on May 29, 1985.
[4] Incorporated by reference to Exhibit (10)(e)(2) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1989.
[5] Incorporated by reference to Exhibit (10)(e)(3) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1991.
[6] Incorporated by reference to Exhibit 10(s) to Registrant's
Current Report on Form 8-K dated May 1, 2001.
[7] Incorporated by reference to Exhibit 10(t) to Registrant's
Current Report on Form 8-K dated May 1, 2001.
[8] Incorporated by reference to Exhibit (10)(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1988.
[9] Incorporated by reference to Exhibit (10)(g) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1989.
[10] Incorporated by reference to Exhibit (10)(n) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1998.
[11] Incorporated by reference to Exhibit 99.1 to Registrant's
Current Report on Form 8-K dated November 13, 2000.
[12] Incorporated by reference to Exhibit (4)(a) to the
Registrant's Registration Statement on Form S-8
(Registration No. 33-29650), made effective on June 30, 1989.
[13] Incorporated by reference to Exhibit (10)(m)(4) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended January 1, 2001.
[14] Incorporated by reference to Exhibit (10)(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1993.
50
[15] Incorporated by reference to Exhibit (10)(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1994.
[16] Incorporated by reference to Exhibit (10)(m)(5) to the
Registrant's Quarter Report on Form 10-Q for the quarter
ended January 31, 2001.
[17] Incorporated by reference to Exhibit (10)(m) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1998.
[18] Incorporated by reference to Exhibit (10)(o) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1999.
[19] Incorporated by reference to Exhibit (10)(p) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1999.
[20] Incorporated by reference to Exhibit (10)(q) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1999.
[21] Incorporated by reference to Exhibit (10)(r) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1999.
The Registrant agrees to furnish the following agreements
upon the request of the Commission:
Exhibit (4)(b) Letter of Credit Agreement, dated as of October 1,
1988 between Harris Trust and Savings Bank and
Blue Mountain Production Company in the amount of
$2,634,590 in connection with the issuance by Town
of Blue Mountain, Mississippi of Variable/Fixed
Rate Industrial Development Revenue Bonds, Series
1988 B (Blue Mountain Production Company Project)
in the aggregate principal amount of $2,500,000
and related Indenture of Trust, Lease Agreement,
Remarketing Agreement and Guaranties.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Daniel S. Jaffee
---------------------------
Daniel S. Jaffee,
President and Chief
Executive Officer, Director
Dated: October 15, 2002
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated:
/s/ Richard M. Jaffee October 15, 2002
- ----------------------------------
Richard M. Jaffee
Chairman of the Board of Directors
/s/ Jeffrey M. Libert October 15, 2002
- ----------------------------------
Jeffrey M. Libert
Vice President
Chief Financial Officer
Principal Financial Officer
/s/ Daniel T. Smith October 15, 2002
- ----------------------------------
Daniel T. Smith
Vice President and Controller
Principal Accounting Officer
/s/ J. Steven Cole October 15, 2002
- ----------------------------------
J. Steven Cole
Director
/s/ Arnold W. Donald October 15, 2002
- ----------------------------------
Arnold W. Donald
Director
/s/ Ronald B. Gordon October 15, 2002
- ----------------------------------
Ronald B. Gordon
Director
/s/ Thomas D. Kuczmarski October 15, 2002
- ----------------------------------
Thomas D. Kuczmarski
Director
52
/s/ Joseph C. Miller October 15, 2002
- ----------------------------------
Joseph C. Miller
Director
/s/ Paul J. Miller October 15, 2002
- ----------------------------------
Paul J. Miller
Director
/s/ Allan H. Selig October 15, 2002
- ----------------------------------
Allan H. Selig
Director
53
CERTIFICATIONS
I, Daniel S. Jaffee, Chief Executive Officer of Oil-Dri
Corporation of America, certify that:
1. I have reviewed this annual report on Form 10-K of Oil-Dri
Corporation of America;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
annual report.
Date: October 15, 2002
-----------------------
By: /s/ Daniel S. Jaffee
-----------------------
Daniel S. Jaffee
President and Chief
Executive Officer
I, Jeffrey M. Libert, Vice President and Chief Financial
Officer of Oil-Dri Corporation of America, certify that:
1. I have reviewed this annual report on Form 10-K of Oil-Dri
Corporation of America;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
annual report.
Date: October 15, 2002
--------------------------
By: /s/ Jeffrey M. Libert
--------------------------
Jeffrey M. Libert
Vice President and Chief
Financial Officer
54
SCHEDULE II
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Year Ended July 31
------------------
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
Allowance for doubtful accounts:
Beginning balance........................ $ 455 $ 336 $ 358
Additions charged to expense............. 409 142 23
Deductions*.............................. 472 23 45
------ ------ ------
Balance at end of year................... $ 392 $ 455 $ 336
====== ====== ======
* Net of recoveries.
Inventory obsolescence reserve:
Beginning balance........................ $ 356 $ 256 $ 358
Additions charged to expense............. 275 100 --
Deductions............................... 290 -- 102
------ ------ ------
Balance at end of year................... $ 341 $ 356 $ 256
====== ====== ======
Valuation reserve for income taxes:
Beginning balance........................ $ -- $ 522 $1,742
Additions charged to expense............. 357 -- 522
Deductions............................... -- 522 1,742
------ ------ ------
Balance at end of year................... $ 357 $ -- $ 522
====== ====== ======
55
EXHIBIT INDEX
EXHIBIT
NUMBER
-------
(10)(h)(2) Second Amendment, Dated as of July 15, 2002, to Note
Agreement Dated as of April 15, 1993
(10)(m)(6) Second Amendment, Dated as of July 15, 2002, to Note
Agreement Dated as of April 15, 1998
(10)(o)(1) First Amendment, Dated May 30, 2002, to Credit
Agreement Dated as of January 29, 1999
(11) Computation of Net Income Per Share
(21) Subsidiaries of the Registrant
(23) Consent of Blackman Kallick Bartelstein, LLP
Note: Shareholders may receive copies of the above listed
exhibits, without fee, by written request to Investor
Relations, Oil-Dri Corporation of America, 410 North Michigan
Avenue, Suite 400, Chicago, Illinois 60611-4213.
56
EXHIBIT (10)(h)(2)
OIL-DRI CORPORATION OF AMERICA
SECOND AMENDMENT
DATED AS OF JULY 15, 2002
TO
NOTE AGREEMENT
DATED AS OF APRIL 15, 1993
RE: $6,500,000 7.17% SENIOR NOTES
DUE AUGUST 15, 2004
57
SECOND AMENDMENT TO NOTE AGREEMENT
THIS SECOND AMENDMENT dated as of July 15, 2002 (this "Second
Amendment") to the Note Agreement dated as of April 15, 1993 is
between Oil-Dri Corporation of America, a Delaware corporation
(the "Company"), and Teachers Insurance and Annuity Association
of America (the "Noteholder").
RECITALS:
A. The Company and the Noteholder have heretofore
entered into the Note Agreement dated as of April 15, 1993 (the
"Note Agreement") and further have entered into a First Amendment
to Note Agreement dated as of January 15, 2001 (the "First
Amendment"). The Company has heretofore issued the $6,500,000
7.17% Senior Notes due August 15, 2004 (the "Notes") pursuant to
the Note Agreement. The Noteholder is the holder of 100% of the
outstanding principal amount of the Notes.
B. The Company and the Noteholder now desire to amend
the Note Agreement and the First Amendment in the respects, but
only in the respects, hereinafter set forth.
C. Capitalized terms used herein shall have the
respective meanings ascribed thereto in the Note Agreement unless
herein defined or the context shall otherwise require.
D. All requirements of law have been fully complied with
and all other acts and things necessary to make this Second
Amendment a valid, legal and binding instrument according to its
terms for the purposes herein expressed have been done or
performed.
Now, THEREFORE, the Company and the Noteholder, in
consideration of good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, do hereby agree as
follows:
SECTION 1. AMENDMENTS
1.1 Section 5.19, as added to the Note Agreement by the
First Amendment, is hereby deleted in its entirety and the
following is hereby substituted therefore:
SECTION 5.19. FIXED CHARGES COVERAGE RATIO. The
Company will not permit the Fixed Charges Coverage Ratio
("Ratio") for any period of four consecutive fiscal quarters
ending at any time during any period specified below to be
less than the Ratio set forth opposite such period. In
addition, for any fiscal quarter ending on or after July 31,
2002, in which the Ratio is less than the "Interest Ratio"
set forth opposite the period in which the fiscal quarter
ends, the Company shall pay to the Noteholder an additional
0.25% of annual interest, payable in addition to the
semi-annual interest payments specified in Section 1.1 of
this Agreement. Such additional interest, if any, for the
Company's fiscal quarters ending 7/31 and/or 10/31 shall be
paid at the time of the
58
semi-annual interest payment due the next following February
15th and for the Company's fiscal quarters ending 1/31 and/or
4/30 shall be paid at the time of the semi-annual interest
payment due the next following August 15th.
-----------------------------------------------------------------
Interest
Period Ratio Ratio
-----------------------------------------------------------------
November 1, 2000 - April 30, 2001 1.00 to 1 N/A
-----------------------------------------------------------------
May 1, 2001 - October 31, 2001 1.15 to 1 N/A
-----------------------------------------------------------------
November 1, 2001 - April 30, 2002 1.25 to 1 N/A
-----------------------------------------------------------------
May 1, 2002 - July 31, 2002 waived by 1.25 to 1
Noteholder
-----------------------------------------------------------------
August 1, 2002 - January 31, 2003 1.00 to 1 1.50 to 1
-----------------------------------------------------------------
February 1, 2003 - October 31, 2003 1.25 to 1 1.50 to 1
-----------------------------------------------------------------
November 1, 2003 and thereafter 1.50 to 1 1.50 to 1
-----------------------------------------------------------------
The Company agrees that it will deliver to the
Noteholder, together with its regular annual and quarterly
financial statements (but in any event not less than 15 days
prior to the date any scheduled semi=annual interest payment
is due), a statement containing (a) the calculation of both
the Interest Ratio and the Fixed Charges Coverage Ratio, (b)
whether any additional interest is due and (c) the amount of
such additional interest. In addition, the Company agrees
that it will include, with the information that is required to
accompany its payment by wire of semi-annual interest
payments, the amount of any such additional interest and the
identification of such amount as "additional interest".
1.2 Section 8.1 of the Note Agreement, as amended by the
First Amendment, is hereby amended by adding the following
sub-section (m) to the exclusions in the definition of
"CONSOLIDATED NET INCOME":
(m) non-cash charges incurred by the Company on
or before July 31, 2003, relating to the write-off of the
Company's equity investments in the Washoe County, Nevada
projects and to the closing of the Company's Christmas
Valley, Oregon facility in an aggregate amount not in
excess of $4,700,000.
-2-
59
SECTION 2. MISCELLANEOUS
2.1 This Second Amendment shall be construed in connection
with and as part of the Note Agreement and except as modified and
expressly amended by this Second Amendment, all terms, conditions
and covenants contained in the Note Agreement, the First
Amendment thereto, and the Notes are hereby ratified and shall be
and remain in full force and effect.
2.2 Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and
delivery of this Second Amendment may refer to the Note Agreement
without making specific reference to this Second Amendment but
nevertheless all such references shall include this Second
Amendment unless the context otherwise requires.
2.3 The descriptive headings of the various sections or parts
of this Second Amendment are for convenience only and shall not
affect the meaning or construction of any of the provisions
hereof.
2.4 This Second Amendment shall be construed and enforced in
accordance with, and the rights of the parties shall be governed
by, the law of the State of Illinois excluding choice-of-law
principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.
2.5 The execution hereof by the parties hereto shall
constitute a contract among such parties for the uses and
purposes hereinabove set forth, and this Second Amendment may be
executed in any number of counterparts, each executed counterpart
constituting an original, but all together only one agreement.
OIL-DRI CORPORATION OF AMERICA
By:
-------------------------------
Jeffrey M. Libert, Chief
Financial Officer
Accepted and Agreed to: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
-------------------------------
-3-
60
EXHIBIT (10)(m)(6)
OIL-DRI CORPORATION OF AMERICA
SECOND AMENDMENT
DATED AS OF JULY 15, 2002
TO
NOTE PURCHASE AGREEMENT
DATED AS OF APRIL 15, 1998
RE: $25,000,000 6.55% SENIOR NOTES
DUE APRIL 15, 2013
61
SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT
THIS SECOND AMENDMENT dated as of July 15, 2002 (this "Second
Amendment") to the Note Purchase Agreement dated as of April 15,
1998 is among Oil-Dri Corporation of America, a Delaware
corporation (the "Company"), and each of the institutions which
is a signatory to this Second Amendment (collectively, the
"Noteholders").
RECITALS:
A. The Company and each of the Noteholders have
heretofore entered into the Note Purchase Agreement dated as of
April 15, 1998 (the "Note Purchase Agreement") and further have
entered into a First Amendment to Note Purchase Agreement dated
as of January 15, 2001 (the "First Amendment"). The Company has
heretofore issued the $25,000,000 6.55% Senior Notes due April
15, 2013 (the "Notes") pursuant to the Note Purchase Agreement.
The Noteholders are the holders of 100% of the outstanding
principal amount of the Notes.
B. The Company and the Noteholders now desire to amend
the Note Purchase Agreement and the First Amendment in the
respects, but only in the respects, hereinafter set forth.
C. Capitalized terms used herein shall have the
respective meanings ascribed thereto in the Note Purchase
Agreement unless herein defined or the context shall otherwise
require.
D. All requirements of law have been fully complied with
and all other acts and things necessary to make this Second
Amendment a valid, legal and binding instrument according to its
terms for the purposes herein expressed have been done or
performed.
Now, THEREFORE, the Company and the Noteholders, in
consideration of good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, do hereby agree as
follows:
SECTION 1. AMENDMENTS
1.1 Section 10.1, as amended by the First Amendment, is
hereby deleted in its entirety and the following is hereby
substituted therefore:
62
SECTION 10.1. FIXED CHARGES COVERAGE RATIO. The
Company will not permit the Fixed Charges Coverage Ratio
("Ratio") for any period of four consecutive fiscal quarters
ending at any time during any period specified below to be
less than the Ratio set forth opposite such period. In
addition, for any fiscal quarter ending on or after July 31,
2002, in which the Ratio is less than the "Interest Ratio"
set forth opposite the period in which the fiscal quarter
ends, the Company shall pay to the Noteholders additional
interest at an annual rate of 0.25%, payable along with the
semi-annual interest payments specified in Exhibit 1 of this
Agreement. Such additional interest, if any, for the
Company's fiscal quarters ending 10/31 and/or 1/31 shall be
paid at the time of the semi-annual interest payment due the
next following April 15th and for the Company's fiscal
quarters ending 4/30 and/or 7/31 shall be paid at the time of
the semi-annual interest payment due the next following
October 15th.
-----------------------------------------------------------------
Interest
Period Ratio Ratio
-----------------------------------------------------------------
November 1, 2000 - April 30, 2001 1.00 to 1 N/A
-----------------------------------------------------------------
May 1, 2001 - October 31, 2001 1.15 to 1 N/A
-----------------------------------------------------------------
November 1, 2001 - April 30, 2002 1.25 to 1 N/A
-----------------------------------------------------------------
May 1, 2002 - July 31, 2002 waived by 1.25 to 1
Noteholders
-----------------------------------------------------------------
August 1, 2002 - January 31, 2003 1.00 to 1 1.50 to 1
-----------------------------------------------------------------
February 1, 2003 - October 31, 2003 1.25 to 1 1.50 to 1
-----------------------------------------------------------------
November 1, 2003 and thereafter 1.50 to 1 1.50 to 1
-----------------------------------------------------------------
The Company agrees that it will deliver to the
Noteholders, together with its regular annual and quarterly
financial statements (but in any event not less than 15 days
prior to the date any scheduled semi-annual interest payment
is due), a statement containing (a) the calculation of both
the Interest Ratio and the Fixed Charges Coverage Ratio, (b)
whether any additional interest is due and (c) the amount of
such additional interest. In addition, the Company agrees
that it will include, with the information that is required
to accompany its payment by wire of semi-annual interest
payments, the amount of any such additional interest and the
identification of such amount as "additional interest".
1.2 Schedule B - DEFINED TERMS is hereby amended by adding
the following sub-section (m) to the exclusions in the definition
of "CONSOLIDATED NET INCOME":
(m) non-cash charges incurred by the Company on
or before July 31, 2003, relating to the write-off of the
Company's equity investments in the Washoe County, Nevada
projects and to the closing of the Company's Christmas
Valley, Oregon facility in an aggregate amount not in
excess of $4,700,000.
2
63
SECTION 2. MISCELLANEOUS
2.1 This Second Amendment shall be construed in connection
with and as part of the Note Purchase Agreement and except as
modified and expressly amended by this Second Amendment, all
terms, conditions and covenants contained in the Note Purchase
Agreement, the First Amendment thereto, and the Notes are hereby
ratified and shall be and remain in full force and effect.
2.2 Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and
delivery of this Second Amendment may refer to the Note Agreement
without making specific reference to this Second Amendment but
nevertheless all such references shall include this Second
Amendment unless the context otherwise requires.
2.3 The descriptive headings of the various sections or parts
of this Second Amendment are for convenience only and shall not
affect the meaning or construction of any of the provisions
hereof.
2.4 This Second Amendment shall be construed and enforced in
accordance with, and the rights of the parties shall be governed
by, the law of the State of Illinois excluding choice-of-law
principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.
2.5 The execution hereof by the parties hereto shall
constitute a contract among such parties for the uses and
purposes hereinabove set forth, and this Second Amendment may be
executed in any number of counterparts, each executed counterpart
constituting an original, but all together only one agreement.
OIL-DRI CORPORATION OF AMERICA
By:
-------------------------------
Jeffrey M. Libert,
Chief Financial Officer
Accepted and Agreed to: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
-------------------------------
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By CIGNA Investments, Inc.
By:
-------------------------------
64
EXHIBIT (10)(o)(1)
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (the "AMENDMENT")
dated as of May 30, 2002, among Oil-Dri Corporation of America
(the "COMPANY") and Harris Trust and Savings Bank (the "BANK");
W I T N E S S E T H:
WHEREAS, the Company and the Bank have heretofore executed
and delivered a Credit Agreement dated as of January 29, 1999
(the "CREDIT AGREEMENT");
WHEREAS, the Company has requested that the Bank reduce the
Revolving Credit Commitment and amend the definition of EBITDA,
and the Bank is willing to do so under the terms and conditions
set forth in this Amendment.
1. AMENDMENTS.
Upon satisfaction of the conditions precedent contained in
Section 3 hereof, the Credit Agreement shall be and hereby is
amended as follows:
1.1. The Revolving Credit Commitment set forth in
Section 1.1 of the Credit Agreement is hereby amended by
striking the amount "$15,000,000" appearing in the ninth
line thereof and substituting therefor the amount
"$7,500,000."
1.2. The definition of term "Consolidated EBITDA"
appearing in Section 4.1 of the Credit Agreement is hereby
amended and as so amended shall be restated in its entirety
to read as follows:
"CONSOLIDATED EBITDA" means, with reference
to any period, Net Income for such period
plus all amounts deducted in arriving at such
Net Income amount in respect of (i) Interest
Expense for such period, plus (ii) federal,
state and local income taxes for such period,
plus (iii) all amounts properly charged for
depreciation of fixed assets and amortization
of intangible assets during such period on
the books of the Company and its
Subsidiaries, plus (iv) non-cash charges
incurred by the Company on or before July 31,
2003, relating to the write-off of its equity
investment in the Washoe County, Nevada
project and the closing of the Company's
Christmas Valley, Oregon facility in an
aggregate amount not in excess of $3,600,000.
65
1.3 Section 10.8 of the Credit Agreement is hereby
amended by striking the second paragraph thereof and
substituting therefore the following paragraph:
Oil-Dri Corporation of America
410 North Michigan Avenue
Suite 400
Chicago, Illinois 60611
Attention: Jeffrey Libert, Vice President
and Chief Financial Officer
Telephone: (312) 706-3239
Telecopy: (312) 706-1239
SECTION 2. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this
Amendment, the Company hereby represents and warrants to the Bank
that each of the representations and warranties set forth in
Section 4 of the Credit Agreement is true and correct on and as
of the date of this Amendment as if made on and as of the date
hereof and as if each reference therein to the Credit Agreement
referred to the Credit Agreement as amended hereby and no Default
or Event of Default exists under the Credit Agreement or shall
result after giving effect to this Amendment.
SECTION 3. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of
the following conditions precedent:
3.1 The Company and the Bank shall have executed and
delivered this Amendment.
3.2. The Company shall have executed and delivered to
the Bank a replacement Revolving Credit Note in the form
attached hereto as Exhibit A in the face principal amount of
$7,500,000.
3.3 The Company shall have delivered to the Bank a
waiver of the Company's fixed charge coverage ratio covenant
executed by the Teachers Insurance and Annuity Association
of America.
3.4 Legal matters incident to the execution and
delivery of this Amendment shall be satisfactory to the Bank
and its counsel.
66
SECTION 4. MISCELLANEOUS.
This Amendment may be executed in any number of counterparts
and by different parties hereto on separate counterpart signature
pages, each of which when so executed shall be an original but
all of which shall constitute one and the same instrument.
Except as specifically amended and modified hereby, all of the
terms and conditions of the Credit Agreement and the other Loan
Documents shall remain unchanged and in full force and effect.
All references to the Credit Agreement in any document shall be
deemed to be references to the Credit Agreement as reinstated and
amended hereby. All capitalized terms used herein without
definition shall have the same meaning herein as they have in the
Credit Agreement. This Amendment shall be construed and governed
by and in accordance with the internal laws of the State of
Illinois.
This First Amendment to Credit Agreement is dated as of the
date first above written.
OIL-DRI CORPORATION OF AMERICA
By
-------------------------------
-------------------------- Name
--------------------------Title
HARRIS TRUST AND SAVINGS BANK
By
-------------------------------
-------------------------- Name
--------------------------Title
67
EXHIBIT A
OIL-DRI CORPORATION OF AMERICA
REVOLVING CREDIT NOTE
Chicago, Illinois
$7,500,000 May 30, 2002
On the Termination Date, for value received, the
undersigned, Oil-Dri Corporation of America, a Delaware
corporation (the "COMPANY"), hereby promises to pay to the order
of Harris Trust and Savings Bank (the "BANK") at its office at
111 West Monroe Street, Chicago, Illinois, the principal sum of
Seven Million Five Hundred Thousand and no/100 Dollars
($7,500,000), or (ii) such lesser amount as may at the time of
the maturity hereof, whether by acceleration or otherwise, be the
aggregate unpaid principal amount of all Loans owing from the
Company to the Bank under the Revolving Credit provided for in
the Credit Agreement hereinafter mentioned.
This Note evidences Loans made or to be made to the Company
by the Bank under the Revolving Credit provided for under that
certain Credit Agreement dated as of January 29, 1999, between
the Company and the Bank (said Credit Agreement, as the same may
be amended, modified or restated from time to time, being
referred to herein as the "CREDIT AGREEMENT") and the Company
hereby promises to pay interest at the office described above on
such Loans evidenced hereby at the rates and at the times and in
the manner specified therefor in the Credit Agreement.
This Note is issued in substitution of and replacement of
that certain Revolving Credit Note dated January 29, 1999, issued
by the Company to the Bank in the face principal amount of
$15,000,000. Each Loan made under the Revolving Credit against
this Note, any repayment of principal hereon, the status of each
such Loan from time to time as part of the Domestic Rate Portion
or a LIBOR Portion or an Offered Rate Portion and, in the case of
a Fixed Rate Portion, the interest rate and Interest Period
applicable thereto shall be endorsed by the holder hereof on a
schedule to this Note or recorded on the books and records of the
holder hereof (provided that such entries shall be endorsed on a
schedule to this Note prior to any negotiation hereof). The
Company agrees that in any action or proceeding instituted to
collect or enforce collection of this Note, the entries endorsed
on a schedule to this Note or recorded on the books and records
of the holder hereof shall be prima facie evidence of the unpaid
principal balance of this Note, the status of each such Loan from
time to time as part of the Domestic Rate Portion or a LIBOR
Portion or an Offered Rate Portion and, in the case of any Fixed
Rate Portion, the interest rate and Interest Period applicable
thereto.
This Note is issued by the Company under the terms and
provisions of the Credit Agreement, and this Note and the holder
hereof are entitled to all of the benefits provided for thereby
or referred to therein, to which reference is hereby made for a
statement thereof. This Note may be declared to be, or be and
become, due prior to its expressed maturity and voluntary
prepayments may be made hereon, all in the events, on the terms
and with the effects provided in the Credit Agreement. All
capitalized terms used herein without definition shall have the
same meanings herein as such terms are defined in the Credit
Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby promises to pay all costs and expenses
(including reasonable attorneys' fees) suffered or incurred by
the holder hereof in collecting this Note or enforcing any rights
in any collateral therefor. The Company hereby waives
presentment for payment and demand.
OIL-DRI CORPORATION OF AMERICA
By
-------------------------------
Name: Jeffrey Libert
-------------------------------
Title: Vice President and Chief Financial Officer
68
Exhibit 11
OIL-DRI CORPORATION OF AMERICA
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
YEAR ENDED JULY 31
2002 2001 2000
------- ------- -------
Net (loss) income available to stockholders $(1,094) $ 913 $ 2,227
(numerator) ======= ======= =======
Shares Calculation
(denominator)
Average shares outstanding - 5,614 5,613 5,647
basic
Effect of Dilutive Securities:
Potential Common Stock relating
to stock options 57 0 30
------- ------- -------
Average shares outstanding -
assuming dilution 5,671 5,613 5,677
======= ======= =======
Net (Loss) Income Per Share:
Basic $ (0.19) $ 0.16 $ 0.39
======= ======= =======
Dilutive $ (0.19) $ 0.16 $ 0.39
======= ======= =======
69
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
STATE OR COUNTRY
SUBSIDIARY OF INCORPORATION
- ---------- ----------------
Oil-Dri Corporation of Georgia Georgia
Oil-Dri Production Company Mississippi
Mounds Production Company, L.L.C. Delaware
Oil-Dri, S.A. Switzerland
Favorite Products Company, Ltd. Canada
Blue Mountain Production Co. Mississippi
Oil-Dri (U.K.) Ltd. United Kingdom
Ochlocknee Holding Co., S.A. Spain
Ochlocknee Mining Co., S.A. Spain
Oil-Dri Corporation of Nevada Nevada
Phoebe Products Company Delaware
Mounds Management, Inc. Delaware
B.T. Acquisition Company Illinois
70
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the use of our reports and to all references to our Firm included
in or by incorporation by reference made a part of the Annual
Report on Form 10-K of Oil-Dri Corporation of America for the
fiscal year ended July 31, 2002 and the Registration Statement on
Form S-8 relating to the 1995 Long Term Incentive Plan and the
1988 Stock Option Plan.
Blackman Kallick Bartelstein, LLP
October 14, 2002