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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d)of the
Securities Exchange Act of 1934
For the Quarterly Period Ended January 31, 2003
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to ______________
Commission File Number 0-8675
OIL-DRI CORPORATION OF AMERICA
(Exact name of the registrant as specified in its charter)
Delaware 36-2048898
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 North Michigan Avenue, Suite 60611-4213
400 (Zip Code)
Chicago, Illinois
(Address of principal executive
offices)
The Registrant's telephone number, including area code: (312) 321-1515
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,471,685 Shares (Including 1,292,538 Treasury Shares)
Class B Stock - 1,765,083 Shares (Including 342,241 Treasury Shares)
Indicate by check mark whether the Registrant is an accelerated filer:
Yes No X
------- ------
The aggregate market value of the Registrant's Common Stock owned by
non-affiliates as of January 31, 2003 for accelerated filer purposes was
$38,882,000.
2
CONTENTS
Page
PART I
Item 1: Financial Statements...............................................3-13
Item 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations.....................................14-17
Item 3: Quantitative And Qualitative Disclosures About Market Risk........17-18
Item 4: Controls And Procedures..............................................18
PART II
Item 4: Submission of Matters to a Vote of Security Holders..................19
Item 6: Exhibits And Reports on Form 8-K.....................................19
Signatures...................................................................20
Certifications............................................................21-22
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
JANUARY 31
2003 JULY 31
(UNAUDITED) 2002
ASSETS ------------ ---------
CURRENT ASSETS
Cash and Cash Equivalents $ 3,037 $ 7,154
Investment in Treasury Securities 7,107 9,082
Accounts Receivable, less allowance
of $519 and $392 at January 31, 2003
and July 31, 2002, respectively 26,637 21,415
Other Receivables 522 1,025
Inventories 12,887 11,798
Prepaid Overburden Removal Expense 3,008 3,678
Prepaid Expenses 3,962 3,392
------------ ---------
TOTAL CURRENT ASSETS 57,160 57,544
------------ ---------
PROPERTY, PLANT AND EQUIPMENT - AT COST
Cost 143,281 137,306
Less Accumulated Depreciation and
Amortization (92,452) (88,684)
------------ ---------
TOTAL PROPERTY, PLANTAND EQUIPMENT, NET 50,829 48,622
------------ ---------
OTHER ASSETS
Goodwill 5,447 5,430
Intangibles, net of accumulated amortization
of $2,228 and $1,982 at January 31, 2003 and
July 31, 2002, respectively 3,730 3,958
Deferred Income Taxes 4,028 3,972
Other 5,557 5,509
------------ ---------
TOTAL OTHER ASSETS 18,762 18,869
------------ ---------
TOTAL ASSETS $ 126,751 $125,035
============ =========
The accompanying notes are an integral part of the consolidated financial
statements.
4
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
LIABILITIES & STOCKHOLDERS' EQUITY JANUARY 31
2003 JULY 31
(UNAUDITED) 2002
------------ ---------
CURRENT LIABILITIES
Current Maturities of Notes Payable $ 4,350 $ 2,850
Accounts Payable 4,205 5,121
Dividends Payable 472 473
Accrued Expenses
Salaries, wages and commissions 2,970 3,722
Trade promotions and advertising 3,864 2,595
Freight 1,306 828
Other 5,836 4,303
------------ ---------
TOTAL CURRENT LIABILITIES 23,003 19,892
------------ ---------
NONCURRENT LIABILITIES
Notes Payable 28,900 31,400
Deferred Compensation 2,939 2,954
Other 2,214 1,718
------------ ---------
TOTAL NONCURRENT LIABILITIES 34,053 36,072
------------ ---------
TOTAL LIABILITIES 57,056 55,964
------------ ---------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per ahare,
issued 5,471,685 shares at January 31,
2003 and July 31, 2002 547 547
Class B Stock, par value $.10 per share,
issued 1,765,083 shares at January 31,
2003 and July 31, 2002 177 177
Additional Paid-In Capital 7,645 7,677
Retained Earnings 87,474 86,790
Restricted Unearned Stock Compensation (32) (4)
Cumulative Translation Adjustment (1,193) (1,288)
------------ ---------
94,618 93,899
Less Treasury stock, at cost (1,292,538
Common and 342,241 Class B shares at
January 31, 2003 and 1,279,700 Common
and 342,241 Class B shares at July
31, 2002) (24,923) (24,828)
------------ ---------
TOTAL STOCKHOLDERS' EQUITY 69,695 69,071
------------ ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 126,751 $125,035
============ =========
The accompanying notes are an integral part of the consolidated financial
statements.
5
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JANUARY 31
-----------------------
2003 2002
------------ ---------
NET SALES $ 82,186 $ 83,803
Cost of Sales 64,810 67,999
------------ ---------
GROSS PROFIT 17,376 15,804
Other Contractual Income 675 --
Selling, General and Administrative Expenses (14,569) (14,101)
------------ ---------
INCOME FROM OPERATIONS 3,482 1,703
OTHER INCOME (EXPENSE)
Interest Expense (1,348) (1,343)
Interest Income 119 147
Gain on the Sale of Mineral Rights 139 --
Other, Net (35) (27)
------------ ---------
TOTAL OTHER EXPENSE, NET (1,125) (1,223)
------------ ---------
INCOME BEFORE INCOME TAXES 2,357 480
Income Taxes 727 139
------------ ---------
NET INCOME 1,630 341
RETAINED EARNINGS
Balance at Beginning of Year 86,790 89,778
Less Cash Dividends Declared 946 946
------------ ---------
RETAINED EARNINGS - JANUARY 31 87,474 89,173
============ =========
NET INCOME PER SHARE
Basic $ 0.29 $ 0.06
============ =========
Diluted 0.29 0.06
============ =========
AVERAGE SHARES OUTSTANDING
Basic 5,615 5,614
============ =========
Diluted 5,687 5,643
============ =========
The accompanying notes are an integral part of the consolidated financial
statements.
6
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
For The Six Months
Ended
January 31
-----------------------
2003 2002
------------ ---------
NET INCOME $ 1,630 $ 341
Other Comprehensive Income:
Cumulative Translation Adjustments 95 (17)
------------ ---------
TOTAL COMPREHENSIVE INCOME $ 1,725 $ 324
============ =========
The accompanying notes are an integral part of the consolidated financial
statements.
7
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
For The Three Months
Ended January 31
-----------------------
2003 2002
------------ ---------
NET SALES $ 44,456 $ 43,780
Cost of Sales 34,833 35,833
------------ ---------
GROSS PROFIT 9,623 7,947
Other Contractual Income 675 --
Selling, General and Administrative Expenses (7,952) (7,167)
------------ ---------
INCOME FROM OPERATIONS 2,346 780
OTHER INCOME (EXPENSE)
Interest Expense (661) (664)
Interest Income 55 95
Other, Net 32 (104)
------------ ---------
TOTAL OTHER EXPENSE, NET (574) (673)
------------ ---------
INCOME BEFORE INCOME TAXES 1,772 107
Income Taxes 553 33
------------ ---------
NET INCOME 1,219 74
NET INCOME PER SHARE
BASIC $ 0.22 $ 0.01
============ =========
DILUTED $ 0.21 $ 0.01
============ =========
AVERAGE SHARES OUTSTANDING
BASIC 5,616 5,614
============ =========
DILUTED 5,701 5,648
============ =========
The accompanying notes are an integral part of the consolidated financial
statements.
8
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED JANUARY 31
-----------------------
2002 2001
------------ ---------
NET INCOME (LOSS) $ 1,219 $ 74
Other Comprehensive Income:
Cumulative Translation Adjustments 117 (66)
------------ ---------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 1,336 $ 8
============ =========
The accompanying notes are an integral part of the consolidated financial
statements.
9
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
For The Six Months
Ended January 31
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2003 2002
------------ ---------
NET INCOME $ 1,630 $ 341
------------ ---------
Adjustments to Reconcile Net Income
to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 4,174 4,427
Provision for Bad Debts 242 256
(Gain) Loss on the Sale of Fixed Assets 30 (7)
(Increase) Decrease in:
Accounts Receivable (5,464) (1,373)
Other Receivables 649 (835)
Inventories 418 771
Prepaid Overburden Removal Expense 670 35
Prepaid Expenses (77) (333)
Other Assets (140) (269)
Increase (Decrease) in:
Accounts Payable (916) (1,084)
Accrued Expenses 2,382 2,167
Deferred Compensation (15) 107
Other Liabilities 496 198
------------ ---------
TOTAL ADJUSTMENTS 2,449 4,060
------------ ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,079 4,401
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (2,113) (2,092)
Proceeds from Sale of Property,
Plant and Equipment 20 14
Purchase of Net Assets (6,255)
Purchases of Investment Securities (18,258) (557)
Dispositions of Investment Securities 20,233 553
------------ ---------
NET CASH USED IN INVESTING ACTIVITIES (6,373) (2,082)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (1,000) (1,507)
Dividends Paid (946) (946)
Other 123 (20)
------------ ---------
NET CASH USED IN FINANCING ACTIVITIES (1,823) (2,473)
------------ ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,117) (154)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,154 4,444
------------ ---------
CASH AND CASH EQUIVALENTS, JANUARY 31 $ 3,037 $ 4,290
============ =========
The accompanying notes are an integral part of the consolidated financial
statements.
10
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
1. BASIS OF STATEMENT PRESENTATION
The financial statements and the related notes are condensed and should be read
in conjunction with the consolidated financial statements and related notes for
the year ended July 31, 2002, included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions are eliminated.
The unaudited financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the statements
contained herein.
Certain items in prior year financial statements have been reclassified to
conform to the presentation used in fiscal 2003.
As part of its overall operations, the Company mines sorbent materials on
property that it either owns or leases. A significant part of the Company's
overall mining cost is incurred during the process of removing the overburden
(non-usable material) from the land, thus exposing the sorbent material that is
then used in a majority of the Company's production processes. The cost of the
overburden removal is recorded in a prepaid expense account and, as the usable
sorbent material is mined, the prepaid overburden removal expense is amortized
over the estimated available material. As of January 31, 2003, the Company had
$3,008,000 of prepaid expense recorded on its consolidated balance sheet.
During the first six months of fiscal 2003, the Company amortized to current
expense approximately $2,045,000 of previously recorded prepaid expense. Please
also refer to Note 4 for a discussion of a change in the accounting estimate
associated with this prepaid expense.
2. INVENTORIES
The composition of inventories is as follows (in thousands of dollars):
-------------------------
January 31 July 31
(Unaudited) (Audited)
-------------------------
2003 2002
-------------------------
Finished goods $ 7,128 $ 6,673
Packaging 4,230 3,368
Other 1,529 1,757
----------- -----------
$ 12,887 $ 11,798
=========== ===========
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
3. PURCHASE OF ASSETS RELATED TO THE JONNY CAT(R) BRAND OF CAT LITTER
On December 13, 2002, the Company completed the purchase, for $6,000,000 in
cash, of assets related to the Jonny Cat(R) brand of cat litter (the "Purchase")
from a wholly owned subsidiary of The Clorox Company (NYSE: CLX). The Company
has also spent approximately $255,000 on various costs related to the Purchase.
Included in the Purchase were inventories, trademarks, a manufacturing plant in
Taft, CA., and mineral reserves. The Company has contracted with an independent
asset valuation expert to determine the fair value of the fixed and intangible
assets acquired in the Purchase. Upon completion of the fair evaluation of these
assets, the Company will complete the necessary purchase accounting for the
transaction. As of January 31, 2003, the best available estimates were utilized
to classify and value the assets acquired.
In anticipation of the Purchase, the Company and Harris Trust and Savings Bank
executed a second amendment to the Credit Agreement, dated January 29, 1999, as
amended, between them. This amendment, among other things, modified the fixed
charge coverage ratio such that the Company was allowed to incur (and exclude
for purposes of that ratio) up to $6,000,000 of capital expenditures related to
the Purchase on or before March 31, 2003, effectively allowing the Company to
complete the Purchase and remain in compliance with this covenant. As discussed
in the Liquidity and Capital Resources section of this Form 10-Q, the Company
has other credit agreements containing restrictive covenants (which, among other
things,
11
limit the Company's ability to make capital expenditures), none of these other
credit agreements limited the Company's ability to consummate the Purchase.
4. CHANGE IN ACCOUNTING ESTIMATE FOR PREPAID OVERBURDEN REMOVAL EXPENSE
During the second quarter of fiscal 2002, an internal review of the estimated
amount of uncovered mineable clay took place at the Company's Georgia production
complex. The quantity of uncovered clay is one of the key elements in the
amortization of the prepaid overburden removal expense account balance. The
review led to a change in the estimated amount of uncovered clay, which in turn
caused a change in the rate of amortization of the prepaid overburden removal
expense account. The impact of this estimate revision for the first six months
of fiscal 2003 was an additional pre-tax charge to cost of goods sold of
approximately $630,000 versus the previous estimate, or approximately $0.08 per
fully diluted share on an after-tax basis. The estimate change also increased
the amortization rate approximately $1.31 per ton of uncovered mineable clay.
The Company returned to using lower rates, more consistent with its historic
experience at the Georgia complex, to amortize the overburden account at the end
of the second quarter of fiscal 2003.
5. SALE OF MINERAL RIGHTS
During the first quarter of fiscal 2003, the Company recorded a $139,000 pre-tax
gain from the sale of certain mineral leases on land in Tennessee. The land was
geographically located in an area that the Company was not actively planning to
develop. The mineral rights, had they been pursued, would have been associated
with any or all of the operating segments.
6. OTHER CONTRACTUAL INCOME
During the second quarter of fiscal 2003, the Company recorded $675,000 of other
contractual pre-tax income as a result of a one-time payment from a customer who
failed to meet minimum purchase requirements under a supply agreement with the
Company.
7. NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138,
"Accounting for Derivative Instruments and Certain Hedging Activities, an
Amendment of SFAS No. 133," (SFAS No. 138), which was required to be adopted in
fiscal years beginning after June 15, 2000. One of the primary amendments to
SFAS No. 133 establishes a "normal purchases and normal sales" exception. This
exception permits companies to exclude contracts that provide for the purchase
or sale of something other than a financial derivative instrument that will be
delivered in quantities expected to be used or sold by the 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 June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under SFAS No. 141, the pooling of interest
method is no longer permitted for business combinations after June 30, 2001.
Under SFAS No. 142, goodwill 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 Company adopted SFAS No. 142 in the first quarter of fiscal 2003. Management
conducted a review of the estimated fair market value of the business segments
during the first quarter of fiscal 2003, using a combination of discounted cash
flow techniques and an independent outside appraiser's evaluations. Based upon
management's review, no impairment adjustment was required at October 31, 2002.
Had SFAS No. 142 been in effect for fiscal 2002, net income and earnings per
share, net of tax, would have been as follows:
12
7. NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS (continued)
Three Months Ended
January 31,
-------------------------
2003 2002
----------- ----------
Net Income $ 1,219 $ 74
Net as reported
Add back: Goodwill amortization -- 29
----------- ----------
Adjusted net income $ 1,219 $ 103
=========== ==========
Basic Earnings Per Share
Net as reported $ 0.22 $ 0.01
Goodwill amortization -- 0.01
----------- ----------
Adjusted net income $ 0.22 $ 0.02
=========== ==========
Diluted Earnings Per Share
Net as reported $ 0.21 $ 0.01
Goodwill amortization -- 0.01
----------- ----------
Adjusted net income $ 0.21 $ 0.02
=========== ==========
Weighted Average Shares Outstanding
Basic 5,616 5,614
Fully diluted 5,701 5,648
Six Months Ended
January 31,
-------------------------
2003 2002
----------- ----------
Net Income $ 1,630 $ 341
Net as reported
Add back: Goodwill amortization -- 59
----------- ----------
Adjusted net income $ 1,630 $ 400
=========== ==========
Basic Earnings Per Share
Net as reported $ 0.29 $ 0.06
Goodwill amortization -- 0.01
----------- ----------
Adjusted net income $ 0.29 $ 0.07
=========== ==========
Diluted Earnings Per Share
Net as reported $ 0.29 $ 0.06
Goodwill amortization -- 0.01
----------- ----------
Adjusted net income $ 0.29 $ 0.07
=========== ==========
Weighted Average Shares Outstanding
Basic 5,615 5,614
Fully diluted 5,687 5,643
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for fiscal years beginning after June 15, 2002. Under
the new rules, the fair value of a liability for any asset retirement
obligation is recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The Company adopted SFAS No. 143, for the
six months ended January 31, 2003. Mining land reclamation activities occur as
part of the Company's normal overburden removal process. Therefore, the Company
determined that an additional liability for land reclamation was immaterial to
the overall presentation of the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal or Long-Lived Assets," effective for years beginning after December
15, 2001. Under the new rules, the accounting and reporting for the impairment
and disposal of long-lived assets have been superseded from SFAS No. 121 and
APB No. 30. Also, ARB No. 51 has been amended to eliminate the exception for
consolidation for a temporary subsidiary. Adoption is required for fiscal years
13
7. NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS (continued)
beginning after December 15, 2001. Effective October 31, 2002, the Company
adopted SFAS No. 144, which did not have an effect on the financial statements
of the Company.
8. SEGMENT REPORTING
The Company has four reportable operating segments: Consumer Products Group,
Specialty Products Group, Crop Production and Horticultural Products Group, and
Industrial and Automotive Products Group. These segments are managed separately
because each business has different economic characteristics.
The accounting policies of the segments are the same as those described in Note
1 of the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended July 31, 2002 filed with the
Securities and Exchange Commission.
Because management does not rely on segment asset allocation, information
regarding segment assets is not meaningful and therefore is not reported.
--------------------------------------
Six Months Ended January 31
--------------------------------------
Net Sales Operating Income
--------------------------------------
2003 2002 2003 2002
-------- -------- -------- --------
(in thousands)
Consumer Products Group........... $49,978 $53,061 $6,606 $4,154
Specialty Products Group.......... 12,627 12,667 2,912 2,634
Crop Production and Horticultural
Products Group................... 9,750 8,296 1,057 896
Industrial and Automotive Products
Group............................ 9,831 9,779 (327) 238
-------- -------- -------- --------
TOTAL SALES/OPERATING INCOME...... $82,186 $83,803 $10,248 $7,922
======== ======== -------- --------
Gain on the Sale of Mineral Rights(1).................... 139 --
Other Contractual Income(2).............................. 675 --
Less:
Corporate Expenses....................................... 7,477 6,246
Interest Expense, net of Interest Income................. 1,228 1,196
-------- --------
INCOME BEFORE INCOME TAXES 2,357 480
-------- --------
Income Taxes 727 139
-------- --------
NET INCOME $1,630 $341
======== ========
--------------------------------------
Three Months Ended January 31
--------------------------------------
Net Sales Operating Income
--------------------------------------
2003 2002 2003 2002
-------- -------- -------- --------
(in thousands)
Consumer Products Group........... $27,597 $27,864 $3,800 $2,118
Specialty Products Group.......... 5,991 6,237 1,226 1,043
Crop Production and Horticultural
Products Group................... 5,884 4,808 848 695
Industrial and Automotive Products
Group ........................... 4,984 4,871 (144) 56
-------- -------- -------- --------
TOTAL SALES/OPERATING INCOME...... $44,456 $43,780 $5,730 $3,912
======== ======== -------- --------
Other Contractual Income(2).............................. 675 --
Less:
Corporate Expenses....................................... 4,027 3,236
Interest Expense, net of Interest Income................. 606 569
------- --------
INCOME BEFORE INCOME TAXES TAXES 1,772 107
------- --------
Income Taxes 553 33
------- --------
NET INCOME $1,219 $74
======= ========
1. See Note 5 for a discussion of the gain on the sale of mineral rights. 2. See
Note 6 for a discussion of the other contractual income.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 2003 COMPARED TO
SIX MONTHS ENDED JANUARY 31, 2002
RESULTS OF OPERATIONS
Consolidated net sales for the six months ended January 31, 2003 were
$82,186,000, a decrease of 1.9% from net sales of $83,803,000 in the first six
months of fiscal 2002. Net income for the first six months of fiscal 2003 was
$1,630,000, an increase of 378% from $341,000 earned in the first six months of
fiscal 2002. Fiscal 2003 net income was positively impacted by a pre-tax gain of
$139,000 on the sale of mineral rights, a pre-tax contractual payment of
$675,000 from a customer that failed to meet minimum purchase requirements under
a supply agreement with the Company and reduced production and distribution
costs. Basic and diluted net income per share for the first six months of fiscal
2003 was $0.29 versus $0.06 basic and diluted net income per share earned in the
first six months of fiscal 2002.
Net sales of the Consumer Products Group for the first six months of fiscal 2003
were $49,978,000, a decrease of 5.8% from net sales of $53,061,000 in the first
six months of fiscal 2002. This segment's operating income, however, increased
59.0% from $4,154,000 in the first six months of fiscal 2002 to $6,606,000 in
the first six months of fiscal 2003. There were a number of factors that drove
these results. The reduction in sales was driven by the elimination of
unprofitable business with Wal-Mart, which was implemented late in the fourth
quarter of fiscal 2002. The reduction of sales was partially offset by the
acquisition of the Jonny Cat(R) product line. The group tightened its control of
customer deductions and experienced lower incentive compensation expenses.
Finally, the group's gross profit was increased over $1,500,000 due to the
elimination of sales to unprofitable geographic areas and improved sales mix of
branded items.
Net sales of the Specialty Products Group for the first six months of fiscal
2003 were $12,627,000, a small decrease of 0.3% from net sales of $12,667,000 in
the first six months of fiscal 2002. This segment's operating income increased
10.6% from $2,634,000 in the first six months of fiscal 2002 to $2,912,000 in
the first six months of fiscal 2003. The profit increase was driven by improved
sales of the animal feed binding agents PelUnite(TM) and PelUnite Plus(TM) and
lower manufacturing costs.
Net sales of the Crop Production and Horticultural Products Group for the first
six months of fiscal 2003 were $9,750,000, an increase of 17.5% from net sales
of $8,296,000 in the first six months of fiscal 2002. The sales increase was
seen in our agricultural chemical business and our sports field products. Crop
Production and Horticultural Products' operating income increased by 18.0% from
$896,000 in the first six months of fiscal 2002 to $1,057,000 in the first six
months of fiscal 2003. The increase in operating profit was driven by the gross
profit change from increased sales.
Net sales of the Industrial and Automotive Products Group for the first six
months of fiscal 2003 were $9,831,000, which was an increase of 0.5% from net
sales of $9,779,000 in the first six months of fiscal 2002. Industrial and
Automotive Products' operating income decreased from a profit of $238,000 in the
first six months of fiscal 2002 to a loss of $327,000 in the first six months of
fiscal 2003. The loss was driven by higher than anticipated manufacturing
processing labor and expenses. The processing inefficiencies are being addressed
through capital investments and maintenance efforts.
Consolidated gross profit as a percentage of net sales for the first six months
of fiscal 2003 increased to 21.1% from 18.9% in the first six months of fiscal
2002. A favorable sales mix lead by the acquired Jonny Cat(R) product line in
the Consumer Products Group and improved sales of PelUnite PlusTM in the
Specialty Product Group, lower fuel costs in the manufacturing area and the
elimination of sales to unprofitable geographic areas all contributed to this
increase. The Company's year-to-date fuel costs are down approximately 17% due
to a rate reduction from the same period in fiscal 2002. Offsetting these
factors were higher than anticipated manufacturing processing labor and
expenses.
Operating expenses as a percentage of net sales for the first six months of
fiscal 2003 increased slightly to 16.9% from 16.8% in the first six months of
fiscal 2002. Operating expenses in the first six months of fiscal 2003 were
reduced by other contractual income of $675,000, but were increased overall by
an increase in compensation expense. Reduced operating expenses in the Consumer
Group also helped to maintain this relatively consistent overall expense ratio.
Interest expense and interest income for the first six months of fiscal 2003 did
not vary significantly from fiscal 2002.
The Company's effective tax rate was 30.8% of pre-tax income in the first six
months of fiscal 2003 versus 29.0% in the first six months of fiscal 2002. Other
contractual income led to the increased rate.
Total assets of the Company increased $1,716,000 or 1.4% during the first six
months of fiscal 2003. Current assets decreased $384,000 or 0.7% from fiscal
2002 year-end balances, primarily due to decreased cash and cash equivalents and
investments, which were principally used to consummate the purchase, for
$6,000,000 in cash, of assets related to the Jonny Cat(R) brand of
15
cat litter business (the "Purchase") from a wholly owned subsidiary of the
Clorox Company (NYSE: CLX). Offsetting this decrease was an increase in
accounts receivable associated with the normal sales seasonality of the
business. The Company also saw an increase in inventory as a result of the
Purchase.
Property, plant and equipment, net of accumulated depreciation, increased
$2,207,000 or 4.5% during the first six months. The increase was due to the
Purchase, but was partially offset by normal depreciation expense on the
Company's pre-existing fixed asset base.
Total liabilities increased $1,092,000 or 2.0% during the first six months of
fiscal 2003. Current liabilities increased $3,111,000 or 15.6% during the first
six months of fiscal 2003. Increases in current maturities of notes payable,
accrued trade promotions, freight and other liabilities were partially offset by
decreases in accrued wages and accounts payable.
EXPECTATIONS
The Company believes that sales for the last two quarters of fiscal 2003 should
increase slightly from fiscal 2002. The sales from the Jonny Cat line of
products should substantially offset the impact of the Company's decision to
restructure its private label supply arrangement with Wal-Mart, however,
additional sales decreases may occur due to product and geographical
rationalization by the Company in its continuing effort to increase
profitability. During the second half of fiscal 2003, the Company's overburden
removal cost at its Georgia complex should return to lower levels, positively
impacting profitability. In light of the Company's strong performance during the
first six months of this fiscal year and the one-time, pre-tax gain resulting
from the $675,000 contractual payment described above, the Company believes that
an earnings estimate in the range of $0.30 to $0.50 per fully diluted earnings
per share range for fiscal 2003 is appropriate.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $3,495,000 during the first six months of fiscal 2003
to $34,157,000, primarily due to a reduction of cash and cash equivalents,
investments and increased current notes payable, accrued trade promotions and
other liabilities. This decrease was offset partially by increased accounts
receivables and decreased accrued wages and accounts payable. During the first
six months of fiscal 2003, the balances of cash, cash equivalents, investments
and investment in Treasury securities decreased $6,092,000 to $10,144,000. Much
of this decrease was the result of the Purchase.
Cash provided by operating activities was used to fund capital expenditures of
$2,113,000, the Purchase, payments on long-term debt of $1,000,000 and dividend
payments of $946,000. Total cash and investment balances held by the Company's
foreign subsidiaries at January 31, 2003 and July 31, 2002 were $2,237,000 and
$2,187,000, respectively.
Accounts receivable, less allowance for doubtful accounts, increased 24.4%
during the first six months of fiscal 2003. This increase was in large part
driven by normal sales seasonality and additional sales from the Jonny Cat(R)
product line. The Company maintains policies and practices to monitor the
creditworthiness of its customers. These policies include maintaining and
monitoring a list of customers whose creditworthiness has diminished. The total
balance of accounts receivable for accounts on that list represents
approximately 9.8% of the Company's outstanding receivables at January 31, 2003.
On November 22 2002, the Company and Harris Trust and Savings Bank executed a
second amendment to the Credit Agreement, dated January 29, 1999, between them.
See Note 3 above.
The table listed below depicts the Company's Contractual Obligations and
Commercial Commitments at January 31, 2003 for the timeframes listed:
CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD
------------------------------------------------------------
CONTRACTUAL LESS THAN 1 1 - 3 4 - 5 AFTER 5
OBLIGATIONS TOTAL YEAR YEARS YEARS YEARS
- ---------------- ------------ ---------- ----------- ---------- -----------
Long-Term Debt $33,250,000 $4,350,000 $5,660,000 $7,160,000 $16,080,000
Operating Leases 15,025,000 2,226,000 2,923,000 1,972,000 7,904,000
Unconditional
Purchase
Obligations 1,625,000 1,625,000 -- -- --
------------ ---------- ----------- ---------- -----------
Total
Contractual
Cash
Obligations $49,900,000 $8,201,000 $8,583,000 $9,132,000 $23,984,000
============ ========== =========== ========== ===========
16
OTHER COMMERCIAL COMMITMENTS
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
------------------------------------------------------------
OTHER TOTAL
COMMERCIAL AMOUNTS LESS THAN 1 1 - 3 4 - 5 AFTER 5
COMMITMENTS COMMITTED YEAR YEARS YEARS YEARS
- ---------------- ------------ ---------- ----------- ---------- -----------
Standby
Letters of
Credit $2,958,000 $2,958,000 -- -- --
Other
Commercial
Commitments 4,944,000 4,944,000 -- -- --
------------ ---------- ----------- ---------- -----------
Total
Commercial
Commitments $7,902,000 $7,902,000 $ -- $ -- $ --
============ ========== =========== ========== ===========
The Company's liquidity needs have been, and are expected to be, met through
internally generated funds and, to the extent needed, borrowings under the
Company's revolving credit facility with Harris Trust and Savings. As of January
31, 2003, the Company had $7,500,000 available under the credit facility. The
Credit Agreement, as amended, contains restrictive covenants that, among other
things and under various conditions (including a limitation on capital
expenditures), limit the Company's ability to incur additional indebtedness, or
to acquire or dispose of assets and to pay dividends.
The Company believes that cash flow from operations and availability under its
revolving credit facility will provide adequate funds for foreseeable working
capital needs, capital expenditures at existing facilities and debt service
obligations. The Company's ability to fund operations, make planned capital
expenditures, to make scheduled debt payments and to remain in compliance with
all of the financial covenants under debt agreements, including, but not limited
to, the Credit Agreement, depends on its future operating performance, which, in
turn, is subject to prevailing economic conditions and to financial, business
and other factors.
THREE MONTHS ENDED JANUARY 31, 2003 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 2002
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended January 31, 2003 were
$44,456,000, an increase of 1.5% from net sales of $43,780,000 in the second
quarter of fiscal 2002. Net income for the second quarter of fiscal 2003 was
$1,219,000, an increase of $1,145,000 from $74,000 earned in the second quarter
of fiscal 2002. Fiscal 2003 net income was positively impacted by a pre-tax
contractual income payment of $675,000 from a customer that failed to meet
minimum purchase requirements under a supply agreement with the Company,
improved branded sales in the Consumer group, improved sales in the Crop
Production and Horticultural Products Group and reduced distribution costs.
Basic net income per share for the second quarter was $0.22 and diluted income
per share was $0.21 versus $0.01 basic and diluted net income per share for the
second quarter of fiscal 2002.
Net sales of the Consumer Products Group for the second quarter of fiscal 2003
were $27,597,000, a decrease of 1.0% from net sales of $27,864,000 in the second
quarter of fiscal 2002. This segment's operating income, however, increased
79.4% from $2,118,000 in the second quarter of fiscal 2002 to $3,800,000 in the
second quarter of fiscal 2003. The factors that drove these results included the
Wal-Mart business change, tighter control of customer deductions and gross
profit increases of $1,000,000 related to an improved sales mix of branded items
led by the acquired Jonny Cat(R) product line.
Net sales of the Specialty Products Group for the second quarter of fiscal 2003
were $5,991,000, a decrease of 3.9% from net sales of $6,237,000 in the second
quarter of fiscal 2002. This segment's operating income increased 17.5% from
$1,043,000 in the second quarter of fiscal 2002 to $1,226,000 in the second
quarter of fiscal 2003. The profit increase was driven by improved sales of the
animal feed binding agents PelUnite(TM) and PelUnite PlusTM and lower
manufacturing costs related to this segment.
Net sales of the Crop Production and Horticultural Products Group for the second
quarter of fiscal 2003 were $5,884,000, an increase of 22.4% from net sales of
$4,808,000 in the second quarter of fiscal 2002. Crop Production and
Horticultural Products' operating income increased 22.0% from $695,000 in the
second quarter of fiscal 2002 to $848,000 in the same quarter of fiscal 2003.
The increase in operating profit was driven by price increases in the
agricultural products area.
Net sales of the Industrial and Automotive Products Group for the second quarter
of fiscal 2003 were $4,984,000, which was an increase of 2.3% from net sales of
$4,871,000 for the same period of fiscal 2002. Industrial and Automotive
Products' operating income decreased from a profit of $56,000 in the second
quarter of fiscal 2002 to a loss of $144,000 for the same period of fiscal 2003.
The loss was driven by lower selling prices associated with the discontinuation
of the energy surcharge and higher than anticipated manufacturing costs related
to this segment.
17
Consolidated gross profit as a percentage of net sales for the second quarter of
fiscal 2003 increased to 21.6% from 18.2% in the second quarter of fiscal 2002.
A favorable sales mix in the Consumer Products Group and improved sales of
PelUnite(TM) and PelUnite PlusTM in the Specialty Product Group, improved
pricing in the agricultural products area, lower fuel costs in the manufacturing
area and reduced distribution expenses all contributed to this increase.
Offsetting these factors were higher than anticipated manufacturing processing
labor and expenses and price declines in the Industrial Products Group.
Operating expenses as a percentage of net sales for the second quarter of fiscal
2003 were flat compared to the same period in fiscal 2002 at 16.4%. Operating
expenses in the second quarter of fiscal 2003 were reduced by other contractual
income of $675,000, but were held flat overall by an increase in incentive
compensation expense based on Company performance.
Interest expense net of interest income for the second quarter of fiscal 2003
increased by $37,000 compared to the second quarter of fiscal 2002. Interest
income for the second quarter of fiscal 2003 decreased compared to the same
period in fiscal 2002 due to lower yields in the market place and a change in
the portfolio mix.
The Company's effective tax rate was 31.2% of pre-tax income in the second
quarter of fiscal 2003 versus 30.8% in the second quarter of fiscal 2002.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the six months ended
January 31, 2003 were $5,396,000 or 6.6% of total Company sales. This represents
a decrease of 5.0% from the first six months of fiscal 2002, in which foreign
subsidiary sales were $5,679,000 or 6.8% of total Company sales. This decrease
in sales was partially due to the loss of private label business from one
customer of the Canadian operation. For the six months ended January 31, 2003,
the foreign subsidiaries reported a loss of $15,000, an improvement of $275,000
from the $290,000 loss reported in the first six months of fiscal 2002. The
improvement for the quarter was due to a better sales mix, selling price
increases, lower material costs and higher machine efficiencies at the Company's
Canadian operation.
Identifiable assets of the Company's foreign subsidiaries as of January 31, 2003
were $10,202,000 compared to $10,259,000 as of January 31, 2002.
Net sales by the Company's foreign subsidiaries during the three months ended
January 31, 2003 were $2,867,000 or 6.5% of total Company sales. This represents
an increase of 3.3% from the second quarter of fiscal 2002, in which foreign
subsidiary sales were $2,776,000 or 6.3% of total Company sales. For the three
months ended January 31, 2003, the foreign subsidiaries reported a loss of
$47,000, an improvement of $109,000 from the $156,000 loss reported in the
second quarter of fiscal 2002. The improvement for the quarter was due to a
better sales mix, lower material costs and higher machine efficiencies at the
Company's Canadian operation.
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 to uncertainties such as continued vigorous
competition in the grocery, mass merchandiser and club markets and specialty
product markets, the level of success of new products, and the cost of product
introductions and promotions in the consumer market. Forward-looking statements
are also subject to the risk of changes in market conditions in the overall
economy, energy prices, the risk of war or international instability and, for
the fluids purification and agricultural markets, changes in planting activity,
crop quality and overall agricultural demand, including export demand,
increasing regulation of the food chain and foreign exchange rate fluctuations.
Other factors affecting these forward-looking statements may be detailed from
time to time in other reports filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk and employs policies and procedures
to manage its exposure to changes in the market risk of its cash equivalents and
short-term investments. The Company had two interest rate swap agreements as of
January 31, 2003. The Company believes that the market risk arising from
holdings of its financial instruments is not material.
The Company is exposed to regulatory risk in the fluid purification and
agricultural markets. The Company continues to work with its legal
representatives and trade groups to address the increasing regulation of the
food chain.
The Company is exposed to commodity price risk with respect to natural gas. The
Company had contracted for a significant portion of its fuel needs for fiscal
2003 using forward purchase contracts to manage the volatility related to this
exposure. These
18
contracts will reduce the volatility in fuel prices, and the weighted average
cost of these contracts has been estimated to be approximately 17% lower than
the contracts for fiscal 2002. No contracts were entered into for speculative
purposes.
The table below provides information about the Company's natural gas future
contracts, which are sensitive to changes in commodity prices, specifically
natural gas prices. For the future contracts the table presents the notional
amounts in MMBtu's, the weighted average contract prices, and the total dollar
contract amount, which will mature by July 31, 2003. The Fair Value was
determined using the "Most Recent Settle" price for the "Henry Hub Natural Gas"
option contract prices as listed by the New York Mercantile Exchange on February
27, 2003.
-------------------------------------------------------------
Commodity Price Sensitivity
Natural Gas Future Contracts
For the Year Ending July 31, 2003
-------------------------------------------------------------
Expected 2003 Fair
Maturity Value
-------------------------------------------------------------
Natural Gas Future Volumes (MMBtu's) 645,000 --
Weighted Average Price (Per MMBtu) $ 3.82 --
Contract Amount ($ U.S.,in thousands) $2,462.9 $3,334.1
-------------------------------------------------------------
Factors which could influence the fair value of the natural gas contracts,
include, but are not limited to, the creditworthiness of the Company's natural
gas suppliers, the overall general economy, developments in world events, and
the general demand 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Based on their evaluation within 90 days prior to the filing date of this
Quarterly Report on Form 10-Q, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure
controls and procedures as defined in Rule 13a-14(c) under the Securities
and Exchange Act of 1934, as amended, are effective for gathering,
analyzing, and disclosing the information we are required to disclose in
our reports filed under the Act.
(b) There were no significant changes in our internal controls or in other
factors that could significantly affect those controls since the date of
last evaluation of those internal controls.
19
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 3, 2002, the 2002 Annual Meeting of Stockholders of Oil-Dri
Corporation of America was held for the purpose of considering and voting
on:
1. The election of nine directors.
ELECTION OF DIRECTORS
The following schedule sets forth the results of the vote to elect
directors. A total of 18,423,967 shares were eligible to vote.
VOTES FOR
DIRECTOR (NOT LESS THAN)
J. Steven Cole 17,905,011
Arnold W. Donald 17,905,011
Ronald B. Gordon 17,905,011
Daniel S. Jaffee 17,905,011
Richard M. Jaffee 17,905,011
Thomas D. Kuczmarski 17,905,011
Joseph C. Miller 17,905,011
Paul J. Miller 17,905,011
Allan H. Selig 17,905,011
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: The following documents are an exhibit to this report:
Exhibit (10)(o)(2): Second Amendment, dated November 22,
2002, to Credit Agreement dated as of January
29,1999.
Exhibit 11: Statement Re: Computation of per share earnings
(b) REPORTS ON FORM 8-K:
The Company filed a Current Report on Form 8-K dated November 19,
2002, announcing that the Company signed a definitive agreement to
consummate the Purchase.
The Company filed a Current Report on Form 8-K dated December 13,
2002, announcing that the consummation of the Purchase.
The Company filed a Current Report on Form 8-K dated December 13,
2002, reporting on Item 9 thereof that it had furnished
Certifications pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The Company filed a Current Report on Form 8-K dated January 10,
2003, reporting the Company's resumption of repurchases of its
Common Stock.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OIL-DRI CORPORATION OF AMERICA
(Registrant)
BY /s/Jeffrey M. Libert
------------------------
Jeffrey M. Libert
Chief Financial Officer
BY /s/Daniel S. Jaffee
------------------------
Daniel S. Jaffee
President and Chief Executive Officer
Dated: March 14, 2003
21
CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED
I. I, Daniel S. Jaffee, Chief Executive Officer of Oil-Dri Corporation of
America, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil-Dri
Corporation of America ("Oil-Dri");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Oil-Dri as of, and for, the periods presented in this
quarterly report;
4. Oil-Dri's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Oil-Dri and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to Oil-Dri, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared.
b. evaluated the effectiveness of Oil-Dri's disclosure controls and
procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date:
5. Oil-Dri's other certifying officer and I have disclosed, based on our
most recent evaluation, to Oil-Dri's auditors and the audit committee
of Oil-Dri's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect Oil-Dri's ability
to record, process, summarize and report financial data and have
identified for Oil-Dri's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Oil-Dri's internal
controls; and
6. Oil-Dri's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 14, 2003
--------------------------
By: /s/ Daniel S. Jaffee
--------------------------
Daniel S. Jaffee
President and Chief Executive
Officer
22
CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED
I. I, Jeffrey M. Libert, Chief Financial Officer of Oil-Dri Corporation of
America, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oil-Dri
Corporation of America ("Oil-Dri");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Oil-Dri as of, and for, the periods presented in this
quarterly report;
4. Oil-Dri's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Oil-Dri and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to Oil-Dri, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared.
b. evaluated the effectiveness of Oil-Dri's disclosure controls and
procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date:
5. Oil-Dri's other certifying officer and I have disclosed, based on our
most recent evaluation, to Oil-Dri's auditors and the audit committee
of Oil-Dri's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect Oil-Dri's ability
to record, process, summarize and report financial data and have
identified for Oil-Dri's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Oil-Dri's internal
controls; and
6. Oil-Dri's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 14, 2003
--------------------------
By: /s/ Jeffrey M. Libert
--------------------------
Jeffrey M. Libert
Chief Financial Officer
23
EXHIBITS
Exhibit (10)(o)(2): Second Amendment, dated November 22, 2002, to Credit
Agreement dated as of January 29, 1999
Exhibit 11: Statement Re: Computation of per share earnings
24
Exhibit (10)(o)(2)
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Amendment") dated as of
November 22, 2002, between Oil-Dri Corporation of America (the "Company") and
Harris Trust and Savings Bank (the "Bank").
PRELIMINARY STATEMENTS
A. The Company and the Bank are parties to a Credit Agreement dated as of
January 29, 1999, as amended (the "Credit Agreement"). All capitalized terms
used herein without definition shall have the same meanings herein as such terms
are defined in the Credit Agreement.
B. The Company has requested that the Bank amend the fixed charge coverage ratio
set forth in Section 7.9 of the Credit Agreement, and the Bank is willing to do
so under the terms and conditions set forth in this Amendment.
SECTION 1. AMENDMENT.
Upon satisfaction of the conditions precedent contained in Section 3
below, Section 7.9 of the Credit Agreement shall be and hereby is amended and
restated to read as follows:
Section 7.9. Fixed Charge Coverage Ratio.
The Company will, as of the last day
of each fiscal quarter of the Company, maintain a ratio of (i) the
amount (if any) by which (a) Consolidated EBITDA for the four fiscal
quarters then ended exceeds (b) the sum of (1) Consolidated Capital
Expenditures for the same such period of four fiscal quarters
(determined exclusive of up to $6,000,000 of capital expenditures
incurred by the Company on or before March 31, 2003, relating to its
acquisition of a clay absorbent plant in Taft, California, and the
Jonny Cat brand, from The Clorox Company) and (2) interest income of
the Company and its Subsidiaries for the same period, all as computed
on a consolidated basis in accordance with GAAP, to (ii) the sum of
(x) Interest Expense for the same period of four fiscal quarters and
(y) Current Debt Maturities during the same period of not less than
1.25 to 1.0.
SECTION 2. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Company hereby represents and warrants to the Bank that each of the
representations and warranties set forth in Section 5 of the Credit Agreement is
true and correct on and as of the date of the Amendment as if made on and as of
the date hereof and as if each reference therein to the Credit Agreement
referred to the Credit Agreement as amended hereby and no Default or Event of
Default exists under the Credit Agreement or shall result after giving effect to
this Amendment.
SECTION 3. CONDITIONS PRECENDENT
This Amendment shall become effective upon satisfaction of the following
conditions precedent:
3.1 The company and the Bank shall have executed and delivered this Amendment.
3.2 Legal matters incident to the execution and delivery of this Amendment
shall be satisfactory to the Bank and its counsel.
25
Exhibit (10)(o)(2) continued
SECTION 4. MISCELLANEOUS
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each of which
when so executed shall be an original but all of which shall constitute one and
the same instrument. Except as specifically amended and modified hereby, all of
the terms and conditions of the Credit Agreement and the other Loan Documents in
any document shall be deemed to be references to the Credit Agreement as
reinstated and hereby amended. All capitalized terms used herein without
definition shall have the same meaning herein as they have in the credit
agreement. This Amendment shall be construed and governed by and in accordance
with the internal laws of the State of Illinois.
This Second Amendment to the Credit Agreement is dated of as of the date
first above written.
OIL-DRI CORPORATION OF AMERICA
By /s/ Jeffrey M. Libert
------------------------------
Name Jeffrey M. Libert
------------------------------
Title Vice President & CFO
------------------------------
HARRIS TRUST AND SAVINGS BANK
By /s/ Daniel K. Sabol
------------------------------
Name Daniel K. Sabol
------------------------------
Title Vice-President
------------------------------
26
Exhibit 11
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
--------------------
SIX MONTHS ENDED
JANUARY 31
--------------------
2003 2002
--------------------
Net income available to Stockholders
(numerator) $ 1,630 $ 341
--------- ---------
Shares Calculation (denominator): 5,615 5,614
Average shares outstanding - basic -- --
Effect of Dilutive Securities: -- --
Potential Common Stock
relating to stock options 72 29
--------- ---------
Average shares outstanding- assuming
dilution 5,687 5,643
========= =========
Earnings per share-basic $ 0.29 $0.06
========= =========
Earnings per share-assuming dilution $ 0.29 $0.06
========= =========