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 October 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 400 60611-4213
Chicago, Illinois ----------
----------------- (Zip Code)
(Address of principal executive offices)
The Registrant's telephone number, including area code: (312) 321-1515
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,472,935 Shares (Including 1,454,315 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.
CONTENTS
PAGE
PART I
ITEM 1: Financial Statements..........................................3 - 10
ITEM 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations................................11 - 14
ITEM 3: Quantitative And Qualitative Disclosures About Market Risk........14
ITEM 4: Controls And Procedures...........................................15
PART II
ITEM 6: Exhibits And Reports on Form 8-K..................................16
SIGNATURES...................................................................17
EXHIBITS................................................................18 - 22
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
OCTOBER 31,
2003 JULY 31,
ASSETS (UNAUDITED) 2003
------------------------
CURRENT ASSETS
Cash and cash equivalents $ 1,190 $ 4,753
Investment in treasury securities 9,511 11,917
Accounts receivable, less allowance
of $508 and $441 at October 31,
2003 and July 31, 2003,
respectively 25,505 23,768
Inventories 13,379 12,819
Prepaid overburden removal expense 2,517 2,492
Prepaid expenses and other assets 7,610 4,881
---------- ----------
TOTAL CURRENT ASSETS 59,712 60,630
---------- ----------
PROPERTY, PLANT AND
EQUIPMENT - AT COST
Cost 141,784 141,276
Less accumulated depreciation and
amortization (93,675) (92,250)
---------- ----------
TOTAL PROPERTY, PLANT
AND EQUIPMENT, NET 48,109 49,026
---------- ----------
OTHER ASSETS
Goodwill 5,115 5,115
Intangibles, net of accumulated
amortization of $2,482 and $2,474
at October 31, 2003 and
July 31, 2003, respectively 3,745 3,869
Deferred income taxes 2,687 2,617
Other 3,362 5,566
---------- ----------
TOTAL OTHER ASSETS 14,909 17,167
---------- ----------
TOTAL ASSETS $ 122,730 $ 126,823
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
OCTOBER 31,
2003 JULY 31,
LIABILITIES & STOCKHOLDERS' EQUITY (UNAUDITED) 2003
------------ ------------
CURRENT LIABILITIES
Current maturities of notes payable $ 4,000 $ 4,000
Accounts payable 5,385 6,856
Dividends payable 508 461
Accrued expenses
Salaries, wages and commissions 2,717 4,250
Trade promotions and advertising 4,191 4,160
Freight 1,105 1,089
Other 4,673 4,418
------------ ------------
TOTAL CURRENT LIABILITIES 22,579 25,234
------------ ------------
NONCURRENT LIABILITIES
Notes payable 24,900 27,400
Deferred compensation 3,001 3,212
Other 2,372 1,963
------------ ------------
TOTAL NONCURRENT LIABILITIES 30,273 32,575
------------ ------------
TOTAL LIABILITIES 52,852 57,809
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per
share, issued 5,472,935 shares at
October 31, 2003 and July 31, 2003 547 547
Class B Stock, par value $.10 per
share, issued 1,765,083 shares at
October 31, 2003 and July 31, 2003 177 177
Additional paid-in capital 7,646 7,646
Retained earnings 89,212 88,002
Restricted unearned stock compensation (30) (37)
Cumulative translation adjustment (997) (1,082)
------------ ------------
96,555 95,253
Less Treasury stock, at cost
(1,454,315 Common and 342,241
Class B shares at October 31, 2003
and 1,419,065 Common and 342,241
Class B shares at July 31, 2003) (26,677) (26,239)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 69,878 69,014
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $122,730 $126,823
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
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
OCTOBER 31
--------------------
2003 2002
---------- ---------
NET SALES $ 46,292 $ 37,730
Cost of Sales 35,414 29,977
---------- ---------
GROSS PROFIT 10,878 7,753
Selling, General and
Administrative Expenses (8,109) (6,617)
---------- ---------
INCOME FROM OPERATIONS 2,769 1,136
OTHER INCOME (EXPENSE)
Interest expense (531) (687)
Interest income 40 65
Gain on the sale of
mineral rights -- 139
Other, net 142 (68)
---------- ---------
TOTAL OTHER EXPENSE, NET (349) (551)
---------- ---------
INCOME BEFORE INCOME TAXES 2,420 585
Income taxes 702 174
---------- ---------
NET INCOME 1,718 411
RETAINED EARNINGS
Balance at beginning of year 88,002 86,790
Less cash dividends declared 508 474
---------- ---------
RETAINED EARNINGS -
OCTOBER 31 $ 89,212 $ 86,727
========== =========
NET INCOME PER SHARE
BASIC $ 0.31 $ 0.07
========== =========
DILUTED $ 0.30 $ 0.07
========== =========
AVERAGE SHARES OUTSTANDING
BASIC 5,461 5,615
========== =========
DILUTED
5,744 5,678
========== =========
The accompanying notes are an integral part of
the consolidated financial statements.
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
OCTOBER 31
------------------------------
2003 2002
-------------- -------------
NET INCOME $1,718 $411
Other Comprehensive
Income:
Cumulative Translation
Adjustments 85 (22)
-------------- -------------
TOTAL COMPREHENSIVE
INCOME $1,803 $389
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
OCTOBER 31
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2003 2002
----------- ------------
NET INCOME $ 1,718 $ 411
----------- ------------
Adjustments to reconcile net income
to net cash (used in) provided
operating activities:
Depreciation and amortization 2,082 2,034
Provision for bad debts 78 80
Gain on the sale of fixed assets (85) --
(Increase) Decrease in:
Accounts receivable (1,815) 378
Inventories (560) 29
Prepaid overburden removal expense (25) 243
Prepaid expenses (2,729) (469)
Other assets 2,134 (39)
Increase (Decrease) in:
Accounts payable (1,471) 270
Accrued expenses (1,232) (1,700)
Deferred compensation (211) 24
Other liabilities 410 186
----------- -----------
TOTAL ADJUSTMENTS (3,424) 1,036
----------- -----------
NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES (1,706) 1,447
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Capital expenditures (1,040) (1,315)
Proceeds from sale of property,
plant and equipment 125 --
Purchases of investment securities (12,022) (2,448)
Dispositions of investment securities 14,428 710
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,491 (3,053)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Principal payments on long-term debt (2,500) (1,000)
Dividends paid (461) (473)
Purchase of treasury stock (438) --
Other 51 92
------------ -----------
NET CASH USED IN FINANCING ACTIVITIES (3,348) (1,381)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,563) (2,987)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 4,753 7,154
CASH AND CASH EQUIVALENTS, OCTOBER 31 $1,190 $ 4,167
============ ===========
The accompanying notes are an integral part of the
consolidated financial statements.
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, 2003, 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 2004.
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 mine site, thus exposing the sorbent material
that is then used in a majority of the Company's production processes. The cost
of the overburden removal is recorded in a prepaid expense account and, as the
usable sorbent material is mined, the prepaid overburden removal expense is
amortized over the estimated available material. As of October 31, 2003, the
Company had $2,517,000 of prepaid overburden removal expense recorded on its
consolidated balance sheet. During the first three months of fiscal 2004, the
Company amortized to current expense approximately $704,000 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 for
fiscal 2003 and fiscal 2002.
During the normal course of the Company's overburden removal activities the
Company performs on-going reclamation activities. As overburden is removed from
a pit, it is hauled to a previously mined pit and used to refill the older site.
This process allows the Company to continuously reclaim older pits and dispose
of overburden simultaneously, therefore minimizing the liability for the
reclamation function.
Additionally, it is Oil-Dri's policy to capitalize the purchase cost of land and
mineral rights, including associated legal fees, survey fees and real estate
fees. The cost of obtaining mineral patents, including legal fees and drilling
expenses, are also capitalized. Development costs of determining the nature and
amount of mineral reserves and any prepaid royalties that are offsetable against
future royalties due upon extraction of the mineral are also capitalized. All
exploration related costs are expensed as incurred.
2. INVENTORIES
The composition of inventories is as follows (in thousands of dollars):
OCTOBER 31 JULY 31
(UNAUDITED) (AUDITED)
-------------------------
-------------------------
2003 2003
-------------------------
Finished goods $ 7,737 $ 7,821
Packaging 3,704 3,718
Other 1,938 1,280
----------- -----------
----------- -----------
$13,379 $12,819
=========== ===========
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 Clorox (NYSE: CLX). The Company
has also spent approximately $652,000 on various post-closing costs related
to the Purchase. Included in the Purchase were inventories, trademarks, a
manufacturing plant in Taft, California, and mineral reserves.
The aggregate purchase price has been allocated as follows:
Inventory $1,507,000
Prepaid Expenses 175,000
Property, Plant & Equipment 4,594,000
Trademarks & Trade Name 376,000
------------
Purchase total $6,652,000
============
The Company has assessed the pro forma disclosure criteria of SFAS No.
141 and has determined that the Purchase is not material under the asset,
investment and income tests of the pronouncement. Based on that assessment,
the Company has concluded that the pro forma results are not materially
different from the results reported in the current filing.
4. CHANGE IN ACCOUNTING ESTIMATE FOR PREPAID OVERBURDEN REMOVAL EXPENSE
During the second quarter of fiscal 2002, an internal review of the estimated
amount of uncovered mineable clay took place at the Company's Georgia
production complex. The quantity of uncovered clay is one of the key
elements in the amortization of the prepaid overburden removal 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 2003 and 2002 was an additional pre-tax charge to cost of goods sold
of approximately $630,000 and $1,092,000 respectively, versus the previous
estimate. 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,
could have been associated with any or all of the operating segments.
6. SEGMENT REPORTING
The Company has four reportable operating segments: Consumer Products Group,
Specialty Products Group, Crop Production and Horticultural Products Group,
and Industrial and Automotive Products Group. These segments are managed
separately because each business has different economic characteristics.
The accounting policies of the segments are the same as those described in
Note 1 of the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 2003 filed with
the Securities and Exchange Commission.
Management does not rely on any segment asset allocations and does not
consider them meaningful because of the shared nature of the Company's
production facilities. However the Company has estimated the segment asset
allocations as follows:
-------------------------------
OCTOBER 31, 2003 JULY 31, 2003
-------------------------------
ASSETS
-------------------------------
(in thousands)
Consumer Products Group................. $ 54,661 $ 54,307
Specialty Products Group................ $ 14,566 $ 17,251
Crop Production and Horticultural
Products Group.......................... $ 13,477 $ 12,383
Industrial and Automotive Products Group $ 8,309 $ 8,539
Unallocated Assets...................... $ 31,717 $ 34,343
-------- --------
TOTAL ASSETS............................ $122,730 $126,823
======== ========
-------------------------------------
Three Months Ended October 31,
-------------------------------------
Net Sales Income
-------------------------------------
2003 2002 2003 2002
-------- -------- ------- --------
(in thousands)
Consumer Products Group....... $28,619 $22,381 $ 4,559 $ 2,806
Specialty Products Group...... 6,704 6,636 1,687 1,686
Crop Production and
Horticultural Products Group.. 5,486 3,866 702 209
Industrial and Automotive
Products Group............... 5,483 4,847 -- (183)
-------- -------- ------- --------
TOTAL SALES/OPERATING INCOME $46,292 $37,730 6,948 4,518
======== ======== ------- --------
Gain on the Sale of Mineral Rights.............. -- 139
Less:
Corporate Expenses.............................. 4,037 3,450
Interest Expense, net of Interest Income........ 491 622
------- --------
INCOME BEFORE INCOME TAXES........................ 2,420 585
Income Taxes...................................... 702 174
------- --------
NET INCOME........................................ $1,718 $411
======= ========
1. See Note 5 for a discussion of the gain on the sale of mineral rights.
7. STOCK-BASED COMPENSATION DISCLOSURE
The Company currently accounts for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. Had the Company accounted for
stock-based compensation in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company would have reported the following pro
forma amounts for the quarters ended October 31, 2003 and 2002:
Three Months Ended
October 31,
----------------------
2003 2002
----------------------
(in thousands)
----------------------
Net income as reported $ 1,718 $ 411
Stock-based employee 5 2
compensation expense included in
reported net income, net of tax
Pro forma adjustment-additional
compensation expense had SFAS
No. 123 been adopted, net of tax (83) (158)
----------------------
Pro forma net income $ 1,640 $ 255
======================
Basic earnings per share, as reported $0.31 $0.07
Basic earnings per share, pro forma $0.30 $0.05
Diluted earnings per share, as reported $0.30 $0.07
Diluted earnings per share, pro forma $0.29 $0.04
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2003 COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 2002
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended October 31, 2003 were a
record $46,292,000, an increase of 22.7% from net sales of $37,730,000 in the
first three months of fiscal 2003. Net income for the first three months of
fiscal 2004 was $1,718,000 an increase of 318% from $411,000 earned in the
first three months of fiscal 2003. Fiscal 2004's net income was positively
impacted by sales increases seen in the Consumer and Crop Production groups.
The increases, which are discussed below, generated additional gross profit
for the business. Fiscal 2003's net income was positively impacted by a
pre-tax gain of $139,000 on the sale of mineral rights. Basic and diluted
net income per share for the first three months of fiscal 2004 were $0.31 and
$0.30, respectively, versus $0.07 basic and diluted net income per share for
the first three months of fiscal 2003.
Net sales of the Consumer Products Group for the first three months of fiscal
2004 were $28,619,000, an increase of 27.9% from net sales of $22,381,000 in
the first three months of fiscal 2003. This segment's operating income
increased 62.5% from $2,806,000 in the first three months of fiscal 2003 to
$4,559,000 in the first three months of fiscal 2004. Driving the sales and
profit increases were the Jonny Cat line and the Cat's Pride scooping
litters. These products contributed favorably to the growth in sales and
gross profit. Offsetting part of the gross profit increases associated with
the increased sales, were expense increases in commissions and advertising
related areas. These expense increases were consistent with the increased
sales and the advertising and marketing focus necessary to grow the Jonny Cat
line.
Net sales of the Specialty Products Group for the first three months of
fiscal 2004 were $6,704,000, an increase of 1.0% from net sales of $6,636,000
in the first three months of fiscal 2003. This segment's operating income
increased 0.1% from $1,686,000 in the first three months of fiscal 2003 to
$1,687,000 in the first three months of fiscal 2004. Sales growth in the
domestic animal health and nutrition market, led by Poultry Guard, was offset
by sales declines in Europe in the bleaching earth markets.
Net sales of the Crop Production and Horticultural Products Group for the
first three months of fiscal 2004 were $5,486,000, an increase of 41.9% from
net sales of $3,866,000 in the first three months of fiscal 2003. The net
sales increase resulted primarily from increased sales of Agsorb(R) carriers
and Pro's Choice(R) sports field products. The sports field products continued
to see strong sales as the overall market place grows.
The demand for Agsorb carriers was up 36% in the first quarter of fiscal
2004. Sales of the carriers started strongly this year as the major
formulators committed to volumes earlier this year than in the prior year.
The perspective of the major formulators appears to be that fiscal 2004 will
be a strong year, however the increased sales volume could be due to order
timing. This segment's operating income increased by 236% from $209,000 in
the first three months of fiscal 2003 to $702,000 in the first three months
of fiscal 2004. The increase in operating income was driven by the gross
profit generated from increased sales.
Net sales of the Industrial and Automotive Products Group for the first three
months of fiscal 2004 were $5,483,000, an increase of 13.2% from net sales of
$4,847,000 in the first three months of fiscal 2003. This segment's
operating income was at a breakeven level for the first three months of
fiscal 2004, which was an improvement from the $183,000 loss in the first
three months of fiscal 2003. The sales increase, assisted by slightly lower
manufacturing expenses generated sufficient additional gross profit to bring
the group up to a breakeven level.
Consolidated gross profit as a percentage of net sales for the first three
months of fiscal 2004 increased to 23.5% from 20.5% in the first three months
of fiscal 2003. A favorable sales mix lead by the Jonny Cat product line and
Cat's Pride scooping litters in the Consumer Products Group and strong sales
of Agsorb and sports field products in Crop Production and Horticultural
Products Group contributed to the gross profit increase. Also, contributing
to the gross profit increase were selected strategic price increases and a
6.8% reduction in our manufacturing costs. The manufacturing cost decrease
were achieved despite the fact that fuel costs were up approximately 18% due
to the rate increases in the first quarter of fiscal 2004.
Operating expenses as a percentage of net sales for the first three months of
fiscal 2004 remained flat at 17.5% as compared to the first three months of
fiscal 2003. Operating expenses in the first three months of fiscal 2004
increased by $1,492,000 as compared to the first three months of fiscal
2003. The increase was driven by increased advertising and commissions in
the Consumer group, an increase in discretionary bonus expense and an
increase in research and development expense.
Interest expense and interest income for the first three months of fiscal
2004 are down 21% from the first three months of fiscal 2003. Interest
expense was down during the time period due to the reduction in debt.
Interest income declined $25,000 from the first three months of fiscal 2003
due to lower invested rates of interest.
The Company's effective tax rate was 29.0% of pre-tax income in the first
three months of fiscal 2004 versus 29.7% in the first three months of fiscal
2003.
Total assets of the Company decreased $4,093,000 or 3.2% during the first
three months of fiscal 2004. Current assets decreased $918,000 or 1.5% from
fiscal 2003 year-end balances, primarily due to decreases in cash and
investment securities of $5,969,000. Offsetting these decreases were
increases in accounts receivable, inventory, prepaid expenses and other assets.
The accounts receivable increase was related to the improved sales results as
described previously. The increase in prepaid expenses and other assets
resulted from the reclassification to current assets of approximately $2,241,000
due the Company pursuant to two split-dollar life insurance plans, both of
which the Company expected to terminate on or before December 31, 2003. One of
these plans in fact terminated on December 11, 2003, resulting in the repayment
to the Company of approximately $2,209,000 of this balance.
Property, plant and equipment, net of accumulated depreciation, decreased
$917,000 or 1.9% during the first three months of fiscal 2004. The decrease
was a result of normal depreciation expense exceeding capital expenditures.
Total liabilities decreased $4,957,000 or 8.6% during the first three months
of fiscal 2004. Current liabilities decreased $2,655,000 or 10.5% during the
first three months of fiscal 2004, as a result of decreased accounts payable
and salaries payable. Noncurrent liabilities decreased $2,302,000 largely
due to the reduction of notes payable.
EXPECTATIONS
The Company believes based on the first quarter actual results, that sales
for fiscal 2004 should show an overall increase of six to ten percent
compared to the full year values reported in fiscal 2003. The sales from the
Jonny Cat line of products should help drive this projected increase. The
Company is also cautiously encouraged by the continued demand for Agsorb
agricultural carriers and the Pro's Choice sports field products. Finally,
the Company is optimistic about the introduction of the Jonny Cat KatKit
product and geographic expansion of our international product lines. Based
on the results for the first quarter, the Company believes that it can raise
the bottom end of its fully diluted per share earnings estimate to a new
range of $0.75 to $0.85 for fiscal 2004.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $1,737,000 during the first three months of fiscal
2004 to $37,133,000, primarily due to increases in accounts receivable,
inventory, prepaid expenses and other assets described above and decreases in
accounts payable and accrued expenses. This increase was offset partially by a
reduction of cash and investments. During the first three months of fiscal
2004, the balances of cash, cash equivalents, investments and investment in
Treasury securities decreased $5,969,000 to $10,701,000. This decrease was the
result of payments for long-term debt, accrued salaries and wages, dividends
and the purchase of treasury stock.
Cash was used to fund capital expenditures of $1,040,000, payments on
long-term debt of $2,500,000, purchase of treasury stock of $438,000 and
dividend payments of $461,000. Total cash and investment balances held by
the Company's foreign subsidiaries at October 31, 2003 and July 31, 2003 were
$2,783,000 and $2,557,000, respectively.
Accounts receivable, less allowance for doubtful accounts, increased 7.3%
during the first three months of fiscal 2004. This increase was driven by
significantly increased sales for the first quarter of fiscal 2004. 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 1.9%
of the Company's outstanding receivables at October 31, 2003.
The table listed below depicts the Company's Contractual Obligations and
Commercial Commitments at October 31, 2003 for the timeframes listed:
CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------
CONTRACTUAL TOTAL LESS THAN 1 - 3 4 - 5 AFTER 5
OBLIGATIONS 1 YEAR YEARS YEARS YEARS
- ---------------- ----------- ----------- ---------- ---------- -----------
- ---------------- ----------- ----------- ---------- ---------- -----------
Long-Term Debt $28,900,000 $ 4,080,000 $4,660,000 $8,080,000 $12,080,000
Operating Leases 13,702,000 2,124,000 1,303,000 1,194,000 9,081,000
Unconditional
Purchase
Obligations 3,909,000 3,909,000 -- -- --
----------- ----------- ---------- ---------- -----------
Total Contractual
Cash Obligations $46,511,000 $10,113,000 $5,963,000 $9,274,000 $21,161,000
=========== =========== ========== ========== ===========
OTHER COMMERCIAL COMMITMENTS
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
-----------------------------------------------------------
OTHER TOTAL LESS 1 - 3 4 - 5 AFTER 5
COMMERCIAL AMOUNTS THAN 1
COMMITMENTS COMMITTED YEAR YEARS YEARS YEARS
Standby Letters
of Credit $3,148,000 $3,148,000 -- -- --
Guarantees 500,000 500,000 -- -- --
Other Commercial
Commitments 3,216,000 3,216,000 -- -- --
----------- ----------- ---------- --------- ----------
Total Commercial
Commitments $6,864,000 $6,864,000 $ -- $ -- $ --
============ =========== ========== ========= ==========
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
October 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, to make
planned capital expenditures, to make scheduled debt payments and to remain
in compliance with all of the financial covenants under debt agreements,
including, but not limited to, the Credit Agreement, depends on its future
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors.
The Company as part of its normal course of business guarantees certain debts
and trade payables of its wholly owned subsidiaries. These arrangements are
made at the request of the subsidiaries creditors, as separate financial
statements are not distributed for the wholly owned subsidiaries.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the three months ended
October 31, 2003 were $3,374,000 or 7.3% of total Company sales. This
represents an increase of 33.4% from the first three months of fiscal 2003,
in which foreign subsidiary sales were $2,530,000 or 6.7% of total Company
sales. This increase in sales was seen largely in the Company's Canadian
operation where the addition of the Jonny Cat product line and positive
currency movement of the Canadian dollar have driven this increase. For the
three months ended October 31, 2003, the foreign subsidiaries reported income
of $250,000, an improvement of $218,000 from the $32,000 income reported in
the first three months of fiscal 2003. The improvement for the year was due
to improved sales, lower material costs and the currency movement at the
Company's Canadian operation.
Identifiable assets of the Company's foreign subsidiaries as of October 31,
2003 were $10,136,000 compared to $9,986,000 as of October 31, 2002. Most
of the increase was reported in accounts receivable, which were up due to the
increased sales.
FORWARD-LOOKING STATEMENTS
Certaub statements in this report, including, but not limited to, those under
the heading "Expectations" and those statement elsewhere in this report that
use forward-looking terminology 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 the market conditions in
the overall economy, energy prices, the risk of war or international
instability and, for the fluids purification and agricultural markets,
changes in planting activity, crop quality and overall agricultural demand,
including export demand, increasing regulation of the food chain and foreign
exchange rate fluctuations. Other factors affecting these forward-looking
statements may be detailed from time to time in other reports filed by the
company with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk and employs policies and
procedures to manage its exposure to changes in the market risk of its cash
equivalents and short-term investments. The Company had two interest rate
swap agreements as of October 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, principally as a result of the risk of increasing
regulation of the food chain in the United States and Europe. The Company
actively monitors developments in this area, both directly and through trade
organizations of which it is a member.
The Company is exposed to commodity price risk with respect to natural gas. The
Company had contracted for a significant portion of its fuel needs for
fiscal 2004 using forward purchase contracts to manage the volatility related
to this exposure. These contracts will reduce the volatility in fuel prices,
and the weighted average cost of these contracts has been estimated to be
approximately 48% higher than the contracts for fiscal 2003. These contracts
were entered into during the normal course of business and 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, 2004. 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 November 27, 2003.
--------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2004
--------------------------------------------------------------
--------------------------------------------------------------
Expected 2004 Fair
Maturity Value
--------------------------------------------------------------
--------------------------------------------------------------
Natural Gas Future Volumes (MMBtu's 693,000 --
Weighted Average Price (Per MMBtu) $ 5.66 --
Contract Amount ($ U.S., in thousands) $3,908.6 $3,347.3
--------------------------------------------------------------
Factors that 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 for natural gas by the manufacturing sector,
seasonality and the weather patterns throughout the United States and the
world. Some of these same events have allowed the Company to mitigate the
impact of the natural gas contracts by the continued and in some cases
expanded use of recycled oil in our manufacturing processes. Accurate
estimates of the impact that these contracts may have on the Company's fiscal
2004 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 Exchange Act of 1934, as amended, are effective for
gathering, analyzing, and disclosing the information the Company is
required to disclose in reports filed under the Act.
(b) There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls since
the date of last evaluation of those internal controls.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Exhibit 11: Statement Re: Computation of per share
earnings
Exhibit 31: Certifications pursuant to Rule 13a - 14(a)
Exhibit 32: Certifications pursuant to Section 1350
(b)REPORTS ON FORM 8-K:
The Company filed a Current Report on Form 8-K dated September 24,
2003, reporting that it had issued a press release announcing its
fourth quarter and full fiscal year results of operations and
earnings.
The Company filed a Current Report on Form 8-K dated October 10,
2003, reporting that it had issued a press release announcing that
the Board of Directors had declared an increased cash dividend on
the Company's Common Stock and Class B Stock and had announced the
date and record date for the Company's 2003 annual meeting of
stockholders respectively.
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: December 11, 2003
EXHIBITS
Exhibit 11: Statement Re: Computation of per share earnings
Exhibit 31: Certifications pursuant to Rule 13a - 14(a)
Exhibit 32: Certifications pursuant to Section 1350
Exhibit 11:
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
THREE MONTHS ENDED
OCTOBER 31
2003 2002
--------------------
--------- ---------
Net income available to Stockholders
(numerator) $ 1,718 $ 411
--------- ---------
Shares Calculation (denominator):
Average shares outstanding - basic 5,461 5,615
Effect of Dilutive Securities: -- --
Potential Common Stock
relating to stock options 283 63
--------- ---------
Average shares outstanding- assuming
dilution 5,744 5,678
========= =========
Earnings per share-basic $ 0.31 $0.07
========= =========
Earnings per share-assuming dilution $ 0.30 $0.07
========= =========
Exhibit 31:
CERTIFICATIONS PURSUANT TO RULE 13A -14(A) 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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for Oil-Dri and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c. Evaluated the effectiveness of Oil-Dri's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of
October 31, 2003 based on such evaluation; and
d. Disclosed in this report any change in Oil-Dri's internal control
over financial reporting that occurred during Oil-Dri's first fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, Oil-Dri's internal control over financial
reporting; and
5. Oil-Dri's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
Oil-Dri's auditors and the audit committee of Oil-Dri's board of
directors:
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect Oil-Dri's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in Oil-Dri's internal
control over financial reporting.
Date: December 11, 2003
--------------------------
By: /s/ Daniel S. Jaffee
--------------------------
Daniel S. Jaffee
President and Chief Executive
Officer
Exhibit 31:
CERTIFICATIONS PURSUANT TO RULE 13A -14(A) 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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for Oil-Dri and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c. Evaluated the effectiveness of Oil-Dri's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of
October 31, 2003 based on such evaluation; and
d. Disclosed in this report any change in Oil-Dri's internal control
over financial reporting that occurred during Oil-Dri's first fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, Oil-Dri's internal control over financial
reporting; and
5. Oil-Dri's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
Oil-Dri's auditors and the audit committee of Oil-Dri's board of
directors:
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect Oil-Dri's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in Oil-Dri's internal
control over financial reporting.
Date: December 11, 2003
--------------------------
By: /s/ Jeffrey M. Libert
--------------------------
Jeffrey M. Libert
Chief Financial Officer
Exhibit 32:
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Oil-Dri
Corporation of America (the "Company") hereby certifies that the Company's
Quarterly Report on Form 10-Q for the quarter ended October 31, 2003 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operation of the Company.
Dated: December 11, 2003
/s/ Daniel S. Jaffee
- -----------------------
Name: Daniel S. Jaffee
Title: President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Oil-Dri Corporation of America and will be retained by Oil-Dri
Corporation of America and furnished to the Securities and Exchange
Commission or its staff upon request.
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Oil-Dri
Corporation of America (the "Company") hereby certifies that the Company's
Quarterly Report on Form 10-Q for the quarter ended October 31, 2003 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operation of the Company.
Dated: December 11, 2003
/s/ Jeffrey M. Libert
- -----------------------
Name: Jeffrey M. Libert
Title: Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Oil-Dri Corporation of America and will be retained by Oil-Dri
Corporation of America and furnished to the Securities and Exchange
Commission or its staff upon request.