-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FU+Rx/CkPDv5O9ddyr3P3sINf8/wedZrjazEYUdCHSesy2gV0CW8nQYMs8RCGE8Q YWwZdkcmoZxBL8/TQFZR+A== 0000074046-03-000032.txt : 20031211 0000074046-03-000032.hdr.sgml : 20031211 20031211171227 ACCESSION NUMBER: 0000074046-03-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20031031 FILED AS OF DATE: 20031211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OIL DRI CORPORATION OF AMERICA CENTRAL INDEX KEY: 0000074046 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 362048898 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12622 FILM NUMBER: 031050058 BUSINESS ADDRESS: STREET 1: 410 N MICHIGAN AVE STE 400 CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3123211515 MAIL ADDRESS: STREET 1: 410 NORTH MICHIGAN AVENUE STREET 2: SUITE 400 CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: OIL DRI CORP OF AMERICA INC DATE OF NAME CHANGE: 19600201 10-Q 1 q101q04.txt 10-Q 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. -----END PRIVACY-ENHANCED MESSAGE-----