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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended April 30, 2004
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 - 5,569,760 Shares (Including 1,508,871 Treasury Shares)
Class B Stock - 1,792,583 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, 2004 for accelerated filer purposes was
$66,598,000.
CONTENTS
PAGE
PART I
ITEM 1: Financial Statements..........................................3 - 14
ITEM 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations................................15 - 21
ITEM 3: Quantitative And Qualitative Disclosures About Market Risk...21 - 22
ITEM 4: Controls And Procedures...........................................22
PART II
ITEM 1: Legal Proceedings.................................................23
ITEM 6: Exhibits And Reports on Form 8-K..................................23
SIGNATURES ..................................................................24
EXHIBITS .............................................................25 - 29
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
APRIL 30,
2004 JULY 31,
ASSETS (UNAUDITED) 2003
-------------------------
CURRENT ASSETS
Cash and cash equivalents $ 4,853 $ 4,753
Investment in treasury securities 13,387 11,917
Investment in debt securities - held to maturity 2,582 --
Accounts receivable, less allowance of $639 and
$441 at April 30, 2004 and July 31, 2003,
respectively 23,446 23,768
Inventories 13,635 12,819
Prepaid overburden removal expense 2,598 2,492
Prepaid expenses and other assets 5,313 4,881
---------- ----------
TOTAL CURRENT ASSETS 65,814 60,630
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Cost 143,038 141,276
Less accumulated depreciation and amortization (96,894) (92,250)
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 46,144 49,026
---------- ----------
OTHER ASSETS
Goodwill 5,162 5,115
Intangibles, net of accumulated amortization
of $2,722 and $2,474 at April 30, 2004
and July 31, 2003, respectively 3,508 3,869
Deferred income taxes 2,688 2,617
Investment in debt securities - held to maturity 872 --
Other 3,691 5,566
---------- ----------
TOTAL OTHER ASSETS 15,921 17,167
---------- ----------
TOTAL ASSETS 127,879 126,823
========== ==========
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)
APRIL 30,
2004 JULY 31,
(UNAUDITED) 2003
LIABILITIES & STOCKHOLDERS' EQUITY -------------------------
CURRENT LIABILITIES
Current maturities of notes payable $ 4,000 $ 4,000
Accounts payable 4,828 6,856
Dividends payable 515 461
Accrued expenses
Salaries, wages and commissions 4,379 4,250
Trade promotions and advertising 5,622 4,160
Freight 1,574 1,089
Other 5,092 4,418
---------- ----------
TOTAL CURRENT LIABILITIES 26,010 25,234
---------- ----------
NONCURRENT LIABILITIES
Notes payable 23,400 27,400
Deferred compensation 3,171 3,212
Other 2,240 1,963
----------- ----------
TOTAL NONCURRENT LIABILITIES 28,811 32,575
----------- ----------
TOTAL LIABILITIES 54,821 57,809
----------- ----------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share,
issued 5,569,760 shares at April 30,
2004 and 5,472,935 shares at
July 31, 2003 557 547
Class B Stock, par value $.10 per share,
issued 1,792,583 shares at April 30,
2004 and 1,765,083 shares at
July 31, 2003 179 177
Additional paid-in capital 9,137 7,646
Retained earnings 91,736 88,002
Restricted unearned stock compensation (16) (37)
Cumulative translation adjustment (952) (1,082)
----------- ----------
100,641 95,253
Less Treasury stock, at cost
(1,508,871 Common and 342,241
Class B shares at April 30, 2004 and
1,419,065 Common and 342,241 Class B
shares at July 31, 2003) (27,583) (26,239)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 73,058 69,014
----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $127,879 $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 NINE MONTHS ENDED
APRIL 30
-------------------------
2004 2003
----------- -----------
NET SALES $140,708 $128,311
Cost of Sales 107,469 101,020
----------- -----------
GROSS PROFIT 33,239 27,291
Loss on impaired long-lived assets (464) --
Other contractual income -- 675
Selling, General and Administrative Expenses (24,452) (22,423)
----------- -----------
INCOME FROM OPERATIONS 8,323 5,543
OTHER INCOME (EXPENSE)
Interest expense (1,589) (1,953)
Interest income 144 165
Gain on the sale of mineral rights -- 139
Other, net 206 (63)
----------- -----------
TOTAL OTHER EXPENSE, NET (1,239) (1,712)
----------- -----------
INCOME BEFORE INCOME TAXES 7,084 3,831
Income taxes 1,814 1,224
----------- -----------
NET INCOME 5,270 2,607
RETAINED EARNINGS
Balance at beginning of year 88,002 86,790
Less cash dividends declared 1,536 1,410
----------- -----------
RETAINED EARNINGS - APRIL 30 91,736 87,987
=========== ===========
NET INCOME PER SHARE
BASIC $ 0.96 $ 0.47
=========== ===========
DILUTED $ 0.89 $ 0.46
=========== ===========
AVERAGE SHARES OUTSTANDING
BASIC 5,469 5,599
=========== ===========
DILUTED 5,937 5,695
=========== ===========
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 NINE MONTHS ENDED
APRIL 30
-------------------------
2004 2003
----------- -----------
NET INCOME $ 5,270 $ 2,607
Other Comprehensive Income:
Cumulative Translation Adjustments 130 107
----------- -----------
TOTAL COMPREHENSIVE INCOME $ 5,400 $ 2,714
=========== ===========
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
APRIL 30
--------------------------
2004 2003
----------- -----------
NET SALES $ 46,616 $ 46,125
Cost of Sales 35,548 36,210
----------- -----------
GROSS PROFIT 11,068 9,915
Selling, General and Administrative Expenses (8,304) (7,854)
----------- -----------
INCOME FROM OPERATIONS 2,764 2,061
OTHER INCOME (EXPENSE)
Interest expense (525) (605)
Interest income 61 45
Other, net (69) (27)
----------- -----------
TOTAL OTHER EXPENSE, NET (533) (587)
----------- -----------
INCOME BEFORE INCOME TAXES 2,231 1,474
Income taxes 407 497
----------- -----------
NET INCOME 1,824 977
NET INCOME PER SHARE
BASIC $ 0.33 $ 0.18
=========== ===========
DILUTED $ 0.30 $ 0.17
=========== ===========
AVERAGE SHARES OUTSTANDING
BASIC 5,500 5,564
=========== ===========
DILUTED 6,072 5,714
=========== ===========
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
APRIL 30
--------------------------
2004 2003
------------ -----------
NET INCOME $ 1,824 $ 977
Other Comprehensive Income:
Cumulative Translation Adjustments (68) 12
------------ -----------
TOTAL COMPREHENSIVE INCOME $ 1,756 $ 989
============ ===========
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 NINE MONTHS ENDED
APRIL 30
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2004 2003
----------- -----------
NET INCOME $ 5,270 $ 2,607
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,109 6,669
Amortization of investment discount (51) (87)
Provision for bad debts 235 322
Loss on the sale of property, plant
and equipment 733 118
(Increase) Decrease in:
Accounts receivable 75 (1,693)
Inventories (1,128) 957
Prepaid overburden removal expense (106) 938
Prepaid expenses (432) (125)
Other assets 1,753 (218)
Increase (Decrease) in:
Accounts payable (1,732) 829
Accrued expenses 2,750 1,436
Deferred compensation (41) 107
Other liabilities 277 694
----------- -----------
TOTAL ADJUSTMENTS 8,442 9,947
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,712 12,554
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,722) (2,956)
Proceeds from sale of Phoebe Products Co. 325 --
Proceeds from sale of property, plant
and equipment 205 678
Purchase of net assets (See Note 3) -- (6,672)
Purchases of investments in debt securities (5,424) --
Maturities of investments in debt securities 1,961 --
Purchases of investment securities (37,376) (28,015)
Dispositions of investment securities 35,966 26,782
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (8,065) (10,183)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (4,000) (2,500)
Dividends paid (1,482) (1,419)
Purchase of treasury stock (1,344) (952)
Proceeds from issuance of common stock 1,207 --
Other, net 72 118
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (5,547) (4,753)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 100 (2,382)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,753 7,154
----------- -----------
CASH AND CASH EQUIVALENTS, APRIL 30 $4,853 $4,772
=========== ===========
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 April 30, 2004, the
Company had $2,598,000 of prepaid overburden removal expense recorded on its
consolidated balance sheet. During the first nine months of fiscal 2004, the
Company amortized to current expense approximately $2,184,000 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 costs 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):
APRIL 30 JULY 31
(UNAUDITED) (AUDITED)
----------------------------
2004 2003
----------------------------
Finished goods $ 7,863 $ 7,821
Packaging 3,796 3,718
Other 1,976 1,280
---------- ----------
$13,635 $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 The Clorox Company (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. OTHER CONTRACTUAL INCOME
During the second quarter of fiscal 2003, the Company recorded $675,000 of other
contractual pre-tax income as a result of a one-time payment from a customer who
failed to meet minimum purchase requirement under a supply agreement with the
Company.
7. LOSS ON IMPAIRED LONG-LIVED ASSETS
During the second quarter of fiscal 2004, the Company recorded a loss on
impaired assets of $464,000. This loss, related to the write-off of a scoopable
"box" product line located at the Company's Georgia facility and the write-off
of the remaining estimated held-for-sale value of a similar box line at one of
the Company's Mississippi facilities, resulting from the shift from boxed
products to jug products and the long term packaging direction of the Company.
Both lines were previously used exclusively by the Consumer Products Group.
8. KAMTERTER GOODWILL WRITE-OFF
During the third quarter of fiscal 2003, the Company wrote-off goodwill in the
amount of $350,000 associated with its equity investment in Kamterter II, LLC,
an agricultural research and development company. The write-off reflected, among
other things, continuing operating losses at Kamterter.
9. ASSET DISPOSTIONS
During the third quarter of fiscal 2003, the Company recorded a $270,000 pre-tax
gain from the sale of land owned in Florida. The land was geographically located
in an area that the Company was not actively planning to develop. The Company
also sold a small property in Oregon for an approximate pre-tax gain of $40,000.
Also during the third quarter, the Company determined that one of its production
lines at its Blue Mountain, Mississippi manufacturing facility was going to be
taken out of service due to existing market conditions and held as an asset
available for sale. The asset was written down to its estimated net sales value,
which generated an approximate $385,000 pre-tax loss.
10. PENSION AND OTHER POST RETIREMENT BENEFITS
In December 2003, the FASB issued a revision to Statement of Financial
Accounting Standards ("SFAS") No. 132 (revised 2003), "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal periods
beginning after December 15, 2003. This revised statement requires additional
annual disclosures regarding types of plan assets, investment strategy, future
plan contributions, expected benefit payments and other items. The statement
also requires quarterly disclosure of the components of net periodic benefit
cost and plan contributions. The Company has adopted SFAS No. 132 (revised 2003)
for the quarter ending April 30, 2004 and has presented below the required
disclosure.
The components of net periodic pension benefits cost of the Company sponsored
defined benefit plans were as follows:
---------------------------------------------
PENSION PLANS
Three Months Nine Months
Ended Ended
---------------------------------------------
April 30, April 30, April 30, April 30,
2004 2003 2004 2003
---------------------------------------------
Components of net periodic (dollars in thousands)
pension benefit cost ---------------------------------------------
Service cost $ 194 $ 150 $ 581 $ 450
Interest cost 227 206 680 617
Expected return on plan assets (204) (185) (611) (555)
Net amortization 21 6 62 17
---------------------------------------------
$ 238 $ 177 $ 712 $ 529
=============================================
The company made a contribution of $655,000 to its pension plan during the third
quarter of fiscal year ending July 31, 2004. The Company does not intend to make
any additional contributions to the pension plan during the remainder of the
current fiscal year.
---------------------------------------------
POST RETIREMENT HEALTH BENEFITS
Three Months Nine Months
Ended Ended
---------------------------------------------
April 30, April 30, April 30, April 30,
2004 2003 2004 2003
---------------------------------------------
Components of net periodic (dollars in thousands)
postretirement benefit cost ---------------------------------------------
Service cost $ 14 $ 10 $ 42 $ 30
Interest cost 11 11 33 32
Amortization of net
transition obligation 4 4 12 12
Net actuarial loss 1 - 3 -
---------------------------------------------
Recognized actuarial loss $ 30 $ 25 $ 90 $ 74
=============================================
The Company's plan covering postretirement health benefits is an unfunded plan.
11. 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:
--------------------
April 30, July 31,
2004 2003
--------------------
ASSETS
--------------------
(in thousands)
Consumer Products Group.......... $ 53,345 $ 54,307
Specialty Products Group......... $ 14,852 $ 17,251
Crop Production and Horticultural
Products Group................. $ 12,252 $ 12,383
Industrial and Automotive
Products Group................. $ 8,328 $ 8,539
Unallocated Assets $ 39,102 $ 34,343
-------- --------
TOTAL $127,879 $126,823
======== ========
---------------------------------------------
Nine Months Ended April 30,
---------------------------------------------
Net Sales Income
---------------------------------------------
2004 2003 2004 2003
-------- -------- -------- ---------
(in thousands)
Consumer Products Group.......... $ 85,521 $ 76,540 $ 12,392 $ 9,918
Specialty Products Group......... 20,463 18,970 4,849 4,339
Crop Production and Horticultural
Products Group................. 17,901 17,325 2,995 2,307
Industrial and Automotive
Products Group................. 16,823 15,476 (130) (331)
-------- --------- --------- ---------
TOTAL SALES/OPERATING INCOME..... $140,708 $128,311 $ 20,106 $ 16,233
======== ========= ========= =========
Loss on impaired long-lived assets (1)............... (464) --
Gain on the Sale of Mineral Rights (2)............... -- 139
Other Contractual Income (3)......................... -- 675
Less:
Corporate Expenses................................... 11,113 11,428
Interest Expense, net of Interest Income............. 1,445 1,788
-------- ---------
INCOME BEFORE INCOME TAXES............................. 7,084 3,831
Income Taxes........................................... 1,814 1,224
-------- ---------
NET INCOME............................................. $5,270 $2,607
======== =========
---------------------------------------------
Three Months Ended April 30,
---------------------------------------------
Net Sales Income
---------------------------------------------
2004 2003 2004 2003
-------- --------- -------- ---------
(in thousands)
Consumer Products Group.......... $ 27,096 $ 26,563 $ 3,697 $ 3,312
Specialty Products Group......... 7,049 6,343 1,545 1,427
Crop Production and Horticultural
Products Group................. 6,522 7,574 1,209 1,250
Industrial and Automotive
Products Group................... 5,949 5,645 96 (4)
-------- -------- -------- ---------
TOTAL SALES/OPERATING INCOME..... $ 46,616 $ 46,125 $ 6,547 $ 5,985
======== ======== ======== =========
Less:
Corporate Expenses.................................. 3,852 3,951
Interest Expense, net of Interest Income............ 464 560
-------- ---------
INCOME BEFORE INCOME TAXES............................ 2,231 1,474
Income Taxes.......................................... 407 497
-------- ---------
NET INCOME............................................ $ 1,824 $ 977
======== =========
(1) See Note 7 for a discussion of the loss on long-lived impaired assets.
(2) See Note 5 for a discussion of the gain on the sale of mineral rights.
(3) See Note 6 for a discussion of other contractual income.
12. 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 third quarter and nine-month periods ended April 30, 2004
and 2003:
Three Months Nine Months
Ended April 30, Ended April 30,
------------------------------------------
2004 2003 2004 2003
------------------------------------------
(in thousands, except for per share amounts)
------------------------------------------
Net income as reported $1,824 $ 977 $5,270 $2,607
Stock-based employee compensation 5 3 15 9
expense included in reported net
income, net of tax
Pro forma adjustment-additional (81) (162) (244) (484)
compensation expense had SFAS
No. 123 been adopted, net of tax
------------------------------------------
Pro forma net income $1,748 $ 818 $5,041 $2,132
==========================================
Basic earnings per share, as reported $ 0.33 $ 0.18 $ 0.96 $ 0.47
Basic earnings per share, pro forma $ 0.32 $ 0.15 $ 0.92 $ 0.38
Diluted earnings per share, as reporte $ 0.30 $ 0.17 $ 0.89 $ 0.46
Diluted earnings per share, pro forma $ 0.29 $ 0.14 $ 0.85 $ 0.37
13. INVESTMENTS IN DEBT SECURITIES - HELD TO MATURITY
During the third quarter of fiscal 2004 the Company revised its investment
policy and added $3,454,000 of investments in domestic debt securities. The
investments are made up of a combination of investment grade bonds and notes
from various United States corporations. The value of investments maturing in
less than one year is $2,582,000 while the remaining $872,000 matures within
eighteen months.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 2004 COMPARED TO
NINE MONTHS ENDED APRIL 30, 2003
RESULTS OF OPERATIONS
Consolidated net sales for the nine months ended April 30, 2004 were
$140,708,000, an increase of 9.7% from net sales of $128,311,000 in the first
nine months of fiscal 2003. Net income for the first nine months of fiscal 2004
was $5,527,000, an increase of 112.0% from $2,607,000 earned in the first nine
months of fiscal 2003. Fiscal 2004's net income was positively impacted by sales
increases from all of the business segments, foreign and domestic price
increases and generally improved manufacturing performance. The sales increase,
which is discussed below in detail, generated additional gross profit. Fiscal
2004's nine month income was negatively impacted by a $464,000 pre-tax loss on
impaired assets discussed in Note 7 in the Notes to the Consolidated Financial
Statements. Also, fiscal 2004's first nine months' income was negatively
impacted by an increased obsolescence reserve of $200,000 on a pre-tax basis.
This adjustment was associated with the continued market decline of the Smart
Snacks(R) product line and the Company's decision to sell its wholly owned
subsidiary, Phoebe Products Co. The sale of Phoebe, which was completed in the
third quarter of fiscal 2004, did not have a material impact on the sales or
profitability of the Company.
Fiscal 2003's nine month net income was positively impacted by a first quarter
pre-tax gain of $139,000 on the sale of mineral rights, a second quarter
$675,000 pre-tax gain of other contractual income and a third quarter pre-tax
gain of $310,000 on the sale of real estate. Negatively impacting the third
quarter of fiscal 2003 were a $385,000 pre-tax asset write off and a $350,000
pre-tax write down of goodwill associated with an equity investment in
Kamterter. Refer to Notes 5, 6, 8 and 9 in the Notes to the Consolidated
Financial Statements for a discussion of these items.
Basic and diluted net income per share for the first nine months of fiscal 2004
were $0.96 and $0.89, respectively, versus the $0.47 basic and $.46 diluted net
income per share reported for the first nine months of fiscal 2003.
Net sales of the Consumer Products Group for the first nine months of fiscal
2004 were $85,521,000, an increase of 11.7% from net sales of $76,540,000 in the
first nine months of fiscal 2003. This segment's operating income increased
24.9% from $9,918,000 in the first nine months of fiscal 2003 to $12,392,000 in
the first nine months of fiscal 2004. Driving the sales and profit increases
were sales increases in the Cat's Pride scooping litters, private label Special
Kitty litter for Wal-Mart and other private label scoopable litters and the
acquisition of the Jonny Cat product line. These products drove both sales and
gross profit growth in the first nine months of fiscal 2004. The improved
performance was facilitated by enhanced private label product mix to existing
customers, expanded distribution to existing customers and an emerging industry
trend toward higher margin scoopable products. Offsetting part of the gross
profit increase associated with the increased sales were expense increases in
commissions and advertising and trade spending related areas. The expense
increases were incurred in an effort to stabilize the market share of the Jonny
Cat product line and to continue to grow other product lines in this group.
Net sales of the Specialty Products Group for the first nine months of fiscal
2004 were $20,463,000, an increase of 7.9% from net sales of $18,970,000 in the
first nine months of fiscal 2003. This segment's operating income increased
11.8% from $4,339,000 in the first nine months of fiscal 2003 to $4,849,000 in
the first nine months of fiscal 2004. Sales growth was seen in the animal health
and nutrition market, led by Poultry Guard(R) litter amendments and
ConditionAde(R) binding agents. The growth was attributable to new customers in
Asia and Latin America as a result of an increased sales focus and enhanced
training of distributors. The new customers have recognized the products'
ability to deliver a price, service and quality which better meets their needs.
Sales growth was also seen in the bleaching earth business in North America.
Offsetting these increases were sales declines in Europe in the bleaching earth
markets. The European declines are being driven by increased food chain
regulation and concerns.
Net sales of the Crop Production and Horticultural Products Group for the first
nine months of fiscal 2004 were $17,901,000, an increase of 3.3% from net sales
of $17,325,000 in the first nine months of fiscal 2003. The net sales increase
resulted primarily from increased sales of Agsorb(R) carriers. Sales of the
carriers started strong this year due to joint inventory planning and order
management with the major formulators. This strong early start has resulted in a
moderate year-to-date sales increase. A strong sales increase was also seen for
the Flo-Fre(R) product line. Offsetting some of the sales increase just
discussed was a sales decline in sport field products. Sales to the golf course
construction industry has not achieved the same results as last year. This
segment's operating income increased by 29.8% from $2,307,000 in the first nine
months of fiscal 2003 to $2,995,000 in the first nine months of fiscal 2004. The
increase in operating income was driven by the gross profit generated from
increased sales and by selective price increases.
Net sales of the Industrial and Automotive Products Group for the first nine
months of fiscal 2004 were $16,823,000, an increase of 8.7% from net sales of
$15,476,000 in the first nine months of fiscal 2003. Driving part of this
increase was additional volume generated by the acquisition of the Taft,
California production facility. The segment reported an operating loss of
$130,000 for the first nine months of fiscal 2004 compared to an operating loss
of $331,000 for the first nine months of fiscal 2003. Despite both volume and
pricing increases, the group generated an operating loss for the first nine
months of fiscal 2004 due to increased material and fuel costs.
Consolidated gross profit as a percentage of net sales for the first nine months
of fiscal 2004 increased to 23.6% from 21.3% in the first nine months of fiscal
2003. A favorable sales mix led by the Jonny Cat product line and Cat's Pride
scooping litters in the Consumer Products Group, improved sales of Agsorb
carriers in Crop Production and Horticultural Products Group, increased sales of
animal health and nutrition products in the Specialty Products Group all
contributed to the gross profit increase. Also, contributing to the gross profit
increase were foreign and domestic price increases, lower material acquisition
costs on selected items and a 3.4% reduction in non-fuel manufacturing costs.
These positive developments offset fuel cost increases of approximately 18% as a
result of price increases across all fuel sources.
Operating expenses as a percentage of net sales for the first nine months of
fiscal 2004 increased to 17.7% compared to the 16.9% for the first nine months
of fiscal 2003. However, if the loss on long-lived impaired assets in fiscal
2004 and the other contractual income in fiscal 2003, which were discussed
above, were excluded from the operating expense calculation then the percentages
would have been 17.4% for the first nine month of fiscal 2004 and 17.5% for the
same period in fiscal 2003. Operating expenses in the first nine months of
fiscal 2004 increased due to the loss on long-live impaired assets and
additional commissions, trade and advertising spending incurred by the Consumer
Product Group. The Company also incurred an increase in research and development
expense.
Net interest expense and interest income for the first nine months of fiscal
2004 were down 19.2% from the first nine months of fiscal 2003. Interest expense
was down during the time period due to the reduction in debt. Interest income
declined $21,000 from the first nine months of fiscal 2003 due to lower interest
rates.
The Company's effective tax rate was 25.6% of pre-tax income in the first nine
months of fiscal 2004 versus 32% in the first nine months of fiscal 2003. The
decrease in the effective tax rate for fiscal 2004 was due to a change in
estimate in calculating the Company's depletion deduction and by the Company's
decision to change from a separate company federal tax filing to a consolidated
company federal tax filing, (e.g. each subsidiary filing individually) which has
allowed the Company to better utilize its various tax attributes.
Total assets of the Company increased $1,056,000 or .8% during the first nine
months of fiscal 2004. Current assets increased $5,184,000 or 8.6% from fiscal
2003 year-end balances, primarily due to increased cash and investment
securities, inventories and prepaid expenses. Offsetting these increases was a
small decrease in accounts receivable.
Property, plant and equipment, net of accumulated depreciation, decreased
$2,882,000 or 5.9% during the first nine months of fiscal 2004. The decrease was
a result of normal depreciation expense exceeding capital expenditures and the
impaired asset write-off that occurred in the second quarter.
Total liabilities decreased $2,988,000 or 5.2% during the first nine months of
fiscal 2004. Current liabilities increased $776,000 or 3.1% during the first
nine months of fiscal 2004. The increase in current liabilities was driven by an
increase in accrued salaries, accrued trade promotions and advertising, freight
payable, and other accrued expenses. The advertising expense accruals were
consistent with the previously discussed increase in trade spending in the
Consumer Products Group. The increase was offset by a reduction of accounts
payable. The accounts payable reduction was related to the timing of purchases
and seasonality. Noncurrent liabilities decreased $3,764,000 largely due to the
reduction of notes payable.
EXPECTATIONS
The Company believes based on the first nine month actual results, that sales
for fiscal 2004 should show an overall increase of six to ten percent compared
to the full year amounts reported in fiscal 2003. Sales from the Jonny Cat brand
of cat litter, scoopable litters, and animal health and nutrition market should
help drive this projected increase. Based on the results for the first nine
months of the year, the Company believes that it can increase its fully diluted
per share earnings estimate to a new range of $0.95 to $1.00 for fiscal 2004
from the previous estimate of $0.85 to $0.95. This range assumes spending on the
development and introduction of several new products, which the Company believes
will have a negative impact on fiscal 2004's earnings, but which will have a
positive impact on future earnings.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $4,408,000 during the first nine months of fiscal 2004
to $39,804,000, primarily due to increases in cash and investment securities,
inventories, and prepaid expenses and decreases in accounts payable. This
increase was offset partially by an increase in accrued trade promotions,
accrued freight, other accrued expenses and small reduction of accounts
receivable.
Cash was used during the nine month ended April 30, 2004 to fund capital
expenditures of $3,722,000, make payments on long-term debt of $4,000,000, to
purchase treasury stock of $1,344,000 and make dividend payments of $1,482,000.
Cash and investment securities increased $4,152,000 during the first nine months
of fiscal 2004. The continued increase in cash and investment securities has
been achieved by stronger operating results and the fact that capital
expenditures continued to be less than depreciation and amortization. In
addition, the Company received $2,241,000 associated with the termination of two
split-dollar life insurance plans and $325,000 for the sale of Phoebe Products
Co. Total cash and investment balances held by the Company's foreign
subsidiaries at April 30, 2004 and July 31, 2003 were $3,242,000 and $2,557,000,
respectively.
Accounts receivable, less allowance for doubtful accounts, decreased 1.4% during
the first nine months 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 2.5% of the Company's outstanding receivables at
April 30, 2004.
The table listed below depicts the Company's Contractual Obligations and
Commercial Commitments at April 30, 2004 for the timeframes listed:
CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD
----------------------------------------------------
CONTRACTUAL LESS THAN AFTER
OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
- -------------- ----------- ---------- ---------- ---------- -----------
Long-Term Debt $27,400,000 $4,000,000 $7,240,000 $5,580,000 $10,580,000
Operating Leases 13,075,000 1,721,000 2,632,000 2,218,000 6,504,000
Unconditional
Purchase Obligations 1,043,000 990,000 53,000 -- --
----------- ---------- ---------- ---------- -----------
Total Contractual
Cash Obligations $41,518,000 $6,711,000 $9,925,000 $7,798,000 $17,084,000
=========== ========== ========== ========== ===========
OTHER COMMERCIAL COMMITMENTS
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
---------------------------------------------------------
OTHER COMMERCIAL TOTAL LESS THAN AFTER
COMMITMENTS COMMITTED 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
- ---------------- ----------- ---------- ---------- ---------- -----------
Standby Letters
of Credit $ 3,158,000 $3,158,000 -- -- --
Guarantees Other
Commercial
Commitments 500,000 500,000 -- -- --
Total Commercial
Commitments 4,415,000 4,415,000 -- -- --
----------- ---------- ---------- ---------- -----------
Total Commercial
Commitments $ 8,073,000 $8,073,000 -- -- --
=========== ========== ========== ========== ===========
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. During the
second quarter the Company extended the Harris Trust and Savings agreement to
January 2005. As of April 30, 2004, 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, availability under its
revolving credit facility and current cash and investment balances will provide
adequate cash 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. As of April 30, 2004, the
value of these guarantees was $500,000.
THREE MONTHS ENDED APRIL 30, 2004 COMPARED TO
THREE MONTHS ENDED APRIL 30, 2003
RESULTS OF OPERATIONS
Consolidated net sales for the third quarter of fiscal 2004 were $46,616,000, an
increase of 1.1% from net sales of $46,125,000 in the third quarter of fiscal
2003. Net income for the third quarter of fiscal 2004 was $1,824,000, an
increase of 86.7% from $977,000 earned in the third quarter of fiscal 2003. The
third quarter's net income was positively impacted by a combination of slightly
increased sales for most of the business segments and foreign and domestic price
increases. The sales increase, which is discussed below in detail, generated
additional gross profit. Basic and diluted net income per share for the third
quarter of fiscal 2004 were $0.33 and $0.30, respectively, versus the $0.18
basic and $0.17 diluted net income per share reported for the third quarter of
fiscal 2003.
Net sales of the Consumer Products Group for the third quarter of fiscal 2004
were $27,096,000, an increase of 2.0% from net sales of $26,563,000 in the third
quarter of fiscal 2003. The segment's operating income increased 11.6% from
$3,312,000 in the third quarter of fiscal 2003 to $3,697,000 in the third
quarter of fiscal 2004. Driving the sales and profit increases were the Cat's
Pride scooping litters. Also, cost control on several items contributed to the
results of the quarter. Offsetting part of the gross profit increase associated
with the increased sales were expense increases in commissions and advertising
and trade spending related areas.
Net sales of the Specialty Products Group for the third quarter of fiscal 2004
were $7,049,000, an increase of 11.1% from net sales of $6,343,000 in the third
quarter of fiscal 2003. This segment's operating income increased 8.3% from
$1,427,000 in the third quarter of fiscal 2003 to $1,545,000 in the third
quarter of fiscal 2004. Sales growth was seen in the animal health and nutrition
market, led by Poultry Guard litter amendments and Conditionade binding agents.
Sales growth was also seen in the bleaching earth business in North America and
Latin America.
Net sales of the Crop Production and Horticultural Products Group for the third
quarter of fiscal 2004 were $6,522,000, a decrease of 13.9% from net sales of
$7,574,000 in third quarter of fiscal 2003. Agsorb sales were weak in the third
quarter due to heavy demand in the first six months of fiscal 2004. Year to date
fiscal 2004 Agsorb sales remained ahead of fiscal 2003. Sales of sport field
products continued to be behind last year. The segment's operating income
decreased by 3.3% from $1,250,000 in the third quarter of fiscal 2003 to
$1,209,000 in the third quarter of fiscal 2004. The decrease in operating income
was driven by the reduction in sales.
Net sales of the Industrial and Automotive Products Group for the third quarter
of fiscal 2004 were $5,949,000, an increase of 5.4% from net sales of $5,645,000
in the third quarter of fiscal 2003. Driving part of this increase was
additional volume generated by the acquisition of the California production
facility and the addition of a few new customers. The segment reported operating
income of $96,000 for the third quarter compared to an operating loss of $4,000
for the third quarter of fiscal 2003. The improved operating income reflected
previously implemented price increases.
Consolidated gross profit as a percentage of net sales for the third quarter of
fiscal 2004 increased to 23.7% from 21.5% in the third quarter of fiscal 2003. A
favorable sales mix led by Cat's Pride scooping litters in the Consumer Products
Group, improved sales of animal health and nutrition products and bleaching
earth in the Specialty Group all contributed to the gross profit increase. Also
contributing to the gross profit increase were foreign and domestic price
increases and lower material acquisition costs on selected items.
Operating expenses as a percentage of net sales for the third quarter of fiscal
2004 increased to 17.8% compared to the 17.0% for the third quarter of fiscal
2003. Operating expenses in the third quarter of fiscal 2004 increased primarily
due to additional commissions, trade and advertising spending incurred by
Consumer Product group and increased research and development expense.
Net interest expense and interest income for the third quarter of fiscal 2004
were down 17.1% from the third quarter of fiscal 2003. Interest expense
decreased $80,000 from the third quarter of fiscal 2003 due to a reduction in
debt. Interest income increased slightly from the third quarter of fiscal 2003
due to increased investment securities balances and improved interest rates.
The Company's effective tax rate was 18.2% of pre-tax income in the third
quarter of fiscal 2004 versus 33.7% in the third quarter of fiscal 2003. The
decrease in the third quarter fiscal 2004 effective tax rate reflected the year
to date change in estimate in calculating the company's depletion deduction and
by the Company's decision to change from a separate company federal tax filing
(e.g. each subsidiary filing individually) to a consolidated company federal tax
filing, which has allowed the Company to better utilize its various tax
attributes.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the nine months ended
April 30, 2004 were $10,217,000 or 7.3% of total Company sales. This represents
an increase of 21.9% from the first nine months of fiscal 2003, in which foreign
subsidiary sales were $8,380,000 or 6.5% 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 and select price increases have driven the improvement. For the nine
months ended April 30, 2004, the foreign subsidiaries reported income of
$702,000, an improvement of $746,000 from the $44,000 loss reported in the first
nine months of fiscal 2003. The improvement for the first nine months was due to
improved sales, lower material costs, higher manufacturing efficiencies and the
currency movement, all of which were reported at the Company's Canadian
operation.
Identifiable assets of the Company's foreign subsidiaries as of April 30, 2004
were $11,209,000 compared to $10,126,000 as of April 30, 2003. Most of the
increase was reported in cash and investments.
Net sales by the Company's foreign subsidiaries during the three months ended
April 30, 2004 were $3,503,000 or 7.5% of total Company sales. This represents
an increase of 17.4% from the third quarter of fiscal 2003, in which foreign
subsidiary sales were $2,984,000 or 6.5% of total Company sales. This increase
in sales was again seen largely in the Company's Canadian operation for the
reasons stated above. For the three months ended April 30, 2004, the foreign
subsidiaries reported income of $319,000, an improvement of $348,000 from the
$29,000 loss reported in the third quarter of fiscal 2003. The improvement for
the quarter was driven by the same items that were noted in the nine month
analysis.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following chart summarizes Common Stock repurchases for the three months
ended April 30, 2004.
ISSUER PURCHASES OF EQUITY SECURITIES
----------------------------------------------------------------------------
TOTAL NUMBER OF
SHARES PURCHASED (D) MAXIMUM
(A) TOTAL AS PART OF NUMBER OF SHARES
FOR THE THREE NUMBER OF (B) AVERAGE PUBLICLY THAT MAY YET BE
MONTHS ENDED SHARES PRICE PAID ANNOUNCED PLANS PURCHASED UNDER
APRIL 30, 2004 PURCHASED PER SHARE OR PROGRAMS PLANS OR PROGRAMS
-------------------------------------------------------------------------
February 1,
2004 to
February 29
2004 -- -- -- 246,660
-------------------------------------------------------------------------
March 1,
2004 to
March 31,
2004 22,556 $17.16 22,556 224,104
-------------------------------------------------------------------------
April 1,
2004 to
April 30,
2004 11,900 $16.82 11,900 212,204
-------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including, but not limited to, those under
the heading "Expectations" and those statements elsewhere in this report that
use forward-looking terminology such as "expect," "would," "could," "should,"
"estimates," "anticipates," and "believes" are "forward-looking statements"
within the meaning of that term in the Securities Exchange Act of 1934, as
amended. Actual results may differ materially from those reflected in these
forward-looking statements, due to uncertainties such as continued vigorous
competition in the grocery, mass merchandiser and club markets and specialty
product markets, the level of success of new products, and the cost of product
introductions and promotions in the consumer market. Forward-looking statements
are also subject to the risk of changes in market conditions in the overall
economy, energy prices, the risk of war or international instability and, for
the fluids purification and agricultural markets, changes in planting activity,
crop quality and overall agricultural demand, including export demand,
increasing regulation of the food chain and foreign exchange rate fluctuations.
Other factors affecting these forward-looking statements may be detailed from
time to time in other reports filed 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
April 30, 2004. The Company believes that the market risk arising from holdings
of its financial instruments is not material.
The Company is exposed to currency risk as it relates to certain accounts
receivables and the Company's foreign operations. The Company has always
determined that the currency risk is immaterial to the overall presentation of
the financial statements. However, the Company has recently begun a program of
hedging certain receivable balances in a further attempt to minimize the risk.
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. As
of April 30, 2004, the Company had contracted for a portion of its fuel needs
for fiscal 2004 and 2005 using forward purchase contracts to manage the
volatility related to this exposure. The weighted average cost of the 2004
contracts has been estimated to be approximately 48% higher than the contracts
for fiscal 2003 and the weighted average cost of the 2005 contracts has been
estimated to be approximately 4% higher than the contracts for fiscal 2004.
These contracts were entered into during the normal course of business and no
contracts were entered into for speculative purposes.
The tables below provide 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 and July 31, 2005. 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 May 21, 2004.
- -------------------------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2004
- -------------------------------------------------------------------------------
Expected 2004 Maturity Fair 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 $3,734.2
- -------------------------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2005
- -------------------------------------------------------------------------------
Expected 2005 Maturity Fair Value
- -------------------------------------------------------------------------------
Natural Gas Future Volumes (MMBtu's) 151,900 --
Weighted Average Price (Per MMBtu) $ 5.89 --
Contract Amount ($U.S., in thousands) $ 894.6 $990.6
- -------------------------------------------------------------------------------
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 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in an action captioned PSN ILLINOIS
LLC V. OIL-DRI CORPORATION OF AMERICA filed February 5, 2004 in the United
States District Court for the Northern District of Illinois. The lawsuit alleges
that most of the Company's scoopable cat litter products have infringed and
continue to infringe two patents owned by the plaintiff. The plaintiff is
seeking monetary damages in an unspecified amount, treble damages if the alleged
infringement is found to be willful, as well as injunctive relief. The Company
believes the plaintiff's claims are without merit and intends to aggressively
defend the lawsuit.
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 February 27, 2004,
reporting that it had issued a press release announcing its second
quarter results of operations and earnings.
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: June 9, 2004
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)
NINE MONTHS ENDED
APRIL 30
2004 2003
-----------------
Net income available to Stockholders (numerator) $ 5,270 $ 2,607
------- -------
Shares Calculation (denominator):
Average shares outstanding - basic 5,469 5,599
Effect of Dilutive Securities: -- --
Potential Common Stock relating to stock options 468 96
------- -------
Average shares outstanding- assuming dilution 5,937 5,695
======= =======
Earnings per share-basic $ 0.96 $ 0.47
======= =======
Earnings per share-assuming dilution $ 0.89 $ 0.46
======= =======
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
April 30, 2004 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 third
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: June 9, 2004
------------------------
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
April 30, 2004 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 third
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: June 9, 2004
------------------------
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 April 30, 2004 (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: June 9, 2004
/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 April 30, 2004 (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: June 9, 2004
/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.