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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended January 31, 2005
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 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, 2005 for accelerated filer purposes was
$73,515,000.
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 - 5,817,585 Shares (Including 1,751,550 Treasury Shares)
Class B Stock - 1,800,083 Shares (Including 342,241 Treasury Shares)
CONTENTS
PAGE
PART I
ITEM 1: Financial Statements............................................3 - 13
ITEM 2: Management's Discussion and Analysis Of Financial Condition
And Results Of Operations......................................14 - 20
ITEM 3: Quantitative And Qualitative Disclosures About Market Risk..........21
ITEM 4: Controls And Procedures.............................................21
PART II
ITEM 1: Legal Proceedings...................................................22
ITEM 4: Submission of Matters to a Vote of Security Holders.................22
ITEM 6: Exhibits............................................................22
SIGNATURES..................................................................23
EXHIBITS...............................................................24 - 31
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
JANUARY
31, 2005 JULY 31,
ASSETS (UNAUDITED) 2004
-----------------------
CURRENT ASSETS
Cash and cash equivalents $ 4,677 $ 6,348
Investment in treasury securities 13,558 13,942
Investment in debt securities 1,836 2,779
Accounts receivable, less allowance of $593 and
$608 at January 31, 2005 and July 31, 2004,
respectively 24,681 24,169
Inventories 13,082 12,399
Prepaid overburden removal expense 1,672 2,407
Deferred income taxes 2,330 2,330
Prepaid expenses and other assets 4,740 3,607
---------- ----------
TOTAL CURRENT ASSETS 66,576 67,981
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Cost 149,161 145,498
Less accumulated depreciation and amortization (100,956) (97,696)
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 48,205 47,802
---------- ----------
OTHER ASSETS
Goodwill 5,162 5,162
Intangibles, net of accumulated amortization of
$2,833 and $2,611 at January 31, 2005 and
July 31, 2004, respectively 2,157 2,389
Deferred income taxes 1,105 1,556
Other 3,924 3,985
---------- ----------
TOTAL OTHER ASSETS 12,348 13,092
---------- ----------
TOTAL ASSETS $127,129 $128,875
========== ==========
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)
LIABILITIES & STOCKHOLDERS' EQUITY JANUARY 31,
2005 JULY 31,
(UNAUDITED) 2004
------------------------
CURRENT LIABILITIES
Current maturities of notes payable $ 1,580 $ 4,080
Accounts payable 5,195 5,701
Dividends payable 568 513
Accrued expenses
Salaries, wages and commissions 2,797 4,747
Trade promotions and advertising 5,590 4,715
Freight 1,466 1,088
Other 5,791 6,192
----------- -----------
TOTAL CURRENT LIABILITIES 22,987 27,036
----------- -----------
NONCURRENT LIABILITIES
Notes payable 23,240 23,320
Deferred compensation 3,336 3,455
Other 3,327 2,806
----------- -----------
TOTAL NONCURRENT LIABILITIES 29,903 29,581
----------- -----------
TOTAL LIABILITIES 52,890 56,617
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share,
issued 5,817,585 shares at January 31,
2005 and 5,583,960 shares at July 31,
2004 582 559
Class B Stock, par value $.10 per
share, issued 1,800,083 shares at
January 31, 2005 and 1,792,583 shares
at July 31, 2004 180 179
Additional paid-in capital 12,354 9,301
Retained earnings 93,098 90,985
Restricted unearned stock compensation -- (9)
Cumulative translation adjustment (403) (694)
----------- -----------
105,811 100,321
Less Treasury stock, at cost (1,751,550
Common and 342,241 Class B shares at
January 31, 2005 and 1,538,571 Common
and 342,241 Class B shares at July 31,
2004) (31,572) (28,063)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 74,239 72,258
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $127,129 $128,875
=========== ===========
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 SIX MONTHS ENDED
JANUARY 31
--------------------------
2005 2004
--------------------------
NET SALES $ 93,602 $ 94,092
Cost of Sales 72,355 71,921
---------- ----------
GROSS PROFIT 21,247 22,171
Loss on impaired long-lived assets -- (464)
Selling, General and Administrative Expenses (16,115) (16,148)
---------- ----------
INCOME FROM OPERATIONS 5,132 5,559
OTHER INCOME (EXPENSE)
Interest expense (895) (1,064)
Interest income 194 83
Other, net 199 275
---------- ----------
TOTAL OTHER EXPENSE, NET (502) (706)
---------- ----------
INCOME BEFORE INCOME TAXES 4,630 4,853
Income taxes 1,204 1,407
---------- ----------
NET INCOME 3,426 3,446
RETAINED EARNINGS
Balance at beginning of year 90,985 88,002
Less cash dividends declared and treasury
stock reissuances 1,313 1,021
---------- ----------
RETAINED EARNINGS - JANUARY 31 93,098 90,427
========== ==========
NET INCOME PER SHARE
BASIC COMMON 0.67 0.68
========== ==========
BASIC CLASS B 0.50 0.51
========== ==========
DILUTED 0.57 0.59
========== ==========
AVERAGE SHARES OUTSTANDING
BASIC COMMON 4,054 4,030
========== ==========
BASIC CLASS B 1,451 1,424
========== ==========
DILUTED 5,972 5,873
========== ==========
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 SIX MONTHS ENDED
JANUARY 31
----------------------------------
2005 2004
--------------- ----------------
NET INCOME $3,426 $3,446
Other Comprehensive Income:
Cumulative Translation Adjustments 291 198
--------------- ----------------
TOTAL COMPREHENSIVE INCOME $3,717 $3,644
=============== ================
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
JANUARY 31
--------------------------
2005 2004
--------------------------
NET SALES $ 49,481 $ 47,800
Cost of Sales 37,902 36,507
----------- ------------
GROSS PROFIT 11,579 11,293
Loss on impaired long-lived assets -- (464)
Selling, General and Administrative Expenses (8,472) (8,039)
----------- ------------
INCOME FROM OPERATIONS 3,107 2,790
OTHER INCOME (EXPENSE)
Interest expense (453) (533)
Interest income 109 43
Other, net 149 133
----------- ------------
TOTAL OTHER EXPENSE, NET (195) (357)
----------- ------------
INCOME BEFORE INCOME TAXES 2,912 2,433
Income taxes 766 705
----------- ------------
NET INCOME
2,146 1,728
NET INCOME PER SHARE
BASIC COMMON $ 0.42 $ 0.34
=========== ============
BASIC CLASS B 0.31 0.26
=========== ============
DILUTED 0.36 0.29
=========== ============
AVERAGE SHARES OUTSTANDING
BASIC COMMON 4,056 4,022
=========== ============
BASIC CLASS B 1,451 1,425
=========== ============
DILUTED 5,993 6,000
=========== ============
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
JANUARY 31
----------------------------------
2005 2004
--------------- ----------------
NET INCOME $2,146 $1,728
Other Comprehensive Income:
Cumulative Translation Adjustments 260 113
--------------- ----------------
TOTAL COMPREHENSIVE INCOME $2,406 $1,841
=============== ================
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 SIX MONTHS ENDED
JANUARY 31
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2005 2004
------------------------
NET INCOME $ 3,426 $ 3,446
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,822 4,124
Amortization of investment discount (69) (42)
Deferred income taxes 451 --
Provision for bad debts 101 156
Loss (Gain) on the sale of
property, plant and equipment 127 (85)
Loss on impaired long-lived assets -- 464
(Increase) Decrease in:
Accounts receivable (614) (3,530)
Inventories (684) 458
Prepaid overburden removal expense 735 (100)
Prepaid expenses (1,132) (314)
Other assets (71) 2,068
Increase (Decrease) in:
Accounts payable 21 (1,438)
Accrued expenses (1,098) 1,112
Deferred compensation (119) (180)
Other liabilities 521 684
----------- -----------
TOTAL ADJUSTMENTS 1,991 3,377
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,417 6,823
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,964) (2,227)
Proceeds from sale of property,
plant and equipment 20 124
Purchases of investments in debt securities (250) --
Maturities of investments in debt securities 1,304 --
Purchases of treasury securities (13,489) (23,999)
Dispositions of treasury securities 13,974 23,936
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,405) (2,166)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (2,580) (2,500)
Dividends paid (1,079) (969)
Purchase of treasury stock (3,947) (756)
Proceeds from issuance of treasury stock 258 --
Proceeds from issuance of common stock 2,551 610
Other, net 114 116
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (4,683) (3,499)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,671) 1,158
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,348 4,753
----------- -----------
CASH AND CASH EQUIVALENTS, JANUARY 31 $ 4,677 $ 5,911
=========== ===========
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, 2004, 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.
Under the terms of its sales agreements with customers, the Company
recognizes revenue when title is transferred. Upon shipment an invoice is
generated that sets the fixed and determinable price. Sales returns and
allowances, which have historically not been material, are reviewed to
determine if any additional reserve is necessary. Allowance for doubtful
accounts are evaluated by the Company utilizing a combination of a historical
percentage of sales by division and specific customer account analysis. The
Company maintains and monitors a list of customers whose creditworthiness has
diminished. This list is used as part of the specific customer account
analysis.
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. At January 31,
2005, the Company had $1,672,000 of prepaid overburden removal expense
recorded on its consolidated balance sheet. During the first six months of
fiscal 2005, the Company amortized to current expense approximately
$1,535,000 of previously recorded prepaid expense.
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):
JANUARY 31 JULY 31
(UNAUDITED)
-------------------------
2005 2004
-------------------------
Finished goods $7,396 $7,529
Packaging 3,553 3,130
Other 2,133 1,740
----------- -----------
$13,082 $12,399
=========== ===========
Inventories are valued at the lower of cost (first-in, first-out) or market.
Inventory costs include the cost of raw materials, packaging supplies, labor
and other overhead costs. The Company performs a detailed review of its
inventory items to determine if an obsolescence reserve adjustment is
necessary. The review surveys all of the Company's operating facilities and
sales divisions to ensure that both historical issues and new market trends
are considered. The allowance not only considers specific items, but also
takes into consideration the overall value of the inventory as of the balance
sheet date. The inventory obsolescence reserve values at January 31, 2005
and July 31, 2004 were $462,000 and $641,000, respectively.
3. 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 adopted SFAS
No. 132 (revised 2003) for the quarter ending October 31, 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 PENSION PLANS
Three Months Ended Six Months Ended
January January January January
31, 31, 31, 31,
2005 2004 2005 2004
Components of net periodic (dollars in thousands) (dollars in thousands)
pension benefit cost
Service cost $ 197 $ 194 $ 394 $ 388
Interest cost 239 227 478 454
Expected return on plan assets (232) (204) (464) (408)
Net amortization 12 21 24 42
---------------------------------------------
$ 216 $ 238 $ 432 $ 476
=============================================
The Company did not make a contribution to its pension plan during the first
or second quarter of the fiscal year ending July 31, 2005. The Company
intends to make a contribution to the pension plan during the third quarter of
the current fiscal year equal to the annual cost. The Company estimates the
annual cost to be $500,000.
POST RETIREMENT
HEALTH BENEFITS
Three Months Ended Six Months Ended
January January January January
31, 31, 31, 31,
2005 2004 2005 2004
Components of net periodic (dollars in thousands) (dollars in thousands)
postretirement benefit cost
Service cost $ 13 $ 14 $ 26 $ 28
Interest cost 12 11 24 22
Amortization of net transition 4 4 8 8
obligation
Net actuarial loss -- 1 -- 2
--------------------------------------------
Recognized actuarial loss $ 29 $ 30 $ 58 $ 60
============================================
The Company's plan covering postretirement health benefits is an unfunded plan.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 123 (revised 2004), "Share-Based Payments," effective for the
first reporting period, which begins after June 15, 2005. This statement is
a revision of SFAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
This revised statement requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. The cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award. The Company is currently reviewing this
pronouncement, but believes that reported income, deferred tax
assets/liabilities, the Statement of Cash Flow and the Balance Sheet will all
be impacted by this new pronouncement.
5. 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, 2004 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:
--------------------
JANUARY 31, JULY 31,
2005 2004
--------------------
ASSETS
--------------------
(in thousands)
Consumer Products Group.................. $ 55,478 $ 55,240
Specialty Products Group................. 15,144 14,594
Crop Production and Horticultural
Products Group......................... 11,381 11,452
Industrial and Automotive Products Group. 8,696 8,646
Unallocated Assets 36,430 38,943
-------- --------
TOTAL ASSETS $127,129 $128,875
======== ========
-------------------------------------
Six Months Ended January 31,
-------------------------------------
Net Sales Income
-------------------------------------
2005 2004 2005 2004
-------- -------- ------- --------
(in thousands)
Consumer Products Group.................. $ 58,609 $ 58,425 $ 8,443 $ 8,695
Specialty Products Group................. 15,313 13,414 3,672 3,304
Crop Production and Horticultural
Products Group......................... 8,010 11,379 476 1,786
Industrial and Automotive Products Group. 11,670 10,874 115 (226)
-------- -------- ------- --------
TOTAL SALES/OPERATING INCOME............. $ 93,602 $ 94,092 12,706 13,559
======== ======== ======= ========
Less:
Loss on impaired long-lived assets........................ -- (464)
Corporate Expenses........................................ 7,375 7,261
Interest Expense, net of Interest Income.................. 701 981
------- --------
INCOME BEFORE INCOME TAXES.................................. 4,630 4,853
Income Taxes................................................ 1,204 1,407
------- --------
NET INCOME $ 3,426 $ 3,446
======= ========
-------------------------------------
Three Months Ended January 31,
-------------------------------------
Net Sales Income
-------------------------------------
2005 2004 2005 2004
-------- -------- ------- --------
(in thousands)
Consumer Products Group.................. $ 30,695 $ 29,806 $ 4,661 $ 4,136
Specialty Products Group................. 7,447 6,710 1,756 1,617
Crop Production and Horticultural
Products Group......................... 5,416 5,893 725 1,084
Industrial and Automotive Products Group. 5,923 5,391 102 (226)
-------- -------- ------- --------
TOTAL SALES/OPERATING INCOME............. $ 49,481 $ 47,800 7,244 6,611
======== ======== ======= ========
Less:
Loss on impaired long-lived assets........................ -- (464)
Corporate Expenses........................................ 3,988 3,224
Interest Expense, net of Interest Income.................. 344 490
------- --------
INCOME BEFORE INCOME TAXES.................................. 2,912 2,433
Income Taxes................................................ 766 705
------- --------
NET INCOME.................................................. $ 2,146 $ 1,728
======= ========
6. 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, resulted from the shift
from boxed products to jug products and the long term direction of the
Company. Both lines were previously used exclusively by the Consumer Product
group.
7. STOCK-BASED COMPENSATION DISCLOSURE
The Company applies the intrinsic value method under Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and
related other interpretations to account for its stock option plans. All the
outstanding options issued under the plans have had exercise prices equal to
the market value on the day of issue. Accordingly, the Company has not
recorded any compensation expense associated with its issuance of stock
options. The Company has recorded as expense the fair market value on the
date of issue of any restricted stock awards granted. The fair value of the
issued stock options is estimated on the grant date using the Black-Scholes
Option Pricing Method. Had the Company accounted for stock-based
compensation in accordance with SFAS No. 123 (revised 2004), "Share-Based
Payments," the Company would have reported in the first six months of fiscal
2005 and 2004 additional employee compensation expense (net of related tax
effect) of approximately $145,000 and $153,000 respectively.
The following table details the effect on net income and earnings per share
if compensation expense for the stock plans had been recorded based on the
fair value method under SFAS 123 (revised 2004), "Share-Based Payments."
-----------------------------------------------------------------------
Three Months Ended Six Months Ended
January 31, January 31,
-----------------------------------------------------------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA) 2005 2004 2005 2004
-----------------------------------------------------------------------
Reported net income $2,146 $1,728 $3,426 $3,446
Add: Total stock-based 2 5 7 10
employee compensation expense
included in reported net income,
net of related tax effects
Deduct: Total stock-based (85) (86) (152) (163)
employee compensation expense
determined under fair value
method for all awards net of
related tax effects
-----------------------------------------------------------------------
Pro forma net income $2,063 $1,647 $3,281 $3,293
-----------------------------------------------------------------------
Earnings per share:
Basic Common - as reported $0.42 $0.34 $0.67 $0.68
Basic Common - pro forma $0.40 $0.32 $0.64 $0.65
-----------------------------------------------------------------------
Basic Class B Common - as reported $0.31 $0.26 $0.50 $0.51
Basic Class B Common - pro forma $0.30 $0.24 $0.48 $0.49
-----------------------------------------------------------------------
Diluted - as reported $0.36 $0.29 $0.57 $0.59
Diluted - pro forma $0.34 $0.27 $0.55 $0.56
-----------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 2005 COMPARED TO
SIX MONTHS ENDED JANUARY 31, 2004
RESULTS OF OPERATIONS
Consolidated net sales for the six months ended January 31, 2005 were
$93,602,000, a decrease of 0.5% from net sales of $94,092,000 in the first six
months of fiscal 2004. Net income for the first six months of fiscal 2005
was $3,426,000, a decrease of 0.6% from $3,446,000 earned in the first six
months of fiscal 2004. Fiscal 2005's net income was positively impacted by
increased sales and income in the Specialty Products Group and Industrial and
Automotive Products Group, but negatively impacted by income decreases in the
Consumer Products Group and sales and income decreases in the Crop Production
and Horticultural Products Group. Volume decreases occurred in the Consumer
Products and the Crop Production and Horticultural Products Groups. Volume
increases occurred in the Industrial and Automotive and Specialty Products
Groups. General price increases helped to offset some of the volume
decreases; however the substantial sales decline experienced by the Crop
Production and Horticultural Products Group, which is discussed below, more
than offset the price increases. Diluted net income per share for the first
six months of fiscal 2005 was $0.57 versus $0.59 diluted net income per share
reported for the first six months of fiscal 2004. While sales and earnings
performance for the first six months of fiscal 2005 were lower than the first
six months of fiscal 2004, they were in line with the Company's expectations
for the year.
Net sales of the Consumer Products Group for the first six months of fiscal
2005 were $58,609,000, an increase of 0.3% from net sales of $58,425,000 in
the first six months of fiscal 2004. This segment's operating income
decreased 2.9% from $8,695,000 in the first six months of fiscal 2004 to
$8,443,000 in the first six months of fiscal 2005. Contributing to the profit
decline was heavy promotional spending and material and freight cost
increases. Overall, volume was down for the first six months of fiscal
2005. Price increases helped to mitigate cost increases in freight,
packaging and materials.
Net sales of the Specialty Products Group for the first six months of fiscal
2005 were $15,313,000 an increase of 14.2% from net sales of $13,414,000 in
the first six months of fiscal 2004. This segment's operating income
increased 11.1% from $3,304,000 in the first six months of fiscal 2004 to
$3,672,000 in the first six months of fiscal 2005. Strong sales growth was
seen in the bleaching earth sector in both North America and Latin America.
Volume growth has been somewhat offset by contractual bleaching earth price
declines seen in the second quarter of fiscal 2005, as international
vegetable oil processors started to leverage their buying power for global
bleaching earth contracts in the second quarter. Also offsetting some of the
volume growth was temporary animal health and nutrition market weakness in
Asia due to the bird flu concerns.
Net sales of the Crop Production and Horticultural Products Group for the
first six months of fiscal 2005 were $8,010,000, a decrease of 29.6% from net
sales of $11,379,000 in the first six months of fiscal 2004. The net sales
decrease resulted from sales reductions to the major agricultural chemical
formulators, primarily those formulating chemicals to combat corn rootworm.
These formulators delayed their production start-ups in the first quarter of
fiscal 2005 due to inventory carryover from last season and the beginning
effects of genetically modified ("GMO") seed in the market. The sales
reduction continued in the second quarter, with continued weakness in sales
for products used to formulate corn rootworm products. The Crop Production
and Horticultural Products Group anticipates regaining some of the first half
sales shortfall in the second six months of fiscal 2005.
The significant decrease in agricultural carrier production also reduced the
product availability of the Group's Flo-Fre product line, which in turn
caused a further reduction of net sales. Offsetting the agricultural and
Flo-Fre sales and profit declines were increases in the Group's sports field
business. Sports field product sales for golf course construction were
especially strong in the second quarter of fiscal 2005, which delivered
overall sales growth for the first six months. The segment's operating
income decreased from a $1,786,000 profit in the first six months of fiscal
2004 to a profit of $476,000 in the first six months of fiscal 2005. The
decrease in operating income was driven by the reduction in agricultural
carrier sales described above.
Net sales of the Industrial and Automotive Products Group for the first six
months of fiscal 2005 were $11,670,000, an increase of 7.3% from net sales of
$10,874,000 in the first six months of fiscal 2004. The segment reported
operating income of $115,000 for the first six months of fiscal 2005 compared
to a loss of $226,000 for the six months of fiscal 2004. Price increases and
the continued growth of synthetic absorbent product sales were the key
factors that allowed the Group to report increased sales for the first six
months of fiscal 2005. However, freight and material costs have continued to
increase for the Group. Fuel surcharges and resin price increases associated
with the increased cost of oil offset some of the sales price increases that
the Group was able to generate.
Consolidated gross profit as a percentage of net sales for the first six
months of fiscal 2005 decreased to 22.7% from 23.6% in the first six months
of fiscal 2004. As discussed above, the heavy promotional spending in the
Consumer Products Group, along with the significant sales decline in the Crop
Production and Horticultural Products Group, had a negative impact on the
first six month's gross profit. Most of the groups also saw increased
freight costs associated with the increase in oil prices. Non-fuel
manufacturing costs rose 6.8% which had a negative impact on gross profit.
Much of the non-fuel manufacturing cost increase was caused by decreased
fixed cost coverage associated with the reduced demand. The cost of fuel
used in the manufacturing processes remained relatively flat due to the
Company's forward purchase program. General price increases positively
impacted the results.
Operating expenses as a percentage of net sales for the first six months of
fiscal 2005 decreased to 17.2% compared to the 17.7% for the first six months
of fiscal 2004. Excluding the loss on impaired long-lived assets, the
operating expenses for the first six months of fiscal 2004 would have been
17.2%. Fiscal 2005 operating expenses have been negatively impacted by
approximately $505,000 of costs associated with the Company's Sarbanes-Oxley
Section 404 readiness effort, but positively impacted by reductions in
discretionary bonus expense.
Interest expense was down during the time period due to the reduction in
debt. Interest income increased $111,000 from the first six months of fiscal
2004 due to the change in the investment portfolio of the Company and
increased interest rates in the market.
The Company's effective tax rate was 26.0% of pre-tax income in the first six
months of fiscal 2005 versus 29% in the first six months of fiscal 2004. The
decrease in the effective tax rate for fiscal 2005 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 (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.
Total assets of the Company decreased $1,746,000 or 1.4% during the first six
months of fiscal 2005. Current assets decreased $1,405,000 or 2.0% from
fiscal 2004 year-end balances, primarily due to decreases in cash and
investment securities and prepaid overburden removal expense. Offsetting
these decreases were increases in accounts receivable, inventory and other
prepaid assets. Much of the decline in cash and investments was due to a
payment of the current portion of the long-term notes payable, stock
repurchases and the payment of the fiscal 2004 discretionary bonus.
Property, plant and equipment, net of accumulated depreciation, increased
$403,000 or 0.8% during the first six months of fiscal 2005. The increase was
a result of additions in the packaging and mining equipment areas.
Total liabilities decreased $3,727,000 or 6.6% during the first six months of
fiscal 2005. Current liabilities decreased $4,049,000 or 15.0% during the
first six months of fiscal 2005. The decrease in current liabilities was
driven by a decrease in the current maturities of notes payable, accounts
payable, salary and wages payable and other payables. Increases were seen in
trade promotions payable, freight payable and dividends payable. The
increase in trade promotions payables was consistent with the previously
discussed increase in trade spending in the Consumer Products Group. The
decrease in current notes payable and salaries payable was consistent with
the reduction in cash and investments discussed above. Noncurrent
liabilities increased $322,000.
EXPECTATIONS
The Company believes based on the first six month actual results, that
consolidated net sales for fiscal 2005 will be flat to slightly above fiscal
2004. The Crop Production and Horticultural Products Group anticipates
regaining some of the first half sales shortfall in the second six months of
fiscal 2005. The Specialty Products Group expects to continue to see
positive trends in its markets. Unfortunately, the Company expects to incur
further cost increases in packaging, freight and other commodities. The
Company believes that improvements in manufacturing efficiencies will help
offset part of these anticipated cost increases. The Company continues to
believe that its previous earnings guidance of $1.20 to $1.30 per diluted
share for the fiscal year ending July 31, 2005 is appropriate.
Given the Company's July 31, 2005 compliance deadline, the Company has and
expects to continue to devote significant internal and external resources to
its Sarbanes-Oxley Section 404 readiness effort. Because the Company is
geographically dispersed and operates in a decentralized manner, this process
may prove to be more costly, challenging and time consuming compared to
similarly-sized public companies without these characteristics.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $2,644,000 during the first six months of fiscal
2005 to $43,589,000, primarily due to increases in accounts receivable related
to the increased sales in the second quarter, increases in inventories, which
were related to the timing of packaging purchases and increases in prepaid
expenses, which were driven by the timing of insurance payments. Also
positively impacting working capital was the payment of the current
maturities of notes payable.
Cash was used during the six months ended January 31, 2005 to fund capital
expenditures of $3,964,000, to make payments on long-term debt of $2,580,000,
to purchase treasury stock of $3,947,000 and to make dividend payments of
$1,079,000. Cash and investment securities decreased $2,998,000 during the
first six months of fiscal 2005. Most of the cash and investment decline
was attributable to the items listed above, plus the September 2004 payment
of the fiscal 2004 discretionary bonus.
Total cash and investment balances held by the Company's foreign subsidiaries
at January 31, 2005 and July 31, 2004 were $3,620,000 and $3,633,000,
respectively.
Accounts receivable, less allowance for doubtful accounts was $24,681,000, an
increase of 2.1% from the July 31, 2004 value of $24,169,000. However in
terms of days sales outstanding, net receivables were down as compared to
July 31, 2004. The sales for the second quarter of fiscal 2005 were
$49,481,000, while the sales for the fourth quarter of fiscal 2004 were
$44,803,000.
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 January 31, 2005.
The table listed below depicts the Company's Contractual Obligations and
Commercial Commitments at January 31, 2005 for the timeframes listed:
CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------
CONTRACTUAL LESS THAN 1 - 3 4 - 5 AFTER 5
OBLIGATIONS TOTAL 1 YEAR YEARS YEARS YEARS
- ---------------- ----------- ---------- ---------- ---------- ----------
Long-Term Debt $24,820,000 $1,580,000 $7,160,000 $8,080,000 $8,000,000
Operating Leases $13,880,000 2,274,000 3,617,000 2,040,000 5,949,000
Unconditional
Purchase Obligations 1,111,000 1,036,000 68,000 7,000 --
----------- ---------- ---------- ---------- ----------
Total Contractual
Cash Obligations $39,811,000 $4,890,000 $10,845,000 $10,127,000 $13,949,000
=========== ========== =========== =========== ===========
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 $ 3,270,000 $3,270,000 -- -- --
Guarantees 3,763,000 769,000 494,000 2,500,000 --
Other Commercial
Commitments 4,035,000 4,035,000 -- -- --
----------- ---------- ----------- -------- ----------
Total Commercial
Commitments $11,068,000 $8,074,000 $494,000 $2,500,000 $ --
=========== ========== =========== ========== =========
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 Bank.
During the second quarter of fiscal 2005 the Company amended the agreement to
extend the termination date to January 29, 2006. As of January 31, 2005, the
Company had $7,500,000 available under the credit facility. The 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
Harris Trust and Savings Bank 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 January 31, 2005, the value of these guarantees was
$500,000 of short-term liabilities, $763,000 of lease liabilities and
$2,500,000 of long-term debt.
THREE MONTHS ENDED JANUARY 31, 2005 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 2004
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended January 31, 2005 were
$49,481,000, a 3.5% increase from net sales of 47,800,000 in the second
quarter of fiscal 2004. Net income for the second quarter of fiscal 2005 was
$2,146,000, an increase of 24.2% from $1,728,000 earned in the second quarter
of fiscal 2004. Fiscal 2005's net income was positively impacted by improved
quarterly sales and income from the Consumer Products Group, Specialty
Products Group and Industrial and Automotive Products Group, but negatively
impacted by sales and income reductions in the Crop Production and
Horticultural Products Group. Volume increases were reported by all Groups
except the Crop Production and Horticultural Products Group. Diluted net
income per share for the second quarter of fiscal 2005 was $0.36 versus $0.29
diluted net income per share reported for the second quarter of fiscal 2004.
Net sales of the Consumer Products Group for the second quarter of fiscal
2005 were $30,695,000, an increase of 3.0% from net sales of $29,806,000 in
the second quarter of fiscal 2004. This segment's operating income increased
12.7% from $4,136,000 in the second quarter of fiscal 2004 to $4,661,000,000
in the second quarter of fiscal 2005. Positively contributing to the profit
increase were price increases, increased sales of branded scoopable cat
litter and a small decline in expenses. Promotional spending and material
and freight cost increases offset some of the positive items.
Net sales of the Specialty Products Group for the second quarter of fiscal
2005 were $7,447,000, an increase of 11.0% from net sales of $6,710,000 in
the second quarter of fiscal 2004. This segment's operating income increased
8.6% from $1,617,000 in the second quarter of fiscal 2004 to $1,756,000 in
the second quarter of fiscal 2005. The bleaching earth product lines
continued to see sales strength in both North America and Latin America
during the quarter. The international vegetable oil processors started to
leverage their buying power for global bleaching earth contracts in the
second quarter. This reduction in selling price offset some of the gains
made in overall volume growth.
Net sales of the Crop Production and Horticultural Products Group for the
second quarter of fiscal 2005 were $5,416,000, a decrease of 8.1% from net
sales of $5,893,000 in the second quarter of fiscal 2004. The net sales
decrease resulted from sales reductions to the major agricultural chemical
formulators, primarily those formulating chemicals to combat corn rootworm.
The significant decrease in agricultural carrier production also reduced the
product availability of the Group's Flo-Fre product line, which in turn
caused a further reduction of net sales. Offsetting the agricultural and
Flo-Fre sales and profit declines were increases in the Group's sports field
business. Sports field product sales for golf course construction were
strong in the second quarter of fiscal 2005. The segment's operating income
decreased from a $1,084,000 profit in the second quarter of fiscal 2004 to a
profit of $725,000 in the second quarter of fiscal 2005. The decrease in
operating income was driven by the reduction in agricultural carrier sales
described above.
Net sales of the Industrial and Automotive Products Group for the second
quarter of fiscal 2005 were $5,923,000, an increase of 9.9% from net sales of
$5,391,000 in the second quarter of fiscal 2004. The segment reported
operating income of $102,000 for the second quarter of fiscal 2005 compared
to a loss of $226,000 in the second quarter of fiscal 2004. General price
increases and the continued growth of synthetic absorbent product sales in
the second quarter were the key factors that allowed the Group to report
increased sales and profits in the second quarter of fiscal 2005. Freight
and material cost increases continued in the second quarter of fiscal 2005.
These increases offset some of the general price increases gained by the
Group.
Consolidated gross profit as a percentage of net sales for the second quarter
of fiscal 2005 decreased slightly to 23.4% from 23.6% in the second quarter
of fiscal 2004. General price increases, along with the sales growth in the
Specialty Products Group, helped offset some of the gross profit decline
driven by the sales decrease in the Crop Production and Horticultural
Products Group. Most of the groups also saw increased freight costs
associated with the increase in oil prices. The manufacturing facilities
continued to experience fixed cost coverage issues caused by reduced
production volume associated with the sales decline in the Crop Production
and Horticultural Products Group.
Operating expenses as a percentage of net sales for the second quarter of
fiscal 2005 decreased to 17.1% compared to the 17.8% for the second quarter
of fiscal 2004. Excluding the loss on impaired long-lived assets, the
operating expenses for the second quarter of fiscal 2004 would have been
16.8%. The second quarter of fiscal 2005 operating expenses were negatively
impacted especially by approximately $505,000 of costs associated with the
Sarbanes-Oxley Section 404 readiness effort and by increased development and
marketing costs associated with potential new products in the Crop Production
and Horticultural Products Group. Positively impacting operating expenses
were reductions in discretionary bonus expense.
Interest expense was down $80,000 during the second quarter due to the
reduction in debt. Interest income increased $66,000 from the second quarter
of fiscal 2004 due to the change in the investment portfolio of the Company
and increased interest rates in the market.
The Company's effective tax rate was 26.3% of pre-tax income in the second
quarter of fiscal 2005 versus 29% in the second quarter of fiscal 2004. The
decrease in the effective tax rate for fiscal 2005 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 (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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payments,"
effective for the first reporting period, which begins after June 15, 2005.
This statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees. This revised statement requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. The
cost will be recognized over the period during which an employee is
required to provide service in exchange for the award. The Company is
currently reviewing this pronouncement, but believes that reported income,
deferred tax assets/liabilities, the Statement of Cash Flow and the Balance
Sheet will all be impacted by this new pronouncement.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the six months ended
January 31, 2005 were $7,270,000 or 7.8% of total Company sales. This
represents an increase of 8.3% from the first six months of fiscal 2004, in
which foreign subsidiary sales were $6,714,000 or 7.1% of total Company
sales. This increase in sales was seen in both our UK and Canadian
operations. The revenue increase from the additional sales has been offset
by higher material costs and additional promotion expenses, especially in the
UK. For the six months ended January 31, 2005, the foreign subsidiaries
reported net income of $248,000, a reduction of $135,000 from the $383,000
income reported in the first six months of fiscal 2004.
Identifiable assets of the Company's foreign subsidiaries as of January 31,
2005 were $11,575,000 compared to $10,648,000 as of January 31, 2004. The
increase was driven by cash and investments and additional property, plant
and equipment.
Net sales by the Company's foreign subsidiaries during the second quarter of
fiscal 2005 were $3,781,000 or 7.6% of total Company sales. This represents
an increase of 13.2% from the second quarter of fiscal 2004, in which foreign
subsidiary sales were $3,341,000 or 7.0% of total Company sales. For the
second quarter of fiscal 2005, the foreign subsidiaries reported net income
of $115,000, a reduction of $18,000 from the $133,000 income reported in the
second quarter of fiscal 2004.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following chart summarizes Common Stock repurchases for the three months
ended January 31, 2005. On December 7, 2004, the Board of Directors
authorized the repurchase of an additional 500,000 shares.
ISSUER PURCHASES OF EQUITY SECURITIES
--------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
PURCHAED
AS PART (D) MAXIMUM
(A) TOTAL (B) OF PUBLICLY NUMBER OF SHARES
FOR THE THREE NUMBER OF AVERAGE ANNOUNCED THAT MAY YET BE
MONTHS ENDED SHARES PRICE PAID PLANS OR PURCHASED UNDER
JANUARY 31, 2005 PURCHASED PER SHARE PROGRAM PLANS OR PROGRAMS
--------------------------------------------------------------------------
November 1, 2004 to
November 30, 2004 8,600 $16.26 8,600 58,504
--------------------------------------------------------------------------
December 1, 2004 to
December 31, 2004 49,300 $17.48 49,300 509,204
--------------------------------------------------------------------------
January 1, 2005 to
January 31, 2005 58,400 $18.29 58,400 450,804
--------------------------------------------------------------------------
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 intense competition from larger competitors
in the consumer 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 created by increased
acceptance of genetically modified ("GMO") and treated seed in the
agricultural market, 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.
TRADEMARK NOTICE
Oil-Dri, Agsorb, Cat's Pride, Jonny Cat, ConditionAde and Pro's Choice
are all registered trademarks of Oil-Dri Corporation of America. PelUnite
Plus is a trademark of Oil-Dri Corporation of America.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk and employs policies and
procedures to manage its exposure to changes in the market risk of its cash
equivalents and short-term investments. The Company had two interest rate
swap agreements as of January 31, 2005. 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 began a program in fiscal
2004 of hedging certain receivable balances in a further attempt to minimize
the risk.
The Company is exposed to regulatory risk in the fluid purification,
animal health 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. At January 31, 2005,
the Company had contracted for a portion of its fuel needs for fiscal 2005
using forward purchase contracts to manage the volatility related to this
exposure. The weighted average cost of the 2005 contracts has been
estimated to be approximately 11.5% 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, 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 February 14, 2005.
- --------------------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2005
- --------------------------------------------------------------------------
Expected 2005 Fair
Maturity Value
- --------------------------------------------------------------------------
Natural Gas Future Volumes (MMBtu) 464,400 --
Weighted Average Price (Per MMBtu) $ 6.31 --
Contract Amount ($ U.S., in thousands) $2,932.5 $2,992.2
- --------------------------------------------------------------------------
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
2005 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
In April 2002, the Company filed parallel actions in state and federal
courts in Nevada against Washoe County, Nevada, alleging that the
County's denial of a special use permit (sought by the Company in
connection with its plan to build a manufacturing facility outside of
Reno, Nevada) violated both federal and state law. The lawsuits sought
money damages resulting from the County's improper denial of the special
use permit, which caused the Company to abandon its plan to build the
Reno facility. The federal court action was dismissed on jurisdictional
grounds, and the state court action proceeded. On December 30, 2004,
however, the state court ruled against the Company on all liability
issues. The Company determined not to appeal the state court's ruling,
and the litigation is now concluded. The ruling and the conclusion of
the litigation have no material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 7, 2004, the 2004 Annual Meeting of Stockholders of Oil-Dri
Corporation of America was held for the purpose of considering and voting .
1. ELECTION OF DIRECTORS
The following schedule sets forth the results of the vote to elect
directors. A total of 17,721,970 shares were eligible to vote.
DIRECTOR VOTES FOR
-------- ---------
J. Steven Cole 17,558,249
Arnold W. Donald 17,521,547
Ronald B. Gordon 17,042,932
Daniel S. Jaffee 17,581,606
Richard M. Jaffee 17,497,594
Joseph C. Miller 17,016,879
Allan H. Selig 17,557,221
2. RATIFICATION OF INDEPENDENT AUDITOR
The Audit Committee's selection of PricewaterhouseCoopers LLP as the
Company's independent auditor for the fiscal year ending July 31, 2005
was ratified by receiving 17,002,217 votes of a total 17,721,970 shares
eligible to vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
Exhibit 10(o)(3): Fourth Amendment, dated November 10, 2004, to
Credit Amendment dated as of January 29, 1999
Exhibit 11: Statement Re: Computation of per share earnings
Exhibit 31: Rule 13a - 14(a) Certifications
Exhibit 32: Section 1350 Certifications
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/ ANDREW N. PETERSON
Andrew N. Peterson
Vice President and Chief Financial Officer
BY /S/ DANIEL S. JAFFEE
Daniel S. Jaffee
President and Chief Executive Officer
Dated: March 11, 2005
EXHIBITS
Exhibit 10(o)(3): Fourth Amendment, dated November 24, 2004, to Credit
Amendment dated as of January 29, 1999
Exhibit 11: Statement Re: Computation of per share earnings
Exhibit 31: Rule 13a - 14(a) Certifications
Exhibit 32: Section 1350 Certifications
Note: Stockholders may receive copies of the above listed exhibits, without
fee, by written request to Investor Relations, Oil-Dri Corporation of
America, 410 North Michigan Avenue, Suite 400, Chicago, Illinois 60611-4213.
Exhibit 10(o)(3):
FOURTH AMENDMENT TO CREDIT AGREEMENT
This Fourth Amendment to Credit Agreement (the "Amendment") dated as of
November 10, 2004, between Oil-Dri Corporation of America (the "Company") and
Harris Trust and Savings Bank (the "Bank").
PRELIMINARY STATEMENTS
A. The Company and the Bank are parties to a Credit Agreement dated as
of January 29, 1999, as amended (the "Credit Agreement"). All capitalized
terms used herein without definition shall have the same meanings herein as
such terms are defined in the Credit Agreement.
B. The Company has requested that the Bank extend the Termination Date
to January 29, 2006, and the Bank is willing to do so under the terms and
conditions set forth in this Amendment.
SECTION 1. AMENDMENT.
Upon satisfaction of the conditions precedent contained in Section 3
below, the definition of Termination Date appearing in Section 4.1 of the
Credit Agreement (Definitions) shall be and hereby is amended and restated in
its entirety to read as follows:
"Termination Date" means January 29, 2006, or such earlier date on
which the Revolving Credit Commitment is terminated in whole
pursuant to Section 3.4, 8.2 or 8.3 hereof.
SECTION 2. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Company hereby represents and warrants to the Bank that each of the
representations and warranties set forth in Section 5 of the Credit Agreement
is true and correct on and as of the date of this Amendment as if made on and
as of the date hereof and as if each reference therein to the Credit
Agreement referred to the Credit Agreement as amended hereby and no Default
or Event of Default exists under the Credit Agreement or shall result after
giving effect to this Amendment.
SECTION 3. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of the following
conditions precedent:
3.1. The Company and the Bank shall have executed and delivered this
Amendment.
3.2. Each Guarantor shall have executed and delivered its consent to
this Amendment in the space provided for that purpose below.
3.3. Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Bank and its counsel.
SECTION 4. MISCELLANEOUS.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each of
which when so executed shall be an original but all of which shall
constitute one and the same instrument. Except as specifically amended and
modified hereby, all of the terms and conditions of the Credit Agreement
and the other Loan Documents shall remain unchanged and in full force and
effect. All references to the Credit Agreement in any document shall be
deemed to be references to the Credit Agreement as reinstated and amended
hereby. All capitalized terms used herein without definition shall have the
same meaning herein as they have in the Credit Agreement. This Amendment
shall be construed and governed by and in accordance with the internal laws
of the State of Illinois.
This Fourth Amendment to Credit Agreement is dated as of the date first above
written.
OIL-DRI CORPORATION OF AMERICA
By /S/ RICHARD PIETROWSKI
Name RICHARD PIETROWSKI
Title TREASURER
HARRIS TRUST AND SAVINGS BANK
By ______________________________
Name _________________________
Title _________________________
GUARANTORS' CONSENT
Each of the undersigned has heretofore guaranteed the due and punctual
payment of all present and future indebtedness of the Company evidenced by
or arising out of the Loan Documents, including, without limitation, all
Obligations, pursuant to Section 9 of the Credit Agreement and hereby
consents to the amendment to the Credit Agreement set forth above and
confirms that all of the obligations of the undersigned thereunder remain
in full force and effect. Each of the undersigned further agrees that the
consent of the undersigned to any further amendments to the Credit
Agreement shall not be required as a result of this consent having been
obtained. Each of the undersigned acknowledges that the Bank is relying on
the assurances provided for herein and entering into this Fourth Amendment
and maintaining credit outstanding to the Borrower under the Credit
Agreement as so amended.
OIL-DRI CORPORATION OF GEORGIA OIL-DRI PRODUCTION COMPANY
By _______________________________ By _______________________________
Name Richard Pietrowski Name Richard Pietrowski
Title Treasurer Title Treasurer
MOUNDS PRODUCTION COMPANY, LLC MOUNDS MANAGEMENT, INC.
By _______________________________ By ______________________________
Name Richard Pietrowski Name Richard Pietrowski
Title Treasurer Title Treasurer
BLUE MOUNTAIN PRODUCTION COMPANY OIL-DRI CORPORATION OF NEVADA
By _______________________________ By ______________________________
Name Richard Pietrowski Name Richard Pietrowski
Title Treasurer Title Treasurer
Exhibit 11:
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
SIX MONTHS ENDED
JANUARY 31
2005 2004
------- -------
Net income available to stockholders $ 3,246 $ 3,446
(numerator) ======= =======
Shares Calculation
(denominator)
Average shares outstanding -
Basic Common 4,054 4,030
Average shares outstanding -
Basic Class B Common 1,451 1,424
Effect of Dilutive Securities:
Potential Common Stock relating
to stock options 467 419
------- -------
Average shares outstanding -
Assuming dilution 5,972 5,873
======= =======
Net Income Per Share:
Basic Common $0.67 $0.68
======= =======
Net Income Per Share:
Basic Class B Common $0.50 $0.51
======= =======
Diluted $0.57 $0.59
======= =======
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 January 31, 2005 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
second 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: March 11, 2005
--------------------------
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, Andrew N. Peterson, 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 January 31, 2005 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
second 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: March 11, 2005
--------------------------
By: /s/ Andrew N. Peterson
--------------------------
Andrew N. Peterson
Vice President and 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 January 31, 2005 (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: March 11, 2005
/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 January 31, 2005 (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: March 11, 2005
/s/ Andrew N. Peterson
- -----------------------------
Name: Andrew N. Peterson
Title: Vice President and 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.