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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, 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 - 5,897,435 Shares (Including 1,903,950 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..............................................22
PART II
ITEM 6: Exhibits.............................................................23
SIGNATURES...................................................................24
EXHIBITS................................................................25 - 32
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
APRIL
30, 2005 JULY 31,
ASSETS (UNAUDITED) 2004
-----------------------
CURRENT ASSETS
Cash and cash equivalents $ 3,711 $ 6,348
Investment in treasury securities 11,974 13,942
Investment in debt securities 1,245 2,779
Accounts receivable, less allowance of $569 and
$608 at April 30, 2005 and July 31, 2004, respectively 23,274 24,169
Inventories 13,490 12,399
Prepaid overburden removal expense 1,308 2,407
Deferred income taxes 2,256 2,330
Prepaid expenses and other assets 4,109 3,607
---------- ----------
TOTAL CURRENT ASSETS 61,367 67,981
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Cost 150,300 145,498
Less accumulated depreciation and amortization (102,590) (97,696)
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT NET 47,710 47,802
---------- ----------
OTHER ASSETS
Goodwill 5,162 5,162
Intangibles, net of accumulated amortization of
$2,941 and $2,611 at April 30, 2005 and
July 31, 2004, respectively 2,075 2,389
Deferred income taxes 1,234 1,556
Other 3,897 3,985
---------- ----------
TOTAL OTHER ASSETS 12,368 13,092
---------- ----------
TOTAL ASSETS $121,445 $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 APRIL 30,
2005 JULY 31,
(UNAUDITED) 2004
-----------------------
CURRENT LIABILITIES
Current maturities of notes payable $ 3,080 $ 4,080
Accounts payable 4,782 5,701
Dividends payable 558 513
Accrued expenses
Salaries, wages and commissions 3,052 4,747
Trade promotions and advertising 3,427 4,715
Freight 1,487 1,088
Other 4,736 6,192
----------- ----------
TOTAL CURRENT LIABILITIES 21,122 27,036
----------- ----------
NONCURRENT LIABILITIES
Notes payable 20,240 23,320
Deferred compensation 3,457 3,455
Other 2,934 2,806
----------- ----------
TOTAL NONCURRENT LIABILITIES 26,631 29,581
----------- ----------
TOTAL LIABILITIES 47,753 56,617
----------- ----------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share,
issued 5,897,435 shares at April 30, 2005
and 5,583,960 shares at July 31, 2004 590 559
Class B Stock, par value $.10 per share,
issued 1,800,083 shares at April 30, 2005
and 1,792,583 shares at July 31, 2004 180 179
Additional paid-in capital 13,430 9,301
Retained earnings 94,511 90,985
Restricted unearned stock compensation (87) (9)
Cumulative translation adjustment (304) (694)
----------- ----------
108,320 100,321
Less Treasury Stock, at cost (1,903,950
Common and 342,241 Class B shares at
April 30, 2005 and 1,538,571 Common and
342,241 Class B shares at July 31, 2004) (34,628) (28,063)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 73,692 72,258
----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $121,445 $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 NINE MONTHS ENDED
APRIL 30
-------------------------
2005 2004
-------------------------
NET SALES $141,851 $140,708
Cost of Sales 110,845 107,569
----------- -----------
GROSS PROFIT 31,006 33,239
Loss on impaired long-lived assets -- (464)
Selling, General and Administrative Expenses (22,920) (24,452)
----------- -----------
INCOME FROM OPERATIONS 8,086 8,323
OTHER INCOME (EXPENSE)
Interest expense (1,332) (1,589)
Interest income 320 144
Other, net 270 206
----------- -----------
TOTAL OTHER EXPENSE, NET (742) (1,239)
----------- -----------
INCOME BEFORE INCOME TAXES 7,344 7,084
Income taxes 1,946 1,814
----------- -----------
NET INCOME 5,398 5,270
RETAINED EARNINGS
Balance at beginning of year 90,985 88,002
Less cash dividends declared and treasury
stock reissuances 1,872 1,536
----------- -----------
RETAINED EARNINGS - APRIL 30 94,511 91,736
=========== ===========
NET INCOME PER SHARE
BASIC COMMON $ 1.05 $ 1.03
=========== ===========
BASIC CLASS B $ 0.79 $ 0.77
=========== ===========
DILUTED $ 0.91 $ 0.89
=========== ===========
AVERAGE SHARES OUTSTANDING
BASIC COMMON 4,049 4,036
=========== ===========
BASIC CLASS B 1,453 1,433
=========== ===========
DILUTED 5,948 5,937
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
APRIL 30
-------------------------
2005 2004
----------- -----------
NET INCOME $ 5,398 $ 5,270
Other Comprehensive Income:
Cumulative Translation Adjustments 390 130
----------- -----------
TOTAL COMPREHENSIVE INCOME $ 5,788 $ 5,400
=========== ===========
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
--------------------------
2005 2004
--------------------------
NET SALES $ 48,249 $ 46,616
Cost of Sales 38,490 35,548
---------- ----------
GROSS PROFIT 9,759 11,068
Selling, General and Administrative Expenses (6,805) (8,304)
---------- ----------
INCOME FROM OPERATIONS 2,954 2,764
OTHER INCOME (EXPENSE)
Interest expense (437) (525)
Interest income 126 61
Other, net 71 (69)
---------- ----------
TOTAL OTHER EXPENSE, NET (240) (533)
---------- ----------
INCOME BEFORE INCOME TAXES 2,714 2,231
Income taxes 742 407
---------- ----------
NET INCOME 1,972 1,824
NET INCOME PER SHARE
BASIC COMMON $ 0.38 $ 0.36
========== ==========
BASIC CLASS B $ 0.29 $ 0.27
========== ==========
DILUTED $ 0.33 $ 0.30
========== ==========
AVERAGE SHARES OUTSTANDING
BASIC COMMON 4,036 4,050
========== ==========
BASIC CLASS B 1,458 1,450
========== ==========
DILUTED 5,950 6,072
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
APRIL 30
--------------------------------
2005 2004
-------------- --------------
NET INCOME $1,972 $1,824
Other Comprehensive Income:
Cumulative Translation Adjustments 99 (68)
-------------- --------------
TOTAL COMPREHENSIVE INCOME $2,071 $1,756
============== ==============
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 2005 2004
---------------------
NET INCOME $ 5,398 $ 5,270
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,635 6,109
Amortization of investment discount (150) (51)
Deferred income taxes 396 --
Provision for bad debts (20) 235
Loss on the sale of property,
plant and equipment 156 733
(Increase) Decrease in:
Accounts receivable 915 75
Inventories (1,091) (1,128)
Prepaid overburden removal expense 1,099 (106)
Prepaid expenses (502) (432)
Other assets (171) 1,753
Increase (Decrease) in:
Accounts payable (177) (1,732)
Accrued expenses (4,040) 2,750
Deferred compensation 2 (41)
Other liabilities 127 277
---------- ----------
TOTAL ADJUSTMENTS 2,179 8,442
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,577 13,712
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Capital expenditures (5,230) (3,722)
Proceeds from sale of property,
plant and equipment 21 530
Purchases of investments in debt securities (250) (5,424)
Maturities of investments in debt securities 1,985 1,961
Purchases of treasury securities (21,393) (37,376)
Dispositions of treasury securities 23,553 35,966
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,314) (8,065)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
-----------------------------------
Principal payments on long-term debt (4,080) (4,000)
Dividends paid (1,647) (1,482)
Purchase of treasury stock (7,082) (1,344)
Proceeds from issuance of treasury stock 258 --
Proceeds from issuance of common stock 3,405 1,207
Other, net 246 72
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (8,900) (5,547)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,637) 100
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,348 4,753
---------- ----------
CASH AND CASH EQUIVALENTS, APRIL 30 $ 3,711 $ 4,853
========== ==========
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 April 30, 2005, the Company
had $1,308,000 of prepaid overburden removal expense recorded on its
consolidated balance sheet. During the first nine months of fiscal 2005, the
Company amortized to current expense approximately $2,154,000 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):
APRIL 30 JULY 31
(UNAUDITED)
-------------------------
2005 2004
-------------------------
Finished goods $ 7,391 $ 7,529
Packaging 4,009 3,130
Other 2,090 1,740
----------- -----------
$13,490 $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 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 April 30, 2005 and July 31, 2004 were $514,000 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 Nine Months Ended
April 30, April 30, April 30, April 30,
2005 2004 2005 2004
Components of net periodic (dollars in thousands) (dollars in thousands)
pension benefit cost
Service cost $ 195 $ 194 $ 589 $ 581
Interest cost 235 227 713 680
Expected return on plan assets (242) (204) (706) (611)
Net amortization 6 21 30 62
----------------------------------------------
$ 194 $ 238 $ 626 $ 712
==============================================
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 made
contributions to the pension plan during the third quarter of the current fiscal
year totaling $560,000. The Company does not expect to make any additional
contributions during the fourth quarter of fiscal 2005.
POST RETIREMENT
HEALTH BENEFITS
Three Months Ended Nine Months Ended
April 30, April 30, April 30, April 30,
2005 2004 2005 2004
Components of net periodic (dollars in thousands) (dollars in thousands)
postretirement benefit cost
Service cost $ 14 $ 14 $ 40 $ 42
Interest cost 11 11 35 33
Amortization of net transition
obligation 4 4 12 12
Net actuarial loss 1 1 1 3
----------------------------------------------
Recognized actuarial loss $ 30 $ 30 $ 88 $ 90
==============================================
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.
In March 2005, the FASB ratified the consensus reached in EITF Issue No. 04-06,
"Accounting for Stripping Costs in the Mining Industry". The consensus will be
effective for the first fiscal period in the fiscal years beginning after
December 15, 2005. The consensus on this issue calls for post-production
stripping costs to be treated as a variable inventory production cost. As a
result, such costs are subject to inventory costing procedures in the period
they are incurred. The Company is currently reviewing this pronouncement, but
believes that the Statement of Cash Flow and the Balance Sheet will 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:
------------------
APRIL 30, JULY 31,
2005 2004
------------------
ASSETS
------------------
(in thousands)
Consumer Products Group.................. $ 53,493 $ 55,240
Specialty Products Group................. 15,297 14,594
Crop Production and Horticultural
Products Group......................... 11,736 11,452
Industrial and Automotive Products Group. 8,121 8,646
Unallocated Assets....................... 32,798 38,943
-------- --------
TOTAL ASSETS............................. $121,445 $128,875
======== ========
--------------------------------------
Nine Months Ended April 30,
--------------------------------------
Net Sales Income
--------------------------------------
2005 2004 2005 2004
-------- -------- -------- --------
(in thousands)
Consumer Products Group.................. $ 86,429 $ 85,521 $11,862 $12,392
Specialty Products Group................. 23,085 20,463 5,509 4,849
Crop Production and Horticultural
Products Group......................... 14,716 17,901 1,357 2,995
Industrial and Automotive Products Group. 17,621 16,823 66 (130)
-------- -------- ------- --------
TOTAL SALES/OPERATING INCOME............. $141,851 $140,708 18,794 20,106
======== ========
Loss on impaired long-lived assets (1)..................... -- (464)
Less:
Corporate Expenses........................................ 10,438 11,113
Interest Expense, net of Interest Income.................. 1,012 1,445
------- --------
INCOME BEFORE INCOME TAXES.................................. 7,344 7,084
Income Taxes................................................ 1,946 1,814
------- --------
NET INCOME.................................................. $ 5,398 $ 5,270
======= ========
(1) See note 6 for a discussion of the loss on long-lived impaired assets.
--------------------------------------
Three Months Ended April 30,
--------------------------------------
Net Sales Income
--------------------------------------
2005 2004 2005 2004
-------- -------- ------- --------
(in thousands)
Consumer Products Group.................. $ 27,820 $ 27,096 $ 3,419 $ 3,697
Specialty Products Group................. 7,772 7,049 1,837 1,545
Crop Production and Horticultural
Products Group......................... 6,706 6,522 881 1,209
Industrial and Automotive Products Group. 5,951 5,949 (49) 96
-------- -------- ------- --------
TOTAL SALES/OPERATING INCOME............. $ 48,249 $ 46,616 6,088 6,547
======== ======== ======= ========
Less:
Corporate Expenses........................................ 3,063 3,852
Interest Expense, net of Interest Income.................. 311 464
------- --------
INCOME BEFORE INCOME TAXES.................................. 2,714 2,231
Income Taxes................................................ 742 407
------- --------
NET INCOME.................................................. $ 1,972 $ 1,824
======= ========
6. LOSS ON IMPAIRED LONG-LIVED ASSETS
During the third 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. The Company has
used the nominal vesting approach for all options, including those that would
have an accelerated vesting feature associated with employee retirement. The
utilization of the nominal vesting approach for the options subject to the
accelerated retirement vesting does not have a material impact on the table
presented below. 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 Model. 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 nine months of fiscal 2005 and 2004 additional
employee compensation expense (net of related tax effect) of approximately
$243,000 and $229,000 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 Nine Months Ended
April 30, April 30,
------------------------------------------------------------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA) 2005 2004 2005 2004
------------------------------------------------------------------------
Reported net income $1,972 $1,824 $5,398 $5,270
Add: Total stock-based 4 5 11 15
employee compensation expense
expense included in net income,
net of related tax effects
Deduct: Total stock-based (103) (81) (254) (244)
employee compensation expense
determined under fair value
method for all awards, net
of related tax effects
------------------------------------------------------------------------
Pro forma net income $1,873 $1,748 $5,155 $5,041
------------------------------------------------------------------------
Earnings per share:
Basic Common - as reported $0.38 $0.36 $1.05 $1.03
Basic Common - pro forma $0.37 $0.34 $1.00 $0.99
------------------------------------------------------------------------
Basic Class B Common - as reported $0.29 $0.27 $0.79 $0.77
Basic Class B Common - pro forma $0.27 $0.26 $0.75 $0.74
------------------------------------------------------------------------
Diluted - as reported $0.33 $0.30 $0.91 $0.89
Diluted - pro forma $0.31 $0.29 $0.87 $0.85
------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 2005 COMPARED TO
NINE MONTHS ENDED APRIL 30, 2004
RESULTS OF OPERATIONS
Consolidated net sales for the nine months ended April 30, 2005 were
$141,851,000, an increase of 0.8% from net sales of $140,708,000 in the first
nine months of fiscal 2004. Net income for the first nine months of fiscal 2005
was $5,398,000, an increase of 2.4% from net income of $5,270,000 earned in the
first nine months of fiscal 2004. Fiscal 2005's net income was positively
impacted by solid sales growth in the Specialty Products and Industrial and
Automotive Products Groups, but negatively impacted by decreased contribution
from the Consumer Products Group and decreased sales and income from the Crop
Production and Horticultural Products Group. The Crop Production and
Horticultural Products Group continued to experience a significant year-to-date
tonnage decline. Sales tonnage for the Consumer and Industrial and Automotive
Groups were relatively flat with last year. A strong tonnage increase was
reported by the Specialty Products Group.
General price increases helped to offset some of the overall volume decline.
However, the substantial sales decline experienced by the Crop Production and
Horticultural Products Group and cost increases in packaging, fuel and freight
have negatively impacted fiscal 2005's results. Positively impacting fiscal
2005's results have been the sales growth in the Specialty Products Group and a
reduction in Selling, General and Administrative expenses. Diluted net income
per share for the first nine months of fiscal 2005 was $0.91 versus $0.89
diluted net income per share reported for the first nine months of fiscal 2004.
Although sales and earnings performance for the first nine months of fiscal 2005
were better than the first nine months of fiscal 2004, they were below the
Company's expectations.
Net sales of the Consumer Products Group for the first nine months of fiscal
2005 were $86,429,000, an increase of 1.1% from net sales of $85,521,000 in the
first nine months of fiscal 2004. This segment's operating income decreased 4.3%
from $12,392,000 in the first nine months of fiscal 2004 to $11,862,000 in the
first nine months of fiscal 2005. Contributing to the profit decline were
increased material, packaging and freight costs. Transportation and
manufacturing fuel costs and resin prices have increased as the cost of oil has
increased. Bag stock costs have also increased as the price of paper has
increased. Overall, volume was relatively flat for the first nine months of
fiscal 2005. Price increases and the addition of a new co-manufacturing customer
helped offset the cost increases in freight, packaging and materials. Also, the
Group reported reduced selling expenses in the areas of advertising and bad
debts expense.
Net sales of the Specialty Products Group for the first nine months of fiscal
2005 were $23,085,000 an increase of 12.8% from net sales of $20,463,000 in the
first nine months of fiscal 2004. This segment's operating income increased
13.6% from $4,849,000 in the first nine months of fiscal 2004 to $5,509,000 in
the first nine months of fiscal 2005. Strong sales growth was seen in bleaching
earth and animal health and nutrition products. The international edible oil
processors started to leverage their buying power for global bleaching earth
contracts in the second quarter. This contractual reduction in selling price
offset some of the gains made in overall tonnage growth.
Net sales of the Crop Production and Horticultural Products Group for the first
nine months of fiscal 2005 were $14,716,000, a decrease of 17.8% from net sales
of $17,901,000 in the first nine months of fiscal 2004. The net sales decrease
resulted from sales declines 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 increasing acceptance of
genetically modified ("GMO") and treated seed in the market. The Crop Production
and Horticultural Products Group anticipated regaining some of its sales
shortfall to date in the fourth quarter of fiscal 2005. In-line with those
beliefs, the Group reported a 2.8% sales increase in the third quarter of fiscal
2005 as compared to the third quarter of fiscal 2004. The significant decrease
in agricultural carrier production, however, also reduced the availability of
the Group's Flo-Fre product line, which in turn caused a further reduction of
net sales. Offsetting these sales and profit declines was a strong sales and
profit increase in the Group's sports field business. The Group's operating
income decreased from $2,995,000 in the first nine months of fiscal 2004 to
$1,357,000 in the first nine months of fiscal 2005. The decrease in operating
income was driven by the decline in agricultural carrier sales described
above.
Net sales of the Industrial and Automotive Products Group for the first nine
months of fiscal 2005 were $17,621,000, an increase of 4.7% from net sales of
$16,823,000 in the first nine months of fiscal 2004. The segment reported an
operating profit of $66,000 for the first nine months of fiscal 2005 compared to
a loss of $130,000 for the nine months of fiscal 2004. Price increases and sales
growth of certain major accounts were the key factors that allowed the Group to
report a profit for the first nine months of fiscal 2005. Transportation and
manufacturing fuel costs and resin prices have increased as the cost of oil has
increased. These cost increases have offset some of the increased selling
prices.
Consolidated gross profit as a percentage of net sales for the first nine months
of fiscal 2005 decreased to 21.9% from 23.6% in the first nine months of fiscal
2004. As discussed above, freight, materials, fuel and packing cost increases in
the Consumer Products and Industrial and Automotive Groups, along with the
significant sales decline in the Crop Production and Horticultural Products
Group, drove the decline in the first nine month's gross profit. Non-fuel
manufacturing costs rose 7.7%, which had a negative impact on gross profit. Part
of the non-fuel manufacturing cost increase was caused by decreased fixed cost
coverage associated with the reduced demand of the Crop Production and
Horticultural Products. The cost of fuel used in the manufacturing processes
increased 2.2% on a full year basis, but 5.5% for the third quarter, despite the
Company's forward purchase program. General price increases positively impacted
the results.
Operating expenses as a percentage of net sales for the first nine months of
fiscal 2005 decreased to 16.2% compared to the 17.7% for the first nine months
of fiscal 2004. Excluding the loss on impaired long-lived assets, the operating
expenses for the first nine months of fiscal 2004 would have been 17.4%. Fiscal
2005 operating expenses have been increased impacted by approximately $622,000
of costs associated with the Company's Sarbanes-Oxley Section 404 readiness
effort, but positively impacted by reductions in advertising and discretionary
bonus expense.
Interest expense was down $257,000 during the time period due to the reduction
in debt. Interest income increased $176,000 from the first nine 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 26.5% of pre-tax income in the first nine
months of fiscal 2005 versus 25.6% in the first nine months of fiscal 2004. The
increase in the effective tax rate for fiscal 2005 was due to the composition of
income and expense.
Total assets of the Company decreased $7,430,000 or 5.8% during the first nine
months of fiscal 2005. Current assets decreased $6,614,000 or 9.7% from fiscal
2004 year-end balances, primarily due to decreases in cash and investment
securities, accounts receivable and prepaid overburden removal expense.
Offsetting these decreases were increases in 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, payment of trade
promotions and the payment of the fiscal 2004 discretionary bonus.
Property, plant and equipment, net of accumulated depreciation, decreased
$92,000 or 0.2% during the first nine months of fiscal 2005.
Total liabilities decreased $8,864,000 or 15.7% during the first nine months of
fiscal 2005. Current liabilities decreased $5,914,000 or 21.9% during the first
nine months of fiscal 2005. The decrease in current liabilities was driven by a
decrease in the current maturities of notes payable, accounts payable, trade
promotions payable, salary and wages payable and other payables. Increases were
seen in freight payable and dividends payable. The decrease in trade promotions
payables was consistent with the previously discussed decrease in advertising
expense 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 decreased $2,950,000 as a portion of the
long-term debt was transferred to current liabilities.
EXPECTATIONS
The Company believes based on the first nine month actual results, that
consolidated net sales for fiscal 2005 will be consistent with or slightly above
fiscal 2004. The Crop Production and Horticultural Products Group anticipates
regaining some of its shortfall to date in the fourth quarter of fiscal 2005.
The Specialty Products Group expects to continue to see positive trends in its
markets. The Company expects to incur substantial cost increases in fuel,
freight, packaging and other commodities, which will offset the positive sales
trends. The Company believes that these cost increases will impact its results
for the full year and therefore updated its earnings guidance in a press release
issued May 26, 2005. The Company now expects earnings to be between $1.00 to
$1.10 per diluted share for the fiscal year ending July 31, 2005.
Although the Company's July 31, 2005 compliance deadline has been extended to
July 31, 2006, 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 decreased $700,000 during the first nine months of fiscal 2005
to $40,245,000, primarily due to decreases in cash and investments, accounts
receivable and prepaid overburden removal expense. These decreases were
partially offset by decreases in current maturities of notes payable, accounts
payable, and most of the accrued expense accounts. The decreases in accounts
receivable and prepaid overburden were driven by process improvements in both
areas. Accounts receivables decreased despite the fact that sales for the third
quarter of fiscal 2005 were up 3.5% as compared to the third quarter of fiscal
2004.
Cash was used during the nine months ended April 30, 2005 to fund capital
expenditures of $5,230,000, to make payments on long-term debt of $4,080,000, to
purchase treasury stock of $7,082,000 and to make dividend payments of
$1,647,000. Cash and investment securities decreased $6,139,000 during the first
nine 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
April 30, 2005 and July 31, 2004 were $3,788,000 and $3,633,000, respectively.
Accounts receivable, less allowance for doubtful accounts was $23,274,000, a
decrease of 3.7% from the July 31, 2004 value of $24,169,000. Accounts
receivable were also lower in terms of days sales outstanding as compared to
July 31, 2004. The sales for the third quarter of fiscal 2005 were $48,249,000,
while the sales for the fourth quarter of fiscal 2004 were $44,803,000.
The table listed below depicts the Company's Contractual Obligations and
Commercial Commitments at April 30, 2005 for the timeframes listed:
CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------
CONTRACTUAL TOTAL LESS THAN 1 - 3 4 - 5 AFTER 5
OBLIGATIONS 1 YEAR YEARS YEARS YEARS
- -------------------- ----------- ----------- ----------- ----------- -----------
Long-Term Debt $23,320,000 $ 3,080,000 $ 8,160,000 $ 7,080,000 $ 5,000,000
Interest on Debt 5,532,000 1,437,000 2,251,000 1,208,000 636,000
Pension & Post 7,437,000 545,000 1,257,000 1,430,000 4,205,000
Retirement Plans
Operating Leases 13,322,000 2,218,000 3,414,000 1,973,000 5,717,000
Unconditional
Purchase Obligations $ 6,806,000 2,965,000 3,841,000 -- --
----------- ----------- ----------- ----------- -----------
Total Contractual
Cash Obligations $56,417,000 $10,245,000 $18,923,000 $11,691,000 $15,558,000
=========== =========== =========== =========== ===========
OTHER COMMERCIAL COMMITMENTS
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
-----------------------------------------------------------
OTHER TOTAL
COMMERCIAL AMOUNTS THAN 1 1 - 3 4 - 5 AFTER 5
COMMITMENTS COMMITTED YEAR YEARS YEARS YEARS
----------- ----------- ----------- ----------- -----------
Standby Letters of
Credit $ 3,270,000 $ 3,270,000 -- -- --
Guarantees 3,695,000 769,000 426,000 2,500,000 --
Other Commercial
Commitments 3,821,000 3,821,000 -- -- --
----------- ----------- ----------- ----------- -----------
Total Commercial
Commitments $10,786,000 $ 7,860,000 $ 426,000 $ 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 third quarter of fiscal 2005 the Company amended the agreement to redefine
the fixed charge coverage ratio and limit capital expenditures through the
termination date of the agreement. As of April 30, 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 April 30, 2005, the
value of these guarantees was $500,000 of short-term liabilities, $695,000 of
lease liabilities and $2,500,000 of long-term debt.
THREE MONTHS ENDED APRIL 30, 2005 COMPARED TO
THREE MONTHS ENDED APRIL 30, 2004
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended April 30, 2005 were
$48,249,000, a 3.5% increase from net sales of 46,616,000 in the third quarter
of fiscal 2004. Net income for the third quarter of fiscal 2005 was $1,972,000,
an increase of 8.1% from $1,824,000 net income earned in the third quarter of
fiscal 2004. Fiscal 2005's third quarter net income was positively impacted by
improved quarterly sales and income from the Specialty Products Group, but
negatively impacted by income declines in the Consumer, Industrial and
Automotive and Crop Production and Horticultural Products Groups. Income was
also positively impacted by a reduction of the Selling and General
Administrative expense area. Diluted net income per share for the third quarter
of fiscal 2005 was $0.33 versus $0.30 diluted net income per share reported for
the third quarter of fiscal 2004.
Net sales of the Consumer Products Group for the third quarter of fiscal 2005
were $27,820,000, an increase of 2.7% from net sales of $27,096,000 in the third
quarter of fiscal 2004. This segment's operating income decreased 7.5% from
$3,697,000 in the third quarter of fiscal 2004 to $3,419,000 in the third
quarter of fiscal 2005. The Group experienced increases in packaging, freight
and manufacturing fuel costs. Increases were seen in both paper and resin based
packaging costs. Freights costs were driven up by the increases in diesel fuel.
Reductions in trade promotions and advertising offset most of the cost
increases. The third quarter of fiscal 2004 experienced elevated advertising and
trade spending expenses associated with the introduction of new products and for
packaging redesign costs.
Net sales of the Specialty Products Group for the third quarter of fiscal 2005
were $7,772,000, an increase of 10.3% from net sales of $7,049,000 in the third
quarter of fiscal 2004. This segment's operating income increased 18.9% from
$1,545,000 in the third quarter of fiscal 2004 to $1,837,000 in the third
quarter of fiscal 2005. The Group reported strong sales growth in its bleaching
earth and animal health and nutrition product lines during the quarter.
Net sales of the Crop Production and Horticultural Products Group for the third
quarter of fiscal 2005 were $6,706,000, an increase of 2.8% from net sales of
$6,522,000 in the third quarter of fiscal 2004. The net sales increase was
driven by improved sports field product sales offset somewhat by sales declines
to the major agricultural chemical formulators, primarily those formulating
chemicals to combat corn rootworm. The segment's operating income decreased from
$1,209,000 in the third quarter of fiscal 2004 to $881,000 in the third quarter
of fiscal 2005. The decrease in operating income was driven once by the
decline in agricultural carrier sales and by increased freight costs.
Net sales of the Industrial and Automotive Products Group for the third quarter
of fiscal 2005 were $5,951,000, while the net sales in the third quarter of
fiscal 2004 were $5,949,000. The segment reported operating loss of $49,000 for
the third quarter of fiscal 2005 compared to an operating income of $96,000 in
the third quarter of fiscal 2004. Manufacturing and packaging cost increases in
the third quarter of fiscal 2005 exceeded the general price increases gained by
the Group.
Consolidated gross profit as a percentage of net sales for the third quarter of
fiscal 2005 decreased to 20.2% from 23.7% in the third quarter of fiscal 2004.
Freight, materials, fuel and packing cost increases in the Consumer Products and
Industrial and Automotive Groups, help drive the decline in the third quarter's
gross profit. Non-fuel manufacturing costs rose 8.0% which also had a negative
impact on gross profit. Part of the non-fuel manufacturing cost increase was
caused by decreased fixed cost coverage associated with the reduced demand for
the agricultural carrier products. The cost of fuel used in the manufacturing
processes increased 5.5% for the third quarter, despite the Company's forward
purchase program. General price increases positively impacted the results.
Operating expenses as a percentage of net sales for the third quarter of fiscal
2005 decreased to 14.1% compared to the 17.8% for the third quarter of fiscal
2004. The third quarter of fiscal 2005's operating expenses were positively
impacted by reductions in discretionary bonus and advertising expenses.
Interest expense was down $88,000 during the third quarter due to the reduction
in debt. Interest income increased $65,000 from the third 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 27.3% of pre-tax income in the third
quarter of fiscal 2005 versus 18.2% in the third quarter of fiscal 2004. The
increase in the effective tax rate for fiscal 2005 was due to the composition of
income and expense.
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.
In March 2005, the FASB ratified the consensus reached in EITF Issue No. 04-06,
"Accounting for Stripping Costs in the Mining Industry". The consensus will be
effective for the first fiscal period in the fiscal years beginning after
December 15, 2005. The consensus on this issue calls for post-production
stripping costs to be treated as a variable inventory production cost. As a
result, such costs are subject to inventory costing procedures in the period
they are incurred. The Company is currently reviewing this pronouncement, but
believes that the Statement of Cash Flow and the Balance Sheet will be impacted
by this new pronouncement.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the nine months ended
April 30, 2005 were $10,998,000 or 7.8% of total Company sales. This represents
an increase of 7.6% from the first nine months of fiscal 2004, in which foreign
subsidiary sales were $10,217,000 or 7.3% of total Company sales. This increase
in sales was seen in both our UK and Canadian operations, however the Canadian
operation has experienced the larger increase. The revenue increase was offset
by increased material, freight and packaging costs, especially in Canada. The
foreign operations are experiencing some of the same adverse cost trends as the
domestic operations. For the nine months ended April 30, 2005, the foreign
subsidiaries reported net income of $311,000, a reduction of $391,000 from the
$702,000 income reported in the first nine months of fiscal 2004.
Identifiable assets of the Company's foreign subsidiaries as of April 30, 2005
were $12,148,000 compared to $11,209,000 as of April 30, 2004. The increase was
driven by increased investments and additional property, plant and equipment.
Net sales by the Company's foreign subsidiaries during the third quarter of
fiscal 2005 were $3,728,000 or 7.7% of total Company sales. This represents an
increase of 6.4% from the third quarter of fiscal 2004, in which foreign
subsidiary sales were $3,503,000 or 7.5% of total Company sales. For the third
quarter of fiscal 2005, the foreign subsidiaries reported net income of $63,000,
a reduction of $256,000 from the $319,000 income reported in the third quarter
of fiscal 2004. The revenue increase was offset by increased material, freight
and packaging costs, especially in Canada.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following chart summarizes Common Stock repurchases for the three months
ended April 30, 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 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, 2005 PURCHASED PER SHARE OR PROGRAMS PLANS OR PROGRAMS
- -------------------------------------------------------------------------------
February 1, 2005
to February 28, 2005 -- $ 0.00 -- 450,804
- -------------------------------------------------------------------------------
March 1, 2005 to
March 31, 2005 142,900 $18.69 142,900 307,904
- -------------------------------------------------------------------------------
April 1, 2005 to
April 30, 2005 25,000 $18.55 25,000 282,904
- -------------------------------------------------------------------------------
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
April 30, 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
April 30, 2004, the Company had contracted for a portion of its fuel needs for
fiscal 2005 and 2006 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. The weighted average cost of the 2006 contracts has been estimated to be
approximately 22.0% higher than the contracts for fiscal 2005. 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 tables present the notional
amounts in MMBtu's, the weighted average contract prices, and the total dollar
contract amount, which will mature by July 31, 2005 and July 31, 2006. 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 13, 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
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
COMMODITY PRICE SENSITIVITY
NATURAL GAS FUTURE CONTRACTS
FOR THE YEAR ENDING JULY 31, 2006
- -------------------------------------------------------------------------
Expected 2006 Fair
Maturity Value
- -------------------------------------------------------------------------
Natural Gas Future Volumes (MMBtu) 490,000 --
Weighted Average Price (Per MMBtu) $ 7.70 --
Contract Amount ($ U.S., in thousands) $3,773.7 $3,513.8
- -------------------------------------------------------------------------
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 and 2006 financial results are difficult
to make due to the inherent uncertainty of future fluctuations in option
contract prices in the natural gas options market.
ITEM 4. CONTROLS AND PROCEDURES
(a) Based on their evaluation within 90 days prior to the filing date of
this Quarterly Report on Form 10-Q, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures as defined in Rule 13a-14(c) under
the Securities Exchange Act of 1934, as amended, are effective for
gathering, analyzing, and disclosing the information the Company is
required to disclose in reports filed under the Act.
(b) There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls since
the date of last evaluation of those internal controls.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
Exhibit 10(o)(4): Fifth Amendment, dated March 29, 2005, 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: June 9, 2005
EXHIBITS
Exhibit 10(o) (4): Fifth Amendment, dated March 29, 2005, 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) (4):
FIFTH AMENDMENT TO CREDIT AGREEMENT
This Fifth Amendment to Credit Agreement (the "AMENDMENT") dated as of
February __, 2005, between Oil-Dri Corporation of America (the "COMPANY") and
Harris Trust and Savings Bank (the "BANK").
PRELIMINARY STATEMENTS
A. The Company and the Bank are parties to a Credit Agreement dated as of
January 29, 1999, as amended (the "CREDIT AGREEMENT"). All capitalized terms
used herein without definition shall have the same meanings herein as such terms
are defined in the Credit Agreement.
B. The Company has requested that the Bank amend the Fixed Charge Coverage
Ratio and add a new Consolidated Capital Expenditures covenant, and the Bank is
willing to do so under the terms and conditions set forth in this Amendment.
SECTION 1. AMENDMENTS.
Upon satisfaction of the conditions precedent contained in Section 3
below, the Credit Agreement shall be and hereby is amended as follows:
1.1. The definition of "Year 2000 Problem" set forth in Section 4.1 of
the Credit Agreement (Definitions) and Section 5.18 of the Credit
Agreement ("Year 2000 Compliance") shall each be deleted in their
entirety.
1.2. Section 7.9 of the Credit Agreement (Fixed Charge Coverage Ratio)
shall be amended and restated in its entirety to read as follows:
SECTION 7.9. FIXED CHARGE COVERAGE RATIO. The Company will, as
of the last day of each fiscal quarter of the Company, maintain a
ratio of (a) Consolidated EBITDA for the four fiscal quarters then
ended minus interest income of the Company and its Subsidiaries for
the same period, all as computed on a consolidated basis in
accordance with GAAP, to (b) the sum of (i) Interest Expense for the
same period of four fiscal quarters then ended, plus (ii) Current
Debt Maturities during the same period of four fiscal quarters then
ended, plus (iii) federal, state and local income taxes of the
Company and its Subsidiaries for the same period of four fiscal
quarters then ended, plus (iv) any dividend or any other distribution
made by the Company and its Subsidiaries in respect of any class or
series of its capital stock or other equity interests during the same
period of four fiscal quarters then ended, of not less than 1.40 to
1.0.
1.3. Section 7.19 of the Credit Agreement (Year 2000 Assessment) shall
be deleted in its entirety and the following Section 7.19 (Consolidated
Capital Expenditures) shall be inserted in lieu thereof:
SECTION 7.19. CONSOLIDATED CAPITAL EXPENDITURES. The Company
shall not permit Consolidated Capital Expenditures to be incurred
(whether by the Company or any Subsidiary) in excess of $12,000,000
in the aggregate from January 1, 2005, through and including the
Termination Date.
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 Fifth Amendment to Credit Agreement is dated as of the date first
above written.
OIL-DRI CORPORATION OF AMERICA
By
Name___________________________
Title__________________________
HARRIS TRUST AND SAVINGS BANK
By
Name___________________________
Title__________________________
GUARANTORS' REAFFIRMATION AND 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 as 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 Fifth 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________________________ Name___________________________
Title_______________________ Title__________________________
MOUNDS PRODUCTION COMPANY, LLC MOUNDS MANAGEMENT, INC.
By Mounds Management, Inc.
Its Managing Member
By_____________________________ By_______________________________
Name________________________ Name___________________________
Title_______________________ Title__________________________
BLUE MOUNTAIN PRODUCTION COMPANY OIL-DRI CORPORATION OF NEVADA
By_____________________________ By_______________________________
Name________________________ Name___________________________
Title_______________________ Title__________________________
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
2005 2004
---- ----
Net income available to stockholders $ 5,398 $ 5,270
(numerator) ======= =======
Shares Calculation
(denominator)
Average shares outstanding -
Basic Common 4,049 4,036
Average shares outstanding -
Basic Class B Common 1,453 1,433
Effect of Dilutive Securities:
Potential Common Stock relating
to stock options 446 468
------- -------
Average shares outstanding -
Assuming dilution 5,948 5,937
======= =======
Net Income Per Share:
Basic Common $1.05 $1.03
===== =====
Net Income Per Share:
Basic Class B Common $0.79 $0.77
===== =====
Diluted $0.91 $0.89
===== =====
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, 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 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, 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
April 30, 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 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, 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 April 30, 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: June 9, 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 April 30, 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: June 9, 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.