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, 2001
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
CHICAGO, ILLINOIS 60611-4213
-------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
The Registrant's telephone number, including area code: (312) 321-1515
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,470,435 Shares (Including 1,278,769 Treasury Shares)
Class B Stock - 1,765,083 Shares (Including 342,241 Treasury Shares)
2
CONTENTS
PART I PAGE
ITEM 1: Financial Statements And Supplementary Data........................3
ITEM 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations.....................................14
ITEM 3: Quantitative And Qualitative Disclosures About Market Risk........18
PART II
ITEM 6: Exhibits And Reports on Form 8-K..................................19
SIGNATURES................................................................20
3
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
---------------------
APRIL 30 JULY 31
2001 2000
---------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 396 $ 1,388
Investment Securities 1,230 1,219
Accounts Receivable, less allowance of $1,102
and $836 at April 30, 2001 and July 31, 2000,
respectively 24,800 24,438
Non-recurring Fee Receivable 4,278 --
Inventories 15,744 16,928
Income taxes receivable 1,210 2,267
Prepaid Expenses 7,897 7,719
--------- --------
TOTAL CURRENT ASSETS $ 55,555 $ 53,959
--------- --------
PROPERTY, PLANT AND EQUIPMENT - AT COST
Cost 138,574 135,645
Less Accumulated Depreciation and Amortization (81,740) (76,033)
---------- ---------
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 56,834 $ 59,612
--------- --------
OTHER ASSETS
Goodwill & Intangibles, net of accumulated
amortization of $3,395 and $2,664 at April 30,
2001 and July 31, 2000, respectively 9,866 10,324
Deferred Income Taxes 2,606 2,606
Other 5,850 6,343
--------- --------
TOTAL OTHER ASSETS $ 18,322 $ 19,273
--------- --------
TOTAL ASSETS $ 130,711 $132,844
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
4
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
------------------------
LIABILITIES & STOCKHOLDERS' EQUITY APRIL 30 JULY 31
2001 2000
------------------------
CURRENT LIABILITIES
Current Maturities of Notes Payable $ 2,150 $ 1,750
Accounts Payable 2,986 4,804
Dividends Payable 473 473
Accrued Expenses 11,485 8,057
-------- --------
TOTAL CURRENT LIABILITIES 17,094 15,084
-------- --------
NONCURRENT LIABILITIES
Notes Payable 34,907 39,434
Deferred Compensation 2,708 3,112
Other 2,437 2,250
-------- --------
TOTAL NONCURRENT LIABILITIES 40,052 44,796
-------- --------
TOTAL LIABILITIES 57,146 59,880
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share, issued
5,470,435 shares at April 30 and July
31, 2000 547 547
Class B Stock, par value $.10 per share, issued
1,765,083 shares at April 30, 2001 and July
31, 2000 177 177
Additional Paid-In Capital 7,667 7,698
Retained Earnings 91,416 90,757
Restricted Unearned Stock Compensation (33) (10)
Cumulative Translation Adjustment (1,388) (1,310)
------ ------
98,386 97,859
Less Treasury Stock, at cost (1,278,769 Common
shares and 342,241 Class B shares at April 30,
2001, and 1,283,769 Common shares and 342,241
Class B shares at July 31, 2000) (24,821) (24,895)
--------- --------
TOTAL STOCKHOLDERS' EQUITY 73,565 72,964
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 130,711 $ 132,844
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
5
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
-------------------------
2001 2000
(RESTATED)
-------------------------
NET SALES $ 131,850 $ 133,033
Cost Of Sales 99,055 95,308
--------- ---------
GROSS PROFIT 32,795 37,725
Selling, General And Administrative Expenses 32,304 32,552
Non-recurring Fee (4,278) --
Restructuring Charge -- 1,239
--------- ---------
INCOME FROM OPERATIONS 4,769 3,934
OTHER INCOME (EXPENSE)
Interest Expense (2,228) (2,409)
Interest Income 200 164
Other, Net 69 339
--------- ---------
TOTAL OTHER EXPENSE, NET (1,959) (1,906)
--------- ---------
INCOME BEFORE INCOME TAXES 2,810 2,028
Income Taxes 732 588
--------- ---------
NET INCOME 2,078 1,440
RETAINED EARNINGS
Balance at Beginning of Year 90,757 90,430
Less Cash Dividends Declared 1,419 1,427
--------- ---------
RETAINED EARNINGS - APRIL 30 $ 91,416 $ 90,443
========= =========
NET INCOME PER SHARE
BASIC $ 0.37 $ 0.25
========= =========
DILUTIVE $ 0.37 $ 0.25
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,612 5,660
======= =======
DILUTIVE 5,612 5,736
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
6
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
-------------------------
FOR THE NINE MONTHS ENDED
APRIL 30
-------------------------
2001 2000
(RESTATED)
-------------------------
NET INCOME $ 2,078 $ 1,440
OTHER COMPREHENSIVE INCOME:
Cumulative Translation Adjustments (78) (79)
-------- --------
TOTAL COMPREHENSIVE INCOME $ 2,000 $ 1,361
======== ========
The accompanying notes are an integral part of the consolidated financial
statements
7
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
-------------------------
2001 2000
(RESTATED)
-------------------------
NET SALES $ 42,093 $ 42,604
Cost Of Sales 32,080 30,543
--------- ---------
GROSS PROFIT 10,013 12,061
Selling, General And Administrative Expenses 11,154 10,652
Non-recurring Fee (4,278) --
---------- ---------
INCOME (LOSS) FROM OPERATIONS 3,137 1,409
OTHER INCOME (EXPENSE)
Interest Expense (714) (786)
Interest Income 42 55
Other, Net 114 111
--------- ---------
TOTAL OTHER EXPENSE, NET (558) (620)
--------- ---------
INCOME BEFORE INCOME TAXES 2,579 789
Income Tax 673 229
--------- ---------
NET INCOME 1,906 560
========= =========
NET INCOME PER SHARE
BASIC 0.34 0.10
========= =========
DILUTIVE 0.34 0.10
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,614 5,610
========= =========
DILUTIVE 5,614 5,611
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
8
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
-------------------------
FOR THE NINE MONTHS ENDED
APRIL 30
-------------------------
2001 2000
(RESTATED)
-------------------------
NET INCOME $ 1,906 $ 560
OTHER COMPREHENSIVE INCOME:
Cumulative Translation Adjustments (33) (66)
------- -------
TOTAL COMPREHENSIVE INCOME $ 1,873 $ 494
======= =======
The accompanying notes are an integral part of the consolidated financial
statements
9
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
-------------------------
FOR THE NINE MONTHS ENDED
APRIL 30
-------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES (RESTATED)
- ------------------------------------ -------------------------
NET INCOME $ 2,078 $ 1,440
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 6,860 6,792
Non-Cash Restructuring Charge -- 1,039
Provision for Bad Debts 120 102
(Increase) Decrease in:
Accounts Receivable (482) 868
Non-recurring Fee Receivable (4,278) --
Inventories 1,183 (2,672)
Prepaid Expenses and Taxes 878 (1,531)
Deferred Income Taxes -- 4
Other Assets 428 (1,335)
Increase (Decrease) in:
Accounts Payable (1,817) 160
Accrued Expenses 3,527 (1,495)
Deferred Compensation (404) (131)
Special Charge Reserve (100) --
Other 187 (197)
-------- --------
TOTAL ADJUSTMENTS 6,102 1,604
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,180 3,044
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (4,108) (4,888)
Proceeds from Sale of Property, Plant and 288 12
Equipment
Purchases of Investment Securities (1,230) (1,219)
Dispositions of Investment Securities 1,220 1,225
Other 245 (9)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,585) (4,879)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (4,127) (4,326)
Proceeds from Issuance of Long-Term Debt -- 6,013
Dividends Paid (1,419) (1,438)
Purchases of Treasury Stock -- (1,727)
Other (41) (61)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING (5,587) (1,539)
-------- --------
ACTIVITIES
NET DECREASE IN CASH AND CASH EQUIVALENTS (992) (3,374)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,388 4,362
-------- --------
CASH AND CASH EQUIVALENTS, APRIL 30 $ 396 $ 988
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
11
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, 2000, included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions are eliminated.
The unaudited financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the statements
contained herein.
Certain items in prior year financial statements have been reclassified to
conform to the presentation used in fiscal 2001.
2. RESTATEMENT
On July 24, 2000 Oil-Dri Corporation of America filed a report on Form 8-K with
the Securities and Exchange Commission which disclosed that reported financial
results for each of the first three quarters of its fiscal year ending July 31,
2000 would be restated. The filing reported that the Company had not recognized
the impact on pricing and promotional allowances caused when a customer changed
from buying directly from Oil-Dri to purchasing through wholesalers.
Additionally, a review of trade spending showed that the Company's accruals for
marketing expenses should be increased. Both of these items impacted the
Consumer Products segment. The restatement had the effect of decreasing net
sales by $176,000, income before tax by $526,000, net income by $374,000, and
basic and diluted net income per share by $0.07 for the three months ended April
30, 2000. For the nine months ended April 30, 2000, the restatement had the
effect of reducing net sales by $799,000, income before tax by $1,849,000, net
income by $1,313,000, and basic and fully diluted net income per share by $0.24
and $0.23, respectively. At April 30, 2000, the restatement increased accrued
expenses, net of the related income tax reduction, by $514,000 and decreased
accounts receivable and retained earnings by $799,000 and $1,313,000,
respectively.
3. NON-RECURRING FEE
Included in current year income from operations for both the third quarter and
year-to-date is non-recurring fee income of $4,278,000, which resulted from the
early termination of a supply agreement. The non-recurring fee income was also
established as a receivable value during the third quarter. Therefore, the fee
income had a neutral cash flow impact for the third quarter and year-to-date.
11
4. RESTRUCTURING CHARGE
During the second quarter of fiscal 2000, the Company recorded a pre-tax
restructuring charge of $1,239,000 against income from operations, as follows:
Severance costs $ 604,000
Non-performing asset 635,000
----------
Restructuring charge $1,239,000
==========
The severance costs were related to a realignment of the Company's personnel
costs to bring them more in line with sales and profitability. The majority of
the positions terminated were at the selling, general and administrative level.
The net book value of the non-performing asset consisted of specific production
equipment that was idled. The equipment had been used in the Crop Production and
Horticultural Products segment. Because management does not rely on segment
asset allocation, information regarding the results of operations for this
specific asset cannot be identified. However, the results are included in cost
of sales.
5. INVENTORIES
The composition of inventories is as follows (in thousands):
-------------------------
APRIL 30 JULY 31
(UNAUDITED) (AUDITED)
-------------------------
2001 2000
-------------------------
Finished goods $ 9,338 $10,251
Packaging 4,336 5,273
Other 2,070 1,404
-------- --------
$ 15,744 $ 16,928
======== ========
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
6. NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In
June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, "Accounting for Derivative Instruments and Hedging Activities
an amendment of FASB Statement No. 133," ("SFAS No. 138") which amended
SFAS No. 133 and added guidance for certain derivative instruments and
hedging activities. The new standard, SFAS No. 133 as amended by SFAS
No. 138, requires recognition of all derivatives as either assets or
liabilities at fair value. One of the primary amendments to SFAS No.
133, which is covered by SFAS No. 138, establishes a "normal purchases
and normal sales" exception. This exception permits companies to
exclude contracts which provide for the purchase or sale of something
other than a financial derivative instrument that will be delivered in
quantities expected to be used or sold by the entity over a reasonable
period of time in the normal course of business operations. The
Company adopted SFAS No. 133 as amended by SFAS No. 138 effective
October 31, 2000. The Company has forward purchase contracts for
certain natural gas commodities that qualify for the "normal purchase"
exception provisions of SFAS No. 138. The adoption of SFAS No. 133 as
amended by SFAS No. 138 had no material effect on either the financial
position or results of operations.
12
In May 2000, the Emerging Issues Task Force (EITF) issued its conclusion on EITF
No. 00-14, "Accounting for Certain Sales Incentives." The EITF concluded that
certain coupon expenses should be reported as a reduction of sales rather than a
marketing expense. The Company is currently required to adopt this change by
July 2001 and restate prior periods. When adopted, the Company's net sales will
be reduced by certain sales incentives, resulting in lower net sales and a
corresponding reduction in merchandising expenses. The amount of the
reclassification has not been finalized but is not expected to have a material
impact upon the Company's financial statements.
7. 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 Specialty
Products Group was previously described as the Fluids Purification Products
Group, and the Crop Production and Horticultural Products Group was described as
the Agricultural Products Group. In addition, certain businesses were
transferred between the Crop Production and Horticultural Products Group and the
Specialty Products Group as described below.
The accounting policies of the segments are the same as those described in Note
1 of the Company's Annual Report for the year ended July 31, 2000 on Form 10-K
filed with the Securities and Exchange Commission.
Because management does not rely on segment asset allocation, information
regarding segment assets is not meaningful and therefore is not reported.
13
-------------------------------------
Nine Months Ended April 30
-------------------------------------
Net Sales Operating Income
-------------------------------------
2001 2000 2001 2000
(restated) (restated)
-------------------------------------
(in thousands)
Consumer Products Group................. $ 85,500 $ 86,612 $ 6,005 $10,425
Specialty Products Group................ 18,061 19,319(2) 2,438 3,1422
Crop Production and Horticultural
Products Group........................ 13,630 13,193(2) 1,795 1,871(2)
Industrial and Automotive Products
Group................................. 14,659 13,909 647 819
-------- --------- -------- -------
TOTAL SALES/OPERATING INCOME............ $131,850 $133,033 $10,885 $16,257
======== ======== ------- -------
Non-recurring Fee(3)....................................... 4,278 --
Less:
Special Charge(1) -- 1,239
Corporate Expenses....................................... 10,326 10,745
Interest Expense, net of Interest Income................. 2,027 2,245
------- -------
INCOME BEFORE INCOME TAXES................................. 2,810 2,028
------- -------
Income Taxes............................................... 732 588
------- -------
NET INCOME................................................. $ 2,078 $ 1,440
======= =======
-------------------------------------
Quarter Ended April 30
-------------------------------------
Net Sales Operating Income
-------------------------------------
2001 2000 2001 2000
(restated) (restated)
-------------------------------------
(in thousands)
Consumer Products Group................. $ 25,508 $ 26,418 $ 853 $ 2,615
Specialty Products Group................ 5,937 5,843(2) 560 808(2)
Crop Production and Horticultural
Products Group........................ 5,590 5,500(2) 975 1,005(2)
Industrial and Automotive Products
Group................................. 5,058 4,843 261 282
-------- ------- ------- --------
TOTAL SALES/OPERATING INCOME............ $ 42,093 $42,604 $ 2,649 $ 4,710
======== ======== ------- --------
Non-recurring Fee(3)....................................... 4,278 --
Less:
Corporate Expenses....................................... 3,678 3,190
Interest Expense, net of Interest Income................. 671 731
------- -------
INCOME BEFORE INCOME TAXES................................. 2,578 789
Income Taxes............................................... 672 229
------- -------
NET $ 1,906 $ 560
======= =======
1. See Note 4 for a discussion of the special charge recorded in fiscal
2000.
2. Includes reclassification of animal health and nutrition products from the
Crop Production and Horticultural Products Group to the Specialty Products
Group to take advantage of international opportunities and spread the
time-intensive burden of new product and market development between the
business units.
3. See Note 3 for a discussion of the non-recurring fee income recorded
in fiscal 2001.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 2001 COMPARED TO
NINE MONTHS ENDED APRIL 30, 2000 (RESTATED)
RESULTS OF OPERATIONS
Consolidated net sales for the nine months ended April 30, 2001 were
$131,850,000, a decrease of 0.9% from net sales of $133,033,000 in the first
nine months of fiscal 2000. Net income for the first nine months of fiscal 2001
was $2,078,000, an increase of 44.3% from $1,440,000 earned in the first nine
months of fiscal 2000. Fiscal 2001 income was positively impacted by $4,278,000
of non-recurring fee income, while being negatively impacted by $920,000 of
charges covering developmental costs and several capital asset programs that the
Company no longer intends to pursue in their original form. Basic and diluted
net income per share for the first nine months of fiscal 2001 was $0.37 versus
$0.25 basic and diluted net income per share earned in the first nine months of
fiscal 2000.
Net sales of the Consumer Products Group for the first nine months of fiscal
2001 were $85,500,000, a decrease of 1.3% from net sales of $86,612,000 in the
first nine months of fiscal 2000. This segment's operating income decreased
42.4% from $10,425,000 in the first nine months of fiscal 2000 to $6,005,000 in
the first nine months of fiscal 2001 due to a reduction of gross profit for our
mass merchandiser customers and Oil-Dri Canada. The reduction of gross profit
was caused by unfavorable product mix weighted heavily towards private label
versus branded cat litter products, the deterioration of distribution of paper
cat litter items, and higher material and transportation costs in the U.S. and
Canada. Also, fuel cost increases have had a negative impact on the income of
the entire Consumer Products Group.
Net sales of the Specialty Products Group for the first nine months of fiscal
2001 were $18,061,000, a decrease of 6.5% from net sales of $19,319,000 in the
first nine months of fiscal 2000. This segment's operating income decreased
22.4% from $3,142,000 in the first nine months of fiscal 2000 to $2,438,000 in
the first nine months of fiscal 2001 due to the gross profit implications of
reduced sales of our PURE-FLO(R) bleaching clays, increased fuel costs,
unfavorable foreign exchange rates and a one-time, pre-tax charge of $410,000
related to the exit the Rheological Products business and the write-off of
developmental work. Fiscal year 2000 net sales and operating income reflect a
reclassification of $1,799,000 and $14,000 respectively for Animal Health and
Nutrition products and customers moved from the Crop Production and
Horticultural Products segment to the Specialty Products segment.
Net sales of the Crop Production and Horticultural Products Group for the first
nine months of fiscal 2001 were $13,630,000, an increase of 3.3% from net sales
of $13,193,000 in the first nine months of fiscal 2000, led primarily by an
increase in sports field products. Crop Production and Horticultural Products'
operating income decreased 4.1% from $1,871,000 in the first nine months of
fiscal 2000 to $1,795,000 in the first nine months of fiscal 2001 due to fuel
cost increases.
Net sales of the Industrial and Automotive Products Group for the first nine
months of fiscal 2001 were $14,659,000, an increase of 5.4% from net sales of
$13,909,000 in the first nine months of fiscal 2000 due to pricing action taken
by this group. Industrial and Automotive Products' operating income decreased
21.0% from $819,000 in the first nine months of fiscal 2000 to $647,000 in the
first nine months of fiscal 2001 due to increased fuel and material costs.
15
Consolidated gross profit as a percentage of net sales for the first nine months
of fiscal 2001 decreased to 24.9% from 28.4% in the first nine months of fiscal
2000 due to an increase in the cost of fuel to operate our manufacturing plants
and distribution processes, and fierce competition and unfavorable mix issues in
the consumer cat litter market. The Company experienced a $2,672,000 fuel cost
increase to process our clays over the first nine months of fiscal 2000.
Operating expenses as a percentage of net sales for the first nine months of
fiscal 2001 decreased to 24.5% from 25.4% in the first nine months of fiscal
2000 due to a reduction in corporate expenses, largely attributable to the
fiscal 2000 restructuring expenses.
Interest expense and interest income for the first nine months of fiscal 2001
were better by $217,000 from fiscal 2000, due to lower levels of debt.
The Company's effective tax rate was 26.0% of pre-tax income in the first nine
months of fiscal 2001 versus 29.0% in the first nine months of fiscal 2000.
Total assets of the Company decreased $2,133,000 or 1.6% during the first nine
months of fiscal 2001. Current assets increased $1,596,000 or 3.0% from fiscal
2000 year-end balances primarily due to increased accounts receivable associated
with the non-recurring fee income. Property, plant and equipment, net of
accumulated depreciation, decreased $2,778,000 or 4.7% during the first nine
months as depreciation expense exceeded capital expenditures.
Total liabilities decreased $2,734,000 or 4.6% during the first nine months of
fiscal 2001. Current liabilities increased $2,010,000 or 13.3% from fiscal 2000
year-end balances due to increases in fuel purchases, trade promotions and
advertising and current debt maturities.
EXPECTATIONS
The Company anticipates that fourth quarter sales will be flat to slightly down
compared to the same quarter a year ago. The Company is focused on increasing
the quality and productivity of its processes, which will contribute to
profitability in both the next quarter and over the long term. The Company has
implemented price increases to pass some of its rising costs along to its
customers and help improve margins in the future.
Fluctuations in natural gas and other fuel prices will continue to have a very
significant impact on the Company's earnings. The Company has contracted for a
major portion of fuel needs for fiscal 2002. While this will reduce the
volatility in fuel prices, the weighted average cost of these contracts will be
consistent with the increased prices paid in fiscal 2001. At this point, it is
difficult to forecast the Company's fully diluted earnings per share beyond a
broad range of $0.20 to $0.37 per diluted share for the fiscal year.
16
LIQUIDITY AND CAPITAL RESOURCES
The current ratio decreased to 3.3:1 at April 30, 2001 from 3.6:1 at July 31,
2000. Working capital decreased $414,000 during the first nine months of fiscal
2001 to $38,461,000, primarily due to higher accrued expenses, offset by higher
receivables. During the first nine months of fiscal 2001, the balances of cash,
cash equivalents and investment securities decreased $981,000.
Cash provided by operating activities was used to fund capital expenditures of
$3,820,000, payments on long-term debt of $4,127,000 and dividend payments of
$1,419,000. Total cash and investment balances held by the Company's foreign
subsidiaries at April 30, 2001 and July 31, 2000 were $2,151,000 and $2,366,000,
respectively.
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. The credit agreement
contains restrictive covenants that, among other things and under various
conditions, limit the Company's ability to incur additional indebtedness, to
acquire (including a limitation on capital expenditures) or dispose of assets
and to pay dividends.
The Company believes that cash flow from operations and availability under its
revolving credit facility will provide adequate funds for foreseeable working
capital needs, capital expenditures at existing facilities and debt service
obligations. However, new facility construction is anticipated to require
additional borrowings of a long-term nature outside the existing credit
facility.
The Company's ability to fund operations, make planned capital expenditures,
including new facility construction, to make scheduled debt payments and to
remain in compliance with all of the financial covenants under debt agreements
depends on its future operating performance, which, in turn, is subject to
prevailing economic conditions and to financial, business and other factors.
The Company entered into an amendment with Teachers Insurance and Annuity
Association and CIGNA Investments, Inc. to amend its Note Purchase Agreement
dated as of April 15, 1998 ("1998 Note Agreement") to modify the fixed charges
coverage ratio covenant therein from the prior ratio of 1.5 to 1, to the new
ratios as follows: (i) for the period ending November 1, 2000 through April 30,
2001 - ratio of 1.00 to 1; (ii) for the period ending May 1, 2001 through
October 31, 2001 - ratio of 1.15 to 1; for the period ending November 1, 2001
through July 31, 2002 - ratio of 1.25 to 1; and for the period ending August 1,
2002 and thereafter - ratio of 1.50 to 1.
The Company also entered into amendments with Teachers Insurance and Annuity
Association of its Note Agreement dated as of April 15, 1993 and its Note
Agreement dated as of April 15, 1991 to add a fixed charges coverage ratio on
substantially the same terms as those in the 1998 Note Agreement as amended.
THREE MONTHS ENDED APRIL 30, 2001 COMPARED TO
THREE MONTHS ENDED APRIL 30, 2000 (RESTATED)
RESULTS OF OPERATIONS
Consolidated net sales for the third quarter ended April 30, 2001 were
$42,093,000, an decrease of 1.2% from net sales of $42,604,000 in the third
quarter of fiscal 2000. The net income for the third quarter of fiscal 2001 was
$1,906,000, which was $1,346,000 more than the $560,000 income in the third
quarter of fiscal 2000. Fiscal 2001's third quarter income was positively
impacted by $4,278,000 of non-recurring
17
fee income, while being negatively impacted by $700,000 of charges covering
developmental costs and several capital asset programs that the Company no
longer intends to pursue in their original form. Basic and diluted net income
per share for the third quarter of fiscal 2001 were both $0.34 versus $0.10
basic and diluted net income per share earned in the third quarter of fiscal
2000.
Net sales of the Consumer Products Group for the third quarter of fiscal 2001
were $25,508,000, a decrease of 3.4% from net sales of $26,418,000 in the third
quarter of fiscal 2000. This segment's operating income decreased 67.4% from
$2,615,000 in the third quarter of fiscal 2000 to $853,000 in the same period of
fiscal 2001. This decrease was due to a reduction of gross profit primarily for
our mass merchandiser customers and Oil-Dri Canada. The reduction of gross
profit was caused by unfavorable product mix weighted heavily towards private
label versus branded cat litter products, deterioration of distribution of the
Company's paper cat litters and higher material and transportation costs in the
U.S. and Canada. Also, fuel cost increases have had a negative impact on the
income of the entire Consumer Products Group.
Net sales of the Specialty Products Group for the third quarter of fiscal 2001
were $5,937,000, an increase of 1.6% from net sales of $5,843,000 in the third
quarter of fiscal 2000. This segment's operating income decreased 30.7% from
$808,000 in the third quarter of fiscal 2000 to $560,000 in the third quarter of
fiscal 2001 due to increased fuel costs, unfavorable foreign exchange
fluctuations and increased promotional activities in our domestic animal health
and nutrition products. Fiscal year 2001 net sales and operating income reflect
the reclassification for certain products and customers from the Crop Production
and Horticultural Products Group to the Specialty Products Group.
Net sales of the Crop Production and Horticultural Products Group for the third
quarter of fiscal 2001 were $5,590,000, an increase of 1.6% from net sales of
$5,500,000 in the third quarter of fiscal 2000, led primarily by an increase in
sports field product sales. This segment's operating income decreased 3.0% from
$1,005,000 in the third quarter of fiscal 2000 to $975,000 in the third quarter
of fiscal 2001 due to fuel cost increases.
Net sales of the Industrial and Automotive Products Group for the third quarter
of fiscal 2001 were $5,058,000, an increase of 4.4% from net sales of $4,843,000
in the third quarter of fiscal 2000 due to increased product pricing. This
segment's operating income decreased 7.5% from $282,000 in the third quarter of
fiscal 2000 to $261,000 in the third quarter of fiscal 2001 due to increased
fuel costs.
Consolidated gross profit as a percentage of net sales for the third quarter of
fiscal 2001 decreased to 23.8% from 28.3% in the third quarter of fiscal 2000
due to increased fuel costs and fierce competition in our consumer products
area. The Company experienced a $586,000 fuel cost increase to process our clays
over the third quarter of fiscal 2000.
Operating expenses as a percentage of net sales for the third quarter of fiscal
2001 increased to 26.4% from 25.0% in the third quarter of fiscal 2000 due to an
increase in corporate expenses, largely attributable to benefits costs and an
increase in the advertising costs for our Crop Production Group.
Interest expense and interest income for the third quarter of fiscal 2001 were
better by $59,000 from fiscal 2000, due to lower debt levels.
The Company's effective tax rate was 26.0% of pre-tax income in the third
quarter of fiscal 2001 versus 29.0% in the same period of fiscal 2000.
18
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries during the nine months ended
April 30, 2001 were $9,170,000 or 7.0% of total Company sales. This represents a
decrease of 11.4% from the same period of fiscal 2000 in which foreign
subsidiary sales were $10,350,000 or 7.8% of total Company sales. This decrease
is due to the loss of bleaching clay sales to a major customer. For the first
nine months of fiscal 2001, the foreign subsidiaries experienced a loss of
$895,000, a decrease of $1,156,000 from $261,000 income earned from the same
period of fiscal 2000. This decrease was primarily due to lower gross profit
margins resulting from higher material cost and adverse currency issues.
Identifiable assets of the Company's foreign subsidiaries as of April 30, 2001
were $9,968,000, vs. $10,332,000 as of April 30, 2000. This reduction was seen
mostly in cash and equivalents.
Net sales by the Company's foreign subsidiaries during the three months ended
April 30, 2001 were $3,023,000 or 7.2% of total Company sales. This represents a
decrease of $18,000 or 0.6% from the third quarter of fiscal 2000, in which
foreign subsidiary sales were $3,041,000 or 7.2% of total Company sales. For the
three months ended April 30, 2001 the foreign subsidiaries experienced a loss of
$519,000, a decrease of $434,000 from $85,000 loss earned in the third quarter
of fiscal 2000. This decrease was primarily due to higher material and
transportation costs in our Canadian operations.
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," 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 primarily to continued vigorous competition in the consumer cat litter
market, the level of increases in energy prices and the level of success in
implementing price increases and energy surcharges to offset energy costs. These
forward-looking statements also involve the risk of changes in market conditions
in the overall economy and, for the fluids purification and agricultural
markets, in planting activity, crop quality, crop prices and overall
agricultural demand, including export demand and foreign exchange rate
fluctuations. Other factors affecting these forward-looking statements may be
detailed from time to time in reports filed with the Securities and Exchange
Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not have any derivative financial instruments as of April 30,
2001. However, the Company is exposed to interest rate risk. The Company employs
policies and procedures to manage its exposure to changes in the market risk of
its cash equivalents and short term investments. The Company believes that the
market risk arising from holdings of its financial instruments is not material.
The Company is exposed to commodity price risk with respect to natural gas. The
Company has contracted for a major portion of its fuel needs for fiscal 2002
using forward purchase contracts to manage the volatility related to this
exposure. No contracts were entered into for speculative purposes. These
contracts will reduce the volatility in fuel prices, and the weighted average
cost of these contracts will be consistent with the increased prices paid in
fiscal 2001.
19
PART II - OTHER INFORMATION
6. (a)EXHIBITS: The following documents are an exhibit to this report.
Exhibit
Index
--------
Exhibit 11: Statement Re: Computation of per share 21
earnings
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OIL-DRI CORPORATION OF AMERICA
(Registrant)
BY /S/JEFFREY M. LIBERT
----------------------------
Jeffrey M. Libert
Chief Financial Officer
BY /S/DANIEL S. JAFFEE
----------------------------
Daniel S. Jaffee
President and Chief Executive Officer
Dated: June 13, 2001
21
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
--------------------
2001 2000
(Restated)
--------------------
Net income available to Stockholders
(numerator) $ 2,078 $ 1,440
------- -------
Shares Calculation (denominator):
Average shares outstanding - basic 5,612 5,660
Effect of Dilutive Securities:
Potential Common Stock
relating to stock options -- 76
------- -------
Average shares outstanding- assuming dilution 5,612 5,736
======= =======
Earnings per share-basic $0.37 $0.25
======= =======
Earnings per share-assuming dilution $0.37 $0.25
======= =======