OIL-DRI CORPORATION OF AMERICA
CREATING
VALUE
THROUGH
INNOVATION
1995 ANNUAL REPORT
NATIONAL FAMILY BUSINESS OF THE YEAR
Oil-Dri Corporation of America is
very proud to have been named the
National Family Business of the Year.
Oil-Dri was first awarded the
Illinois Family Business of the Year
title by the Illinois Association of
Family Businesses and the Loyola
University Chicago Family Business
Center. The national program was
sponsored by Massachusetts Mutual and
included hundreds of regional
winners. Oil-Dri won in the large
business category for companies with
more than 250 employees.
Winners were chosen based on five key
criteria:
The success of the business
The positive links it has built
between family and business
Multiple generation family business involvement
Contributions to community and industry
Innovative business practices or strategies
Oil-Dri is a publicly traded
company with a very special
combination of business and family
practices. The Jaffee family is
represented by eight family members
and an additional 65 families are
represented by two or more members at
Oil-Dri. All of Oil-Dri's employees
in the United States, Canada,
England, Switzerland and our
representatives around the globe, are
part of the success of the
organization. Everyone works
together to make a difference in the
quality of our products, our services
and our organization.
Financial Highlights
1995 1994 Change
Net Sales* $152,899,109 $147,146,793 +3.9%
Income from Operations $12,841,947 $14,428,277 -11.0%
Income before Income Taxes $11,147,425 $13,159,384 -15.3%
Net Income $ 8,002,828 $ 9,852,200 -18.8%
Net Income per Share $ 1.15 $ 1.41 -18.4%
Net Income as a Percentage of 5.2% 6.7% -1.5%
Sales
Return on Average Stockholders' 10.6% 14.1% -3.5%
Equity
Working Capital $33,074,318 $29,337,449 +$ 3,736,869
Stockholders' Equity $78,338,383 $73,059,504 +$5,278,879
Book Value per Share $ 11.35 $ 10.51 +8.0%
Average Shares Outstanding 6,935,975 7,010,724 -1.1%
Dividends Declared $ 2,046,644 $ 1,806,736 +13.3%
Capital Expenditures $ 7,032,064 $13,559,232 -48.1%
Depreciation and Amortization $ 7,808,496 $ 6,798,038 +14.9%
Long-Term Debt $20,422,265 $21,521,243 -5.1%
SALES TRENDS* (millions of dollars)
1995 1994 1993 1992 1991
Consumer Products $82.9 $77.0 $73.3 $65.2 $53.7
Industrial and Environmental 18.9 19.9 19.0 19.1 18.6
Products
Agrisorbents Product Group 16.6 18.3 18.4 14.9 10.7
Pure-Flo Product Group 13.0 13.2 10.1 6.1 5.8
Foreign Subsidiaries 12.2 11.2 12.4 11.0 10.5
Transportation Services 9.3 7.5 7.7 8.3 6.7
$152.9 $147.1 $140.9 $124.6 $106.0
*Net sales and selling, general and administrative expenses reflect the
reclassification of trade marketing costs. See Note 1 to consolidated
financial statements.
Land Holdings & Mineral Reserves
Land Owned Land Leased Total Proven
(acres) (acres) (acres) Reserves
(1,000's of
tons)
Georgia 1,282 2,004 3,286 45,185
Mississippi 2,034 1,423 3,457 116,293
Oregon 360 800 1,160 3,575
Florida 537 446 983 4,512
Nevada 709 - 709 23,316
Illinois 4 - 4 -
4,926 4,673 9,599 192,881
DIVISIONAL REVIEW
Consumer Products
Oil-Dri manufactures approximately 25% of all the cat litter sold in the
United States, an estimated $720,000,000 retail market. The introduction
of Cat's Pride Kat Kit disposable cat litter tray and the launching of the
Cat's Pride Scoopable "Stretch Jug" should increase Oil-Dri's share of
this market.
Industrial & Environmental Products
A comprehensive line of Oil-Dri Lite sorbents and Oil-Dri floor absorbents
distinguishes Oil-Dri Corporation as a quality supplier of industrial
maintenance products. The division is also working on innovative products
for the home mechanic.
Agrisorbents Product Group
The Agrisorbents Product Group offers agricultural chemical formulators
the highest quality carriers for their crop protection products. Global
expansion of carriers and animal feed and nutrition products will provide
growth opportunities in the future.
Pure-Flo Product Group
A combination of unique minerals and proprietary processes gives the Pure-
Flo Product Group a technological edge in the fluid purification market.
International expansion of existing product lines and development of new
value-added products will build incremental sales.
PRIMARY RESOURCES
Research & Development
The most dynamic source of Oil-Dri's growth over the last fifty-four years
has been from product innovations. Developments that can improve a
refining process, increase a crop yield or keep a cat box fresher longer
have all been generated by the scientific staff of the Nick Jaffee Sorbent
Technologies Laboratory. Teams of scientists and technicians address the
issues of each marketing group, manufacturing, environmental regulation
and quality control.
Manufacturing and Raw Materials Development
Oil-Dri Corporation operates six production facilities in the United
States. These plants are located near reserves of quality clay minerals.
Attapulgite and montmorillonite are mined in the Southeast. Diatomaceous
earth is mined in Oregon. Oil-Dri's facilities in Wisbech, United Kingdom
and Quebec, Canada produce synthetic absorbents. The characteristics of
our mineral reserves and the efficiency of our facilities allow Oil-Dri to
produce high quality products at competitive prices.
Oil-Dri Transportation Company
Committed to providing logistics and transportation solutions that go
beyond just moving products, Oil-Dri Transportation can customize
transportation packages for our customers. Oil-Dri operates an extensive
fleet of carriers and, in addition to over-the-road, can arrange rail
or overseas shipping for any customer. Service and safety are the
priorities of Oil-Dri Transportation.
LETTER TO THE SHAREHOLDERS
Creative Value Through Innovation
Fiscal 1995 has been a challenging year for Oil-Dri. We have accomplished
a great deal including start-up of a new management information system,
completion of a major plant expansion and implementation of a senior
management reorganization and succession plan. These projects and the
exciting new products developed for launch in fiscal 1996 place the
Company in an extremely strong position. As our business grows in both
size and complexity, we strive to create value through innovation.
This year's financial results did not reflect the qualitative successes of
the year. Sales volumes did not meet expectations, and, in order to keep
inventories in balance, production levels were reduced in the second half
by approximately 20%. While each of our business units expanded
distribution, lower usage rates in the agricultural and fluid purification
businesses and a shift towards lower priced private labels in consumer
products combined to reduce overall sales growth. Cost increases in
packaging and transportation reduced profit margins, and we experienced an
increase in our income tax rate. Due to the competitive nature of our
businesses, we were not able to completely recover these cost increases
through increased prices.
Sales for the year ended July 31, 1995, were $152,899,000, up 4% versus
last year's sales of $147,147,000. Current and prior year's sales reflect
a reclassification of trade marketing costs to selling expenses. This
classification is common among companies in consumer products industries
and reflects Oil-Dri's continued and planned growth in this area. Trade
marketing costs were previously classified as a reduction of revenues. The
reclassification increases sales, gross profits and selling expenses, each
by the same amount, and has no effect on reported income from operations,
net income or net income per share. The reclassification will primarily
affect reported sales of the consumer division. Net income was $8,003,000,
off 19% from the $9,852,000 earned a year ago. Income per share was $1.15
versus last year's $1.41.
While we were disappointed with sales and earnings for the year, our cash
position, current ratio, balance sheet, infrastructure and organization
are all very strong, and the qualitative successes of the past twelve
months leave us well prepared to meet the opportunities and challenges of
the coming years. Innovations in our products and our programs should
allow us to deliver significant value to our customers and give us the
competitive edge needed to distinguish ourselves in the future.
HIGHLIGHTS FOR THE YEAR
Since the start of fiscal 1995, Oil-Dri has been operating a new, state-of-
the-art computer system. A significant, multi-year capital expenditure,
this internally designed management information system will lead us into
an age ever more dependent on the effective processing of data. All our
departments are discovering improved methods of managing information
available through this database system. This investment should provide the
support required for the Company's continued growth.
A $6,000,000 expansion of our Ripley, Mississippi production facility was
completed on time and on budget. The project has increased our Agsorb
capacity by 40% and provided the flexibility to produce floor absorbents
and cat litters at this plant if demand requires it.
Oil-Dri Production Company in Christmas Valley, Oregon received that
state's Outstanding Reclamation Award. In addition, plant personnel
completed five years without a lost time accident.
The Company has implemented a new senior management organizational
structure and succession plan. Dan Jaffee has accepted the
responsibilities of president and chief operating officer as of August 1,
1995. Since coming to Oil-Dri from Price Waterhouse in 1987, Dan has led
the turnaround of our Canadian subsidiary, Favorite Products, Ltd., and
managed the Consumer Division, Data Processing, Manufacturing, and the
Finance and Accounting groups.
Under the management of Tom Cofsky, the Logistics, Quality and Service
Group was established to support our dedication to continuous improvement
and our commitment to deliver quality products and services that exceed
the expectations of our customers.
Fiscal 1995 marked the twenty-fourth consecutive year Oil-Dri has paid
dividends to shareholders. During the year, the Company also spent
$825,000 to purchase 50,500 shares of its own stock on the open market.
Our current ratio is 3.1 to 1 and our book value has increased to $11.35.
The Company's research and geological study continues and our body of
proven mineral reserves has reached 193 million tons. These mineral
resources are the core of our business and, we believe, the highest
quality collection of their kind in the industry. These reserves are an
important asset of the Company.
Oil-Dri was chosen the National Family Business of the Year from hundreds
of family businesses nominated all over the country. We are very proud of
this award because it acknowledges the ethics and values of the entire
Company including the more than 65 families that are represented by two or
more members working at Oil-Dri.
LOOKING FORWARD
The past year has been a building block in the Company's history.
Innovative technologies that promise to deliver increased sales to our
consumer, agricultural and fluid purification divisions were developed
during the year. Fiscal 1996 roll-out of these products will involve
investment in marketing support and advertising, particularly in the
consumer products group. These introductory expenses will reduce earnings
in the coming year, but ultimately these investments should deliver
greater earnings. These developments are discussed at length in the
following pages.
I would like to thank all those who have supported Oil-Dri; our
shareholders, directors, customers and employees have all played key roles
in Oil-Dri's history and will be equally important in our future. I am
pleased to have the opportunity to work with the next generation as we
enter what will be an exciting and dynamic time for Oil-Dri.
Sincerely,
Richard M. Jaffee
Chairman and Chief Executive Officer
CONSUMER PRODUCTS
Oil-Dri's dollar share of the cat litter category has continued to grow
throughout the last twelve months, reflecting the increased distribution
gained over the course of the year. In the last reported quarter of
fiscal 1995, Oil-Dri's cat litter sales were up 17%, outpacing category
growth of approximately 8%.
Despite a sales mix that leaned toward less expensive, coarse cat litters,
private labels and large package units, sales for the consumer division
were up 8% for the year. Heightened competition for shelf space and
promotions was also a challenge and prevented us from recovering all the
increased costs in packaging and transportation seen throughout the year.
The consumer division has created value through innovation and the
introduction of the Cat's Pride Kat Kit, a disposable cat litter tray.
This product offers consumers a practically "touchless" system for the
ultimate convenience in cat box care. Cat's Pride Kat Kit has created a
great deal of interest among the trade, and national roll out of this
product is scheduled for fiscal 1996.
Our Cat's Pride Scoopable "Stretch Jug" will also be launched in fiscal
1996. This package redesign will offer consumers 40% more cat litter than
our competitors, at the same approximate cost. Cat's Pride Scoopable is
lighter in density, giving consumers more scoops per pound. The "Stretch
Jug" will leverage this important competitive advantage and deliver more
value to consumers.
As part of the Cat's Pride Kat Kit and Cat's Pride Scoopable "Stretch Jug"
introductions, we will be changing the focus of our marketing spending as
well. Due to the uniqueness of these products we are investing in
substantial advertising campaigns that will create awareness and drive
consumer pull-through. This is a different strategy than the division has
used in the past, but the potential growth opportunities these products
provide should make this a profitable investment in the long term,
returning significant growth for a fraction of what some of our
competitors have paid for their national brand businesses. In the next
year, these product introductions should deliver increases in sales.
However, due to the additional spending associated with new product
introductions, earnings for the division are expected to be down.
The consumer division has been strengthened with the addition of Steve
Levy as general manager and Jim VanVliet as director of marketing. Both
have a wealth of experience in the cat litter industry and in marketing
major consumer brands. Their outlook, combined with our existing consumer
team, will bring a fresh perspective to the value of our brands and their
marketability.
INDUSTRIAL & ENVIRONMENTAL PRODUCTS
Sales and marketing of all our industrial products, both clays and
polypropylene sorbents, are being consolidated under the management of
Wade Bradley, the division's new general manager. Relocation of all
activities to Alpharetta, Georgia will improve service to customers and
assist in controlling operational costs.
Overall sales for the division were down 5% for the year due to increased
competition. The division's goals are to streamline operations and reduce
costs while increasing sales of value-added and more profitable sorbents.
Although this is our most mature market, we expect improved performance
and contribution.
While Oil-Dri is the best known name in industrial clay floor absorbents,
innovation and service must be continuously improved to build our complete
sorbent business. Value-added products will be the growth drivers in this
business. Targeting automotive outlets, mass merchandisers and
wholesalers, the division is working on consumer packaging of both Oil-Dri
floor absorbents and Oil-Dri Lite products. Oil-Dri Concentrated floor
absorbent is now sold through major wholesalers and provides a highly
absorbent cleaning product for the home mechanic.
A newly established inside sales group will work with our existing sales
force to manage accounts and increase productivity while reducing the cost
of outside sales calls. Management of this sales force will focus on the
profitability of each territory and the measurable activity of inside
sales.
The division has also opened a new sorbent converting plant in Alpharetta.
The plant's multiple production lines are equipped to handle meltblown
polypropylene product rewinding, sheeting and stacking. Custom orders can
be quickly converted to meet specific sorbent applications. The expansion
of the division's meltblown polypropylene operations reflects Oil-Dri's
commitment to the industry.
AGRISORBENTS PRODUCT GROUP
Agsorb carriers are the leading clay carrier in the agrichemical industry.
Agsorb products are known for their quality and consistency and are
regarded as the industry standard. In 1994, demand for Agsorb carriers was
so high, the Agrisorbents Product Group was forced to turn away some
volume. This past year, our customers used considerably lower volumes of
Agsorb carriers due to reduced planting, surplus inventories and higher
chemical loading of certain crop protection products. These issues
combined to reduce divisional sales by 9%.
While demand for Agsorb carriers changes seasonally, we anticipate
increases in 1996. These demand increases will come, in part, from two of
our customers' successful EPA registration of new insecticides specified
for use with Agsorb granule carriers. The Agrisorbents Product Group
continues to promote value and service to our agricultural chemical
customers, and the Ripley plant expansion will provide enough capacity to
meet any fluctuations in demand.
New uses for Agsorb carriers are expanding in both geography and
application. A special grade of Agsorb is being used by a major producer
of agricultural products in Japan for distribution of a biotechnology-
based innoculant. This biotechnology promotes growth and yield in flowers,
fruits, vegetables and other plants. Agsorb carriers provide an easy- to-
use distribution medium for the innoculant. The product has been
introduced to the Japanese consumer market for home garden care.
Under the guidance of Chuck Boland, the new general manager, the division
will place increased emphasis on the animal health and nutrition industry.
Approximately $2 billion worth of animal health and nutrition products
were used in the animal feed industry in 1994, and this figure is growing
at approximately 5% annually.
Conditionade, our newest animal feed pelleting product, improves quality
in feed pellets and allows feed processors to handle high fat content
feeds with less difficulty. This product has gained wide acceptance by
animal health nutritionists.
Our research and development group will focus on creating additional value-
added products for this market, and the Agrisorbents Product Group is
concentrating more of their sales and marketing efforts on the animal
health and nutrition markets.
PURE-FLO PRODUCT GROUP
The Pure-Flo Product Group has broken new ground in the bleaching and
clarification of oils. Extremely active raw minerals, innovative
technologies and unsurpassed technical support are all combined to offer
refiners of oils, both edible and petroleum, the opportunity to improve
their own processes and products. The Pure-Flo Product Group has
successfully expanded distribution of Pure-Flo bleaching clays and Ultra-
Clear clarification aids on a worldwide basis with customers in over 45
countries.
The exceptional quality of the crude vegetable oils being refined last
year greatly reduced consumption of bleaching clay. A number of major
customers were able to cut their bleaching clay requirements by more than
half. Sales to Malaysia, our largest foreign market, were also negatively
impacted by poor growing conditions and trade restrictions. To offset
reversals in more traditional markets, the division expanded its global
presence by adding new customers in Europe, Asia and Latin America. This
expansion is particularly positive in light of increased competition.
Competition was a key factor in Mexico, where the devaluation of the peso
made it virtually impossible to compete with local producers. Overall,
divisional sales were flat.
Growth opportunities in the upcoming year are exciting. The Pure-Flo
Product Group successfully introduced three new products at the end of
fiscal 1995. These higher value products should increase sales and
contribute to the division's profitability in fiscal 1996.
Pure-Flo FP80 adsorbent was developed for use in food processing
applications. Pure-Flo FP80 removes contaminating enzymes that soften
pickles while they are in the brine tanks. Typically, with over 4000
gallons of brine and 26 tons of pickles per tank, the contamination of
one tank can be very expensive. Pure-Flo FP80 can eliminate these costs if
used as both a preventative treatment and in the recovery of contaminated
brine tanks.
Renew L80 is being used as a filter medium in the growing residential
water purification market. Renew L80 removes metal ions, such as lead, and
other impurities from tap water. This is the first of several potential
applications for Renew products.
Select 350 adsorbent has been developed for use in the refining of edible
oils to replace an expensive water wash centrifuge process. Used upstream
from Pure-Flo bleaching clays, Select 350 improves overall oil quality and
can eliminate the waste stream generated by traditional water wash methods
of removing soaps, metals and phospholipids.
Fielden Fraley, the general manager of the division, and Nick Gershon, the
vice-president in charge of international activities, will focus on
several opportunities: global expansion of our core fluid purification
products, development of next generation adsorbents for existing fluid
purification applications, and development of new products for
applications in petroleum, petrochemical, food and beverage markets.
A HISTORICAL PERSPECTIVE
In 1985...
The Dow Jones Average closed at a new record, 1553.10.
Ronald Reagan began his second term.
The Coca-Cola Company shocked the public with the introduction of a new
formula for Coke*. The public responded so forcefully, that the company
was forced to reintroduce the traditional 99-year-old recipe for the
famous soft drink.
And...
Oil-Dri recorded record sales of $46,000,000.
Fresh Step**, one of the cat litters Oil-Dri manufacturers for The Clorox
Company, had its first year of national distribution.
Oil-Dri acquired the Anshutz Mineral Company's plant facilities and
mineral reserves.
The market capital of Oil-Dri reached almost $60,000,000.
Since 1985 Oil-Dri's sales and income have more than tripled. Mineral
reserves have increased five fold, from 38 to 193 million tons. The
employee count has grown from 400 to 700. This growth is the result of
constant innovation and a commitment to continuous improvement.
*Coke is a registered trademark of The Coca-Cola Company.
**Fresh Step is a registered trademark of The Clorox Company.
Five Year Summary of Financial Data
Year Ended July 31
SUMMARY OF OPERATIONS 1995 1994 1993 1992 1991
Net Sales* $152,899,109 $147,146,793 $140,866,110 $124,584,756 $106,053,920
Cost of Sales 108,268,431 102,456,815 97,396,563 85,116,335 74,370,331
Gross Profit 44,630,678 44,689,978 43,469,547 39,468,421 31,683,589
Selling, General and
Administrative Expenses* 31,788,731 30,261,701 29,420,831 28,835,931 21,646,725
Income from Operations 12,841,947 14,428,277 14,048,716 10,632,490 10,036,864
Other Income (Expense)
Interest Income 448,268 440,796 451,519 514,756 601,608
Interest Expense (1,751,666) (1,751,839) (1,728,817) (1,884,166) (1,363,039)
Foreign Exchange (Losses) ( 5,463) 3,009 ( 87,655) 63,471 ( 22,636)
Gains
Amortization of Goodwill ( 132,048) ( 132,001) ( 131,799) ( 131,079) ( 131,079)
Other, Net ( 253,613) 171,142 ( 298,485) 15,198 50,178
Total Other Expense, Net (1,694,522) (1,268,893) (1,795,237) (1,421,820) ( 864,968)
Income before Income Taxes 11,147,425 13,159,384 12,253,479 9,210,670 9,171,896
Income Taxes 3,144,597 3,307,184 2,833,837 2,110,262 2,092,130
Net Income $8,002,828 $ 9,852,200 $ 9,419,642 $7,100,408 $7,079,766
Average Shares Outstanding 6,935,975 7,010,724 7,031,116 7,026,300 7,054,709
Net Income per Share $1.15 $1.41 $1.34 $1.01 $1.00
Important Highlights
Total Assets $116,987,683 $112,267,182 $102,116,632 $95,017,573 $89,393,673
Long-Term Debt $ 20,422,265 $ 21,521,243 $ 17,765,941 $18,831,133 $20,175,930
Working Capital $ 33,074,318 $ 29,337,449 $ 26,043,415 $24,358,769 $24,763,055
Working Capital Ratio 3.1 3.0 2.7 2.8 3.4
Capital Expenditures $ 7,032,064 $ 13,559,232 $ 9,158,173 $ 8,039,979 $10,415,543
Depreciation and
Amortization $ 7,808,496 $ 6,798,038 $ 5,834,854 $ 5,407,341 $ 4,830,835
Long-Term Debt to Equity 26.1% 29.5% 26.7% 31.6% 36.9%
Ratio
Net Income as a Percent of
Net Sales* 5.2% 6.7% 6.7% 5.7% 6.7%
Return on Average
Stockholders' Equity 10.6% 14.1% 14.9% 12.4% 13.7%
Gross Profit as a Percent of
Net Sales* 29.2% 30.4% 30.9% 31.7% 29.9%
Operating Expenses as a
Percent of Net Sales* 20.8% 20.6% 20.9% 23.1% 20.4%
*Net sales and selling, general and administrative expenses reflect the
reclassification of trade marketing costs. See Note 1 to consolidated
financial statements.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Fiscal 1995 Compared to Fiscal 1994
Consolidated net sales for the year ended July 31, 1995 were $152,899,000,
an increase of 3.9% over net sales of $147,147,000 in fiscal 1994. Net
income for fiscal 1995 was $8,003,000 or $1.15 per share, decreasing 18.8%
from net income of $9,852,000 or $1.41 per share in fiscal 1994. Current
and prior year's sales figures reflect a reclassification of trade
marketing costs to selling expenses. This classification is commonly used
by companies in consumer products industries and reflects the Company's
continued and planned growth in this area. Trade marketing costs were
previously classified as a reduction of revenues. The reclassification
increases sales, gross profits and selling expenses, each by the same
amount, and has no effect on reported income from operations, net income
or net income per share. The reclassification will primarily affect
reported sales of the consumer division.
Sales increases were primarily the result of increased unit shipments and
slightly increased average sales per unit due to changes in product sales
mix. Net sales of industrial and environmental sorbents, consisting of
clay and non-clay products, decreased $1,043,000 or 5.2% from prior year
levels due to decreased unit shipments of clay products. Net sales of
industrial clay products fell $611,000 or 4.3% from prior year levels.
Sales of non-clay sorbents decreased $432,000 or 7.5%, reflecting
increased competition in the markets in which the Company participates.
Net sales of cat box absorbents increased $5,871,000 or 7.6% above fiscal
1994 levels. This growth was driven by unit sales increases of private
label litters in the mass merchandising distribution channel and increased
grocery market penetration. Net sales of agricultural carriers and
absorbents decreased $1,719,000 or 9.4% from the prior fiscal year due to
decreased unit shipments caused by reduced planting, inventory carryover
and higher chemical loading of crop protection products. Net sales of
fluid purification absorbents remained flat versus fiscal 1994. The high
quality of domestic crude vegetable oils and adverse growing conditions in
certain foreign markets reduced consumption of the Company's bleaching
earth products. Sales of transportation services increased $1,825,000 or
24.3% from fiscal 1994 levels due to increased fleet size and backhaul
revenue.
Consolidated gross profit as a percentage of net sales decreased to 29.2%
of net sales in fiscal 1995 from 30.4% in fiscal 1994. This decrease was
principally due to increased packaging and shipping costs and a shift in
mix in the consumer business towards private label litters.
Operating expenses as a percentage of net sales increased slightly to
20.8% of net sales in fiscal 1995 from 20.6% of net sales in fiscal 1994.
This change reflects managements continued focus on controlling overhead
costs while expanding sales and marketing efforts.
Interest expense and interest income remained substantially unchanged in
fiscal 1995.
The Company's effective income tax rate increased to 28.2% of income in
fiscal 1995 from 25.1% in the prior fiscal year. The provision for income
tax expense for the fourth quarter and year ended July 31, 1995 includes a
charge of $263,000 reflecting a change in the estimated amounts of
depletion deductions and temporary differences between financial reporting
and tax reporting for the year ended July 31, 1994.
Total assets of the Company increased $4,721,000 or 4.2% during the year
ended July 31, 1995. Current assets increased $4,383,000 or 9.9% from
prior fiscal year-end balances due to higher accounts receivable and
prepaid balances. Inventory balances decreased somewhat, primarily
because a capacity expansion at the Company's Ripley, Mississippi facility
has been completed, reducing overall inventory needs.
Property, plant and equipment, net of accumulated depreciation and
amortization, decreased $784,000 or 1.3%. Investments in property, plant
and equipment included expenditures for increased productivity, major
capacity enhancements, pollution control, and equipment upgrades.
As of July 31, 1995, the Company has invested approximately $717,000 in
Kamterter, Inc., a company that researches and applies biotechnology in
the agricultural field. This investment, recorded at cost, represents a
14% equity interest in Kamterter. During the year ended February 28,
1995, and in recent interim periods, Kamterter has begun to generate
operating profits. While the Company believes that Kamterter's prospects
have improved, Kamterter's future financial condition and results of
operation cannot be predicted.
Total liabilities decreased $558,000 or 1.4% in the year ended July 31,
1995 due primarily to debt reduction.
The Company expects increased sales in fiscal 1996, primarily in the
consumer grocery markets due to increased distribution and the
introduction of new products and package sizes. Consolidation of cat box
absorbent manufacturers has continued over the past year, and increased
competition in the grocery and mass merchandising industry is expected.
Moderate sales growth is also expected in the Company's fluid purification
and agricultural lines as new filtration, agricultural carrier and animal
feed products are commercialized. Sales in the industrial and
transportation lines are expected to continue at levels similar to those
achieved in fiscal 1995. The Company expects earnings to be some what
lower in fiscal 1996 due to costs associated with new product
introductions in the consumer market. These costs include substantial
consumer advertising, slotting allowances and introductory promotional
programs.
Liquidity and Capital Resources
In fiscal 1995, the current ratio increased to 3.1 from 3.0 as of July 31,
1994. Working capital increased $3,737,000 or 12.7% for the year ended
July 31, 1995. Cash provided by operations continued to be the Company's
primary source of funds to finance operating needs and capital
expenditures. In fiscal 1995 net cash flows from operating activities
increased 25.4% to $12,317,000. This cash was used to fund capital
expenditures of $7,032,000, pay Company dividends of $1,983,000 and
repurchase shares of the Company's Common Stock at a cost of $825,000.
The Company may continue to repurchase its Common Stock from time to time.
As of July 31, 1995, total consolidated cash and investments were
$11,162,000, up 14.5% from $9,746,000 as of July 31, 1994. Of this
amount, balances held by the Company's foreign subsidiaries as of July 31,
1995 and 1994 were $3,296,000 and $3,220,000, respectively.
The Company's long-term debt as of July 31, 1995 decreased $1,099,000 or
5.1% from fiscal 1994 balances, primarily due to scheduled debt
repayments. Long-term debt to equity decreased to 26.1% from 29.5% as of
July 31, 1994.
The Company's line-of-credit arrangements are discussed in Note 3 to the
consolidated financial statements. During the year ended July 31, 1995
there were no borrowings under the line of credit. Management believes
that funds generated from operations and available borrowing capacity are
adequate to meet the Company's cash needs for fiscal 1996.
Proceeds from issuance of common stock were directly related to activities
in the Company's stock option plans. In fiscal year 1995 no shares were
issued under option plans. During fiscal year 1994, options for 50,641
shares were exercised, creating an additional $163,800 of stockholders'
equity.
Fiscal 1994 Compared to Fiscal 1993
Consolidated net sales for the year ended July 31, 1994 were $147,147,000,
an increase of 4.5% over net sales of $140,866,000 in fiscal 1993. Net
income for fiscal 1994 was $9,852,000 or $1.41 per share, increasing 4.6%
from net income of $9,420,000 or $1.34 per share in fiscal 1993.
Sales increases were primarily the result of increased unit shipments and
increased sales per unit due to changes in product sales mix. Net sales
of industrial and environmental sorbents, consisting of clay and non-clay
products, increased $987,000 or 5.2% from prior year levels due to
increased unit shipments of clay products. Net sales of industrial
clay products rose $1,504,000 or 11.9% from prior year levels. Mass
merchandisers and warehouse clubs increased their importance as
distribution outlets for traditional clay floor absorbents. Increased
sales in this area were due in part to the Company's strong position in
these growing distribution channels. Sales of non-clay sorbents decreased
$517,000 or 8.2%, reflecting increased competition in the markets in which
the Company participates.
Net sales of cat box absorbents increased $3,668,000 or 5.0% above fiscal
1993 levels. This growth was driven by unit sales increases of scoopable
cat litters in the mass merchandising and wholesale club markets. Net
sales of agricultural carriers and absorbents remained unchanged from
the prior fiscal year. While demand for these products was strong, capacity
limitations and weather related difficulties prevented the Company from
meeting customer demand. Net sales of fluid purification absorbents
increased $3,040,000 or 30.0% versus fiscal 1993 due to the
increased global market penetration of PURE-FLO Supreme. Sales of
transportation services decreased $200,000 or 2.6% from fiscal 1993
levels. This reduction was due to the national shortage of qualified over
the road drivers and longer running times due to weather conditions.
Consolidated gross profit as a percentage of net sales decreased slightly
to 30.4% of net sales in fiscal 1994 from 30.9% in fiscal 1993. This
decline was principally due to increased material and shipping costs.
Severe winter storms, particularly in the Northeast United States,
stimulated sales of cat box absorbents and floor absorbents for use as
traction aids. This unusually high demand reduced inventory levels while
weather related manufacturing and delivery disruptions occurred. In order
to meet customer needs, large quantities of semi-finished product were
purchased at high costs. These purchases, combined with additional
finishing costs, overtime labor and increased shipping charges adversely
affected cost of goods sold. Finally, to overcome certain capacity
limitations, meet shipping commitments and retain customer goodwill, the
Company shifted production between manufacturing facilities, the effect of
which was to increase production and shipping costs. As discussed below,
the Company expanded plant capacity and increased inventory to address
these matters.
Operating expenses as a percentage of net sales decreased to 20.6% of net
sales in fiscal 1994 from 20.9% of net sales in fiscal 1993. This change
reflects management's continued focus on controlling overhead costs.
Interest expense increased $23,000 due to higher average debt levels
netted against lower interest rates achieved through debt restructuring in
fiscal 1993. Interest income decreased $11,000.
The Company's effective tax rate was 25.1% of income in fiscal 1994
compared to 23.1% in the prior fiscal year. This increase was the result
of reduced depletion deductions related to mining activities and the
elimination of amortization of investment credits which benefited prior
years.
Total assets of the Company increased $10,151,000 or 9.9% during the year
ended July 31, 1994. Current assets increased $3,335,000 or 8.1% from
prior fiscal year-end balances due to higher accounts receivable balances
from increased sales. In addition, inventory balances increased as a
result of a new inventory management initiative designed to minimize
product shortages discussed above.
Property, plant and equipment, net of accumulated depreciation and
amortization, increased $6,513,000 or 12.1%. Investments in property,
plant and equipment included expenditures for increased productivity,
major capacity enhancements, pollution control, and equipment upgrades.
As of July 31, 1994, the Company had invested approximately $717,000 in
Kamterter, Inc., a company which researches and applies biotechnology in
the agricultural field. This investment, recorded at cost, represents a
14% equity interest in Kamterter. Current operating losses had increased
Kamterter's negative net worth.
Total liabilities increased $3,534,000 or 9.9% in the year ended July 31,
1994. In April 1993, the Company entered into a $5,000,000 fixed-rate
term loan agreement with Harris Trust and Savings Bank. These proceeds
were used to fund capital expenditures, including a major capacity
increase of the Company's Ripley, Mississippi facility. Current
liabilities increased $41,000.
Foreign Subsidiaries
Net sales by foreign subsidiaries during fiscal 1995 were $12,248,000
constituting 8.0% of sales. This amount represented an increase of
$1,000,000 from fiscal 1994, in which foreign sales were $11,248,000 and
constituted 7.6% of sales. The increase in foreign subsidiary sales
resulted from increased market share in Canadian cat litter markets and
price increases at the Company's United Kingdom subsidiary. Net income of
the Company's foreign subsidiaries during fiscal 1995 was $763,000, as
compared with $403,000 in fiscal 1994. Identifiable assets of the
Company's foreign subsidiaries as of July 31, 1995 were $9,571,000, a
slight decrease from fiscal 1994 year-end balances.
Net sales made by the Company's foreign subsidiaries for the year ended
July 31, 1994 were $11,248,000, constituting 7.6% of sales. This amount
represented a decrease of $1,185,000 or 9.5% from fiscal 1993, in which
foreign subsidiary sales were $12,433,000 and constituted 8.8% of sales.
Net income of the Company's foreign subsidiaries during fiscal 1994 was
$403,000, as compared to $617,000 in fiscal 1993. This decrease was
principally due to the decline in value of the Canadian dollar and British
pound versus the U.S. dollar. The identifiable assets of the Company's
foreign subsidiaries as of July 31, 1994 were $9,608,000, a decrease of
15% from fiscal 1993 year-end balances, also due to the falling Canadian
dollar.
Consolidated Statements of Financial Position
1995 1994
ASSETS
Current Assets
Cash and cash equivalents (Note 1) $ 8,829,667 $ 6,394,315
Investment securities, at cost, which
approximates market 2,332,665 3,351,423
Accounts receivable 21,529,168 19,854,899
Less allowance for doubtful accounts ( 180,602) ( 171,940)
Inventories (Note 1) 10,917,099 11,203,008
Prepaid expenses 5,317,169 3,730,298
Total Current Assets 48,745,166 44,362,003
Property, Plant and Equipment, at Cost (Notes 1 and 3)
Buildings and leasehold improvements 15,335,526 14,742,017
Machinery and equipment 76,721,765 65,563,903
Office furniture and equipment 7,831,961 7,341,440
Vehicles 117,906 114,246
100,007,158 87,761,606
Less accumulated depreciation and (47,498,516) (39,949,247)
amortization
52,508,642 47,812,359
Construction in progress 1,289,855 6,836,910
Land and mineral rights 5,660,898 5,594,295
Total Property, Plant and 59,459,395 60,243,564
Equipment, Net
Other Assets
Goodwill (Net of accumulated
amortization of
$1,073,404 in 1995 and $941,356 in 4,304,286 4,436,334
1994)(Note 9)
Deferred income taxes (Note 4) 484,324 -
Other 3,994,512 3,225,281
Total Other Assets 8,783,122 7,661,615
Total Assets $116,987,683 $112,267,182
The accompanying notes are an integral part of the consolidated financial
statements.
JULY 31
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of notes payable $ 1,097,976 $ 1,243,479
(Note 3)
Accounts payable 4,710,251 4,677,793
Dividends payable 511,166 449,302
Accrued expenses
Salaries, wages and commissions 2,362,102 3,180,455
Trade promotions and advertising 4,272,740 3,257,985
Freight 747,042 838,760
Other 1,969,571 1,376,780
Total Current Liabilities 15,670,848 15,024,554
Noncurrent Liabilities
Notes payable (Note 3) 20,422,265 21,521,243
Deferred income taxes (Note 4) - 323,379
Deferred compensation (Note 5) 1,778,075 1,761,818
Other 778,112 576,684
Total Noncurrent Liabilities 22,978,452 24,183,124
Total Liabilities 38,649,300 39,207,678
Stockholders' Equity
Common and Class B stock (Note 6) 723,352 723,352
Paid-in capital in excess of par value 7,657,394 7,657,394
Retained earnings 76,033,462 70,077,278
Cumulative translation adjustments ( 987,781) (1,135,951)
(Note 1)
83,426,427 77,322,073
Less treasury stock, at cost (Note 6) ( 5,088,044) ( 4,262,569)
Total Stockholders' Equity 78,338,383 73,059,504
Total Liabilities and Stockholders' $116,987,683 $112,267,182
Equity
Consolidated Statements of Income
Year Ended July 31
1995 1994 1993
Net Sales (Note 1) $152,899,109 $147,146,793 $140,866,110
Cost of Sales 108,268,431 102,456,815 97,396,563
Gross Profit 44,630,678 44,689,978 43,469,547
Selling, General and Administrative
Expenses (Note 1) 31,788,731 30,261,701 29,420,831
Income from Operations 12,841,947 14,428,277 14,048,716
Other Income (Expense)
Interest income 448,268 440,796 451,519
Interest expense (1,751,666) (1,751,839) (1,728,817)
Foreign exchange (losses) gains ( 5,463) 3,009 ( 87,655)
Amortization of goodwill (Note 9) ( 132,048) ( 132,001) ( 131,799)
Other, net ( 253,613) 171,142 ( 298,485)
Total Other Expense, Net (1,694,522) (1,268,893) (1,795,237)
Income before Income Taxes 11,147,425 13,159,384 12,253,479
Income Taxes (Note 4) 3,144,597 3,307,184 2,833,837
Net Income $ 8,002,828 $ 9,852,200 $ 9,419,642
Average Shares Outstanding (Note 6) 6,935,975 7,010,724 7,031,116
Net Income Per Share (Note 6) $ 1.15 $ 1.41 $ 1.34
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Stockholders' Equity
Paid-In
Capital In
Shares Excess of Retained
Common Class B Amount Par Value Earnings
Balance, July 31, 1992 4,978,919 2,173,755 $ 715,267 $ 6,592,064 $54,291,066
Net income - - - - 9,419,642
Dividends declared - - - - (1,678,894)
Issuance of stock under option
plans (Note 7) 28,095 - 2,810 349,014 -
Awards of stock to employees 1,072 - 107 21,026 -
Balance, July 31, 1993 5,008,086 2,173,755 718,184 6,962,104 62,031,814
Net income - - - - 9,852,200
Dividends declared - - - - ( 1,806,736)
Issuance of stock under option
plans (Note 7) 50,641 - 5,064 673,988 -
Awards of stock to employees 1,036 - 104 20,916 -
Reissuance of treasury shares - - - 386 -
Conversion of Class B Stock to
Common Stock (Note 6) 40,860 ( 40,860) - - -
Balance, July 31, 1994 5,100,623 2,132,895 723,352 7,657,394 70,077,278
Net income - - - - 8,002,828
Dividends declared - - - - (2,046,644)
Conversion of Class B Stock to
Common Stock (Note 6) 18,201 ( 18,201) - - -
Balance, July 31, 1995 5,118,824 2,114,694 $ 723,352 $7,657,394 $76,033,462
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Cash Flows
Year Ended July 31
1995 1994 1993
Cash Flows from Operating
Activities
Net income $ 8,002,828 $ 9,852,200 $ 9,419,642
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and 7,808,496 6,798,038 5,834,854
amortization
Provision for bad debts 51,013 4,744 72,890
(Increase) decrease in
Accounts receivable (1,680,287) (1,502,865) (2,827,243)
Inventories 319,844 (3,186,879) (1,156,110)
Prepaid expenses and taxes (1,608,299) (1,114,801) 1,149,110
Other assets ( 731,846) ( 473,484) ( 512,544)
Increase (decrease) in
Accounts payable 774,083 (916,395) 1,335,395
Income taxes payable - - ( 2,974)
Accrued expenses ( 32,319) 627,825 1,269,804
Deferred income taxes ( 804,004) (946,058) ( 808,092)
Deferred investment tax - - ( 114,816)
credits
Deferred compensation 16,257 381,872 314,690
Other 201,428 300,336 263,223
Total Adjustments 4,314,366 ( 27,667) 4,818,187
Net Cash Provided by
Operating Activities 12,317,194 9,824,533 14,237,829
Cash Flows from Investing Activities
Capital expenditures ( 7,032,064)(13,559,232) (9,158,173)
Purchases of investment ( 3,691,201)(11,750,654) (11,084,764)
securities
Dispositions of investment
securities 4,722,543 13,910,258 8,126,841
Other 159,709 399,295 ( 28,422)
Net Cash Used in Investing
Activities (5,841,013)(11,000,333) (12,144,518)
(Continued)
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Cash Flows
(Continued)
Year Ended July 31
1995 1994 1993
Cash Flows from Financing Activities
Principal payments on long-term (1,244,481) (743,834) (8,408,802)
debt
Proceeds from issuance of long-term - 5,000,000 6,510,720
debt
Proceeds from issuance of Common - 700,458 372,957
Stock
Net payments of loan issuance - - ( 43,047)
costs
Dividends paid (1,983,291) (1,804,002) (1,613,106)
Purchase of treasury stock ( 825,475) (1,894,762) ( 668,205)
Other 12,418 1,025 ( 210,980)
Net Cash (Used in)
Provided by (4,040,829) 1,258,885 (4,060,463)
Financing Activities
Net Increase (Decrease) in Cash
and Cash Equivalents 2,435,352 83,085 (1,967,152)
Cash and Cash Equivalents,
Beginning of Year 6,394,315 6,311,230 8,278,382
Cash and Cash Equivalents,
End of Year $8,829,667 $6,394,315 $6,311,230
The accompanying notes are an integral part of the consolidated financial
statements.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Oil-Dri
Corporation of America and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated.
No provision has been made for possible income taxes which may be paid on
the distribution of approximately $6,759,000 and $6,576,000 as of July 31,
1995 and 1994, respectively, of the retained earnings of foreign
subsidiaries, as substantially all such amounts are intended to be
indefinitely invested in these subsidiaries or no additional income taxes
would be incurred when such earnings are distributed. It is not
practicable to determine the amount of income taxes or withholding taxes
that would be payable upon the remittance of assets that represent those
earnings.
Revenue Recognition
Revenues from sales of products and transportation services are recognized
upon shipment.
Income Taxes
Deferred income taxes reflect the impact of temporary differences between
the assets and liabilities recognized for financial reporting purposes and
amounts recognized for tax purposes.
Interest Rate Derivative Instruments
Interest differentials on a swap contract (Note 3) are recorded as
interest expense in the contract period incurred. The Company recognized
additional interest expense of $58,900, $98,300 and $103,100 in fiscal
years 1995, 1994 and 1993, respectively, as a result of this contract.
Reclassification
During the year ended July 31, 1995, trade marketing costs, previously
accounted for as a reduction of sales, were reclassified as selling,
general and administrative expenses. Significant items reclassified
include the costs of vendor cooperative advertising programs, vendor
incentive programs and slotting allowances. The presentation is common in
the consumer products industry. The reclassification increased reported
net sales, gross profits and selling, general and administrative expenses
by the same amount, and had no effect on reported income from operations,
net income or net income per share. The effect on previously reported
quarterly net sales and gross profits has been reflected in Note 12.
Total amounts reclassified for the years ended July 31, 1995, 1994 and
1993 were $9,257,351, $7,337,209 and $6,106,527, respectively.
Certain other items in prior year financial statements have been
reclassified to conform to the presentation used in fiscal 1995.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at the
current exchange rate. Income statement items are translated at the
average exchange rate on a monthly basis. Resulting translation
adjustments are recorded as a separate component of stockholders' equity.
Changes in the cumulative translation adjustments account are as follows:
1995 1994 1993
Balance, at beginning of year $(1,135,951) $( 901,783) $(243,537)
Translation adjustments resulting
from exchange rate changes and 148,170 ( 234,168) (658,246)
intercompany transactions
Balance, at end of year $( 987,781) $(1,135,951) $(901,783)
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with maturities of
three months or less when purchased. The carrying amount approximates
fair value.
Inventories
The composition of inventories is as follows:
1995 1994
Finished goods $ 6,849,536 $ 5,257,765
Bags 2,575,259 3,431,828
Supplies 1,272,443 2,329,938
Fuel oil 219,861 183,477
$10,917,099 $11,203,008
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company places its cash investments in
government backed instruments, both foreign and domestic, and with other
high quality institutions. Concentrations of credit risk with respect to
accounts receivable are subject to the financial condition of certain
major customers, principally those referred to in Note 2.
The Company generally does not require collateral to secure customer
receivables.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment
Property, plant and equipment expenditures are generally depreciated using
the straight-line method over their estimated useful lives as follows:
Years
Buildings and leasehold improvements 5-30
Machinery and equipment 3-15
Office furniture and equipment 2-10
Vehicles 2-8
Research and Development
Research and development costs of $1,826,000 in 1995, $1,875,000 in 1994
and $1,509,000 in 1993 were charged to expense as incurred.
Advertising Costs
The Company defers recognition of advertising production costs until the
first time the advertising takes place.
NOTE 2 - BUSINESS AND GEOGRAPHIC REGION INFORMATION
The Company develops, manufactures and markets sorbent products and
technologies for use in industry, home and agriculture. The Company
operates in the United States, Switzerland, Canada and the United Kingdom
and exports goods worldwide.
The Company had sales in excess of 10% of total sales to one unaffiliated
customer in 1995 and 1994 and two unaffiliated customers in 1993.
Accounts receivable related to these major customers amounted to
$5,083,000, $4,845,000 and $7,050,000 as of July 31, 1995, 1994 and 1993,
respectively.
The sales to these customers were as follows:
1995 1994 1993
(Thousands of Dollars)
Amount $40,884 $35,848 $29,158
Percent of net sales 27% 24% 21%
Amount - - $15,329
Percent of net sales - - 11%
sales
Notes to Consolidated Financial Statements
NOTE 2 - BUSINESS AND GEOGRAPHIC REGION INFORMATION (Continued)
The following is a summary of financial information by geographic region:
FISCAL YEAR ENDED JULY 31
(Thousands of Dollars)
1995 1994 1993
Sales to unaffiliated customers:
Domestic $140,651 $135,899 $128,433
Foreign subsidiaries 12,248 11,248 12,433
Export sales:
Domestic $ 4,067 $ 8,252 $ 6,162
Sales or transfers between
geographic areas:
Domestic $ 3,233 $ 3,891 $ 3,741
Income before income taxes:
Domestic $ 10,094 $ 12,257 $ 11,441
Foreign subsidiaries 1,053 902 812
Net Income:
Domestic $ 7,240 $ 9,449 $ 8,803
Foreign subsidiaries 763 403 617
Identifiable assets:
Domestic $107,417 $102,659 $ 90,816
Foreign subsidiaries 9,571 9,608 11,301
Notes to Consolidated Financial Statements
NOTE 3 - NOTES PAYABLE
The composition of notes payable is as follows:
1995 1994
Thomasville Payroll Development Authority
Payable in annual principal installments of
$592,593 for the years 1994 to 1995,
inclusive. Interest is payable semiannually
at a rate of 68% of the prime rate. $ - $ 592,593
Town of Blue Mountain, Mississippi
Principal payable on October 1, 2008.
Interest payable monthly at a variable
interest rate set weekly based on market
conditions for similar instruments. The
average rates were 4.00% and 2.80% in 1995 and
1994, respectively. Payment of these bonds by
the Company is guaranteed by a letter of credit
issued by Harris Trust and Savings Bank. In
May 1991 the Company entered into a seven-year
interest rate swap contract. Under this
agreement, the Company receives a
floating interest rate based on LIBOR and
pays interest at a fixed rate of 6.53%. 2,500,000 2,500,000
Teachers Insurance and Annuity Association of
America Payable in annual principal
installments on November 15; $500,000 for
the years 1995 and 1996; $1,500,000 for 1997;
$1,800,000 for 1998; $1,200,000 for 2000;
$1,100,000 for 2001; and $1,000,000 for
2002. Interest is payable semiannually at
an annual rate of 9.38%. 7,100,000 7,600,000
Teachers Insurance and Annuity Association
of America Payable in annual principal
installments, the first payment due
August 15, 2001; $500,000 for 2002;
$1,000,000 for 2003; $2,500,000 for 2004;
and $2,500,000 for 2005. Interest is payable
semiannually at an annual rate of 7.17%. 6,500,000 6,500,000
Harris Trust and Savings Bank
Payable in annual principal installments,
the first payment due June 20, 1996;
$500,000 for 1996; $1,950,000 for 1999;
$900,000 for 2000; $650,000 for years
2001 and 2002; and $350,000 for 2003.
Interest is payable quarterly at an annual
rate of 7.78%. 5,000,000 5,000,000
Other 420,241 572,129
21,520,241 22,764,722
Less current maturities of notes payable (1,097,976) (1,243,479)
$20,422,265 $21,521,243
Notes to Consolidated Financial Statements
NOTE 3 - NOTES PAYABLE (Continued)
During fiscal 1995 the Company executed a Credit Agreement with Harris
Trust and Savings Bank which replaced the Term Note Agreement dated April
20, 1994. In addition to providing continued term financing, the Credit
Agreement provides for a $5,000,000 committed unsecured revolving line of
credit which expires on August 1, 1999, at certain short term rates.
The agreements the Town of Blue Mountain, Mississippi, Teachers Insurance
and Annuity Association of America and Harris Trust and Savings Bank
impose working capital requirements, dividend and financing limitations,
minimum tangible net worth requirements and other restrictions. The
Company's Credit Agreement with the Harris Trust and Savings Bank
indirectly restricts dividends by requiring the Company to maintain
tangible net worth, as defined, in the amount of $50,000,000 plus 25% of
cumulative annual earnings from July 31, 1994.
The Thomasville Payroll Development Authority and the Town of Blue
Mountain, Mississippi acquired, in prior years, substantially all of the
assets of certain plant expansion projects, issued long-term bonds to
finance the purchase and leased the projects to the Company and various of
its subsidiaries (with the Company and various of its wholly owned
subsidiaries as guarantors) at rentals sufficient to pay the debt service
on the bonds.
The following is a schedule by year of future maturities of notes payable
as of July 31, 1995:
Year Ending July 31:
1997 $ 1,582,265
1998 1,880,000
1999 2,030,000
2000 2,180,000
2001 1,750,000
Later years 11,000,000
$20,422,265
Notes to Consolidated Financial Statements
NOTE 4 - INCOME TAXES
The provision for income tax expense consists of the following:
1995 1994 1993
Current
Federal, net of amortization of
investment tax credits $2,756,283 $3,221,911 $2,522,761
Foreign 292,664 163,897 206,923
State 670,780 866,281 685,922
3,719,727 4,252,089 3,415,606
Deferred
Federal ( 535,093) ( 855,699) ( 465,865)
Foreign ( 2,142) 1,153 ( 11,833)
State ( 37,895) ( 90,359) ( 104,071)
( 575,130) ( 944,905) ( 581,769)
Total income tax provision $3,144,597 $3,307,184 $2,833,837
The components of the deferred tax (benefit) provisions occurring as a
result of transactions being reported in different years for financial and
tax reporting are as follows:
1995 1994 1993
Depreciation $( 286,291) $( 304,437) $( 479,415)
Deferred compensation ( 6,308) ( 148,242) ( 125,876)
Postretirement benefits ( 16,531) ( 129,081) -
Trade promotions and advertising 45,378 112,578 ( 102,000)
Accrued expenses ( 48,530) ( 164,694) ( 70,603)
Other, net ( 175,000) ( 270,990) 196,125
Alternative minimum tax ( 87,848) ( 40,039) -
Total $( 575,130) $( 944,905) $( 581,769)
The provision for income tax expense for the fourth quarter and year ended
July 31, 1995 includes a charge of $263,000 reflecting a change in the
estimated amounts of depletion deductions and temporary differences
between financial reporting and tax reporting for the year ended July 31,
1994.
Notes to Consolidated Financial Statements
NOTE 4 - INCOME TAXES (Continued)
Principal reasons for variations between the statutory federal rate and
the effective rates were as follows:
1995 1994 1993
U.S. federal statutory income tax rate 34.00% 34.00% 34.00%
Depletion deductions allowed for mining (12.24) (12.48) (13.86)
State income taxes, net of federal
tax benefit 5.68 4.42 4.75
Amortization of investment credits - - ( .94)
Difference in effective tax rate of
foreign subsidiaries ( 0.61) ( 0.16) ( 0.66)
Other 1.38 ( 0.65) ( 0.16)
28.21% 25.13% 23.13%
The consolidated balance sheet as of July 31, 1995 and 1994 included the
following tax effects of cumulative temporary differences:
1995 1994
Assets Liabilities Assets Liabilities
Depreciation $ - $1,552,223 $ - $1,768,521
Deferred compensation 689,893 - 680,062 -
Postretirement benefits 218,406 - 131,535 -
Trade promotions and 179,662 - 223,880 -
advertising
Accrued expenses 377,368 - 330,754 -
Foreign tax credits 363,685 - - -
Other 207,533 - 78,911 -
$2,036,547 $1,552,223 $1,445,142 $1,768,521
NOTE 5 - DEFERRED COMPENSATION
The Company maintains a deferred compensation plan which permits directors
and certain management employees to defer portions of their compensation
and earn a guaranteed interest rate on the deferred amounts. The
compensation, which has been deferred since the plan's inception, has been
accrued as well as interest thereon. The Company has purchased whole life
insurance contracts on some participants to partially fund the plan.
Notes to Consolidated Financial Statements
NOTE 6 - STOCKHOLDERS' EQUITY
On December 13, 1994, the stockholders of the Company approved an
amendment to the Company's Certificate of Incorporation authorizing
30,000,000 shares of a new class of common stock, par value $.10, which
has been designated as Class A Common Stock, in addition to the currently
authorized 15,000,000 shares of Common Stock and 7,000,000 shares of Class
B Stock, each with a par value of $.10. There are no Class A shares
currently outstanding.
The Common Stock and Class B Stock are equal, on a per share basis, in all
respects except as to voting rights, conversion rights, cash dividends and
stock splits or stock dividends. The Class A Common Stock is equal, on a
per share basis, in all respects, to the Common Stock except as to voting
rights and stock splits or stock dividends. In the case of voting rights,
Common Stock is entitled to one vote per share and Class B Stock is
entitled to ten votes per share, while Class A Common Stock generally has
no voting rights. Common Stock and Class A Common Stock have no
conversion rights. Class B Stock is convertible on a share-for-share
basis into Common Stock at any time and is subject to mandatory conversion
under certain circumstances.
Common Stock is entitled to cash dividends, as and when declared or paid,
equal to 133 1/3% on a per share basis of the cash dividend paid on Class
B Stock. Class A Common Stock is entitled to cash dividends on a per share
basis equal to the cash dividend on Common Stock. Additionally, while shares of
Common Stock, Class A Common Stock and Class B Stock are outstanding, the
sum of the per share cash dividend paid on shares of Common Stock and
Class A Common Stock, must be equal to at least 133 1/3% of the sum of the
per share cash dividend paid on Class B Stock and Class A Common Stock.
See Note 3 regarding dividend restrictions.
Shares of Common Stock, Class A Common Stock and Class B Stock are equal
in respect of all rights to dividends (other than cash) and distributions
in the form of stock or other property (including stock dividends and
split-ups) in each case in the same ratio except in the case of a Special
Stock Dividend. The Special Stock Dividend, which can be issued only
once, is either a dividend of one share of Class A Common Stock for each
share of Common Stock and Class B Stock outstanding or a recapitalization,
in which half of each outstanding share of Common Stock and Class B Stock
would be converted into a half share of Class A Common Stock.
All per share amounts included in the financial statements and notes
reflect the dilutive effect of all common stock equivalents. See Note 7
for information regarding common stock equivalents.
The following reflects the changes in treasury stock (common) over the
last three years:
Shares Amount
Balance, July 31, 1992 159,881 $1,699,602
Purchased during fiscal 1993 30,675 668,205
Balance, July 31, 1993 190,556 2,367,807
Purchased during fiscal 1994 91,190 1,895,364
Reissued during fiscal 1994 (50) (602)
Balance, July 31, 1994 281,696 4,262,569
Purchased during fiscal 1995 50,500 825,475
Balance, July 31, 1995 332,196 $5,088,044
NOTE 7 - STOCK OPTION PLANS
The Company maintained two stock option plans, the 1988 Option Plan and
the 1981 Option Plan. Under the 1988 Option Plan, a total of 312,500
shares of Common Stock and 312,500 stock appreciation rights were made
available for issuance. No stock appreciation rights were granted. The
options are exercisable one year after the date granted. The plan
expires on June 8, 1998.
The options available under the 1981 Option Plan were exercisable one
year after the grant by employees who have been employed for at least
three years; however, initially only 50% of the options could be
exercised without restriction. The balance of the options were
exercisable upon attainment of certain earnings levels. An earnings
level was attained in fiscal year 1986 and subsequent years that allowed
for exercise of another 25% of the options. Consequently, 75% of the
total outstanding options were considered common stock equivalents
through July 31, 1994. The remaining 25% of the options expired during
fiscal 1994. The plan expired on October 31, 1991.
Notes to Consolidated Financial Statements
NOTE 7 - STOCK OPTION PLANS (Continued)
A summary of option transactions under the plans follows:
1981 Option Plan 1988 Option Plan
Number of Shares Number of Shares
(Weighted Average Option Price) (Weighted Average Option Price)
1995 1994 1993 1995 1994 1993
Outstanding, - 61,150 85,919 138,659 158,785 162,872
Beginning of Year - $(10.80) $(10.80) $(19.61) $(19.17) $(18.96)
Granted - - - 197,250 4,000 5,000
- - - $(19.22) $(23.00) $(22.38)
Exercised - 29,515 20,882 - 21,126 7,213
- $(10.80) $(10.80) - $(17.05) $(17.51)
Canceled/terminated - 31,635 3,887 68,500 3,000 1,874
- $(10.80) $(10.80) $(22.21) $(19.00) $(15.60)
Outstanding, - - 61,150 267,409 138,659 158,785
End of Year - - $(10.80) $(18.66) $(19.61) $(19.17)
The company has reserved 5,520 shares of Common Stock for future grants
and issuances under the 1988 Option Plan.
As of July 31, 1995, a total of 267,409 options are exercisable under the
1988 Option Plan.
Combined Plans
Number of Shares
(Weighted Average Option Price)
1995 1994 1993
Outstanding, Beginning of Year 138,659 219,935 248,791
$(19.61) $(16.84) $(16.14)
Granted 197,250 4,000 5,000
$(19.22) $(23.00) $(22.38)
Exercised - 50,641 28,095
- $(13.41) $(12.39)
Canceled/terminated 68,500 34,635 5,761
$(22.21) $(11.51) $(12.36)
Outstanding, End of Year 267,409 138,659 219,935
$(18.66) $(19.61) $(16.84)
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have defined benefit pension plans for
eligible salaried and hourly employees. Benefits are based on a formula
of years of credited service and levels of compensation or stated amounts
for each year of credited service. The assets of these plans are invested
in various high quality marketable securities.
Notes to Consolidated Financial Statements
NOTE 8 - EMPLOYEE BENEFIT PLANS (Continued)
The net periodic pension cost for the years ended July 31, 1995, 1994 and
1993 consists of the following:
1995 1994 1993
Service cost $326,650 $325,626 $308,012
Interest cost on projected benefit
obligations 384,901 358,027 325,735
(Earnings) losses on plan assets (836,171) 80,058 (641,108)
Net amortization and deferral 495,586 (422,948) 344,700
Net pension cost $370,966 $340,763 $337,339
The funded status of the plans at July 31 is as follows:
1995 1994
Actuarial Present Value of Benefit
Obligations
Accumulated benefit obligations
Vested $4,076,780 $3,623,589
Nonvested 491,222 337,493
Total Accumulated Benefit Obligations $4,568,002 $3,961,082
Projected benefit obligations $5,989,916 $5,532,033
Plan Assets at Fair Value 5,334,851 4,426,791
Deficiency of plan assets over projected
benefit obligations (655,065) (1,105,242)
Unrecognized net (gain) loss (197,423) 317,405
Unrecognized prior service cost 614,402 691,721
Unrecognized net excess plan assets as of
August 1, 1987 being recognized
principally over 21 years (344,424) (371,048)
Adjustment required to recognize minimum (183,547) (190,784)
liability
Accrued pension included in
Noncurrent liabilities - other $ (766,057) $ (657,948)
Notes to Consolidated Financial Statements
NOTE 8 - EMPLOYEE BENEFIT PLANS (Continued)
Assumptions used in the previous calculations are as follows:
1995 1994
Discount rate 7.25% 7.25%
Rate of increase in compensation
levels 5.00% 5.00%
Long-term expected rate of return on
assets 8.00% 8.00%
The Company has funded the plans based upon actuarially determined
contributions that take into account the amount deductible for income tax
purposes and the minimum contribution required under the Employee
Retirement Income Security Act of 1974 (ERISA), as amended.
For the years ended July 31, 1995, 1994 and 1993, the Company maintained a
profit sharing/401(k) savings plan under which the Company matches a
portion of employee contributions. The plan is available to essentially
all employees who have completed one year of continuous service and are at
least 21 years of age. Total contributions by the Company for the years
ended July 31, 1995, 1994 and 1993 were $73,504, $74,476 and $74,767,
respectively.
Postretirement Benefits
In addition to providing pension benefits, the Company provides certain
medical benefits, until a participant attains age 65, to domestic salaried
employees who elect early retirement and meet minimum age, service and
other requirements. The Company reserves the right to amend or terminate
this plan at any time. The plan is contributory and contains cost-sharing
features such as deductibles and coinsurance.
SFAS No. 106 "Employers" Accounting for Postretirement Benefits Other Than
Pensions requires, among other things, the accrual of retirement benefit
costs over the active service period of employees to the date of full
eligibility for these benefits. The new standard requires that the
accumulated plan benefit obligation existing at the date of adoption
(transition obligation) either be recognized immediately or deferred and
amortized over future periods.
Effective August 1, 1993 the Company adopted the new standard and is
amortizing the resulting transition obligation over 20 years. The
adoption of this standard does not have a material effect on the
consolidated results of operations or financial position of the Company.
NOTE 9 - ACQUISITIONS
The excess of the Company's original investment over the fair value of the
net assets acquired at the date of acquisition is being amortized by the
straight-line method over 40 years.
Notes to Consolidated Financial Statements
NOTE 10 - LEASES
The Company's mining operations are conducted on leased and owned
property. These leases generally provide the Company with the right to
mine as long as the Company continues to pay a minimum monthly rental,
which is applied against the per ton royalty when the property is mined.
The Company leases its corporate offices (approximately 20,000 square
feet) in Chicago, Illinois and additional office facilities in Europe.
The office space in Chicago is subject to leases expiring in 2008. Office
facilities in Europe are leased on a year-to-year basis.
In addition, the Company leases vehicles, data processing and other office
equipment. In most cases, the Company expects that, in the normal course
of business, leases will be renewed or replaced by other leases.
The following is a schedule by year of future minimum rental requirements
under operating leases that have initial or remaining noncancelable lease
terms in excess of one year as of July 31, 1995:
Year Ending July 31:
1996 $ 3,453,000
1997 2,483,000
1998 1,578,000
1999 1,185,000
2000 773,000
Later years 3,850,000
$13,322,000
The following schedule shows the composition of total rental expense for
all operating leases, including those with terms of one month or less
which were not renewed:
1995 1994 1993
Transportation equipment $3,439,000 $2,710,000 $2,758,000
Office facilities 373,000 184,000 190,000
Mining properties
Minimum 180,000 196,000 193,000
Contingent 162,000 183,000 180,000
Other 649,000 565,000 358,000
$4,803,000 $3,838,000 $3,679,000
Notes to Consolidated Financial Statements
NOTE 11 - OTHER CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows:
1995 1994 1993
Interest $1,750,054 $1,390,014 $1,534,795
Income Taxes $4,013,110 $5,624,987 $3,528,503
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected information for 1995 and 1994 is as follows:
Fiscal 1995 Quarter Ended
(Thousands Except per Share Amounts)
Oct. 31 Jan. 31 April 30 July 31 Total
Net Sales $39,025 $40,157 $37,179 $36,538 $152,899
Gross Profit 12,394 12,168 10,328 9,741 44,631
Net Income 2,819 2,573 1,540 1,071 8,003
Net Income Per Share $ 0.41 $ 0.37 $ 0.22 $ 0.15 $ 1.15
Fiscal 1994 Quarter Ended
(Thousands Except per Share Amounts)
Oct. 31 Jan. 31 April 30 July 31 Total
Net Sales $35,187 $39,178 $39,380 $33,402 $147,147
Gross Profit 11,362 12,377 11,381 9,570 44,690
Net Income 2,575 3,251 2,356 1,670 9,852
Net Income Per Share $ .37 $ .46 $ .34 $ .24 $ 1.41
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
Oil-Dri Corporation of America
We have audited the consolidated statements of financial position of
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES as of July 31, 1995
and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended July 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES as of July 31, 1995
and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 1995, in
conformity with generally accepted accounting principles.
BLACKMAN KALLICK BARTELSTEIN, LLP
Chicago, Illinois
August 25, 1995
Common Stock
On December 20, 1993, the Common Stock of the Company began trading on the
New York Stock Exchange under the ticker symbol ODC. Prior to December
20, 1993, the Common Stock was quoted in the NASDAQ National Market System
under the ticker symbol OILC. The following table sets forth the closing
high and low prices as quoted on the New York Stock Exchange and the
NASDAQ National Market System for the period indicated. NASDAQ National
Market System prices reflect interdealer prices without retail mark-up,
mark-down or commissions, and may not necessarily reflect actual
transactions.
The number of holders of record of Common Stock on July 31, 1995 was 1,317.
There is no established public trading market for the Class B Stock.
The number of holders of record of Class B Stock on July 31, 1995 was 22.
Dividends
Amount Per Share
Date Paid Common Class B
Quarterly 09/16/94 $0.07 $0.0525
Quarterly 12/16/94 $0.08 $0.06
Quarterly 03/17/95 $0.08 $0.06
Quarterly 06/16/95 $0.08 $0.06
Market
Prices
Fiscal 1995 Closing Prices
High Low
1st Quarter 20 17 3/8
2nd Quarter 19 1/8 16 3/4
3rd Quarter 18 3/8 15 7/8
4th Quarter 16 7/8 14 1/8
Market
Prices
Fiscal 1994 Closing Prices
High Low
1st Quarter 25 19 3/4
2nd Quarter 23 3/8 18 3/4
3rd Quarter 23 1/8 19 3/8
4th Quarter 21 1/2 17 7/8
Board of Directors
Officers
Senior Management
Board of Directors
Richard M. Jaffee, Chairman and Chief Executive Officer
Daniel S. Jaffee, President and Chief Operating Officer
Robert D. Jaffee, Chairman - Amco Corporation
J. Steven Cole, President - Cole & Associates & Sav-A-Life Systems, Inc.
Norman B. Gershon, Vice-President
Edgar D. Jannotta, Senior Partner - William Blair & Company
Joseph C. Miller, Vice-Chairman
Paul J. Miller, Partner - Sonnenschein Nath & Rosenthal
Haydn H. Murray, Professor Emeritus of Geology - Indiana University
Allan H. Selig, President - Milwaukee Brewers Baseball Club, Inc., Selig
Executive Leasing, Inc., Chairman of the Executive Council of Major League
Baseball
Bruce H. Sone, Vice-President
Corporate Officers
Richard M. Jaffee, Chairman and Chief Executive Officer
Daniel S. Jaffee, President and Chief Operating Officer
Joseph C. Miller, Vice-Chairman
Herbert V. Pomerantz, Senior Vice-President - Agrisorbents and Pure-Flo
Product Groups and Research & Development
Richard V. Hardin, Group Vice-President - Technology
Bruce H. Sone, Vice-President - Consumer Products - Mass Merchandising
James T. Davis, Vice-President - Manufacturing
Norman B. Gershon, Vice-President - International Operations, Managing
Director - Oil-Dri S.A.
Louis T. Bland, Jr., Secretary
Donald J. Deegan, Director - Finance & Accounting
Richard L. Pietrowski, Treasurer
Albert L. Swerdlik, Secretary Emeritus
Heidi M. Jaffee, Assistant Secretary
Senior Management
Elwyn J. Allbritton, Vice-President - Operational Development
Charles M. Boland, General Manager - Agrisorbents Product Group
Wade R. Bradley, General Manager - Industrial & Environmental Product Group
Karen Jaffee Cofsky, Manager - Human Resources
Thomas F. Cofsky, General Manager - Logistics, Quality and Service
Sam J. Colello, Director - Information Systems
B. Fielden Fraley, General Manager - Pure-Flo Product Group
Fred G. Heivilin, Vice-President - Raw Materials Development
Richard D. Johnsonbaugh, Eastern Regional Manager - Manufacturing
Steven M. Levy, General Manager - Consumer Products Group
William F. Moll, Vice-President - Research & Development
Dennis E. Peterson, President - Oil-Dri Transportation Company
V.R. Roskam, Vice-President - Agrisorbents Product Group
William O. Thompson, Western Regional Manager - Manufacturing
Corporate Headquarters
Oil-Dri Corporation of America
410 North Michigan Avenue, Suite 400
Chicago, Illinois 60611
(312) 321-1515
Listing Ticker Symbol
New York Stock Exchange ODC
Registrar/Transfer Agent
Harris Trust and Savings Bank
311 West Monroe
Chicago, Illinois 60606
(312)461-3324
Independent Public Accountants
Blackman Kallick Bartelstein, LLP
Legal Counsel
Sonnenschein Nath & Rosenthal
Subsidiaries
Oil-Dri Corporation of Georgia Oil-Dri (U.K.) Limited
Georgia United Kingdom
Oil-Dri Production Company Oil-Dri Corporation of Nevada
Mississippi/Oregon Nevada
Oil-Dri Transportation Company Blue Mountain Production Company
Georgia Mississippi
Oil-Dri S.A. Favorite Products Company, Ltd.
Switzerland Quebec, Canada