1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter April 30, 1998 Commission File Number 0-8675
OIL-DRI CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2048898
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
410 North Michigan Avenue
Chicago, Illinois 60611
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(Address of principal executive offices) (Zip Code)
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 - 5,440,630 Shares (Including 982,760 Treasury Shares)
Class B Stock - 1,794,888 Shares (Including 342,241 Treasury Shares)
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OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
APRIL 30 JULY 31
ASSETS 1998 1997
-------- --------
CURRENT ASSETS
Cash and Cash Equivalents $ 9,962 $ 9,997
Investment Securities 1,161 1,544
Accounts Receivable 22,739 20,341
Allowance for Doubtful Accounts (414) (261)
Inventories 12,150 10,604
Prepaid Expenses and Taxes 6,592 4,685
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TOTAL CURRENT ASSETS 52,190 46,910
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PROPERTY, PLANT AND EQUIPMENT - AT COST
Cost 115,736 114,533
Less Accumulated Depreciation and (61,669) 58,737
-------- --------
Amortization
TOTAL PROPERTY, PLANT 54,067 55,796
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AND EQUIPMENT, NET
OTHER ASSETS
Investment in Subsidiary 13,791 0
Goodwill (Net of Accumulated Amortization) 3,942 4,040
Deferred Income Taxes 2,434 2,446
Other 4,574 5,366
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TOTAL OTHER ASSETS 24,741 11,852
-------- --------
TOTAL ASSETS $130,998 $114,558
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
APRIL 30 JULY 31
LIABILITIES & STOCKHOLDERS' EQUITY 1998 1997
--------- ---------
CURRENT LIABILITIES
Current Maturities of Notes Payable $ 92 $ 1,946
Accounts Payable 4,225 4,050
Dividends Payable 444 475
Accrued Expenses 7,966 9,274
Restructuring Reserve 734 0
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TOTAL CURRENT LIABILITIES $ 13,461 $ 15,745
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NONCURRENT LIABILITIES
Notes Payable 41,972 17,052
Deferred Compensation 2,801 2,750
Other 1,910 1,681
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TOTAL NONCURRENT LIABILITIES 46,683 21,483
-------- --------
TOTAL LIABILITIES 60,144 37,228
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STOCKHOLDERS' EQUITY
Common and Class B Stock 724 724
Paid-In Capital in Excess of Par Value 7,698 7,686
Restricted Unearned Stock Compensation (37) (18)
Retained Earnings 84,044 82,243
Cumulative Translation Adjustment (980) (907)
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91,449 89,728
Less Treasury Stock, At Cost (20,595) (12,398)
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TOTAL STOCKHOLDERS' EQUITY 70,854 77,330
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $130,998 $114,558
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
APRIL 30
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1998 1997
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NET SALES $ 118,995 $ 119,319
Cost Of Sales 81,615 83,328
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GROSS PROFIT 37,380 35,991
Selling, General And Administrative Expenses 28,550 27,372
Restructuring Expense 3,129 0
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INCOME FROM OPERATIONS 5,701 8,619
OTHER INCOME (EXPENSE)
Interest Expense (1,253) (1,349)
Interest Income 307 456
Other, Net (329) (232)
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TOTAL OTHER EXPENSE, NET (1,275) (1,125)
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INCOME BEFORE INCOME TAXES 4,426 7,494
Income Taxes 1,261 2,136
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NET INCOME 3,165 5,358
RETAINED EARNINGS
Balance at Beginning of Year 82,243 77,386
Less Cash Dividends Declared 1,364 1,465
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RETAINED EARNINGS - APRIL 30 $ 84,044 $ 81,279
=========== ===========
AVERAGE SHARES OUTSTANDING 6,231,626 6,644,428
=========== ===========
NET INCOME PER SHARE $ 0.51 $ 0.81
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
---------------------------
FOR THE THREE MONTHS ENDED
APRIL 30
---------------------------
1998 1997
----------- -----------
NET SALES $ 38,334 $ 36,002
Cost Of Sales 26,148 25,938
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GROSS PROFIT 12,186 10,064
Selling, General And Administrative Expenses 9,850 8,047
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INCOME FROM OPERATIONS 2,336 2,017
OTHER INCOME (EXPENSE)
Interest Expense (452) (432)
Interest Income 90 155
Other, Net (32) (112)
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TOTAL OTHER EXPENSE, NET (394) (389)
INCOME BEFORE INCOME TAXES 1,942 1,628
Income Taxes 553 464
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NET INCOME 1,389 1,164
AVERAGE SHARES OUTSTANDING 6,070,282 6,582,374
=========== ===========
NET INCOME PER SHARE $ 0.23 $ 0.18
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
APRIL 30
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
-------- --------
NET INCOME $ 3,165 $ 5,358
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 5,676 5,670
Restructuring Reserve 3,129 0
Provision for bad debts 264 25
(Increase) Decrease in:
Accounts Receivable (2,509) 1,494
Inventories (1,546) 1,346
Prepaid Expenses and Taxes (1,907) (944)
Other Assets (27) (308)
Increase (Decrease) in:
Accounts Payable 175 (1,710)
Accrued Expenses (1,308) (129)
Deferred Compensation 51 122
Restructuring Reserve (2,395) 0
Other 229 230
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TOTAL ADJUSTMENTS (168) 5,796
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,997 11,154
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CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Subsidiary (13,791) 0
Capital Expenditures (4,528) (4,141)
Proceeds from sale of property, plant and
equipment 4 555
Dispositions of Non-Performing Assets 781 0
Purchases of Investment Securities (528) (315)
Dispositions of Investment Securities 911 400
Proceeds from sale of Investments 709 0
Other (18) (145)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (16,460) (3,646)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Long-Term Debt 25,000 0
Principal Payments on Long-Term Debt (1,934) (1,627)
Dividends Paid (1,395) (1,485)
Purchases of Treasury Stock (8,238) (3,804)
Other (5) 43
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NET CASH PROVIDED BY (USED IN)FINANCING ACTIVITIES 13,428 (6,873)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (35) 635
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,997 10,114
======== ========
CASH AND CASH EQUIVALENTS, APRIL 30 $ 9,962 $ 10,749
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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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, 1997, 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.
2. INVENTORIES
The composition of inventories is as follows (in thousands):
APRIL 30 JULY 31
(UNAUDITED) (UNAUDITED)
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1998 1997
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Finished goods $7,489 $6,684
Packaging 3,958 3,168
Other 703 752
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$12,150 $10,604
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Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
3. RESTRUCTURING RESERVE
As previously disclosed, the Company divested its transportation business
effective November 22, 1997. In conjunction with the divestiture, the Company
recorded during the second quarter a pre-tax restructuring charge of $3,129,000
to cover the costs of exiting the transportation business ($1,443,000) and to
write off certain other non-performing assets, primarily manufacturing machinery
and equipment ($905,000). At April 30, 1998, $734,000 of the restructuring
charges remained in Current Liabilities. A summary of the restructuring activity
is presented below (in thousands):
1998 Restructuring charge $3,129
1998 Activity:
Machinery and equipment 781
Transportation business exit costs 821
Obsolete Inventory 300
Other 498
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Balance at April 30, 1998 $ 734
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4. NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" during the second quarter of 1998. The statement simplifies
the standards for computing earnings per share ("EPS") previously defined in
Accounting Principles Board Opinion No. 15, "Earnings Per Share" (APB 15) and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS.
Basic EPS excludes dilution and is computed by dividing net income available to
common stockholders (numerator) by the weighted-average number of common shares
outstanding (denominator) for the period. Diluted EPS is computed similarly to
fully diluted EPS under APB 15. A reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation is presented in Exhibit 11 of this document.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" were
issued. SFAS No. 130 establishes standards for the reporting of comprehensive
income and its components in a financial statement presentation. SFAS No. 130
separates comprehensive income into net income and other comprehensive income,
but does not change the measurement and presentation of net income. Other
comprehensive income includes certain changes in the equity of the Company which
are currently recognized and presented separately in the Consolidated Statements
of Stockholder's Equity, such as the change in the Translation Adjustment
account. SFAS No. 130 is effective for the Company beginning in fiscal 1999.
SFAS No. 131 establishes new standards for the way companies report information
about operating segments and requires that those enterprises report selected
information about operating segments in the interim financial reports issued to
shareholders. SFAS No. 131 is effective for the Company beginning in fiscal
1999.
5. ACQUISITION
On April 20, 1998, the Company completed the purchase of the Fuller's Earth
absorbent business of American Colloid Co., a wholly owned subsidiary of Amcol
International, for an amount approximating $13,865,000. The purchase includes a
production plant and mineral reserves in Mounds, Illinois ("Mounds Production
Company"), and mineral reserves located in Paris, Tennessee, and Silver Springs,
Nevada. This absorbent business has annual sales approximating $15,000,000. The
Company financed the acquisition through a fixed rate private debt placement.
The acquisition will be accounted for as a purchase; accordingly, the purchase
price will be allocated to the underlying assets and liabilities based upon
their estimated fair values as soon as they are determinable.
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MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1998 COMPARED TO NINE
MONTHS ENDED APRIL 30, 1997
RESULTS OF OPERATIONS
Total Company net sales for the nine months ended April 30, 1998 were
$118,995,000, a decrease of 0.3% from net sales of $119,319,000 in the first
nine months of fiscal 1997. This decrease was primarily due to exiting the
transportation business. Transportation sales for the first nine months of
fiscal 1997 were $5,837,000 compared to $2,372,000 in the first nine months of
the current year. Excluding transportation, sales increased 2.8% in the first
nine months of fiscal 1998 versus fiscal 1997. Net income for the first nine
months of fiscal 1998 was $3,165,000 or $0.51 per share, compared to $5,358,000
or $0.81 per share earned in the first nine months of fiscal 1997. The decrease
was primarily due to a restructuring charge recorded in the second quarter of
fiscal 1998. The restructuring charge, which covered the costs of exiting the
transportation business and writing off certain non-performing assets, reduced
income before income taxes by $3,129,000, net income by $2,237,000, and earnings
per share by $0.36 for the nine months ended April 30, 1998.
Net sales of cat box absorbents increased $1,869,000, or 2.6% from prior year
amounts. Net sales of agricultural and fluids purification products increased
$1,320,000 or 4.7%, from the comparable period in fiscal 1997. The higher sales
resulted from an increased demand for fluids purification products in the United
Kingdom. Net sales of industrial and environmental sorbents were comparable to
prior year levels. Net sales of transportation services decreased $3,465,000 or
59.4% from prior year levels due to the exiting from this business in November
1997.
Consolidated gross profit as a percentage of net sales for the nine months ended
April 30, 1998 increased to 31.4% from 30.2% in the comparable period of fiscal
1997. Changes in sales mix, a Company-wide effort to reduce costs and exiting
the transportation business contributed to this increase.
Operating expenses as a percentage of net sales increased to 26.6% in the first
nine months of fiscal 1998 from 22.9% in the same period of fiscal 1997. This
increase is primarily due to a pre-tax charge of $3,129,000 recorded in the
second quarter of fiscal 1998 for the restructuring reserve.
Interest expense decreased $96,000 and interest income decreased $149,000.
The Company's effective tax rate was 28.5% of pre-tax income in the first nine
months of both fiscal 1998 and fiscal 1997.
The assets of the Company increased $16,440,000, or 14.4%, during the first nine
months of fiscal 1998, primarily due to the acquisition of Mounds Production
Company. Current assets increased $5,280,000, or 11.3%, from fiscal 1997 year
end balances primarily due to increased accounts receivable, prepaid expenses,
and inventories, partially offset by lower investment securities. Property,
plant and equipment, net of accumulated depreciation, decreased $1,729,000
during the first nine months due to the write-off of non-performing assets
against the restructuring reserve and depreciation expense exceeding capital
expenditures.
Total liabilities in the nine months ended April 30, 1998 increased $22,916,000,
or 61.6%, due primarily to increased notes payable related to the purchase of
Mounds Production Company. Current liabilities decreased $2,284,000 or 14.5%
from July 31, 1997 balances,
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primarily due to a reduction in the current maturities of notes payable as well
as accrued expenses, partially offset by increased accounts payable and the
balance of the restructuring reserve recorded in the second quarter.
EXPECTATIONS
The Company anticipates sales during the remainder of fiscal 1998 will be at
higher levels than sales in the comparable period of fiscal 1997 due to
incremental sales of cat box absorbents, agricultural carriers and industrial
sorbents resulting from the April 20, 1998 acquisition of Mounds Production Co.
These incremental sales will offset the loss of approximately $2 million per
quarter of backhaul revenue previously generated by the Company's transportation
business (exited in the second quarter of the current fiscal year) and the
approximately $1.5 million per quarter of sales to Sam's Club, which recently
decided to discontinue carrying the Company's cat litter product. However, sales
growth of cat box absorbents is subject to continuing competition for shelf
space in the grocery, mass merchandiser and club markets. Demand for AGSORB(R)
carriers and Pure-Flo(R) fluids purification products are expected to show
slight improvement through the remainder of the fiscal year.
The foregoing statements under this heading are "forward looking statements"
within the meaning of that term in the Securities Exchange Act of 1934, as
amended. Actual results may be lower than those reflected in these
forward-looking statements, due primarily to: continued vigorous competition in
the grocery, mass merchandiser and club markets; the level of success of new
products; integration of recent acquisitions; and the cost of new product
introductions and promotions in consumer markets. These forward-looking
statements also involve the risk of changes in market conditions in the overall
economy and, for the agricultural and fluids purification division, in the
planting activity, crop quality and overall agricultural demand, including
export demand.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio increased to 3.9 at April 30, 1998 from 3.0 at July 31, 1997.
Working capital increased $7,564,000 during the nine months ended April 30, 1998
to $38,729,000. Cash provided by operations continues to be the Company's
primary source of funds to finance ordinary investing needs and financing
activities. During the nine months ended April 30, 1998, the balances of cash,
cash equivalents and other investments decreased $418,000. Cash on hand at the
beginning of the year of $9,997,000, cash provided by operating activities of
$2,996,000 and $25,000,000 of fixed rate financing secured during the third
quarter were used to fund the purchase of Mounds Production Company
($13,865,000), the purchase of the Company's common stock ($8,238,000), capital
expenditures ($4,528,000), principal payments on long term debt ($1,934,000) and
dividend payments ($1,395,000). The fixed rate financing was completed at 6.55%,
and consists of 15-year notes having an average life of ten years. Total cash
and investment balances held by the Company's foreign subsidiaries at April 30,
1998 and July 31, 1997 were $2,600,000 and $2,803,000 respectively.
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THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO
THREE MONTHS ENDED APRIL 30, 1997
Consolidated net sales for the three months ended April 30, 1998 were
$38,334,000, an increase of $2,332,000 or 6.5%, over net sales of $36,002,000 in
the third quarter of fiscal 1997. Excluding transportation sales, which were
$1,970,000 in the third quarter of last year, sales increased 12.6% in the third
quarter of fiscal 1998 versus fiscal 1997. Net income for the three months ended
April 30, 1998 was $1,389,000 or $0.23 per share, an increase of 19.3% from
$1,164,000, or $0.18 per share, earned in last year's quarter.
Net sales of cat box absorbents increased $3,311,000 or 16.4% from prior year
amounts. Net sales of agricultural and fluids purification products increased
$916,000, or 10.3% from the comparable period in fiscal 1997. The higher sales
resulted from increased demand for PURE-FLO(R) Supreme fluids purification
products in the United Kingdom. Net sales of industrial and environmental
sorbents increased $70,000 or 1.4% from last year's third quarter.
Consolidated gross profit as a percentage of net sales for the three months
ended April 30, 1998 increased to 31.8% from 28.0% in the comparable period of
fiscal 1997. Changes in sales mix, a Company-wide effort to reduce costs and
exiting the transportation business contributed to this increase.
Operating expenses as a percentage of net sales increased to 25.7% in the third
quarter of fiscal 1998 from 22.4% in the same quarter of the prior year.
Interest expense increased $20,000 while interest income decreased $65,000.
The Company's effective tax rate was 28.5% of pre-tax income in the third
quarter of both fiscal 1998 and fiscal 1997.
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries for the nine months ended April
30, 1998 were $10,257,000, or 8.6% of total Company sales. This represents an
increase of $1,221,000 or 13.5% from the same period of fiscal 1997, in which
foreign subsidiary sales were $9,036,000, or 7.6% of total Company sales. Net
income of the foreign subsidiaries for the first nine months of fiscal 1998 was
$465,000 compared with $431,000 in the same period of fiscal 1997. Identifiable
assets of the Company's foreign subsidiaries as of April 30, 1998, were
$11,692,000, an increase of $1,826,000 from $9,866,000 as of July 31, 1997. The
increase is primarily due to higher fixed assets, prepaid expenses, inventories,
and cash and cash equivalents.
Net sales by the Company's foreign subsidiaries for the quarter ended April 30,
1998 were $3,776,000 or 9.9% of total Company sales. This represents an increase
of $860,000, or 29.5% from the same quarter in fiscal 1997, in which foreign
subsidiary sales were $2,916,000, or 8.1% of total Company sales. Net income of
the foreign subsidiaries for the second quarter of fiscal 1998 was $144,000 and
was flat in the same period of fiscal 1997.
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6. (a) EXHIBITS: The following documents are an exhibit to this report.
Exhibit
Index
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Exhibit 11: Statement Re: Computation of per share earnings 14
Exhibit 27: Financial Data Schedule 15
Exhibit (10)(m): $25,000,000 Note Purchase Agreement dated as of April
15, 1998, between the Company and Teachers Insurance and
Annuity Association of America and CIGNA Investments, Inc. 16-78
(b) On May 7, 1998, the Company filed a Report on Form 8-K announcing
that the Company completed the purchase of the Fuller's Earth
absorbent business of American Colloid Company pursuant to an
Asset Purchase Agreement dated as of April 20, 1998.
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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/ Michael L. Goldberg
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Michael L. Goldberg
Executive Vice President and Chief Financial Officer
BY /s/ Daniel S. Jaffee
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Daniel S. Jaffee
President and Chief Executive Officer
Dated: June 12, 1998
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