SEC Filing - Oil-Dri Corporation Of America

CONFORMED COPY 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 Ended April 30, 1997 Commission File Number 0-8675 OIL-DRI CORPORATION OF AMERICA (Exact name of registrant as specified in its charter) DELAWARE 36-2048898 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 410 North Michigan Avenue Chicago, Illinois 60611 (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 - 5,218,755 Shares (Including 736,952 Treasury Shares) Class B Stock - 2,016,763 Shares 1

OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES Consolidated Balance Sheets (Unaudited) --------------------------------- April 30 July 31 1997 1996 --------------------------------- ASSETS CURRENT ASSETS Cash and Cash Equivalents $10,749,234 $10,113,544 Investment Securities, at Cost 1,509,000 1,594,000 Accounts Receivable 19,194,119 20,666,623 Allowance for Doubtful Accounts (272,482) (225,970) Inventories 10,391,103 11,737,068 Prepaid Expenses and Taxes 5,251,942 4,325,061 Total Current Assets 46,822,916 48,210,326 PROPERTY, PLANT AND EQUIPMENT - AT COST Cost 114,242,453 112,943,046 Less Accumulated Depreciation and (57,852,076) (54,730,624) Amortization Total Property, Plant and Equipment, Net 56,390,377 58,212,422 OTHER ASSETS Goodwill (Net of Accumulated Amortization) 4,073,481 4,172,526 Deferred Income Taxes 2,287,405 2,264,291 Other 5,109,618 4,833,303 Total Other Assets 11,470,504 11,270,120 TOTAL ASSETS $114,683,797 $117,692,868 The accompanying notes are an integral part of the consolidated financial statements. 3

OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES Consolidated Balance Sheets (Unaudited) --------------------------------- April 30 July 31 1997 1996 --------------------------------- LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Notes Payable $1,926,000 $1,626,762 Accounts Payable - Trade 3,628,339 5,338,787 Dividends Payable 479,550 519,610 Accrued Expenses 10,197,815 10,326,518 Total Current Liabilities 16,231,704 17,811,677 NONCURRENT LIABILITIES Notes Payable 17,052,000 18,978,000 Deferred Compensation 2,375,738 2,253,313 Other 1,650,529 1,420,382 Total Noncurrent Liabilities 21,078,267 22,651,695 Total Liabilities 37,309,971 40,463,372 STOCKHOLDERS' EQUITY Common Stock 723,552 723,552 Paid-In Capital in Excess of Par Value 7,670,818 7,660,600 Retained Earnings 81,278,907 77,385,514 Cumulative Translation Adjustment ( 974,126) ( 1,018,416) 88,699,151 84,751,250 Less Treasury Stock, At Cost (11,325,325) ( 7,521,754) Total Stockholders' Equity 77,373,826 77,229,496 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $114,683,797 $117,692,868 The accompanying notes are an integral part of the consolidated financial statements. 4

OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES Consolidated Statements of Income and Retained Earnings Nine Months Ended April 30 (Unaudited) ------------------------------ 1997 1996 ------------------------------ Net Sales $119,319,414 $117,532,387 Cost Of Sales 83,328,206 82,398,383 Gross Profit 35,991,208 35,134,004 Selling, General And Administrative Expenses 27,371,950 30,803,160 Operating Income 8,619,258 4,330,844 OTHER INCOME (EXPENSE) Interest Expense ( 1,349,511) ( 1,444,322) Interest Income 456,178 429,950 Foreign Exchange Gain (Loss) 8,385 ( 4,231) Other, Net ( 240,278) 289,345 ( 1,125,226) ( 729,258) Income Before Income Taxes 7,494,032 3,601,586 Income Taxes 2,135,799 1,041,590 Net Income 5,358,233 2,559,996 RETAINED EARNINGS Balance at Beginning of Year 77,385,514 76,033,462 Less Cash Dividends Declared 1,464,840 1,529,235 Retained Earnings - April 30 $ 81,278,907 $ 77,064,223 Average Shares Outstanding 6,644,428 6,818,940 Net Income Per Share $0.81 $0.38 The accompanying notes are an integral part of the consolidated financial statements. 5

OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES Consolidated Statements of Income and Retained Earnings Three Months Ended April 30 (Unaudited) ---------------------------- 1997 1996 ---------------------------- Net Sales $36,002,060 $36,427,141 Cost Of Sales 25,937,585 25,274,538 Gross Profit 10,064,475 11,152,603 Selling, General And Administrative Expenses 8,047,324 9,957,996 Operating Income 2,017,151 1,194,607 OTHER INCOME (EXPENSE) Interest Expense ( 432,766) ( 473,794) Interest Income 155,328 155,817 Foreign Exchange Gain (Loss) 4,205 ( 3,361) Other, Net ( 115,684) 101,621 ( 388,917) ( 219,717) Income Before Income Taxes 1,628,234 974,890 Income Taxes 464,047 304,968 Net Income $ 1,164,187 $ 669,922 Average Shares Outstanding 6,582,374 6,803,484 Net Income Per Share $ 0.18 $ 0.10 The accompanying notes are an integral part of the consolidated financial statements. 6

OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES Consolidated Statements of Cash Flows For the Nine Months Ended April 30 (Unaudited) ----------------------------- 1997 1996 ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $5,358,233 $2,559,996 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 5,669,517 5,982,566 Provision for bad debts 25,000 156,752 (Increase) Decrease in: Accounts Receivable 1,494,016 475,912 Inventories 1,345,965 ( 1,261,217) Prepaid Expenses and Taxes ( 944,031) ( 594,242) Other Assets ( 308,329) ( 656,549) Increase (Decrease) in: Accounts Payable (1,710,447) ( 785,376) Accrued Expenses ( 128,720) 802,116 Deferred Compensation 122,425 208,775 Other 230,146 541,655 Total Adjustments 5,795,542 4,870,392 Net Cash Provided by Operating Activities 11,153,775 7,430,388 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures ( 4,141,302) ( 4,394,927) Proceeds from disposition of property, plant and equipment 555,232 - Purchases of Investment Securities ( 315,000) ( 106,000) Dispositions of Investment Securities 400,000 907,270 Other ( 144,494) 111,947 Net Cash Used in Investing Activities ( 3,645,564) ( 3,481,710) CASH FLOWS FROM FINANCING ACTIVITIES Principal Payments on Long-Term Debt ( 1,626,762) ( 346,855) Dividends Paid ( 1,485,368) ( 1,528,785) Foreign Currency Translation Adjustment 43,180 ( 21,319) Purchases of Treasury Stock ( 3,803,571) ( 1,599,232) Net Cash Used In Financing Activities ( 6,872,521) ( 3,496,191) Net Increase in Cash and Cash Equivalents 635,690 452,487 Cash and Cash Equivalents, Beginning of Year 10,113,544 8,829,667 Cash and Cash Equivalents, April 30 $10,749,234 $ 9,282,154 The accompanying notes are an integral part of the consolidated financial statements. 7

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, 1996, 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: ----------------------------- April 30 July 31 (Unaudited) (Unaudited) ----------------------------- 1997 1996 ----------------------------- Finished goods $6,400,681 $6,728,150 Packaging 3,232,715 3,754,087 Other 757,707 1,254,831 $10,391,103 $11,737,068 Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. 8

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED APRIL 30, 1997 COMPARED TO NINE MONTHS ENDED APRIL 30, 1996 RESULTS OF OPERATIONS Consolidated net sales for the nine months ended April 30, 1997 were $119,319,000, an increase of 1.5% over net sales of $117,532,000 in the first nine months of fiscal 1996. Net income for the first nine months of fiscal 1997 was $5,358,000 or $0.81 per share, an increase of 109.3% from $2,560,000 or $0.38 per share earned in the nine months ended April 30, 1996. Net sales of cat box absorbents increased $3,091,000, or 4.5% over prior year amounts, even though sales to Sam's Club were down approximately $3,549,000 in the first nine months compared to the same period of last year. The growth resulted from increased sales of branded and private label products in both the grocery and mass merchandising markets. Net sales of agricultural and fluids purification products increased $2,004,000, or 7.6%, from the comparable period in fiscal 1996. The higher sales resulted from increased demand for AGSORB carriers as well as PURE-FLO Supreme fluids purification products. Net sales of industrial and environmental sorbents decreased $1,113,000, or 8.5%, from prior year levels. The decrease was due to an increased internal focus on profitability versus sales growth and open positions in the sales force responsible for these products during the first quarter. Net sales of transportation services decreased $1,227,000 or 17.4% from the first nine months of fiscal 1996 due to lower backhaul revenue resulting from a reduction in the Company's fleet. Consolidated gross profit as a percentage of net sales for the nine months ended April 30, 1997 increased to 30.2% from 29.9% in the comparable period of fiscal 1996. Changes in sales mix and a Company-wide effort to reduce costs contributed to this increase. Operating expenses as a percentage of net sales decreased to 22.9% in the first nine months of fiscal 1997 from 26.2% in the same period of fiscal 1996. This decrease is primarily attributable to lower advertising and promotion costs for the new consumer products introduced last year and the one-time charge in the second quarter of fiscal 1996 of $921,000, reflecting settlement cost and legal fees related to patent litigation. Interest expense decreased $95,000 while interest income increased $26,000. The Company's effective tax rate was $28.5% of pre-tax income in the first nine months of 1997 as compared to 28.9% for the same period of fiscal 1996. The assets of the Company decreased $3,009,000 during the first nine months of fiscal 1997. Current assets decreased $1,387,000, or 2.9%, from fiscal 1996 year end balances primarily due to decreased accounts receivable and inventories, partially offset by higher prepaid expenses and cash and cash equivalents. Property, plant and equipment, net of accumulated depreciation, decreased $1,822,000 during the first nine months due to depreciation expense exceeding capital expenditures. Total liabilities in the nine months ended April 30, 1997 decreased $3,153,000, due primarily to the repayment of long-term debt and lower accounts payable. Current liabilities decreased $1,580,000 or 8.9% from July 31, 1996 balances, due to lower accounts payable, partially offset by higher current maturities of notes payable. 9

EXPECTATIONS The Company anticipates sales during the remainder of fiscal 1997 will be slightly higher than the sales in the fourth quarter of fiscal 1996. Sales of branded cat box absorbents are expected to increase moderately. However, this sales growth is subject to continuing competition for shelf space in the grocery, mass merchandiser and club markets. The Company expects the profitability of these products to favorably impact earnings as spending on advertising and promotion remains at lower levels throughout the remainder of the current fiscal year as compared to last year. Sales of the Company's fluids purification products are also expected to increase compared to the same period of fiscal 1996. Demand for AGSORB carriers is expected to remain soft for 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; 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 2.9 at April 30, 1997 from 2.7 at July 31, 1996. Working capital increased $192,000 in the nine months ended April 30, 1997 to $30,591,000. Cash provided by operations continues to be the Company's primary source of funds to finance investing needs and financing activities. During the nine months ended April 30, 1997, the balances of cash, cash equivalents and other investments increased $551,000. Cash provided by operating activities of $11,154,000 was used to fund capital expenditures ($4,141,000), purchases of the Company's common stock ($3,804,000), reduction of debt ($1,627,000), and payment of dividends ($1,485,000). Total cash and investment balances held by the Company's foreign subsidiaries at April 30, 1997 and July 31, 1996 were $2,902,000 and $2,594,000 respectively. THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE MONTHS ENDED APRIL 30, 1996 Consolidated net sales for the three months ended April 30, 1997 were $36,002,000, a decrease of 1.2% from net sales of $36,427,000 in the third quarter of fiscal 1996. Net income for the three months ended April 30, 1997 was $1,164,000 or $0.18 per share, an increase of 73.8% from $670,000, or $0.10 per share, earned in last year's quarter. Net sales of cat box absorbents increased $583,000 or 2.9% from fiscal 1996 third quarter results. The growth resulted from increased sales of branded and private label products in both the grocery and mass merchandiser markets. Net sales of agricultural and fluids purification products decreased $7,000, or 0.1% from the comparable period in fiscal 1996. The lower sales resulted from decreased demand for AGSORB carriers, partially offset by an increase in demand for PURE-FLO Supreme and ULTRA-CLEAR fluids purification products. Net sales of industrial and environmental sorbents decreased $235,000, or 5.5%, from prior year third quarter levels. The decrease was due to an increased focus on profitability versus sales growth. Net sales of transportation services decreased $403,000 or 17.0% from the third quarter of fiscal 1996 due to lower backhaul revenue resulting from a reduction in the Company's fleet. 10

Consolidated gross profit as a percentage of net sales for the three months ended April 30, 1997 decreased to 28.0% from 30.6% in the comparable period of fiscal 1996. Lower levels of plant production resulting in unabsorbed fixed plant costs contributed to the decrease. Operating expenses as a percentage of net sales decreased to 22.4% in the third quarter of fiscal 1997 from 27.3% in the same quarter of the prior year. This decrease is primarily due to lower advertising and promotion costs for the new consumer products introduced last year. Interest expense decreased $41,000 while interest income was unchanged. The Company's effective tax rate was 28.5% of pre-tax income in the third quarter of 1997 as compared to 31.3% for the third quarter of fiscal 1996. FOREIGN OPERATIONS Net sales by the Company's foreign subsidiaries for the nine months ended April 30, 1997 were $9,036,000, or 7.6% of total Company sales. This represents an increase of $9,000 from the same period of fiscal 1996, in which foreign subsidiary sales were $9,027,000, or 7.7% of total Company sales. Net income of the foreign subsidiaries for the first nine months of fiscal 1997 was $431,000 compared with $357,000 in the same period of fiscal 1996. Identifiable assets of the Company's foreign subsidiaries as of April 30, 1997 were $10,284,000, an increase of $1,248,000 from $9,036,000 as of July 31, 1996. The increase is primarily due to higher prepaid expenses, inventories, and cash and cash equivalents. Net sales of the Company's foreign subsidiaries for the quarter ended April 30, 1997 were $2,916,000, or 8.1% of total Company sales. This represents an increase of $103,000 or 3.7% from the third quarter of fiscal 1996 in which foreign subsidiary sales were $2,813,000, or 7.7% of total Company sales. Net income of the foreign subsidiaries for the third quarter of fiscal 1997 was flat compared to $82,000 in the same period of fiscal 1996. 11

Part II - Other Information ITEM 1. Legal Proceedings - Previous 10-Q's have reported the February 13, 1996 disposition of a patent infringement action that had been initiated by Edward Lowe Industries, Inc. ITEM 6. (a) Exhibits: The following documents are an exhibit to this report. Exhibit 11: Statement Re: Computation of per share earnings. Exhibit 27: Financial Data Schedule (b) During the quarter for which this report is filed, no reports on Form 8-K were filed. 12

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 Michael L. Goldberg Vice President and Chief Financial Officer BY /s/Daniel S. Jaffee Daniel S. Jaffee President and Chief Operating Officer Dated: June 12, 1997 13

Exhibit 11 OIL-DRI CORPORATION OF AMERICA Computation of Weighted Average Number of Shares Outstanding - -------------------------------------------------------------------------------------------- Average Shares-(Weighted Shares)Number Number Number of of Days As of Days Shares Weighted Adjusted Quarter End Period Outstanding Shares - -------------------------------------------------------------------------------------------- April 30, 1997 02/01/97 to 02/23/97 23 6,616,951 152,189,873 02/24/97 to 02/26/97 3 6,605,251 19,815,753 02/27/97 to 02/27/97 1 6,596,751 6,596,751 02/28/97 to 03/02/97 3 6,595,251 19,785,753 03/03/97 to 03/05/97 3 6,564,966 19,694,898 03/06/97 to 03/13/97 8 6,539,966 52,319,728 03/14/97 to 03/16/97 3 6,534,966 19,604,898 03/17/97 to 03/17/97 1 6,529,466 6,529,466 03/18/97 to 03/18/97 1 6,521,066 6,521,066 03/19/97 to 03/23/97 5 6,516,066 32,580,330 03/24/97 to 04/01/97 9 6,508,566 58,577,094 04/02/97 to 04/30/97 29 6,498,566 188,458,414 -------- ------------- 89 582,674,024 6,546,899 - ----------------------------------------------------------------------------- Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options. 35,475 --------------- 6,582,374 --------------- - -------------------------------------------------------------------------------------------- Average Shares-(Weighted Shares)Number Number Number of of Days As of Days Shares Weighted Adjusted Quarter End Period Outstanding Shares - -------------------------------------------------------------------------------------------- April 30, 1996 02/01/96 to 03/04/96 33 6,812,922 224,826,426 03/05/96 to 03/06/96 2 6,809,422 13,618,844 03/07/96 to 03/18/96 12 6,802,922 81,635,064 03/19/96 to 04/30/96 43 6,796,122 292,233,246 -------- ------------- 90 612,313,580 6,803,484 -------- - ----------------------------------------------------------------------------- Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options. 0 --------------- 6,803,484 --------------- 14

Exhibit 11(Cont'd) OIL-DRI CORPORATION OF AMERICA Computation of Weighted Average Number of Shares Outstanding - -------------------------------------------------------------------------------------------- Average Shares-(Weighted Shares) Number Number of Number of of Days Shares Weighted Days As Nine Months Ended Period Outstanding Shares Adjusted - -------------------------------------------------------------------------------------------- April 30, 1997 08/01/96 to 09/24/96 55 6,736,451 370,504,805 09/25/96 to 09/25/96 1 6,733,951 6,733,951 09/26/96 to 09/26/96 1 6,717,551 6,717,551 09/27/96 to 09/29/96 3 6,710,451 20,131,353 09/30/96 to 09/30/96 1 6,708,451 6,708,451 10/01/96 to 10/01/96 1 6,705,251 6,705,251 10/02/96 to 10/02/96 1 6,702,251 6,702,251 10/03/96 to 10/14/96 12 6,701,751 80,421,012 10/15/96 to 10/15/96 1 6,698,451 6,698,451 10/16/96 to 10/16/96 1 6,695,751 6,695,751 10/17/96 to 10/17/96 1 6,690,251 6,690,251 10/18/96 to 10/28/96 11 6,678,051 73,458,561 10/29/96 to 11/25/96 28 6,670,051 186,761,428 11/26/96 to 12/01/96 6 6,666,551 39,999,306 12/02/96 to 12/05/96 4 6,664,051 26,656,204 12/06/96 to 12/12/96 7 6,661,551 46,630,857 12/13/96 to 12/18/96 6 6,660,651 39,963,906 12/19/96 to 01/02/97 15 6,658,751 99,881,265 01/03/97 to 01/06/97 4 6,648,751 26,595,004 01/07/97 to 01/19/97 13 6,646,851 86,409,063 01/20/97 to 01/20/97 1 6,646,751 6,646,751 01/21/97 to 02/23/97 34 6,616,951 224,976,334 02/24/97 to 02/26/97 3 6,605,251 19,815,753 02/27/97 to 02/27/97 1 6,596,751 6,596,751 02/28/97 to 03/02/97 3 6,595,251 19,785,753 03/03/97 to 03/05/97 3 6,564,966 19,694,898 03/06/97 to 03/13/97 8 6,539,966 52,319,728 03/14/97 to 03/16/97 3 6,534,966 19,604,898 03/17/97 to 03/17/97 1 6,529,466 6,529,466 03/18/97 to 03/18/97 1 6,521,066 6,521,066 03/19/97 to 03/23/97 5 6,516,066 32,580,330 03/24/97 to 04/01/97 9 6,508,566 58,577,094 04/02/97 to 04/30/97 29 6,498,566 188,458,414 -------- --------------- 273 1,813,171,908 6,641,655 -------- --------------- - ---------------------------------------------------------------- Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options. 2,773 ------------- 6,644,428 ------------- 15

5 9-MOS JUL-31-1997 APR-30-1997 10,749,234 1,509,000 19,194,119 272,482 10,391,103 46,822,916 114,242,453 (57,852,076) 114,683,797 16,231,704 17,052,000 0 0 723,552 77,373,826 114,683,797 119,319,414 119,319,414 83,328,206 83,328,206 27,122,665 25,000 1,349,511 7,494,032 2,135,799 5,358,233 0 0 0 5,358,233 0.81 0.81