SEC Filing - Oil-Dri Corporation Of America

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 Ended October 31, 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 - 5,417,130 Shares (Including 973,760 Treasury Shares) Class B Stock - 1,818,388 Shares

2 OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) (UNAUDITED) OCTOBER 31 JULY 31 1997 1997 ---------- --------- ASSETS CURRENT ASSETS - -------------- Cash and Cash Equivalents $ 4,100 $ 9,997 Investment Securities 1,553 1,544 Accounts Receivable 23,337 20,341 Allowance for Doubtful Accounts (245) (261) Inventories 10,991 10,604 Prepaid Expenses and Taxes 4,710 4,685 -------- -------- TOTAL CURRENT ASSETS 44,446 46,910 -------- -------- PROPERTY, PLANT AND EQUIPMENT - AT COST - --------------------------------------- Cost 115,823 114,533 Less Accumulated Depreciation and Amortization (60,574) (58,737) -------- -------- TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 55,249 55,796 -------- -------- OTHER ASSETS - ------------ Goodwill (Net of Accumulated Amortization) 4,008 4,040 Deferred Income Taxes 2,430 2,446 Other 5,264 5,366 -------- -------- TOTAL OTHER ASSETS 11,702 11,852 -------- -------- TOTAL ASSETS $111,397 $114,558 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. Page -2-

3 OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) (UNAUDITED) OCTOBER 31 JULY 31 1997 1997 ----------- --------- LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES - ------------------- Current Maturities of Notes Payable $ 1,943 $ 1,946 Accounts Payable 4,438 4,050 Dividends Payable 465 475 Accrued Expenses 7,214 9,274 -------- -------- TOTAL CURRENT LIABILITIES 14,060 15,745 -------- -------- NONCURRENT LIABILITIES - ---------------------- Notes Payable 17,052 17,052 Deferred Compensation 2,723 2,750 Other 1,770 1,681 -------- -------- TOTAL NONCURRENT LIABILITIES 21,545 21,483 -------- -------- TOTAL LIABILITIES 35,605 37,228 -------- -------- 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 (59) (18) Retained Earnings 83,660 82,243 Cumulative Translation Adjustment (903) (907) -------- -------- 91,120 89,728 Less Treasury Stock, At Cost (15,328) (12,398) -------- -------- TOTAL STOCKHOLDERS' EQUITY 75,792 77,330 -------- -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $111,397 $114,558 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. Page -3-

4 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 OCTOBER 31 -------------------------- 1997 1996 ---------- ---------- NET SALES $ 39,749 $ 40,525 Cost Of Sales 27,851 28,233 ---------- ---------- GROSS PROFIT 11,898 12,292 Selling, General And Administrative Expenses 8,825 9,243 ---------- ---------- INCOME FROM OPERATIONS 3,073 3,049 OTHER INCOME (EXPENSE) Interest Expense (439) (467) Interest Income 112 151 Foreign Exchange Gain (Loss) 1 (1) Other, Net (147) (31) ---------- ---------- TOTAL OTHER EXPENSE, NET (473) (348) INCOME BEFORE INCOME TAXES 2,600 2,701 Income Taxes 728 771 ---------- ---------- NET INCOME 1,872 1,930 RETAINED EARNINGS Balance at Beginning of Year 82,243 77,386 Less Cash Dividends Declared 455 493 ---------- ---------- RETAINED EARNINGS - OCTOBER 31 $ 83,660 $ 78,823 ========== ========== AVERAGE SHARES OUTSTANDING 6,326,613 6,720,704 ========== ========== NET INCOME PER SHARE $ 0.30 $ 0.29 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. Page -4-

5 OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) (UNAUDITED) FOR THE THREE MONTHS ENDED OCTOBER 31 -------------------------- 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ NET INCOME $ 1,872 $ 1,930 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 1,920 1,927 Provision for bad debts (20) 75 (Increase) Decrease in: Accounts Receivable (2,992) (2,667) Inventories (387) 672 Prepaid Expenses and Taxes (24) (283) Other Assets 21 (48) Increase (Decrease) in: Accounts Payable 388 (970) Accrued Expenses (2,061) 382 Deferred Compensation (27) 121 Other 89 45 ------- ------- TOTAL ADJUSTMENTS (3,093) (746) ------- ------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,221) 1,184 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ Capital Expenditures (1,218) (1,503) Proceeds from sale of property, plant and equipment 4 - Purchases of Investment Securities (190) (311) Dispositions of Investment Securities 181 - Other (18) 21 ------- ------- NET CASH USED IN INVESTING ACTIVITIES (1,241) (1,793) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Principal Payments on Long-Term Debt (3) - Dividends Paid (466) (511) Purchases of Treasury Stock (2,970) (835) Other 4 74 ------- ------- NET CASH USED IN FINANCING ACTIVITIES (3,435) (1,272) ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (5,897) (1,881) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,997 10,114 ------- ------- CASH AND CASH EQUIVALENTS, OCTOBER 31 $ 4,100 $ 8,233 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. Page -5-

6 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): OCTOBER 31 JULY 31 (UNAUDITED) (UNAUDITED) 1997 1997 ----------- ----------- Finished goods $ 6,882 $ 6,684 Packaging 3,221 3,168 Other 888 752 ------- ------- $10,991 $10,604 ======= ======= Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. 3. SUBSEQUENT EVENT Subsequent to the close of the first quarter, the company divested its trucking business which generated net sales of $8.9 million during fiscal 1997, but operated on a break-even basis. At the same time, the Company signed an agreement with CRST, Inc., in Cedar Rapids, Iowa, to outsource all of its trucking requirements effective November 22, 1997. In conjunction with the divestiture of the trucking business, the Company announced that it planned to take a restructuring charge of approximately $2,500,000 to $3,000,000 in the second quarter of fiscal 1998 to cover the costs of exiting the trucking business and to write off certain other non-performing assets. Page -6-

7 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31, 1996 RESULTS OF OPERATIONS Consolidated net sales for the three months ended October 31, 1997 were $39,749,000, a decrease of 1.9% from net sales of $40,525,000 in the first three months of fiscal 1997. Net income for the first three months of fiscal 1998 was $1,872,000 or $0.30 per share, compared to $1,930,000 or $0.29 per share earned in last year's quarter. Net income decreased 3.0% versus a 3.4% increase in earnings per share due to 394,000 fewer shares outstanding during the first quarter of fiscal 1998 as compared to the first quarter of fiscal 1997. Net sales of cat box absorbents decreased $482,000, or 2.0% from prior year amounts, due in part to a short-term trial of Cat's Pride(R) Premium Scoopable product in Sam's stores in the first quarter of fiscal 1997. Net sales of agricultural and fluids purification products decreased $193,000, or 2.1%, from the comparable period in fiscal 1997. The lower sales resulted from decreased demand for AGSORBR carriers partially offset by an increase in sales of fluids purification products. Net sales of industrial and environmental sorbents increased $157,000, or 3.6%, from prior year levels. The increase was due primarily to higher floor absorbent sales in the United Kingdom. Net sales of transportation services decreased $258,000 or 10.4% from the first quarter of fiscal 1997 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 three months ended October 31, 1997 decreased to 29.9% from 30.3% in the comparable period of fiscal 1997. Changes in sales mix and higher natural gas prices contributed to this decrease. Operating expenses as a percentage of net sales decreased to 22.2% in the first three months of fiscal 1998 from 22.8% in the same period of fiscal 1997. This decrease is primarily attributable to first quarter fiscal 1997 expenses related to the development of the Company's strategic planning initiatives. Interest expense decreased $28,000 and interest income decreased $39,000. The Company's effective tax rate was 28.0% of pre-tax income in the first quarter of fiscal 1998 as compared to 28.5% for the same period of fiscal 1997. The assets of the Company decreased $3,161,000 during the first quarter of fiscal 1998. Current assets decreased $2,464,000, or 5.3%, from fiscal 1997 year end balances primarily due to decreased cash and cash equivalents, partially offset by higher accounts receivable. Property, plant and equipment, net of accumulated depreciation, decreased $547,000 during the first quarter due to depreciation expense exceeding capital expenditures. Total liabilities in the quarter ended October 31, 1997 decreased $1,623,000, due primarily to lower compensation-related accruals. Current liabilities decreased $1,685,000 or 10.7% from July 31, 1997 balances, also due to lower compensation-related accruals. Page -7-

8 EXPECTATIONS The Company anticipates sales during the remainder of fiscal 1998 will be at about the same level as sales in the comparable period of fiscal 1997 after taking into account the approximately $2 million per quarter of backhaul revenue previously generated by the Company's trucking business, which was divested on November 21, 1997. Moderately higher sales of cat box absorbents and fluid purification products should substantially offset the lost backhaul revenue. 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 is expected to improve slightly 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; 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 3.2 at October 31, 1997 from 3.0 at July 31, 1997. Working capital decreased $779,000 during the three months ended October 31, 1997 to $30,386,000. Cash provided by operations continues to be the Company's primary source of funds to finance investing needs and financing activities. During the three months ended October 31, 1997, the balances of cash, cash equivalents and other investments decreased $5,888,000, primarily due to purchases of the Company's common stock ($2,970,000), capital expenditures ($1,218,000) and payment of dividends ($466,000). Total cash and investment balances held by the Company's foreign subsidiaries at October 31, 1997 and July 31, 1997 were $2,942,000 and $2,803,000 respectively. FOREIGN OPERATIONS Net sales by the Company's foreign subsidiaries for the three months ended October 31, 1997, were $3,064,000, or 7.7% of total Company sales. This represents an increase of $63,000 from the same period of fiscal 1997, in which foreign subsidiary sales were $3,001,000, or 7.4% of total Company sales. Net income of the foreign subsidiaries for the first quarter of fiscal 1998 was $186,000 compared with $145,000 in the same period of fiscal 1997. Identifiable assets of the Company's foreign subsidiaries as of October 31, 1997, were $10,532,000, an increase of $666,000 from $9,866,000 as of July 31, 1997. The increase is primarily due to higher prepaid expenses, inventories, and cash and cash equivalents. Page -8-

9 Part II - Other Information 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. Page -9-

10 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 Executive Vice President and Chief Financial Officer BY /s/Daniel S. Jaffee ------------------------------ Daniel S. Jaffee President and Chief Executive Officer Dated: December 12, 1997 Page -10-

11 EXHIBIT 11 OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES Computation of Earnings Per Share (in thousands of dollars except for per share amounts) FOR THE THREE MONTHS ENDED OCTOBER 31 ------------------------ 1997 1996 ---------- --------- Average number of shares outstanding during the period 6,274,031 6,719,324 Options exercisable, less shares that could have been purchased based on the average market value for the period 52,582 1,380 ----------- ---------- Average number of common and common equivalent shares outstanding during the period (a) 6,326,613 6,720,704 =========== ========== Net earnings $ 1,872 $ 1,930 =========== ========== Net earnings per share $ 0.30 $ 0.29 =========== ========== (a) Excludes options which are not dilutive. Effect under fully diluted computations is not material. Page -11-

5 3-MOS JUL-31-1998 OCT-31-1997 4,100,000 1,553,000 23,337,000 245,000 10,991,000 44,446,000 115,823,000 (60,574,000) 111,397,000 14,060,000 17,052,000 0 0 724,000 75,068,000 111,397,000 39,749,000 39,749,000 27,851,000 27,851,000 8,879,000 (20,000) 439,000 2,600,000 728,000 1,872,000 0 0 0 1,872,000 0.30 0.30