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 January 31, 2000 Commission File Number 0-8675
OIL-DRI CORPORATION OF AMERICA
------------------------------
(Exact name of the registrant as specified in its charter)
DELAWARE 36-2048898
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 North Michigan Avenue
CHICAGO, ILLINOIS 60611
-------------------------- -----
(Address of principal executive offices) (Zip Code)
The Registrant's telephone number, including area code: (312) 321-1515
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,470,252 Shares (Including 1,282,807 Treasury Shares)
Class B Stock - 1,765,266 Shares (Including 342,241 Treasury Shares)
<PAGE> 2
CONTENTS
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PAGE
PART I
<S> <C>
ITEM 1: Financial Statements And Supplementary Data..................3 - 12
ITEM 2: Management Discussion And Analysis Of Financial Condition
And The Results Of Operations................................13 - 18
ITEM 3: Quantitative And Qualitative Disclosures About Market Risk...18
PART II
ITEM 4: Submission Of Matters To A Vote Of Security Holders..........19
ITEM 6: Exhibits And Reports On Form 8-K.............................19
SIGNATURES...........................................................20
</TABLE>
<PAGE> 3
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------
JANUARY 31 JULY 31
ASSETS 2000 1999
` ---------------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 2,988 $ 4,362
Investment Securities 1,219 1,225
Accounts Receivable, less allowance of $397 and
$358 at January 31, 2000 and July 31, 1999,
respectively 27,201 25,365
Inventories 16,360 15,165
Prepaid Expenses 7,919 6,963
-------- --------
TOTAL CURRENT ASSETS 55,687 53,080
-------- --------
PROPERTY, PLANT AND EQUIPMENT - AT COST
Cost 135,846 132,479
Less Accumulated Depreciation and Amortization (73,811) (69,631)
-------- --------
TOTAL PROPERTY, PLANT AND
EQUIPMENT, NET 62,035 62,848
-------- --------
OTHER ASSETS
Goodwill & Intangibles, net of accumulated
amortization of $2,363 and $2,128 at January
31, 2000, and July 31, 1999, respectively 9,716 9,780
Deferred Income Taxes 3,040 3,045
Other 6,004 4,997
-------- --------
TOTAL OTHER ASSETS 18,760 17,822
-------- --------
TOTAL ASSETS $136,482 $133,750
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
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JANUARY 31 JULY 31
LIABILITIES & STOCKHOLDERS' EQUITY 2000 1999
------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current Maturities of Notes Payable $ 2,080 $ 2,226
Accounts Payable 4,715 4,842
Dividends Payable 473 484
Accrued Expenses 8,309 8,387
--------- ---------
TOTAL CURRENT LIABILITIES 15,577 15,939
--------- ---------
NONCURRENT LIABILITIES
Notes Payable 42,063 38,150
Deferred Compensation 3,086 3,206
Other 2,129 1,948
--------- ---------
TOTAL NONCURRENT LIABILITIES 47,278 43,304
--------- ---------
TOTAL LIABILITIES 62,855 59,243
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STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share, issued
5,470,252 shares at January 31, 2000, and
July 31, 1999 547 547
Class B Stock, par value $.10 per share, issued
1,765,266 shares at January 31, 2000, and
July 31, 1999 177 177
Additional Paid-In Capital 7,698 7,702
Retained Earnings 91,295 90,430
Restricted Unearned Stock Compensation (31) (9)
Cumulative Translation Adjustment (1,172) (1,159)
--------- ---------
98,514 97,688
Less Treasury Stock, at cost (1,282,807 Common
shares and 342,241 Class B shares at January
31, 2000, and 1,163,764 Common shares and
342,241 Class B shares at July 31, 1999) (24,887) (23,181)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 73,627 74,507
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 136,482 $ 133,750
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
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FOR THE SIX MONTHS ENDED
JANUARY 31
-------------------------
2000 1999
-------------------------
<S> <C> <C>
NET SALES $ 91,052 $ 91,105
Cost Of Sales 64,765 61,812
--------- ---------
GROSS PROFIT 26,287 29,293
Selling, General And Administrative Expenses 21,200 21,961
Restructuring Charge 1,239 --
--------- ---------
INCOME FROM OPERATIONS 3,848 7,332
OTHER INCOME (EXPENSE)
Interest Expense (1,623) (1,594)
Interest Income 109 260
Other, Net 228 21
--------- ---------
TOTAL OTHER EXPENSE, NET (1,286) (1,313)
--------- ---------
INCOME BEFORE INCOME TAXES 2,562 6,019
Income Taxes 743 1,715
--------- ---------
NET INCOME 1,819 4,304
RETAINED EARNINGS
Balance at Beginning of Year 90,430 85,158
Less Cash Dividends Declared 954 948
--------- ---------
RETAINED EARNINGS - JANUARY 31 $ 91,295 $ 88,514
========= =========
NET INCOME PER SHARE
BASIC $ 0.32 $ 0.73
========= =========
DILUTIVE $ 0.31 $ 0.72
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,684 5,862
========= =========
DILUTIVE 5,851 5,979
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
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FOR THE SIX MONTHS ENDED
JANUARY 31
-------------------------
2000 1999
-------------------------
<S> <C> <C>
NET INCOME $ 1,819 $ 4,304
OTHER COMPREHENSIVE INCOME:
Cumulative Translation Adjustments (13) (40)
-------- --------
TOTAL COMPREHENSIVE INCOME $ 1,806 $ 4,264
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 7
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------
FOR THE THREE MONTHS
ENDED JANUARY 31
-------------------------
2000 1999
-------------------------
<S> <C> <C>
NET SALES $ 46,503 $ 47,435
Cost Of Sales 33,796 32,227
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GROSS PROFIT 12,707 15,208
Selling, General And Administrative Expenses 10,783 11,385
Restructuring Charge 1,239 --
--------- ---------
INCOME FROM OPERATIONS 685 3,823
OTHER INCOME (EXPENSE)
Interest Expense (828) (802)
Interest Income 48 116
Other, Net 224 46
--------- ---------
TOTAL OTHER EXPENSE, NET (556) (640)
--------- ---------
INCOME BEFORE INCOME TAXES 129 3,183
Income Taxes 37 907
--------- ---------
NET INCOME $ 92 $ 2,276
========= =========
NET INCOME PER SHARE
BASIC $ 0.02 $ 0.39
========= =========
DILUTIVE $ 0.02 $ 0.38
========= =========
AVERAGE SHARES OUTSTANDING
BASIC 5,646 5,843
========= =========
DILUTIVE 5,804 6,055
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 8
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------
FOR THE THREE MONTHS
ENDED JANUARY 31
-------------------------
2000 1999
-------------------------
<S> <C> <C>
NET INCOME $ 92 $ 2,276
OTHER COMPREHENSIVE INCOME:
Cumulative Translation Adjustments (3) (11)
-------- --------
TOTAL COMPREHENSIVE INCOME $ 89 $ 2,265
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 9
OIL-DRI CORPORATION OF AMERICA & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------
FOR THE SIX MONTHS
ENDED JANUARY 31
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
-----------------------
<S> <C> <C>
NET INCOME $ 1,819 $ 4,304
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 4,547 4,261
Non-Cash Restructuring Charge 1,239 --
Provision for bad debts 59 39
(Increase) Decrease in:
Accounts Receivable (1,895) (3,783)
Inventories (1,195) 233
Prepaid Expenses and Taxes (956) (544)
Deferred Income Taxes 4 (43)
Other Assets (1,178) (556)
Increase (Decrease) in:
Accounts Payable (127) (322)
Accrued Expenses (1,317) (402)
Deferred Compensation (120) (126)
Special Charge Reserve -- (62)
Other 181 281
-------- --------
TOTAL ADJUSTMENTS (758) (1,024)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,061 3,280
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (3,493) (3,565)
Proceeds from sale of property, plant and
equipment 12 22
Purchases of Investment Securities (1,219) (1,225)
Dispositions of Investment Securities 1,225 1,173
Other (8) (14)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,483) (3,609)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (1,246) (51)
Proceeds from Issuance of Long-Term Debt 5,013 400
Dividends Paid (965) (883)
Purchases of Treasury Stock (1,727) (1,131)
Other (27) (17)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 1,048 (1,682)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,374) (2,011)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,362 9,410
-------- --------
CASH AND CASH EQUIVALENTS, JANUARY 31 $ 2,988 $ 7,399
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 10
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, 1999, included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions are eliminated.
The unaudited financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the statements
contained herein.
Certain items in prior year financial statements have been reclassified to
conform to the presentation used in fiscal 2000.
2. INVENTORIES
The composition of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
----------------------------
JANUARY 31 JULY 31
(UNAUDITED) (UNAUDITED)
----------------------------
2000 1999
----------------------------
<S> <C> <C>
Finished goods $ 9,468 $ 9,593
Packaging 5,062 4,267
Other 1,830 1,305
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$ 16,360 $ 15,165
======== ========
</TABLE>
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
<PAGE> 11
3. RESTRUCTURING CHARGE
During the second quarter of fiscal 2000, the Company recorded a pre-tax
restructuring charge of $1,239,000 against income from operations, as follows:
<TABLE>
<S> <C>
Severance costs $604,000
Non-performing asset 635,000
----------
Restructuring charge $1,239,000
==========
</TABLE>
The severance costs are related to a realignment of the Company's personnel
costs to bring them more in line with current levels of sales and profitability.
The severance accrual represents 13 employees to be terminated and will be
completed by the fourth quarter of fiscal 2000. The majority of the positions
to be terminated are at the selling, general and administrative level.
The net book value of the non-performing asset consists of specific production
equipment that has been idled. The equipment had been used in the Agricultural
Products segment. Because management does not rely on segment asset allocation,
information regarding the results of operations for this specific asset cannot
be identified. However, the results are included in cost of sales. The net book
value of this asset is approximately 1% of the net book value of all fixed
assets outstanding as of January 31, 2000.
4. NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires companies to
recognize all derivatives as assets or liabilities measured at their fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and whether it qualifies for hedge accounting.
Although the impact of this statement has not been fully assessed, the Company
believes adoption of this statement, as amended by SFAS No. 137, which will
occur by July 2001, will not have a material financial statement impact.
<PAGE> 12
5. SEGMENT REPORTING
The Company has four reportable operating segments: Consumer Products, Fluids
Purification Products, Agricultural Products, and Industrial and Automotive
Products. These segments are managed separately because each business has
different economic characteristics.
The accounting policies of the segments are the same as those described in Note
1 of the Company's Annual Report for the year ended July 31, 1999 on Form 10-K
filed with the Securities and Exchange Commission.
Because management does not rely on segment asset allocation, information
regarding segment assets is not meaningful and therefore is not reported.
<TABLE>
<CAPTION>
-------------------------------------
Six Months Ended January 31
-------------------------------------
Net Sales Operating Income
-------------------------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consumer Products....................... $60,817 $59,926 $ 9,133 $ 9,590
Fluids Purification Products............ 12,132 11,579 2,294 2,891
Agricultural Products................... 9,037 11,209 906 2,104
Industrial and Automotive Products...... 9,066 8,391 537 251
------- ------- ------- -------
TOTAL SALES/OPERATINGINCOME............. $91,052 $91,105 $12,870 $14,836
======= ======= ------- -------
Less: Restructuring Charge(1)............................. 1,239 0
Corporate Expenses.................................. 7,555 7,483
Interest Expense, net of Interest Income............ 1,514 1,334
------- -------
INCOME BEFORE INCOME TAXES................................. 2,562 6,019
------- -------
Income Taxes............................................... 743 1,715
------- -------
NET INCOME................................................. $1,819 $4,304
======= =======
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------
Three Months Ended January 31
-------------------------------------
Net Sales Operating Income
-------------------------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consumer Products....................... $31,574 $32,050 $ 4,302 $ 4,945
Fluids Purification Products............ 5,729 5,572 983 1,379
Agricultural Products................... 4,734 5,608 405 1,023
Industrial and Automotive Products...... 4,466 4,205 256 187
------- ------- ------- -------
TOTAL SALES/OPERATINGINCOME............. $46,503 $47,435 $ 5,946 $ 7,534
======= ======= ------- -------
Less: Restructuring Charge(1)............................. 1,239 0
Corporate Expenses.................................. 3,798 3,665
Interest Expense, net of Interest Income............ 780 686
------- -------
INCOME BEFORE INCOME TAXES................................. 129 3,183
------- -------
Income Taxes............................................... 37 907
------- -------
NET INCOME................................................. $ 92 $ 2,276
======= =======
</TABLE>
(1) See Note 3 above for a discussion of the restructuring charge recorded
in the second quarter of fiscal 2000.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 2000 COMPARED TO
SIX MONTHS ENDED JANUARY 31, 1999
RESULTS OF OPERATIONS
Consolidated net sales for the six months ended January 31, 2000 were
$91,052,000, a decrease of 0.1% versus net sales of $91,105,000 in the first six
months of fiscal 1999. Net income for the first six months of fiscal 2000 was
$1,819,000, a decrease of 57.7% from $4,304,000 earned in the first six months
of fiscal 1999. Basic net income per share for the first six months of fiscal
2000 was $0.32 and diluted net income per share was $0.31, versus $0.73 basic
net income per share and $0.72 diluted net income per share earned in the first
six months of fiscal 1999. The decrease was due to a restructuring charge
recorded in the second quarter of fiscal 2000, manufacturing costs associated
with the startup of the Church & Dwight supply arrangement, the decline in
demand for agricultural carriers, a decrease in profitability in the Fluids
Purification Products segment, and increases in fuel prices. The restructuring
charge, which covered the costs of severance for certain eliminated positions
and the write-off of certain non-performing assets, reduced income before taxes
by $1,239,000, net income by $879,000, and net income per share by $0.15 (basic
and diluted) for the first six months of fiscal 2000.
Net sales of the Consumer Products segment for the first six months of fiscal
2000 were $60,817,000, an increase of 1.5% over net sales of $59,926,000 in the
first six months of fiscal 1999. This growth was primarily due to incremental
sales to Church & Dwight and increased sales in the mass merchandiser market,
partially offset by reduced sales in the grocery market. Consumer Products'
operating income decreased 4.8% from $9,590,000 in the first six months of
fiscal 1999 to $9,133,000 in the first six months of fiscal 2000 due to an
unfavorable sales mix, and manufacturing costs associated with the startup of
the Church & Dwight supply arrangement incurred in the first six months of
fiscal 2000, partially offset by a decrease in advertising expenditures.
Net sales of the Fluids Purification Products segment for the first six months
of fiscal 2000 were $12,132,000, an increase of 4.8% over net sales of
$11,579,000 in the first six months of fiscal 1999. Increased domestic sales of
PURE-FLO(R) bleaching clays were the primary driver of the segment's growth in
sales, partially offset by competitive pressures in many of our overseas markets
that have led to some defensive pricing strategies to maintain market share.
Fluids Purification Products' operating income decreased 20.7% from $2,891,000
in the first six months of fiscal 1999 to $2,294,000 in the first six months of
fiscal 2000 due to a reduction in gross profit margins in our overseas markets
resulting from the defensive pricing strategies mentioned previously,
unfavorable manufacturing variances and costs associated with the startup of a
new line of rheological products.
Net sales of the Agricultural Products segment for the first six months of
fiscal 2000 were $9,037,000, a decrease of 19.4% from net sales of $11,209,000
in the first six months of fiscal 1999. This overall decline is due primarily to
sharply reduced demand for agricultural carriers as a result of a depressed farm
economy. Agricultural Products' operating income decreased 56.9% from $2,104,000
in the first
<PAGE> 14
six months of fiscal 1999 to $906,000 in the first six months of fiscal 2000,
primarily due to a decrease in sales of agricultural carriers, and unfavorable
sales mix and manufacturing variances, partially offset by the Company's return
on investment in Kamterter II.
Net sales of the Industrial and Automotive Products segment for the first six
months of fiscal 2000 were $9,066,000, an increase of 8.0% from net sales of
$8,391,000 in the first six months of fiscal 1999 due to increased sales volume
of clay-based industrial and automotive products. Industrial and Automotive
Products' operating income increased 113.9% from $251,000 in the first six
months of fiscal 1999 to $537,000 in the first six months of fiscal 2000 due to
incremental gross profit resulting from the increase in sales volume and price
increases put into effect during the past year, combined with a decrease in
operating expenses.
Consolidated gross profit as a percentage of net sales for the first six months
of fiscal 2000 decreased to 28.9% from 32.2% in the first six months of fiscal
1999 due to an unfavorable sales mix in the Consumer and Agricultural Products
segments, defensive pricing strategies in the overseas markets of the Fluids
Purification Products segment, manufacturing costs associated with the startup
of the Church & Dwight supply arrangement incurred in the first six months of
fiscal 2000, and increases in fuel prices.
Operating expenses as a percentage of net sales increased to 24.6% for the first
six months of fiscal 2000 from 24.1% in the first six months of fiscal 1999.
This increase is due primarily to the pre-tax restructuring charge of $1,239,000
recorded in the second quarter of fiscal 2000, partially offset by a lower level
of advertising expenses in fiscal 2000 versus fiscal 1999.
Interest expense increased $29,000, while interest income for the first six
months of fiscal 2000 decreased $151,000 from fiscal 1999 levels, primarily due
to lower levels of funds available for investment.
The Company's effective tax rate was 29.0% of pre-tax income in the first six
months of fiscal 2000 versus 28.5% in the first six months of fiscal 1999.
Total assets of the Company increased $2,732,000 or 2.0% during the first six
months of fiscal 2000. Current assets increased $2,607,000 or 4.9% from fiscal
1999 year-end balances primarily due to increases in accounts receivable and
inventory levels, partially offset by decreased cash and cash equivalents.
Property, plant and equipment, net of accumulated depreciation, decreased
$813,000 or 1.3% during the first half as depreciation expense exceeded new
capital expenditures.
Total liabilities increased $3,612,000 or 6.1% during the first six months of
fiscal 2000 due primarily to increased levels of long term notes payable,
partially offset by a decrease in current liabilities. Current liabilities
decreased $362,000 or 2.3% from fiscal 1999 year-end balances due to a decrease
in the current maturitites of notes payable, accounts payable and accrued
expenses.
EXPECTATIONS
The Company anticipates net sales for the remainder of fiscal 2000 will be
approximately the same as net sales in the comparable period of fiscal 1999.
Sales of branded cat box absorbents are expected to increase slightly as
existing products and new product introductions gain incremental distribution.
However, sales growth
<PAGE> 15
of cat box absorbents is subject to continuing competition for shelf space in
the grocery, mass merchandiser and club markets. Sales of the Company's fluids
purification products and industrial and automotive products are also expected
to increase slightly in the remainder of fiscal 2000 from the comparable period
in fiscal 1999. Sales of the Company's agricultural products are expected to be
lower in the remainder of fiscal 2000 than in the comparable period of fiscal
1999 due primarily to low domestic crop prices and depressed export demand.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio increased to 3.6 at January 31, 2000 from 3.3 at July 31,
1999. Working capital increased $2,969,000 during the first six months of fiscal
2000 to $40,110,000 due to both higher levels of current assets and lower levels
of current liabilities, as previously discussed. During the first six months of
fiscal 2000, the balances of cash, cash equivalents and investment securities
decreased $1,380,000. Cash provided by operating activities ($1,061,000),
increases in the Company's line of credit ($5,000,000), and cash on hand
($4,362,000) were used to fund capital expenditures ($3,493,000), purchases of
the Company's common stock ($1,727,000), principal payments on long-term debt
($1,246,000), and dividend payments ($965,000). Total cash and investment
balances held by the Company's foreign subsidiaries at January 31, 2000 and
July 31, 1999 were $2,705,000 and $2,692,000, respectively.
THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1999
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended January 31, 2000 were
$46,503,000, a decrease of 2.0% over net sales of $47,435,000 in the second
quarter of fiscal 1999. Net income for the three months ended January 31, 2000
was $92,000, a decrease of 96.0% from $2,276,000 earned in last year's quarter.
Net income per share for the three months ended January 31, 2000 was $0.02
(basic and diluted) versus $0.39 basic net income per share and $0.38 diluted
net income per share earned in the same period last year. The decrease was due
to a restructuring charge recorded in the second quarter of fiscal 2000, ongoing
manufacturing costs associated with the startup of the Church & Dwight supply
arrangement, the decline in demand for agricultural carriers, a decrease in
profitability in the Fluids Purification Products segment, and increases in fuel
prices. The restructuring charge, which covered the costs of severance for
certain eliminated positions and the write-off of certain non-performing assets,
reduced income before income taxes by $1,239,000, net income by $879,000, and
net income per share by $0.15 (basic and diluted) for the second quarter of
fiscal 2000.
Net sales of the Consumer Products segment for the three months ended January
31, 2000 were $31,574,000, a decrease of 1.5% over net sales of $32,050,000 in
the second quarter of fiscal 1999. This decrease was primarily due to decreased
sales in the grocery market, partially offset by increased sales in the mass
merchandiser market and incremental sales to Church & Dwight. Consumer Products'
operating income decreased 13.0% from $4,945,000 in the second quarter of fiscal
1999 to $4,302,000 in the second quarter of fiscal 2000 due to a reduction in
gross profit margins resulting from reduced sales, an unfavorable sales mix, and
ongoing manufacturing costs associated with the startup of the Church & Dwight
supply arrangement, partially offset by a decrease in advertising expenditures.
<PAGE> 16
Net sales of the Fluids Purification Products segment for the three months ended
January 31, 2000 were $5,729,000, an increase of 2.8% over net sales of
$5,572,000 in the second quarter of fiscal 1999. Increased domestic sales of
PURE-FLO(R) bleaching clays were the primary driver of the segment's growth in
sales, partially offset by competitive pressures in many of our overseas markets
that have led to some defensive pricing strategies to maintain market share.
Fluids Purification Products' operating income decreased 28.7% from $1,379,000
in the second quarter of fiscal 1999 to $983,000 in the second quarter of fiscal
2000 due to a reduction in gross profit margins in our overseas markets
resulting from the defensive pricing strategies mentioned previously,
unfavorable manufacturing variances and continuing costs associated with the
startup of a new line of rheological products.
Net sales of the Agricultural Products segment for the three months ended
January 31, 2000 were $4,734,000, a decrease of 15.6% from net sales of
$5,608,000 in the second quarter of fiscal 1999. This overall decline is due to
sharply reduced demand for agricultural carriers as a result of a depressed farm
economy. Agricultural Products' operating income decreased 60.4%from $1,023,000
in the second quarter of fiscal 1999 to $405,000 in the second quarter of fiscal
2000, primarily due to a decrease in sales of agricultural carriers, and
unfavorable sales mix and manufacturing variances, partially offset by the
Company's pro rata share of Kamterter II's net income.
Net sales of the Industrial and Automotive Products segment for the three months
ended January 31, 2000 were $4,466,000, an increase of 6.2% from net sales of
$4,205,000 in the second quarter of fiscal 1999 due to increased sales volume of
clay-based automotive and hardware products. Industrial and Automotive Products'
operating income increased 36.9% from $187,000 in the second quarter of fiscal
1999 to $256,000 in the second quarter of fiscal 2000 due to incremental gross
profit resulting from the increase in sales volume and price increases put into
effect during the past year, combined with a decrease in operating expenses.
Consolidated gross profit as a percentage of net sales for the three months
ended January 31, 2000 decreased to 27.3% from 32.1% in the second quarter of
fiscal 1999 due to unfavorable sales mixes in the Consumer and Agricultural
Products segments, defensive pricing strategies in the overseas markets of the
Fluids Purification Products segment, ongoing manufacturing costs associated
with the startup of the Church & Dwight supply arrangement, and increases in
fuel prices.
Operating expenses as a percentage of net sales increased to 25.9% for the three
months ended January 31,2000 from 24.0% in the second quarter of fiscal 1999.
This increase is due primarily to the pre-tax special charge of $1,239,000
recorded in the second quarter of fiscal 2000, partially offset by a lower level
of advertising expense in fiscal 2000 versus fiscal 1999.
Interest expense increased $26,000, while interest income for the three months
ended January 31, 2000 decreased $68,000 from fiscal 1999 levels, primarily due
to lower levels of cash and cash equivalents and the consequently lower level of
funds available for investment.
The Company's effective tax rate was 29.0% of pre-tax income in the three months
ended January 31, 2000 versus 28.5% in the second quarter of fiscal 1999.
<PAGE> 17
FOREIGN OPERATIONS
Net sales by the Company's foreign subsidiaries for the six months ended January
31, 2000 were $7,311,000 or 8.0% of total Company sales. This represents a
decrease of $386,000 or 5.0% from the same period of fiscal 1999, in which
foreign subsidiary sales were $7,697,000 or 8.4% of total Company sales. This
decrease is due to reduced sales of fluids purification products in our overseas
markets due to defensive pricing strategies implemented to maintain share and
reduced bleaching clay usage by a major customer through increased efficiency of
operations. Net income of the foreign subsidiaries for the first six months of
fiscal 2000 was $346,000, an increase of $66,000 or 23.6% from $280,000 earned
in the same period of fiscal 1999. This increase was primarily due to improved
gross profit margins resulting from favorable changes in sales mix. Identifiable
assets of the Company's foreign subsidiaries as of January 31, 2000 were
$11,135,000, in line with identifiable assets of $11,129,000 as of January 31,
1999.
Net sales by the Company's foreign subsidiaries during the three months ended
January 31, 2000 were $3,702,000 or 8.0% of total Company sales. This represents
an increase of $61,000 or 1.7% from the second quarter of fiscal 1999 in which
foreign subsidiary sales were $3,641,000 or 7.7% of total Company sales. The
increase is due to increased sales of cat litter products in Canada and
industrial products in the United Kingdom, partially offset by reduced sales of
fluids purification products in overseas markets, as discussed above. Net income
of the foreign subsidiaries for the three months ended January 31, 2000 was
$99,000 an increase of $26,000 or 35.6% from $73,000 earned in the second
quarter of fiscal 1999. This increase was primarily due to the incremental gross
profit resulting from the growth in sales, as well as a reduction in advertising
expenditures in Canada.
RESTRUCTURING CHARGE
During the second quarter of fiscal 2000, the Company recorded a pre-tax
restructuring charge of $1,239,000 against income from operations, as follows:
<TABLE>
<S> <C>
Severance costs $604,000
Non-performing asset 635,000
----------
Restructuring charge $1,239,000
==========
</TABLE>
The severance costs are related to a realignment of the Company's personnel
costs to bring them more in line with current levels of sales and profitability.
The severance accrual represents 13 employees to be terminated and will be
completed by the fourth quarter of fiscal 2000. The majority of the positions
to be terminated are at the selling, general and administrative level.
The net book value of the non-performing asset consists of specific production
equipment that has been idled. The equipment had been used in the Agricultural
Products segment. Because management does not rely on segment asset allocation,
information regarding the results of operations for this specific asset cannot
be identified. However, the results are included in cost of sales. The net book
value of this asset is approximately 1% of the net book value of all fixed
assets outstanding as of January 31, 2000.
At the present time, the estimated annualized pre-tax payroll savings and
depreciation reduction expected to be realized from the charge is $1,500,000.
Approximately $1,200,000 of the cost reductions will be in Selling, General and
Administrative
<PAGE> 18
Expenses, with the remainder to Cost of Sales. The realization of these
benefits will begin in the third quarter of fiscal 2000. The pre-tax cash flow
benefit expected to be realized on an annualized basis approximates $1,250,000.
Of the total pre-tax annualized savings, approximately $250,000 will end by
August 1, 2002.
YEAR 2000
The Year 2000 ("Y2K") issue was a result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Such computer systems
would have been unable to interpret dates beyond 1999, which could have caused a
system failure or application errors, leading to disruptions in operations.
As of the date of this report, the Company has not experienced any material
problems related to Y2K, nor has the Company received any significant complaints
regarding Y2K issues related to its products. Also, the Company is not aware of
any significant Y2K issues affecting the Company's major customers or suppliers.
The project to address Y2K had been underway since fiscal 1998. Total pre-tax
costs incurred were not material.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including, but not limited to, those under
the heading "Expectations" and those statements elsewhere in this report that
use forward-looking terminology such as "expect," "would," "could," "should,"
"estimates," and "believes" are "forward-looking statements" within the meaning
of that term in the Securities Exchange Act of 1934, as amended. Actual results
may differ materially from those reflected in these forward-looking statements,
due primarily to continued vigorous competition in the grocery, mass
merchandiser and club markets, the level of success of new products, and the
cost of product introductions and promotions in the consumer market. These
forward-looking statements also involve the risk of changes in market conditions
in the overall economy and, for the fluids purification and agricultural
markets, in planting activity, crop quality, crop prices and overall
agricultural demand, including export demand, and foreign exchange rate
fluctuations. Other factors affecting these forward-looking statements may be
detailed from time to time in reports filed with the Securities and Exchange
Commission.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not have any derivative financial instruments as of January 31,
2000. However, the Company is exposed to interest rate risk. The Company employs
policies and procedures to manage its exposure to changes in the market risk of
its cash equivalents and short term investments. The Company believes that the
market risk arising from holdings of its financial instruments is not material.
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 4. (A) SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: On
December 7, 1999, the 1999 Annual Meeting of Stockholders of Oil-Dri
Corporation of America was held for the purpose of considering and
voting on:
1. The election of ten directors.
2. An amendment to the Company's 1995 Long Term Incentive Plan to
authorize an additional 500,000 shares (consisting of Common
Stock, Class A Common Stock and/or Class B Stock) for use under
the Plan.
ELECTION OF DIRECTORS
The following schedule sets forth the results of the vote to elect
directors.
<TABLE>
<CAPTION>
VOTES
DIRECTOR VOTES FOR ABSTAINED*
--------------------- ---------- ---------
<S> <C> <C>
J. Steven Cole 17,379,578 395,874
Arnold W. Donald 17,379,868 395,584
Ronald B. Gordon 17,380,413 395,039
Daniel S. Jaffee 17,379,113 396,339
Richard M. Jaffee 17,379,113 396,339
Thomas D. Kuczmarski 17,380,413 395,039
Joseph C. Miller 17,380,407 395,045
Paul J. Miller 17,377,578 397,874
Haydn H. Murray 17,377,378 398,074
Allan H. Selig 17,378,578 396,874
</TABLE>
*All votes abstained were common shares.
<TABLE>
<CAPTION>
APPROVAL OF AMENDMENT TO THE OIL-DRI CORPORATION OF AMERICA 1995
LONG TERM INCENTIVE PLAN
<S> <C> <C> <C>
COMMON CLASS B TOTAL
--------- ---------- ----------
Votes For: 2,207,931 14,082,740 16,290,671
Votes Against: 989,203 -- 989,203
Votes Abstained: 27,536 -- 27,536
Votes Withheld: 468,042 -- 468,042
</TABLE>
ITEM 6. (A) EXHIBITS: The following documents are an exhibit to this report.
<TABLE>
<CAPTION>
Exhibit
Index
-------
<S> <C>
Exhibit 11: Statement Re: Computation of per 21
share earnings
Exhibit 27: Financial Data Schedule 22
</TABLE>
(B) During the quarter for which this report is filed, no reports on
Form 8-K were filed.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OIL-DRI CORPORATION OF AMERICA
(Registrant)
BY /S/JAMES F. JAPCZYK
----------------------------
James F. Japczyk
Vice President, Controller
Chief Accounting Officer
BY /S/DANIEL S. JAFFEE
----------------------------
Daniel S. Jaffee
President and Chief Executive Officer
Dated: March 16, 2000
Exhibit 11
OIL-DRI CORPORATION OF AMERICA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
----------------------------------------
(in thousands, except per share amounts)
----------------------------------------
Three Months Six Months
Ended January 31 Ended January 31
------------------ ------------------
2000 1999 2000 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Net income available to
Stockholders (numerator) $ 92 $2,276 $1,819 $4,304
====== ====== ====== ======
Shares Calculation
(denominator):
Average shares outstanding -
basic 5,646 5,843 5,684 5,862
Effect of Dilutive
Securities:
Potential Common Stock
relating to stock options 158 212 167 117
----- ----- ----- -----
Average shares outstanding -
assuming dilution 5,804 6,055 5,851 5,979
====== ====== ====== ======
Earnings per share-basic $ 0.02 $ 0.39 $ 0.32 $ 0.73
====== ====== ====== ======
Earnings per share-
assuming dilution $ 0.02 $ 0.38 $ 0.31 $ 0.72
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 2,988,000
<SECURITIES> 1,219,000
<RECEIVABLES> 27,598,000
<ALLOWANCES> 397,000
<INVENTORY> 16,360,000
<CURRENT-ASSETS> 55,687,000
<PP&E> 135,846,000
<DEPRECIATION> 73,811,000
<TOTAL-ASSETS> 136,482,000
<CURRENT-LIABILITIES> 15,577,000
<BONDS> 42,063,000
0
0
<COMMON> 724,000
<OTHER-SE> 72,903,000
<TOTAL-LIABILITY-AND-EQUITY> 136,482,000
<SALES> 91,052,000
<TOTAL-REVENUES> 91,052,000
<CGS> 64,765,000
<TOTAL-COSTS> 64,765,000
<OTHER-EXPENSES> 22,043,000
<LOSS-PROVISION> 59,000
<INTEREST-EXPENSE> 1,623,000
<INCOME-PRETAX> 2,562,000
<INCOME-TAX> 743,000
<INCOME-CONTINUING> 1,819,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,819,000
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.31
</TABLE>
