1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________TO___________ COMMISSION FILE NUMBER 0-6354 AMERICAN VANGUARD CORPORATION (Exact name of registrant as specified in its charter) <TABLE> <S> <C> DELAWARE 95-2588080 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 4100 East Washington Boulevard, Los Angeles, California 90023 _______________________________________________________ _____ (Address of principal executive offices) (Zip Code) </TABLE> (213) 264-3910 (Registrant's telephone number, including area code) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Former name, former address and former fiscal year, if changed since last report) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ _____ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No _____ ______ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value -- 2,522,079 shares as of September 30, 1996.
2 AMERICAN VANGUARD CORPORATION INDEX PART I - FINANCIAL INFORMATION Page Number ----------- Item 1. Financial Statements: Consolidated Statements of Income for the three and nine months ended September 30, 1996 and 1995 1 Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995. 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 4 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION 13 SIGNATURE PAGE 14
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> For the three months For the nine months ended September 30 ended September 30 -------------------------------- --------------------------------- 1996 1995 1996 1995 ----------- ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 9,094,300 $ 11,138,200 $ 29,407,400 $ 34,815,000 Cost of sales 5,401,800 6,971,300 18,295,700 21,650,700 ----------- ------------ ------------ ------------ Gross profit 3,692,500 4,166,900 11,111,700 13,164,300 Operating expenses 3,419,900 3,663,100 9,797,400 11,784,000 ----------- ------------ ------------ ------------ Operating income 272,600 503,800 1,314,300 1,380,300 Interest expense (230,400) (218,500) (687,300) (750,000) Interest income 2,200 1,600 6,600 5,600 ----------- ------------ ------------ ------------ Income before income taxes 44,400 286,900 633,600 635,900 Income taxes expense (17,800) (114,700) (257,000) (256,900) ----------- ------------ ------------ ------------ Net income $ 26,600 $ 172,200 $ 376,600 $ 379,000 =========== ============ ============ ============ Net income per share $ .01 $ .07 $ .15 $ .15 =========== ============ ============ ============ Weighted average number of shares 2,521,862 2,551,069 2,522,006 2,552,784 =========== ============ ============ ============ </TABLE> See accompanying notes to consolidated financial statements. 1
4 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS <TABLE> <CAPTION> September 30, Dec. 31, 1996 1995 ----------- ----------- (Unaudited) (Note) <S> <C> <C> Current assets: Cash $ 417,200 $ 331,600 Receivables: Trade 8,757,400 15,228,300 Other 59,000 257,700 ----------- ----------- 8,816,400 15,486,000 ----------- ----------- Inventories 12,105,800 8,269,600 Prepaid expenses 828,200 581,000 ----------- ----------- Total current assets 22,167,600 24,668,200 Property, plant and equipment, net 12,981,800 13,680,400 Land held for development 210,800 210,800 Cost in excess of assets acquired, net 417,000 442,100 Deferred charges, net 60,500 57,900 Other assets 277,900 281,600 ----------- ----------- $36,115,600 $39,341,000 =========== =========== </TABLE> See accompanying notes to consolidated financial statements. 2
5 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> September 30, Dec. 31, 1996 1995 ------------ ------------ (Unaudited) (Note) <S> <C> <C> Current liabilities: Current installments of long-term debt $ 1,265,200 $ 1,265,600 Accounts payable 1,447,200 2,810,800 Accrued expenses 2,060,100 3,530,900 Income taxes payable -- 1,366,300 ------------ ------------ Total current liabilities 4,772,500 8,973,600 Note payable to bank 5,600,000 3,900,000 Long-term debt, excluding current installments 4,611,600 5,539,500 Deferred income taxes 2,922,500 2,922,500 ------------ ------------ Total liabilities 17,906,600 21,335,600 ------------ ------------ Stockholders' Equity: Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued -- -- Common stock, $.10 par value per share; authorized 10,000,000 shares; issued 2,564,429 shares in 1996 and 2,331,371 shares in 1995 256,400 233,100 Additional paid-in capital 3,879,000 1,688,200 Retained earnings 14,370,100 16,345,600 ------------ ------------ 18,505,500 18,266,900 Treasury stock at cost (47,350 shares) (296,500) (261,500) ------------ ------------ Total stockholders' equity 18,209,000 18,005,400 ------------ ------------ $ 36,115,600 $ 39,341,000 ============ ============ </TABLE> Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date (Note 1). See accompanying notes to consolidated financial statements. 3
6 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) <TABLE> <CAPTION> Increase (decrease) in cash 1996 1995 ----------- ----------- <S> <C> <C> Cash flows from operating activities: Net income $ 376,600 $ 379,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,761,700 2,711,300 Changes in assets and liabilities associated with operations: Decrease in receivables 6,669,600 8,660,500 Increase in inventories (3,836,200) (1,886,400) Decrease (increase) in prepaid expenses (247,200) 432,400 Decrease in accounts payable (1,363,600) (370,000) Decrease in other payables and accrued expenses (2,837,100) (4,396,100) ----------- ----------- Net cash provided by operating activities 523,800 5,530,700 ----------- ----------- Cash flows from investing activities: Capital expenditures (951,600) (429,400) Increase in deferred charges (12,000) (226,400) Net increase in other noncurrent assets (73,300) (114,600) ----------- ----------- Net cash used in investing activities (1,036,900) (770,400) ----------- ----------- </TABLE> (Continued) 4
7 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) <TABLE> <CAPTION> Increase (decrease) in cash 1996 1995 ----------- ----------- <S> <C> <C> Cash flows from financing activities: Net borrowings (repayments) under line of credit agreement $ 1,700,000 $(3,000,000) Increase in long-term debt 96,600 -- Principal payments on long-term debt (1,024,900) (1,602,800) Acquisition of treasury stock (35,000) (156,000) Payment of cash dividends (138,000) -- ----------- ----------- Net cash provided by (used in) financing activities 598,700 (4,758,800) ----------- ----------- Net increase in cash 85,600 1,500 Cash at beginning of year 331,600 317,700 ----------- ----------- Cash as of September 30 $ 417,200 $ 319,200 =========== =========== </TABLE> On March 15, 1996, the Company distributed 233,058 shares of Common Stock in connection with a 10% Common Stock dividend to stockholders of record as of February 29, 1996. As a result of the stock dividend, Common Stock was increased by $23,300, additional paid-in capital was increased by $2,190,800, and retained earnings was decreased by $2,214,100 (Note 4). See accompanying notes to consolidated financial statements. 5
8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Operating results for the three and nine-month periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 2. Inventories - The components of inventories consist of the following: <TABLE> <CAPTION> Sept. 30, 1996 Dec. 31, 1995 -------------- ------------- <S> <C> <C> Finished products $ 9,908,700 $6,001,600 Raw materials 2,197,100 2,268,000 ----------- ---------- $12,105,800 $8,269,600 =========== ========== </TABLE> 3. Property, plant and equipment at September 30, 1996 and December 31, 1995, consists of the following: <TABLE> <CAPTION> Sept. 30, Dec. 31, 1996 1995 ----------- ----------- <S> <C> <C> Land $ 2,382,600 $ 2,319,800 Buildings and improvements 3,808,500 3,539,900 Machinery and equipment 20,622,000 19,998,800 Office furniture and fixtures 1,025,100 971,800 Automotive equipment 105,000 105,000 Construction in progress 768,700 825,000 ----------- ----------- 28,711,900 27,760,300 Less accumulated depreciation 15,730,100 14,079,900 ----------- ----------- $12,981,800 $13,680,400 =========== =========== </TABLE> 6
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. On February 5, 1996, the Company announced that the Board of Directors declared a cash dividend of $.06 per share as well as a 10% stock dividend. Both dividends were distributed on March 15, 1996 to stockholders of record at the close of business on February 29, 1996. The cash dividend was paid on the number of shares outstanding prior to the 10% stock dividend. Stockholders entitled to fractional shares resulting from the 10% stock dividend received cash in lieu of such fractional share based on $9.50 per share, the closing price of the Company's stock on February 29, 1996. Weighted average number of shares for all periods presented have been restated to reflect the 10% stock dividend. 5. Repurchase of Common Stock - During the nine months ended September 30, 1996, the Company repurchased (open market purchase) 5,000 shares of common stock for an aggregate price of $35,000. All of the repurchased shares are held in treasury for use in conjunction with the Company's 1994 Stock Option Plan and other general corporate purposes. 6. Earnings Per Share - Earnings per share is computed by dividing net income by the weighted average number of shares outstanding, after giving effect to the stock dividend described in note 4, during the respective period. 7. Long-term Debt and Credit Arrangements - Substantially all of the Company's assets not otherwise specifically pledged as collateral on existing loans and capital leases are pledged as collateral under the Company's credit agreements with its primary bank. 8. Reclassification - Certain items have been reclassified in the prior period consolidated financial statements to conform with the September 30, 1996, presentation. 7
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30: The Company reported net income of $26,600 or $.01 per share for the third quarter ended September 30, 1996 as compared to net income of $172,200 or $.07 per share for the same period in 1995. Net sales decreased $2,043,900 or 18% to $9,094,300 for the quarter ended September 30, 1996 from $11,138,200 for the same period in 1995. The primary reason for the decline in sales and net income is due to a continuing softness in pest populations as a result of unanticipated weather conditions which began in the second quarter of 1996. As a result, there was a decline in usage of certain of the Company's products. Gross profits decreased to $3,692,500 for the three months ended September 30, 1996 from $4,166,900 for the same period in 1995. Despite the decline in overall gross profits, the gross profit percentage increased by 4% to 41% for the quarter ended September 30, 1996 from 37% for the quarter ended September 30, 1995. The increase in the gross profit percentage was primarily attributable to sales mix of products. Operating expenses, which are net of other income, decreased by $243,200 to $3,419,900 for the quarter ended September 30, 1996 as compared to $3,663,100 for the same period in 1995. The differences in operating expenses by specific departmental costs are as follows: - Selling and regulatory expenses increased by $202,900 to $1,104,800 in the third quarter of 1996 from $901,900 in the third quarter of 1995. Approximately $65,000 of the increase was incurred upgrading the quality of the Company's product label guide and promoting the Company's business. Operating expenses of GemChem, Inc., the Company's marketing subsidiary, increased approximately $86,000 in connection with the challenge of obtaining new business as well as maintaining and increasing business with continuing customers. The balance of the increase relates to increases in rebates and royalties on certain of the Company's products. - General and administrative expenses increased $99,900 to $918,400 in the third quarter of 1996 from $818,500 in the third quarter of 1995 primarily attributable to expenses incurred by Environmental Mediation, Inc. ("EMI"), the Company's environmental consulting 8
11 subsidiary, which had just begun operations in the Spring of 1995 and has grown and become fully operational since that time. - Research and development expenses decreased by $426,400 from $1,076,100 in the third quarter of 1995 to $649,700 in the third quarter of 1996 primarily due to a decrease in costs incurred to generate scientific data related to registration of the Company's products. This decrease is primarily attributable to a decrease in research and development costs in connection with PCNB, Bidrin(R), and DDVP products. - Shipping and receiving costs decreased by $119,600 from $866,600 in the third quarter of 1995 to $747,000 in the third quarter of 1996 which was primarily attributable to lower freight costs due to the reduction in sales in the third quarter of 1996. Interest costs were $230,400 during the three months ended September 30, 1996 as compared to $218,500 for the same period in 1995. The average level of borrowing under the Company's line of credit agreement was $4,687,000 for the third quarter of 1996 as compared to $5,484,000 for the same period in 1995. The average level of long-term debt was $6,069,000 for the third quarter of 1996 as compared to $3,450,000 for the same period in 1995. On a combined basis, the Company's average debt for the third quarter of 1996 was $10,756,000 as compared to $8,934,000 for the third quarter of 1995. Although average debt was higher in the third quarter of 1996 as compared to the same quarter in 1995, lower effective interest rates in the three months ended September 30, 1996 as compared to the same period in 1995 result in the relatively small net increase in interest costs of $11,900 in the third quarter of 1996. Weather patterns can have an impact on the Company's operations. Weather conditions influence pest population by impacting gestation cycles for particular pests and the effectiveness of some of the Company's products, among other factors. The end user of some of the Company's products may, because of weather patterns, delay or intermittently disrupt field work during the planting season which may result in a reduction of the use of some of the Company's products. Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales, ordering patterns that may vary in timing, and promotional/early order programs, measuring the Company's performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as meaningful an indicator as full-year comparisons. Because most of the 9
12 Company's cost structure is fixed, at least in the short-term, the combination of variable revenue streams, changing product mixes, and a fixed cost structure results in varying quarterly levels of profitability. NINE MONTHS ENDED SEPTEMBER 30: The Company reported net income of $376,600 or $.15 per share for the nine month period ended September 30, 1996 as compared to net income of $379,000 or $.15 per share for the same period in 1995. Although profits were comparable for the nine month periods ended September 30, 1996 and 1995, net sales decreased $5,407,600 or 16% to $29,407,400 for the nine months ended September 30, 1996 from $34,815,000 for the same period in 1995. All of the decrease in sales occurred during the second and third quarters of 1996 and was primarily due to unanticipated weather conditions which had an adverse impact on sales of certain of the Company's pesticide related products. The most significant decreases were in sales of Bidrin(R) and Naled products which declined by $7,921,000 from 1995 sales levels. Increased sales of Metam Sodium products during the nine months ended September 30, 1996 helped to offset the declines in sales of Bidrin(R) and Naled products. The Company was able to generate net income for the nine months ended September 30, 1996 comparable to net income for the nine months ended September 30, 1995 due to reductions in operating expenses which are discussed below. Gross profits declined to $11,111,700 for the first nine months of 1996 from $13,164,300 for the same period in 1995. The gross profit margin, however, remained stable at 38% during the nine months ended September 30, 1996 and 1995. The stability in the gross profit margin is attributable to the differences in the sales mix of the Company's products during the nine month periods ended September 30, 1996 and 1995. Operating expenses decreased by $1,986,600 to $9,797,400 for the first nine months of 1996 from $11,784,000 for the same period in 1995. The differences in operating expenses by specific departmental costs are as follows: - Selling and regulatory expenses decreased by $1,012,300 during the nine months ended September 30, 1996 primarily as a result of reduced royalties and rebates on decreased sales levels. - General and administrative expenses increased $417,200 in the first nine months of 1996 which was primarily attributable to increases in environmental consulting (which includes EMI) and outside professional fees. 10
13 - Research and development expenses decreased $1,694,900 in the first nine months of 1996 primarily as a result of reduced costs incurred to generate scientific data related to the registration of the Company's products. This decrease is primarily attributable to a decrease in research and development costs in connection with PCNB, NAA, Bidrin(R), Metam Sodium and DDVP products. - Shipping and receiving costs increased by $303,400 primarily as a result of increased sales activity of Metam Sodium products as well as increased movement to and expansion of Metam Sodium storage sites throughout the United States. Interest costs were $687,300 during the nine months ended September 30, 1996 as compared to $750,000 for the same period in 1995. The average level of borrowing under the Company's line of credit agreement was approximately $4,159,000 for the first nine months of 1996 as compared to $7,073,000 for the same period in 1995. The average level of long-term debt was $6,334,000 for the nine months ended September 30, 1996 as compared to $3,803,000 for the same period in 1995. On a combined basis, the Company's average debt for the nine months ended September 30, 1996 was $10,493,000 as compared to $10,876,000 for the first nine months of 1995. Lower effective interest rates during 1996 accompanied by slightly lower average debt account for the reduction in interest costs for the nine months ended September 30, 1996. LIQUIDITY AND CAPITAL RESOURCES Working capital was $17,395,100 at September 30, 1996 reflecting an increase of $1,700,500 over working capital of $15,694,600 at December 31, 1995. With net income of $376,600, depreciation and amortization of $1,761,700 and a reduction in receivables of $6,669,600 the Company generated cash flow of $8,807,900 the substantial portion of which was used to increase inventories by $3,836,200, reduce trade accounts payable by $1,363,600 and reduce accrued expenses and other payables by $2,837,100. Inventories were increased to meet expected sales forecasts, however, as noted above, actual sales did not achieve forecasted sales due to the weather's impact on pest populations during the nine months ended September 30, 1996. It is anticipated that inventories will be liquidated in the ordinary course of business. The decrease in accrued expenses and other payables related primarily to payments of product rebates and royalties to customers and payment of 1995 income tax liabilities. Additionally, the Company declared and paid cash dividends of $138,000 during the nine months ended September 30, 1996 and made capital improvements of $951,600. These expenditures primarily improve and/or maintain the existing capacity of the Company's manufacturing facility, and address the Company's continual effort to adapt its manufacturing process to the environmental control standards of its various controlling agencies. The Company had $4,900,000 in availability under its fully-secured $10,500,000 long-term line of credit as of September 30, 11
14 1996, a decrease of $1,700,000 from the amount available of $6,600,000 as of December 31, 1995. The Company made principal payments on its long-term debt and capital leases of $1,024,900 during the nine months ended September 30, 1996. Management believes current financial resources (working capital and short-term borrowing arrangements) and anticipated funds from operations will be adequate to meet financial needs during the next twelve months. Management also believes, to continue to improve its working capital position and maintain flexibility in financing interim needs, it is prudent to explore alternate sources of financing. The Company, from time to time, may discuss forward-looking information. Except for the historical information contained in this report, all forward-looking statements are estimates by the Company's management and are subject to various risks and uncertainties that may cause results to differ from management's current expectations. Such factors include weather conditions, changes in regulatory policy, and other risks as detailed from time to time in the Company's SEC reports and filings. All forward-looking statements, if any, in this report represent the Company's judgment as of the date of this report. The Company disclaims, however, any intent or obligation to update forward-looking statements. 12
15 PART II. OTHER INFORMATION The Company was not required to report any matters or changes for any items of Part II except as disclosed below. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - FDS (b) The Company did not file any reports on Form 8-K during the three months ended September 30, 1996. 13
16 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. AMERICAN VANGUARD CORPORATION Dated: November 13, 1996 By: /s/ Eric G. Wintemute _________________________________ Eric G. Wintemute President, Chief Executive Officer and Director Dated: November 13, 1996 By: /s/ J. A. Barry _________________________________ J. A. Barry Vice President Chief Financial Officer, Treasurer and Director 14