1 UNITED STATES 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 MARCH 31, 1997 [ ] 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) DELAWARE 95-2588080 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 4695 MacArthur Court, Newport Beach, California 92660 - ----------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (714) 260-1200 - -------------------------------------------------------------------------------- (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 -- 2,507,829 shares as of March 31, 1997
2 AMERICAN VANGUARD CORPORATION INDEX <TABLE> <CAPTION> Page Number ----------- <S> <C> PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996 1 Consolidated Balance Sheets as of March 31, 1997, and December 31, 1996 2 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 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 11 SIGNATURE PAGE 12 </TABLE>
3 PART I. FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> For the three months ended March 31 ---------------------------- 1997 1996 ---- ---- <S> <C> <C> Net sales $10,583,600 $10,421,100 Cost of sales 6,431,800 6,248,000 ----------- ----------- Gross profit 4,151,800 4,173,100 Operating expenses 3,881,000 3,356,900 ----------- ----------- Operating income 270,800 816,200 Interest expense (355,700) (260,900) Interest income 4,700 2,200 ----------- ----------- Income (loss) before income tax (80,200) 557,500 Income tax (expense) benefit 24,100 (223,000) ----------- ----------- Net income (loss) $ (56,100) $ 334,500 =========== =========== Net income (loss) per common share $ (.02) $ .13 =========== =========== Weighted average number of shares outstanding 2,507,829 2,522,079 =========== =========== </TABLE> See notes to consolidated financial statements. 1
4 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS ------ <TABLE> <CAPTION> March 31, December 31, 1997 1996 ------------ ------------ (Unaudited) (Note) <S> <C> <C> Current assets: Cash $ 342,000 $ 632,400 Receivables: Trade 18,328,400 16,529,900 Other 110,300 198,800 ----------- ----------- 18,438,700 16,728,700 ----------- ----------- Inventories 14,758,400 11,350,300 Prepaid expenses 1,156,200 653,600 ----------- ----------- Total current assets 34,695,300 29,365,000 Property, plant and equipment, net 12,713,900 12,927,500 Land held for development 210,800 210,800 Cost in excess of assets acquired, net 3,471,800 3,532,200 Deferred charges, net 1,630,800 1,660,100 Other assets 301,800 332,700 ----------- ----------- $53,024,400 $48,028,300 =========== =========== </TABLE> See notes to consolidated financial statements. 2
5 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ <TABLE> <CAPTION> March 31, December 31, 1997 1996 ------------ ------------ (Unaudited) (Note) <S> <C> <C> Current liabilities: Current installments of long-term debt $ 1,253,600 $ 1,160,500 Accounts payable 4,200,600 3,002,300 Accrued expenses 2,236,100 4,750,600 Accrued royalty obligation- current portion 1,600,000 1,600,000 Income taxes payable 119,000 946,200 Legal settlements payable 52,500 52,500 ----------- ----------- Total current liabilities 9,461,800 11,512,100 Notes payable to bank 14,564,000 7,000,000 Long-term debt, excluding current installments 4,062,000 4,373,100 Accrued royalty obligation- excluding current portion 3,062,000 3,062,000 Deferred income taxes 2,695,600 2,695,600 ----------- ----------- Total liabilities 33,845,400 28,642,800 ----------- ----------- 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 256,400 256,400 Additional paid-in capital 3,879,000 3,879,000 Retained earnings 15,402,500 15,609,000 ----------- ----------- 19,537,900 19,744,400 Treasury stock at cost (56,600 shares) 358,900 358,900 ----------- ----------- Total stockholders' equity 19,179,000 19,385,500 ----------- ----------- $53,024,400 $48,028,300 =========== =========== </TABLE> Note: The balance sheet at December 31, 1996, has been derived from the audited financial statements at that date (Note 1). See notes to consolidated financial statements. 3
6 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) <TABLE> <CAPTION> 1997 1996 ---- ---- <S> <C> <C> Increase (decrease) in cash Cash flows from operating activities: Net income (loss) $ (56,100) $ 334,500 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 678,500 586,900 Changes in assets and liabilities associated with operations: Decrease (increase) in receivables (1,710,000) 3,066,700 Increase in inventories (3,408,100) (865,200) Decrease (increase) in prepaid expenses (502,600) 89,600 Increase (decrease) in accounts payable 1,198,300 (795,400) Decrease in other payables and accrued expenses (3,341,700) (2,036,300) ------------ ------------ Net cash provided by (used in) operating activities (7,141,700) 380,800 ------------ ------------ Cash flows from investing activities: Capital expenditures (340,000) (86,500) Increase in deferred charges (1,600) - Net increase in other noncurrent assets (2,700) (13,700) ------------ ------------ Net cash used in investing activities (344,300) (100,200) ------------ ------------ </TABLE> (Continued) 4
7 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) <TABLE> <CAPTION> 1997 1996 ---- ---- <S> <C> <C> Cash flows from financing activities: Net additions under lines of credit agreements $ 7,564,000 $ 300,000 Principal payments on long-term debt (218,000) (303,700) Payment of cash dividends (150,400) (138,000) ----------- ----------- Net cash provided by (used in) financing activities 7,195,600 (141,700) ----------- ----------- Net increase (decrease) in cash (290,400) 138,900 Cash at beginning of year 632,400 331,600 ----------- ----------- Cash at end of period $ 342,000 $ 470,500 =========== =========== </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 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. Operating results for the three months ended March 31, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. 2. Inventories - The components of inventories consist of the following: <TABLE> <CAPTION> March 31, December 31, 1997 1996 ----------- ------------ <S> <C> <C> Finished products $11,441,000 $ 8,108,800 Raw materials 3,317,400 3,241,500 ----------- ----------- $14,758,400 $11,350,300 =========== =========== </TABLE> 3. Property, plant and equipment at March 31, 1997 and December 31, 1996, consists of the following: <TABLE> <CAPTION> March 31, December 31, 1997 1996 --------- ------------ <S> <C> <C> Land $ 2,382,600 $ 2,382,600 Buildings and improvements 3,816,400 3,812,300 Machinery and equipment 20,710,700 20,677,000 Office furniture and fixtures 1,062,600 1,031,400 Automotive equipment 105,000 105,000 Construction in progress 1,474,500 1,203,500 ----------- ----------- 29,551,800 29,211,800 Less accumulated depreciation 16,837,900 16,284,300 ----------- ----------- $12,713,900 $12,927,500 =========== =========== </TABLE> See notes to consolidated financial statements. 6
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. On March 12, 1997, the Company announced that the Board of Directors declared a cash dividend of $.06 per share. The dividend was paid on March 31, 1997 to stockholders of record as of March 20, 1997. In February 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. 5. 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. 6. Reclassification - Certain items have been reclassified in the prior period consolidated financial statements to conform with the March 31, 1997, presentation. 7
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED MARCH 31: Net sales increased $162,500 or 1.5% to $10,583,600 for the quarter ended March 31, 1997 from $10,421,100 for the same period in 1996. Gross profits of $4,151,800 for the three months ended March 31, 1997 remained virtually unchanged as compared to $4,173,100 for the same period in 1996. The gross profit percentage decreased by 1% from 40% for the quarter ended March 31, 1996 to 39% for the quarter ended September 30, 1997. Although several product groups experienced minor declines during the quarter ended March 31, 1997, sales of Metam Sodium products increased significantly thereby offsetting the declines in other product groups and pushing first quarter sales to the record high level of $10,583,600. The increase in sales of Metam Sodium products was primarily attributable to the acquisition in December 1996 (from Zeneca, Inc.) of the rights to manufacture and sell the Vapam(R) label of Metam Sodium products. Despite the higher sales in the first quarter of 1997, the gross profit declined slightly primarily as a result of competitive pricing pressures in the Metam Sodium market. Operating expenses, which are net of other income, increased by $524,100 to $3,881,000 for the quarter ended March 31, 1997 as compared to $3,356,900 for the same period in 1996. The differences in operating expenses by specific departmental costs are as follows: o Selling and regulatory expenses remained relatively constant with a minor increase of $10,300 to $1,118,300 from $1,108,000 for the prior year first quarter. The Company, to support and grow the Vapam(R) product line, made investments in its technical, sales and marketing infrastructure which included the hiring of additional technical and sales individuals. The costs of these investments were offset by a decline of certain other variable selling costs in the quarter ended March 31, 1997 when compared to the same period in 1996. o General and administrative expenses increased $177,100 to $989,200 from $812,100 for the first quarter of 1996 primarily due to the commencement of amortization of intangible assets acquired in connection with the acquisition of Vapam(R) (from Zeneca, Inc.) in the amount of $78,800 and the recognition of $91,300 in expenses in connection with the hiring of an executive officer of AMVAC during the fourth quarter of 1996. o Research and development expenses increased by $217,400 to $896,400 over the prior year first quarter level of $679,000 primarily due to an increase in costs incurred to generate scientific data related to registration of the Company's products. 8
11 o Shipping and receiving costs increased by $119,300 to $877,100 from $757,800 for the first quarter of 1996 primarily due to increased freight, storage and rail car fleet expenses incurred in connection with the increased activity in the Metam Sodium product group. Interest costs were $355,700 during the three months ended March 31, 1997 as compared to $260,900 for the same period in 1996. The average level of borrowing under the Company's lines of credit was approximately $11,647,400 for the first quarter of 1997 as compared to $5,350,500 for the same period in 1996. The average level of other long-term debt was $5,424,600 for the first quarter of 1997 as compared to $6,653,300 for the same period in 1996. On a combined basis the Company's average debt for the first quarter of 1997 was $17,072,000 as compared to $12,003,800 for the first quarter of 1996. While interest rates have remained fairly stable since the first quarter of 1996, the increase in combined average debt of $5,068,200 is the reason for the increase in interest expense in the first quarter of 1997. 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 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. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 1997 was $25,233,500 reflecting an increase of $7,380,600 over working capital of $17,852,900 at December 31, 1996. The Company's cash used in operations was $7,141,700 for the first quarter of 1997 driven primarily by an increase in accounts receivable of $1,710,000 as a result of sales with extended terms, an increase in inventories of $3,408,100 to meet forecasted sales and payments of accrued rebates, royalties income taxes and other accruals of $3,341,700 9
12 offset partially by depreciation and amortization of $678,500 and an increase in accounts payable of $1,198,300. The remaining cash used in operations was funded by an increase in debt under the Company's lines of credit in the amount of $7,564,000. Additionally, the Company declared and paid cash dividends of $150,400 during the first quarter of 1997 and made capital improvements of $340,000. The Company had $2,400,000 in availability under its fully-secured $15,500,000 revolving line of credit as of March 31, 1997, a decrease of $6,100,000 from the amount available as of December 31, 1996. The Company had $3,536,000 in availability under its fully-secured $5,000,000 long-term acquisition line of credit as of March 31, 1997. No amounts had been borrowed under the acquisition line of credit as of December 31, 1996. The Company made principal payments on its other long-term debt and capital leases of $218,000 during the quarter ended March 31, 1997. Management continues to believe, 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. 10
13 PART II. OTHER INFORMATION The Company was not required to report any matters or changes for any items of Part II. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the three months ended March 31, 1997. 11
14 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: May 13, 1997 By: /s/ ERIC G. WINTEMUTE ----------------------------- Eric G. Wintemute President, Chief Executive Officer and Director Dated: May 13, 1997 By: /s/ J. A. BARRY ----------------------------- J. A. Barry Vice President Chief Financial Officer 12