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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1995
|_| 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
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class:
Common Stock, $.10 par value
----------------------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of $.10 par value Common Stock outstanding as of March 22,
1996, was 2,522,079. The aggregate market value of the voting stock of the
registrant held by non-affiliates at March 22, 1996, was $12,191,400. For
purposes of this calculation, shares owned by executive officers, directors, and
5% stockholders known to the registrant have been deemed to be owned by
affiliates.
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AMERICAN VANGUARD CORPORATION
ANNUAL REPORT ON FORM 10-K
December 31, 1995
PART I PAGE NO.
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of
Security Holders 15
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operation 18
Item 8. Financial Statements and Supplementary
Data 26
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the
Registrant 28
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain
Beneficial Owners and Management 33
Item 13. Certain Relationships and Related
Transactions 34
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 35
SIGNATURES 37
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PART I
ITEM 1 BUSINESS
American Vanguard Corporation was incorporated under the laws
of the State of Delaware in January 1969 and operates as a holding company.
Unless the context otherwise requires, references to the "Company", the
"Registrant" or "AMVAC" in this Annual Report refer to American Vanguard
Corporation and its consolidated subsidiaries. The Company conducts its business
through its wholly-owned subsidiaries, Amvac Chemical Corporation ("CHEMICAL"),
GemChem, Inc. ("GemChem"), and 2110 Davie Corporation ("DAVIE").
GEMCHEM, INC.
On March 31, 1994, the Company purchased all of the issued and
outstanding stock of GemChem, Inc., a national chemical distributor. The
purchase was effective January 15, 1994. GemChem, in addition to representing
CHEMICAL as its domestic sales force, also sells into the pharmaceutical,
cosmetic and nutritional markets. Prior to the acquisition, GemChem acted in the
capacity as the domestic sales force for the Company (from September 1991).
See also PART III, Item 13 of this Annual Report.
2110 DAVIE CORPORATION
Effective September 30, 1989, the Company sold substantially
all operating assets of DAVIE.
In connection with the sale, DAVIE provided Buyer with a five
year covenant not to compete in the business formerly conducted by DAVIE.
Herbert A. Kraft, the Chairman and Chief Executive Officer of both the Company
and DAVIE, entered into a consulting agreement with the Buyer providing an
aggregate consideration of $6,000 per annum for a five year period ended
September 1994.
DAVIE currently invests in real estate for corporate use only.
See also PART I, Item 2 of this Annual Report.
CHEMICAL
CHEMICAL is a California corporation that traces its history
from 1945. CHEMICAL is a specialty chemical manufacturer that develops and
markets products for agricultural and commercial uses. It manufactures and
formulates chemicals for crops, human and animal health protection. These
chemicals which include insecticides, fungicides, molluscicides, growth
regulators, and soil fumigants, are marketed in liquid, powder,
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and granular forms. CHEMICAL's business is continually undergoing an
evolutionary change. Years ago CHEMICAL considered itself a
distributor-formulator, but now primarily manufactures, distributes, and
formulates its own labelled products or custom manufactures or formulates for
others.
In November of 1993, CHEMICAL purchased from E.I. du Pont de
Nemours & Company ("Du Pont") the rights, title and interest in Bidrin(R), an
insecticide for cotton crops, including Environmental Protection Agency ("EPA")
registration rights issued under the Federal Insecticide, Fungicide and
Rodenticide Act ("FIFRA"). The Company purchased Du Pont's inventory of
Bidrin(R) at Du Pont's approximate cost, and will pay continuing royalties on
all Bidrin(R) sold by the Company to customers in the United States through
December 1997.
In March of 1992, CHEMICAL concluded a transaction with
Chevron Chemical Company ("Chevron") whereby CHEMICAL purchased the non-United
States distribution and intellectual property rights (excluding, however, sales
to Japan and to the home and residential markets) to Chevron's proprietary
Dibrom(R) (1,2- dibromo-2,2-dichloroethyl dimethyl phosphate) agricultural
chemical product line.
In March of 1991, CHEMICAL acquired from Rhone-Poulenc AG
Company its Naphthalene Acetic Acid ("NAA") plant growth regulator chemical
product line (except for one product), including Rhone-Poulenc's EPA
registration rights issued under FIFRA, for a nominal cash consideration and
continuing royalties through March 1996. Prior to this acquisition, CHEMICAL had
been a major supplier of these chemicals to Rhone-Poulenc. This product line
includes Tre-Hold(R) brand Sprout Inhibitor A112, Tre- Hold(R) brand Sprout
Inhibitor for Citrus, NAA-800(R) Plant Regulator, Amid Thin(R) W brand Plant
Regulator, Fruitone(R) N, Technical Naphthaleneacetic acid Ethyl Ester,
Technical Naphthalene Acetic Acid, and Technical Naphthaleneacetic Sodium Salt.
In January of 1989, CHEMICAL purchased from Du Pont its
Phosdrin(R) (an insecticide) product line and inventory for a price equal to the
inventory at cost plus a royalty on sales through January 1994. In June 1994,
the Company announced that it had proposed the voluntary cancellation of the
registration and all uses of Phosdrin(R). As such, the Company agreed to
immediately stop production of Phosdrin(R) for sale and distribution in the
United States. On January 13, 1995, CHEMICAL and the EPA entered into an
agreement concerning the domestic sale, distribution, use and eventual recall of
Phosdrin(R). Under the terms of the agreement, existing Phosdrin(R) was allowed
to be sold, distributed and used in the United States through November 30, 1995.
Effective December 1, 1995, all United States registrations of Phosdrin(R) were
canceled and could no longer be used. CHEMICAL
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developed a recall program to remove Phosdrin(R) from the marketplace. The
recall program is being conducted to the end user level and consists of
financial reimbursement to the Company's distributors for returned, unopened
containers. The last day CHEMICAL must, under the recall plan, accept returned
Phosdrin(R) is July 27, 1996. The ultimate costs of the recall based upon the
facts known today, are not expected to have a material adverse effect on the
Company. In 1995, domestic sales of Phosdrin(R) were immaterial. They accounted
for approximately 14% of the Company's total consolidated sales in 1994. The
Company intends to continue to sell Phosdrin(R) for export, a market which
accounted for approximately 2% of the Company's total consolidated sales in 1995
and 1994.
Some of the other principal products produced by CHEMICAL are
PCNB (Pentachloronitrobenzene), Dichlorvos (2,2- Dichlorovinyl dimethyl
phosphate), Metam Sodium (Sodium N- methyldithiocarbamate), and various
molluscicides. Domestically, CHEMICAL sells its products through the Company's
wholly-owned subsidiary, GemChem, Inc., and by one employee marketing
representative to distributors and dealers. These distributors are some of the
largest in the Unites States. Foreign sales are conducted primarily through
foreign distributors. See also PART I, Item 7 of this Annual Report for further
discussions of product sales.
The chemical industry in general is cyclical in nature. The
demand for CHEMICAL's products tends to be slightly seasonal, with the heaviest
usage generally being in the spring and late fall. Seasonal usage, however, does
not necessarily follow calendar dates, but more closely follows varying growing
seasonal patterns, weather conditions and weather related pressure from pests,
and customer marketing programs and requirements.
The Company does not believe that backlog is a significant
factor in its business. The Company primarily sells its products on the basis of
purchase orders, although it has entered into requirements contracts with
certain customers.
United Agri Products, Terra International, Inc., Valent U.S.A.
Corporation and Ciba Geigy Corporation accounted for 24%, 14%, 11% and 10%,
respectively, of the Company's sales in 1995. Sales to United Agri Products
accounted for 27% of the Company's sales in 1994. United Agri Products, Helena
Chemical Company, Terra International, Inc. and Valent U.S.A. Corporation
accounted for 25%, 11%, 10% and 10%, respectively, of the Company's sales in
1993. United Agri Products, Terra International, Inc. and Helena Chemical
Company are a part of the Company's distribution network and are not consumers
of the Company's products.
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COMPETITION
CHEMICAL faces competition from many domestic and foreign
manufacturers in its marketplaces. Competition in CHEMICAL'S marketplace is
based primarily on efficacy, price, safety and ease of application. Many of such
competitors are larger and have substantially greater financial and technical
resources than CHEMICAL. CHEMICAL's ability to compete depends on its ability to
develop additional applications for its current products and expand its customer
base and product lines. CHEMICAL competes principally on the basis of the
quality of its products and the technical service and support given to its
customers. The inability of CHEMICAL to effectively compete in several of
CHEMICAL's principal products would have a material adverse effect on CHEMICAL's
results of operations.
Generally, the treatment against pests of any kind is broad in
scope, there being more than one way or one product for treatment, eradication,
or suppression. The Company has attempted to position CHEMICAL in small niche
markets in order to reduce the impact of competition. These markets are small by
nature, require significant and intensive management input, ongoing product
research, and are near product maturity. These types of markets tend not to
attract larger chemical companies due to the smaller volume demand, and larger
chemical companies have been divesting themselves of products that fall into
such niches.
CHEMICAL's proprietary product formulations are protected to
the extent possible as trade secrets and, to a lesser extent, by patents and
trademarks. Although CHEMICAL considers that, in the aggregate, its trademarks,
licenses, and patents constitute a valuable asset, it does not regard its
business as being materially dependent upon any single or several trademarks,
licenses, or patents. CHEMICAL's products also receive protection afforded by
the effect of FIFRA legislation that makes it unlawful to sell any pesticide in
the United States unless such pesticide has first been registered by the EPA as
well as under state laws of similar effect. Substantially all of CHEMICAL's
products are subject to EPA registration and re- registration requirements and
are conditionally registered in accordance with FIFRA. This licensing by EPA is
based, among other things, on data demonstrating that the product will not cause
unreasonable adverse effects on human health or the environment when it is used
according to approved label directions. All states where any of CHEMICAL's
products are used require a registration by that specific state before it can be
marketed or used. State registrations are renewed annually, as appropriate. The
EPA and state agencies have required, and may require in the future, that
certain scientific data requirements be performed on registered products sold by
CHEMICAL. CHEMICAL, on its own behalf and in joint efforts with other suppliers,
has,
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and is currently furnishing, certain required data relative to specific
products.
After repeated public pressure on federal and state
governments to require FIFRA product registrants to supply new scientific data
(such as toxicological and environmental fate tests), the government is
requiring additional studies and the submission of more data. This has
significantly increased CHEMICAL's operating expenses in such areas as testing
and the production of new products. This regulation makes certain CHEMICAL
products less vulnerable to direct competition but more vulnerable to inelastic
demand because of significant cost increases. CHEMICAL expensed $3,717,400,
$5,544,000 and $4,715,400 during 1995, 1994 and 1993, respectively, related to
gathering this information. Based on facts known today, CHEMICAL estimates it
will spend approximately $3,900,000 in 1996. Because scientific analyses are
constantly improving, it cannot be determined with certainty whether or not
material new or additional tests may be required by the regulatory authorities.
Additionally, while FIFRA Good Laboratory Practice standards specify the minimum
practices and procedures which must be followed in order to ensure the quality
and integrity of data related to these tests submitted to the EPA, there can be
no assurance the EPA will not request certain tests/studies be repeated.
CHEMICAL expenses these costs on an incurred basis except for costs that
pertained to PCNB (a new product the Company began producing in October 1990).
Total PCNB study costs incurred and capitalized through September 1995
approximated $5,813,000. During 1995 and 1994, the Company capitalized $185,000
and $509,000, respectively, in costs relating to the PCNB study costs.
Amortization of the PCNB study costs began in October 1990, and was provided by
the units of production method over a period of five years through September
1995. See also PART I, Item 7 of this Annual Report for discussions pertaining
to Research and Development Expenses.
RAW MATERIALS
The Company utilizes numerous firms as well as internal
sources to supply the various raw materials and components used by CHEMICAL in
manufacturing its products. Many of these materials are readily available from
domestic sources. In those instances where there is a single source of supply or
where the source is not domestic, the Company seeks to secure its supply by
either long-term arrangements or advance purchases from its suppliers. The
Company believes that it is considered to be a valued customer to such
sole-source suppliers.
ENVIRONMENTAL
The Company is subject to numerous federal and state
laws and governmental regulations concerning environmental
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matters and employee health and safety. The Company continually adapts its
manufacturing process to the environmental control standards of various
regulatory agencies. CHEMICAL expends substantial funds to minimize the
discharge of materials into the environment and to comply with the governmental
regulations relating to protection of the environment. Wherever feasible,
CHEMICAL recovers raw materials and increases product yield by recycling in
order to partially offset increasing pollution abatement costs.
The Company is committed to a long-term environmental
protection program that reduces emissions of hazardous materials into the
environment, as well as to the remediation of identified existing environmental
concerns. Federal and state authorities may seek fines and penalties for
violation of the various laws and governmental regulations. As part of its
continuing environmental program, except as disclosed in PART I, Item 3, Legal
Proceedings, of this Annual Report, the Company has been able to comply with
such proceedings and orders without any materially adverse effect on its
business.
The Company continues to make compliance with environmental
requirements an important company policy. As environmental quality requirements
and standards become stricter, the Company may have to incur additional
substantial costs to maintain regulatory compliance.
See also PART I, Item 3, Legal Proceedings, of this Annual
Report.
EMPLOYEES
As of March 22, 1996, the Company employed approximately 180
persons. This figure includes approximately 20 temporary (full-time) individuals
hired as contract personnel. CHEMICAL, on an ongoing basis, due to the
seasonality of its business, uses temporary contract personnel to perform
certain duties primarily related to packaging of its products. The Company
believes it is cost beneficial to employ temporary contract personnel. None of
the Company's employees are subject to a collective bargaining agreement.
The Company believes it maintains positive relations with its
employees.
EXPORT OPERATIONS
The Company opened an office in August 1994, in the United
Kingdom to conduct business in the European chemical market. The new office,
operating under the name AMVAC Chemical UK Ltd., focuses on developing product
registration and distributor networks for CHEMICAL's product lines throughout
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Europe. The office it located in Surrey, England, a city southwest of London.
The operating results of this operation were not material to the Company's total
operating results for the year ended December 31, 1995.
The Company arranges most of its foreign sales through
export/import brokers. The Company classifies as export sales all products
bearing foreign labeling shipped to a foreign destination.
1995 1994 1993
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Export Sales $3,374,700 $3,812,500 $4,714,400
INSURANCE
Management believes its facilities and equipment are
adequately insured against loss from usual business risks. The Company has
purchased claims made products liability insurance. There can be no assurance,
however, that such products liability coverage insurance will continue to be
available to the Company, or if available, that it will be provided at an
economical cost to the Company.
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ITEM 2 PROPERTIES
The Company's corporate headquarters are located in Newport
Beach, California. This facility is leased. See PART IV, Item 14, Note 12 of
this report for further information.
CHEMICAL owns in fee approximately 148,000 square feet of
improved land in Commerce, California, on which substantially all of its offices
and plant and some of its warehouse facilities are located.
DAVIE owns in fee approximately 72,000 square feet of
warehouse and office space on approximately 118,000 square feet of land in
Commerce, California, which is leased to CHEMICAL. The Company occupies offices
located with CHEMICAL's office and plant facilities in Commerce, California.
CHEMICAL's manufacturing facilities are divided into five
cost-centers; granular products, small packaging, Metam Sodium manufacturing,
PCNB manufacturing, and the production and formulation of all other products.
All production areas are designed to run on a continuous twenty-four hour per
day basis.
CHEMICAL regularly adds chemical processing equipment to
enhance its production capabilities. CHEMICAL believes its facilities are in
good operating condition and are suitable and adequate for CHEMICAL's
foreseeable needs, have flexibility to change products, and can produce at
greater rates as required. Facilities and equipment are insured against losses
from fire and other usual business risks. The Company knows of no material
defects in title to, or encumbrances on, any of its properties except that
substantially all of the Company's assets are pledged as collateral under the
Company's loan agreements with its primary lender. For further information,
refer to Note 4 of the Notes to the Consolidated Financial Statements in PART
IV, Item 14 of this Annual Report.
CHEMICAL purchased unimproved land in Texas for possible
future expansion.
GemChem's facilities consist of administration and sales
offices which are leased.
The Company believes its properties to be suitable and
adequate for its current purposes.
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ITEM 3 LEGAL PROCEEDINGS
DBCP LAWSUITS
A. California Matters
i) 1995 Settlement of Claims.
In 1995 CHEMICAL has brought its participation in twenty-three
similar lawsuits filed between January 1990 and December 1994 to an end. The
Plaintiffs in each matter were primarily water districts and municipalities that
alleged property damage resulting from, among other things, the fact that each
plaintiff's water supply had been contaminated by DBCP. The settlement covered
all the plaintiff's current and future 1,2 Dibromo-3-Chloropropane (hereinafter
referred to as "DBCP") a pesticide, ethylene dibromide (hereinafter referred to
as "EDB") a fumigant, and related claims. On February 15, 1995, the Superior
Court of California in San Francisco County approved this settlement as having
been made in "good faith". The effect of the Superior Court's approval is to bar
claims, arising from these pleadings, against CHEMICAL by other defendants (and
other tortfeasors) for equitable comparative contribution and/or partial or
comparative indemnity. CHEMICAL's portion of the settlement was $905,000. As to
matters independent of indemnity issues, the Company recovered $675,000 from two
of its insurers.
ii) Post Settlement Actions.
Subsequent to the settlements discussed above, two additional
suits alleging property damage resulting from DBCP contamination of water supply
were filed in the San Francisco Superior Court and served on CHEMICAL: City of
Madera v. Shell Oil Co., et. al., and Malaga County Water District v. Shell Oil
Co., et. al. The City of Madera action also alleges contamination of the water
supply with EDB. CHEMICAL has never marketed EDB. These suits name as defendants
Shell Oil Company, the Dow Chemical Company, Occidental Chemical Company,
Chevron Chemical Company, Velsicol Chemical Company and in the Madera action
Great Lakes Chemical Corporation. Malaga has made a settlement demand of
$1,344,000 for one of five wells at issue. As discovery is at the early stages
no other settlement demands have been received. Defendants are operating under
an open extension of time to file responsive pleadings. CHEMICAL has tendered
the defense of these two cases to Columbia Casualty/CNA. That insurer has thus
far accepted the defense under a reservation of rights in the Malaga action, but
has yet to respond to the tender of defense for the Madera action.
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B. Texas Matters
i) The Carcamo Case.
The Company was served with a third-party first amended
complaint by Dow Chemical Company which sought indemnity and contribution from
CHEMICAL, Del Monte tropical Fruit Company, Del Monte Fresh Produce, N.A., Dead
Sea Bromine Co. Ltd., Ameribrom Inc., Saint Lucia Banana Growers Association,
Saint Vincent Banana Growers Association, Dominica Banana Growers Association,
and Program Nacional de Banano, for any liability Dow may have under a complaint
filed by Jorge Colindres Carcamo, et al. vs. Shell, Dow, et al. (the "Carcamo
Case"). The Carcamo Case was tried in the United States District Court for the
Southern District of Texas, Houston Division, and is an action originally filed
in a Texas state court by a purported class of citizens from Honduras, Costa
Rica, Guatemala, Nicaragua, Panama, Philippines, Dominica, and the Ivory Coast.
These plaintiffs were banana workers and allege that they were exposed to DBCP
while applying the product in their native countries. Approximately 15,000
plaintiffs have been named in this and the other suits hereinafter mentioned.
In an October 27, 1996 Court Order the third party action
against CHEMICAL was dismissed without prejudice. The Order also dismissed the
Plaintiff's consolidated cases concluding that these claims should be litigated
in the foreign countries where the alleged injuries occurred subject to a number
of conditions. One of the more significant conditions requires the Defendants
and third party Defendants consent to the jurisdiction of the courts of each of
the foreign countries. Under the Order the Defendants may proceed against
CHEMICAL, in a court in the United States, for contribution and indemnity should
plaintiffs in the underlying actions obtain a judgement against Defendants in
any foreign forum. As of the filing of this report, no actions against CHEMICAL
have been filed.
ii) The Rodriguez Case.
The Company was served with a third-party complaint on March
15, 1996 by Defendant Standard Fruit Company and Standard Steamship Company
seeking indemnity and contribution from any liability it may have under a
complaint entitled Ramon Rodriguez et. al. v. Shell Oil Company, et. al. (the
"Rodriguez Case") filed in the District Court of Jim Hogg County, Texas. Also
named as Third Party Defendants are Dead Sea Bromine Co., Ltd. and Bromine
Compounds Ltd. The underlying case alleges injuries caused by Plaintiffs'
exposure to DBCP when they applied that pesticide at farms located in Central
America, Ecuador and the Philippines. The Company has made a demand upon certain
insurers for indemnity from and a defense of the Rodriguez Case. No answer has
yet been received from said insurers.
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PHOSDRIN(R) LAWSUIT
On September 21, 1995, CHEMICAL was served with a complaint
filed in the Superior Court of King County, Washington on September 12, 1995
entitled Ricardo Ruiz Guzman, et. al. v. AMVAC Chemical Corporation, et. al.(the
"Guzman Case"). The Complaint is for unspecified monetary damages based on
Plaintiff farm worker's alleged injuries from their exposure to the pesticide
Phosdrin(R) while working in several orchards in Central Washington State in
1993. Other Defendants named in the Guzman case include: Wilbur-Ellis Company,
Alan Hilliker, and Ellis D. Wilker. The matter is currently pending in the
United States District Court for the Eastern District of Washington and
Defendant's Hilliker and Wilker have been dismissed from the action. CHEMICAL
has made a demand against its insurers for indemnity and defense of the Guzman
Case. The insurer Lexington Insurance Company has thus far accepted the defense
under a reservations of rights letter. CHEMICAL has a self insured retention
limit of $300,000 under its insurance policy.
TRAIN DERAILMENTS
A. July 14, 1991; Dunsmuir, California:
In August 1992, the Company settled all personal and economic
injury claims asserted in a class action lawsuit arising from the July 14, 1991
derailment of a rail tank car leased by CHEMICAL. The derailment, occurring
about six miles north of Dunsmuir, California, involved the spill into the Upper
Sacramento River of approximately 19,000 gallons of Metam Sodium, a soil
fumigant manufactured by CHEMICAL which was being transported by Southern
Pacific Transportation Company ("SP") along SP's tracks. The court, when finding
that such settlement by CHEMICAL was in "good faith", also ordered that no other
person or entity falling within the definition of the settlement class could
proceed with claims against the Company.
On March 14, 1995, the federal court approved the Consent
Decree which the Company and the federal and state governments entered which
settled litigation seeking to hold potentially responsible parties under various
federal and state statutes responsible for the costs of studying and remediating
the environmental consequences caused by the Sacramento Spill, and for damages
to the Natural Resources. On January 5, 1996, the Court dismissed the California
Sportfishing Protection Alliance's ("Alliance") appeal of a court's order
dismissing their intervention. This Order finally resolves the action brought by
the Alliance which was the only remaining issue arising from this incident.
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B. February 1, 1996; Devore, California:
On March 7, 1996, CHEMICAL was served with a Complaint in an
action entitled Alvin Williams, Administrator of the Estate of Kevin Lewis
Williams v. Burlington Northern Santa Fe Railway Company, et. al. (the "Williams
Estate Case"). This case was filed on February 26, 1996 in the Superior Court of
Los Angeles County and arose from Kevin Lewis Williams' death in a train
derailment which occurred on Burlington Northern Santa Fe Railway Company tracks
involving a tank car leased by GATX to Albright & Wilson Americas Corporation
("A&WA") which was transporting 158,000 pounds of Trimethyl Phosphite ("TMP")
from A&WA's Charleston, South Carolina Facility to CHEMICAL's manufacturing
facility in Los Angeles, California. The derailment, occurred on February 1,
1996 at approximately 4:14 a.m. about 6 miles north of Devore, California,
adjacent to the intersection of Interstate 15 and State Highway 138. The
derailment involved the engine and most of the railcars on the train resulting
in a chemical fire that consumed all of the TMP in addition to the contents of
railcars transporting an assortment of hazardous chemicals and other goods. The
Estate alleges pecuniary loss to family members in the amount of $ 20,000,000
and prays for other unspecified monetary relief. Other Defendants presently
named in the suit are: Burlington Northern Santa Fe Railway Company, The
Atchison, Topeka & Santa Fe Railway Company, UNOCAL, Rohm & Haas, and
Westinghouse Corporation. CHEMICAL is named in only one of the Estate's seven
causes of action. The Company has made demand upon its insurers for indemnity
from and defense of the Williams Estate Case. No answer has yet been received
from the Company's insurers.
RAILROAD SIDING:
As a result of inspections and sampling conducted by the
California Department of Toxic Substances Control ("DTSC") of the railroad
located, in part, immediately adjacent to CHEMICAL's Commerce, California
facility, CHEMICAL was directed to, and did, conduct sampling during 1993 to
evaluate the nature and extent of pesticide contamination detected by DTSC on
the railroad siding. Following its review of the sampling report prepared by
CHEMICAL's independent consultant, DTSC directed that additional sampling be
undertaken and CHEMICAL's independent consultant prepared a sampling plan for
submittal to DTSC for prior approval as required. However, before additional
sampling could be conducted, the Los Angeles county District Attorney's Office
("LADA"), at the request of DTSC, commenced an enforcement action in April 1994,
against CHEMICAL, one of its officers, and two employees alleging felony illegal
disposal of hazardous waste on the railroad siding. At the same time, DTSC
demanded sums of money for alleged violations of certain compliance requirements
related to CHEMICAL's management of hazardous waste at its
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Commerce, California facility. Joint settlement negotiations were conducted with
the DTSC and the LADA and were concluded with a settlement agreement which was
entered with the Los Angeles Municipal Court in a Stipulated Sentencing
Memorandum which provided as follows: (i) all felony charges against CHEMICAL
and the three individuals were dismissed; (ii) CHEMICAL entered a plea of nolo
contendere to one misdemeanor; (iii) CHEMICAL was placed on probation for
approximately six (6) months commencing on or about September 23, 1994; (iv)
CHEMICAL was ordered to pay, by March 22, 1995, the sum of $135,000 in fines and
penalties, and civil restitution in the amount of $325,000; (v) CHEMICAL agreed
to enter into a Consent Agreement and Order (the "First CAO") with DTSC to
correct the alleged hazardous waste management compliance violations and to
submit a new plan for closure of ten (10) underground storage tanks ("USTs") at
the Commerce, California facility and (vi) CHEMICAL agreed to enter into a
Consent Agreement and Order (the "Second CAO") with DTSC providing for CHEMICAL
to further investigate and remediate the railroad siding.
Pursuant to the settlement agreement, CHEMICAL entered into
the First CAO effective on January 26, 1995, and on March 22, 1995, with the
concurrence of the LADA, CHEMICAL withdrew its plea of nolo contendere to the
one misdemeanor, entered a plea of not guilty which was accepted, and the court
dismissed the complaint against CHEMICAL. CHEMICAL has substantially fulfilled
the requirements of the First CAO and, in accordance therewith, submitted new
plans for closure of ten (10) USTs located at the facility. During 1995, in
accordance with the UST closure plan, CHEMICAL arranged for the removal and
cleaning of residues within the tanks and completed the initial investigation of
soils in the area of the tanks and their associated piping. CHEMICAL anticipates
that additional UST related soil investigations will be completed by late 1996
and that remedial activities, if any, will commence by late 1996 or early 1997.
CHEMICAL is currently in discussions with DTSC regarding the
specific terms of the Second CAO which will address investigation and
remediation of the railroad siding. CHEMICAL is in the process of completing all
requirements for addressing investigation and remediation of the railroad siding
under a new DTSC program created by California Senate Bill 923 known as the
Expedited Remedial Action Program (ERAP). CHEMICAL anticipates that addressing
the railroad siding under ERAP will result in a more rapid and cost-effective
resolution of environmental conditions in the railroad siding area than could
otherwise be expected if the area were addressed under other available DTSC site
investigation and remediation programs. The potential future costs associated
with the railroad siding investigation and remediation are currently unknown and
cannot be reasonably determined until soil investigations will be completed by
late 1996 or early 1997.
13
16
The Company has made claims against its insurance carriers and
has expensed all costs incurred which now exceed its $100,000 self-insured
retention. There can be no assurance the Company will prevail in its position.
Various other legal actions, governmental proceedings, and
claims are pending against the Company and its subsidiaries incidental to their
businesses.
14
17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1995 to a vote
of security holders, through the solicitation of proxies or otherwise.
15
18
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's $0.10 par value common stock ("Common Stock") trades on
The NASDAQ Stock Market under the symbol AMGD. The following table sets forth
the range of high and low sales prices as reported on NASDAQ's National Market
System for the Company's Common Stock for the calendar quarters indicated.
Calendar 1995 HIGH LOW
------------- ---- ---
First Quarter 9 6 5/8
Second Quarter 8 6 3/4
Third Quarter 7 3/4 4 1/2
Fourth Quarter 6 3/4 4 1/2
Calendar 1994
-------------
First Quarter 16 1/2 14 1/2
Second Quarter 16 8
Third Quarter 10 7 1/2
Fourth Quarter 8 1/2 5 3/4
The Company's share activity is reported in the Wall Street
Journal and is listed as "Am Vngrd". The Los Angeles Times reports the share
activity as "A Vang".
As of March 22, 1996, the number of shareholders of the
Company's Common Stock was approximately 600, which includes beneficial owners
with shares held in brokerage accounts under street name and nominees.
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 shareholders 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.
Shareholders 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. Prior to the
declaration of these dividends, the Company had not declared any dividends since
1989. The resumption of dividends can only be considered if profitable
operations continue. Certain loan covenants described in Note 4 to the Notes to
Consolidated Financial Statements, limit payments of cash dividends to a maximum
of 25% of net income.
16
19
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
ITEM 6 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR WEIGHTED AVERAGE
NUMBER OF SHARES AND PER SHARE DATA)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operating revenues $ 55,402 $ 45,098 $ 45,478 $ 38,664 $ 29,334
========= ========= ========= ========= =========
Operating income $ 5,971 $ 3,346 $ 4,160 $ 3,824 $ 1,866
========= ========= ========= ========= =========
Income from operations
before income tax
expense $ 5,043 $ 1,465 $ 3,333 $ 2,965 $ 570
========= ========= ========= ========= =========
Net income $ 3,124 $ 1,203 $ 2,225 $ 1,861 $ 340
========= ========= ========= ========= =========
Net income
per share(1) $ 1.23 $ .47 $ .89 $ .74 $ .14
========= ========= ========= ========= =========
Total assets $ 39,341 $ 40,929 $ 36,025 $ 32,916 $ 31,784
========= ========= ========= ========= =========
Long-term obligations $ 5,540 $ 3,695 $ 4,316 $ 5,348 $ 6,634
========= ========= ========= ========= =========
Stockholders' equity $ 18,005 $ 15,143 $ 13,503 $ 11,278 $ 9,417
========= ========= ========= ========= =========
Weighted average number
of shares(2) 2,546,471 2,562,398 2,509,536 2,509,536 2,509,536
========= ========= ========= ========= =========
Dividends declared per
share of common stock(2) $ - $ - $ - $ - $ -
========= ========= ========= ========= =======
The selected consolidated financial data set forth above with respect to each of
the calendar years in the five-year period ended December 31, 1995, have been
derived from the Company's consolidated financial statements and are qualified
in their entirety by reference to the more detailed consolidated financial
statements and the independent certified public accountants' reports thereon
which are included elsewhere in this Report on Form 10-K for the three years
ended December 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
- ---------------------
(1) All per share amounts have been restated to reflect a 10% stock dividend
(see footnote 2 below).
(2) 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 shareholders 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. Weighted average number
of shares have been restated to reflect the 10% stock dividend.
17
20
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994:
The Company reported net income of $3,124,000 or $1.23 per
share in 1995 as compared to net income of $1,202,700 or $.47 per share in 1994.
(All per share amounts have been restated to give effect to a 10% stock dividend
paid on March 15, 1996 to stockholders of record as of February 29, 1996.) The
increase in net income in 1995 is attributable to a 22.8% increase in net sales
which is primarily related to increases in volume of products sold and not to
increases in prices, while operating expenses increased only 15.7%. Another
significant factor is that there were no legal settlement costs incurred during
1995. The positive factors are mitigated to an extent by an increase in the
effective income tax rate to 38% in 1995 from 17% in 1994.
Net sales increased by $10,304,000 to $55,402,100 in 1995 as
compared to $45,098,100 in 1994. CHEMICAL's sales increased by approximately
$10,632,000 in 1995 as compared to 1994. $8,945,200 of this increase was due to
an increase in the sales of Bidrin(R). In December 1994 the appropriate
permitting was finally obtained and the Company began manufacturing Bidrin(R).
The late start in manufacturing resulted in reduced sales of Bidrin(R) in 1994,
however the latent demand was satisfied in the first half of 1995 resulting in
strong Bidrin(R) sales in the first and second quarters of 1995. Sales of
Bidrin(R) in the fourth quarter 1995 were significantly higher than the fourth
quarter 1994. During 1995 CHEMICAL was also able to generate significant sales
increases in its PCNB products of $4,187,900 to $12,002,100 as compared to
$7,814,200 in 1994 and Naled products of $3,541,600 to $6,393,900 from
$2,852,300 in 1994. However, these increases were substantially offset by a
decrease in the sales of Phosdrin(R) in the amount of $6,755,900 to $413,000 in
1995 from $7,169,000 in 1994. As a result of agreements reached with the
Environmental Protection Agency ("EPA") during 1994, the Company agreed to
phaseout the domestic distribution, sale and use of Phosdrin(R). Although the
effective date of the cessation of Phosdrin(R) use domestically was November 30,
1995, domestic sales of Phosdrin(R) began to drop off significantly beginning in
July 1994. Essentially all of the Phosdrin(R) sales in 1995 were export sales.
The remaining change in CHEMICAL's sales was attributable to less significant
changes in the sales mix of CHEMICAL's products. GemChem's sales (after
elimination of intercompany sales) declined from approximately $4,700,000 in
1994 to approximately $4,200,000 in 1995 reflecting competition in GemChem's
non-ag markets.
18
21
Gross profits increased by $4,928,600 to $24,660,400 in 1995
as compared to $19,731,800. The increase in 1995 is a result of the higher
volume of sales in 1995. The gross profit percentage increased to 44.5% in 1995
from 43.8% in 1994. While the phaseout of Phosdrin(R), a very profitable
product, had a negative impact on gross profit in 1995, the overall gross profit
percentage increased as the sales volume increased proportionately higher than
cost of sales.
Operating expenses increased by $2,533,800 to $18,689,400 in
1995 from $16,155,600 in 1994. The following is a discussion of operating
expenses:
Selling and Regulatory:
Selling and regulatory expenses increased by $2,190,200 to $6,772,900
in 1995 from $4,582,700 in 1994. The increase in selling and regulatory
expenses is primarily attributable to an increase in variable selling
costs. Due to the significant increase in Bidrin(R) sales in 1995,
related Bidrin(R) rebates and royalties increased by approximately
$1,360,000. Rebates and royalties on NAA products increased
approximately $943,500 in 1995 primarily as a result of agreements with
distributors to promote the Company's products in the market. Expenses
of GemChem increased approximately $334,000 in 1995. Product liability
insurance, which varies directly with sales levels, also increased
approximately $160,000 in 1995 as a result of the increased sales
volume. The only significant decrease in selling and regulatory costs
was attributable to a $647,000 decline in Phosdrin(R) related rebates
which was a result of the phase out of Phosdrin(R).
Research and Development:
Research and development costs, which include costs incurred to
generate scientific data and other activities performed in the
department, decreased by $1,365,100 to $4,846,400 in 1995 from
$6,211,500 in 1994. Costs incurred to generate scientific data
decreased by $1,826,600 to $3,717,400 in 1995 as compared to $5,544,000
in 1994. The largest reduction in scientific data generation was in
connection with Phosdrin(R). Due to the phase out of Phosdrin(R) as
discussed above, data generation costs with respect to Phosdrin(R)
decreased approximately $1,236,000 in 1995 to approximately $54,000.
The NAA, DDVP and PCNB product groups also experienced significant
declines in scientific data generation of approximately $301,000,
$239,000 and $196,000, respectively, in 1995 due to the maturation of
the products and of the related research studies being conducted.
Bidrin(R), which is a relatively recent addition to CHEMICAL's product
line, was the only major product group
19
22
to experience an increase in scientific data generation in 1995.
Bidrin(R) scientific data generation costs increased approximately
$212,000 in 1995. In 1994 the Company received a benefit of $350,000 as
a result of an unrelated chemical company paying the Company for the
right to cite and rely upon data developed by the Company. The Company
did not receive any benefits of this kind in 1995.
Freight, Delivery and Warehousing:
Freight, delivery and warehousing costs increased by $447,600 to
$3,008,300 in 1995 from $2,560,700 in 1994. The increase in costs is
primarily due to increased freight costs as a result of the higher
sales at CHEMICAL and additions to shipping department personnel to
handle the additional demand.
General, Administrative and Corporate:
General, administrative and corporate costs increased by $1,261,100 to
$4,061,800 in 1995 from $2,800,700 in 1994. The increase was primarily
attributable to environmental consulting projects and legal fees which
accounted for approximately $913,700. Additionally, the Company elected
to provide for the remaining expected costs in connection with the
phase out of Phosdrin(R) in the amount of $175,000.
Interest costs were $935,400 in 1995 as compared to $978,200
in 1994. The average level of short-term borrowing decreased by $313,900 to
$6,526,200 in 1995 from $6,840,100 in 1994. The average level of long-term debt
declined by $1,552,400 to $3,816,600 in 1995 from $5,369,000 in 1994. The
reduction in the average debt and the change in effective interest rates
accounted for the decrease in interest costs in 1995.
Income tax expense increased by $1,657,200 to $1,919,000 in
1995 as compared to $261,800 in 1994. Higher pre-tax income combined with lower
tax credits are the reason for the increased income tax expense. See Note 5 to
the Consolidated Financial Statements for additional analysis of the changes in
income tax expense.
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 Company manufactures and formulates chemicals
for crops, human and animal health protection. 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.
20
23
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 and ordering patterns that may vary in timing, 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 good an indicator as full-year comparisons.
1994 COMPARED WITH 1993:
The Company reported net income of $1,202,700 or $.47 per
share in 1994 as compared to net income of $2,225,100 or $.89 per share in 1993.
Significant factors adversely affecting net income in 1994 include provisions
for settlements of legal matters in the amount of $1,140,000 (Refer to PART I,
Item 3 of this Annual Report), a reduction in gross profits from 1993 of
approximately $1,407,000 and an increase in interest expense of approximately
$144,000. Partially offsetting these negative factors were a decrease in
operating expenses of approximately $823,000 as well as a decrease in income tax
expense of approximately $847,000.
Net sales declined by $379,400 to $45,098,100 in 1994 as
compared to $45,477,500. CHEMICAL's sales declined by approximately $5,122,000
in 1994 as compared to 1993. This decline was primarily due to a reduction in
the sales of Bidrin(R). In November 1993, CHEMICAL purchased from Du Pont, the
rights, title and interest in Bidrin(R), an insecticide for cotton crops.
Concurrently with the purchase of the rights to Bidrin(R), CHEMICAL purchased Du
Pont's existing inventory at Du Pont's approximate cost and sold that inventory
in 1993. CHEMICAL did not begin manufacturing Bidrin(R) until December 1994,
when the required permitting was granted. As a result, product delivered in 1994
was significantly less than in 1993. The decline in CHEMICAL's sales was
essentially offset by an increase in sales as a result of the Company's
acquisition of GemChem in mid January 1994. GemChem's sales (in 1994, after it
was acquired by the Company) were approximately $4,700,000. The remaining change
in sales was attributable to changes in the sales mix of the Company's products.
Gross profits declined by $1,406,700 to $19,731,800 in 1994 as
compared to $21,138,500 in 1993. This represents a decline in the gross profit
margin of approximately 2.7%. This decline was primarily due to the impact of
GemChem sales on consolidated gross profit. GemChem, in addition to being the
exclusive sales agent for the Company, is also a distributor of various
pharmaceutical and nutritional supplement products. The gross profit margin for
the distribution of GemChem's products was approximately 15% compared to the
gross profit margin of approximately 47% for the Company's manufactured
products.
21
24
Operating expenses declined by $822,900 to $16,155,600 in 1994
from the $16,978,500 reported in 1993. The following is a discussion of
operating expenses:
Selling and Regulatory:
Selling and Regulatory expenses decreased by $1,666,000 to $4,582,700
in 1994 from $6,248,700 in 1993. The decrease in selling and regulatory
expenses is primarily attributable to a decrease in variable selling
costs. Significant reductions in Bidrin(R) rebates and royalties of
approximately $724,000 occurred as a result of the lower sales of
Bidrin(R) in 1994. Additionally, a royalty contract related to sales of
Phosdrin(R) expired at the end of 1993 eliminating royalties of
approximately $499,000 incurred in 1993. Other reductions in rebates as
a result of changes in the sales mix amounted to approximately
$283,000.
Research and Development:
Research and development costs, which include costs incurred to
generate scientific data and other activities performed in the
department, increased by $527,800 to $6,211,500 in 1994 from $5,683,700
in 1993. Costs incurred to generate scientific data increased by
$826,600 to $5,544,000 in 1994 as compared to $4,715,400 in 1993. The
most significant increases in scientific data generation related to the
Bidrin(R) and Napthalene Acetic Acid product groups which accounted for
an increase in costs of approximately $1,500,000 while a gradual
curtailment of costs related to the DDVP product group resulted in a
reduction in costs in 1994 of approximately $778,000. The Company did
receive a benefit of $350,000 in 1994 as a result of an unrelated
chemical company paying the Company for the right to cite and rely upon
data developed by the Company.
Freight, Delivery and Warehousing:
Freight, delivery and warehousing costs decreased by $132,800 to
$2,560,700 in 1994 from $2,693,500 in 1993. These costs decreased
primarily as a result of decreased freight costs due to lower sales at
CHEMICAL.
General, Administrative and Corporate:
General, administrative and corporate costs increased by $464,700 to
$2,800,700 in 1994 from $2,336,000 in 1993. The increase was primarily
attributable to an increase in legal costs. (Refer to PART I, Item 3
for a discussion of legal proceedings.)
22
25
Interest costs were $978,200 in 1994 as compared to $833,900
in 1993. The average level of short-term borrowing increased by $429,800 to
$6,840,100 in 1994 from $6,410,300 in 1993. The average level of long-term debt
declined by $819,800 to $5,369,000 in 1994 from $6,188,800 in 1993. The lower
average debt for 1994 as compared to 1993, was not sufficient to offset higher
effective interest rates which accounted for the increase in interest costs.
Income tax expense decreased by $846,500 to $261,800 in 1994
as compared to $1,108,300 in 1993. See Note 5 to the Consolidated Financial
Statements for an analysis of the changes in income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $15,694,500 as of December 31, 1995
reflecting an $11,021,800 improvement over working capital of $4,672,700 as of
December 31, 1994.
Current assets were $722,300 higher at December 31, 1995 than
at December 31, 1994. While trade receivables were $2,505,900 higher at December
31, 1995 due to the greater sales volume at CHEMICAL, the increase was
substantially offset by the payment in 1995 of a $2,075,000 legal settlement
receivable recorded at December 31, 1994 related to the DBCP settlement (Refer
to PART I, Item 3, Legal Proceedings and Note 7 of the Notes to the Consolidated
Financial Statements of this annual report for additional information). Also
offsetting the increase in trade receivables was a decrease in other receivables
of $425,500 which was primarily attributable to the receipt of $350,000 related
to the sale of rights to the use of scientific data generated by the Company.
Inventories increased $1,051,700 in 1995 over 1994. The higher inventory level
is attributable to a planned build-up of certain of the Company's finished
products in anticipation of meeting future sales demands. Prepaid expenses
decreased $348,700 in 1995 which was primarily due to the expense recognition of
royalties paid in advance.
Current liabilities decreased $10,299,500 in 1995 over 1994.
The Company paid down the Company's fully-secured line of credit from $8,000,000
at December 31, 1994 to $3,900,000 at December 31, 1995. Additionally, in
September 1995, the Company renewed and amended its line of credit agreement
with its bank, one of the terms of which was the extension of the expiration
date to July 31, 1997. As such, the balance of $3,900,000 under the line of
credit agreement at December 31, 1995 has been classified as a long-term
liability. The line of credit agreement, which has a borrowing limit of
$10,500,000, had $6,600,000 of available credit at December 31, 1995. Another
significant reduction in current liabilities as of December 31, 1994 was the
payment during 1995 of a legal settlement in the
23
26
amount of $3,366,900 related to the DBCP lawsuits (Refer to PART I, Item 3,
Legal Proceedings and Note 7 of the Notes to the Consolidated Financial
Statements of this annual report for additional information). The effects of the
above noted decreases were offset by an increase in income taxes payable of
$693,300 and a net increase in accounts payable and other accrued expenses of
$313,200.
The Company invested $755,000 in capital expenditures in 1995.
These expenditures improve and/or maintain the existing capacity of the
Company's manufacturing facility, and address the Company's continual effort to
adapt its manufacturing processes to the environmental control standards of its
various controlling agencies. The Company also invested $226,500 in deferred
charges in 1995, most of which relate to EPA study costs. The capitalized
balance of deferred charges as of December 31, 1995 are not material. The
Company recognized $3,415,300 of depreciation and amortization expense in 1995.
As of December 31, 1995, the Company does not have any material commitments
for future capital expenditures.
As part of the renewal and amendment of the Company's credit
facility, as discussed above, the Company increased its term loan availability
to a maximum of $5,250,000 to be paid in monthly installments through December
1, 2000. The Company borrowed an additional $3,702,300 in December 1995 which
increased the existing term loan to the maximum amount allowed as of December
31, 1995. The Company made principal payments on its long-term debt of
$1,797,800 during 1995.
There has been constant public pressure upon the federal and
state governments to require FIFRA product registrants to supply new scientific
data (such as toxicological and environmental fate tests), which has resulted in
government action requiring additional studies and the submission of more data.
Based on facts known today, the Company estimates it will spend approximately
$3,900,000 in 1996 on these studies. Because scientific analyses are constantly
improving, it cannot be determined with certainty whether or not material new or
additional tests may be required. Additionally, while FIFRA Good Laboratory
Practice standards specify the minimum practices and procedures which must be
followed in order to ensure the quality and integrity of data related to these
tests submitted to the EPA, there can be no assurance the EPA will not request
certain tests/studies be repeated. For further information, refer to PART I,
Item 1, Business, Competition of this Annual Report.
CHEMICAL is a manufacturer and formulator of chemicals for
crops, human and animal health protection. For discussions pertaining to the
Company's litigation refer to PART I, Item 3, Legal Proceedings of this Annual
Report.
24
27
Management believes current financial resources (working
capital and borrowing arrangements) and anticipated funds from operations will
be adequate to meet total financial needs in 1996. Management also continues to
believe, to improve its working capital position and maintain flexibility in
financing interim needs, it is prudent to explore alternate sources of
financing.
The Company, as previously disclosed, is required to supply
studies and the submission of data to federal and state governmental agencies.
Because scientific analyses are constantly improving, it cannot be determined
with certainty whether or not additional tests that may be material will be
required. Although management does not currently foresee any critical liquidity
problems, should material new or additional tests be required during 1996,
anticipated funds from operations may not be adequate to meet total financial
needs in 1996.
Management believes that inflation has not had a significant
impact on the Company's costs and prices during the past three years.
New Accounting Standards
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets
to be Disposed of" ("SFAS No. 121") issued by the Financial Accounting Standards
Board ("FASB") is effective for financial statements for fiscal years beginning
after December 15, 1995. The new standard establishes guidelines regarding when
impairment losses on long-lived assets, which include plant and equipment, and
certain identifiable intangible assets, should be recognized and how impairment
losses should be measured. The Company does not expect adoption to have a
material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123,
"Accounting for the Stock-Based Compensation" ("SFAS No. 123") issued by the
FASB is effective for specific transactions entered into after December 15,
1995, while the disclosure requirements of SFAS No. 123 are effective for
financial statements for fiscal years beginning no later than December 15, 1995.
The new standard establishes a fair value method of accounting for stock- based
compensation plans and for transactions in which an entity acquires goods or
services from non-employees in exchange for equity instruments. The Company does
not expect adoption to have a material effect on its financial position or
results of operations. At the present time, the Company has not determined if it
will change its accounting policy for stock based compensation or only provide
the required financial statement disclosures. As such, the impact on the
Company's financial position and results of operations is currently unknown.
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28
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The Financial Statements and Supplementary Data are listed at
PART IV, Item 14, Exhibits, Financial Statement Schedules, and Reports on Form
8-K in this report.
26
29
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
27
30
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The following persons are the current Directors and Executive
Officers of Registrant:
Name of
Director/Officer Age Capacity
Herbert A. Kraft 72 Co-Chairman
Glenn A. Wintemute 71 Co-Chairman
Eric G. Wintemute 40 Director, President and
Chief Executive Officer
James A. Barry 45 Director, Vice President,
Chief Financial Officer,
Treasurer and Assistant
Secretary
Glenn E. Mallory 86 Director and Corporate
Secretary
Henry L. Scott 77 Director
Jesse E. Stephenson 72 Director
Herbert A. Kraft has served as Co-Chairman of the Board
since July 1994. Mr. Kraft served as Chairman of the Board and
Chief Executive Officer from 1969 to July 1994.
Glenn A. Wintemute has served as Co-Chairman of the
Board since July 1994. Mr. Wintemute served as President of the
Company and all operating subsidiaries since 1984 and was elected
a director in 1971. He served as President of CHEMICAL from 1963
to July 1994.
Eric G. Wintemute has served as a director since June
1994. Mr. Wintemute has also served as President and Chief
Executive Officer since July 1994. He was appointed Executive
Vice President and Chief Operating Officer of the Company in
January 1994, upon the Company's acquisition of GemChem, Inc. He
co-founded GemChem, Inc., a national chemical distributor, in
1991 and served as its President. Mr. Wintemute was previously
employed by CHEMICAL from 1977 to 1982. From 1982 to 1991, Mr.
Wintemute worked with R. W. Greeff & Co., Inc., a former
distributor of certain of CHEMICAL's products. During his tenure
with R. W. Greeff & Co., Inc., he served as Vice President and
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31
Director. He is the son of the Company's Co-Chairman, Glenn A. Wintemute.
James A. Barry has served as a director since June 1994. Mr.
Barry was appointed Treasurer in July 1994. He has served as Chief Financial
Officer of the Company since 1987, and as Vice President and Assistant Secretary
since 1990. From 1990 to July 1994, he also served as Assistant Treasurer.
Glenn E. Mallory has served as a director of the Company since
1971 and its Secretary since 1976. Mr. Mallory served as Treasurer from 1976 to
July 1994. He also served as Vice President of CHEMICAL from 1970 to September
1993.
Henry L. Scott has served as a director of the Company since
1983. He has been a practicing certified public accountant since 1951. Mr. Scott
serves on the board of directors of Royal American Printing Machine Company,
Beverly Hills Medical Group and several privately held companies.
Jesse E. Stephenson has served as director of the
Company since 1977 (except for a 10-month period following March
1992). He was the General Manager of a wholly-owned subsidiary
of the Company, from 1968 to 1978. Mr. Stephenson is retired and
is a private investor.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's executive officers, directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission.
The Company believes that during 1995 all reports required to
be filed under Section 16(a) by its executive officers, directors, and greater
than ten percent beneficial owners were timely filed.
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32
ITEM 11 EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash and other
compensation for services rendered for the years ended December 31, 1995, 1994,
and 1993 paid or awarded by the Corporation and its subsidiaries to the
Corporation's Chief Executive Officer and each of the four most highly
compensated executive officers of the Corporation, whose aggregate remuneration
exceeded $100,000 (the "named executive officers").
30
33
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER RE- SECURITIES ALL
NAME ANNUAL STRICTED UNDERLYING OTHER
AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
POSITION YEAR ($) ($) ($)1 ($) (#) ($) ($)
-------- ---- ------- ------- -------- --------- ---------- -------- ------
Eric G. Wintemute(2) 1995 172,000 - - - - - 4,993(6)
President and 1994 140,771 - (-) - 30,000(4) - 4,990(6)
Chief Executive Officer
James A. Barry(3) 1995 122,751 - - - 5,000(5) - 4,070(6)
Vice President, CFO 1994 103,009 - - - - - 3,245(6)
and Treasurer
Herbert A. Kraft(7) 1995 - - - - - - 254,086(7)
Co-Chairman 1994 142,008 - - - - - 131,857(7)
1993 265,976 - - - - - 4,827(4)
Glenn A. Wintemute(7) 1995 - - - - - - 254,086(7)
Co-Chairman 1994 141,171 - - - - - 131,857(7)
1993 264,476 - - - - - 4,827(4)
- --------
(1) No executive officer enjoys perquisites that exceed the lesser of $50,000,
or 10% of such officer's salary.
(2) Mr. Eric G. Wintemute joined the Company in January 1994.
(3) Amounts prior to 1994 were not required to be reported.
(4) Represents options to purchase Common Stock of the Company issued to Eric
Wintemute in connection with the acquisition of GemChem, Inc., by the
Company during 1994. The options issued to Mr. Wintemute represent
approximately 43% of the total options issued by the Company in 1994. The
exercise price of the options is $10.00 per share and the options vest
one-fourth on January 15, 1995, 1996, 1997 and 1998 and all options expire
on April 15, 1998.
(5) Represents options to purchase Common Stock of the Company. The options
issued to Mr. Barry represent approximately 13% of the total options
issued by the Company in 1995.
(6) These amounts represent the Company's contribution to the Company's
Retirement Savings Plan, a qualified plan under Internal Revenue Code
Section 401 (k).
(7) Messrs. Kraft and Wintemute retired from the Company as active employees in
July 1994 and subsequently entered into consulting agreements with the
Company to provide specified services through July 1999. All other
compensation (column (I)) includes $127,164 paid to each individual under
his consulting agreement and $4,693 on behalf of each individual as a
retirement savings plan contribution as described in (6) above for 1994.
Amounts for 1995 represent payments paid to each individual under his
consulting agreement.
31
34
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board consists of Messrs. Herbert A.
Kraft, Jesse E. Stephenson and James A. Barry. The executive compensation
philosophy of the Company is aimed at (i) attracting and retaining qualified
executives; (ii) motivating performance to achieve specific strategic objectives
of the Company; and (iii) aligning the interest of senior management with the
long-term interest of the Company's shareholders.
32
35
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- ------- -----------------------------------------------
AND MANAGEMENT
--------------
To the knowledge of Registrant, the ownership of Registrant's
outstanding Common Stock as of March 22, 1996, by persons who are directors,
beneficial owners of 5% or more of the outstanding Common Stock and by all
directors and officers as a group is set forth below. Unless otherwise indicated
Registrant believes that each of the persons set forth below has the sole power
to vote and to dispose of the shares listed opposite his name.
Amount and
Nature
Office Name and Address of Beneficial Percent
(if any) Beneficial Owner Ownership(1) of Class
- -------- ---------------- ----------- --------
Co-Chairman Glenn A. Wintemute 769,985(2) 30.5%
4695 MacArthur Court
Newport Beach, CA 92660
Co-Chairman Herbert A. Kraft 639,883(3) 25.4%
4695 MacArthur Court
Newport Beach, CA 92660
Goldsmith & Harris et al. 153,560(4) 6.1%
80 Pine Street
New York, NY 10005
Director Jesse E. Stephenson 53,350(5) 2.1%
4695 MacArthur Court
Newport Beach, CA 92660
Director, Eric G. Wintemute 53,303(6) 2.1%
President 4695 MacArthur Court
& CEO Newport Beach, CA 92660
Director Henry L. Scott 4,070 --(8)
4695 MacArthur Court
Newport Beach, CA 92660
Director, James A. Barry 1,833(7) --(8)
Vice President, 4695 MacArthur Court
CFO & Treasurer Newport Beach, CA 92660
Directors and Officers 1,522,424 59.9%
as a group(7)
- ---------------------
(1) Record and Beneficial.
(2) This figure includes 22,220 common shares owned by Mr. Wintemute's children
for which Mr. Wintemute is a trustee and disclaims beneficial ownership.
(3) Mr. Kraft owns all of his shares with his spouse in a family trust, except
as to 1,430 shares held in an Individual Retirement Account.
(4) The Company has relied on information reported on a Statement on
Schedule 13D dated August 21, 1992, filed by Goldsmith & Harris et al.
with the Securities and Exchange Commission, and has adjusted for the 10%
stock dividend issued March 15, 1996.
(5) Mr. Stephenson holds all of his shares in a family trust.
(6) This figure includes 16,500 shares Common Stock Mr. Wintemute is entitled
to acquire pursuant to stock options exercisable within sixty days of
March 22, 1996.
(7) This figure represents shares Common Stock Mr. Barry is entitled to acquire
pursuant to stock options exercisable within sixty days of March 22, 1996.
(8) Under 1% of class.
33
36
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
In September 1991, the Company entered into an agreement with
GemChem to represent the Company as its sales representative. No director,
officer or significant shareholder of the Company had any direct or indirect
relationship with or interest in GemChem; however, Eric G. Wintemute, the son of
the Company's then President Glenn A. Wintemute, owned an approximate one-third
equity interest in GemChem. The Company purchased approximately $3,600,000 and
$3,200,000 in 1993 and 1992, respectively, of raw materials from GemChem. During
the years ended December 31, 1993, and 1992, the Company expensed $1,586,400 and
$1,386,400, respectively, in commissions earned by GemChem. No commissions were
owed GemChem as of December 31, 1993. The Company believes that the commissions
paid to GemChem for sales of products were no less favorable to the Company than
would have been available from unrelated parties.
In March 1994, the Company concluded the purchase of all the
issued and outstanding stock of GemChem. The purchase was effective January 15,
1994. The aggregate purchase price consisted of 50,000 unregistered shares of
the Company's common stock and approximately $592,000 in two year notes with
interest at prime plus .75%. The total purchase price was valued at $1,029,500.
See also Note 11 of the Notes to the Consolidated Financial Statements in PART
IV, Item 14 of this Annual Report.
In connection with their retirement from the Company as active
employees in July 1994, Messrs. Herbert A. Kraft and Glenn A. Wintemute entered
into written consulting agreements with the Company effective July 14, 1994.
Pursuant to the consulting agreements, Messrs. Kraft and Wintemute will perform
management and financial consulting services for the Company as assigned by the
Board of Directors or the Chief Executive Officer for the five year term of the
agreement, ending on July 14, 1999. The agreement provides that neither Messrs.
Kraft or Wintemute will be required to expend more than 400 hours in any twelve
month period or forty hours in any one month period. Under the agreement,
Messrs. Kraft and Wintemute each received $287,500 for the year ended July 14,
1995. They will also, under the agreement, each receive $243,750 for the year
ending July 14, 1996, $200,000 for the year ending July 14, 1997, $156,250 for
the year ending July 14, 1998 and $112,500 for the year ending July 14, 1999. In
the event of death or disability prior to July 14, 1999, such payments will
continue to be paid to the individual or his estate, as applicable. The
agreements also provide for continuation of medical and dental insurance
benefits until the expiration of the term of the agreements.
34
37
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this
report:
(1) Index to Consolidated Financial
Statements and Supplementary Data:
DESCRIPTION
PAGE NO.
Report of Independent Certified Public Accountants 38
Financial Statements:
Consolidated Balance Sheets as of
December 31, 1995 and 1994 39
Consolidated Statements of Income for
the Years Ended December 31, 1995, 1994,
and 1993 41
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993 42
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1995, 1994,
and 1993 43
Summary of Significant Accounting Policies
and Notes to Consolidated Financial
Statements 45
(2) Financial Statement Schedules:
All schedules are omitted because they are not
applicable, or not required, or because the required information is included in
the consolidated financial statements or notes thereto.
35
38
(3) Exhibits:
The exhibits listed on the accompanying Index To Exhibits, page
59, are filed as part of this annual report.
(b) Reports on Form 8-K were filed during the quarter
ended December 31, 1995.
None.
36
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, American Vanguard Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on the 28th
day of March, 1996.
AMERICAN VANGUARD CORPORATION (Registrant)
/s/ Eric G. Wintemute /s/ James A. Barry
- -------------------------------- --------------------------------
By: ERIC G. WINTEMUTE By: JAMES A. BARRY
President, Vice President,
Chief Executive Officer Chief Financial Officer,
and Director Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated.
/s/ Herbert A. Kraft /s/ Glenn A. Wintemute
- -------------------------------- ---------------------------
HERBERT A. KRAFT GLENN A. WINTEMUTE
Co-Chairman Co-Chairman
March 28, 1996 March 28, 1996
/s/ Glenn E. Mallory /s/ Henry L. Scott
- -------------------------------- ---------------------------
GLENN E. MALLORY HENRY L. SCOTT
Corporate Secretary and Director
Director March 28, 1996
March 28, 1996
/s/ Jesse E. Stephenson
- --------------------------------
JESSE E. STEPHENSON
Director
March 28, 1996
37
40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
American Vanguard Corporation
We have audited the accompanying consolidated balance sheets of American
Vanguard Corporation and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Vanguard
Corporation and their subsidiaries at December 31, 1995 and 1994 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Los Angeles, California
March 4, 1996
38
41
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS (NOTE 4) 1995 1994
---- ----
Current assets:
Cash $ 331,600 $ 317,700
Receivables:
Trade 15,228,300 12,722,400
Legal settlements (note 7) 195,000 2,270,000
Other 62,700 488,200
---------- ----------
15,486,000 15,480,600
---------- ----------
Inventories:
Finished products 6,001,600 5,544,100
Raw materials 2,268,000 1,673,800
---------- ----------
8,269,600 7,217,900
---------- ----------
Prepaid expenses 581,000 929,700
---------- ----------
Total current assets 24,668,200 23,945,900
Property, plant and equipment, at cost,
less accumulated depreciation of
$14,079,900 in 1995 and $11,968,900
in 1994 (notes 1,3,4, and 6) 13,680,400 15,024,100
Land held for development 210,800 210,800
Costs in excess of net assets acquired, net of
accumulated amortization of $165,900 in
1995 and $132,500 in 1994 (note 11) 442,100 475,500
Deferred charges, net of accumulated
amortization of $6,035,600 in 1995 and
$4,866,700 in 1994 (note 2) 57,900 1,001,100
Other assets 281,600 271,300
---------- ----------
$39,341,000 $40,928,700
========== ==========
(CONTINUED)
39
42
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---- ----
Current liabilities:
Note payable to bank (note 4) $ - $ 8,000,000
Current installments of long-term debt (note 3) 1,265,600 1,205,300
Accounts payable 2,810,800 2,891,600
Accrued expenses 3,486,200 3,092,200
Income taxes payable 1,366,300 672,500
Legal settlements payable (note 7) 44,700 3,411,600
---------- ----------
Total current liabilities 8,973,600 19,273,200
Note payable to bank (note 4) 3,900,000 -
Long-term debt, excluding current
installments (note 3) 5,539,500 3,695,300
Deferred income taxes (note 5) 2,922,500 2,817,300
---------- ----------
Total liabilities 21,335,600 25,785,800
---------- ----------
Commitments and contingent liabilities
(notes 3, 4, 6, 7, 10 and 12)
Stockholders' equity: (note 13)
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
2,331,371 shares 233,100 233,100
Additional paid-in capital 1,688,200 1,688,200
Retained earnings 16,345,600 13,221,600
---------- ----------
18,266,900 15,142,900
Less treasury stock, 38,500 shares at cost 261,500 -
---------- --------
Total stockholders' equity 18,005,400 15,142,900
---------- ----------
$39,341,000 $40,928,700
========== ==========
See summary of significant accounting policies and notes to
consolidated financial statements.
40
43
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Net sales (note 9) $ 55,402,100 $ 45,098,100 $ 45,477,500
Cost of sales 30,741,700 25,366,300 24,339,000
------------ ------------ ------------
Gross profit 24,660,400 19,731,800 21,138,500
Operating expenses 18,689,400 16,155,600 16,978,500
Legal settlement expenses (note 7) -- 230,000 --
------------ ------------ ------------
Operating income 5,971,000 3,346,200 4,160,000
Interest expense (935,400) (978,200) (833,900)
Interest income 7,400 6,500 7,300
Other settlement expenses (note 7) -- (910,000) --
------------ ------------ ------------
Income from
operations before
income tax expense 5,043,000 1,464,500 3,333,400
Income tax expense (note 5) 1,919,000 261,800 1,108,300
------------ ------------ ------------
Net income $ 3,124,000 $ 1,202,700 $ 2,225,100
============ ============ ============
Per share information:
Net income $ 1.23 $ .47 $ .89
============ ============ ============
Weighted average number
of shares 2,546,471 2,562,398 2,509,536
============ ============ ============
See summary of significant accounting policies and notes to
consolidated financial statements.
41
44
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- --------- ---------- ---------- ----------
Balance, January 1, 1993 $228,100 $1,255,700 $ 9,793,800 $ -- $ 11,277,600
Net income -- -- 2,225,100 -- 2,225,100
-------- ---------- ----------- --------- ------------
Balance, December 31, 1993 228,100 1,255,700 12,018,900 -- 13,502,700
Common stock issued in
connection with
acquisition of
GemChem, Inc. 5,000 432,500 -- -- 437,500
(note 11)
Net income -- -- 1,202,700 -- 1,202,700
-------- ---------- ----------- --------- ------------
Balance, December 31, 1994 233,100 1,688,200 13,221,600 -- 15,142,900
Net income -- -- 3,124,000 -- 3,124,000
Treasury stock acquired -- -- -- (261,500) (261,500)
-------- ---------- ----------- --------- ------------
Balance, December 31, 1995 $233,100 $1,688,200 $16,345,600 $(261,500) $ 18,005,400
======== ========== =========== ========= ============
See summary of significant accounting policies and notes to
consolidated financial statements.
42
45
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
INCREASE (DECREASE) IN CASH 1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 3,124,000 $ 1,202,700 $ 2,225,100
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization
of property, plant and equipment 2,098,700 2,012,000 1,983,800
Amortization of intangible assets
and deferred charges 1,316,600 1,485,800 1,504,200
Increase in allowance for
related party receivable -- -- 115,000
Changes in assets and liabilities
associated with operations:
Increase in receivables (5,400) (4,621,500) (4,208,700)
Increase in inventories (1,051,700) (1,785,100) (124,700)
Decrease (increase)
in prepaid expenses 348,700 (66,400) (462,400)
Increase (decrease) in
accounts payable (80,800) 833,100 (247,000)
Increase (decrease) in other
payables and accrued expenses (2,279,100) 2,896,800 351,900
Increase (decrease) in
deferred income taxes 105,200 (221,500) (115,800)
----------- ----------- -----------
Net cash provided by
operating activities 3,576,200 1,735,900 1,021,400
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (755,000) (939,200) (1,053,200)
Decrease in marketable securities -- -- 49,700
Additions to deferred charges (226,500) (520,900) (414,400)
Net increase in other
noncurrent assets (123,800) (4,100) (87,000)
----------- ----------- -----------
Net cash used in
investing activities (1,105,300) (1,464,200) (1,504,900)
----------- ----------- -----------
(Continued)
43
46
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
INCREASE (DECREASE) IN CASH 1995 1994 1993
---- ---- ----
Cash flows from financing activities:
Net borrowings under line
of credit agreement $(4,100,000) $ 400,000 $ 2,200,000
Proceeds from issuance of
long-term debt 3,702,300 592,000 --
Principal payments on long-term debt (1,797,800) (1,236,800) (1,521,700)
Acquisition of treasury stock (261,500) -- --
----------- ----------- -----------
Net cash provided by
(used in) financing activities (2,457,000) (244,800) 678,300
----------- ----------- -----------
Net increase in cash 13,900 26,900 194,800
Cash at beginning of year 317,700 290,800 96,000
----------- ----------- -----------
Cash at end of year $ 331,600 $ 317,700 $ 290,800
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,011,100 $ 993,100 $ 795,200
Income taxes 1,119,800 940,800 818,000
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1993, capital lease obligations of $216,200 were incurred when the
Company entered into leases for new property, plant, and equipment.
During 1994, in connection with the acquisition of GemChem, Inc. (see note 11),
as part of the purchase price, the Company issued 50,000 shares of its common
stock with a fair value of $437,500.
See summary of significant accounting policies and notes to
consolidated financial statements.
44
47
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1995 AND 1994
Description of Business and Basis of Consolidation
The Company is primarily a specialty chemical manufacturer that develops and
markets safe and effective products for agricultural and commercial uses. The
Company manufacturers and formulates chemicals for crops, human and animal
protection. One of the Company's subsidiaries, GemChem, Inc. (see note 11), is
the Company's exclusive sales agent and is also a distributor of various
pharmaceutical and nutritional supplement products. The consolidated financial
statements include the accounts of American Vanguard Corporation ("Company") and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
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 and ordering patterns that may vary in timing, 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 good an
indicator as full-year comparisons.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
Intangible Assets
Intangible assets resulting from the business acquisition (see Note 11),
consists of cost in excess of net assets (goodwill) acquired. Goodwill is being
amortized on a straight-line basis over the period of an expected benefit of 15
years. Management has a policy to review goodwill and other productive assets at
each quarterly balance sheet date for possible impairment. This policy includes
recognizing write-downs if it is probable that measurable undiscounted future
cash flows and/or the aggregate net cash flows of an asset, as measured by
current revenues and costs (exclusive of depreciation) over the asset's
remaining depreciable life, are not sufficient to recover the net book value of
an asset.
Revenue Recognition
Sales are recognized upon shipment of products or transfer of title to the
customer.
Depreciation
Depreciation of property, plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets.
Fair Value of Long-term Debt
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities.
45
48
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
Income Taxes
Income taxes have been provided using the asset and liability method in
accordance with Financial Accounting Standard No. 109, "Accounting for
Income Taxes" ("SFAS 109").
SFAS 109 employs an asset and liability approach in accounting for income taxes,
the objective of which, is to recognize the amount of current and deferred taxes
at the date of the financial statements using the provisions of the tax laws
then in effect.
Per Share Information
Earnings per share amounts are computed based on the weighted average number of
shares of common stock. Common stock equivalents, which consisted of options to
purchase the Company's common stock, were anti-dilutive in 1995 and 1994. There
were no common stock equivalents outstanding during 1993. Earnings per share
have been restated to reflect a 10% common stock dividend payable March 15, 1996
to common stockholders of record as of February 29, 1996.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, and expenses at
the date that the financial statements are prepared. Actual results could differ
from those estimates.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121") issued by the Financial Accounting Standards Board ("FASB") is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes guidelines regarding when impairment losses
on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company does not expect adoption to have a material
effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for the
Stock-Based Compensation" ("SFAS No. 123") issued by the FASB is effective for
specific transactions entered into after December 15, 1995, while the disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning no later than December 15, 1995. The new standard establishes a
fair value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees in
exchange for equity instruments. The Company does not expect adoption to have a
material effect on its financial position or results of operations. At the
present time, the Company has not determined if it will change its accounting
policy for stock based compensation or only provide the required financial
statement disclosures. As such, the impact on the Company's financial position
and results of operations is currently unknown.
Reclassifications
Certain prior years' amounts have been reclassified to conform to the current
year's presentation.
46
49
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1995 and 1994 consists of
the following:
ESTIMATED
1995 1994 USEFUL LIVES
---- ---- ------------
Land $ 2,319,800 $ 2,319,800
Buildings and improvements 3,539,900 3,450,500 10 to 30 years
Machinery and equipment 19,998,800 19,911,200 3 to 10 years
Office furniture and fixtures 971,800 819,200 3 to 10 years
Automotive equipment 105,000 103,600 3 to 6 years
Construction in progress 825,000 388,700
---------- ----------
27,760,300 26,993,000
Less accumulated depreciation 14,079,900 11,968,900
---------- ----------
$13,680,400 $15,024,100
=========== ===========
(2) DEFERRED CHARGES
During 1995 and 1994, the Company capitalized $185,000 and $509,000,
respectively, in deferred charges relating to certain Environmental Protection
Agency study costs for a new product the Company began producing in October
1990. Amortization of these costs began in October 1990, and was provided by the
units of production method over a period of five years through September 1995.
Total study costs incurred and capitalized through September 1995 for this
product approximated $5,812,500.
47
50
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LONG-TERM DEBT
Long-term debt of the Company at December 31, 1995 and 1994 is summarized as
follows (fair values approximate reported carrying amounts):
1995 1994
---- ----
Note payable, secured by certain real
property, renewed and amended in
September 1995, principal increased to
$5,250,000, payable in 60 fixed monthly
installments of $87,500 commencing January 1, 1996,
plus interest at prime plus .5%
(prime was 8.5% at December 31, 1995), with
remaining unpaid principal
due December 1, 2000 $ 5,250,000 $ 2,476,300
Note payable, secured by certain
real property, amended in December 1995,
payable in 85 fixed monthly
installments of $13,335, plus interest at
prime plus 1% with remaining unpaid
principal due
February 1, 1997 1,439,900 1,599,900
Note payable, secured by certain
real property, payable in 60 fixed
monthly installments of $1,700,
principal and interest - 10,900
Notes payable to three individuals
in connection with the acquisition of the
common stock of GemChem, Inc.,
collateralized by the common stock of GemChem,
Inc., interest payable monthly
at prime plus .75% with principal due by
March 31, 1996. - 592,000
Obligations under capitalized
leases (see note 6) 115,200 221,500
---------- ----------
6,805,100 4,900,600
Less current installments 1,265,600 1,205,300
---------- ----------
$ 5,539,500 $ 3,695,300
========== ==========
Approximate principal payments on long-term debt mature as follows:
1996 $1,265,600
1997 2,377,800
1998 1,061,700
1999 1,050,000
2000 1,050,000
----------
$6,805,100
==========
(4) NOTE PAYABLE TO BANK
Under a credit agreement with a bank, the Company may borrow up to $10,500,000.
The note bears interest at a rate of prime plus .25% (prime was 8.5% at December
31, 1995 and 1994). Additionally, the Company, at its option, may pay a fixed
rate offered by the bank for terms not less than 30 nor more than 180 days and
provided that any such period of time does not extend beyond the expiration date
of the credit agreement. Substantially all of the Company's assets not otherwise
48
51
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
specifically pledged as collateral on existing loans and capital leases are
pledged as collateral under the credit agreement. The note payable expires on
July 31, 1997. The Company had $6,600,000 available under this credit agreement
as of December 31, 1995. The credit agreement, among other financial covenants,
limits payments of cash dividends to a maximum of 25% of net income. The Company
was in compliance with the financial covenants as of December 31, 1995. The
balance outstanding at December 31, 1995 and 1994 was $3,900,000 and $8,000,000.
The average amount outstanding during the years ended December 31, 1995 and 1994
was $6,526,200 and $6,840,100. The weighted average interest rate during the
years ended December 31, 1995 and 1994 was 9.1% and 7.25%.
(5) INCOME TAXES
The components of income tax expense are:
1995 1994 1993
---- ---- ----
Current:
Federal $ 1,255,400 $ 490,000 $ 931,700
State 539,800 (16,800) 373,500
Other, primarily foreign 18,600 10,100 --
Deferred:
Federal 242,300 (138,500) (145,300)
State (137,100) (83,000) (51,600)
----------- ----------- -----------
$ 1,919,000 $ 261,800 $ 1,108,300
=========== =========== ===========
Total income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to income before income tax expense as a result
of the following:
1995 1994 1993
---- ---- ----
Computed tax provision at
statutory Federal rates $ 1,714,600 $ 497,900 $ 1,133,200
Increase (decrease) in
taxes resulting from:
State taxes, net of
Federal income tax
benefit 300,600 30,400 204,600
Refund of prior year
State income taxes from
utilization of net
operating loss
carryforward -- (145,900) --
Nondeductible expenses 33,000 68,600 --
Other 18,600 10,100 13,300
Benefit of research and
development and
alternative minimum
tax credits (147,800) (199,300) (242,800)
----------- ----------- -----------
$ 1,919,000 $ 261,800 $ 1,108,300
=========== =========== ===========
49
52
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to significant portions of the
deferred tax liability at December 31, 1995 and 1994 relate to the following:
1995 1994
---- ----
Plant and equipment, principally due
to differences in depreciation and
capitalized interest $ 3,405,300 $ 2,750,400
Deferred charges capitalized -- 380,600
Inventories, principally due to
additional costs inventoried for
tax purposes pursuant to the Tax
Reform Act of 1986 (150,300) (147,300)
State income taxes (153,600) (15,700)
Vacation pay accrual (92,400) (86,900)
Accrual for product recall costs (70,200) --
Tax credits benefit
(primarily research and
development) -- (56,900)
Other (16,300) (6,900)
----------- -----------
Net deferred income tax liability $ 2,922,500 $ 2,817,300
=========== ===========
The Company believes it is more likely than not that the deferred tax assets
above will be realized in the normal course of business.
(6) LEASES
The Company leases certain manufacturing equipment, and office furniture,
fixtures and equipment under long-term capital lease agreements.
Property, plant and equipment include the following leased property under
capital leases by major classes:
Machinery and equipment $241,800
Office furniture and fixtures 204,300
--------
446,100
Less accumulated depreciation 146,200
$299,900
========
50
53
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following is a schedule of future minimum lease payments for capital leases
as of December 31, 1995:
Year ending December 31:
1996 $ 63,800
1997 51,300
1998 11,900
--------
Total minimum lease payments 127,000
Less amount representing interest 11,800
Present value of net minimum lease payments $115,200
========
(7) LITIGATION AND ENVIRONMENTAL
DBCP LAWSUITS
A. California Matters
i) 1995 Settlement of Claims.
In 1995 CHEMICAL has brought its participation in twenty-three
similar lawsuits filed between January 1990 and December 1994 to an end. The
Plaintiffs in each matter were primarily water districts and municipalities that
alleged property damage resulting from, among other things, the fact that each
plaintiff's water supply had been contaminated by DBCP. The settlement covered
all the plaintiff's current and future 1,2 Dibromo-3-Chloropropane (hereinafter
referred to as "DBCP") a pesticide, ethylene dibromide (hereinafter referred to
as "EDB") a fumigant, and related claims. On February 15, 1995, the Superior
Court of California in San Francisco County approved this settlement as having
been made in "good faith". The effect of the Superior Court's approval is to bar
claims, arising from these pleadings, against CHEMICAL by other defendants (and
other tortfeasors) for equitable comparative contribution and/or partial or
comparative indemnity. CHEMICAL's portion of the settlement was $905,000. As to
matters independent of indemnity issues, the Company recovered $675,000 from two
of its insurers.
ii) Post Settlement Actions.
Subsequent to the settlements discussed above, two additional
suits alleging property damage resulting from DBCP contamination of water supply
were filed in the San Francisco Superior Court and served on CHEMICAL: City of
Madera v. Shell Oil Co., et. al., and Malaga County Water District v. Shell Oil
Co., et. al. The City of Madera action also alleges contamination of the water
supply with EDB. CHEMICAL has never marketed EDB. These suits name as defendants
Shell Oil Company, the Dow Chemical Company, Occidental Chemical Company,
Chevron Chemical Company, Velsicol Chemical Company and in the Madera action
Great Lakes Chemical Corporation. Malaga has made a settlement
51
54
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
demand of $1,344,000 for one of five wells at issue. As discovery is at the
early stages no other settlement demands have been received. Defendants are
operating under an open extension of time to file responsive pleadings. CHEMICAL
has tendered the defense of these two cases to Columbia Casualty/CNA. That
insurer has thus far accepted the defense under a reservation of rights in the
Malaga action, but has yet to respond to the tender of defense for the Madera
action.
B. Texas Matters
i) The Carcamo Case.
The Company was served with a third-party first amended
complaint by Dow Chemical Company which sought indemnity and contribution from
CHEMICAL, Del Monte tropical Fruit Company, Del Monte Fresh Produce, N.A., Dead
Sea Bromine Co. Ltd., Ameribrom Inc., Saint Lucia Banana Growers Association,
Saint Vincent Banana Growers Association, Dominica Banana Growers Association,
and Program Nacional de Banano, for any liability Dow may have under a complaint
filed by Jorge Colindres Carcamo, et al. vs. Shell, Dow, et al. (the "Carcamo
Case"). The Carcamo Case was tried in the United States District Court for the
Southern District of Texas, Houston Division, and is an action originally filed
in a Texas state court by a purported class of citizens from Honduras, Costa
Rica, Guatemala, Nicaragua, Panama, Philippines, Dominica, and the Ivory Coast.
These plaintiffs were banana workers and allege that they were exposed to DBCP
while applying the product in their native countries. Approximately 15,000
plaintiffs have been named in this and the other suits hereinafter mentioned.
In an October 27, 1996 Court Order the third party action
against CHEMICAL was dismissed without prejudice. The Order also dismissed the
Plaintiff's consolidated cases concluding that these claims should be litigated
in the foreign countries where the alleged injuries occurred subject to a number
of conditions. One of the more significant conditions requires the Defendants
and third party Defendants consent to the jurisdiction of the courts of each of
the foreign countries. Under the Order the Defendants may proceed against
CHEMICAL, in a court in the United States, for contribution and indemnity should
plaintiffs in the underlying actions obtain a judgement against Defendants in
any foreign forum. As of the filing of this report, no actions against CHEMICAL
have been filed.
ii) The Rodriguez Case.
The Company was served with a third-party complaint on March
15, 1996 by Defendant Standard Fruit Company and Standard Steamship
Company seeking indemnity and contribution from any liability it may
have under a complaint entitled Ramon Rodriguez et. al. v. Shell Oil
Company, et. al. (the "Rodriguez Case") filed in the District Court of
Jim Hogg County, Texas. Also named as Third Party Defendants are Dead
Sea Bromine Co., Ltd. and Bromine Compounds Ltd. The underlying case
alleges injuries caused by Plaintiffs' exposure to DBCP when they
applied that pesticide at farms located in Central America, Ecuador and
the Philippines. The Company has made a demand upon certain insurers
52
55
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
for indemnity from and a defense of the Rodriguez Case. No answer has
yet been received from said insurers.
PHOSDRIN(R) LAWSUIT
On September 21, 1995, CHEMICAL was served with a complaint
filed in the Superior Court of King County, Washington on September 12, 1995
entitled Ricardo Ruiz Guzman, et. al. v. AMVAC Chemical Corporation, et. al.(the
"Guzman Case"). The Complaint is for unspecified monetary damages based on
Plaintiff farm worker's alleged injuries from their exposure to the pesticide
Phosdrin(R) while working in several orchards in Central Washington State in
1993. Other Defendants named in the Guzman case include: Wilbur-Ellis Company,
Alan Hilliker, and Ellis D. Wilker. The matter is currently pending in the
United States District Court for the Eastern District of Washington and
Defendant's Hilliker and Wilker have been dismissed from the action. CHEMICAL
has made a demand against its insurers for indemnity and defense of the Guzman
Case. The insurer Lexington Insurance Company has thus far accepted the defense
under a reservations of rights letter. CHEMICAL has a self insured retention
limit of $300,000 under its insurance policy.
TRAIN DERAILMENTS
A. July 14, 1991; Dunsmuir, California:
In August 1992, the Company settled all personal and economic
injury claims asserted in a class action lawsuit arising from the July 14, 1991
derailment of a rail tank car leased by CHEMICAL. The derailment, occurring
about six miles north of Dunsmuir, California, involved the spill into the Upper
Sacramento River of approximately 19,000 gallons of Metam Sodium, a soil
fumigant manufactured by CHEMICAL which was being transported by Southern
Pacific Transportation Company ("SP") along SP's tracks. The court, when finding
that such settlement by CHEMICAL was in "good faith", also ordered that no other
person or entity falling within the definition of the settlement class could
proceed with claims against the Company.
On March 14, 1995, the federal court approved the Consent
Decree which the Company and the federal and state governments entered which
settled litigation seeking to hold potentially responsible parties under various
federal and state statutes responsible for the costs of studying and remediating
the environmental consequences caused by the Sacramento Spill, and for damages
to the Natural Resources. On January 5, 1996, the Court dismissed the California
Sportfishing Protection Alliance's ("Alliance") appeal of a court's order
dismissing their intervention. This Order finally resolves the action brought by
the Alliance which was the only remaining issue arising from this incident.
B. February 1, 1996; Devore, California:
On March 7, 1996, CHEMICAL was served with a Complaint in an
action entitled Alvin Williams, Administrator of the Estate of Kevin
Lewis Williams v. Burlington Northern Santa Fe Railway Company, et. al.
53
56
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(the "Williams Estate Case"). This case was filed on February 26, 1996 in the
Superior Court of Los Angeles County and arose from Kevin Lewis Williams' death
in a train derailment which occurred on Burlington Northern Santa Fe Railway
Company tracks involving a tank car leased by GATX to Albright & Wilson Americas
Corporation ("A&WA") which was transporting 158,000 pounds of Trimethyl
Phosphite ("TMP") from A&WA's Charleston, South Carolina Facility to CHEMICAL's
manufacturing facility in Los Angeles, California. The derailment, occurred on
February 1, 1996 at approximately 4:14 a.m. about 6 miles north of Devore,
California, adjacent to the intersection of Interstate 15 and State Highway 138.
The derailment involved the engine and most of the railcars on the train
resulting in a chemical fire that consumed all of the TMP in addition to the
contents of railcars transporting an assortment of hazardous chemicals and other
goods. The Estate alleges pecuniary loss to family members in the amount of $
20,000,000 and prays for other unspecified monetary relief. Other Defendants
presently named in the suit are: Burlington Northern Santa Fe Railway Company,
The Atchison, Topeka & Santa Fe Railway Company, UNOCAL, Rohm & Haas, and
Westinghouse Corporation. CHEMICAL is named in only one of the Estate's seven
causes of action. The Company has made demand upon its insurers for indemnity
from and defense of the Williams Estate Case. No answer has yet been received
from the Company's insurers.
RAILROAD SIDING:
As a result of inspections and sampling conducted by the
California Department of Toxic Substances Control ("DTSC") of the railroad
located, in part, immediately adjacent to CHEMICAL's Commerce, California
facility, CHEMICAL was directed to, and did, conduct sampling during 1993 to
evaluate the nature and extent of pesticide contamination detected by DTSC on
the railroad siding. Following its review of the sampling report prepared by
CHEMICAL's independent consultant, DTSC directed that additional sampling be
undertaken and CHEMICAL's independent consultant prepared a sampling plan for
submittal to DTSC for prior approval as required. However, before additional
sampling could be conducted, the Los Angeles county District Attorney's Office
("LADA"), at the request of DTSC, commenced an enforcement action in April 1994,
against CHEMICAL, one of its officers, and two employees alleging felony illegal
disposal of hazardous waste on the railroad siding. At the same time, DTSC
demanded sums of money for alleged violations of certain compliance requirements
related to CHEMICAL's management of hazardous waste at its Commerce, California
facility. Joint settlement negotiations were conducted with the DTSC and the
LADA and were concluded with a settlement agreement which was entered with the
Los Angeles Municipal Court in a Stipulated Sentencing Memorandum which provided
as follows: (i) all felony charges against CHEMICAL and the three individuals
were dismissed; (ii) CHEMICAL entered a plea of nolo contendere to one
misdemeanor; (iii) CHEMICAL was placed on probation for approximately six (6)
months commencing on or about September 23, 1994; (iv) CHEMICAL was ordered to
pay, by March 22, 1995, the sum of $135,000 in fines and penalties, and civil
restitution in the amount of $325,000; (v) CHEMICAL agreed to enter into a
Consent Agreement and Order (the "First CAO") with DTSC to correct the alleged
hazardous waste management compliance violations and to submit a new plan for
closure of ten (10) underground storage tanks ("USTs") at the
54
57
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Commerce, California facility and (vi) CHEMICAL agreed to enter into a Consent
Agreement and Order (the "Second CAO") with DTSC providing for CHEMICAL to
further investigate and remediate the railroad siding.
Pursuant to the settlement agreement, CHEMICAL entered into
the First CAO effective on January 26, 1995, and on March 22, 1995, with the
concurrence of the LADA, CHEMICAL withdrew its plea of nolo contendere to the
one misdemeanor, entered a plea of not guilty which was accepted, and the court
dismissed the complaint against CHEMICAL. CHEMICAL has substantially fulfilled
the requirements of the First CAO and, in accordance therewith, submitted new
plans for closure of ten (10) USTs located at the facility. During 1995, in
accordance with the UST closure plan, CHEMICAL arranged for the removal and
cleaning of residues within the tanks and completed the initial investigation of
soils in the area of the tanks and their associated piping. CHEMICAL anticipates
that additional UST related soil investigations will be completed by late 1996
and that remedial activities, if any, will commence by late 1996 or early 1997.
CHEMICAL is currently in discussions with DTSC regarding the
specific terms of the Second CAO which will address investigation and
remediation of the railroad siding. CHEMICAL is in the process of completing all
requirements for addressing investigation and remediation of the railroad siding
under a new DTSC program created by California Senate Bill 923 known as the
Expedited Remedial Action Program (ERAP). CHEMICAL anticipates that addressing
the railroad siding under ERAP will result in a more rapid and cost-effective
resolution of environmental conditions in the railroad siding area than could
otherwise be expected if the area were addressed under other available DTSC site
investigation and remediation programs. The potential future costs associated
with the railroad siding investigation and remediation are currently unknown and
cannot be reasonably determined until soil investigations will be completed by
late 1996 or early 1997.
The Company has made claims against its insurance carriers and
has expensed all costs incurred which now exceed its $100,000 self-insured
retention. There can be no assurance the Company will prevail in its position.
Various other legal actions, governmental proceedings, and
claims are pending against the Company and its subsidiaries incidental to their
businesses.
While the ultimate results of the pending matters described
above cannot be determined, management does not expect, based upon the facts
known today, that they will have a material adverse effect on the Company's
results of operations or financial condition.
55
58
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) EMPLOYEE DEFERRED COMPENSATION PLAN
The Company maintains a deferred compensation plan (Plan) for all eligible
employees. The Plan calls for each eligible employee, at the employee's
election, to participate in an income deferral arrangement under Internal
Revenue Code Section 401(k) whereby the Company will match the first $5.00 of
weekly employee contributions. The Plan also permits employees to contribute an
additional 15% of their salaries of which the Company will match 50% of the
first 6% of the additional contribution. The Company's contributions to the Plan
amounted to approximately $175,100, $154,000 and $118,200 in 1995, 1994 and
1993, respectively.
(9) MAJOR CUSTOMERS AND EXPORT SALES
The Company had sales to four major customers that accounted for 24%, 14%, 11%,
and 10% of the Company's sales in 1995. In 1994 there were sales to one major
customer that accounted for 27% of the Company's sales. In 1993, there were
sales to four major customers that accounted for 25%, 11%, 10%, and 10% of the
Company's sales.
Export sales were $3,374,700, $3,812,500 and $4,714,400 for 1995, 1994, and
1993.
(10) ROYALTIES
The Company has various royalty agreements in place extending through June 2001,
some of which relate to the Company's acquisition of certain products. Royalty
expenses were $786,800, $91,600 and $1,129,900 for 1995, 1994, and 1993.
(11) ACQUISITION OF GEMCHEM, INC.
In September 1991, the Company entered into an agreement with GemChem, Inc.
("GemChem"), a related party, to represent the Company as its sales
representative. Eric G. Wintemute, the son of the Company's former President,
Glenn A. Wintemute, owned an approximate one-third equity interest in GemChem.
The Company purchased approximately $3,600,000 in 1993 of raw materials from
GemChem. During the year ended December 31, 1993 the Company expensed $1,586,400
in commissions earned by GemChem. The Company believes that the commissions paid
to GemChem for sales of products were no less favorable to the Company than
would have been available from unrelated parties.
Effective January 15, 1994, the Company purchased all of the issued and
outstanding stock of GemChem. The results of operations of GemChem have been
included in the consolidated results of operations since the effective date of
the purchase. The aggregate purchase price consisted of 50,000 unregistered
shares of the Company's common stock and approximately $592,000 in two year
notes with interest at prime plus .75%. The Company has valued the 50,000 shares
at $437,500. All assets acquired were valued at book value, which approximated
fair market value, resulting in an allocation to cost in excess of net assets
acquired of $437,500 which is being amortized over 15 years. The
56
59
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
results of operations of GemChem are not material in relation to the
Company.
(12) Commitments
In July 1994, the Company entered into consulting agreements with two former
employees who are the current Co-Chairmen of the Company's Board of Directors.
The agreements expire in July 1999 and provide for total remuneration of
$1,000,000 over the five year period to be paid to each former employee. As part
of the acquisition of GemChem, the Company entered into employment agreements
with GemChem's former three officers and shareholders. The employment agreements
commenced January 15, 1994 and expire January 14, 1998. The agreements provide
for aggregate salaries of $390,000 per year. Annual increases shall be
determined by the Board of Directors or its designee but shall not be less than
the increase in an agreed upon cost of living index. The employment agreements
with the former officers and shareholders of GemChem also provide for the
issuance of stock options to purchase an aggregate of 70,000 shares of the
Company's common stock. The options are exercisable at the rate of 25% per year
commencing January 15, 1995. The exercise price is $10.00 per share. Unexercised
options expire on April 15, 1998. All options were anti-dilutive in 1995.
Amounts to be paid under the aforementioned consulting and employment agreements
are summarized as follows:
Year ending
December 31,
1996 $ 837,400
1997 749,900
1998 288,600
1999 121,900
----------
$1,997,800
==========
In July 1995, the Company entered into a noncancellable operating sublease for
its corporate headquarters expiring in October 1999. The lease contains a
provision to pass through to the Company the Company's pro rata share of the
building's operating expenses commencing July 1, 1996 in excess of the amount
passed through to the sublandlord during the first year of the sublease. Rent
expense for the year ended December 31, 1995 was $49,400. There was no rent
expense in 1994 and 1993. Future minimum lease payments under the terms of the
sublease are as follows:
Year ending
December 31,
1996 $149,400
1997 149,400
1998 149,400
1999 124,500
--------
$572,700
========
57
60
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) Research and Development
Research and development expenses were $3,717,400, $5,544,000 and $4,715,400 for
the years ended December 31, 1995, 1994 and 1993, respectively.
(14) Subsequent Event
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 shareholders 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. Weighted average number
of shares have been restated to reflect the 10% stock dividend.
58
61
INDEX TO EXHIBITS
ITEM 14(a)3
Page
Sequentially
Numbered
------------
2.1 Purchase and Sales Agreement dated November
15, 1993, between Amvac Chemical Corporation
and E.I. du Pont de Nemours and Company.(4) --
3.1 Certificate of Incorporation of
Registrant.(1) --
3.2 Bylaws of Registrant (as amended as of
January 14, 1993).(3) --
4.1 Specimen Certificate of Common Stock.(2) --
10.1 Indemnification Agreement dated January 6,
1993 between Registrant and each of its
officers and directors.(3) --
10.2 Line of Credit Agreement dated June 18, 1991, related
amendments one through eight between the Registrant and
Sanwa Bank California and related Security
Agreement.(3) --
10.3 Line of Credit Agreement dated April 30,
1993, and related amendments, between the
Registrant and Sanwa Bank California and
related Security Agreement.(5) --
10.4 Line of Credit Agreement dated April 14,
1994, and related amendments, between the
Registrant and Sanwa Bank California and
related Security Agreement.(6) --
10.5 Employment Agreement between American
Vanguard Corporation and Eric G.
Wintemute.(6) --
10.6 Employment Agreement between American
Vanguard Corporation and Alfred J.
Moskal.(6) --
59
62
10.7 Employment Agreement between American
Vanguard Corporation and Robert F.
Gilbane.(6) --
10.8 Agreement and General Release between
American Vanguard Corporation and Herbert
A. Kraft.(6) --
10.9 Agreement and General Release between
American Vanguard Corporation and Glenn A.
Wintemute.(6) --
10.10 American Vanguard Corporation
1994 Stock Incentive Plan (7) --
10.11 Amended and Restated Credit Agreement
dated September 12, 1995, and related
documents between the Registrant and
Sanwa Bank California. --
21. List of Subsidiaries of Registrant. --
27. Financial Data Schedule --
- ----------------------
(1) Incorporated by reference as an Exhibit to Registrant's Form 10
Registration Statement No. 2-85599 filed June 13, 1972.
(2) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
June 13, 1972.
(3) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
March 30, 1993.
(4) Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated November 23, 1993.
(5) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
March 30, 1994.
(6) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
March 30, 1995.
(7) Incorporated by reference as Appendix A to Registrant's Proxy Material
filed June 3, 1995.
60