SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended April 30, 1997
Commission File Number: 0-24312
AGRI-NUTRITION GROUP LIMITED
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
Riverport Executive Center II
13801 Riverport Drive
Suite 111
Maryland Heights, MO 63043
(314) 298-7330
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 twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
The number of shares of common stock outstanding at June 13, 1997 is 8,404,655
shares.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
INDEX
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PAGE
FINANCIAL INFORMATION
Financial Statements
Consolidated Balance Sheet -
October 31, 1996 and
April 30, 1997 (Unaudited) 1
Consolidated Statement of Operations -
three and six months ended April 30, 1996
and 1997 (Unaudited) 2
Consolidated Statement of Cash Flows -
six months ended April 30, 1996
and 1997 (Unaudited) 3
Consolidated Statement of Shareholders' Equity -
six months ended April 30, 1997
(Unaudited) 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED BALANCE SHEET
PAGE 1
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OCTOBER 31, APRIL 30,
1996 1997
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 2,186,877 $ 1,078,870
Accounts receivable 4,273,452 4,755,051
Inventories 6,373,708 5,485,906
Prepaid expenses and other assets 1,188,377 1,154,621
---------------- --------------
14,022,414 12,474,448
Property, plant and equipment, net 4,907,813 4,894,561
Goodwill 6,372,687 6,270,757
Other assets 1,046,599 1,020,041
----------------- --------------
$ 26,349,513 $ 24,659,807
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt and notes payable $ 487,169 $ 334,735
Accounts payable 2,449,928 1,922,709
Accrued expenses 1,266,069 723,309
----------------- -------------
4,203,166 2,980,753
Long-term debt and notes payable 7,824,012 7,458,575
Commitments and contingencies (Notes 2 and 8)
Shareholders' equity:
Common stock ($.01 par value; 20,000,000 shares
authorized; 8,430,949 and 8,436,549 shares issued
and outstanding, respectively) 84,309 84,365
Additional paid-in capital 14,817,183 14,824,127
Accumulated deficit (529,171) (608,471)
---------------- --------------
14,372,321 14,300,021
Cost of common stock held in Treasury
(25,650 and 46,850 shares in 1996
and 1997, respectively) (49,986) (79,542)
---------------- --------------
14,322,335 14,220,479
Total Liabilities and Shareholders' Equity $ 26,349,513 $ 24,659,807
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
PAGE 2
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<TABLE>
<CAPTION>
FOR THE THREE AND SIX MONTHS ENDED APRIL 30,
1996 1997
THREE SIX THREE SIX
MONTHS MONTHS MONTHS MONTHS
<S> <C> <C> <C> <C>
Net sales (including sales of
$3.0 million and $6.8 million
for the three and
six months ended April 30,
1996, respectively, and
$2.4 million and $6.8
million for the three
and six months ended
April 30, 1997,
respectively, to Purina Mills) $ 9,295,950 $ 17,595,016 $ 9,663,552 $ 19,820,358
Cost of sales 7,240,037 14,042,400 7,492,258 15,796,587
Gross profit 2,055,913 3,552,616 2,171,294 4,023,771
Selling, general and administra-
tive expenses 1,847,800 3,515,366 1,872,645 3,590,233
Research and development 58,854 115,576 35,948 83,694
Operating income (loss) 149,259 (78,326) 262,701 349,844
Interest expense (142,202) (260,505) (157,574) (324,224)
Other income (expense) (Note 9) 44,834 106,724 (183,943) (154,420)
Income (loss) before income
tax benefit (provision) 51,891 (232,107) (78,816) (128,800)
Income tax benefit (provision) (20,000) 88,000 29,500 49,500
Net income (loss) $ 31,891 $ (144,107) $ (49,316) $ (79,300)
Primary net income (loss) per
common and common
equivalent share (Note 3) $ -- $ (.02) $ (.01) $ (.01)
Fully diluted net income (loss)
per common and common
equivalent share (Note 3) $ -- $ (.02) $ (.01) $ (.01)
Primary common and common
equivalent shares outstanding
(Note 3) 9,009,721 8,401,344 8,360,904 8,364,158
Fully diluted common and
common equivalent shares
outstanding (Note 3) 9,009,721 8,401,344 8,360,094 8,364,158
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
PAGE 3
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<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED APRIL 30,
1996 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (144,107) $ (79,300)
Adjustments to reconcile net loss to net
cash used in operating activities:-
Depreciation and amortization 399,211 423,598
Changes in operating assets and liabilities:
Increase in accounts receivable (699,399) (481,599)
(Increase) decrease in inventories (969,861) 887,802
(Decrease) in prepaid expenses and other (46,782) 21,543
Decrease in accounts payable (870,982) (527,219)
Decrease in accrued expenses (597,089) (542,760)
Net cash used in operating activities (2,929,009) (297,935)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (271,207) (269,645)
Sale of short-term investment securities 1,191,379
Purchase of Zema and St. JON net assets, net of cash acquired (121,120)
Net cash provided by (used in) investing activities 799,052 (269,645)
FINANCING ACTIVITIES
(Repayment) borrowings of long-term debt and notes payable, net 2,646,089 (517,871)
Issuance of stock to directors 7,000
Purchase of Treasury Stock (29,556)
Net cash provided by (used in) financing activities 2,646,089 (540,427)
Increase (decrease) in cash and cash equivalents 516,132 (1,108,007)
Cash and cash equivalents, beginning of period 2,330,685 2,186,877
Cash and cash equivalents, end of period $ 2,846,817 $ 1,078,870
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PAGE 4
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<TABLE>
<CAPTION>
Common Stock in
Common Stock Treasury, at Cost
Number Additional Number
of Par Paid in of Accumulated
Shares Value Capital Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31,
1996 8,430,949 $ 84,309 $ 14,817,183 (25,650) $ (49,986) $ (529,171) $ 14,322,335
Issuance of stock to
directors and officers
(unaudited) 5,600 56 6,944 7,000
Treasury stock
purchased (unaudited) (21,200) (29,556) (29,556)
Net loss (unaudited) (79,300) (79,300)
-------------------------------------------------------------------------------------------
Balance, April 30,
1997 (unaudited) 8,436,549 $ 84,365 $ 14,824,127 (46,850) $ (79,542) $ (608,471) $ 14,220,479
==========================================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PAGE 5
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1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 30, 1997, the
consolidated statements of operations for the three and six-month periods
ended April 30, 1996 and 1997, the consolidated statements of cash flows
for the six-month periods ended April 30, 1996 and 1997 and the
consolidated statement of shareholders' equity for the six-month period
ended April 30, 1997 have been prepared by Agri-Nutrition Group Limited
("the Company") without audit. In the opinion of management, all
adjustments (which include only normal, recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at and for the periods ended April 30, 1996 and 1997 have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where inapplicable.
The results of operations for the periods ended April 30, 1996 and 1997,
respectively, are not necessarily indicative of the operating results for
the full year.
2. ORGANIZATION
Organized in 1993, Agri-Nutrition Group Limited (the "Company")
manufactures and distributes animal health and pet care products. In September
1993, through its wholly-owned subsidiary, PM Resources, Inc. ("Resources"), the
Company acquired certain assets and assumed certain liabilities of the Health
Industries Business of the Consumer Products Division (the "Business") of Purina
Mills, Inc. ("Purina"). Resources commenced operations on September 9, 1993, the
effective date of the acquisition of the Business. Resources formulates,
manufactures and distributes feed additives, medicated treatments, anthelmetics,
nutritional supplements, cleaners and disinfectants, pest control products,
home, lawn and garden products, and specialty compounds.
Effective March 31, 1995, the Company purchased substantially all of the
net assets and business of Zema Corporation ("Zema"). The Company also purchased
substantially all of the net assets and business of St. JON Laboratories, Inc.
("St. JON") effective August 31, 1995. Zema and St. JON formulate, package,
market and distribute pet health care, veterinary and grooming products
domestically and abroad.
See Note 3 to the Company's Consolidated Financial Statements included in
the Company's annual report to shareholders for the year ended October 31, 1996
("1996 Annual Report") for additional information related to the acquisitions of
Zema and St. JON, including information regarding the additional purchase price
which must be paid to the former owner of Zema if Zema achieves certain
financial goals. In addition, see Note 4 to the Company's Consolidated Financial
Statements included in the 1996 Annual Report for information about the
Company's acquisition of the worldwide patents, active ingredient inventory,
registrations and rights to Bromethalin ("the Bromethalin Assets"), a highly
effective and proprietary rodenticide serving agricultural and Pest Control
Operator (PCO) markets, including information regarding additional consideration
to be paid based on shipments of Bromethalin to Purina over a five-year period.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PAGE 6
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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in
Note 6 to the Consolidated Financial Statements included in the 1996
Annual Report. The financial statements included herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in such report.
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Net loss per common and common equivalent share is calculated
based on the weighted average number of common and common equivalent
shares outstanding during the periods presented, using the treasury stock
method. The calculation does not reflect common stock equivalent shares
when their inclusion in such calculation would have been anti-dilutive.
4. INVENTORIES
Inventories consist of the following:
OCTOBER 31, APRIL 30,
1996 1997
Raw materials $ 3,700,881 $ 3,508,667
Work-in-process 312,300 302,870
Finished goods 2,508,959 1,822,935
6,522,140 5,634,472
Less: reserve for excess and
obsolete inventories (148,432) (148,566)
$ 6,373,708 $ 5,485,906
5. FINANCING
The Company has revolving credit facilities that aggregated $7.65
million at April 30, 1997. In May 1997, the Company's bank executed a
commitment letter regarding modification of the Company's existing credit
agreements that would increase the aggregate lines by $650,000, extend
their maturity dates through March 31, 1999, lower the interest rates and
commitment fees charged and revise certain of the debt covenants. The
facilities as modified would consist of up to an aggregate of $4.8
million in revolving credit lines, the available amount being based upon
specified percentages of qualified accounts receivable and inventory, and
a $3.35 million revolving credit line with available amounts being
reduced $125,000 per quarter. The interest rate would range from prime
minus .25% to prime plus .5%, depending on the Company's ratio of debt to
net worth, as defined in the amended agreements. At April 30, 1997,
assuming the proposed amendments then had been effective, the interest
rate charged on borrowings outstanding under the agreements would have
been 8.50%, which is the bank's prime rate, and approximately $2.8
million would have been available.
At April 30, 1997, the Company and its subsidiaries were in
compliance with all covenants related to its various financing
arrangements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PAGE 7
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In April 1997, the Company restructured its debt agreement with
the former owner of St. JON, who is the president of the Company's St.
JON subsidiary. Under the revised agreement, the Company paid $500,000 in
April 1997, in addition to the $450,000 scheduled payment, and will pay
off the remaining amounts in five annual installments of $324,563
beginning in March 1998. The interest rate on the note was not revised
and is fixed at 7.6% per annum.
6. RELATED PARTY TRANSACTIONS
See Note 13 to the Company's Consolidated Financial Statements in
the 1996 Annual Report for a discussion regarding related party
transactions.
7. EMPLOYEE BENEFIT PLANS
During the six months ended April 30, 1997, options to purchase
10,000 shares of the Company's common stock were granted to employees in
connection with the Company's 1996 Incentive Stock Plan. The exercise
prices of the options were $1.1875 per share, which approximated the fair
value on the dates of grant. These options vest ratably over three years
from the date of grant and will expire ten years from the grant date. No
shares or options were issued in connection with 1995 Incentive Stock
Plan or the Company's Incentive Stock Plan. See Note 12 to the Company's
financial statements in the 1996 Annual Report for a discussion of the
Company's incentive stock plans.
8. COMMITMENTS AND CONTINGENCIES
From time to time, the Company becomes party to various claims and
legal actions arising during the ordinary course of business. Management
believes that the Company's costs and any potential judgments resulting
from such claims and actions will be covered by the Company's product
liability insurance, except for deductible limits. The Company intends to
defend such claims and actions in cooperation with its insurers. It is
management's opinion that, in any event, their outcome would not have a
material effect on the Company's financial position or results of
operations. See Note 6 to the Company's Consolidated Financial Statements
in the 1996 Annual Report for a discussion of the Company's environmental
policy.
9. TERMINATION OF ANTHONY PRODUCTS LETTER OF INTENT
In March 1997, the Company terminated its letter of intent
related to its proposed acquisition of Anthony Products Company. In
conjunction with this action, the Company recorded a $202,000 pre-tax
charge in the second quarter of fiscal 1997. Such amount is included in
other income (expense) in the accompanying consolidated statement of
operations. Net income excluding the impact of this charge for the three
and six month periods ended April 30, 1997 would have been $78,000 and
$48,000, respectively.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 8
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OVERVIEW
Organized in 1993, the Company manufactures and distributes animal
health and pet care products. In September 1993, the Company, through its PM
Resources, Inc. subsidiary ("Resources"), acquired the Health Industries
Business of Purina Mills, Inc. which formulates, manufacturers and distributes
animal health products and to a lesser extent, home, lawn and garden, and other
products. In July 1994, the Company completed its initial public offering of
Common Stock ("IPO"), the net proceeds of which were approximately $12.1
million. Effective March 31, 1995, the Company purchased substantially all of
the net assets and business of Zema Corporation ("Zema"), a formulator,
manufacturer and supplier of health care and grooming products to the pet
industry. Effective August 31, 1995, the Company purchased substantially all of
the net assets and business of St. JON Laboratories, Inc. ("St. JON"), a
developer, manufacturer and marketer of oral hygiene, dermatological and
gastrointestinal products for dogs and cats. Although the focus of the Company's
business strategy historically has been the acquisition of animal health and
related companies, in August 1996, management announced the completion of the
acquisition phase of the Company's strategy and its increased focus on internal
growth, while continuing to pursue strategic acquisitions and alliances. Also
announced in August 1996 was a management restructuring related to this
increased focus on internal growth. Management anticipates annual savings of
approximately $600,000 related to this restructuring primarily as a result of a
reduction in executive salaries.
The Company has reported certain financial information for two
segments - ingredients and specialty products. Ingredients consist of feed
products that are purchased or blended by the Company and distributed for Purina
Mills (see Note 14 to the Company's Consolidated Financial Statements included
in the 1996 Annual Report). Specialty products consist of all other products
formulated, manufactured, and distributed by the Company to various customers,
including Purina Mills. Included in the specialty products segment are sales of
private label and branded products for which the Company manufactures goods
using registrations and/or formulas owned by the Company, and sales of products
manufactured under contract for which the Company manufactures products using
the customers' registrations and/or formulas. While the Company believes segment
data is meaningful for net sales, the Company does not believe segment data for
costs of sales and administrative costs are necessarily relevant to
understanding the Company's business. Costs of sales, other than raw materials,
and administrative costs incurred in the servicing of the two segments are joint
in nature and essentially invariable, particularly within the levels of sales
volume experienced within the reporting periods. The supporting asset base,
excluding inventories, is also joint in nature.
Given the acquisitions of businesses with branded, consumer-targeted
products in 1995 and the continued emphasis on growth of the specialty product
segment, the significance of the ingredient segment has decreased in fiscal 1996
and 1997. Management expects this trend to continue in the future such that at
some point, the ingredient segment may no longer meet the requirements for
segment disclosure under generally accepted accounting principles.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 9
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<TABLE>
<CAPTION>
(DOLLARS IN 000'S)
THREE MONTHS ENDED APRIL 30, SIX MONTHS ENDED APRIL 30,
1996 1997 1996 1997
DOLLAR % OF DOLLAR % OF DOLLAR % OF DOLLAR % OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Ingredients............... $ 1,568 16.9% $ 1,762 18.2% $ 4,052 23.0% $ 4,490 22.6%
Specialty products........ 7,728 83.1 7,902 81.8 13,543 77.0 15,330 77.4
Total net sales......... 9,296 100.0 9,664 100.0 17,595 100.0 19,820 100.0
Cost of sales................ 7,240 77.9 7,493 77.5 14,042 79.8 15,796 79.7
Gross profit................. 2,056 22.1 2,171 22.5 3,553 20.2 4,024 20.3
Selling, general and
administrative expense..... 1,848 19.9 1,873 19.4 3,515 20.0 3,590 18.1
Research and development..... 59 .6 36 .4 116 .7 84 .4
Operating income (loss)...... 149 1.6 263 2.7 (78) (.4) 350 1.8
</TABLE>
THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE MONTHS ENDED APRIL 30, 1996
Total net sales increased 4% from $9.3 million in fiscal 1996 to $9.7
million for 1997, reflecting a 2% increase in higher margin specialty product
sales and a 12% increase in ingredients sales. Higher volume of ingredients
shipments, as well as changes in product mix, compared to the prior year caused
an increase in ingredients sales of $.2 million from $1.6 million in 1996 to
$1.8 million in 1997. The increased sales of lower margin ingredients had
minimal impact on gross profit. Specialty products sales increased $.2 million,
or 2%, compared to the same period of the prior year. Sales from the branded,
pet care businesses grew 26% which is primarily attributable to the new products
introduced during fiscal 1996, and strong growth from the Company's sales and
distribution operation in the United Kingdom. Sales of specialty products to
Purina Mills decreased $.8 million compared to the prior year, due to timing of
shipments between periods. Year-to-date sales of specialty products to this
customer have decreased 17%. For the three months ended April 30, 1997, total
sales to Purina Mills were $2.4 million compared to $3.0 million during the same
period in fiscal 1996.
The Company's manufacturing and supply agreement with Purina Mills
pursuant to which Purina Mills had guaranteed the Company sufficient sales to
generate annual income, net of ingredient, direct manufacturing, and other
direct costs of approximately $2.9 million for the three-year period ended
October 31, 1996 expired as of that date. Although the Company expects to have a
supply relationship with Purina Mills, there can be no assurance what level of
sales or income will be obtained in the future.
Gross profit increased from $2.1 million in 1996 (22.1% of net sales) to
$2.2 million in 1997 (22.5% of net sales), primarily due to the increased
specialty products sales in 1997.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 10
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Selling, general and administrative expenses were $1.85 million in both
1996 and 1997, but decreased as a percent of net sales from 19.9% in 1996 to
19.4% in 1997. The decrease in selling, general and administrative expenses as a
percent of sales is primarily related to the impact of the corporate management
restructuring announced in August 1996. The increase in net sales of
ingredients, as discussed above, with relatively little related change in
selling, general and administrative expenses, also contributed to the decrease
in selling, general and administrative expenses as a percentage of sales.
The factors discussed above resulted in operating income of approximately
$260,000 during the three months ended April 30, 1997, a $110,000 improvement
compared to the operating income of approximately $150,000 in the prior year.
Interest expense was approximately $.15 million in 1996 and 1997.
In March, 1997, the Company terminated its letter of intent related to
its proposed acquisition of Anthony Products Company. In conjunction with this
action, the Company recorded a $202,000 pre-tax charge in the second quarter of
fiscal 1997. Such amount was included in other income (expense) in the Company's
consolidated statement of operations.
The effective income tax rate of the Company was 38% and 37% for 1996 and
1997, respectively. The aggregate amount of the deferred tax asset valuation
allowance at April 30, 1997 was approximately $.1 million.
Net income, excluding the impact of the Anthony Products charge noted
above for the three months ended April 30, 1997, would have been $78,000,
compared to a net income for the three months ended April 30, 1996 of $32,000.
SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO SIX MONTHS ENDED APRIL 30, 1996
Total net sales increased 13% from $17.6 million in fiscal 1996 to $19.8
million for 1997, reflecting a 13% increase in higher margin specialty product
sales and an a 11% increase in ingredients sales. Higher volume of ingredients
shipments compared to the prior year was the most significant factor causing an
increase in ingredients sales of $.4 million from $4.1 million in 1996 to $4.5
million in 1997. The cost of ingredients during the quarter was slightly higher
than that during the first quarter of 1996 due to pricing and product mix, also
contributing to the increase in sales. The increased sales of lower margin
ingredients had minimal impact on gross profit. Specialty products sales
increased $1.8 million, or 13%, compared to the same period of the prior year,
reflecting strong sales of rodenticides and new contract manufacturing business
at Resources. In addition, sales from the branded, pet care businesses grew 26%
primarily reflecting the impact of new products introduced during fiscal 1996,
and strong growth from the Company's sales and distribution operation in the
United Kingdom.
The Company's manufacturing and supply agreement with Purina Mills
pursuant to which Purina Mills had guaranteed the Company sufficient sales to
generate annual income, net of ingredient, direct manufacturing, and other
direct costs of approximately $2.9 million for the three-year period ended
October 31, 1996 expired as of that date. Although the Company expects to have a
supply relationship with Purina Mills, there can be no assurance what level of
sales or income will be obtained in the future. Sales to Purina Mills totaled
$6.8 million for the six months ended April 30, 1996 and 1997.
Gross profit increased from $3.6 million in 1996 (20.2% of net sales) to
$4.0 million in 1997 (20.3% of net sales), primarily due to the increased
specialty products sales in 1997.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 11
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Selling, general and administrative expenses were approximately $3.5
million in both 1996 and 1997, but decreased as a percent of net sales from
20.0% in 1996 to 18.1% in 1997. The decrease in selling, general and
administrative expenses as a percent of sales is primarily related to the impact
of the corporate management restructuring announced in August 1996. The increase
in net sales of ingredients, as discussed above, with relatively little related
change in selling, general and administrative expenses, also contributed to the
decrease in selling, general and administrative expenses as a percentage of
sales.
The factors discussed above resulted in operating income of approximately
$350,000 during the six months ended April 30, 1997, a $428,000 improvement
compared to the operating loss of approximately $78,000 in the prior year.
Interest expense was approximately $.3 million in 1996 and 1997, with an
increase that reflects increased debt balances that resulted from the Company's
investment in inventory related to new product introductions subsequent to the
first quarter of fiscal 1996 and increased sales volume in fiscal 1997.
In March, 1997, the Company terminated its letter of intent related to
its proposed acquisition of Anthony Products Company. In conjunction with this
action, the Company recorded a $202,000 pre-tax charge in the second quarter of
fiscal 1997. Such amount was included in other income (expense) in the Company's
consolidated statement of operations.
The effective income tax rate of the Company was 38% for 1996 and 1997.
The aggregate amount of the deferred tax asset valuation allowance at April 30,
1997 was approximately $.1 million.
Net income, excluding the impact of the Anthony Products charge noted
above for the six months ended April 30, 1997, would have been $48,000, compared
to a net loss for the six months ended April 30, 1996 of $144,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital requirements are primarily to fund
equipment purchases and working capital needs. The Company's cash balance of
$1.1 million at April 30, 1997 principally reflects remaining net proceeds from
the IPO which are available for further acquisition funding requirements. During
April 1995, the Company completed the acquisition of Zema, which required
utilization of approximately $3.2 million of net proceeds for the acquisition
and related expenses in 1995 and will require additional payments of $.3 million
plus interest prior to April 1998, and potentially additional payments
conditioned upon the achievement of certain operating criteria by Zema which
would be due in April 2000. In August 1995, the Company acquired the net assets
of St. JON, which required approximately $3.5 million of cash, the assumption of
certain liabilities aggregating approximately $1.5 million which were paid
within four months of closing, and an additional $2 million plus interest to be
paid in annual installments over six years commencing March 31, 1997. During the
three months ended April 30, 1997, the Company utilized approximately $1.0
million of cash related to payment of this obligation and restructured the
agreement, with annual payments of $325,000 being required over the five years
commencing March 31, 1998. Effective May 1996, the Company acquired the
worldwide patents and other assets and rights to Bromethalin, which required
payments of $1 million including related expenses at closing, and will require
additional consideration based on shipments of Bromethalin to Purina Mills over
a five-year period. The Company's cash balances continue to be invested in
high-grade, short-term interest-bearing obligations (primarily discount and
demand notes with maturities of three months or less, and high-grade, corporate
bonds and notes) pending their specific use. Speculative use of derivatives is
prohibited by the Company's investment policy.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 12
- --------------------------------------------------------------------------------
During the six months ended April 30, 1996 and 1997, cash used by
operations approximated $2.9 million and $.3 million, respectively, which was
primarily related to funding seasonal working capital requirements. The decrease
in cash utilized in 1997 compared to 1996 was primarily due to emphasis placed
on the operating companies to control and reduce inventory levels, as well as
certain changes to the product mix at Resources which decreases the required
investment in inventory at that location.
The Company has revolving credit facilities that aggregated $7.65 million
at April 30, 1997. In May 1997, the Company's bank executed a commitment letter
regarding modification of the Company's existing credit agreements that would
increase the aggregate lines by $650,000, extend their maturity dates through
March 31, 1999, lower the interest rates and commitment fees charged and revise
certain of the debt covenants. The facilities as modified would consist of up to
an aggregate of $4.8 million in revolving credit lines, the available amount
being based upon specified percentages of qualified accounts receivable and
inventory, and a $3.35 million revolving credit line with available amounts
being reduced $125,000 per quarter. The interest rate would range from prime
minus .25% to prime plus .5%, depending on the Company's ratio of debt to net
worth, as defined in the amended agreements. At April 30, 1997, assuming the
proposed amendments then had been effective, the interest rate charged on
borrowings outstanding under the agreements would have been 8.50%, which is the
bank's prime rate, and approximately $2.8 million would have been available. The
agreements allow the Company to sweep all cash balances against outstanding
borrowings, thus reducing the Company's overall interest expense.
In December 1995, the Company's board of directors authorized the
repurchase of up to 500,000 shares of the Company's Common Stock. The amount of
funds required will depend upon the actual number of shares repurchased and the
market price paid by the Company for those shares. The Company will utilize
available funds to implement this stock repurchase. As of April 30, 1997, 46,850
shares had been repurchased under this program at an aggregate cost of $79,542.
Management believes that the Company will generally have sufficient cash
to meet the needs of the current operations for the foreseeable future from cash
flows from current operations, available funds, and existing financing
facilities.
The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the six months
ended April 30, 1997 were approximately $.3 million. Future capital expenditures
for the Company's operating subsidiaries are not expected to significantly
exceed historical amounts, which approximate current depreciation expense.
QUARTERLY EFFECTS AND SEASONALITY
Resources' results of operations historically have been seasonal, with a
high percentage of its volume and earnings being generated in the second quarter
(February through April) and a low percentage of its volume and earnings in the
fourth quarter (August through October) of the fiscal year. However, such
seasonal patterns are highly dependent on weather, feeding economics and the
timing of customer orders. Furthermore, new business has not exhibited
historical patterns, particularly the sales of rodenticides which tend to be
concentrated in the Company's first and fourth quarters. The results of Zema's
operations also historically have been seasonal with a high volume of its sales
and earnings being generated during the months of April through September. St.
JON's sales and earnings historically have not been seasonal.
NEW ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), which
requires public entities to present both basic
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 13
- --------------------------------------------------------------------------------
and diluted earnings per share amounts on the face of their financial
statements, replacing the former calculations of primary and fully diluted
earnings per share. The Company will adopt FAS 128 effective with its fiscal
1998 first quarter, and anticipates that, when adopted, FAS 128 will not have a
material effect on its reported earnings per common share.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
PART II - OTHER INFORMATION
PAGE 14
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The information required by this item was reported in the
Company's 10-Q for the quarterly period ended January 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
None.
b. Reports of Form 8-K.
No reports on Form 8-K were filed during the period covered by this
Report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGRI-NUTRITION GROUP LIMITED
/s/ Robert J. Elfanbaum
- -----------------------------------------------------
Robert J. Elfanbaum
Vice President and Chief Financial Officer
June 13, 1997
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> APR-30-1997
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> ($79,300)
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