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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
COMMISSION FILE NUMBER 0-6354
AMERICAN VANGUARD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2588080
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
4695 MacArthur Court, Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
(714) 260-1200
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 Par Value -- 2,507,582 shares as of March 31, 1998
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AMERICAN VANGUARD CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page Number
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Item 1.
Financial Statements:
Consolidated Statements of Operations
for the three months ended
March 31, 1998 and 1997 1
Consolidated Balance Sheets
as of March 31, 1998, and
December 31, 1997 2
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1998 and 1997 4
Notes to Consolidated Financial
Statements 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION 12
SIGNATURE PAGE 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months
ended March 31
----------------------------------
1998 1997
------------ ------------
Net sales $ 10,793,000 $ 10,583,600
Cost of sales 6,634,300 6,431,800
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Gross profit 4,158,700 4,151,800
Operating expenses 4,133,500 3,881,000
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Operating income 25,200 270,800
Interest expense (454,000) (355,700)
Interest income 1,300 4,700
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Loss before income tax (427,500) (80,200)
Income tax benefit 171,000 24,100
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Net loss $ (256,500) $ (56,100)
============ ============
Basic and diluted
net income per common share $ (.10) $ (.02)
============ ============
Weighted average number
of shares outstanding 2,507,582 2,507,582
============ ============
See notes to consolidated financial statements.
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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, Dec. 31,
1998 1997
----------- -----------
(Unaudited) (Note)
Current assets:
Cash $ 879,500 $ 746,600
Receivables:
Trade 20,248,100 21,244,600
Other 871,800 441,400
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21,119,900 21,686,000
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Inventories 14,270,600 12,937,900
Prepaid expenses 851,500 1,035,600
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Total current assets 37,121,500 36,406,100
Property, plant and
equipment, net 13,042,600 13,439,000
Land held for development 210,800 210,800
Cost in excess of assets
acquired, net 3,230,100 3,290,500
Other intangible assets, net 1,531,300 1,571,200
Other assets 412,500 288,700
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$55,548,800 $55,206,300
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See notes to consolidated financial statements.
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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, Dec. 31,
1998 1997
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(Unaudited) (Note)
Current liabilities:
Current installments of
long-term debt $ 1,139,900 $ 1,059,500
Accounts payable 4,784,600 3,785,200
Accrued expenses 2,467,400 3,561,100
Accrued royalty obligation -
current portion 1,600,000 1,600,000
Income taxes payable 14,800 554,100
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Total current liabilities 10,006,700 10,559,900
Notes payable to bank 16,200,000 14,100,000
Long-term debt, excluding
current installments 3,696,300 3,980,400
Accrued royalty obligation -
excluding current portion 2,171,500 2,659,700
Deferred income taxes 2,646,500 2,646,500
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Total liabilities 34,721,000 33,946,500
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Stockholders' Equity:
Preferred stock, $.10
par value per share
Authorized 400,000
shares; none issued -- --
Common stock, $.10 par
value per share
Authorized 10,000,000
shares; issued and
outstanding 2,564,182
shares 256,400 256,400
Additional paid-in
capital 3,879,000 3,879,000
Retained earnings 17,051,300 17,483,300
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21,186,700 21,618,700
Treasury stock at cost
(56,600 shares) 358,900 358,900
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Total stockholders' equity 20,827,800 21,259,800
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$55,548,800 $55,206,300
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Note: The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date (Note 1).
See notes to consolidated financial statements.
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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
Increase (decrease) in cash 1998 1997
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Cash flows from operating activities:
Net loss $ (256,500) $ (56,100)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 705,900 678,500
Changes in assets and liabilities
associated with operations:
Decrease (increase) in
receivables 566,100 (1,710,000)
Increase in
inventories (1,332,700) (3,408,100)
Decrease (increase) in
prepaid expenses 184,100 (502,600)
Increase in
accounts payable 999,400 1,198,300
Decrease in other payables
and accrued expenses (2,121,200) (3,341,700)
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Net cash used in
operating activities (1,254,900) (7,141,700)
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Cash flows from investing activities:
Capital expenditures (192,000) (340,000)
Increase in deferred charges -- (1,600)
Net increase in other noncurrent
assets (141,000) (2,700)
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Net cash used in
investing activities (333,000) (344,300)
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(Continued)
See notes to consolidated financial statements.
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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
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Cash flows from financing activities:
Net additions under
line of credit agreement $ 2,100,000 $ 7,564,000
Principal payments on long-term debt (203,700) (218,000)
Payment of cash dividends (175,500) (150,400)
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Net cash provided by
financing activities 1,720,800 7,195,600
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Net increase (decrease)
in cash 132,900 (290,400)
Cash at beginning of year 746,600 632,400
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Cash at end of period $ 879,500 $ 342,000
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See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation, have been included. Operating results for the
three months ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto,
included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
2. Inventories - The components of inventories consist of the following:
March 31, 1998 December 31, 1997
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Finished Products $10,393,800 $ 9,847,700
Raw Materials 3,876,800 3,090,200
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$14,270,600 $12,937,900
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3. Property, plant and equipment at March 31, 1998 and December 31, 1997,
consists of the following:
March 31, December 31,
1998 1997
----------- -----------
Land $ 2,382,600 $ 2,382,600
Buildings and improvements 4,673,700 4,573,600
Machinery and equipment 23,218,300 22,864,000
Office furniture and fixtures 1,135,500 1,128,800
Automotive equipment 105,000 105,000
Construction in progress 657,100 926,200
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32,172,200 31,980,200
Less accumulated depreciation 19,129,600 18,541,200
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$13,042,600 $13,439,000
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. On March 4, 1998, the Company announced that the Board of Directors
declared a cash dividend of $.07 per share. The dividend was paid on
March 25, 1998 to stockholders of record as of March 13, 1998.
On March 12, 1997, the Company announced that the Board of Directors
declared a cash dividend of $.06 per share. The dividend was paid on
March 31, 1997 to stockholders of record as of March 20, 1997.
5. Earnings Per Share ("EPS") - Basic EPS is computed as net
income divided by the weighted average number of shares of
commons stock outstanding during the period. Diluted EPS
reflects potential dilution that could occur if securities
or other contracts, which, for the Company, consists of
options to purchase 166,200 shares of the Company's common
stock are exercised. These options were anti-dilutive for
the periods ended March 31, 1998 and 1997, and as such,
dilutive EPS amounts are the same as basic EPS for the
periods presented.
6. Reclassification - Certain items have been reclassified in the prior
period consolidated financial statements to conform with the March 31,
1998, presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31:
Net sales increased $209,400 or 2% to $10,793,000 for the quarter ended March
31, 1998 from $10,583,600 for the same period in 1997.
Gross profits increased to $4,158,700 for the three months ended March 31, 1998
from $4,151,800 for the same period in 1997. The gross profit percentage
declined to 38.5% for the quarter ended March 31, 1998 from 39.2% for the same
period in 1997. The decrease in the gross profit percentage was primarily
attributable to the sales mix of the Company's products.
Operating expenses, which are net of other income, increased by $252,500 to
$4,133,500 for the quarter ended March 31, 1998 as compared to $3,881,000 for
the same period in 1997.
The differences in operating expenses by specific departmental costs are as
follows:
- Selling and Regulatory:
Selling and regulatory expenses increased by $130,200 to
$1,248,500 from $1,118,300 for the prior year first quarter. The
primary reason for the increase was an increase in payroll and
payroll related costs. As previously reported, the Company, in
order to support and grow the Vapam product line, as well as
certain other product lines, made investments in its technical,
sales and marketing infrastructure which included the hiring of
additional technical and sales individuals. The majority of the
hiring took place during the latter part of the quarter ended
March 31, 1997.
- General, Administrative and Corporate:
General and administrative expenses increased $262,500 to
$1,251,700 from $989,200 for the first quarter of 1997 primarily
due to increases in legal expenses (related to expenses incurred
in actions in which
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the Company is the plaintiff) and payroll and
payroll related costs.
- Research and Development:
Research and development expenses decreased by $105,900 to
$790,500 as compared to the prior year first quarter's level of
$896,400 primarily due to a decrease in costs incurred to
generate scientific data related to registration of the Company's
products.
- Freight, Delivery and Storage/Warehousing:
Freight, delivery, storage and warehousing costs remained
relatively unchanged with a modest decrease of $34,300 to
$842,800 in the first quarter of 1998 as compared to $877,100 in
the first quarter of 1997. This modest decrease was due to the
product mix of sales and their related delivery costs.
Interest costs were $454,000 during the three months ended March 31, 1998 as
compared to $355,700 for the same period in 1997. The average level of borrowing
under the Company's fully-secured revolving line of credit increased by
$4,834,800 to $16,482,200 for the first quarter of 1998 as compared to
$11,647,400 for the same period in 1997. The average level of other long-term
debt decreased by $528,600 to $4,896,000 for the first quarter ended March 31,
1998 from $5,424,600 for the same period in 1997. On a combined basis the
Company's average debt for the first quarter of 1998 was $21,378,200 as compared
to $17,072,000 for the first quarter of 1997. As interest rates have remained
relatively stable (on a quarter-to-quarter comparison), the increase in interest
costs is directly related to the increase in combined average debt levels for
the quarter ended March 31, 1998 as compared to the same period in 1997.
Weather patterns can have an impact on the Company's operations. Weather
conditions influence pest population by impacting gestation cycles for
particular pests and the effectiveness of some of the Company's products, among
other factors. The end user of some of the Company's products may, because of
weather patterns, delay or intermittently disrupt field work during the planting
season which may result in a reduction of the use of some of the Company's
products.
Because of elements inherent to the Company's business, such as differing and
unpredictable weather patterns, crop growing cycles, changes in product mix of
sales, ordering patterns that may vary in timing, and promotional/early order
programs, measuring the Company's performance on a quarterly basis, (gross
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profit margins on a quarterly basis may vary significantly) even when such
comparisons are favorable, is not as meaningful an indicator as full-year
comparisons. Because most of the Company's cost structure is fixed, at least in
the short-term, the combination of variable revenue streams, changing product
mixes, and a fixed cost structure, results in varying quarterly levels of
profitability.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $27,114,800 as of March 31, 1998 reflecting a $1,268,600
improvement over working capital of $25,846,200 as of December 31, 1997.
The Company used cash in operating activities of $1,254,900 in the first quarter
of 1998 primarily to build inventory and reduce accrued expenses. Inventories
increased by $1,332,700 during the first quarter in anticipation of product
demand during the spring and summer months of 1998. Accrued expenses declined by
$2,121,200 during the first quarter due to payments of income taxes, product
rebates and royalties, and other sales related expenses.
The Company also invested $192,000 in capital expenditures and increased its
other non-current assets by $141,000.
The Company procured cash from its financing activities of $1,720,800 through an
increase in borrowing of $2,100,000 under the Company's fully-secured revolving
line of credit, while it made principal payments of $203,700 related to its
long-term debt and paid $175,500 in cash dividends.
The Company had $4,300,000 in availability under its fully- secured $20,500,000
revolving line of credit as of March 31, 1998.
Effective May 7, 1998, the Company's fully-secured line of credit was increased
to $24,000,000 and the expiration date was extended to July 31, 2000.
Management believes current financial resources (working capital and short-term
borrowing arrangements) and anticipated funds from operations will be adequate
to meet financial needs during the remainder of 1998. Management also believes,
to continue to improve its working capital position and maintain flexibility in
financing interim needs, it is prudent to explore alternate sources of
financing.
This Report may contain forward-looking statements and may include assumptions
concerning the Company's operations, future results and prospects. These
forward-looking statements are based on current expectations and are subject to
a number of
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risks, uncertainties and other factors. In connection with the Private
Securities Litigation Reform Act of 1995, the Company provides the following
cautionary statements identifying important factors which, among other things,
could cause the actual results and events to differ materially from those set
forth in or implied by the forward-looking statements (if any) and related
assumptions contained in the entire Report. Such factors include, but are not
limited to: product demand and market acceptance risks; the effect of economic
conditions; weather conditions; the impact of competitive products and pricing;
changes in foreign exchange rates; product development and commercialization
difficulties; capacity and supply constraints or difficulties; availability of
capital resources; general business and economic conditions; and changes in
government laws and regulations.
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PART II. OTHER INFORMATION
The Company was not required to report any matters or changes for any items of
Part II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - FDS
(b) The Company did not file any reports on Form 8-K during the three months
ended March 31, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN VANGUARD CORPORATION
Dated: May 14, 1998 By: /s/ Eric G. Wintemute
--------------------------------
Eric G. Wintemute
President,
Chief Executive Officer
and Director
Dated: May 14, 1998 By: /s/ J. A. Barry
--------------------------------
J. A. Barry
Senior Vice President
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule