1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] 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)
(949) 260-1200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 Par Value -- 2,474,682 shares as of November 12, 1999.
2
AMERICAN VANGUARD CORPORATION
INDEX
Page Number
-----------
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Statements of Operations
for the three and nine months ended
September 30, 1999 and 1998 1
Consolidated Balance Sheets
as of September 30, 1999 and
December 31, 1998 2
Consolidated Statements of Cash Flows
for the nine months ended
September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION 13
SIGNATURE PAGE 14
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months For the nine months
ended September 30 ended September 30
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales $ 17,119,800 $ 15,167,300 $ 44,966,100 $ 40,020,800
Cost of sales 9,764,100 8,338,900 25,225,400 23,497,900
------------ ------------ ------------ ------------
Gross profit 7,355,700 6,828,400 19,740,700 16,522,900
Operating expenses 5,706,600 5,493,700 17,062,400 14,988,000
Settlement expense 153,000 -- 153,000 --
------------ ------------ ------------ ------------
Operating income 1,496,100 1,334,700 2,525,300 1,534,900
Interest expense (403,700) (568,400) (1,284,100) (1,495,200)
Interest income 6,900 700 9,500 3,100
------------ ------------ ------------ ------------
Income before
income tax expense 1,099,300 767,000 1,250,700 42,800
Income tax expense 420,200 306,800 477,700 17,100
------------ ------------ ------------ ------------
Net income $ 679,100 $ 460,200 $ 773,000 $ 25,700
============ ============ ============ ============
Basic and diluted
net income per
common share $ .27 $ .18 $ .31 $ .01
============ ============ ============ ============
Weighted average number
of shares 2,474,882 2,503,017 2,482,485 2,506,044
============ ============ ============ ============
See notes to consolidated financial statements.
1
4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
----------- -----------
(Unaudited) (Note)
ASSETS (NOTE 6)
Current assets:
Cash $ 698,100 $ 767,000
Receivables:
Trade 12,248,500 17,786,700
Other 1,386,100 852,900
----------- -----------
13,634,600 18,639,600
----------- -----------
Inventories (note 2) 18,431,300 15,735,800
Prepaid expenses 997,100 814,600
----------- -----------
Total current assets 33,761,100 35,957,000
Property, plant and
equipment, net (note 3) 11,012,800 12,576,300
Land held for development 210,800 210,800
Intangible assets 9,094,900 9,616,800
Other assets 461,200 486,100
----------- -----------
$54,540,800 $58,847,000
=========== ===========
(Continued)
See notes to consolidated financial statements.
2
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
----------- -----------
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 2,805,400 $ 3,118,500
Accounts payable 6,325,200 6,448,400
Accrued expenses 3,632,600 3,599,700
Accrued royalty obligation
current portion 1,205,500 1,600,000
Income taxes payable -- 1,379,900
----------- -----------
Total current liabilities 13,968,700 16,146,500
Note payable to bank 9,200,000 10,000,000
Long-term debt, excluding
current installments 5,682,100 6,457,800
Accrued royalty obligation,
excluding current portion -- 1,074,300
Deferred income taxes 2,040,100 2,040,100
----------- -----------
Total liabilities 30,890,900 35,718,700
----------- -----------
Stockholders' Equity: (note 4)
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; 2,564,182
shares issued 256,400 256,400
Additional paid-in capital 3,879,000 3,879,000
Retained earnings 20,057,700 19,434,300
----------- -----------
24,193,100 23,569,700
Treasury stock at cost
(89,500 at September 30, 1999
and 71,600 at December 31, 1998 543,200 441,400
----------- -----------
Total stockholders' equity 23,649,900 23,128,300
----------- -----------
$54,540,800 $58,847,000
=========== ===========
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
3
6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
Increase (decrease) in cash 1999 1998
- --------------------------- ----------- -----------
Cash flows from operating activities:
Net income $ 773,000 $ 25,700
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 2,429,600 2,426,300
Changes in assets and liabilities associated
with operations:
Decrease in receivables 5,005,000 1,795,000
Increase in inventories (2,695,500) (6,092,900)
Decrease (increase) in prepaid expenses (182,500) 39,900
Increase (decrease) in accounts payable (123,200) 157,400
Decrease in other payables and
accrued expenses (2,815,800) (2,418,400)
----------- -----------
Net cash provided by (used in)
operating activities 2,390,600 (4,067,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (294,600) (413,700)
Increase in deferred charges -- (140,000)
Net increase in other noncurrent assets (24,700) (818,300)
----------- -----------
Net cash used in investing
activities (319,300) (1,372,000)
=========== ===========
(Continued)
See notes to consolidated financial statements.
4
7
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
Increase (decrease) in cash 1999 1998
- --------------------------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under line of
credit agreement $ (800,000) $ 6,200,000
Decrease in long-term debt (1,088,900) (775,600)
Purchase of treasury stock (101,800) (82,500)
Payment of cash dividends (149,500) (175,500)
----------- -----------
Net cash provided by (used in)
financing activities (2,140,200) 5,166,400
----------- -----------
Net decrease in cash (68,900) (272,600)
Cash at beginning of year 767,000 746,600
----------- -----------
Cash as of September 30 $ 698,100 $ 474,000
=========== ===========
See notes to consolidated financial statements.
5
8
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
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 and nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. 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, 1998.
2. Inventories - The components of inventories consist of the following:
September 30, December 31,
1999 1998
------------- ------------
Finished products $14,924,300 $13,127,700
Raw materials 3,507,000 2,608,100
----------- -----------
$18,431,300 $15,735,800
=========== ===========
3. Property, plant and equipment at September 30, 1999 and December 31,
1998, consists of the following:
September 30, December 31,
1999 1998
------------- -----------
Land $ 2,382,600 $ 2,382,600
Buildings and improvements 4,727,300 4,708,600
Machinery and equipment 23,450,800 23,384,900
Office furniture and fixtures 2,440,600 2,393,800
Automotive equipment 140,000 105,000
Construction in progress 815,900 687,700
----------- -----------
33,957,200 33,662,600
Less accumulated depreciation 22,944,400 21,086,300
----------- -----------
$11,012,800 $12,576,300
=========== ===========
6
9
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. On March 31, 1999, the Company announced that the Board of Directors
declared a cash dividend of $.06 per share. The dividend was paid on
April 19, 1999 to stockholders of record as of April 8, 1999.
5. Earnings Per Share ("EPS") - Basic EPS is computed as net income divided
by the weighted average number of shares of common 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 shares of the Company's common stock, are
exercised. These options were anti-dilutive for the periods ended
September 30, 1999 and 1998, and as such, dilutive EPS amounts are the
same as basic EPS for the periods presented.
6. Substantially all of the Company's assets not otherwise specifically
pledged as collateral on existing loans and capital leases, are pledged
as collateral under the Company's credit agreement with a bank. As
referenced in note 1, for further information, refer to the consolidated
financial statements and footnotes thereto (specifically note 3)
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
7. Reclassification - Certain items have been reclassified in the prior
period consolidated financial statements to conform with the September
30, 1999, presentation.
7
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30:
The Company reported net income of $679,100 or $.27 per share for the third
quarter ended September 30, 1999 as compared to $460,200 or $.18 per share for
the same period in 1998. Net sales increased $1,952,500 or 13% to $17,119,800
for the quarter ended September 30, 1999 from $15,167,300 for the same period in
1998. The increase was due primarily to strong sales of Dibrom, an insecticide
the Company acquired in November 1998.
Gross profits increased $527,300 to $7,355,700 for the three months ended
September 30, 1999 from $6,828,400 for the same period in 1998. The gross profit
margin for the quarter ended September 30, 1999 decreased to 43% from 45% in the
same period in 1998, due primarily to a change in product mix. As of January 1,
1999, the Company changed its method of computing the overhead rate to be
included in inventory costs for interim financial reporting purposes. The
Company's overhead absorption is now based on the expected amount of overhead to
be incurred for the year, rather than the actual amount incurred each quarter.
Operating expenses, which are net of other income, increased by $212,900 to
$5,706,600 for the three months ended September 30, 1999 as compared to
$5,493,700 for the same period in 1998.
The differences in operating expenses by specific departmental costs are as
follows:
o Selling expenses increased by $120,200 to $1,785,600 for the third
quarter ended September 30, 1999 as compared to $1,665,400 for the same
period in 1998. Increased variable selling expenses that relate to the
increased sales levels as well as product mix of sales were the reasons
for the increase.
o General and administrative expenses increased $146,000 to $1,275,100 for
the third quarter ended September 30, 1999 as compared to $1,129,100 for
the same period in 1998. The primary reasons for the increase were
expenses related to the amortization of intangible assets in connection
with the acquisition of an insecticide product acquired in November 1998
and depreciation expenses related to the acquisition of a new computer
system placed in service in October 1998.
o Research and product development costs and regulatory registration
expenses declined by $125,100 during the quarter ended September 30,
1999 primarily due to a decline in costs
8
11
incurred to generate scientific data related to the registration and
possible new uses of the Company's products.
o Freight, delivery, storage and warehousing costs increased $86,600 to
$1,555,100 for the quarter ended September 30, 1999 as compared to
$1,468,500 for the quarter ended September 30, 1998. The increased costs
were a result of higher sales levels.
Interest costs were $403,700 during the three months ended September 30, 1999 as
compared to $568,400 for the same period in 1998. The average level of borrowing
under the Company's line of credit was approximately $11,040,000 for the third
quarter of 1999 as compared to $19,339,000 for the same period in 1998. The
average level of other long-term debt was $8,615,000 for the third quarter of
1999 as compared to $4,408,000 for the same period in 1998. On a combined basis,
the Company's average debt for the third quarter of 1999 was $19,655,000 as
compared to $23,747,000 for the third quarter of 1998. The lower overall average
debt levels coupled with lower effective interest rates accounted for the
decrease in interest costs.
Weather patterns can have an impact on the Company's operations. Weather
conditions influence pest population by impacting gestation cycles for
particular pests and the effectiveness of some of the Company's products, among
other factors. The end user of some of the Company's products may, because of
weather patterns, delay or intermittently disrupt field work during the planting
season which may result in a reduction of the use of some of the Company's
products.
Because of elements inherent to the Company's business, such as differing and
unpredictable weather patterns, crop growing cycles, changes in product mix of
sales, ordering patterns that may vary in timing, and promotional/early order
programs, measuring the Company's performance on a quarterly basis, (gross
profit margins on a quarterly basis may vary significantly) even when such
comparisons are favorable, is not as meaningful an indicator as full-year
comparisons. The primary reason is that the use cycles do not necessarily
coincide with financial reporting cycles. Because most of the Company's cost
structure is fixed, at least in the short-term, the combination of variable
revenue streams, and changing product mixes, results in varying quarterly levels
of profitability.
NINE MONTHS ENDED SEPTEMBER 30:
The Company reported net income of $773,000 or $.31 per share for the nine month
period ended September 30, 1999 as compared to $25,700 or $.01 per share for the
same period in 1998. Net sales increased $4,945,300 or 12% to $44,966,100 for
the nine months ended September 30, 1999 from $40,020,800 for the same period in
1998. As described above, strong sales of Dibrom in the third
9
12
quarter coupled with increased sales of Bidrin, an insecticide, in the second
quarter of 1999, accounted for the increase in sales.
Gross profits increased $3,217,800 to $19,740,700 for the first nine months of
1999 from $16,522,900 for the same period in 1998. The gross profit margin for
the first nine months of 1999 improved to 44% as compared to 41% for the first
nine months of 1998. The increase is partially due to the higher sales volume
which has a proportionately greater impact on gross profit since costs of sales
do not necessarily increase at the same level. The changes in the gross profit
was also favorably affected by changes in the sales mix of the Company's
products.
Operating expenses, which, as previously stated, are net of other income,
increased by $2,074,400 to $17,062,400 for the first nine months of 1999 from
$14,988,000 for the same period in 1998.
The differences in operating expenses by specific departmental costs are as
follows:
o Selling expenses increased by $616,100 to $4,948,800 for the nine months
ended September 30, 1999 as compared to $4,332,700 for the same period
in 1998. Increased variable selling expenses that relate to the
increased sales levels as well as the product mix of sales were the
reason for the increase.
o General and administrative expenses increased $949,800 to $5,140,000 for
the nine months ended September 30, 1999 as compared to $4,190,200 for
the same period in 1998. The increase was due to increases in (i) legal
expenses, primarily attributable to legal actions in which the Company
is the plaintiff, (ii) amortization of intangible assets in connection
with the acquisition of an insecticide product in November 1998, (iii)
depreciation expense related to the acquisition of a new computer system
placed in service in October 1998, and (iv) increased payroll and
payroll related costs in connection with the hiring of an executive
officer during the first quarter of 1999.
o Research and product development costs and regulatory registration
expenses increased by $156,300 during the nine months ended September
30, 1999 primarily due to an increase in costs incurred to generate
scientific data related to the registration and possible new uses of the
Company's products.
o Freight, delivery, storage and warehousing costs increased $360,600 to
$3,729,100 for the nine months ended September 30, 1999 as compared to
$3,368,500 for the nine months ended September 30, 1998. The increased
costs were a result of higher sales levels.
10
13
Interest costs were $1,284,100 during the nine months ended September 30, 1999
as compared to $1,495,200 for the same period in 1998. The average, level of
borrowing under the Company's line of credit was $13,479,000 for the first nine
months of 1999 as compared to $17,596,000 for the same period in 1998. The
average level of other long-term debt was $9,032,000 for the nine months ended
September 30, 1999 as compared to $4,652,000 for the same period in 1998. On a
combined basis, the Company's average debt for the nine months ended September
30, 1999 was $22,511,000 as compared to $22,248,000 for the first nine months of
1998. Lower effective interest rates accounted for the lower interest costs.
LIQUIDITY AND CAPITAL RESOURCES
Working capital remained virtually unchanged at $19,792,400 at September 30,
1999 as compared working capital of $19,810,500 at December 31, 1998.
Operating activities provided $2,390,600 of cash during the first nine months of
1999 primarily from a decline in receivables of $5,005,000 and non-cash
depreciation and amortization of $2,429,600. Inventories increased by $2,695,500
during the first nine months of the year in anticipation of product demand
during the fall and winter months of 1999. Accrued expenses and payables
declined by $2,939,000 due to payments of trade payables, income taxes, product
rebates and royalties, and other related expenses.
The Company invested $294,600 in capital expenditures and increased its other
noncurrent assets by $24,700.
The Company used $2,140,000 in cash in its financing activities. The Company's
net borrowings under its fully-secured revolving line of credit declined by
$800,000. The Company reduced its long-term debt by $1,088,900, paid $149,500 in
cash dividends, and purchased 17,900 shares of treasury stock for $101,800.
The Company had $14,800,000 in availability under is fully-secured $24,000,000
long-term line of credit as of September 30, 1999.
Management continues to believe, to continue to improve its working capital
position and maintain flexibility in financing interim needs, it is prudent to
explore alternate sources of financing.
YEAR 2000 COMPLIANCE
Computers, software and other equipment utilizing microprocessors that use only
two digits to identify a year in a date field may be unable to process certain
date-based information at or after
11
14
the year 2000. This is commonly referred to as the "Year 2000 issue", and the
Company is addressing this issue on several different fronts. The Company
elected, as disclosed in prior filings, to invest in and install a new
Enterprise Resource Planning Manufacturing software system, the decision of
which, was not driven solely by Year 2000 compliance. The new software system is
Year 2000 compliant. The installation of this system is expected to be completed
in 1999. The Company has established a separate team to coordinate solutions to
the Year 2000 issue for the Company's other internal data processing systems
with a goal of having all of its internal systems Year 2000 compliant, although
no assurances are made that this goal will be met. The Company has requested
Year 2000 compliance certification from each of its major vendors and suppliers
for their hardware and software products and for their internal business
applications and processes. Should key vendors or suppliers have significant
Year 2000 issues, the Company will need to develop a contingency plan for
obtaining required materials should sources be interrupted. The Company believes
there are alternative sources of its required materials. The Company does not
anticipate amounts incurred in connection with the Year 2000 compliance program
will be material to its financial condition or results of operations. The
Company does not believe that its business will be adversely affected by the
Year 2000 issue in any material respect. Nevertheless, achieving Year 2000
compliance is dependent on many factors, some of which are not completely within
the Company's control, including without limitations, the availability and cost
of trained personnel and effectiveness of software upgrades used by the Company
and its vendors and suppliers. Should either the Company's internal systems or
the internal systems of one or more significant vendors or suppliers fail to
achieve Year 2000 compliance, the Company's business and its results of
operations could be adversely affected.
* * *
The Company, from time-to-time, may discuss forward-looking information. Except
for the historical information contained in this report, all forward-looking
statements are estimates by the Company's management and are subject to various
risks and uncertainties that may cause results to differ from management's
current expectations. Such factors include weather conditions, changes in
regulatory policy and other risks as detailed from time-to-time in the Company's
SEC reports and filings. All forward-looking statements, if any, in this report
represent the Company's judgement as of the date of this report. The Company
disclaims, however, any intent or obligation to update forward-looking
statements.
12
15
PART II. OTHER INFORMATION
The Company was not required to report any matters or changes for any items of
Part II except as disclosed below.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended September 30, 1999.
13
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN VANGUARD CORPORATION
Dated: November 12, 1999 By: /s/ E. G. Wintemute
------------------------------
E. G. Wintemute
President
Chief Executive Officer,
and Director
Dated: November 12, 1999 By: /s/ J. A. Barry
--------------------------
J. A. Barry
Senior Vice President,
Chief Financial Officer,
Treasurer/Secretary and
Director
14
17
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule