<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 -- 2,492,582 shares as of March 31, 1999
<PAGE> 2
AMERICAN VANGUARD CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
-----------
<S> <C>
Item 1.
Financial Statements:
Consolidated Statements of Operations
for the three months ended
March 31, 1999 and 1998 1
Consolidated Balance Sheets
as of March 31, 1999, and
December 31, 1998 2
Consolidated Statements of Cash Flows
for the three months ended
March 31, 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 12
SIGNATURE PAGE 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended March 31
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 10,186,200 $ 10,793,000
Cost of sales 5,964,700 6,634,300
------------ ------------
Gross profit 4,221,500 4,158,700
Operating expenses 4,617,200 4,133,500
------------ ------------
Operating income(loss) (395,700) 25,200
Interest expense (481,500) (454,000)
Interest income 1,600 1,300
------------ ------------
Loss before income tax (875,600) (427,500)
Income tax benefit 350,200 (171,000)
------------ ------------
Net loss $ (525,400) $ (256,500)
============ ============
Basic and diluted
net loss per common share $ (.21) $ (.10)
============ ============
Weighted average number
of shares outstanding 2,492,582 2,507,582
============ ============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, Dec. 31,
1999 1998
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash $ 524,200 $ 767,000
Receivables:
Trade 16,780,800 17,786,700
Other 713,200 852,900
----------- -----------
17,494,000 18,639,600
----------- -----------
Inventories 19,925,400 15,735,800
Prepaid expenses 927,600 814,600
----------- -----------
Total current assets 38,871,200 35,957,000
Property, plant and
equipment, net 12,089,000 12,576,300
Land held for development 210,800 210,800
Intangible assets 9,442,800 9,616,800
Other assets 466,200 486,100
----------- -----------
$61,080,000 $58,847,000
=========== ===========
</TABLE>
2
<PAGE> 5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, Dec. 31,
1999 1998
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
Current liabilities:
Current installments of
long-term debt $ 2,792,600 $ 3,118,500
Accounts payable 7,298,900 6,448,400
Accrued expenses 1,675,100 3,599,700
Accrued royalty obligation -
current portion 1,600,000 1,600,000
Income taxes payable -- 1,379,900
----------- -----------
Total current liabilities 13,366,600 16,146,500
Notes payable to bank 16,400,000 10,000,000
Long-term debt, excluding
current installments 6,099,800 6,457,800
Accrued royalty obligation -
excluding current portion 570,600 1,074,300
Deferred income taxes 2,040,100 2,040,100
----------- -----------
Total liabilities 38,477,100 35,718,700
----------- -----------
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 18,908,900 19,434,300
----------- -----------
23,044,300 23,569,700
Treasury stock at cost
(71,600 shares) 441,400 441,400
----------- -----------
Total stockholders' equity 22,602,900 23,128,300
----------- -----------
$61,080,000 $58,847,000
=========== ===========
</TABLE>
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
<PAGE> 6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Increase (decrease) in cash 1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (525,400) $ (256,500)
Adjustments to reconcile net income
loss to net cash used in
operating activities:
Depreciation and amortization 821,100 705,900
Changes in assets and liabilities
associated with operations:
Decrease in receivables 1,145,600 566,100
Increase in inventories (4,189,600) (1,332,700)
Decrease (increase) in
prepaid expenses (113,000) 184,100
Increase in accounts payable 850,500 999,400
Decrease in other payables
and accrued expenses (3,808,200) (2,121,200)
----------- -----------
Net cash used in
operating activities (5,819,000) (1,254,900)
----------- -----------
Cash flows from investing activities:
Capital expenditures (141,600) (192,000)
Net decrease (increase)in other
noncurrent assets 1,700 (141,000)
----------- -----------
Net cash used in
investing activities (139,900) (333,000)
----------- -----------
</TABLE>
(Continued)
4
<PAGE> 7
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Net additions under
lines of credit agreement $ 6,400,000 $ 2,100,000
Principal payments on long-term debt (683,900) (203,700)
Payment of cash dividends -- (175,500)
----------- -----------
Net cash provided by
financing activities 5,716,100 1,720,800
----------- -----------
Net increase (decrease)
in cash (242,800) 132,900
Cash at beginning of year 767,000 746,600
----------- -----------
Cash at end of period $ 524,200 $ 879,500
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation, have been included. 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 inventory overhead rate is now based
on the expected amount of overhead to be incurred for the year, rather
than the actual amount incurred each quarter. This change in calculation
had an effect of increasing gross profit for the quarter ended March 31,
1999 by approximately $108,000. Operating results for the three months
ended March 31, 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 at March 31, 1999 and
December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Finished Products $16,130,500 $13,127,700
Raw Materials 3,794,900 2,608,100
----------- -----------
$19,925,400 $15,735,800
=========== ===========
</TABLE>
3. Property, plant and equipment at March 31, 1999 and December 31, 1998
consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Land $ 2,382,600 $ 2,382,600
Buildings and improvements 4,718,400 4,708,660
Machinery and equipment 23,418,800 23,384,900
Office furniture and fixtures 2,419,200 2,393,800
Automotive equipment 105,000 105,000
Construction in progress 760,200 687,700
----------- -----------
33,804,200 33,662,600
Less accumulated depreciation 21,715,200 21,086,300
----------- -----------
$12,089,000 $12,576,300
=========== ===========
</TABLE>
6
<PAGE> 9
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 distributed
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 March
31, 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 March 31,
1999 presentation.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31:
Net sales decreased $606,800 or 6% to $10,186,200 for the quarter ended March
31, 1999 from $10,793,000 for the same period in 1998. Gross profits, however,
increased by $62,800 to $4,221,500 for the three months ended March 31, 1999
from $4,158,700 for the same period in 1998. The gross profit percentage
increased to 41.4% for the quarter ended March 31, 1999 from 38.5% for the same
period in 1998. 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 inventory overhead rate is now based
on the expected amount of overhead to be incurred for the year, rather than the
actual amount incurred each quarter. This change in calculation had an effect of
increasing gross profit for the quarter ended March 31, 1999 by approximately
$108,000.
Operating expenses, which are net of other income, increased by $483,700 to
$4,617,200 for the quarter ended March 31, 1999 as compared to $4,133,500 for
the same period in 1998.
The differences in operating expenses by specific departmental costs are as
follows:
o Selling expenses increased by $61,300 to $1,127,500 from $1,066,200 for
the prior year first quarter. Increased costs of advertising and other
business promotion related to the Company's product lines were the
primary reason for the increase.
o General and administrative expenses increased $209,900 to $1,461,700 for
the quarter ended March 31, 1999 from $1,251,800 for the first quarter
of 1998 primarily due to increases in legal expenses (related to legal
expenses incurred in legal actions in which the Company is the
plaintiff).
o Research and product development costs and regulatory/registration
expenses remained virtually unchanged at $974,900 for the three months
ended March 31, 1999 as compared to $972,700 for the same period in
1998. These expenses include costs incurred to generate scientific data
related to the registration of and possible new uses of the Company's
products as well as the costs of other activities performed by the
departments.
o Freight, delivery, storage and warehousing costs increased $210,300 to
$1,053,100 for the quarter ended March 31, 1999 as compared to $842,800
for the quarter ended March 31, 1998. Increased delivery costs of the
Company's fumigant
8
<PAGE> 11
product line accounted for approximately $190,000 of the increase with
increased delivery costs of the Company's insecticide product line
accounting for the balance of the increase.
Interest costs were $481,500 during the three months ended March 31, 1999 as
compared to $454,000 for the same period in 1998. The average level of borrowing
under the Company's fully-secured revolving line of credit declined by
$2,999,000 to $13,483,000 for the first quarter of 1999 as compared to
$16,482,000 for the same period in 1998. The average level of other long-term
debt increased by $4,314,000 to $9,210,000 for the first quarter ended March 31,
1999 from $4,896,000 for the same period in 1998 (refer to notes 2 and 10 of the
Notes to the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998). On a combined basis
the Company's average debt for the first quarter of 1999 was $22,693,000 as
compared to $21,378,000 for the first quarter of 1998. 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, 1999 as compared to the same period in
1998.
Weather patterns can have an impact on the Company's operations. Weather
conditions influence pest population by impacting gestation cycles for
particular pests and the effectiveness of some of the Company's products, among
other factors. The end user of some of the Company's products may, because of
weather patterns, delay or intermittently disrupt field work during the planting
season which may result in a reduction of the use of some of the Company's
products.
Because of elements inherent to the Company's business, such as differing and
unpredictable weather patterns, crop growing cycles, changes in product mix of
sales, ordering patterns that may vary in timing, and promotional/early order
programs, measuring the Company's performance on a quarterly basis, (gross
profit margins on a quarterly basis may vary significantly) even when such
comparisons are favorable, is not as meaningful an indicator as full-year
comparisons. Because most of the Company's cost structure is fixed, at least in
the short-term, the combination of variable revenue streams, changing product
mixes, and a fixed cost structure results in varying quarterly levels of
profitability.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $25,504,600 as of March 31, 1999 reflecting a $5,694,100
improvement over working capital of $19,810,500 as of December 31, 1998.
9
<PAGE> 12
The Company used cash in operations of $5,819,000 in the first quarter of 1999
primarily to build inventory and reduce accrued expenses. Inventories increased
by $4,189,600 during the first quarter of 1999 in anticipation of product demand
during the late spring and summer months of 1999. Accrued expenses declined by
$3,808,500 during the first quarter of 1999 due to payments of income taxes,
product rebates and royalties, and other sales related expenses.
The Company invested $141,600 in capital expenditures and had a nominal increase
in its other non-current assets of $1,700.
The Company procured cash from its financing activities of $5,716,100 through an
increase in borrowing of $6,400,000 under the Company's fully-secured revolving
line of credit, while it made principal payments of $683,900 related to its
long-term debt.
The Company had $7,600,000 in availability under its fully- secured $24,000,000
revolving line of credit as of March 31, 1999.
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 1999. 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 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, including taxes.
10
<PAGE> 13
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 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, for the most part, during the first half of 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.
11
<PAGE> 14
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, 1999.
12
<PAGE> 15
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, 1999 By: /s/ Eric G. Wintemute
--------------------------------
Eric G. Wintemute
President,
Chief Executive Officer
and Director
Dated: May 14, 1999 By: /s/ J. A. Barry
--------------------------------
J. A. Barry
Senior Vice President
Chief Financial Officer
13
<PAGE> 16
EXHIBIT INDEX
(a) Exhibits
Exhibit 27 - FDS
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 524,200
<SECURITIES> 0
<RECEIVABLES> 17,494,000
<ALLOWANCES> 0
<INVENTORY> 19,925,400
<CURRENT-ASSETS> 38,871,200
<PP&E> 33,804,200
<DEPRECIATION> 21,715,200
<TOTAL-ASSETS> 61,080,000
<CURRENT-LIABILITIES> 13,366,600
<BONDS> 25,292,400
0
0
<COMMON> 256,400
<OTHER-SE> 22,346,500
<TOTAL-LIABILITY-AND-EQUITY> 61,080,000
<SALES> 10,186,200
<TOTAL-REVENUES> 10,186,200
<CGS> 5,964,700
<TOTAL-COSTS> 5,964,700
<OTHER-EXPENSES> 4,617,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 479,900
<INCOME-PRETAX> (875,600)
<INCOME-TAX> (350,200)
<INCOME-CONTINUING> (525,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (525,400)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
