<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 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)
(949) 260-1200
-------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $.10 par value
----------------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The number of shares of $.10 par value Common Stock outstanding as of March 26,
1999, was 2,492,582. The aggregate market value of the voting stock of the
registrant held by non-affiliates at March 26, 1999, was $7,020,900. For
purposes of this calculation, shares owned by executive officers, directors, and
5% stockholders known to the registrant have been deemed to be owned by
affiliates.
<PAGE> 2
AMERICAN VANGUARD CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PART I PAGE NO.
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of
Security Holders 12
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operation 17
Item 8. Financial Statements and Supplementary
Data 24
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the
Registrant 25
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain
Beneficial Owners and Management 31
Item 13. Certain Relationships and Related
Transactions 33
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 34
SIGNATURES 35
</TABLE>
<PAGE> 3
PART I
This Report contains forward-looking statements and includes
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 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.
ITEM 1 BUSINESS
American Vanguard Corporation was incorporated under the laws of
the State of Delaware in January 1969 and operates as a holding company. Unless
the context otherwise requires, references to the "Company", or the "Registrant"
in this Annual Report refer to American Vanguard Corporation and its
consolidated subsidiaries. The Company conducts its business through its
subsidiaries, Amvac Chemical Corporation ("AMVAC"), GemChem, Inc. ("GemChem"),
2110 Davie Corporation ("DAVIE"), AMVAC Chemical UK Ltd., ("Chemical UK") and
Quimica Amvac De Mexico S.A. de C.V. ("Quimica Amvac") (Refer to Export
Operations).
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AMVAC
AMVAC is a California corporation that traces its history from
1945. AMVAC is a specialty chemical manufacturer that develops and markets
products for agricultural and commercial uses. It manufactures and formulates
chemicals for crops, human and animal health protection. These chemicals which
include insecticides, fungicides, molluscicides, growth regulators, and soil
fumigants, are marketed in liquid, powder, and granular forms. AMVAC's business
is continually undergoing an evolutionary change. Years ago AMVAC considered
itself a distributor-formulator, but now AMVAC primarily manufactures,
distributes, and formulates its own proprietary products or custom manufactures
or formulates for others.
In November 1998, AMVAC acquired the U.S. Dibrom(R) insecticide
business from Valent USA Corporation ("Valent"), a wholly-owned subsidiary of
Sumitomo Chemical Company, Limited. The purchase included all U.S. Environmental
Protection Agency ("EPA") registration rights issued under the Federal
Insecticide, Fungicide and Rodenticide Act ("FIFRA") and state registrations of
the product line, an extensive data package, inventory, trademarks and all
product related intellectual property. AMVAC has manufactured and formulated
Dibrom(R) since 1981 for Valent and formerly for Chevron, which had held the
U.S. rights to Dibrom(R) prior to Valent. AMVAC has owned the international
rights to the Dibrom(R) product line since 1991.
In January 1997, AMVAC purchased the rights, title and interest
to Vapam(R) (Metam Sodium), a soil fumigant, from Zeneca, Inc. The official
closing was December 31, 1996. The purchase included inventories of Vapam(R),
EPA registration rights issued under FIFRA and certain other assets. AMVAC has
manufactured Metam Sodium at its Los Angeles facility since 1988. AMVAC will pay
Zeneca a royalty on all Metam Sodium sold by AMVAC in the United States, Canada
and Mexico in accordance with the terms and conditions of a definitive
agreement.
AMVAC has attempted to position itself in smaller niche markets
being abandoned by larger chemical companies. In addition to the product line
acquisitions disclosed above, in 1993 AMVAC purchased from E.I. du Pont de
Nemours ("DuPont") & Company the rights, title and interest (including DuPont's
EPA Registration Rights) in Bidrin(R), an insecticide for cotton crops and in
1991 AMVAC purchased from Rhone-Poulenc AG Company its Napthalene Acetic Acid
("NAA")
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plant growth regulator product line including Rhone-Poulenc's EPA registration
rights.
The chemical industry in general is cyclical in nature. The
demand for AMVAC's products tends to be slightly seasonal. Seasonal usage,
however, does not necessarily follow calendar dates, but more closely follows
varying growing seasonal patterns, weather conditions and weather related
pressure from pests, and customer marketing programs and requirements.
The Company does not believe that backlog is a significant factor
in its business. The Company primarily sells its products on the basis of
purchase orders, although it has entered into requirements contracts with
certain customers.
ConAgra, Inc. and Tenkoz accounted for 29% and 12%, respectively,
of the Company's sales in 1998. ConAgra, Inc. accounted for 29% of the
Company's sales in 1997. ConAgra, Inc. and Terra International accounted for 33%
and 10%, respectively, of the Company's sales in 1996. ConAgra and Terra are
distributors of the Company's products. Tenkoz is a buying cooperative of
various companies/producers.
COMPETITION
AMVAC faces competition from many domestic and foreign
manufacturers in its marketplaces. Competition in AMVAC's marketplace is based
primarily on efficacy, price, safety and ease of application. Many of such
competitors are larger and have substantially greater financial and technical
resources than AMVAC. AMVAC's ability to compete depends on its ability to
develop additional applications for its current products and expand its product
lines and customer base. AMVAC competes principally on the basis of the quality
of its products and the technical service and support given to its customers.
The inability of AMVAC to effectively compete in several of AMVAC's principal
products would have a material adverse effect on AMVAC's results of operations.
Generally, the treatment against pests of any kind is broad in
scope, there being more than one way or one product for treatment, eradication,
or suppression. As previously mentioned, the Company has attempted to position
AMVAC in smaller niche markets which are abandoned by larger companies. These
markets are small by nature, require significant and intensive management input,
ongoing product research, and are near product maturity. These types of markets
tend not to attract larger chemical companies due to the smaller volume demand,
and larger chemical companies have been divesting themselves of products that
fall into such niches as is evidenced by AMVAC's successful acquisitions of
Dibrom(R), Vapam(R), Bidrin(R) and NAA.
AMVAC's proprietary product formulations are protected to the
extent possible as trade secrets and, to a lesser extent, by patents and
trademarks. Although AMVAC considers that, in the aggregate, its trademarks,
licenses, and patents constitute a
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valuable asset, it does not regard its business as being materially dependent
upon any single or several trademarks, licenses, or patents. AMVAC's products
also receive protection afforded by the effect of FIFRA legislation that makes
it unlawful to sell any pesticide in the United States unless such pesticide has
first been registered by the EPA as well as under similar state laws.
Substantially all of AMVAC's products are subject to EPA registration and
re-registration requirements and are conditionally registered in accordance with
FIFRA. This licensing by EPA is based, among other things, on data demonstrating
that the product will not cause unreasonable adverse effects on human health or
the environment when it is used according to approved label directions. All
states where any of AMVAC's products are used require a registration by that
specific state before it can be marketed or used. State registrations are
renewed annually, as appropriate. The EPA and state agencies have required, and
may require in the future, that certain scientific data requirements be
performed on registered products sold by AMVAC. AMVAC, on its own behalf and in
joint efforts with other suppliers, has, and is currently furnishing, certain
required data relative to specific products.
Under FIFRA, the federal government requires registrants to
submit a wide range of scientific data to support U.S. registrations. This
requirement has significantly increased AMVAC's operating expenses in such areas
as testing and the production of new products. AMVAC expensed $2,611,900,
$2,241,300, and $1,932,700 during 1998, 1997 and 1996, respectively, related to
gathering this information. Based on facts known today, AMVAC estimates it will
spend approximately $3,000,000 in 1999. Because scientific analyses are
constantly improving, it cannot be determined with certainty whether or not new
or additional tests may be required by the regulatory authorities. Additionally,
while FIFRA Good Laboratory Practice standards specify the minimum practices and
procedures which must be followed in order to ensure the quality and integrity
of data related to these tests submitted to the EPA, there can be no assurance
the EPA will not request certain tests/studies be repeated. AMVAC expenses these
costs on an incurred basis. See also PART I, Item 7 of this Annual Report for
discussions pertaining to research and development expenses.
RAW MATERIALS
The Company utilizes numerous firms as well as internal sources
to supply the various raw materials and components used by AMVAC in
manufacturing its products. Many of these materials are readily available from
domestic sources. In those instances where there is a single source of supply or
where the source is not domestic, the Company seeks to secure its supply by
either long-term
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arrangements or advance purchases from its suppliers. The Company believes that
it is considered to be a valued customer to such sole-source suppliers.
ENVIRONMENTAL
During 1998, AMVAC continued activities to address environmental
conditions at the railroad right-of-way which is located adjacent to AMVAC's
Commerce, California facility (the "Facility"). The railroad right-of-way is
jointly owned by the Union Pacific Railroad and the Burlington Northern and
Santa Fe Railway Company, and is managed on behalf of both companies by the
latter. The site investigation and remediation activities have been conducted
pursuant to a January 10, 1996, enforceable agreement and order entered into by
AMVAC and the California Department of Toxic Substances Control ("DTSC").
A site investigation and health risk assessment were conducted and
completed by AMVAC during the first two quarters of 1997. AMVAC prepared a
draft Remedial Action Plan ("RAP") in May, 1997 which evaluated several options
for remediating soils at the railroad right-of-way. The RAP concluded that the
most appropriate option for remediation was the excavation and offsite disposal
of soils which exceeded risk-based cleanup levels. DTSC approved the draft RAP
on June 25, 1997. Remedial activities commenced on July 4, 1997 and were
completed on July 12, 1997. A post-remediation report was prepared by AMVAC
and submitted to DTSC on October 13, 1997.
AMVAC received DTSC approval of the remedial activities in a letter
dated June 26, 1998 (the "Letter"). In the Letter, DTSC stated, among other
things, that ..." the Site, in its current condition, does not appear to pose a
threat to human health or the environment based upon the conclusion of the Post
Remediation Risk Assessment ("PRRA") and no further remedial action is
required." However, due to elevated concentrations of arsenic left in place at a
depths from 11 to 45 feet below ground surface, DTSC requires that a land use
covenant be recorded on the property prior to issuance of site certification in
accordance with Chapter 6.85 of the California Health & Safety Code, and that
reviews be conducted by AMVAC every five years to evaluate whether the
completed remediation remains protective of public health and the environment.
In March, 1997, the Facility was accepted into the DTSC's Expedited
Remedial Action Program ("ERAP"). The remaining environmental investigation and
any remediation activities related to ten underground storage tanks at the
Facility which had been closed in 1995 will be addressed by AMVAC under ERAP.
Soil characterization activities at other areas of the Facility are expected to
commence in the second or third quarter of 1999 and to be conducted in phases
over the next two to three years. These activities are required at all
facilities which currently have, or in the past had, hazardous waste management
permits. Because AMVAC
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previously held a hazardous waste storage permit, AMVAC is subject to these
requirements.
The Company is subject to numerous federal and state laws and
governmental regulations concerning environmental matters and employee health
and safety. The Company continually adapts its manufacturing process to the
environmental control standards of various regulatory agencies. The EPA and
other federal and state agencies have the authority to promulgate regulations
that could have an impact on the Company's operations.
AMVAC expends substantial funds to minimize the discharge of materials
into the environment and to comply with the governmental regulations relating to
protection of the environment. Wherever feasible, AMVAC recovers raw materials
and increases product yield by recycling in order to partially offset increasing
pollution abatement costs.
The Company is committed to a long-term environmental protection program
that reduces emissions of hazardous materials into the environment, as well as
to the remediation of identified existing environmental concerns. Federal and
state authorities may seek fines and penalties for violation of the various laws
and governmental regulations. As part of its continuing environmental program,
except as disclosed in PART I, Item 3, Legal Proceedings, of this Annual Report,
the Company has been able to comply with such proceedings and orders without any
materially adverse effect on its business.
EMPLOYEES
As of March 26, 1999, the Company employed approximately 200
persons. This figure includes approximately 20 temporary (equivalent full-time)
individuals hired as contract personnel. AMVAC, on an ongoing basis, due to the
seasonality of its business, uses temporary contract personnel to perform
certain duties primarily related to packaging of its products. The Company
believes it is cost beneficial to employ temporary contract personnel. None of
the Company's employees are subject to a collective bargaining agreement.
The Company believes it maintains positive relations with its
employees.
EXPORT OPERATIONS
The Company opened an office in 1998 in Mexico to conduct
business in Mexico and related areas. The new office operates under the name
Quimica Amvac De Mexico S.A. de C.V. and will market chemical products for
agricultural and commercial uses.
The Company opened an office in August 1994, in the United
Kingdom to conduct business in the European chemical market. The new office,
operating under the name AMVAC Chemical UK Ltd., focuses on
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developing product registration and distributor networks for AMVAC's product
lines throughout Europe. The office is located in Surrey, England, a city
southwest of London. The operating results of this operation were not material
to the Company's total operating results for the years ended December 31, 1998,
1997 and 1996.
The Company classifies as export sales all products bearing
foreign labeling shipped to a foreign destination.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Export Sales $5,085,700 $6,646,000 $3,535,500
</TABLE>
INSURANCE
Management believes its facilities and equipment are adequately
insured against loss from usual business risks. The Company has purchased claims
made products liability insurance. There can be no assurance, however, that such
products liability coverage insurance will continue to be available to the
Company, or if available, that it will be provided at an economical cost to the
Company.
GEMCHEM, INC.
GemChem is a California corporation incorporated in 1991 and
purchased by the Company in 1994. GemChem is a national chemical distributor.
GemChem, in addition to purchasing key raw materials for the Company, also
sells into the pharmaceutical, cosmetic and nutritional markets. Prior to the
acquisition, GemChem acted in the capacity as the domestic sales force for the
Company (from September 1991).
2110 DAVIE CORPORATION
DAVIE currently invests in real estate for corporate use only.
See also PART I, Item 2 of this Annual Report.
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ITEM 2 PROPERTIES
The Company's corporate headquarters are located in Newport
Beach, California. This facility is leased. See PART IV, Item 14, note 11 of
this report for further information.
AMVAC owns in fee approximately 152,000 square feet of improved
land in Commerce, California, on which substantially all of its plant and some
of its warehouse facilities and offices are located.
DAVIE owns in fee approximately 72,000 square feet of warehouse,
office and laboratory space on approximately 118,000 square feet of land in
Commerce, California, which is leased to AMVAC.
AMVAC's manufacturing facilities are divided into five
cost-centers; Vapam(R) (Metam Sodium), PCNB, granular products, small packaging,
and the production and formulation of all other products. All production areas
are designed to run on a continuous twenty-four hour per day basis.
AMVAC regularly adds chemical processing equipment to enhance its
production capabilities. AMVAC believes its facilities are in good operating
condition and are suitable and adequate for AMVAC's foreseeable needs, have
flexibility to change products, and can produce at greater rates as required.
Facilities and equipment are insured against losses from fire as well as other
usual business risks. The Company knows of no material defects in title to, or
encumbrances on, any of its properties except that substantially all of the
Company's assets are pledged as collateral under the Company's loan agreements
with its primary lender. For further information, refer to note 3 of the Notes
to the Consolidated Financial Statements in PART IV, Item 14 of this Annual
Report.
AMVAC purchased unimproved land in Texas for possible future
expansion.
GemChem's, Chemical UK's and Quimica Amvac's facilities consist
of administration and sales offices which are leased.
The Company believes its properties to be suitable and adequate
for its current purposes.
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ITEM 3 LEGAL PROCEEDINGS
DBCP LAWSUITS
A. CALIFORNIA MATTERS
In 1997, Amvac was served with complaints in two actions filed in
the San Francisco Superior Court entitled the Sultana Community Services
District v. Shell Oil Co., et.al. and the County of San Joaquin v. Shell Oil
Co., et.al. Both complaints allege property damage resulting from
Dibromochloropropane ("DBCP") contamination of water supply. Both complaints
name as defendants AMVAC, Shell Oil Company, Dow Chemical Company, Occidental
Chemical Company, Chevron Chemical Company, and Velsicol Chemical Company. In
Sultana, Plaintiff has not produced documentation to support its claim for
damage. Any damages proven may be significantly offset by Plaintiff's receipt of
a Government grant for a new well. It is currently not possible to predict the
outcome or costs involved in the defense of this matter. The County of San
Joaquin matter was dismissed on March 8, 1999 and the Court confirmed Amvac's
settlement for $5,000 and thereby barred potential cross-complaints by other
defendants. The settlement included a release for the five wells claimed to have
been damaged and for the next two wells, of the nine other identified wells, if
they should exceed MCL contaminant levels in the future.
B. HAWAII MATTERS
AMVAC and the Company were served with complaints, on February 7,
1997 and March 4, 1997 respectively. The actions were filed in the Circuit Court
of the Second Circuit, State of Hawaii entitled Board of Water Supply of the
County of Maui v. Shell Oil Co., et.al. The suit names as defendants the
Company, AMVAC, Shell Oil Company, the Dow Chemical Company, Occidental Chemical
Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and
Brewer Environmental Industry, Inc. The Maui Pineapple Company has recently been
named as a cross-defendant. The Compliant alleges property damage resulting from
DBCP contamination of between two and four wells of the Board's water wells.
Formal discovery is ongoing as to the identity of the applications of DBCP that
might have been made near the wells and the level of contamination of the wells.
The Plaintiff alleges damages of approximately 16 million dollars for all four
wells. The Plaintiff alleges Amvac sold approximately 20% of the DBCP on Maui.
Procedural defenses of the Board's standing to sue and expiration of the statute
of limitations remain defenses.
On October 20, 1997, AMVAC was served with a Complaint in
which it was named as a Defendant, filed in the Circuit Court, First
Circuit, state of Hawaii entitled Patrickson, et.al. v. Dole Food
Co., et.al. alleging damages sustained from injuries caused by
Plaintiff's exposure to DBCP while applying the product in their
native countries. Other named defendants are: Dole Food Co., Dole
Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers
Association of Hawaii, Shell Oil Company, Dow Chemical Company,
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Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit &
Steamship, Standard Fruit company De Costa Rica, Standard Fruit company De
Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading
corporation, and Del Monte Fresh Produce. The ten named plaintiffs are citizens
of Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a
class action on behalf of other workers so exposed in these four countries. The
defendants subsequently removed the case to the United States District Court in
Hawaii. On March 8, 1999, the Judge in the U.S. District Court dismissed the
case based on the defendants' agreement to pay any judgement that might be
entered in the plaintiff's nation of origin. The court order allows plaintiffs
to return to the United States if the foreign courts do not accept jurisdiction.
The plaintiffs reported that they have filed suit in each of the countries. None
of the defendants have been served with these suits. No discovery has taken
place on the individual claims. Without discovery, it is unknown if any
plaintiff was exposed to Amvac DBCP and too early to provide any evaluation of
the likelihood of an unfavorable outcome. There may be statute of limitation
defenses available to defendants. Amvac intends to contest the cases vigorously.
C. MISSISSIPPI MATTERS
On May 30,1996, AMVAC was served with five complaints in which it
is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc.,
Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit
Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit
Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte
Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison
County, First Judicial District of Mississippi. Each case alleged damages
sustained from injuries caused by Plaintiff's exposure to DBCP while applying
the product in their native countries. These cases have been removed to U.S.
District Court for the Southern District of Mississippi, Southern Division.
Three of the cases were conditionally dismissed on the basis of forum non
conveniens. Another case was closed for administrative purposes due to its
similarity to the other matters. Only one case is still open but no substantive
activity has occurred since its filing. Between April and October 1998,
plaintiffs filed notices of appeal in each of the cases. The United States Court
of Appeals, Fifth Circuit suspended the briefing schedule until the record on
appeal is completed. As of this date the appeals are pending. Defendants have
learned one of the plaintiffs has filed suit in Panama, but no defendant has
been served. No discovery has taken place and therefore it is unknown whether
any of the plaintiffs were exposed to Amvac DBCP or what statute of limitation
defense might apply. Amvac intends to contest the cases vigorously. It is too
early to provide an evaluation of the likelihood of an unfavorable outcome at
this time.
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PHOSDRIN(R) LAWSUIT
On September 21, 1995, AMVAC was served with a complaint filed in
the Superior Court of King County, Washington entitled Ricardo Ruiz Guzman,
et.al. v. Amvac Chemical Corporation, et.al. (the "Guzman Case"). The Complaint
is for unspecified monetary damages based on Plaintiffs' (farm workers') alleged
injuries from their exposure to the pesticide Phosdrin(R). Defendants removed
the case to the United States District Court. On October 14, 1997 the United
States District Court dismissed all Plaintiffs' claims against AMVAC with
prejudice. Plaintiff's appeal of the judgement to the United States Court of
Appeals for the Ninth Circuit was argued on November 2, 1998. It is currently
impossible to predict the outcome of the matter. AMVAC's insurance carrier has
assumed costs of the appeal.
NAA DATA TRADE SECRET
On November 1, 1996 AMVAC filed an action in U.S. District Court
in Oregon against four defendants relating to their misuse of AMVAC's exclusive
right associated with Naphthalene Acetic Acid ("NAA") (Amvac Chemical
Corporation v. Termilind, Inc., et.al.). On November 25, 1996, defendants
Termilind and Inchema asserted counterclaims against AMVAC: violation of
antitrust laws (Sherman Act section 2 and ORS 646.730), unfair competition,
tortuous interference, defamation, and breach of contract. On January 5, 1999,
the Court granted AMVAC's Motion for Partial Summary Judgement on AMVAC's claim
for tortious interference with prospective business relations, finding that
AMVAC had proved three of the five elements of the tort. To prevail on this
claim, AMVAC must still prove the defendant's intent to interfere and its
damages resulting from the defendant's conduct. Formal discovery is continuing
and no trial date has been set for the matter. It is too early to provide any
evaluation of the likelihood of an unfavorable outcome.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1998 to a vote
of security holders, through the solicitation of proxies or otherwise.
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'
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On January 27, 1998 the Company announced the listing of its $0.10 par
value common stock ("Common Stock") on the American Stock Exchange under the
ticker symbol AVD. The Company's Common Stock traded on The NASDAQ Stock Market
under the symbol AMGD from March 3, 1987 through January 26, 1998.
The following table sets forth the range of high and low sales
prices as reported for the Company's Common Stock for the calendar quarters
indicated.
<TABLE>
<CAPTION>
Calendar 1998 HIGH LOW CLOSE
------------- ---- --- -----
<S> <C> <C> <C>
First Quarter 9 7/8 6 3/8 9 1/4
Second Quarter 9 1/2 6 9 3/8
Third Quarter 9 3/8 4 5/8 4 7/8
Fourth Quarter 6 5/8 4 1/2 5 7/8
Calendar 1997
First Quarter 8 3/4 6 1/4 6 5/8
Second Quarter 8 1/16 6 1/4 7 1/2
Third Quarter 10 7/8 6 7/8 9 3/8
Fourth Quarter 10 5 5/8 6 1/8
</TABLE>
The Company's share activity is reported in the Wall Street
Journal and is listed as "AmVngrd".
As of March 26, 1999, the number of shareholders of the Company's
Common Stock was approximately 600 which includes beneficial owners with shares
held in brokerage accounts under street name and nominees.
On March 31, 1999, the Company announced that the Board of
Directors declared a cash dividend of $.06 per share which will be distributed
on April 19,1999 to shareholders of record at the close of business on April
8,1999.
The Company distributed a cash dividend of $.07 per share on
March 25, 1998 to shareholders of record at the close of business on March 13,
1998.
The Company distributed a cash dividend of $.06 per share on
March 31, 1997 to shareholders of record at the close of business on March 20,
1997.
The Company has issued a cash dividend in each of the last three
years (1997, 1998 and 1999). There is no assurance as to future dividends
because they depend on future earnings, capital requirements, and financial
condition. In addition, the payment of
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dividends is subject to certain loan covenants described in note 3 to the Notes
to Consolidated Financial Statements, which limit payments of cash dividends to
a maximum of 25% of net income.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
ITEM 6 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR WEIGHTED AVERAGE
NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues $ 67,016 $ 67,701 $ 48,628 $ 55,402 $ 45,098
========= ========= ========= ========= =========
Operating income $ 5,158 $ 4,785 $ 3,523 $ 5,971 $ 3,346
========= ========= ========= ========= =========
Income from operations
before income tax
expense $ 3,263 $ 3,283 $ 2,611 $ 5,043 $ 1,465
========= ========= ========= ========= =========
Net income $ 2,127 $ 2,025 $ 1,616 $ 3,124 $ 1,203
========= ========= ========= ========= =========
Basic and diluted
net income per
share $ .85 $ .81 $ .65 $ 1.23 $ .47
========= ========= ========= ========= =========
Total assets $ 58,847 $ 55,206 $ 48,028 $ 39,341 $ 40,929
========= ========= ========= ========= =========
Long-term debt and capital
lease obligations, less
current portion $ 6,458 $ 3,980 $ 4,373 $ 5,540 $ 3,695
========= ========= ========= ========= =========
Stockholders' equity $ 23,128 $ 21,260 $ 19,386 $ 18,005 $ 15,143
========= ========= ========= ========= =========
Weighted average number
of shares 2,502,650 2,507,829 2,472,883 2,546,471 2,562,398
========= ========= ========= ========= =========
Dividends per share of
common stock $ .07 $ .06 $ .06 $ - $ -
========= ========= ========= ========= =========
</TABLE>
The selected consolidated financial data set forth above with respect to each of
the calendar years in the five-year period ended December 31, 1998, have been
derived from the Company's consolidated financial statements and are qualified
in their entirety by reference to the more detailed consolidated financial
statements and the independent certified public accountants' reports thereon
which are included elsewhere in this Report on Form 10-K for the three years
ended December 31, 1998. See ITEM 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
15
<PAGE> 18
- ---------------------
The Company distributed a $.06 cash dividend on March 31, 1997 to
shareholders of record at the close of business on March 20, 1997.
The Company distributed a $.07 cash dividend on March 25, 1998 to
shareholders of record at the close of business on March 13, 1998.
On March 31, 1999, the Company announced that the Board of Directors
declared a cash dividend of $.06 per share to be distributed on April 19, 1999
to shareholders of record at the close of business on April 8, 1999.
16
<PAGE> 19
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997:
The Company reported net income of $2,126,500 or $.85 per share in 1998 as
compared to net income of $2,024,700 or $.81 per share in 1997.
Net sales were $67,015,600 in 1998 as compared to $67,700,500 in 1997. Sales of
the Company's agricultural product lines improved by approximately $177,000 in
1998 over 1997 while sales into the pharmaceutical, nutritional and other
markets declined by approximately $862,000. This decline is in keeping with the
Company's desire to focus its sales efforts on its core business, agricultural
product lines.
Gross profits declined by $278,100 to $27,106,800 in 1998 from $27,384,900 in
1997. Gross profit margins remained relatively unchanged at 40.4% in 1998 as
compared to 40.5% in 1997.
Operating expenses increased by $416,000 to $23,016,100 in 1998 from $22,600,100
(which includes settlement expense of $951,000, refer to general administrative
and corporate expenses below) in 1997. The following is a discussion of
operating expenses:
Selling and Regulatory:
Selling and regulatory expenses increased by $123,700 to $7,882,100 in
1998 from $7,758,400 in 1997. Increases in payroll and payroll related
items accounted for approximately $251,000 of the increase. Net changes
in variable selling expenses accounted for the balance of the increase.
General, Administrative and Corporate:
General, administrative and corporate costs declined by $520,000 to
$5,692,100 in 1998 from $6,212,100 in 1997 The decline was attributable
to the recognition of $777,300, which represents a portion of an award
rendered in favor of the Company by neutral arbitrators in a binding
action. This portion of the award was recorded as an offset to related
professional/legal costs during 1998. (Note: Settlement Expenses of
$951,000 are included in 1997 General and Administrative costs and are
made up of professional/legal expenses.) General, administrative and
corporate costs would have increased by $222,800 in 1998 as compared to
1997, primarily as a result of
17
<PAGE> 20
increases in legal fees and the acquisition and
implementation of a new computer system. (See Year
2000 Compliance disclosure.)
Research and Development:
Research and development costs which includes costs incurred to generate
scientific data and other activities performed by the department
increased by $510,300 to $3,838,500 in 1998 as compared to $3,328,200 in
1997. Increased costs to generate scientific data related to the
registration and possible new uses of the Company's products accounted
for approximately $330,000 of the increase while increases in outside
professional fees, payroll and payroll related items accounted for the
balance in increased research and development costs.
Freight, Delivery and Warehousing:
Freight, delivery and warehousing costs increased by $302,000 to
$5,603,400 in 1998 as compared to $5,301,400 in 1997. Increased shipping
costs of the Company's fumigant product line primarily accounted for the
increase.
The Company was awarded a settlement of $1,845,000 by neutral arbitrators in a
binding action. A portion of this award, $777,300, was recorded as an offset to
related professional/legal costs in 1998. The balance appears as a separate line
item titled "Settlement" on the Company's Consolidated Statements of Income for
the years ended December 31, 1998, 1997 and 1996. The 1997 and 1996 amounts
represent professional/legal costs that relate to the 1998 settlement.
Interest costs were $1,900,000 in 1998 as compared to $1,513,400 in 1997. The
average level of borrowing under the Company's line of credit agreement
increased by $3,649,500 to $16,938,100 in 1998 from $13,288,600 in 1997. The
average level of long-term debt increased by $522,200 to $5,513,100 in 1998 from
$4,990,900 in 1997. On a combined basis, the Company's average debt for 1998 was
$22,451,200 as compared to $18,279,500, in 1997. The higher debt during 1998
accounted for the increase in interest costs.
Income tax expense declined by $121,500 to $1,136,600 in 1998 as compared to
$1,258,100 in 1997. The Company's effective tax rate was 35% for 1998 as
compared to the 38% effective tax rate for 1997. See note 4 to the Consolidated
Financial Statements for additional analysis of the changes in income tax
expense.
Weather patterns can have an impact on the Company's operations. The Company
manufactures and formulates chemicals for crops, human and animal health
protection. The end user of some of the Company's products may, because of
weather patterns, delay or
18
<PAGE> 21
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 and ordering patterns that may vary in timing, measuring the Company's
performance on a quarterly basis, (gross profit margins on a quarterly basis may
vary significantly) even when such comparisons are favorable, is not as good an
indicator as full-year comparisons.
19
<PAGE> 22
1997 COMPARED WITH 1996:
The Company reported net income of $2,024,700 or $.81 per share in 1997 as
compared to net income of $1,615,500 or $.65 per share in 1996. The increase in
net income in 1997 was primarily attributable to growth of the Company. The
Company achieved record level sales in 1997, however, a decrease in the gross
profit percentage as well as an increase in interest expense incurred to finance
the growth of the Company resulted in the increase in net income not being
proportionate to the increase in sales.
Net sales increased 39% to $67,700,500 in 1997 as compared to $48,627,900 in
1996. The reason for the significant increase in sales was due to the strong
demand for certain of the Company's product lines during 1997. The $19,072,600
increase was primarily driven by increased sales of its fumigant and insecticide
products.
Gross profits increased by $7,037,000 to $27,384,900 in 1997 from $20,347,900 in
1996. Despite the increase in gross profits, the gross profit percentage
decreased to 40.5% in 1997 from 41.8% in 1996. The gross profit percentage in
1997 was negatively impacted due to competitive pricing pressures for certain of
the Company's products and an enhancement of the Company's PCNB manufacturing
facility. The Company invested in an octane recovery and waste reduction system
for the PCNB manufacturing facility which effort curtailed PCNB manufacturing
for approximately seventy-five days during the quarter ended September 30, 1997.
Based upon historical performance, PCNB manufacturing operations would have
absorbed in excess of one million dollars of manufacturing costs during the
seventy-five day period. The octane recovery and waste reduction system is
expected to save an estimated $350,000 per year.
Operating expenses increased by $5,775,200 to $22,600,100 in 1997 from
$16,824,900 in 1996. Operating expenses include settlement expenses of $951,000
in 1997 and $284,900 in 1996. The following is a discussion of operating
expenses:
Selling and Regulatory:
Selling and regulatory expenses increased by $1,657,900 to $7,758,400 in
1997 from $6,100,500 in 1996. The Company, in order to support and grow
its Vapam(R) 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. This
program accounted for approximately $1,031,000 of the increase in
selling and regulatory expenses. The Company's registration related
costs, both domestically and internationally, as well as environmental
related taxes and
20
<PAGE> 23
assessments increased by approximately $221,800 due to the growth of the
Company during 1997. Variable selling expenses, primarily rebates and
royalties, accounted for the balance of the increase in selling and
regulatory expenses.
General, Administrative and Corporate:
General, administrative and corporate costs increased by $2,033,300 to
$6,212,100 in 1997 from $4,178,800 in 1996. The increase was primarily
attributable to an increase in legal fees of $1,081,000. Most of this
increase has been incurred in legal actions in which the Company is
plaintiff. General, administrative and corporate expenses also increased
in 1997 due to the amortization of goodwill purchased in connection with
the acquisition of the Vapam(R) product line in December 1996 in the
amount of $317,600. The Company also completed railroad remediation work
related to the railroad siding matter (see additional discussion in PART
I, Item 1, Business, Environmental) which resulted in total expenditures
of approximately $526,000. The balance of the increase in general,
administrative and corporate expenses in 1997 resulted from increases in
personnel and costs related thereto.
Research and Development:
Research and development costs, which include costs incurred to generate
scientific data and other activities performed by the department,
increased by $304,400 to $3,328,200 in 1997 from $3,023,800 in 1996
primarily as a result of increased costs to generate scientific data
related to the registration of the Company's products. Increases in data
generation costs for DDVP products, Mevinphos products and Metam Sodium
products accounted for the majority of the increase in research and
development costs. The changes in data generation costs are a function
of the status of related research studies and current regulatory
requirements.
Freight, Delivery and Warehousing:
Freight, delivery and warehousing costs increased by $1,780,400 to
$5,301,400 in 1997 from $3,521,000 in 1996. This increase was primarily
attributable to the overall increase in sales volume with most of the
increase related to Metam Sodium freight, delivery and storage costs. As
a result of the acquisition of Vapam(R) in December 1996, the Company
established additional storage sites and added additional rail cars to
its rail car fleet in order to handle the increased volume. These costs,
along with increased trucking and rail car freight charges due to the
significant increase in volume in 1997, accounted for approximately
$1,600,000 of the increase in freight, delivery and warehousing
expenses.
21
<PAGE> 24
Interest costs were $1,513,400 in 1997 as compared to $919,900 in 1996. The
average level of borrowing under the Company's line of credit agreement
increased by $8,865,100 to $13,288,600 in 1997 from $4,423,500 in 1996. The
average level of long-term debt decreased by $1,884,000 to $4,990,900 in 1997
from $6,174,900 in 1996. On a combined basis, the Company's average debt for
1997 was $18,279,500 as compared to $10,598,400, in 1996. The significantly
higher debt during 1997, which was used to finance the growth of the Company,
accounted for the increase in interest costs.
Income tax expense increased by $262,200 to $1,258,100 in 1997 as compared to
$995,900 in 1996. Higher pre-tax income was the reason for the increased income
tax expense. The Company's effective tax rate of 38.3% for 1997 was comparable
to the 38.1% effective tax rate for 1996. See note 4 to the Consolidated
Financial Statements for additional analysis of the changes in income tax
expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $7,224,000 for the year ended December
31, 1998 as compared to cash used in operating activities of $3,472,200 for
1997. Inventories in 1998 increased by $2,797,900 primarily as a result of the
acquisition of inventory related to the Company's acquisition of the U.S.
Dibrom(R) insecticide business (refer to PART I, Item 1, Business, of this
Annual Report). The increase in inventories was more than offset by non-cash
depreciation and amortization of $3,060,900 and reductions in receivables
balances and prepaid expenses of $3,267,400. Accounts payable and other payables
and accrued expenses increased by $1,942,100 primarily as a result of the
acquisition of the Dibrom(R) inventory.
The Company invested $1,928,100 in capital expenditures in 1998. The Company
elected, as previously disclosed, to purchase a new Enterprise Resource Planning
Manufacturing software system along with new computer hardware. The new software
is Year 2000 compliant. The cost of this investment was $1,100,000 and the
related obligation is carried as an obligation under capitalized leases. The
balance invested in capital expenditures represent additions or improvements to
the existing capacity of the Company's manufacturing facility and address the
Company's continual effort to adapt its manufacturing processes to the
environmental control standards of its various controlling agencies. The
Company's investment in the acquisition of the U.S. Dibrom(R) insecticide
business resulted in additions to intangible assets of $5,203,900 (as of
December 31, 1998). As of December 31, 1998, the Company does not have any
material commitments for future capital expenditures.
22
<PAGE> 25
As part of an amendment to the Company's credit agreement in May 1998, the
Company increased its credit limit under its fully- secured existing long-term
line of credit to $24,000,000 from $20,500,000 and extended the expiration date
of the long-term line of credit to July 31, 2000 from July 31, 1999. The Company
had $14,000,000 of availability under its long-term line of credit agreement as
of December 31, 1998.
There has been constant public pressure upon the federal and state governments
to require FIFRA product registrants to supply new scientific data (such as
toxicological and environmental fate tests), which has resulted in government
action requiring additional studies and the submission of more data. Based on
facts known today, the Company estimates it will spend approximately $3,000,000
in 1999 on these and other studies. Because scientific analyses are constantly
improving, it cannot be determined with any degree of certainty, whether or not
material new or additional tests may be required. For further information, refer
to PART I, Item 1, Business, Competition of the Annual Report.
AMVAC is a manufacturer and formulator of chemicals for crops, human and animal
health protection. This is a high risk industry with ever present industry-wide
litigation. For discussions pertaining to the Company's litigation refer to PART
I, Item 3, Legal Proceedings of this Annual Report.
Management believes current financial resources (working capital and borrowing
arrangements) and anticipated funds from operations will be adequate to meet
total financial needs in 1999. Management also continues to believe, to improve
its working capital position and maintain flexibility in financing interim
needs, it is prudent to explore alternate sources of financing.
FOREIGN EXCHANGE
Management does not believe that the fluctuation in the value of the dollar in
relation to the currencies of its customers in the last three fiscal years has
adversely affected the Company's ability to sell products at agreed upon prices.
No assurance can be given, however, that adverse currency exchange rate
fluctuations will not occur in the future. Should adverse currency exchange rate
fluctuations occur in geographies where the Company sells/exports its products,
management is not certain such fluctuations will materially impact the
Company's operating results.
INFLATION
Management believes inflation has not had a significant impact on the Company's
operations during the past three years.
23
<PAGE> 26
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
install a new Enterprise Resource Planning Manufacturing software system, the
decision of which, was not driven 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, in the early part 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 is in the process of requesting 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 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.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data are listed at
PART IV, Item 14, Exhibits, Financial Statement Schedules, and Reports on Form
8-K in this report.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
24
<PAGE> 27
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are the current Directors and Executive
Officers of Registrant:
<TABLE>
<CAPTION>
Name of
Director/Officer Age Capacity
---------------- --- --------
<S> <C> <C>
Herbert A. Kraft 75 Co-Chairman
Glenn A. Wintemute 74 Co-Chairman
Eric G. Wintemute 43 Director, President and
Chief Executive Officer
James A. Barry 48 Director, Senior Vice
President, Chief
Financial Officer,
Treasurer and Secretary
John B. Miles 55 Director
Alan B. Sass 60 Director
Jesse E. Stephenson 75 Director
</TABLE>
Herbert A. Kraft has served as Co-Chairman of the Board
since July 1994. Mr. Kraft served as Chairman of the Board and
Chief Executive Officer from 1969 to July 1994.
Glenn A. Wintemute has served as Co-Chairman of the
Board since July 1994. Mr. Wintemute served as President of the
Company and all operating subsidiaries since 1984 and was elected
a director in 1971. He served as President of AMVAC from 1963 to
July 1994.
Eric G. Wintemute has served as a director since June
1994. Mr. Wintemute has also served as President and Chief
Executive Officer since July 1994. He was appointed Executive
Vice President and Chief Operating Officer of the Company in
January 1994, upon the Company's acquisition of GemChem. He co-
founded GemChem, a national chemical distributor, in 1991 and
served as its President. Mr. Wintemute was previously employed
by AMVAC from 1977 to 1982. From 1982 to 1991, Mr. Wintemute
worked with R. W. Greeff & Co., Inc., a former distributor of
certain of AMVAC's products. During his tenure with R. W. Greeff
& Co., Inc., he served as Vice President and Director. He is the
son of the Company's Co-Chairman, Glenn A. Wintemute.
25
<PAGE> 28
James A. Barry has served as a director of the Company since
1994. Mr. Barry was appointed Senior Vice President in February 1998 and
Secretary in August 1998. He has served as Treasurer since July 1994 and as
Chief Financial Officer of the Company and all operating subsidiaries since
1987. He also served as Vice President from 1990 through January 1998 and as
Assistant Secretary from June 1990 to July 1998. From 1990 to July 1994, he also
served as Assistant Treasurer.
John B. Miles was appointed a director in March 1999. Mr. Miles
is a Partner with the law firm McDermott Will & Emery and has held the position
of Partner since 1987. Prior to 1987, Mr. Miles was a Partner with Kadison
Pfaelzer Woodward Quinn & Rossi. Mr. Miles has previously served on boards of
directors for public and private corporations.
Dr. Allan Sass was elected a director of the Company in June
1996. Dr. Sass served as Vice President of Technology of Wheelabrator
Technologies (an environmental issues firm) from 1994 through April 1996, and
served as Vice President of New Business Development from 1992 to 1994. He was
the Chief Executive Officer and Chairman of Westates Carbon Company, Inc. from
1985 to 1992. Westates Carbon Company, Inc. was acquired by Wheelabrator
Technologies in April 1992. From 1968 to 1985, Dr. Sass was with Occidental
Petroleum Corporation serving as President and Chief Executive Officer of
Occidental Oil Shale, reporting directly to Dr. Armand Hammer.
Jesse E. Stephenson has served as director of the Company since
1977 (except for a 10-month period following March 1992). He was the General
Manager of Calhart Corporation, then a wholly-owned subsidiary of the Company,
from 1968 to 1978. Mr. Stephenson is retired and is a private investor.
26
<PAGE> 29
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission.
The Company believes that during 1998 all reports required to be
filed under Section 16(a) by its executive officers, directors, and greater than
ten percent beneficial owners were timely filed.
27
<PAGE> 30
ITEM 11 EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash and other
compensation for services rendered for the years ended December 31, 1998, 1997,
and 1996 paid or awarded by the Corporation and its subsidiaries to the
Corporation's Chief Executive Officer and each of the four most highly
compensated executive officers of the Corporation, whose aggregate remuneration
exceeded $100,000 (the "named executive officers").
28
<PAGE> 31
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------- ------ --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER RE- SECURITIES ALL
NAME ANNUAL STRICTED UNDERLYING OTHER
AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
-------- ---- ------ ----- ------ ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eric G. Wintemute 1998 284,177 - - - - - 5,359(4)
President and 1997 244,244 - - - - - 4,723(4)
Chief Executive 1996 201,306 - - - - - 4,855(4)
Officer
James A. Barry 1998 152,275 - - - - - 4,803(4)
Senior V.P., CFO & 1997 134,819 - - - - - 4,608(4)
Secretary/Treasurer 1996 129,692 - - - 5,500(2) - 3,457(4)
David B. Cassidy(3) 1998 194,010 - - - - - 5,086(4)
Executive Vice 1997 175,414 - - - - - 562(4)
President (AMVAC) 1996 45,769 - - - 30,000(5) - -
-
Herbert A. Kraft(7) 1998 - - - - - - 138,101(6)
Co-Chairman 1997 - - - - - - 180,168(6)
1996 - - - - - - 226,923(6)
Glenn A. Wintemute(7) 1998 - - - - - - 138,223(6)
Co-Chairman 1997 - - - - - - 195,192(6)
1996 - - - - - - 226,923(6)
</TABLE>
- -------------------
(1) No executive officer enjoys perquisites that exceed the lesser of
$50,000, or 10% of such officer's salary.
(2) Represents options to purchase Common Stock of the Company. The
exercise price of the options is $6.82 per share and the options vest one-third
on January 18, 1996, 1997 and 1998 and all options expire on January 18, 2000.
(3) Mr. Cassidy joined Amvac Chemical Corporation as Executive Vice
President in September 1996.
(4) These amounts represent the Company's contribution to the Company's
Retirement Savings Plan, a qualified plan under Internal Revenue Code Section
401(k).
(5) Represents options to purchase Common Stock of the Company in
accordance with the terms and conditions of Mr. Cassidy's Employment Agreement.
(6) Amounts represent payments received by each individual (during
calendar year) under his consulting agreement.
(7) Messrs. Kraft and Wintemute retired from the Company as active
employees in July 1994. The Company entered into consulting agreements with
Messrs. Kraft and Wintemute in July 1994. In 1996 the consulting agreements were
extended for an additional year and now expire in July 2000.
29
<PAGE> 32
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board for the year ended December 31,
1998, consisted of Messrs. Herbert A. Kraft, Alan B. Sass and John B. Miles. The
executive compensation philosophy of the Company is aimed at (i) attracting and
retaining qualified executives; (ii) motivating performance to achieve specific
strategic objectives of the Company; and (iii) aligning the interest of senior
management with the long-term interest of the Company's shareholders.
30
<PAGE> 33
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Registrant, the ownership of the
Registrant's outstanding Common Stock as of March 26, 1999, by persons who are
directors, beneficial owners of 5% or more of the outstanding Common Stock and
by all directors and officers as a group is set forth below. Unless otherwise
indicated the Registrant believes that each of the persons set forth below has
the sole power to vote and to dispose of the shares listed opposite his name.
<TABLE>
<CAPTION>
Amount and
Nature
Office Name and Address of Beneficial Percent
(if any) Beneficial Owner Ownership(1) of Class
- -------- ---------------- ----------- --------
<S> <C> <C> <C>
Co-Chairman Herbert A. Kraft 590,295(2) 23.7%
4695 MacArthur Court
Newport Beach, CA 92660
Co-Chairman Glenn A. Wintemute 585,961(3) 23.5%
4695 MacArthur Court
Newport Beach, CA 92660
Goldsmith & Harris et al. 193,764(4) 7.8%
80 Pine Street
New York, NY 10005
Director, Eric G. Wintemute 41,903 1.68%
President 4695 MacArthur Court
& CEO Newport Beach, CA 92660
Director Jesse E. Stephenson 32,850(5) 1.32%
4695 MacArthur Court
Newport Beach, CA 92660
Executive Vice David B. Cassidy 27,500(6) 1.1%
President (AMVAC) 4695 MacArthur Court
Newport Beach, CA 92660
Director, James A. Barry 5,500(7) --(10)
Sr. V.P.,CFO & 4695 MacArthur Court
Secretary/Treasurer Newport Beach, CA 92660
Director Dr. Allan Sass 5,500(8) --(10)
4695 MacArthur Court
Newport Beach, CA 92660
Director John B. Miles 2,500(9) --(10)
4695 MacArthur Court
Newport Beach, CA 92660
Directors and Officers as a group (12) 1,309,684 51.8%
</TABLE>
- -------------------
Refer to footnotes on next page.
31
<PAGE> 34
ITEM 12 - Continued
Footnotes
- ---------------------
(1) Record and Beneficial.
(2) Mr. Kraft owns all of his shares with his spouse in a family trust, except
as to 1,430 shares held in an Individual Retirement Account.
(3) This figure includes 23,220 shares of Common Stock owned by Mr. G. A.
Wintemute's minor children for which Mr. Wintemute is a trustee and disclaims
beneficial ownership.
(4) The Company has relied on information reported on a Statement on Schedule
13G filed by Goldsmith & Harris et al. with the Securities and Exchange
Commission.
(5) Mr. Stephenson holds all of his shares in a family trust. This figure
includes 4,500 shares of Common Stock Mr. Stephenson is entitled to acquire
pursuant to stock options exercisable within sixty days of the filing of this
Annual Report.
(6) This figure includes 17,500 shares of Common Stock Mr. Cassidy is entitled
to acquire pursuant to stock options exercisable within sixty days of the filing
of this Annual Report.
(7) This figure represents shares of Common Stock Mr. Barry is entitled to
acquire pursuant to stock options exercisable within sixty days of the filing of
this Annual Report.
(8) This figure includes 4,500 shares of Common Stock Dr. Sass is entitled to
acquire pursuant to stock options exercisable within sixty days of the filing of
this Annual Report.
(9) This figure includes 2,500 shares of Common Stock Mr. Miles is entitled to
acquire pursuant to stock options exercisable within sixty days of the filing of
this Annual Report.
(10) Under 1% of class.
32
<PAGE> 35
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with their retirement from the Company as active
employees in July 1994, Messrs. Herbert A. Kraft and Glenn A. Wintemute entered
into written consulting agreements with the Company effective July 14, 1994.
Pursuant to the consulting agreements, Messrs. Kraft and Wintemute perform
management and financial consulting services for the Company as assigned by the
Board of Directors or the Chief Executive Officer. The agreements originally
were to expire on July 14, 1999. In 1996, the agreements were extended for an
additional year now scheduled to expire July 14, 2000. The agreements provide
that neither Messrs. Kraft or Wintemute will be required to expend more than 400
hours in any twelve month period or forty hours in any one month period. Under
the agreements, Messrs. Kraft and Wintemute each received $287,500 for the year
ended July 14, 1995, $243,750 for the year ended July 14, 1996, $200,000 for the
year ended July 14, 1997 and $156,250 for the year ended July 14, 1998. They
will also, under the agreements, each receive $112,500 for the year ending July
14, 1999 and $100,000 for the year ending July 14, 2000. In the event of death
or disability prior to July 14, 2000, such payments will continue to be paid to
the individual or his estate, as applicable. The agreements also provide for
continuation of medical and dental insurance benefits until the expiration of
the term of the agreements. See note 11 of the Notes to the Consolidated
Financial Statements in PART IV, Item 14 of this Annual Report.
33
<PAGE> 36
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Index to Consolidated Financial
Statements and Supplementary Data:
DESCRIPTION
------------
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Report of Independent Certified
Public Accountants 35
Financial Statements:
Consolidated Balance Sheets as of
December 31, 1998 and 1997 36
Consolidated Statements of Income for
the Years Ended December 31, 1998, 1997,
and 1996 38
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31,
1998, 1997, and 1996 39
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1998, 1997,
and 1996 40
Summary of Significant Accounting Policies
and Notes to Consolidated Financial
Statements 42
</TABLE>
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable,
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits:
The exhibits listed on the accompanying Index To Exhibits,
page 58 are filed as part of this annual report.
(b) Reports on Form 8-K were filed during the quarter ended December
31, 1998. None.
34
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, American Vanguard Corporation has duly caused this report to be
signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN VANGUARD CORPORATION (Registrant)
/s/ Eric G. Wintemute /s/ James A. Barry
- ----------------------------- ----------------------------
By: ERIC G. WINTEMUTE By: JAMES A. BARRY
President, Senior Vice President,
Chief Executive Officer Chief Financial Officer,
and Director Secretary/Treasurer and
Director
March 30, 1999 March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated.
/s/ Herbert A. Kraft /s/ Glenn A. Wintemute
- ----------------------------- ----------------------------
HERBERT A. KRAFT GLENN A. WINTEMUTE
Co-Chairman Co-Chairman
March 30, 1999 March 30, 1999
/s/ Allan Sass /s/ Jesse E. Stephenson
- ----------------------------- ----------------------------
ALLAN SASS JESSE E. STEPHENSON
Director Director
March 30, 1999 March 30, 1999
/s/ John Miles
- -----------------------------
JOHN MILES
Director
March 30, 1999
35
<PAGE> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
American Vanguard Corporation
We have audited the accompanying consolidated balance sheets of American
Vanguard Corporation and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Vanguard
Corporation and their subsidiaries at December 31, 1998 and 1997 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Los Angeles, California
March 9, 1999
36
<PAGE> 39
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS (NOTE 3) 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash $ 767,000 $ 746,600
Receivables:
Trade 17,786,700 21,244,600
Other 852,900 441,400
----------- -----------
18,639,600 21,686,000
----------- -----------
Inventories:
Finished products 13,127,700 9,847,700
Raw materials 2,608,100 3,090,200
----------- -----------
15,735,800 12,937,900
----------- -----------
Prepaid expenses 814,600 1,035,600
----------- -----------
Total current assets 35,957,000 36,406,100
Property, plant and equipment, at cost,
less accumulated depreciation of
$21,086,300 in 1998 and $18,541,200
in 1997(notes 1,2,3, and 5) 12,576,300 13,439,000
Land held for development 210,800 210,800
Intangible assets, net of accumulated
amortization of $954,100 in 1998 and
$585,300 in 1997 (Note 10) 9,616,800 4,861,700
Other assets 486,100 288,700
----------- -----------
$58,847,000 $55,206,300
=========== ============
</TABLE>
(CONTINUED)
37
<PAGE> 40
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Current installments of long-term debt (note 2) $ 3,118,500 $ 1,059,500
Accounts payable 6,448,400 3,785,200
Accrued expenses 3,599,700 3,561,100
Accrued royalty obligation-current portion (note 10) 1,600,000 1,600,000
Income taxes payable 1,379,900 554,100
----------- -----------
Total current liabilities 16,146,500 10,559,900
Note payable to bank (note 3) 10,000,000 14,100,000
Long-term debt, excluding current
installments (note 2) 6,457,800 3,980,400
Accrued royalty obligation, excluding
current portion (note 10) 1,074,300 2,659,700
Deferred income taxes (note 4) 2,040,100 2,646,500
----------- -----------
Total liabilities 35,718,700 33,946,500
----------- -----------
Commitments and contingent liabilities
(notes 2, 3, 5, 6, 9 and 11)
Stockholders' equity: (note 14)
Preferred stock, $.10 par value per
share; authorized 400,000 shares;
none issued - -
Common stock, $.10 par value per share;
authorized 10,000,000 shares; issued
2,564,182 shares in 1998 and 1997 256,400 256,400
Additional paid-in capital 3,879,000 3,879,000
Retained earnings 19,434,300 17,483,300
----------- -----------
23,569,700 21,618,700
Less treasury stock, at cost, 71,600
shares in 1998 and 56,600 shares in 1997 441,400 358,900
----------- -----------
Total stockholders' equity 23,128,300 21,259,800
----------- -----------
$58,847,000 $55,206,300
=========== ===========
See summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
38
<PAGE> 41
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales (note 8) $67,015,600 $67,700,500 $48,627,900
Cost of sales 39,908,800 40,315,600 28,280,000
---------- ---------- ----------
Gross profit 27,106,800 27,384,900 20,347,900
Settlement (income)/expense (note 13) (1,067,700) 951,000 284,900
Operating expenses (note 12) 23,016,100 21,649,100 16,540,000
---------- ---------- ----------
Operating income 5,158,400 4,784,800 3,523,000
Interest expense 1,900,000 1,513,400 919,900
Interest income (4,700) (11,400) (8,300)
---------- ---------- ----------
Income before
income tax expense 3,263,100 3,282,800 2,611,400
Income tax expense (note 4) 1,136,600 1,258,100 995,900
---------- ---------- ----------
Net income $ 2,126,500 $ 2,024,700 $ 1,615,500
========== ========== ==========
Per share information:
Basic and diluted
net income per share $ .85 $ .81 $ .65
========== ========== ==========
Weighted average number
of shares 2,502,650 2,507,829 2,472,883
========== ========== ==========
See summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
39
<PAGE> 42
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $233,100 $1,688,200 $16,345,600 $(261,500) $18,005,400
Common stock dividend 23,300 2,190,800 (2,214,100) - -
Cash dividends on common
stock ($.06 per share) - - (138,000) - (138,000)
Treasury stock acquired - - - (97,400) (97,400)
Net income - - 1,615,500 - 1,615,500
------- --------- ---------- -------- ----------
Balance, December 31, 1996 256,400 3,879,000 15,609,000 (358,900) 19,385,500
Cash dividends on common
stock ($.06 per share) - - (150,400) - (150,400)
Net income - - 2,024,700 - 2,024,700
------- --------- ---------- -------- ----------
Balance, December 31, 1997 256,400 3,879,000 17,483,300 (358,900) 21,259,800
Cash dividends on common
stock ($.07 per share) - - (175,500) - (175,500)
Treasury stock acquired - - - (82,500) (82,500)
Net income - - 2,126,500 - 2,126,500
------- --------- ---------- -------- ----------
Balance, December 31, 1998 $256,400 $3,879,000 $19,434,300 $(441,400) $23,128,300
======= ========= ========== ======== ==========
See summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
40
<PAGE> 43
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,126,500 $ 2,024,700 $ 1,615,500
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
of property, plant and equipment 2,555,500 2,256,900 2,204,300
Amortization of other assets 505,400 475,700 144,800
Loss on abandoned projects 231,400 - -
Changes in assets and liabilities
associated with operations:
(Increase) decrease
in receivables 3,046,400 (4,957,300) (1,242,700)
Increase in inventories (2,797,900) (1,587,600) (3,080,700)
Decrease (increase)
in prepaid expenses 221,000 (382,000) (72,600)
Increase in accounts payable 2,663,100 782,900 191,500
Increase (decrease) in other
payables and accrued expenses (721,000) (2,036,400) 852,100
Decrease in deferred income taxes (606,400) (49,100) (226,900)
---------- ---------- ----------
Net cash provided by
(used in)operating
activities 7,224,000 (3,472,200) 385,300
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (828,100) (2,768,400) (1,451,400)
Additions to intangible assets (538,500) (33,100) (76,200)
Net increase in other
noncurrent assets (249,200) (68,000) (150,000)
---------- ---------- ----------
Net cash used in
investing activities (1,615,800) (2,869,500) (1,677,600)
---------- ---------- -----------
</TABLE>
(Continued)
41
<PAGE> 44
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowings (repayments) under
line of credit agreement (4,100,000) 7,100,000 $ 3,100,000
Increase in long-term debt (note 10) -- 1,884,800 96,600
Payments on debt and capital
lease obligations (1,229,800) (2,378,500) (1,368,100)
Acquisition of treasury stock (82,500) - (97,400)
Payment of cash dividends (175,500) (150,400) (138,000)
---------- ---------- ----------
Net cash provided by
(used in) financing activities (5,587,800) 6,455,900 1,593,100
---------- ---------- ----------
Net increase in cash 20,400 114,200 300,800
Cash at beginning of year 746,600 632,400 331,600
---------- ---------- ----------
Cash at end of year $ 767,000 $ 746,600 $ 632,400
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,804,200 $1,562,800 $ 851,500
Income taxes 914,800 1,721,000 1,630,900
========== ========= ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On March 15, 1996, the Company distributed 233,058 shares of Common Stock in
connection with a 10% Common Stock dividend to stockholders of record as of
February 29, 1996. As a result of the stock dividend, Common Stock was increased
by $23,300, additional paid-in capital was increased by $2,190,800, and retained
earnings was decreased by $2,214,100.
In December 1996, the Company completed the acquisition of an established
product line from a large chemical company (see note 10). In connection with the
acquisition, the Company recorded an intangible asset in the amount of
$4,662,000 in consideration of a minimum royalty obligation in the same amount.
In November 1998, the Company completed the acquisition of an established
product line from a subsidiary of a large chemical company (See note 10). In
connection with the acquisition, the Company recorded new product acquisition
costs of $5,203,900.
The Company financed $1,100,000 during the year ended December 31, 1998, under a
capitalized lease, its computer related software and equipment.
See summary of significant accounting policies and notes to consolidated
financial statements.
42
<PAGE> 45
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Consolidation
The Company is primarily a specialty chemical manufacturer that develops and
markets safe and effective products for agricultural and commercial uses. The
Company manufacturers and formulates chemicals for crops, human and animal
protection. One of the Company's subsidiaries, GemChem, Inc., procures certain
raw materials used in the Company's manufacturing operations and is also a
distributor of various pharmaceutical and nutritional supplement products. The
consolidated financial statements include the accounts of American Vanguard
Corporation ("Company") and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company
operates within a single operating segment.
Because of elements inherent to the Company's business, such as differing and
unpredictable weather patterns, crop growing cycles, changes in product mix of
sales and ordering patterns that may vary in timing, measuring the Company's
performance on a quarterly basis, (gross profit margins on a quarterly basis may
vary significantly) even when such comparisons are favorable, is not as good an
indicator as full-year comparisons.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
Long-lived Assets
Intangible assets resulting from business acquisitions (see note 10), consist of
cost in excess of net assets (goodwill) acquired and other intangible assets,
including customer lists, product registrations, trademarks and contracts. These
intangible assets are being amortized on a straight-line basis over the period
of an expected benefit of years. Management has a policy to review intangible
assets and productive assets at each quarterly balance sheet date for possible
impairment. This policy includes recognizing write-downs if it is probable that
measurable undiscounted future cash flows and/or the aggregate net cash flows of
an asset, as measured by current revenues and costs (exclusive of depreciation
or amortization) over the asset's remaining depreciable life, are not sufficient
to recover the net book value of an asset.
Revenue Recognition
Sales are recognized upon shipment of products or transfer of title to the
customer.
43
<PAGE> 46
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Depreciation
Depreciation of property, plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets.
Fair Value of Financial Instruments
The carrying values of cash, receivables and accounts payable approximate their
fair values because of the short maturity of these instruments.
The fair value of the Company's long-term debt and note payable to bank is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities. Such fair value approximates the respective carrying values of the
Company's long-term debt and note payable to bank.
Income Taxes
Income taxes have been provided using the asset and liability method in
accordance with Financial Accounting Standard No. 109, "Accounting for Income
Taxes".
The asset and liability method requires the recognition of deferred tax assets
and liabilities for future tax consequences of temporary differences between the
financial statement bases and tax bases of assets and liabilities at the date of
the financial statements using the provisions of the tax laws then in effect.
Per Share Information
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share
("EPS"). SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on
the face of all income statements. 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
174,000 shares of the Company's common stock are exercised. These options were
anti-dilutive in 1998, 1997 and 1996 and as such, dilutive EPS amounts are the
same as basic EPS for all periods presented. No prior year EPS amounts have been
restated as a result of SFAS 128.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
44
<PAGE> 47
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses at the date that the financial statements are prepared. Actual
results could differ from those estimates.
Reclassifications
Certain prior years' amounts have been reclassified to conform to the current
year's presentation.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure", ("SFAS 129") issued by the FASB is effective for
financial statements ended after December 15, 1997. The new standard reinstates
various securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS No. 128.
Adoption of SFAS No. 129 did not have an impact on the Company's financial
position or results of operations.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", ("SFAS 130") issued by the
FASB. SFAS 130 establishes standards for reporting and displaying of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has no material components of other
comprehensive net income and accordingly adoption of this Statement did not have
an impact on the Company's current disclosures and presentation.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information", ("SFAS 131") issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. This Statement requires that public companies report certain
information about their operating segments, products and services, and the
geographic areas in which they operate. Because the Company operates within a
single operating segment, adoption of this Statement did not have an impact on
the Company's current disclosures and presentation.
45
<PAGE> 48
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(1) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
ESTIMATED
1998 1997 USEFUL LIVES
---- ---- ------------
<S> <C> <C> <C>
Land $ 2,382,600 $ 2,382,600
Buildings and improvements 4,708,600 4,573,600 10 to 30 years
Machinery and equipment 23,384,900 22,864,000 3 to 10 years
Office furniture,fixtures
and equipment 2,393,800 1,128,800 3 to 10 years
Automotive equipment 105,000 105,000 3 to 6 years
Construction in progress 687,700 926,200
---------- ----------
33,662,600 31,980,200
Less accumulated depreciation 21,086,300 18,541,200
---------- ----------
$12,576,300 $13,439,000
=========== ===========
</TABLE>
(2) LONG-TERM DEBT
Long-term debt of the Company at December 31, 1998 and 1997 is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable, secured by certain real
property, payable in
monthly installments of $87,500
plus interest at prime plus .5%
(prime was 7.75% at December 31, 1998), with
remaining unpaid principal
due December 1, 2000 $ 2,012,500 $ 3,062,500
Note payable, secured by certain real property,
payable in monthly installments of
$6,125, plus interest at prime with remaining
unpaid principal due October 15, 2004 1,757,900 1,831,400
Note payable, secured by certain
real property, payable in monthly
principal and interest installments of $923
with remaining unpaid principal due
July 1, 2001, interest rate at 8.00% 87,700 91,300
Obligations under product acquisition
agreement (see note 10) 4,666,200 -
Obligations under capitalized leases (see note 5) 1,052,000 54,700
---------- ----------
9,576,300 5,039,900
Less current installments 3,118,500 1,059,500
---------- ----------
$ 6,457,800 $ 3,980,400
========== ==========
</TABLE>
46
<PAGE> 49
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Approximate principal payments on long-term debt mature as follows:
<TABLE>
<S> <C>
1999 $3,118,500
2000 2,661,500
2001 1,980,200
2002 352,200
2003 73,500
Thereafter 1,390,400
----------
$9,576,300
==========
</TABLE>
(3) NOTE PAYABLE TO BANK
Under a credit agreement with a bank as amended in May 1998, the Company may
borrow up to $24,000,000. The note bears interest at a rate of prime plus .25%
(prime was 7.75% at December 31, 1998), which is payable monthly. Additionally,
the Company, at its option, may pay a fixed rate of interest offered by the bank
for terms not less than 30 nor more than 180 days and provided that any such
period of time does not extend beyond the expiration date of the credit
agreement. Substantially all of the Company's assets not otherwise specifically
pledged as collateral on existing loans and capital leases are pledged as
collateral under the credit agreement. The note payable expires on July 31,
2000. The Company had $14,000,000 available under this credit agreement as of
December 31, 1998. The credit agreement, among other financial covenants, limits
payments of cash dividends to a maximum of 25% of net income. The Company was in
compliance with the financial covenants as of December 31, 1998. The balance
outstanding at December 31, 1998 and 1997 was $10,000,000 and $14,100,000
respectively. The average amount outstanding during the years ended December 31,
1998 and 1997 was $16,938,100 and $13,288,600. The weighted average interest
rate during the years ended December 31, 1998 and 1997 was 8.02% and 8.14%.
(4) INCOME TAXES
The components of income tax expense are:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,493,200 $ 997,800 $ 936,400
State 249,800 197,600 285,200
Other, primarily foreign - 8,200 1,200
Deferred:
Federal (524,300) (20,700) (134,000)
State (82,100) 75,200 (92,900)
--------- --------- ----------
$1,136,600 $1,258,100 $ 995,900
========= ========= ==========
</TABLE>
47
<PAGE> 50
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Total income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to income before income tax expense as a result
of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed tax provision at
statutory Federal rates $1,109,500 $1,116,200 $ 887,900
Increase (decrease) in
taxes resulting from:
State taxes, net of
Federal income tax
benefit 25,800 180,800 144,000
Nondeductible expenses 37,600 35,900 28,000
Other (primarily foreign
taxes) -- 8,200 1,900
Benefit of research and
development and
alternative minimum
tax credits (36,300) (83,000) (65,900)
--------- --------- ----------
$1,136,600 $1,258,100 $ 995,900
======== ========= ==========
</TABLE>
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to significant portions of the
net deferred tax liability at December 31, 1998 and 1997 relate to the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Plant and equipment, principally due
to differences in depreciation and
capitalized interest $2,019,600 $2,654,800
Inventories, principally due to
additional costs inventoried for
tax purposes pursuant to the Tax
Reform Act of 1986 (387,800) (307,800)
State income taxes (57,000) (91,900)
Vacation pay accrual (105,500) (113,500)
Imputed interest on royalty obligation 139,900 85,800
Discount on accounts receivable 453,300 433,000
Other (22,400) (13,900)
--------- ---------
Net deferred income tax liability $2,040,100 $2,646,500
========= =========
</TABLE>
48
<PAGE> 51
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company believes it is more likely than not that the deferred tax assets
above will be realized in the normal course of business.
(5) LEASES
The Company leases certain manufacturing equipment, and office furniture,
fixtures and equipment under long-term capital lease agreements.
Property, plant and equipment at December 31, 1998 include the following leased
property under capital leases by major classes:
<TABLE>
<S> <C>
Machinery and equipment $ 47,300
Office furniture, fixtures
and equipment 1,237,500
----------
1,284,800
Less accumulated depreciation 76,700
----------
$1,208,100
==========
</TABLE>
The following is a schedule of future minimum lease payments for capital leases
as of December 31, 1998
<TABLE>
<S> <C>
Year ending December 31:
1999 $ 312,700
2000 340,000
2001 340,000
2002 264,400
----------
Total minimum lease payments 1,257,100
Less amount representing interest 205,100
-----------
Present value of net minimum lease payment $1,052,000
===========
</TABLE>
49
<PAGE> 52
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) LITIGATION AND ENVIRONMENTAL
DBCP LAWSUITS
A. CALIFORNIA MATTERS
In 1997, Amvac was served with complaints in two actions filed in
the San Francisco Superior Court entitled the Sultana Community Services
District v. Shell Oil Co., et.al. and the County of San Joaquin v. Shell Oil
Co., et.al. Both complaints allege property damage resulting from
Dibromochloropropane ("DBCP") contamination of water supply. Both complaints
name as defendants AMVAC, Shell Oil Company, Dow Chemical Company, Occidental
Chemical Company, Chevron Chemical Company, and Velsicol Chemical Company. In
Sultana Plaintiff has not produced documentation to support its claim for
damage. Any damages proven may be significantly offset by Plaintiff's receipt of
a Government grant for a new well. The County of San Joaquin matter was
dismissed on March 8, 1999 and the Court confirmed Amvac's settlement for $5,000
and thereby barred potential cross-complaints by other defendants. The
settlement included a release for the five wells claimed to have been damaged
and for the next two wells, of the nine other identified wells, if they should
exceed MCL contaminant levels in the future.
B. HAWAII MATTERS
AMVAC and the Company were served with complaints, on February 7,
1997 and March 4, 1997 respectively. The actions were filed in the Circuit Court
of the Second Circuit, State of Hawaii entitled Board of Water Supply of the
County of Maui v. Shell Oil Co., et.al. The suit names as defendants the
Company, AMVAC, Shell Oil Company, the Dow Chemical Company, Occidental Chemical
Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and
Brewer Environmental Industry, Inc. The Maui Pineapple Company has recently been
named as a cross-defendant. The Compliant alleges property damage resulting from
DBCP contamination of between two and four wells of the Board's water wells.
Formal discovery is ongoing as to the identity of the applications of DBCP that
might have been made near the wells and the level of contamination of the wells.
The Plaintiff alleges damages of approximately 16 million dollars for all four
wells. The Plaintiff alleges Amvac sold approximately 20% of the DBCP on Maui.
Procedural defenses of the Board's standing to sue and expiration of the statute
of limitations remain defenses.
On October 20, 1997, AMVAC was served with a Complaint in
which it was named as a Defendant, filed in the Circuit Court, First
Circuit, state of Hawaii entitled Patrickson, et.al. v. Dole Food
Co., et.al. alleging damages sustained from injuries caused by
Plaintiff's exposure to DBCP while applying the product in their
native countries. Other named defendants are: Dole Food Co., Dole
Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers
Association of Hawaii, Shell Oil Company, Dow Chemical Company,
50
<PAGE> 53
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit &
Steamship, Standard Fruit company De Costa Rica, Standard Fruit company De
Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading
corporation, and Del Monte Fresh Produce. The ten named plaintiffs are citizens
of Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a
class action on behalf of other workers so exposed in these four countries. The
defendants subsequently removed the case to the United States District Court in
Hawaii. On March 8, 1999, the Judge in the U.S. District Court dismissed the
case based on the defendants' agreement to pay any judgement that might be
entered in the plaintiff's nation of origin. The court order allows plaintiffs
to return to the United States if the foreign courts do not accept jurisdiction.
The plaintiffs reported that they have filed suit in each of the countries. None
of the defendants have been served with these suits. No discovery has taken
place on the individual claims. Without discovery, it is unknown if any
plaintiff was exposed to Amvac DBCP and too early to provide any evaluation of
the likelihood of an unfavorable outcome. There may be statute of limitation
defenses available to defendants. Amvac intends to contest the cases vigorously.
C. MISSISSIPPI MATTERS
On May 30,1996, AMVAC was served with five complaints in which it
is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc.,
Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit
Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit
Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte
Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison
County, First Judicial District of Mississippi. Each case alleged damages
sustained from injuries caused by Plaintiff's exposure to DBCP while applying
the product in their native countries. These cases have been removed to U.S.
District Court for the Southern District of Mississippi, Southern Division.
Three of the cases were conditionally dismissed on the basis of forum non
conveniens. Another case was closed for administrative purposes due to its
similarity to the other matters. Only one case is still open but no substantive
activity has occurred since its filing. Between April and October 1998,
plaintiffs filed notices of appeal in each of the cases. The United States Court
of Appeals, Fifth Circuit suspended the briefing schedule until the record on
appeal is completed. As of this date the appeals are pending. Defendants have
learned one of the plaintiffs has filed suit in Panama, but no defendant has
been served. No discovery has taken place and therefore it is unknown whether
any of the plaintiffs were exposed to Amvac DBCP or what statute of limitation
defense might apply. Amvac intends to contest the cases vigorously. It is too
early to provide an evaluation of the likelihood of an unfavorable outcome at
this time.
51
<PAGE> 54
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PHOSDRIN(R) LAWSUIT
On September 21, 1995, AMVAC was served with a complaint filed in
the Superior Court of King County, Washington entitled Ricardo Ruiz Guzman,
et.al. v. Amvac Chemical Corporation, et. al. (the "Guzman Case"). The
Complaint is for unspecified monetary damages based on Plaintiffs' (farm
workers') alleged injuries from their exposure to the pesticide Phosdrin(R).
Defendants removed the case to the United States District Court. On October 14,
1997 the United States District Court dismissed all Plaintiffs' claims against
AMVAC with prejudice. Plaintiff's appeal of the judgement to the United States
Court of Appeals for the Ninth Circuit was argued on November 2, 1998. It is
currently impossible to predict the outcome of the matter. AMVAC's insurance
carrier has assumed costs of the appeal.
NAA DATA TRADE SECRET
On November 1, 1996 AMVAC filed an action in U.S. District Court
in Oregon against four defendants relating to their misuse of AMVAC's exclusive
right associated with Naphthalene Acetic Acid ("NAA") (Amvac Chemical
Corporation v. Termilind, Inc., et.al.). On November 25, 1996, defendants
Termilind and Inchema asserted counterclaims against AMVAC: violation of
antitrust laws (Sherman Act section 2 and ORS 646.730), unfair competition,
tortuous interference, defamation, and breach of contract. On January 5, 1999,
the Court granted AMVAC's Motion for Partial Summary Judgement on AMVAC's claim
for tortious interference with prospective business relations finding that AMVAC
had proved three of the five elements of the tort. To prevail on this claim,
AMVAC must still prove the defendant's intent to interfere and its damages
resulting from the defendant's conduct. Formal discovery is continuing and no
trial date has been set for the matter. It is too early to provide any
evaluation of the likelihood of an unfavorable outcome.
ENVIRONMENTAL
During 1998, AMVAC continued activities to address environmental
conditions at the railroad right-of-way which is located adjacent to AMVAC's
Commerce, California
52
<PAGE> 55
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
facility (the "Facility"). The railroad right-of-way is jointly owned by the
Union Pacific Railroad and the Burlington Northern and Santa Fe Railway Company,
and is managed on behalf of both companies by the latter. The site investigation
and remediation activities have been conducted pursuant to a January 10, 1996,
enforceable agreement and order entered into by AMVAC and the California
Department of Toxic Substances Control ("DTSC").
A site investigation and health risk assessment were conducted and
completed by AMVAC during the first two quarters of 1997. AMVAC prepared a
draft Remedial Action Plan ("RAP") in May, 1997 which evaluated several options
for remediating soils at the railroad right-of-way. The RAP concluded that the
most appropriate option for remediation was the excavation and offsite disposal
of soils which exceeded risk-based cleanup levels. DTSC approved the draft RAP
on June 25, 1997. Remedial activities commenced on July 4, 1997 and were
completed on July 12, 1997. A post-remediation report was prepared by AMVAC
and submitted to DTSC on October 13, 1997.
AMVAC received DTSC approval of the remedial activities in a letter
dated June 26, 1998 (the "Letter"). In the Letter, DTSC stated, among other
things, that ..."the Site, in its current condition, does not appear to pose a
threat to human health or the environment based upon the conclusion of the Post
Remediation Risk Assessment ("PRRA") and no further remedial action is
required." However, due to elevated concentrations of arsenic left in place at
depths from 11 to 45 feet below ground surface, DTSC requires that a land use
covenant be recorded on the property prior to issuance of site certification in
accordance with Chapter 6.85 of the California Health & Safety Code, and that
reviews be conducted by AMVAC every five years to evaluate whether the
completed remediation remains protective of public health and the environment.
In March, 1997, the Facility was accepted into the DTSC's Expedited
Remedial Action Program ("ERAP"). The remaining environmental investigation and
any remediation activities related to the ten underground storage tanks at the
Facility which had been closed in 1995 will be addressed by AMVAC under ERAP.
Soil characterization activities at other areas of the Facility are expected to
commence in the second or third quarter of 1999 and to be conducted in phases
over the next two to three years. These activities are required at all
facilities which currently have, or in the past had, hazardous waste management
permits. Because AMVAC previously held a hazardous waste storage permit,
AMVAC is subject to these requirements.
The Company is subject to numerous federal and state laws and
governmental regulations concerning environmental matters and employee health
and safety. The Company continually adapts its manufacturing process to the
environmental control standards of various regulatory agencies. The EPA and
other federal and state agencies have the
53
<PAGE> 56
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
authority to promulgate regulations that could have an impact on the Company's
operations.
AMVAC expends substantial funds to minimize the discharge of materials
into the environment and to comply with the governmental regulations relating to
protection of the environment. Wherever feasible, AMVAC recovers raw materials
and increases product yield by recycling in order to partially offset increasing
pollution abatement costs.
The Company is committed to a long-term environmental protection program
that reduces emissions of hazardous materials into the environment, as well as
to the remediation of identified existing environmental concerns. Federal and
state authorities may seek fines and penalties for violation of the various laws
and governmental regulations. As part of its continuing environmental program,
except as disclosed above, the Company has been able to comply with such
proceedings and orders without any materially adverse effect on its business.
(7) EMPLOYEE DEFERRED COMPENSATION PLAN
The Company maintains a deferred compensation plan (Plan) for all eligible
employees. The Plan calls for each eligible employee, at the employee's
election, to participate in an income deferral arrangement under Internal
Revenue Code Section 401(k) whereby the Company will match the first $5.00 of
weekly employee contributions. The Plan also permits employees to contribute an
additional 15% of their salaries of which the Company will match 50% of the
first 6% of the additional contribution. The Company's contributions to the Plan
amounted to approximately $215,400, $195,100 and $196,600 in 1998, 1997 and
1996.
(8) MAJOR CUSTOMERS AND EXPORT SALES
In 1998, there were two major customers that accounted for 29% and 12% of the
Company's consolidated sales. In 1997, there were sales to a major customer that
accounted for 29% of the Company's consolidated sales. In 1996, there were two
major customers that accounted for 33% and 10% of the Company's consolidated
sales. These companies are distributors or buying cooperatives.
Export sales were $5,085,700, $6,646,000 and $3,535,500 for 1998, 1997 and 1996.
(9) ROYALTIES
The Company has various royalty agreements in place extending through December
2003, some of which relate to the Company's acquisition of
54
<PAGE> 57
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
certain products. Royalty expenses were $149,700, $426,700 and $416,900 for
1998, 1997 and 1996.
(10) BUSINESS ACQUISITIONS
In November 1998, the Company completed the acquisition of a product
line from a wholly-owned subsidiary of a large chemical company. The Company
acquired all of the seller's existing product as of November 2, 1998 for an
agreed upon value of $2,907,000 as well as all U.S. Environmental Protection
Agency ("EPA") and state registrations, an extensive data package, trademarks
and all product related intellectual property. The purchase price was
$6,000,000, (in addition to the cost of inventory acquired) subject to certain
reductions if the product registrations and uses with the EPA (and similar state
agencies) are restricted or canceled. The agreement also calls for royalty
payments at an agreed upon per unit price for all product sold in
the U.S. during the calendar years 2002, 2003 and 2004.
As a result of the acquisition, the Company has recorded product line
acquisition costs of approximately $5,203,900 (as discounted for imputed
interest) as an intangible asset in the 1998 consolidated financial statements
and inventory costs of $2,907,000. Under the acquisition agreement, all payments
are due in 1999 except for $3,500,000, of which $1,500,000 is due on December
31, 2000 and $2,000,000 on December 31, 2001.
In December 1996, the Company completed the acquisition of an established
product line from a large chemical manufacturer. The Company acquired all of the
seller's existing product as of December 31, 1996 for an agreed upon value of
$1,463,800 as well as identifiable intangible assets, including customer lists,
existing contracts and product registrations and trademarks with an agreed upon
value of $1,538,500 and other intangible assets of $3,123,500. In consideration
of the above, the Company paid cash for the existing
55
<PAGE> 58
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
product and recorded a minimum obligation of $4,662,000.
(11) COMMITMENTS
In July 1994, the Company entered into consulting agreements with two former
employees who are the current Co-Chairmen of the Company's Board of Directors.
The agreements originally were set to expire in July 1999 and provided for total
remuneration of $1,000,000 over the five year period to be paid to each
former employee. In 1996, the consulting agreements were extended for an
additional year through July 2000 with additional remuneration of $100,000 to be
paid to each former employee.
The Company has an employment agreement with an officer of one of its
subsidiaries. The employment agreement commenced September 16, 1996 and expires
August 31, 1999. The employment agreement originally provided for an annual
salary of $170,000 which amount was adjusted to $189,000 effective January 1,
1999. Annual increases are at the discretion of the Board of Directors but shall
not be less than the increase in an agreed upon cost of living index.
The Company also entered into an employment agreement with an officer of one of
its subsidiaries. The employment agreement commenced February 1, 1999 and
expires December 31, 2001. The employment agreement provides for an annual
salary of $170,000. Annual increases are at the discretion of the Board of
Directors but shall not be less than the increase in an agreed upon cost of
living index.
Amounts to be paid under the aforementioned consulting and employment agreements
are summarized as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1999 $ 495,400
2000 278,300
2001 170,000
---------
$ 943,700
=========
</TABLE>
In July 1995, the Company entered into a noncancellable operating sublease for
its corporate headquarters expiring in October 1999. The
56
<PAGE> 59
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
lease contains a provision to pass through to the Company the Company's pro rata
share of the building's operating expenses commencing July 1, 1996 in excess of
the amount passed through to the sublandlord during the first year of the
sublease. Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$137,400, $131,800 and $131,800. Future minimum lease payments under the terms
of the sublease are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1999 $109,800
========
</TABLE>
(12) RESEARCH AND DEVELOPMENT
Research and development expenses were $2,611,900, $2,241,300, and $1,932,700
for the years ended December 31, 1998, 1997 and 1996.
(13) SETTLEMENT
The Company was awarded a settlement of $1,845,000 by neutral arbitrators in a
binding action. A portion of this award, $777,300, was recorded as an offset to
related professional/legal costs in 1998. The balance appears as a separate line
item titled "Settlement" on the Company's Consolidated Statements of Income for
the years ended December 31, 1998, 1997 and 1996. The 1997 and 1996 amounts
represent professional/legal costs that relate to the 1998 settlement.
57
<PAGE> 60
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) SUBSEQUENT EVENT -- UNAUDITED
On March 31, 1999, the Company announced that the Board of Directors declared a
cash dividend of $.06 per share. The dividend will be distributed on April 19,
1999 to stockholders of record as of April 8, 1999.
58
<PAGE> 61
INDEX TO EXHIBITS
ITEM 14(a)3
<TABLE>
<CAPTION>
Page
Sequentially
Numbered
-------------
<S> <C> <C>
2.1 Purchase and Sales Agreement dated November
15, 1993, between Amvac Chemical Corporation
and E.I. du Pont de Nemours and Company.(4) --
3.1 Certificate of Incorporation of
Registrant.(1) --
3.2 Bylaws of Registrant (as amended as of
January 14, 1993).(3) --
4.1 Specimen Certificate of Common Stock.(2) --
10.1 Indemnification Agreement dated January 6, 1993 between Registrant and
each of its officers and directors.(3) --
10.2 Line of Credit Agreement dated June 18, 1991, related amendments one
through eight between the Registrant and Sanwa Bank California and
related Security Agreement.(3) --
10.3 Line of Credit Agreement dated April 30, 1993, and related
amendments, between the Registrant and Sanwa Bank California
and related Security Agreement.(5) --
10.4 Line of Credit Agreement dated April 14, 1994, and related amendments,
between the Registrant and Sanwa Bank California and related Security
Agreement.(6) --
10.5 Employment Agreement between American Vanguard Corporation and
Eric G. Wintemute.(6) --
10.6 Employment Agreement between American Vanguard Corporation and
Alfred J. Moskal.(6) --
</TABLE>
59
<PAGE> 62
<TABLE>
<S> <C> <C>
10.7 Employment Agreement between American Vanguard Corporation and
Robert F. Gilbane.(6) --
10.8 Agreement and General Release between American Vanguard Corporation
and Herbert A. Kraft.(6) --
10.9 Agreement and General Release between American Vanguard Corporation
and Glenn A. Wintemute.(6) --
10.10 American Vanguard Corporation
1994 Stock Incentive Plan.(7) --
10.11 Amended and Restated Credit Agreement dated September 12,
1995, and related documents between the Registrant and
Sanwa Bank California.(8) --
21. List of Subsidiaries of Registrant. 56
27. Financial Data Schedule 57
</TABLE>
- ----------------------
(1) Incorporated by reference as an Exhibit to Registrant's Form 10
Registration Statement No. 2-85599 filed June 13, 1972.
(2) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
June 13, 1972.
(3) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
March 30, 1993.
(4) Incorporated by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated November 23, 1993.
(5) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
March 30, 1994.
(6) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
March 30, 1995.
(7) Incorporated by reference as Appendix A to Registrant's Proxy Material
filed June 3, 1995.
(8) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed
March 28, 1996.
60
<PAGE> 1
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
EXHIBIT 21
LISTING OF SUBSIDIARIES
Subsidiaries of the Company and the jurisdiction in which each company was
incorporated are listed below. Unless otherwise indicated parenthetically, 100%
of the voting securities of each subsidiary are owned by the Company. All
Companies indicated with an asterisk (*) are subsidiaries of AMVAC. All of the
following subsidiaries are included in the Company's consolidated financial
statements:
AMVAC Chemical Corporation California
GemChem, Inc. California
2110 Davie Corporation California
(formerly ABSCO Distributing)
AMVAC Chemical UK Ltd.* Surrey, England
Agrosevicions Amvac, SA de CV Mexico
Quimica Amvac de Mexico SA de CV Mexico
Environmental Mediation, Inc. (51%) California
Calhart Corporation California
Manufacturers Mirror & Glass
Co., Inc. California
Todagco (80%)* California
American Vanguard Corporation
of Imperial Valley (90%)* California
AMVAC Ag-Chem* California
AMVAC Chemical Corporation-Nevada* Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000005981
<NAME> AMERICAN VANGUARD CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 767,000
<SECURITIES> 0
<RECEIVABLES> 18,639,600
<ALLOWANCES> 0
<INVENTORY> 15,735,800
<CURRENT-ASSETS> 35,957,000
<PP&E> 33,662,600
<DEPRECIATION> 21,086,300
<TOTAL-ASSETS> 58,847,000
<CURRENT-LIABILITIES> 16,146,500
<BONDS> 19,576,300
0
0
<COMMON> 256,400
<OTHER-SE> 22,871,900
<TOTAL-LIABILITY-AND-EQUITY> 58,847,000
<SALES> 67,015,600
<TOTAL-REVENUES> 67,015,600
<CGS> 39,908,800
<TOTAL-COSTS> 39,908,800
<OTHER-EXPENSES> 21,948,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,895,300
<INCOME-PRETAX> 3,263,100
<INCOME-TAX> 1,136,600
<INCOME-CONTINUING> 2,126,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,126,500
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
