UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: September 30, 1997
Commission file Number: 0-18259
AG-BAG INTERNATIONAL LIMITED
(Exact name of registrant as specified in its charter.)
Delaware 93-1143627
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2320 SE Ag-Bag Lane, Warrenton OR 97146
(Address of principal executive offices) (Zip Code)
(503) 861-1644
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value per share - 12,061,991 shares outstanding as of
November 3, 1997
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
(Unaudited)
1997 1996 1996
--------- --------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 656 $ 656 $ 656
Accounts receivable 6,952,358 7,049,890 2,962,600
Inventories 6,861,528 6,554,307 5,235,866
Other current assets 480,632 674,926 546,567
----------- ----------- -----------
Total current assets 14,295,174 14,279,779 8,745,689
Deferred income tax 2,000 12,301 2,000
Intangible assets, less
accumulated amortization 1,551,841 1,768,336 1,702,576
Property, plant and equipment
less accumulated depreciation 4,976,869 4,067,719 4,848,076
Long-term inventories 1,269,334 1,205,834 1,401,127
Other assets 213,558 150,373 203,654
----------- ----------- -----------
Total assets $22,308,776 $21,484,342 $16,903,122
=========== =========== ===========
(Continued)
2
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
September 30 December 31
(Unaudited)
1997 1996 1996
--------- --------- -----------
<S> <C> <C> <C>
Current liabilities:
Notes payable to bank $ 3,501,274 $ 3,899,334 $ 379,206
Current portion of long term
debt and capital lease
obligations 525,803 585,918 547,222
Current portion of notes
payable to shareholders' 14,344 12,635 14,343
Accounts payable 1,861,533 1,293,744 699,191
Accrued expenses and other
current liabilities 1,005,755 870,047 1,016,140
Income tax payable 217,816 578,410
----------- ----------- -----------
Total current liabilities 7,126,525 7,240,088 2,656,102
Long term debt and capital
lease obligation, less
current portion 2,691,211 1,642,784 2,020,890
Notes payable to shareholders'
less current portion 29,113 44,806 39,733
----------- ----------- -----------
Total liabilities 9,846,849 8,927,678 4,716,725
----------- ----------- -----------
Commitments
Shareholders' equity:
Preferred stock, $4LV 8 1/2%
nonvoting 696,000 696,000 696,000
Common stock, $.01 par value 120,619 120,537 120,537
Additional paid-in capital 9,210,211 9,201,796 9,201,796
Retained earnings 2,487,490 2,622,324 2,139,739
Foreign currency translation (52,393) (83,993) 28,325
----------- ----------- -----------
Total shareholders' equity 12,461,927 12,556,664 12,186,397
----------- ----------- -----------
Total liabilities and
shareholders' equity $22,308,776 $21,484,342 $16,903,122
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Information
3
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Preferred Stock Common Stock Paid-In Retained Currency
Shares Amount Shares Amount Capital Earnings Translation Total
------ ------ ------ ------ ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 174,000 $696,000 12,053,751 $120,537 $9,201,796 $2,139,739 $ 28,325 $12,186,397
Foreign currency translation (35,548) (35,548)
Preferred stock dividends (14,790) (14,790)
Net loss (378,477) (378,477)
------- -------- ---------- -------- ---------- ---------- -------- -----------
Balance March 31, 1997 174,000 696,000 12,053,751 120,537 9,201,796 1,746,472 (7,223) 11,757,582
Foreign currency translation 1,341 1,341
Preferred stock dividends (14,790) (14,790)
Net income 572,360 572,360
------- -------- ---------- -------- ---------- ---------- -------- -----------
Balance June 30, 1997 174,000 696,000 12,053,751 120,537 9,201,796 2,304,042 (5,882) 12,316,493
Foreign currency translation (46,511) (46,511)
Preferred stock dividends (14,790) (14,790)
Stock issued in connection
with employee stock plan 8,240 82 8,415 8,497
Net Income 198,238 198,238
------- -------- ---------- -------- ---------- ---------- -------- -----------
Balance September 30, 1997 174,000 696,000 12,061,991 120,619 9,210,211 2,487,490 (52,393) 12,461,927
======= ======== ========== ======== ========== ========== ======== ===========
</TABLE>
See Notes to Consolidated Financial Information
4
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended September 30
(Unaudited)
-------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 7,549,701 $ 8,798,431
Cost of sales 5,695,046 6,644,417
----------- -----------
Gross profit from operations 1,854,655 2,154,014
Selling expenses 725,751 652,563
Administrative expenses 731,987 701,545
Research and development expenses 9,971 12,513
----------- -----------
Income from operations 386,946 787,393
Other income (expense):
Interest income 230 5,689
Interest expense (178,237) (143,581)
Miscellaneous 91,299 134,398
----------- -----------
Income before provision for
income taxes 300,238 783,899
Provision for income taxes (102,000) (336,000)
----------- -----------
Net income $ 198,238 $ 447,899
=========== ===========
Primary earnings per share $ .02 $ .04
=========== ===========
Weighted average number of common
shares outstanding 12,060,052 12,056,807
=========== ===========
</TABLE>
See Notes to Consolidated Financial Information
5
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months
Ended September 30
(Unaudited)
-------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $19,180,679 $20,143,357
Cost of sales 14,503,170 15,138,267
----------- -----------
Gross profit from operations 4,677,509 5,005,090
Selling expenses 2,016,133 1,885,968
Administrative expenses 1,938,013 1,920,958
Research and development expenses 46,628 44,480
----------- -----------
Income from operations 676,735 1,153,684
Other income (expense):
Interest income 9,246 22,082
Interest expense (379,872) (341,038)
Gain on sale of assets 304,417
Miscellaneous 265,691 243,108
----------- -----------
Income before provision for
income taxes 571,800 1,382,253
Provision for income taxes (179,680) (551,000)
----------- -----------
Net income $ 392,120 $ 831,253
=========== ===========
Primary earnings per share $ .03 $ .07
=========== ===========
Weighted average number of common
shares outstanding 12,061,505 12,063,883
=========== ===========
</TABLE>
See Notes to Consolidated Financial Information
6
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended September 30
(Unaudited)
-------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 392,120 $ 831,253
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 809,617 871,911
(Gain) loss on disposition of fixed assets 1,443 (304,417)
Issuance of stock under employee plan 8,497
Changes in assets and liabilities:
Accounts receivable (3,989,758) (4,908,898)
Inventories (1,493,869) 268,965
Other current assets 65,935 (186,051)
Accounts payable 1,162,342 819,616
Accrued expenses and other current
liabilities (10,385) 103,336
Income tax payable 217,816 431,412
Other assets (9,904) (6,101)
----------- -----------
Net cash used in operating activities (2,846,146) (2,078,974)
----------- -----------
Cash flows from investing activities:
Capital expenditures (789,117) (1,584,952)
Proceeds from disposition of fixed assets 669,602
Intangible assets (6,950)
----------- -----------
Net cash used in investing activities (789,117) (922,300)
----------- -----------
Cash flows from financing activities:
Proceeds from line of credit 3,122,068 2,420,448
Principal payments on debt (243,829) (101,210)
Proceeds from issuance of debt 892,731 725,336
Payment of shareholders' notes (10,619) (9,614)
Payment of preferred dividends (44,370) (44,370)
----------- -----------
Net cash provided by financing activities 3,715,981 2,990,590
----------- -----------
Effect of foreign currency translation (80,718) 10,684
----------- -----------
Net decrease in cash - 0 - - 0 -
Cash and cash equivalents at beginning
of period 656 656
----------- -----------
Cash and cash equivalents at end of period $ 656 $ 656
=========== ===========
</TABLE>
See Notes to Consolidated Financial Information
7
<PAGE>
AG-BAG INTERNATIONAL LIMITED
Notes to Consolidated Financial Information
(Unaudited)
Note 1 - Description of Business and Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
The Company's consolidated financial statements includes accounts of the parent
and its subsidiaries and reflects all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of operations for
the periods presented. Due to the seasonal nature of the business, the operating
results of the Company's quarterly financial information should not be taken as
indicative of the results of its operations for a full year. The financial
statements presented for the three-month and nine-month periods should be read
in conjunction with the consolidated financial statements and notes thereto for
the year ended December 31, 1996 included in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission on March 28, 1997.
Reclassifications
- -----------------
Certain reclassifications have been made to the financial statements for the
periods presented from amounts previously reported to conform with
classifications currently adopted. Such reclassifications had no effect on
previously reported shareholders' equity or results of operations.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information set forth below relating to matters that are not historical
facts are "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934 and involve risks and uncertainties which could
cause actual results to differ materially from those set forth below.
Reference is made to Item 7 of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the Company's annual
report on Form 10-K for the year ended December 31, 1996, on file with the
Securities and Exchange Commission. The following discussion and analysis
pertains to the Company's results of operations for the three-month period ended
September 30, 1997, compared to the results of operations for the three-month
period ended September 30, 1996, and to the results of operations for the
nine-month period ended September 30, 1997 compared to the results of operations
for the nine-month period ended September 30, 1996 and to changes in the
Company's financial condition from December 31, 1996 to September 30, 1997.
Consolidated net sales for the three-month period ended September 30, 1997 were
$7,549,701, down 14.19% from $8,798,431 for the same period in 1996.
Consolidated net sales for the nine-month period ended September 30, 1997 were
$19,180,679, down 4.78% from $20,143,357 for the same period in 1996. The
decrease for the quarter and nine-month period was the result of continued low
U.S. milk prices which have delayed capital expenditures for new machinery by
many U.S. farmers until there is upward movement in milk prices. Additionally,
sales were down in the Company's U.K. operation due to unusually wet weather
continuing through the summer months, which prevented some bagging and custom
work from being completed. Bag sales for the quarter and nine-month period ended
September 30, 1997 continued strong.
In 1997, the Company entered into a joint venture in Germany. As a result, bag
sales formerly made directly by Ag-Bag are now handled through the joint
venture. When factoring out these sales for 1996 that are now accounted for in a
different manner in 1997, sales for the third quarter of 1997 decreased only
11.25% over the same period in 1996, and sales for the nine-month period ended
September 30, 1997 decreased only 1.59% over the same period in 1996.
Gross profit from sales for the three-month period ended September 30, 1997 was
$1,854,655, a decrease of 13.90% from $2,154,014 for the same period in 1996.
Gross profit from sales for the nine-month period ended September 30, 1997 was
$4,677,509, a decrease of 6.54% from $5,005,090 for the same period in 1996. The
decrease for the quarter and nine-month period was the result of lower sales
volumes to cover fixed overheads, coupled with lower margins on sales of used
equipment. Additionally, the Company incurred higher transportation costs to
deliver product as a result of the new folding facility startup construction
delays earlier in the year. The Company has experienced lower bag folding
production costs since its new bag production facility became fully operational.
These savings were offset by the above mentioned factors.
Selling expenses for the three-month period ended September 30, 1997 were
$725,751, an increase of 11.21% from $652,563 for the same period in 1996.
Selling expenses for the nine-month period ended September 30, 1997 were
$2,016,133, an increase of 6.90% from $1,885,968 for the same period in 1996.
The increase for the quarter and nine-month period ended September 30, 1997 was
the result of increased commissions, travel, advertising and sales personnel to
handle the international, composting and grain divisions.
9
<PAGE>
Administrative expenses for the three-month period ended September 30, 1997 were
$731,987, an increase of 4.34% from $701,545 for the same period in 1996.
Administrative expenses for the nine-month period ended September 30, 1997 were
$1,938,013, an increase of .89% from $1,920,958 for the same period in 1996.
Administrative expenses increased for the quarter as a result of increased
professional fees and administrative support personnel.
Administrative expenses remained flat for the nine-month period.
Interest expense for the three-month period ended September 30, 1997 was
$178,237, an increase of 24.14% from $143,581 for the same period in 1996.
Interest expense for the nine-month period ended September 30, 1997 was
$379,872, an increase of 11.39% from $341,038 for the same period in 1996. The
increase for the quarter and nine-month period was the result of the Company
utilizing a larger portion of its credit facility due to the fact that some
extended term sales were offered to remain competitive. In addition, the Company
has also added a long term construction and equipment loan to finance its new
Blair, Nebraska facilities.
Net income for the three-month period ended September 30, 1997 was $198,238, a
decrease of 55.74% from $447,899 for the same period in 1996. Net income for the
nine-month period ended September 30, 1997 was $392,120, a decrease of 52.83%
from $831,253 for the same period in 1996. During the second quarter of 1996,
the Company recorded a net gain after tax on the sale of one of its production
facilities of approximately $204,000. When factoring this non-operational gain
out for 1996, the decrease in net income for the nine-month period ended
September 30, 1997 would have been only 37.49%. from the same in period in 1996.
The decrease for the quarter resulted from continued low U.S. milk prices which
delayed farmers' expenditures for capital equipment coupled with lower sales in
the U.K. due to continued wet weather preventing the completion of some bagging
and custom work. In addition, lower sales volumes to offset fixed overheads
coupled with lower margins on used equipment, higher transportation costs,
increased commissions, travel and general selling expenses and increased
interest costs offset the production efficiencies and lower bag folding costs
gained from the new production facility. The comparative decrease for the
nine-month period ended September 30, 1997 versus the same period in 1996 is a
result of the above mentioned factors coupled with the gain on the sale of a
building in 1996.
Liquidity and Capital Resources
- -------------------------------
The seasonal nature of the northern hemisphere farming industry, the production
time for equipment and the time required to prepare bags for use requires the
Company to manufacture and carry high inventories to meet rapid delivery
requirements. In particular, the Company must maintain a significant level of
bags during the spring and early summer to meet the sales demands during the
harvest season. The Company uses working capital and trade credit to increase
its inventory so that it has sufficient inventory available to meet its sales
demands through the spring and summer months.
The Company relies on its suppliers to provide trade credit to enable the
Company to build its inventory. The Company's suppliers have provided sufficient
trade credit to meet the demand to date and management believes this will
continue. No assurance can be given that suppliers will continue to provide
sufficient trade credit in the future.
10
<PAGE>
Accounts receivable decreased 1.39% as of September 30, 1997 to $6,952,358 from
the September 30, 1996 level of $7,049,890. The decrease in accounts receivable
was the result of lower sales for the quarter.
Inventory at September 30, 1997 was $8,130,862 which was 4.78% higher than
inventory at September 30, 1996 of $7,760,141. The increase in inventory
resulted from lower than anticipated sales and a slight delay in the corn
harvest season which in turn delayed seasonal demand for product. The Company is
planning to implement an early order program for next season in an effort to
reduce its inventory.
The Company has a domestic operating line of credit with a limit of $5,000,000,
secured by accounts receivable and inventory. As of September 30, 1997,
$3,090,576 had been taken under the credit line. The Company also has a
revolving credit facility denominated in pounds sterling for its UK operation
with a limit of 400,000 pounds sterling. As of September 30, 1997, borrowings
under the foreign operating line aggregated $410,698 US dollars out of an
available $652,000 US dollars. Management believes that, along with funds
generated from operations and its credit facilities, it will be able to meet the
Company's cash requirements through 1997.
Financial Accounting Standards Not Yet Adopted
- ----------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, earnings per share ("FAS 128"). FAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
of FAS 128 is not permitted. The effect of implementing FAS 128 on the Company's
earnings per share computations has not been determined.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27, Financial Data Schedule (Edgar Only).
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1997.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG-BAG INTERNATIONAL LIMITED,
a Delaware corporation
(Registrant)
Date: November 7, 1997 By: /s/ Michael R. Wallis
------------------------------------
Michael R. Wallis
Chief Financial Officer and
Vice President
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's report on Form 10-Q for the period ended September 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000842289
<NAME> AG-BAG INTERNATIONAL LIMITED
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 656
<RECEIVABLES> 7,192,556
<ALLOWANCES> 240,198
<INVENTORY> 8,130,862
<CURRENT-ASSETS> 14,295,174
<PP&E> 9,261,968
<DEPRECIATION> 4,285,099
<TOTAL-ASSETS> 22,308,776
<CURRENT-LIABILITIES> 7,126,525
<BONDS> 2,720,324
0
696,000
<COMMON> 120,619
<OTHER-SE> 11,645,308
<TOTAL-LIABILITY-AND-EQUITY> 22,308,776
<SALES> 19,180,679
<TOTAL-REVENUES> 19,455,616
<CGS> 14,503,170
<TOTAL-COSTS> 18,503,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 379,872
<INCOME-PRETAX> 571,800
<INCOME-TAX> 179,680
<INCOME-CONTINUING> 392,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392,120
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
