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: June 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 - 12,053,751 shares outstanding as of
July 25, 1997
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30 December 31
(Unaudited)
1997 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 656 $ 656 $ 656
Accounts receivable 6,671,815 6,140,477 2,962,600
Inventories 7,219,711 7,560,764 5,235,866
Other current assets 580,025 645,239 546,567
---------- ---------- ----------
Total current assets 14,472,207 14,347,136 8,745,689
Deferred income tax 2,000 12,301 2,000
Intangible assets, less
accumulated amortization 1,605,427 1,832,966 1,702,576
Property, plant and equipment
less accumulated depreciation 4,957,330 3,721,315 4,848,076
Long-term inventories 1,344,334 1,243,334 1,401,127
Other assets 221,077 159,976 203,654
--------- --------- ---------
Total assets $22,602,375 $21,317,028 $16,903,122
========== ========== ==========
</TABLE>
(Continued)
2
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30 December 31
(Unaudited)
1997 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current liabilities:
Notes payable to bank $ 4,142,076 $ 4,855,025 $ 379,206
Current portion of long term
debt and capital lease
obligations 434,058 612,462 547,222
Current portion of notes
payable to shareholders' 14,344 12,635 14,343
Accounts payable 2,118,732 1,892,940 699,191
Accrued expenses and other
current liabilities 992,034 777,936 1,016,140
Income tax payable 77,680 114,355
---------- ---------- ----------
Total current liabilities 7,778,924 8,265,353 2,656,102
Long term debt and capital
lease obligation, less
current portion 2,474,215 891,784 2,020,890
Notes payable to shareholders'
less current portion 32,743 48,105 39,733
--------- --------- ---------
Total liabilities 10,285,882 9,205,242 4,716,725
--------- --------- ---------
Commitments
Shareholders' equity:
Preferred stock, $4LV 8 1/2%
nonvoting 696,000 696,000 696,000
Common stock, $.01 par value 120,537 120,537 120,537
Additional paid-in capital 9,201,796 9,201,796 9,201,796
Retained earnings 2,304,042 2,189,215 2,139,739
Foreign currency translation ( 5,882) ( 95,762) 28,325
--------- --------- ---------
Total shareholders' equity 12,316,493 12,111,786 12,186,397
--------- --------- ---------
Total liabilities and
shareholders' equity $22,602,375 $21,317,028 $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
======= ======= ========== ======= ========= ========= ======== ==========
</TABLE>
See Notes to Consolidated Financial Information
4
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended June 30
(Unaudited)
----------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 8,788,384 $ 7,370,681
Cost of sales 6,530,539 5,467,901
--------- ---------
Gross profit from operations 2,257,845 1,902,780
Selling expenses 699,110 690,223
Administrative expenses 655,875 666,655
Research and development expenses 8,594 15,284
--------- ---------
Income from operations 894,266 530,618
Other income (expense):
Interest income 1,949 3,575
Interest expense (150,815) (129,437)
Gain on sale of assets 309,726
Miscellaneous 112,960 71,360
--------- ---------
Income before provision for
income taxes 858,360 785,842
Provision for income taxes (286,000) (290,000)
--------- ---------
Net income $ 572,360 $ 495,842
========= =========
Primary earnings per share $ .05 $ .04
========= =========
Weighted average number of common
shares outstanding 12,053,751 12,081,251
========= =========
</TABLE>
See Notes to Consolidated Financial Information
5
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Ended June 30
(Unaudited)
----------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $11,630,978 $11,344,926
Cost of sales 8,808,124 8,493,850
--------- ---------
Gross profit from operations 2,822,854 2,851,076
Selling expenses 1,290,382 1,233,405
Administrative expenses 1,206,026 1,219,413
Research and development expenses 36,657 31,967
--------- ---------
Income from operations 289,789 366,291
Other income (expense):
Interest income 9,016 16,393
Interest expense (201,635) (197,457)
Gain on sale of assets 308,925
Miscellaneous 174,393 104,202
--------- ---------
Income before provision for
income taxes 271,563 598,354
Provision for income taxes ( 77,680) (215,000)
--------- ---------
Net income $ 193,883 $ 383,354
========= =========
Primary earnings per share $ .02 $ .03
========= =========
Weighted average number of common
shares outstanding 12,053,751 12,081,251
========= =========
</TABLE>
See Notes to Consolidated Financial Information
6
<PAGE>
AG-BAG INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30
(Unaudited)
--------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 193,883 $ 383,354
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 535,528 603,939
(Gain)loss on disposition of fixed assets 1,443 (308,925)
Changes in assets and liabilities:
Accounts receivable (3,709,215) (3,999,485)
Inventories (1,711,485) ( 774,992)
Other current assets (33,458) (156,364)
Accounts payable 1,419,541 1,418,812
Accrued expenses and other current
liabilities (24,106) 11,225
Income tax payable 77,680 ( 32,643)
Other assets (17,423) ( 15,704)
---------- ----------
Net cash used in operating activities (3,267,612) (2,870,783)
---------- ----------
Cash flows from investing activities:
Capital expenditures (656,034) (920,902)
Proceeds from disposition of fixed assets 559,908
Intangible assets ( 7,052)
---------- ----------
Net cash used in investing activities (656,034) (368,046)
---------- ----------
Cash flows from financing activities:
Proceeds from line of credit 3,762,870 3,376,139
Principal payments on debt ( 99,567) (100,330)
Proceeds from issuance of debt 331,120
Payment of shareholders' notes ( 6,990) ( 6,315)
Payment of preferred dividends (29,580) (29,580)
---------- ----------
Net cash provided by financing activities 3,957,853 3,239,914
---------- ----------
Effect of foreign currency translation (34,207) ( 1,085)
---------- ----------
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 six-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
June 30, 1997, compared to the results of operations for the three-month period
ended June 30, 1996, and to the results of operations for the six-month period
ended June 30, 1997 compared to the results of operations for the six-month
period ended June 30, 1996 and to changes in the Company's financial condition
from December 31, 1996 to June 30, 1997.
Consolidated net sales for the three-month period ended June 30, 1997 were
$8,788,384, up 19.23% from $7,370,681 for the same period in 1996. Consolidated
net sales for the first half of 1997 were $11,630,978, up 2.52% from $11,344,926
for the same period in 1996. The increase for the quarter was largely due to the
first quarter production startup delay at the Company's newly constructed
Nebraska bag folding facility. The Company's bag folding facility did not become
fully operational until late March as a result of construction delays and
shipments normally made in the first quarter were shipped during the second
quarter. Sales for the first half of 1997 increased slightly as a result of new
bag business gained in various areas of the U.S. market. As a result of delayed
plantings caused by late winter weather, the Company expects the growing and
harvest season to extend into early fall this year.
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 second quarter of 1997 actually
increased 25.36% over 1996, and sales for the first half of 1997 actually
increased 5.88% over 1996.
Gross profit from sales for the three-month period ended June 30, 1997 was
$2,257,845, an increase of 18.66% from $1,902,780 for the same period in 1996.
Gross profit from sales for the first half of 1997 was $2,822,854, a decrease of
1.0% from $2,851,076 for the same period in 1996. The increase for the quarter
was the result
9
<PAGE>
of production efficiencies from higher sales and production volumes, coupled
with reductions in bag folding costs from the new bag folding facility being
fully operational. The reductions in folding costs were offset by lower margins
on used equipment sold during the quarter and increased transportation costs to
deliver product during the second quarter that couldn't be filled in the first
quarter due to the folding facility startup construction delay. The decrease for
the first half of 1997 is the result of lower bag folding costs, which were
offset by lower margins on used equipment sold and transportation costs.
Selling expenses for the three-month period ended June 30, 1997 were $699,110,
an increase of 1.29% from $690,223 for the same period in 1996. Selling expenses
for the first half of 1997 were $1,290,382, an increase of 4.62% from $1,233,405
for the same period in 1996. The increase for the quarter was the result of
increased commissions resulting from higher sales volumes. The increase for the
first half of 1997 was the result of increases in commissions, advertising and
sales personnel to handle the international, composting and grain divisions.
Administrative expenses for the three-month period ended June 30, 1997 were
$655,875, a decrease of 1.62% from $666,655 for the same period in 1996.
Administrative expenses for the first half of 1997 were $1,206,026, a decrease
of 1.09% from $1,219,413 for the same period in 1996.
Interest expense for the three-month period ended June 30, 1997 was $150,815, an
increase of 16.52% from $129,437 for the same period in 1996. Interest expense
for the first half of 1997 was $201,635, an increase of 2.11% from $197,457 for
the same period in 1996. The increase for the quarter and first half of 1997 was
the result of the Company utilizing a larger portion of its credit facility and
the fact that some extended term sales were offered to remain competitive. In
addition, the Company has also added a long term construction loan to finance
its new Blair facilities.
Net income for the three-month period ended June 30, 1997 was $572,360, an
increase of 15.43% from $495,842 for the same period in 1996. Net income for the
first half of 1997 was $193,883, a decrease of 49.42% from $383,354 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, net income for
the second quarter of 1997 increased 96.40% over 1996, and for the first half of
1997, net income increased 8.35% over 1996.
The increase for the quarter resulted from increased sales, increased production
efficiencies and lower bag folding costs which were offset by lower margins on
used equipment, higher transportation costs, increased commission selling
expenses and
10
<PAGE>
increased interest costs. The comparative decrease for the first
half of the 1997 is a result of the gain on the sale of a building in 1996. The
same factors which affected the results for the second quarter apply to the
results for the first half of 1997.
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.
Accounts receivable increased 8.65% as of June 30, 1997 to $6,671,815 from the
June 30, 1996 level of $6,140,477. The increase in accounts receivable was the
result of increased sales for the quarter, of which a large portion occurred in
the last month of the quarter, coupled with the fact that the Company offered
some extended terms to remain competitive in certain areas.
Inventory at June 30, 1997 was $8,564,045 which was 2.73% lower than inventory
at June 30, 1996 of $8,804,098. The decrease in inventory resulted from the sale
of used equipment from inventory, coupled with the fact that bag production is
now more closely tied to orders and seasonal demand for product.
The Company has a domestic operating line of credit with a limit of $5,000,000,
secured by accounts receivable and inventory. As of June 30, 1997, $3,633,435
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 June 30, 1997, borrowings under the foreign
operating line aggregated $508,641 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.
11
<PAGE>
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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) An Annual Meeting of Stockholders was held on June 2, 1997.
(b) Michael B. Leahy, Arthur P. Schuette and Rolf E. Soderstrom were
elected as directors of the Company. Larry R. Inman, Roy I.
Anderson, Lemuel E. Cunningham, Michael W. Foster and Robert N.
Thurston continued as directors of the Company after the Annual
Meeting of Stockholders.
(c) The only matter voted upon at the Annual Meeting of Stockholders
was the election of Michael B. Leahy, Arthur P. Schuette and Rolf
E. Soderstrom. The results of the election were as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Abstentions Broker
Against or Nonvotes
Withheld
------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Michael B. Leahy 10,786,497 0 45,335 0
Arthur P. Schuette 10,786,497 0 45,335 0
Rolf E. Soderstrom 10,786,497 0 45,335 0
</TABLE>
(d) 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 June 30, 1997.
13
<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: July 31, 1997 By: /s/Michael R. Wallis
------------------------------
Michael R. Wallis
Chief Financial Officer and
Vice President
<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 June 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 656
<RECEIVABLES> 6,902,058
<ALLOWANCES> 230,243
<INVENTORY> 8,564,045
<CURRENT-ASSETS> 14,472,207
<PP&E> 9,091,762
<DEPRECIATION> 4,134,432
<TOTAL-ASSETS> 22,602,375
<CURRENT-LIABILITIES> 7,778,924
<BONDS> 0
0
696,000
<COMMON> 120,537
<OTHER-SE> 11,499,956
<TOTAL-LIABILITY-AND-EQUITY> 22,602,375
<SALES> 11,630,978
<TOTAL-REVENUES> 11,814,387
<CGS> 8,808,124
<TOTAL-COSTS> 11,341,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,635
<INCOME-PRETAX> 271,563
<INCOME-TAX> 77,680
<INCOME-CONTINUING> 193,883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193,883
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
