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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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 0-6354
AMERICAN VANGUARD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2588080
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
4695 MacArthur Court, Newport Beach, California 92660
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(949) 260-1200
--------------
(Registrant's telephone number, including area code)
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. [ ]
The number of shares of $.10 par value Common Stock outstanding as of March 24,
2000, was 2,455,182. The aggregate market value of the voting stock of the
registrant held by non-affiliates at March 24, 2000, was $8,923,200. 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.
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AMERICAN VANGUARD CORPORATION
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1999
PART I PAGE NO.
--------
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
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 7A. Quantitative and Qualitative Disclosures
About Market Risk 22
Item 8. Financial Statements and Supplementary
Data 22
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 22
PART III
Item 10. Directors and Executive Officers of the
Registrant 23
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain
Beneficial Owners and Management 29
Item 13. Certain Relationships and Related
Transactions 31
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 32
SIGNATURES 34
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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).
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 today AMVAC primarily manufactures, and markets
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
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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 pays
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 niche markets. In addition to the
product line acquisitions disclosed above, in 1993 AMVAC purchased from E.I. du
Pont de Nemours & Company ("Du Pont")the rights, title and interest (including
Du Pont'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") plant growth regulator product line including Rhone-Poulenc's EPA
registration rights.
The crop protection 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., Helena Chemical, and Tenkoz accounted for 29%, 12% and 11%
respectively, of the Company's sales in 1999. 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 and Helena Chemical
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
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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 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 crop protection products in
the United States unless such crop protection products have 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 $2,241,100, $2,611,900 and
$2,241,300 during 1999, 1998 and 1997 respectively, related to gathering this
information. 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
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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 outside sources 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 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 1999, AMVAC continued activities to address environmental concerns
associated with its facility (Facility) in Commerce, California and the adjacent
railroad right-of-way.
In March 1997, the Facility was accepted into California Environmental
Protection Agency's Department of Toxic Substances Control's (DTSC) 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, originally
expected to commence in the second or third quarter of 1999, will most likely
commence in the second or third quarter of 2000. These activities were not
implemented in 1999 due to revisions in the site investigation plan, which have
yet to be approved by the DTSC. Once approved, investigation and remediation
activities are planned to be implemented 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 storage permits. Because AMVAC previously held
a hazardous waste management permit, AMVAC is subject to these requirements.
AMVAC completed remedial activities associated with the adjacent railroad
right-of way in 1998 and received DTSC approval in a letter dated June 26, 1998
(the Letter). 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 a site certification
in accordance with Chapter 6.85 of the California Health and 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.
The railroad right-of-way is jointly owned by the Union Pacific Railroad Company
and the Burlington Northern and Santa Fe Railway Company, and is managed on
behalf of both companies by the latter. AMVAC facilitated discussions between
the railroads and the DTSC during 1999 in an effort to bring this issue to
closure. The railroad companies are
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now in direct communication with the DTSC to negotiate the language
of the land use covenant.
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 the various regulatory agencies. The U.S. 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 in
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 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 24, 2000, the Company employed approximately 170 persons (not
including temporary 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 office, operating under
the name AMVAC Chemical UK Ltd., focuses on 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
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operation were not material to the Company's total operating results for the
years ended December 31, 1999, 1998 and 1997.
The Company classifies as export sales all products bearing foreign
labeling shipped to a foreign destination.
1999 1998 1997
---- ---- ----
Export Sales $5,399,400 $5,085,700 $6,646,000
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 manufacturing facility
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 February 1997, AMVAC was served with a complaint in an action filed in
the San Francisco Superior Court entitled the Sultana Community Services
District v. Shell Oil Co., et.al. The complaint alleges that the Sultana
Community Services District's water supply was contaminated with
Dibromochloropropane ("DBCP"). The complaint names as defendants AMVAC, Shell
Oil Company, The Dow Chemical Company, Occidental Chemical Company, Chevron
Chemical Company and Velsicol Chemical Corporation. Plaintiff has not produced
documentation to support its claim for damages. Any damages proven may be
significantly offset by the 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; however, in view of the grant received by the
Plaintiff, it is anticipated that actual costs, if any, to AMVAC will not be
material.
B. HAWAII MATTERS
- -----------------
AMVAC and the Company were served with complaints in February 1997. 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 named 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 was joined as a cross-defendant. The Compliant alleged
that between two and four of the Board's wells had been contaminated with DBCP.
On August 2, 1999, a global settlement was reached, which included the
remediation of the existing contaminated wells in addition to the installation
of filtration devices on other wells for the next forty years on the island of
Maui. The cash settlement was three million dollars of which AMVAC's (and the
Company's) portion was $500,000. [As to matters independent of indemnity issues,
the Company recovered $400,000 from one of its insurers.] The settlement
agreement obligates the defendants to pay for the ongoing operation and
maintenance of the filtration devices for up to forty years. The annual costs of
operation and maintenance per well is estimated to be approximately $69,000, to
be adjusted annually by the consumer price index. The defendants are also
obligated to pay between ninety and one-hundred percent for the cost of the
installation of filtration devices on other wells that may exceed the defined
maximum contaminant level in the next forty years. AMVAC's share of the ongoing
operation and maintenance charges and installation of additional devices on
other wells is seventeen and one-half percent. The obligations of the defendants
under this agreement are secured by a twenty million dollar letter of credit
obtained by Dow Chemical. AMVAC will pay seventeen and one-half percent of the
annual cost of the letter of credit directly to Dow Chemical.
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In October 1997, AMVAC was served with a Complaint(s) in which it was named
as a Defendant, filed in the Circuit Court, First Circuit, State of Hawaii and
in the Circuit Court of the Second Circuit, State of Hawaii (two identical
suits) 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, 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 four
countries--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 defendant's 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.
Plaintiffs subsequently appealed to the Ninth Circuit Court of Appeal. As of
December 31, 1999, the Plaintiffs had filed their opening brief on appeal and
defendants had filed their response. The Plaintiffs filed their reply brief in
February 2000. Oral arguments have not yet been scheduled in the Ninth Circuit.
The Plaintiffs reported that they have filed suit in each of the four countries.
None of the defendants have been served with these suits. No discovery has taken
place on the individual claims of the Plaintiffs. However, AMVAC product did not
reach two of the four countries involved. 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 or range of possible loss. There may
be statute of limitation defenses available to defendants. In order to proceed
with the cases, the Plaintiffs must either litigate their claims in their native
countries or convince the Ninth Circuit Court of Appeal to reverse the trial
court on the motion to dismiss. AMVAC intends to contest the cases vigorously.
In September 1999, AMVAC and the Company were served with complaints filed
in the Circuit Court of the First Circuit of the State of Hawaii entitled Board
of Water Supply of the City and County of Honolulu v. Shell Oil Company, et.
al.. The complaint alleges that the Board of Water Supply of the City and County
of Honolulu's ground water has been contaminated with DBCP, EDB, and TCP. The
complaint names as defendants the Company, AMVAC, Shell Oil Company, The Dow
Chemical Company, Occidental Petroleum Corporation, Del Monte Foods, Dole Foods,
and Libby McNeil, Inc. The focus of the case was on TCP and not DBCP. The
Company and AMVAC were not involved with TCP and EDB. The Company and AMVAC were
dismissed from the action by Notice of Partial Dismissal Without Prejudice as to
all Claims filed on February 29, 2000.
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C. MISSISSIPPI MATTERS
- ----------------------
In May 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. The Federal Court
granted defense motions to dismiss in each case pursuant to the doctrine of
forum non conveniens. Between April and October 1998, the Plaintiffs filed
notices of appeal in each of the cases. In December 1999, the Plaintiffs filed
their brief for the appeal. The briefing is not yet complete and no hearing for
oral argument has been scheduled. No discovery has taken place on the individual
claims of these Plaintiffs. However, AMVAC product was not used in at least two
of the countries involved. Without discovery, it is unknown whether any of the
Plaintiffs were exposed to AMVAC's product or what statute of limitation defense
may 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.
D. LOUISIANA MATTERS
- --------------------
In November 1999, AMVAC was served with three complaints filed in the 29th
Judicial District Court for the Parish of St. Charles, State of Louisiana
entitled Pedro Rodrigues et. al.. V. Amvac Chemical Corporation et. al.., Andres
Puerto, et. al.. V. Amvac Chemical Corporation, et. al.. and Eduardo Soriano,
et. al.. v. Amvac Chemical Corporation et. al.. Other named defendants are: Dow
Chemical Company, Occidental Chemical Corporation, Shell Oil Company, Standard
Fruit, Dole Food, Chiquita Brands, Tela Railroad Company, Compania Palma Tica,
and Del Monte Fresh Produce. These suites were filed in 1996, they were not
served until November 1999. The complaints allege personal injuries from alleged
exposure to DBCP (punitive damages are also sought). The Plaintiffs are
primarily from the countries of the Philippines, Costa Rica, Honduras, and
Equador. In November 1999, the cases were removed to the United States District
Court for the Eastern District of Louisiana. The Plaintiffs filed a motion to
remand the cases back to the state court in December 1999, however, they
subsequently withdrew their motion to remand in February 2000. These cases will
in all likelihood move slowly due to pending resolution of various
jurisdictional issues. No discovery has taken place on the individual claims of
the Plaintiffs. It is unknown whether any of the Plaintiffs claim exposure to
AMVAC's product and whether their claims are barred by applicable statutes of
limitation. AMVAC intends to contest the
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cases vigorously. It is too early to provide an evaluation of the likelihood of
an unfavorable outcome or range of possible loss at this time.
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 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. In January 1999, the court granted AMVAC's
motion for partial summary judgement on AMVAC's claim for tortuous interference
with prospective business relations finding that AMVAC had proved three of the
five elements of the tort. In October 1999, AMVAC settled/concluded this
litigation regarding its exclusive ownership of labels and registration with the
EPA for NAA. For further information, refer to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission dated October 18,
1999.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or otherwise.
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PART II
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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.
Calendar 1999 HIGH LOW CLOSE
------------- ---- --- -----
First Quarter $ 8 $ 4 7/8 $ 4 7/8
Second Quarter 6 1/8 4 5/8 5 3/8
Third Quarter 7 5 5
Fourth Quarter 6 3/8 4 7/8 6 1/8
Calendar 1998
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
The Company's share activity is reported in the Wall Street Journal and is
listed as "AmVngrd".
As of March 24, 2000, 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 16, 2000, the Company announced that the Board of Directors
declared a cash dividend of $.13 per share as well as a 10% stock dividend. Both
dividends will be distributed on April 14,2000 to shareholders of record at the
close of business on March 31, 2000. The cash dividend will be paid on the
number of shares outstanding prior to the 10% stock dividend. Shareholders
entitled to fractional shares resulting from the 10% stock dividend will receive
cash in lieu of such fractional share based on the closing price of the
Company's stock on March 31, 2000.
The Company distributed a cash dividend of $.06 per share on April 19, 1999
to shareholders of record at the close of business on April 8, 1999.
The Company distributed a cash dividend $.07 per share on March 25, 1998 to
shareholders of record at the close of business on March 13, 1998.
13
16
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 four years
(1996, 1997, 1998 and 1999) as well as declaring on March 16,2000, as
aforementioned, its fifth consecutive cash dividend. While there is no assurance
as to future dividends because they depend on future earnings, capital
requirements, and financial condition, the Company believes that its Board will
be contemplating issuing cash dividends on a semi-annual basis beginning in
2001. The payment of 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.
14
17
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
ITEM 6 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR WEIGHTED AVERAGE
- ---------------------------------------------------------------------------
NUMBER OF SHARES AND PER SHARE DATA)
------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating revenues $ 69,212 $ 67,016 $ 67,701 $ 48,628 $ 55,402
========= ========= ========= ========= =========
Operating income $ 6,878 $ 5,158 $ 4,785 $ 3,523 $ 5,971
========= ========= ========= ========= =========
Income from operations
before income tax
expense $ 5,223 $ 3,263 $ 3,283 $ 2,611 $ 5,043
========= ========= ========= ========= =========
Net income $ 3,236 $ 2,127 $ 2,025 $ 1,616 $ 3,124
========= ========= ========= ========= =========
Basic and diluted
net income per
share $ 1.31 $ .85 $ .81 $ .65 $ 1.23
========= ========= ========= ========= =========
Total assets $ 55,579 $ 58,847 $ 55,206 $ 48,028 $ 39,341
========= ========= ========= ========= =========
Long-term debt and capital
lease obligations, less
current portion $ 4,889 $ 6,458 $ 3,980 $ 4,373 $ 5,540
========= ========= ========= ========= =========
Stockholders' equity $ 25,969 $ 23,128 $ 21,260 $ 19,386 $ 18,005
========= ========= ========= ========= =========
Weighted average number
of shares 2,475,451 2,502,650 2,507,829 2,472,883 2,546,471
========= ========= ========= ========= =========
Dividends per share of
common stock $ .06 $ .07 $ .06 $ .06 $ --
========= ========= ========= ========= =========
The selected consolidated financial data set forth above with respect to each of
the calendar years in the five-year period ended December 31, 1999 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, 1999. See ITEM 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
- ---------------------
On March 16, 2000, the Company announced that the Board of Directors
declared a cash dividend of $.13 per share as well as a 10% stock dividend. Both
dividends will be distributed on April 14, 2000 to shareholders of record at the
close of business on March 31, 2000. The cash dividend will be paid on the
number of shares outstanding prior to the 10% stock dividend. Shareholders
entitled to fractional shares resulting from the 10% stock dividend will receive
cash in lieu of such fractional share based on the closing price of the
Company's stock on March 31, 2000.
The Company distributed a cash dividend of $.06 per share on April 19,
1999 to shareholders of record at the close of business on April 8, 1999.
15
18
The Company distributed a cash dividend $.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.
16
19
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATION
------------
RESULTS OF OPERATIONS
- ---------------------
1999 COMPARED WITH 1998:
- ------------------------
The Company reported net income of $3,235,500 or $1.31 per share in 1999 as
compared to net income of $2,126,500 or $.85 per share in 1998.
Net sales increased $2,196,100 or 3% to $69,211,700 for 1999 from $67,015,600 in
1998. Strong sales of the Company's insecticide product lines, in particular
Bidrin(R) and Dibrom(R) accounted for the increase in sales (and served to more
than offset a decline in sales of Company's fungicide and fumigant product
lines).
Gross profits increased $6,156,000 to $33,262,800 in 1999 from $27,106,800 in
1998. Gross profit margins improved to 48% in 1999 from 40% in 1998. The
improved margin was due to the changes in the sales mix of the Company's
products as well as the realization of improved raw material costs and the
Company's continued efforts to improve variable costs of manufacturing.
Operating expenses which are net of other income, increased by $3,268,500 to
$26,284,600 in 1999 from $23,016,100 in 1998. The differences in operating
expenses by specific departmental costs are as follows:
o Selling expenses increased by $1,104,400 to $7,955,300 in 1999 from
$6,850,900 in 1998. The increase was due to increases in (i) variable
selling expenses that relate to the increased sales levels and product
mix of sales, and (ii) expenses related to the Company's operations in
Mexico (which were opened in late 1998).
o General and administrative increased $2,360,600 to $8,020,200 in 1999
as compared to $5,659,600 in 1998. The increase was due to increases
in (i) legal expenses, primarily attributable to legal actions (which
were concluded) in which the Company was the Plaintiff, (ii)
amortization of intangible assets in connection with the acquisition of
an insecticide product in November 1998, (iii) depreciation expense
related to the acquisition of a new computer system placed in service
in October 1998, and (iv) increased payroll and payroll related costs.
o Research and product development costs and regulatory registration
expenses declined by $302,100 to $4,567,400 in 1999 from $4,869,500 in
1998 primarily due to a decline in costs incurred to generate
scientific data related to the
17
20
registration and possible new uses of the Company's products.
o Freight, delivery and warehousing costs remained virtually unchanged
reflecting a modest increase of $8,400 in spite of the improvement in
sales due primarily to the product mix of sales.
The Company was part of a global settlement in a matter where the Plaintiffs
alleged the contamination of water wells in Hawaii (Board of Water Supply of the
County of Maui v. Shell Oil Co., et. al.). The Company's portion of the
settlement was $500,000. The Company recovered $400,000 from one of its insurers
(as to matters independent of indemnity issues). The net $100,000 of costs
appear as separate line item titled "Settlement" on the Company's Consolidated
Statements of Income for the year ended December 31, 1999.
Interest costs were $1,666,700 in 1999 as compared to $1,900,000 in 1998. The
average level of borrowing under the Company's line of credit agreement
declined by $4,640,800 to $12,297,300 in 1999 from $16,938,100 in 1998. The
average level of other long-term debt increased by $2,630,800 to $8,143,900 in
1999 from $5,513,100 in 1998, due primarily to the acquisition of a product line
from a wholly-owned subsidiary of a large chemical company in November 1998. On
a combined basis, the Company's average debt for 1999 was $20,441,200 as
compared to $22,451,200, in 1998. Lower overall debt coupled with lower
effective interest rates accounted for the lower interest costs. (See note 3 to
the Consolidated Financial Statements.)
Income tax expense increased by $850,400 to $1,987,000 in 1999 as compared to
$1,136,600 in 1998. The Company's effective tax rate was 38% for 1999 as
compared to the 35% effective tax rate for 1998. (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 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.
18
21
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:
o 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.
o 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 increases in legal fees and the
acquisition and implementation of a new computer system. (See Year 2000
Compliance disclosure.)
o Research and development costs, which include 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
19
22
accounted for the balance in increased research and development costs.
o 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 and 1997. The 1997 amount 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow from operating activities was $3,318,000 for the year ended December
31, 1999. Inventories increased by $1,014,100 while there were declines in
receivables, prepaid expenses, accounts payable and accrued expenses and
deferred income taxes of $1,014,100, $5,000, $4,336,400 and $463,400,
respectively. Non-cash depreciation and amortization was $3,215,000 for 1999.
The Company invested $397,400 in capital expenditures in 1999. While the
Company's capital expenditures were not significant in 1999, the Company is
continually adapting its manufacturing processes to the environmental control
standards of its various controlling agencies. As of December 31, 1999, the
Company does not have any material commitments for future capital expenditures.
The Company used $3,159,700 in cash in its financing activities. The Company's
net borrowings under its fully-secured revolving line of credit increased by
$100,000. The Company made payments
20
23
on its debt and capital lease obligations of $2,864,800, paid $149,600 in cash
dividends, and purchased 42,400 shares of treasury stock for $245,300.
The Company had $13,900,000 in availability under its fully-secured $24,000,000
line of credit as of December 31, 1999.
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. 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 operation will be adequate to meet
total financial needs in 2000. Management is currently in negotiations with its
bank regarding the renewal of its current revolving credit facility for another
two year term and believes the facility will be renewed. 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.
21
24
INFLATION
- ---------
Management believes inflation has not had a significant impact on the Company's
operations during the past three years.
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 was completed, for the most
part, in 1999. The Company 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. The
Company requested Year 2000 compliance certification from each of its major
vendors and suppliers for their hardware and software products and for their
internal business applications and processes. The Company has not experienced
any interruption of its sources of required materials. The Company's costs
incurred in connection with the Year 2000 compliance program were not material
to its financial condition or results of operations for the year ended December
31, 1999. The Company has not yet been adversely affected nor does it believe
that its business will be, on a going forward basis, adversely affected by the
Year 2000 issue in any material respect.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
The Company's management believes that fluctuations in interest rates
and currency exchange rates in the near term would not materially affect the
Company's consolidated operating results, financial position or cash flows as
the Company has limited risks related to interest rate and currency exchange
fluctuations.
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.
22
25
PART III
--------
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The following persons are the current Directors and Executive Officers
of Registrant:
Name of
Director/Officer Age Capacity
---------------- --- --------
Herbert A. Kraft 76 Co-Chairman
Glenn A. Wintemute 75 Co-Chairman
Eric G. Wintemute 44 Director, President and
Chief Executive Officer
James A. Barry 49 Director, Senior Vice
President, Chief
Financial Officer,
Treasurer and Secretary
Jay R. Harris 65 Director
John B. Miles 56 Director
Jesse E. Stephenson 76 Director
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.
23
26
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.
Jay R. Harris was appointed a director in March 2000. Mr. Harris is
President and Founder of Goldsmith & Harris, a broker dealer providing
investment research to institutional and professional investors. He has held
this position since 1982, the year Goldsmith & Harris (or its predecessors) was
founded. Mr. Harris is also a professional investor.
John B. Miles has served as a director since 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.
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.
24
27
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.
Based solely on the Company's review of the copies of such forms
received by the Company, or representations obtained from certain reporting
persons, the Company believes that during the year ended December 31, 1999 all
filing requirements applicable to its officers, directors, and greater than ten
percent beneficial stockholders were complied with except that Mr. Eric G.
Wintemute did not timely file a Form 4 or 5 with respect to certain options (not
yet exercised) which total 50,000 shares granted to Mr. Wintemute in 1999. Mr.
David. B. Cassidy did not timely file a Form 4 or 5 with respect to certain
options (not yet exercised) which total 30,000 shares granted to Mr. Cassidy in
1996. Mr. Glen D. Johnson did not timely file a Form 3 or 5 (after joining the
Company in February 1999) with respect to joining, as an officer, of one of the
Company's wholly-owned subsidiaries and with respect to certain options (not yet
exercised) which total 30,000 shares granted to Mr. Johnson in 1999.
Additionally, Mr. John B. Miles did not timely file a Form 3 as a director and a
Form 4 for director stock options for 2,500 shares in 1999. Messrs. Wintemute,
Cassidy, Johnson and Miles' required filings have all been filed as of the
filing of this Annual Report.
25
28
ITEM 11 EXECUTIVE COMPENSATION
- -------------------------------
The following table sets forth the aggregate cash and other
compensation for services rendered for the years ended December 31, 1999, 1998,
and 1997 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 $100,000 (the "named executive officers").
26
29
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER RE- SECURITIES ALL
NAME ANNUAL STRICTED UNDERLYING OTHER
AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
-------- ---- ------- ---- ---- --------- ----- -------- ---
Eric G. Wintemute 1999 328,550 - - - 50,000(2) - 5,082(4)
President and 1998 284,177 - - - - - 5,359(4)
Chief Executive Officer 1997 244,244 - - - - - 4,723(4)
James A. Barry 1999 148,000 - - - - - 4,700(4)
Senior V.P., CFO & 1998 152,275 - - - - - 4,803(4)
Secretary/Treasurer 1997 134,819 - - - - - 4,608(4)
David B. Cassidy 1999 188,885 - - - - - 5,130(4)
Executive Vice 1998 194,010 - - - - - 5,086(4)
President (AMVAC) 1997 175,414 - - - - - 562(4)
Glen D. Johnson(3) 1999 153,654 - - - 30,000(5) - 2,110(4)
Sr. Vice President 1998 - - - - - - -
(AMVAC) 1997 - - - - - - -
Herbert A. Kraft(7) 1999 - - - - - - 108,173(6)
Co-Chairman 1998 - - - - - - 138,101(6)
1997 - - - - - - 180,168(6)
Glenn A. Wintemute(7) 1999 - - - - - - 106,491(6)
Co-Chairman 1998 - - - - - - 138,223(6)
1997 - - - - - - 195,192(6)
- -------------------
(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 in
accordance with the terms and conditions of Mr. Wintemute's Employment
Agreement.
(3) Mr. Johnson joined AMVAC Chemical Corporation as Senior Vice
President in February, 1999.
(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. Johnson'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.
27
30
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
The Compensation Committee of the Board for the year ended December 31,
1999, consisted of Messrs. Herbert A. Kraft, John B. Miles and Jesse E.
Stephenson. 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.
28
31
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 24, 2000, 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.
Amount and
Nature
Office Name and Address of Beneficial Percent
(if any) Beneficial Owner Ownership(1) of Class
- -------- ---------------- ------------- --------
Co-Chairman Herbert A. Kraft 590,295(2) 24.1%
4695 MacArthur Court
Newport Beach, CA 92660
Co-Chairman Glenn A. Wintemute 569,961(3) 23.3%
4695 MacArthur Court
Newport Beach, CA 92660
Goldsmith & Harris et. al. 137,521(4) 5.6%
80 Pine Street
New York, NY 10005
Director Jay R. Harris 86,443 3.5%
4695 MacArthur Court
Newport Beach, CA 92660
Director, Eric G. Wintemute 61,903(5) 2.5%
President 4695 MacArthur Court
& CEO Newport Beach, CA 92660
Director Jesse E. Stephenson 33,850(6) 1.4%
4695 MacArthur Court
Newport Beach, CA 92660
Executive Vice David B. Cassidy 40,000(7) 1.6%
President (AMVAC) 4695 MacArthur Court
Newport Beach, CA 92660
Senior Vice President Glen D. Johnson 10,000(8) --(10)
(AMVAC) 4695 MacArthur Court
Newport Beach, CA 92660
Director John B. Miles 2,500(9) --(10)
4695 MacArthur Court
Newport Beach, CA 92660
Director, James A. Barry -- --(10)
Sr. V.P.,CFO & 4695 MacArthur Court
Secretary/Treasurer Newport Beach, CA 92660
Directors and Officers
as a group(12) 1,386,027 55.3%
- -------------------
Refer to footnotes on next page.
29
32
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) This figure does not include the 86,443 shares beneficially owned by
Jay R. Harris. Mr. Harris is a control person of Goldsmith & Harris.
(5) This figure includes 20,000 shares of Common Stock Mr. Wintemute is
entitled to acquire pursuant to stock options exercisable within sixty
days of the filing of this report as well as 2,000 shares of Common
Stock owned by Mr. Wintemute's minor children for which Mr. Wintemute
is a trustee and disclaims beneficial ownership.
(6) Mr. Stephenson holds all of his shares in a family trust. This figure
includes 5,500 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.
(7) This figure includes 30,000 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.
(8) This figure represents 10,000 shares of Common Stock Mr. Johnson 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.
30
33
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, $156,250 for the year ended July 14, 1998 and $112,500
for the year ended July 14, 1999. They will also, under the agreements, each
receive $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.
31
34
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 PAGE NO.
----------- --------
Report of Independent Certified
Public Accountants 35
Financial Statements:
Consolidated Balance Sheets as of
December 31, 1999 and 1998 36
Consolidated Statements of Income for
the Years Ended December 31, 1999, 1998,
and 1997 38
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31,
1999, 1998, and 1997 39
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1999, 1998,
and 1997 40
Summary of Significant Accounting Policies
and Notes to Consolidated Financial
Statements 42
(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.
32
35
(b) Reports on Form 8-K were filed during the quarter
ended December 31, 1999:
Date of the Report: October 25, 1999
Item Reported: 5. Other Events.
Description: On October 18, 1999, American Vanguard
Corporation issued a press release announcing that Amvac
Chemical Corporation, a wholly-owned subsidiary of American
Vanguard Corporation, resolved certain litigation regarding
its exclusive ownership of labels and registrations with the
Environmental Protection Agency for naphthalene acetic acid.
33
36
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
March 29, 2000 Director
March 29, 2000
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 29, 2000 March 29, 2000
/s/ John Miles /s/ Jesse E. Stephenson
- -------------------- -----------------------
JOHN B. MILES JESSE E. STEPHENSON
Director Director
March 29, 2000 March 29, 2000
/s/ Jay Harris
- --------------------
JAY R. HARRIS
Director
March 29, 2000
34
37
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, 1999 and 1998 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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, 1999 and 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ BDO SEIDMAN, LLP
---------------------------
BDO SEIDMAN, LLP
Los Angeles, California
February 28, 2000
35
38
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS (NOTE 3) 1999 1998
--------------- ---- ----
Current assets:
Cash $ 550,200 $ 767,000
Receivables:
Trade 15,119,800 17,786,700
Other 833,200 852,900
----------- -----------
15,953,000 18,639,600
----------- -----------
Inventories:
Finished products 14,258,700 13,127,700
Raw materials 2,491,200 2,608,100
----------- -----------
16,749,900 15,735,800
----------- -----------
Prepaid expenses 819,600 814,600
----------- -----------
Total current assets 34,072,700 35,957,000
Property, plant and equipment, at cost,
less accumulated depreciation of
$23,545,600 in 1999 and $21,086,300
in 1998 (notes 1,2,3, and 5) 10,514,200 12,576,300
Land held for development 210,800 210,800
Intangible assets, net of
accumulated amortization
of $1,553,300 in 1999 and
$858,300 in 1998 (note 10) 10,086,400 9,325,100
Other assets 695,200 777,800
----------- -----------
$55,579,300 $58,847,000
=========== ===========
(CONTINUED)
36
39
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------- -----------
Current liabilities:
Current installments of long-term debt (note 2) $ 3,022,200 $ 3,118,500
Note payable to bank (note 3) 10,100,000 --
Accounts payable 2,946,300 6,448,400
Accrued expenses 4,541,400 3,599,700
Accrued royalty obligation-current portion (note 10) 1,112,300 1,600,000
Income taxes payable 1,064,200 1,379,900
----------- -----------
Total current liabilities 22,786,400 16,146,500
Long-term debt, excluding current
installments (note 2) 5,145,600 6,457,800
Note payable to bank (note 3) -- 10,000,000
Accrued royalty obligation, excluding
current portion (note 10) -- 1,074,300
Minority interest in subsidiary company 101,700 --
Deferred income taxes (note 4) 1,576,700 2,040,100
----------- -----------
Total liabilities 29,610,400 35,718,700
----------- -----------
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 1999 and 1998 256,400 256,400
Additional paid-in capital 3,879,000 3,879,000
Retained earnings 22,520,200 19,434,300
----------- -----------
26,655,600 23,569,700
Less treasury stock, at cost, 114,000 shares
in 1999 and 71,600 shares in 1998 686,700 441,400
----------- -----------
Total stockholders' equity 25,968,900 23,128,300
----------- -----------
$55,579,300 $58,847,000
=========== ===========
See summary of significant accounting policies and notes to consolidated
financial statements.
37
40
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
Net sales (note 8) $ 69,211,700 $ 67,015,600 $ 67,700,500
Cost of sales 35,948,900 39,908,800 40,315,600
------------ ------------ ------------
Gross profit 33,262,800 27,106,800 27,384,900
Settlement (income)/expense (note 13) 100,000 (1,067,700) 951,000
Operating expenses (note 12) 26,284,600 23,016,100 21,649,100
------------ ------------ ------------
Operating income 6,878,200 5,158,400 4,784,800
Interest expense 1,666,700 1,900,000 1,513,400
Interest income (11,000) (4,700) (11,400)
------------ ------------ ------------
Income before
income tax expense 5,222,500 3,263,100 3,282,800
Income tax expense (note 4) 1,987,000 1,136,600 1,258,100
------------ ------------ ------------
Net income $ 3,235,500 $ 2,126,500 $ 2,024,700
============ ============ ============
Per share information:
Basic and diluted
net income per share $ 1.31 $ .85 $ .81
============ ============ ============
Weighted average number
of shares 2,475,451 2,502,650 2,507,829
============ ============ ============
See summary of significant accounting policies and notes to consolidated
financial statements.
38
41
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ---------- ------------ --------- ------------
Balance, January 1, 1997 $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 ($.07 per share) -- -- (175,500) -- (175,500)
Treasury stock acquired -- -- -- (82,500) (82,500)
Net income -- -- 2,126,500 -- 2,126,500
-------- ---------- ------------ --------- ------------
Balance, December 31, 1998 256,400 3,879,000 19,434,300 (441,400) 23,128,300
Cash dividends on common
stock ($.06 per share) -- -- (149,600) -- (149,600)
Treasury stock acquired -- -- -- (245,300) (245,300)
Net income -- -- 3,235,500 -- 3,235,500
-------- ---------- ------------ --------- ------------
Balance, December 31, 1999 $256,400 $3,879,000 $ 22,520,200 $(686,700) $ 25,968,900
======== ========== ============ ========= ============
See summary of significant accounting policies and notes to consolidated
financial statements.
39
42
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INCREASE (DECREASE) IN CASH 1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 3,235,500 $ 2,126,500 $ 2,024,700
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
of property, plant and equipment 2,459,500 2,555,500 2,256,900
Amortization of other assets 755,300 505,400 475,700
Loss on abandoned projects -- 231,400 --
Changes in assets and liabilities
associated with operations:
(Increase) decrease
in receivables 2,686,600 3,046,400 (4,957,300)
Increase in inventories (1,014,100) (2,797,900) (1,587,600)
Decrease (increase)
in prepaid expenses (5,000) 221,000 (382,000)
Increase (decrease)
in accounts payable (3,502,100) 2,663,100 782,900
Increase (decrease) in other
payables and accrued expenses (834,300) (721,000) (2,036,400)
Decrease in deferred income taxes (463,400) (606,400) (49,100)
----------- ----------- -----------
Net cash provided by
(used in)operating
activities 3,318,000 7,224,000 (3,472,200)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (397,400) (828,100) (2,768,400)
Additions to intangible assets -- (538,500) (33,100)
Net (increase) decrease in other
noncurrent assets 22,300 (249,200) (68,000)
----------- ----------- -----------
Net cash used in
investing activities (375,100) (1,615,800) (2,869,500)
----------- ----------- -----------
(Continued)
40
43
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
INCREASE (DECREASE) IN CASH 1999 1998 1997
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under
line of credit agreement $ 100,000 $(4,100,000) $ 7,100,000
Increase in long-term debt(note 10) -- -- 1,884,800
Payments on debt and capital
lease obligations (2,864,800) (1,229,800) (2,378,500)
Acquisition of treasury stock (245,300) (82,500) --
Payment of cash dividends (149,600) (175,500) (150,400)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (3,159,700) (5,587,800) 6,455,900
----------- ----------- -----------
Net increase (decrease) in cash (216,800) 20,400 114,200
Cash at beginning of year 767,000 746,600 632,400
----------- ----------- -----------
Cash at end of year $ 550,200 $ 767,000 $ 746,600
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,374,900 $ 1,804,200 $ 1,562,800
Income taxes 2,738,800 914,800 1,721,000
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- ---------------------------------------------------------------------
In October 1999, the Company entered into an Exclusive License Agreement which
granted the Company exclusive ownership of labels and registrations of an
established product line and issued a note payable in the amount of $1,456,300.
(See Note 10).
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 product acquisition costs
of $5,203,900.
The Company financed $1,237,500 during the year ended December 31, 1998, under a
capitalized lease for computer related software and equipment.
See summary of significant accounting policies and notes to
consolidated financial statements.
41
44
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, usually 15 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.
42
45
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
- ---------------------
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share
("EPS") 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 shares of the
Company's common stock are exercised. These options were anti-dilutive in 1999,
1998 and 1997 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
43
46
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
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. The Company is
required to and will adopt SFAS No. 133 in the first quarter of fiscal 2001. The
Company does not expect adoption to have a significant effect on its
consolidated results of operations or financial position.
44
47
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment at December 31, 1999 and 1998 consists of
the following:
ESTIMATED
1999 1998 USEFUL LIVES
----------- ----------- --------------
Land $ 2,382,600 $ 2,382,600
Buildings and improvements 4,727,300 4,708,600 10 to 30 years
Machinery and equipment 23,825,700 23,384,900 3 to 10 years
Office furniture, fixtures
and equipment 2,467,900 2,393,800 3 to 10 years
Automotive equipment 136,900 105,000 3 to 6 years
Construction in progress 519,400 687,700
----------- -----------
34,059,800 33,662,600
Less accumulated depreciation 23,545,600 21,086,300
----------- -----------
$10,514,200 $12,576,300
=========== ===========
(2) LONG-TERM DEBT
- -----------------------
Long-term debt of the Company at December 31, 1999 and 1998 is
summarized as follows:
1999 1998
---------- ----------
Note payable, secured by certain real property,
payable in monthly installments of $87,500 plus
interest at prime plus .5% (prime was 8.50% at
December 31, 1999), with remaining unpaid principal
due December 1, 2000 $1,050,000 $2,012,500
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 1,684,400 1,757,900
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% 83,400 87,700
Obligations under product acquisition
agreements (see note 10) 4,546,600 4,666,200
Obligations under capitalized
leases (see note 5) 803,400 1,052,000
---------- ----------
8,167,800 9,576,300
Less current installments 3,022,200 3,118,500
---------- ----------
$5,145,600 $6,457,800
========== ==========
45
48
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Approximate principal payments on long-term debt mature as follows:
2000 $3,022,200
2001 2,632,300
2002 684,500
2003 266,800
2004 245,200
Thereafter 1,316,800
----------
$8,167,800
==========
(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 8.50% at December 31, 1999), 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 has had a long-term relationship with its
lead commercial lender that dates back more than fifteen years. The
lender has historically renewed the Company's revolving credit facility
for two year terms. The Company is currently in negotiations with the
bank to renew the revolving credit facility for another two year term
and believes the facility will be renewed. The Company had $13,900,000
available under this credit agreement as of December 31, 1999. 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, 1999. The
balance outstanding at December 31, 1999 and 1998 was $10,100,000 and
$10,000,000 respectively. The average amount outstanding during the
years ended December 31, 1999 and 1998 was $12,297,300 and $16,938,100.
The weighted average interest rate during the years ended December 31,
1999 and 1998 was 7.29% and 8.02%.
(4) INCOME TAXES
- ---------------------
The components of income tax expense are:
1999 1998 1997
----------- ----------- -----------
Current:
Federal $ 2,236,100 $ 1,493,200 $ 997,800
State 212,400 249,800 197,600
Other, primarily foreign -- -- 8,200
Deferred:
Federal (435,300) (524,300) (20,700)
State (26,200) (82,100) 75,200
----------- ----------- -----------
$ 1,987,000 $ 1,136,600 $ 1,258,100
=========== =========== ===========
46
49
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:
1999 1998 1997
----------- ----------- -----------
Computed tax provision at
statutory Federal rates $ 1,775,700 $ 1,109,500 $ 1,116,200
Increase (decrease) in
taxes resulting from:
State taxes, net of
Federal income tax
benefit 203,700 25,800 180,800
Nondeductible expenses 32,100 37,600 35,900
Other -- -- 8,200
Benefit of tax credits (24,500) (36,300) (83,000)
----------- ----------- -----------
$ 1,987,000 $ 1,136,600 $ 1,258,100
=========== =========== ===========
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, 1999 and
1998 relate to the following:
1999 1998
----------- -----------
Plant and equipment, principally due
to differences in depreciation and
capitalized interest $ 1,735,200 $ 2,019,600
Inventories, principally due to
additional costs inventoried for
tax purposes pursuant to the Tax
Reform Act of 1986 (415,900) (387,800)
State income taxes (56,100) (57,000)
Vacation pay accrual (106,800) (105,500)
Imputed interest on royalty obligation 157,900 139,900
Discount on accounts receivable 307,600 453,300
Other (45,200) (22,400)
----------- -----------
Net deferred income tax liability $ 1,576,700 $ 2,040,100
=========== ===========
The Company believes it is more likely than not that the deferred tax
assets above will be realized in the normal course of business.
47
50
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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, 1999 include the
following leased property under capital leases by major classes:
Machinery and equipment $ 47,300
Office furniture, fixtures
and equipment 1,237,500
----------
1,284,800
Less accumulated depreciation 333,700
----------
$ 951,100
==========
The following is a schedule of future minimum lease payments for
capital leases as of December 31, 1999
Year ending December 31:
2000 $ 312,700
2001 340,000
2002 250,800
---------
Total minimum lease payments 903,500
Less amount representing interest (100,100)
---------
Present value of net minimum lease payments $ 803,400
=========
48
51
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) LITIGATION AND ENVIRONMENTAL
- -------------------------------------
DBCP LAWSUITS
-------------
A. CALIFORNIA MATTERS
---------------------
In February 1997, AMVAC was served with a complaint in an
action filed in the San Francisco Superior Court entitled the Sultana
Community Services District v. Shell Oil Co., et.al. The complaint
alleges that the Sultana Community Services District's water supply was
contaminated with Dibromochloropropane ("DBCP"). The complaint names as
defendants AMVAC, Shell Oil Company, The Dow Chemical Company,
Occidental Chemical Company, Chevron Chemical Company and Velsicol
Chemical Corporation. Plaintiff has not produced documentation to
support its claim for damages. Any damages proven may be significantly
offset by the 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; however, in view of the grant received
by the Plaintiff, it is anticipated that actual costs, if any, to AMVAC
will not be material.
B. HAWAII MATTERS
-----------------
AMVAC and the Company were served with complaints in February
1997. 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 named 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 was joined as a cross-defendant. The Compliant alleged that
between two and four of the Board's wells had been contaminated with
DBCP. On August 2, 1999, a global settlement was reached, which
included the remediation of the existing contaminated wells in addition
to the installation of filtration devices on other wells for the next
forty years on the island of Maui. The cash settlement was three
million dollars of which AMVAC's (and the Company's) portion was
$500,000. [As to matters independent of indemnity issues, the Company
recovered $400,000 from one of its insurers.] The settlement agreement
obligates the defendants to pay for the ongoing operation and
maintenance of the filtration devices for up to forty years. The annual
costs of operation and maintenance per well is estimated to be
approximately $69,000, to be adjusted annually by the consumer price
index. The defendants are also obligated to pay between ninety and
one-hundred percent for the cost of the installation of
49
52
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
filtration devices on other wells that may exceed the defined maximum
contaminant level in the next forty years. AMVAC's share of the ongoing
operation and maintenance charges and installation of additional
devices on other wells is seventeen and one-half percent. The
obligations of the defendants under this agreement are secured by a
twenty million dollar letter of credit obtained by Dow Chemical. AMVAC
will pay seventeen and one-half percent of the annual cost of the
letter of credit directly to Dow Chemical.
In October 1997, AMVAC was served with a Complaint(s) in
which it was named as a Defendant, filed in the Circuit Court, First
Circuit, State of Hawaii and in the Circuit Court of the Second
Circuit, State of Hawaii (two identical suits) 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,
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 four countries--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 defendant's 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. Plaintiffs subsequently
appealed to the Ninth Circuit Court of Appeal. As of December 31, 1999,
the Plaintiffs had filed their opening brief on appeal and defendants
had filed their response. The Plaintiffs filed their reply brief in
February 2000. Oral arguments have not yet been scheduled in the Ninth
Circuit. The Plaintiffs reported that they have filed suit in each of
the four countries. None of the defendants have been served with these
suits. No discovery has taken place on the individual claims of the
Plaintiffs. However, AMVAC product did not reach two of the four
countries involved. 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 or range of possible loss.
There may be statute of limitation defenses available to defendants. In
order to proceed with the cases, the Plaintiffs must either litigate
their claims in their native countries or convince the Ninth Circuit
Court of Appeal to
50
53
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
reverse the trial court on the motion to dismiss. AMVAC intends to
contest the cases vigorously.
In September 1999, AMVAC and the Company were served with
complaints filed in the Circuit Court of the First Circuit of the State
of Hawaii entitled Board of Water Supply of the City and County of
Honolulu v. Shell Oil Company, et. al. The complaint alleges that the
Board of Water Supply of the City and County of Honolulu's ground water
has been contaminated with DBCP, EDB, and TCP. The complaint names as
defendants the Company, AMVAC, Shell Oil Company, The Dow Chemical
Company, Occidental Petroleum Corporation, Del Monte Foods, Dole Foods,
and Libby McNeil, Inc. The focus of the case was on TCP and not DBCP.
The Company and AMVAC were not involved with TCP and EDB. The Company
and AMVAC were dismissed from the action by Notice of Partial Dismissal
Without Prejudice as to all Claims filed on February 29, 2000.
C. MISSISSIPPI MATTERS
----------------------
In May 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. The
Federal Court granted defense motions to dismiss in each case pursuant
to the doctrine of forum non conveniens. Between April and October
1998, the Plaintiffs filed notices of appeal in each of the cases. In
December 1999, the Plaintiffs filed their brief for the appeal. The
briefing is not yet complete and no hearing for oral argument has been
scheduled. No discovery has taken place on the individual claims of
these Plaintiffs. However, AMVAC product was not used in at least two
of the countries involved. Without discovery, it is unknown whether any
of the Plaintiffs were exposed to AMVAC's product or what statute of
limitation defense may 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
54
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
D. LOUISIANA MATTERS
--------------------
In November 1999, AMVAC was served with three complaints filed
in the 29th Judicial District Court for the Parish of St. Charles,
State of Louisiana entitled Pedro Rodrigues et. al. V. Amvac Chemical
Corporation et. al., Andres Puerto, et. al. V. Amvac Chemical
Corporation, et. al. and Eduardo Soriano, et. al. v. Amvac Chemical
Corporation et. al. Other named defendants are: Dow Chemical Company,
Occidental Chemical Corporation, Shell Oil Company, Standard Fruit,
Dole Food, Chiquita Brands, Tela Railroad Company, Compania Palma Tica,
and Del Monte Fresh Produce. These suites were filed in 1996, they were
not served until November 1999. The complaints allege personal injuries
from alleged exposure to DBCP (punitive damages are also sought). The
Plaintiffs are primarily from the countries of the Philippines, Costa
Rica, Honduras, and Equador. In November 1999, the cases were removed
to the United States District Court for the Eastern District of
Louisiana. The Plaintiffs filed a motion to remand the cases back to
the state court in December 1999, however, they subsequently withdrew
their motion to remand in February 2000. These cases will in all
likelihood move slowly due to pending resolution of various
jurisdictional issues. No discovery has taken place on the individual
claims of the Plaintiffs. It is unknown whether any of the Plaintiffs
claim exposure to AMVAC's product and whether their claims are barred
by applicable statutes of limitation. AMVAC intends to contest the
cases vigorously. It is too early to provide an evaluation of the
likelihood of an unfavorable outcome or range of possible loss at this
time.
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
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. In January 1999, the court granted AMVAC's motion
for partial summary judgement on AMVAC's claim for tortuous
interference with prospective business relations finding that AMVAC had
proved three of the five elements of the tort. In October 1999, AMVAC
settled/concluded this litigation regarding its exclusive ownership of
labels and registrations with the Environmental Protection Agency
("EPA") for NAA. In connection with this settlement, the Company
acquired labels and registrations of this established product line.
(See Note 10).
52
55
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ENVIRONMENTAL
-------------
During 1999, AMVAC continued activities to address
environmental concerns associated with its facility (Facility) in
Commerce, California and the adjacent railroad right-of-way.
In March 1997, the Facility was accepted into California
Environmental Protection Agency's Department of Toxic Substances
Control's (DTSC) 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, originally
expected to commence in the second or third quarter of 1999, will most
likely commence in the second or third quarter of 2000. These
activities were not implemented in 1999 due to revisions in the site
investigation plan, which have yet to be approved by the DTSC. Once
approved, investigation and remediation activities are planned to be
implemented 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 storage permits. Because AMVAC previously
held a hazardous waste management permit, AMVAC is subject to these
requirements.
AMVAC completed remedial activities associated with the
adjacent railroad right-of way in 1998 and received DTSC approval in a
letter dated June 26, 1998 (the Letter). 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 a site certification in
accordance with Chapter 6.85 of the California Health and 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. The railroad right-of-way is jointly owned by the
Union Pacific Railroad Company and the Burlington Northern and Santa Fe
Railway Company, and is managed on behalf of both companies by the
latter. AMVAC facilitated discussions between the railroads and the
DTSC during 1999 in an effort to bring this issue to closure. The
railroad companies are now in direct communication with the DTSC to
negotiate the language of the land use covenant.
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 the various
regulatory agencies. The U. S. EPA and other federal and state
53
56
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 in 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 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
$250,000, $215,400 and $195,100 in 1999, 1998 and 1997.
(8) MAJOR CUSTOMERS AND EXPORT SALES
- -----------------------------------------
In 1999 there were three companies that accounted for 29%, 12% and 11%
of the Company's consolidated 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. These companies are
distributors or buying cooperatives.
Export sales were $5,399,400, $5,085,700 and $6,646,000 for 1999, 1998
and 1997.
54
57
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) ROYALTIES
- ------------------
The Company has various royalty agreements in place extending through
December 2003, some of which relate to the Company's acquisition of
certain products. Royalty expenses were $ 109,400, $149,700 and
$426,700 for 1999, 1998 and 1997.
(10) BUSINESS ACQUISITIONS
- ------------------------------
In October 1999, the Company settled litigation regarding its exclusive
ownership of labels and registrations of an established product line
(see Note 6). In connection with this settlement, the Company entered
into an Exclusive License Agreement which granted the Company's
ownership of the labels and EPA registrations. The Agreement calls for
the Company to make payments of $1,700,000. As a result of the
acquisition, the Company has recorded acquisition costs of $1,456,300
(as discounted for imputed interest at 8.75%) as an intangible asset in
the 1999 consolidated financial statements. Under the Agreements, the
Company will make payments of $400,000 per year for the years ending
December 31, 2000, 2001 and 2002, and $250,000 per year for the next
two years.
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. 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 new
product line acquisition costs of approximately $5,203,900 (as
discounted for imputed interest at 8.5%) 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.
(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
55
58
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 entered into an employment agreement with an officer
which commenced January 15, 1999 and expires January 15, 2003. The
employment agreement provides for fixed minimum salary levels for each
year of the agreement through January 15, 2002. The annual increase for
the year ending January 15, 2003 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 January
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:
Year ending
December 31,
2000 $ 656,700
2001 593,000
2002 418,000
2003 17,400
----------
$1,685,100
==========
In November 1999, the Company entered into an operating lease for its corporate
headquarters expiring in October 2004. The lease contains a provision to pass
through to the Company the Company's pro rata share of the building's operating
expenses. Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$198,654, $137,400 and $131,800. Future minimum lease payments under the terms
of the lease are as follows:
Year ending
December 31,
2000 $ 276,700
2001 280,400
2002 302,500
2003 321,000
2004 267,500
----------
$1,448,100
==========
56
59
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) RESEARCH AND DEVELOPMENT
- ---------------------------------
Research and development expenses were $2,241,100, $2,611,900 and
$2,241,300 for the years ended December 31, 1999, 1998 and 1997.
(13) SETTLEMENT(S)
- ----------------------
The Company was part of a global settlement in a matter where the
Plaintiffs alleged the contamination of water wells in Hawaii. The
Company's portion of the settlement was $500,000. The Company recovered
$400,000 from one of its insurers resulting in a net expense of
$100,000.
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 and 1997. The 1997 amount represents
professional/legal costs that relate to the 1998 settlement.
(14) STOCK OPTIONS
- ----------------------
At December 31, 1999, the Company had stock options outstanding for
177,000 shares of the Company's stock of which 80,000 shares represents
grants during 1999. These options were issued to various employees and
consultants and were granted with exercise prices at fair market value
which ranged from $4.88 to $10.75. The remaining lives of these options
at December 31, 1999 range from one month to seven years. If
compensation cost for stock-based compensation had been determined
based on the fair market value of the stock options on their dates of
grant in accordance with SFAS 123, the Company's net income would not
have substantially differed from the reported amounts.
(15) SUBSEQUENT EVENT - UNAUDITED
- -------------------------------------
On March 16, 2000, the Company announced that the Board of Directors
declared a cash dividend of $.13 per share as well as a 10% stock
dividend. Both dividends will be distributed on April 14, 2000 to
shareholders of record at the close of business on March 31, 2000. The
cash dividend will be paid on the number of shares outstanding prior to
the 10% stock dividend. Shareholders entitled to fractional shares
resulting from the 10% stock dividend will receive cash in lieu of such
fractional share based on the closing price of the Company's stock on
March 31, 2000.
57
60
INDEX TO EXHIBITS
ITEM 14(a)3
Page
Sequentially
Numbered
------------
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) --
10.7 Employment Agreement between American
Vanguard Corporation and Robert F.
Gilbane.(6) --
58
61
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) --
10.12 Employment Agreement between American Vanguard
Corporation and Eric G. Wintemute 62
21. List of Subsidiaries of Registrant. 75
27. Financial Data Schedule 76
- ----------------------
(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.
59