-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TCLG4cnLeZQCixUf/XAaqVfc0CycRNzQNMysdKAwAQf1XCqroV1mVrtSjWe96E8f VcdJ7lbD19rIYIRD1wvcKg== 0000892569-99-000881.txt : 19990402 0000892569-99-000881.hdr.sgml : 19990402 ACCESSION NUMBER: 0000892569-99-000881 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN VANGUARD CORP CENTRAL INDEX KEY: 0000005981 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 952588080 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13795 FILM NUMBER: 99582282 BUSINESS ADDRESS: STREET 1: 4695 MACARTHUR COURT CITY: NEWPORT BEACH STATE: CA ZIP: 90242 BUSINESS PHONE: 9492601200 MAIL ADDRESS: STREET 1: 4695 MACARTHUR COURT CITY: NEWPORT BEACH STATE: CA ZIP: 90242 FORMER COMPANY: FORMER CONFORMED NAME: AEROCON INC DATE OF NAME CHANGE: 19720620 10-K405 1 FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______ COMMISSION FILE NUMBER 0-6354 AMERICAN VANGUARD CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-2588080 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 4695 MacArthur Court, Newport Beach, California 92660 - ----------------------------------------------- --------- (Address of principal executive offices) (Zip Code) (949) 260-1200 ------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class: Common Stock, $.10 par value ---------------------------- Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The number of shares of $.10 par value Common Stock outstanding as of March 26, 1999, was 2,492,582. The aggregate market value of the voting stock of the registrant held by non-affiliates at March 26, 1999, was $7,020,900. For purposes of this calculation, shares owned by executive officers, directors, and 5% stockholders known to the registrant have been deemed to be owned by affiliates. 2 AMERICAN VANGUARD CORPORATION ANNUAL REPORT ON FORM 10-K DECEMBER 31, 1998
PART I PAGE NO. Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 17 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 24 PART III Item 10. Directors and Executive Officers of the Registrant 25 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 31 Item 13. Certain Relationships and Related Transactions 33 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 34 SIGNATURES 35
3 PART I This Report contains forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward- looking statements and related assumptions contained in the entire Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business and economic conditions; and changes in government laws and regulations, including taxes. ITEM 1 BUSINESS American Vanguard Corporation was incorporated under the laws of the State of Delaware in January 1969 and operates as a holding company. Unless the context otherwise requires, references to the "Company", or the "Registrant" in this Annual Report refer to American Vanguard Corporation and its consolidated subsidiaries. The Company conducts its business through its subsidiaries, Amvac Chemical Corporation ("AMVAC"), GemChem, Inc. ("GemChem"), 2110 Davie Corporation ("DAVIE"), AMVAC Chemical UK Ltd., ("Chemical UK") and Quimica Amvac De Mexico S.A. de C.V. ("Quimica Amvac") (Refer to Export Operations). 1 4 AMVAC AMVAC is a California corporation that traces its history from 1945. AMVAC is a specialty chemical manufacturer that develops and markets products for agricultural and commercial uses. It manufactures and formulates chemicals for crops, human and animal health protection. These chemicals which include insecticides, fungicides, molluscicides, growth regulators, and soil fumigants, are marketed in liquid, powder, and granular forms. AMVAC's business is continually undergoing an evolutionary change. Years ago AMVAC considered itself a distributor-formulator, but now AMVAC primarily manufactures, distributes, and formulates its own proprietary products or custom manufactures or formulates for others. In November 1998, AMVAC acquired the U.S. Dibrom(R) insecticide business from Valent USA Corporation ("Valent"), a wholly-owned subsidiary of Sumitomo Chemical Company, Limited. The purchase included all U.S. Environmental Protection Agency ("EPA") registration rights issued under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") and state registrations of the product line, an extensive data package, inventory, trademarks and all product related intellectual property. AMVAC has manufactured and formulated Dibrom(R) since 1981 for Valent and formerly for Chevron, which had held the U.S. rights to Dibrom(R) prior to Valent. AMVAC has owned the international rights to the Dibrom(R) product line since 1991. In January 1997, AMVAC purchased the rights, title and interest to Vapam(R) (Metam Sodium), a soil fumigant, from Zeneca, Inc. The official closing was December 31, 1996. The purchase included inventories of Vapam(R), EPA registration rights issued under FIFRA and certain other assets. AMVAC has manufactured Metam Sodium at its Los Angeles facility since 1988. AMVAC will pay Zeneca a royalty on all Metam Sodium sold by AMVAC in the United States, Canada and Mexico in accordance with the terms and conditions of a definitive agreement. AMVAC has attempted to position itself in smaller niche markets being abandoned by larger chemical companies. In addition to the product line acquisitions disclosed above, in 1993 AMVAC purchased from E.I. du Pont de Nemours ("DuPont") & Company the rights, title and interest (including DuPont's EPA Registration Rights) in Bidrin(R), an insecticide for cotton crops and in 1991 AMVAC purchased from Rhone-Poulenc AG Company its Napthalene Acetic Acid ("NAA") 2 5 plant growth regulator product line including Rhone-Poulenc's EPA registration rights. The chemical industry in general is cyclical in nature. The demand for AMVAC's products tends to be slightly seasonal. Seasonal usage, however, does not necessarily follow calendar dates, but more closely follows varying growing seasonal patterns, weather conditions and weather related pressure from pests, and customer marketing programs and requirements. The Company does not believe that backlog is a significant factor in its business. The Company primarily sells its products on the basis of purchase orders, although it has entered into requirements contracts with certain customers. ConAgra, Inc. and Tenkoz accounted for 29% and 12%, respectively, of the Company's sales in 1998. ConAgra, Inc. accounted for 29% of the Company's sales in 1997. ConAgra, Inc. and Terra International accounted for 33% and 10%, respectively, of the Company's sales in 1996. ConAgra and Terra are distributors of the Company's products. Tenkoz is a buying cooperative of various companies/producers. COMPETITION AMVAC faces competition from many domestic and foreign manufacturers in its marketplaces. Competition in AMVAC's marketplace is based primarily on efficacy, price, safety and ease of application. Many of such competitors are larger and have substantially greater financial and technical resources than AMVAC. AMVAC's ability to compete depends on its ability to develop additional applications for its current products and expand its product lines and customer base. AMVAC competes principally on the basis of the quality of its products and the technical service and support given to its customers. The inability of AMVAC to effectively compete in several of AMVAC's principal products would have a material adverse effect on AMVAC's results of operations. Generally, the treatment against pests of any kind is broad in scope, there being more than one way or one product for treatment, eradication, or suppression. As previously mentioned, the Company has attempted to position AMVAC in smaller niche markets which are abandoned by larger companies. These markets are small by nature, require significant and intensive management input, ongoing product research, and are near product maturity. These types of markets tend not to attract larger chemical companies due to the smaller volume demand, and larger chemical companies have been divesting themselves of products that fall into such niches as is evidenced by AMVAC's successful acquisitions of Dibrom(R), Vapam(R), Bidrin(R) and NAA. AMVAC's proprietary product formulations are protected to the extent possible as trade secrets and, to a lesser extent, by patents and trademarks. Although AMVAC considers that, in the aggregate, its trademarks, licenses, and patents constitute a 3 6 valuable asset, it does not regard its business as being materially dependent upon any single or several trademarks, licenses, or patents. AMVAC's products also receive protection afforded by the effect of FIFRA legislation that makes it unlawful to sell any pesticide in the United States unless such pesticide has first been registered by the EPA as well as under similar state laws. Substantially all of AMVAC's products are subject to EPA registration and re-registration requirements and are conditionally registered in accordance with FIFRA. This licensing by EPA is based, among other things, on data demonstrating that the product will not cause unreasonable adverse effects on human health or the environment when it is used according to approved label directions. All states where any of AMVAC's products are used require a registration by that specific state before it can be marketed or used. State registrations are renewed annually, as appropriate. The EPA and state agencies have required, and may require in the future, that certain scientific data requirements be performed on registered products sold by AMVAC. AMVAC, on its own behalf and in joint efforts with other suppliers, has, and is currently furnishing, certain required data relative to specific products. Under FIFRA, the federal government requires registrants to submit a wide range of scientific data to support U.S. registrations. This requirement has significantly increased AMVAC's operating expenses in such areas as testing and the production of new products. AMVAC expensed $2,611,900, $2,241,300, and $1,932,700 during 1998, 1997 and 1996, respectively, related to gathering this information. Based on facts known today, AMVAC estimates it will spend approximately $3,000,000 in 1999. Because scientific analyses are constantly improving, it cannot be determined with certainty whether or not new or additional tests may be required by the regulatory authorities. Additionally, while FIFRA Good Laboratory Practice standards specify the minimum practices and procedures which must be followed in order to ensure the quality and integrity of data related to these tests submitted to the EPA, there can be no assurance the EPA will not request certain tests/studies be repeated. AMVAC expenses these costs on an incurred basis. See also PART I, Item 7 of this Annual Report for discussions pertaining to research and development expenses. RAW MATERIALS The Company utilizes numerous firms as well as internal sources to supply the various raw materials and components used by AMVAC in manufacturing its products. Many of these materials are readily available from domestic sources. In those instances where there is a single source of supply or where the source is not domestic, the Company seeks to secure its supply by either long-term 4 7 arrangements or advance purchases from its suppliers. The Company believes that it is considered to be a valued customer to such sole-source suppliers. ENVIRONMENTAL During 1998, AMVAC continued activities to address environmental conditions at the railroad right-of-way which is located adjacent to AMVAC's Commerce, California facility (the "Facility"). The railroad right-of-way is jointly owned by the Union Pacific Railroad and the Burlington Northern and Santa Fe Railway Company, and is managed on behalf of both companies by the latter. The site investigation and remediation activities have been conducted pursuant to a January 10, 1996, enforceable agreement and order entered into by AMVAC and the California Department of Toxic Substances Control ("DTSC"). A site investigation and health risk assessment were conducted and completed by AMVAC during the first two quarters of 1997. AMVAC prepared a draft Remedial Action Plan ("RAP") in May, 1997 which evaluated several options for remediating soils at the railroad right-of-way. The RAP concluded that the most appropriate option for remediation was the excavation and offsite disposal of soils which exceeded risk-based cleanup levels. DTSC approved the draft RAP on June 25, 1997. Remedial activities commenced on July 4, 1997 and were completed on July 12, 1997. A post-remediation report was prepared by AMVAC and submitted to DTSC on October 13, 1997. AMVAC received DTSC approval of the remedial activities in a letter dated June 26, 1998 (the "Letter"). In the Letter, DTSC stated, among other things, that ..." the Site, in its current condition, does not appear to pose a threat to human health or the environment based upon the conclusion of the Post Remediation Risk Assessment ("PRRA") and no further remedial action is required." However, due to elevated concentrations of arsenic left in place at a depths from 11 to 45 feet below ground surface, DTSC requires that a land use covenant be recorded on the property prior to issuance of site certification in accordance with Chapter 6.85 of the California Health & Safety Code, and that reviews be conducted by AMVAC every five years to evaluate whether the completed remediation remains protective of public health and the environment. In March, 1997, the Facility was accepted into the DTSC's Expedited Remedial Action Program ("ERAP"). The remaining environmental investigation and any remediation activities related to ten underground storage tanks at the Facility which had been closed in 1995 will be addressed by AMVAC under ERAP. Soil characterization activities at other areas of the Facility are expected to commence in the second or third quarter of 1999 and to be conducted in phases over the next two to three years. These activities are required at all facilities which currently have, or in the past had, hazardous waste management permits. Because AMVAC 5 8 previously held a hazardous waste storage permit, AMVAC is subject to these requirements. The Company is subject to numerous federal and state laws and governmental regulations concerning environmental matters and employee health and safety. The Company continually adapts its manufacturing process to the environmental control standards of various regulatory agencies. The EPA and other federal and state agencies have the authority to promulgate regulations that could have an impact on the Company's operations. AMVAC expends substantial funds to minimize the discharge of materials into the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, AMVAC recovers raw materials and increases product yield by recycling in order to partially offset increasing pollution abatement costs. The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. Federal and state authorities may seek fines and penalties for violation of the various laws and governmental regulations. As part of its continuing environmental program, except as disclosed in PART I, Item 3, Legal Proceedings, of this Annual Report, the Company has been able to comply with such proceedings and orders without any materially adverse effect on its business. EMPLOYEES As of March 26, 1999, the Company employed approximately 200 persons. This figure includes approximately 20 temporary (equivalent full-time) individuals hired as contract personnel. AMVAC, on an ongoing basis, due to the seasonality of its business, uses temporary contract personnel to perform certain duties primarily related to packaging of its products. The Company believes it is cost beneficial to employ temporary contract personnel. None of the Company's employees are subject to a collective bargaining agreement. The Company believes it maintains positive relations with its employees. EXPORT OPERATIONS The Company opened an office in 1998 in Mexico to conduct business in Mexico and related areas. The new office operates under the name Quimica Amvac De Mexico S.A. de C.V. and will market chemical products for agricultural and commercial uses. The Company opened an office in August 1994, in the United Kingdom to conduct business in the European chemical market. The new office, operating under the name AMVAC Chemical UK Ltd., focuses on 6 9 developing product registration and distributor networks for AMVAC's product lines throughout Europe. The office is located in Surrey, England, a city southwest of London. The operating results of this operation were not material to the Company's total operating results for the years ended December 31, 1998, 1997 and 1996. The Company classifies as export sales all products bearing foreign labeling shipped to a foreign destination.
1998 1997 1996 ---- ---- ---- Export Sales $5,085,700 $6,646,000 $3,535,500
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. 7 10 ITEM 2 PROPERTIES The Company's corporate headquarters are located in Newport Beach, California. This facility is leased. See PART IV, Item 14, note 11 of this report for further information. AMVAC owns in fee approximately 152,000 square feet of improved land in Commerce, California, on which substantially all of its plant and some of its warehouse facilities and offices are located. DAVIE owns in fee approximately 72,000 square feet of warehouse, office and laboratory space on approximately 118,000 square feet of land in Commerce, California, which is leased to AMVAC. AMVAC's manufacturing facilities are divided into five cost-centers; Vapam(R) (Metam Sodium), PCNB, granular products, small packaging, and the production and formulation of all other products. All production areas are designed to run on a continuous twenty-four hour per day basis. AMVAC regularly adds chemical processing equipment to enhance its production capabilities. AMVAC believes its facilities are in good operating condition and are suitable and adequate for AMVAC's foreseeable needs, have flexibility to change products, and can produce at greater rates as required. Facilities and equipment are insured against losses from fire as well as other usual business risks. The Company knows of no material defects in title to, or encumbrances on, any of its properties except that substantially all of the Company's assets are pledged as collateral under the Company's loan agreements with its primary lender. For further information, refer to note 3 of the Notes to the Consolidated Financial Statements in PART IV, Item 14 of this Annual Report. AMVAC purchased unimproved land in Texas for possible future expansion. GemChem's, Chemical UK's and Quimica Amvac's facilities consist of administration and sales offices which are leased. The Company believes its properties to be suitable and adequate for its current purposes. 8 11 ITEM 3 LEGAL PROCEEDINGS DBCP LAWSUITS A. CALIFORNIA MATTERS In 1997, Amvac was served with complaints in two actions filed in the San Francisco Superior Court entitled the Sultana Community Services District v. Shell Oil Co., et.al. and the County of San Joaquin v. Shell Oil Co., et.al. Both complaints allege property damage resulting from Dibromochloropropane ("DBCP") contamination of water supply. Both complaints name as defendants AMVAC, Shell Oil Company, Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company, and Velsicol Chemical Company. In Sultana, Plaintiff has not produced documentation to support its claim for damage. Any damages proven may be significantly offset by Plaintiff's receipt of a Government grant for a new well. It is currently not possible to predict the outcome or costs involved in the defense of this matter. The County of San Joaquin matter was dismissed on March 8, 1999 and the Court confirmed Amvac's settlement for $5,000 and thereby barred potential cross-complaints by other defendants. The settlement included a release for the five wells claimed to have been damaged and for the next two wells, of the nine other identified wells, if they should exceed MCL contaminant levels in the future. B. HAWAII MATTERS AMVAC and the Company were served with complaints, on February 7, 1997 and March 4, 1997 respectively. The actions were filed in the Circuit Court of the Second Circuit, State of Hawaii entitled Board of Water Supply of the County of Maui v. Shell Oil Co., et.al. The suit names as defendants the Company, AMVAC, Shell Oil Company, the Dow Chemical Company, Occidental Chemical Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and Brewer Environmental Industry, Inc. The Maui Pineapple Company has recently been named as a cross-defendant. The Compliant alleges property damage resulting from DBCP contamination of between two and four wells of the Board's water wells. Formal discovery is ongoing as to the identity of the applications of DBCP that might have been made near the wells and the level of contamination of the wells. The Plaintiff alleges damages of approximately 16 million dollars for all four wells. The Plaintiff alleges Amvac sold approximately 20% of the DBCP on Maui. Procedural defenses of the Board's standing to sue and expiration of the statute of limitations remain defenses. On October 20, 1997, AMVAC was served with a Complaint in which it was named as a Defendant, filed in the Circuit Court, First Circuit, state of Hawaii entitled Patrickson, et.al. v. Dole Food Co., et.al. alleging damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. Other named defendants are: Dole Food Co., Dole Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers Association of Hawaii, Shell Oil Company, Dow Chemical Company, 9 12 Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit & Steamship, Standard Fruit company De Costa Rica, Standard Fruit company De Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading corporation, and Del Monte Fresh Produce. The ten named plaintiffs are citizens of Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a class action on behalf of other workers so exposed in these four countries. The defendants subsequently removed the case to the United States District Court in Hawaii. On March 8, 1999, the Judge in the U.S. District Court dismissed the case based on the defendants' agreement to pay any judgement that might be entered in the plaintiff's nation of origin. The court order allows plaintiffs to return to the United States if the foreign courts do not accept jurisdiction. The plaintiffs reported that they have filed suit in each of the countries. None of the defendants have been served with these suits. No discovery has taken place on the individual claims. Without discovery, it is unknown if any plaintiff was exposed to Amvac DBCP and too early to provide any evaluation of the likelihood of an unfavorable outcome. There may be statute of limitation defenses available to defendants. Amvac intends to contest the cases vigorously. C. MISSISSIPPI MATTERS On May 30,1996, AMVAC was served with five complaints in which it is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc., Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison County, First Judicial District of Mississippi. Each case alleged damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. These cases have been removed to U.S. District Court for the Southern District of Mississippi, Southern Division. Three of the cases were conditionally dismissed on the basis of forum non conveniens. Another case was closed for administrative purposes due to its similarity to the other matters. Only one case is still open but no substantive activity has occurred since its filing. Between April and October 1998, plaintiffs filed notices of appeal in each of the cases. The United States Court of Appeals, Fifth Circuit suspended the briefing schedule until the record on appeal is completed. As of this date the appeals are pending. Defendants have learned one of the plaintiffs has filed suit in Panama, but no defendant has been served. No discovery has taken place and therefore it is unknown whether any of the plaintiffs were exposed to Amvac DBCP or what statute of limitation defense might apply. Amvac intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. 10 13 PHOSDRIN(R) LAWSUIT On September 21, 1995, AMVAC was served with a complaint filed in the Superior Court of King County, Washington entitled Ricardo Ruiz Guzman, et.al. v. Amvac Chemical Corporation, et.al. (the "Guzman Case"). The Complaint is for unspecified monetary damages based on Plaintiffs' (farm workers') alleged injuries from their exposure to the pesticide Phosdrin(R). Defendants removed the case to the United States District Court. On October 14, 1997 the United States District Court dismissed all Plaintiffs' claims against AMVAC with prejudice. Plaintiff's appeal of the judgement to the United States Court of Appeals for the Ninth Circuit was argued on November 2, 1998. It is currently impossible to predict the outcome of the matter. AMVAC's insurance carrier has assumed costs of the appeal. NAA DATA TRADE SECRET On November 1, 1996 AMVAC filed an action in U.S. District Court in Oregon against four defendants relating to their misuse of AMVAC's exclusive right associated with Naphthalene Acetic Acid ("NAA") (Amvac Chemical Corporation v. Termilind, Inc., et.al.). On November 25, 1996, defendants Termilind and Inchema asserted counterclaims against AMVAC: violation of antitrust laws (Sherman Act section 2 and ORS 646.730), unfair competition, tortuous interference, defamation, and breach of contract. On January 5, 1999, the Court granted AMVAC's Motion for Partial Summary Judgement on AMVAC's claim for tortious interference with prospective business relations, finding that AMVAC had proved three of the five elements of the tort. To prevail on this claim, AMVAC must still prove the defendant's intent to interfere and its damages resulting from the defendant's conduct. Formal discovery is continuing and no trial date has been set for the matter. It is too early to provide any evaluation of the likelihood of an unfavorable outcome. 11 14 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 1998 to a vote of security holders, through the solicitation of proxies or otherwise. 12 15 ' PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On January 27, 1998 the Company announced the listing of its $0.10 par value common stock ("Common Stock") on the American Stock Exchange under the ticker symbol AVD. The Company's Common Stock traded on The NASDAQ Stock Market under the symbol AMGD from March 3, 1987 through January 26, 1998. The following table sets forth the range of high and low sales prices as reported for the Company's Common Stock for the calendar quarters indicated.
Calendar 1998 HIGH LOW CLOSE ------------- ---- --- ----- First Quarter 9 7/8 6 3/8 9 1/4 Second Quarter 9 1/2 6 9 3/8 Third Quarter 9 3/8 4 5/8 4 7/8 Fourth Quarter 6 5/8 4 1/2 5 7/8 Calendar 1997 First Quarter 8 3/4 6 1/4 6 5/8 Second Quarter 8 1/16 6 1/4 7 1/2 Third Quarter 10 7/8 6 7/8 9 3/8 Fourth Quarter 10 5 5/8 6 1/8
The Company's share activity is reported in the Wall Street Journal and is listed as "AmVngrd". As of March 26, 1999, the number of shareholders of the Company's Common Stock was approximately 600 which includes beneficial owners with shares held in brokerage accounts under street name and nominees. On March 31, 1999, the Company announced that the Board of Directors declared a cash dividend of $.06 per share which will be distributed on April 19,1999 to shareholders of record at the close of business on April 8,1999. The Company distributed a cash dividend of $.07 per share on March 25, 1998 to shareholders of record at the close of business on March 13, 1998. The Company distributed a cash dividend of $.06 per share on March 31, 1997 to shareholders of record at the close of business on March 20, 1997. The Company has issued a cash dividend in each of the last three years (1997, 1998 and 1999). There is no assurance as to future dividends because they depend on future earnings, capital requirements, and financial condition. In addition, the payment of 13 16 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)
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Operating revenues $ 67,016 $ 67,701 $ 48,628 $ 55,402 $ 45,098 ========= ========= ========= ========= ========= Operating income $ 5,158 $ 4,785 $ 3,523 $ 5,971 $ 3,346 ========= ========= ========= ========= ========= Income from operations before income tax expense $ 3,263 $ 3,283 $ 2,611 $ 5,043 $ 1,465 ========= ========= ========= ========= ========= Net income $ 2,127 $ 2,025 $ 1,616 $ 3,124 $ 1,203 ========= ========= ========= ========= ========= Basic and diluted net income per share $ .85 $ .81 $ .65 $ 1.23 $ .47 ========= ========= ========= ========= ========= Total assets $ 58,847 $ 55,206 $ 48,028 $ 39,341 $ 40,929 ========= ========= ========= ========= ========= Long-term debt and capital lease obligations, less current portion $ 6,458 $ 3,980 $ 4,373 $ 5,540 $ 3,695 ========= ========= ========= ========= ========= Stockholders' equity $ 23,128 $ 21,260 $ 19,386 $ 18,005 $ 15,143 ========= ========= ========= ========= ========= Weighted average number of shares 2,502,650 2,507,829 2,472,883 2,546,471 2,562,398 ========= ========= ========= ========= ========= Dividends per share of common stock $ .07 $ .06 $ .06 $ - $ - ========= ========= ========= ========= =========
The selected consolidated financial data set forth above with respect to each of the calendar years in the five-year period ended December 31, 1998, have been derived from the Company's consolidated financial statements and are qualified in their entirety by reference to the more detailed consolidated financial statements and the independent certified public accountants' reports thereon which are included elsewhere in this Report on Form 10-K for the three years ended December 31, 1998. See ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 15 18 - --------------------- The Company distributed a $.06 cash dividend on March 31, 1997 to shareholders of record at the close of business on March 20, 1997. The Company distributed a $.07 cash dividend on March 25, 1998 to shareholders of record at the close of business on March 13, 1998. On March 31, 1999, the Company announced that the Board of Directors declared a cash dividend of $.06 per share to be distributed on April 19, 1999 to shareholders of record at the close of business on April 8, 1999. 16 19 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS 1998 COMPARED WITH 1997: The Company reported net income of $2,126,500 or $.85 per share in 1998 as compared to net income of $2,024,700 or $.81 per share in 1997. Net sales were $67,015,600 in 1998 as compared to $67,700,500 in 1997. Sales of the Company's agricultural product lines improved by approximately $177,000 in 1998 over 1997 while sales into the pharmaceutical, nutritional and other markets declined by approximately $862,000. This decline is in keeping with the Company's desire to focus its sales efforts on its core business, agricultural product lines. Gross profits declined by $278,100 to $27,106,800 in 1998 from $27,384,900 in 1997. Gross profit margins remained relatively unchanged at 40.4% in 1998 as compared to 40.5% in 1997. Operating expenses increased by $416,000 to $23,016,100 in 1998 from $22,600,100 (which includes settlement expense of $951,000, refer to general administrative and corporate expenses below) in 1997. The following is a discussion of operating expenses: Selling and Regulatory: Selling and regulatory expenses increased by $123,700 to $7,882,100 in 1998 from $7,758,400 in 1997. Increases in payroll and payroll related items accounted for approximately $251,000 of the increase. Net changes in variable selling expenses accounted for the balance of the increase. General, Administrative and Corporate: General, administrative and corporate costs declined by $520,000 to $5,692,100 in 1998 from $6,212,100 in 1997 The decline was attributable to the recognition of $777,300, which represents a portion of an award rendered in favor of the Company by neutral arbitrators in a binding action. This portion of the award was recorded as an offset to related professional/legal costs during 1998. (Note: Settlement Expenses of $951,000 are included in 1997 General and Administrative costs and are made up of professional/legal expenses.) General, administrative and corporate costs would have increased by $222,800 in 1998 as compared to 1997, primarily as a result of 17 20 increases in legal fees and the acquisition and implementation of a new computer system. (See Year 2000 Compliance disclosure.) Research and Development: Research and development costs which includes costs incurred to generate scientific data and other activities performed by the department increased by $510,300 to $3,838,500 in 1998 as compared to $3,328,200 in 1997. Increased costs to generate scientific data related to the registration and possible new uses of the Company's products accounted for approximately $330,000 of the increase while increases in outside professional fees, payroll and payroll related items accounted for the balance in increased research and development costs. Freight, Delivery and Warehousing: Freight, delivery and warehousing costs increased by $302,000 to $5,603,400 in 1998 as compared to $5,301,400 in 1997. Increased shipping costs of the Company's fumigant product line primarily accounted for the increase. The Company was awarded a settlement of $1,845,000 by neutral arbitrators in a binding action. A portion of this award, $777,300, was recorded as an offset to related professional/legal costs in 1998. The balance appears as a separate line item titled "Settlement" on the Company's Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996. The 1997 and 1996 amounts represent professional/legal costs that relate to the 1998 settlement. Interest costs were $1,900,000 in 1998 as compared to $1,513,400 in 1997. The average level of borrowing under the Company's line of credit agreement increased by $3,649,500 to $16,938,100 in 1998 from $13,288,600 in 1997. The average level of long-term debt increased by $522,200 to $5,513,100 in 1998 from $4,990,900 in 1997. On a combined basis, the Company's average debt for 1998 was $22,451,200 as compared to $18,279,500, in 1997. The higher debt during 1998 accounted for the increase in interest costs. Income tax expense declined by $121,500 to $1,136,600 in 1998 as compared to $1,258,100 in 1997. The Company's effective tax rate was 35% for 1998 as compared to the 38% effective tax rate for 1997. See note 4 to the Consolidated Financial Statements for additional analysis of the changes in income tax expense. Weather patterns can have an impact on the Company's operations. The Company manufactures and formulates chemicals for crops, human and animal health protection. The end user of some of the Company's products may, because of weather patterns, delay or 18 21 intermittently disrupt field work during the planting season which may result in a reduction of the use of some of the Company's products. Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company's performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as good an indicator as full-year comparisons. 19 22 1997 COMPARED WITH 1996: The Company reported net income of $2,024,700 or $.81 per share in 1997 as compared to net income of $1,615,500 or $.65 per share in 1996. The increase in net income in 1997 was primarily attributable to growth of the Company. The Company achieved record level sales in 1997, however, a decrease in the gross profit percentage as well as an increase in interest expense incurred to finance the growth of the Company resulted in the increase in net income not being proportionate to the increase in sales. Net sales increased 39% to $67,700,500 in 1997 as compared to $48,627,900 in 1996. The reason for the significant increase in sales was due to the strong demand for certain of the Company's product lines during 1997. The $19,072,600 increase was primarily driven by increased sales of its fumigant and insecticide products. Gross profits increased by $7,037,000 to $27,384,900 in 1997 from $20,347,900 in 1996. Despite the increase in gross profits, the gross profit percentage decreased to 40.5% in 1997 from 41.8% in 1996. The gross profit percentage in 1997 was negatively impacted due to competitive pricing pressures for certain of the Company's products and an enhancement of the Company's PCNB manufacturing facility. The Company invested in an octane recovery and waste reduction system for the PCNB manufacturing facility which effort curtailed PCNB manufacturing for approximately seventy-five days during the quarter ended September 30, 1997. Based upon historical performance, PCNB manufacturing operations would have absorbed in excess of one million dollars of manufacturing costs during the seventy-five day period. The octane recovery and waste reduction system is expected to save an estimated $350,000 per year. Operating expenses increased by $5,775,200 to $22,600,100 in 1997 from $16,824,900 in 1996. Operating expenses include settlement expenses of $951,000 in 1997 and $284,900 in 1996. The following is a discussion of operating expenses: Selling and Regulatory: Selling and regulatory expenses increased by $1,657,900 to $7,758,400 in 1997 from $6,100,500 in 1996. The Company, in order to support and grow its Vapam(R) product line, as well as certain other product lines, made investments in its technical, sales and marketing infrastructure which included the hiring of additional technical and sales individuals. This program accounted for approximately $1,031,000 of the increase in selling and regulatory expenses. The Company's registration related costs, both domestically and internationally, as well as environmental related taxes and 20 23 assessments increased by approximately $221,800 due to the growth of the Company during 1997. Variable selling expenses, primarily rebates and royalties, accounted for the balance of the increase in selling and regulatory expenses. General, Administrative and Corporate: General, administrative and corporate costs increased by $2,033,300 to $6,212,100 in 1997 from $4,178,800 in 1996. The increase was primarily attributable to an increase in legal fees of $1,081,000. Most of this increase has been incurred in legal actions in which the Company is plaintiff. General, administrative and corporate expenses also increased in 1997 due to the amortization of goodwill purchased in connection with the acquisition of the Vapam(R) product line in December 1996 in the amount of $317,600. The Company also completed railroad remediation work related to the railroad siding matter (see additional discussion in PART I, Item 1, Business, Environmental) which resulted in total expenditures of approximately $526,000. The balance of the increase in general, administrative and corporate expenses in 1997 resulted from increases in personnel and costs related thereto. Research and Development: Research and development costs, which include costs incurred to generate scientific data and other activities performed by the department, increased by $304,400 to $3,328,200 in 1997 from $3,023,800 in 1996 primarily as a result of increased costs to generate scientific data related to the registration of the Company's products. Increases in data generation costs for DDVP products, Mevinphos products and Metam Sodium products accounted for the majority of the increase in research and development costs. The changes in data generation costs are a function of the status of related research studies and current regulatory requirements. Freight, Delivery and Warehousing: Freight, delivery and warehousing costs increased by $1,780,400 to $5,301,400 in 1997 from $3,521,000 in 1996. This increase was primarily attributable to the overall increase in sales volume with most of the increase related to Metam Sodium freight, delivery and storage costs. As a result of the acquisition of Vapam(R) in December 1996, the Company established additional storage sites and added additional rail cars to its rail car fleet in order to handle the increased volume. These costs, along with increased trucking and rail car freight charges due to the significant increase in volume in 1997, accounted for approximately $1,600,000 of the increase in freight, delivery and warehousing expenses. 21 24 Interest costs were $1,513,400 in 1997 as compared to $919,900 in 1996. The average level of borrowing under the Company's line of credit agreement increased by $8,865,100 to $13,288,600 in 1997 from $4,423,500 in 1996. The average level of long-term debt decreased by $1,884,000 to $4,990,900 in 1997 from $6,174,900 in 1996. On a combined basis, the Company's average debt for 1997 was $18,279,500 as compared to $10,598,400, in 1996. The significantly higher debt during 1997, which was used to finance the growth of the Company, accounted for the increase in interest costs. Income tax expense increased by $262,200 to $1,258,100 in 1997 as compared to $995,900 in 1996. Higher pre-tax income was the reason for the increased income tax expense. The Company's effective tax rate of 38.3% for 1997 was comparable to the 38.1% effective tax rate for 1996. See note 4 to the Consolidated Financial Statements for additional analysis of the changes in income tax expense. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operating activities was $7,224,000 for the year ended December 31, 1998 as compared to cash used in operating activities of $3,472,200 for 1997. Inventories in 1998 increased by $2,797,900 primarily as a result of the acquisition of inventory related to the Company's acquisition of the U.S. Dibrom(R) insecticide business (refer to PART I, Item 1, Business, of this Annual Report). The increase in inventories was more than offset by non-cash depreciation and amortization of $3,060,900 and reductions in receivables balances and prepaid expenses of $3,267,400. Accounts payable and other payables and accrued expenses increased by $1,942,100 primarily as a result of the acquisition of the Dibrom(R) inventory. The Company invested $1,928,100 in capital expenditures in 1998. The Company elected, as previously disclosed, to purchase a new Enterprise Resource Planning Manufacturing software system along with new computer hardware. The new software is Year 2000 compliant. The cost of this investment was $1,100,000 and the related obligation is carried as an obligation under capitalized leases. The balance invested in capital expenditures represent additions or improvements to the existing capacity of the Company's manufacturing facility and address the Company's continual effort to adapt its manufacturing processes to the environmental control standards of its various controlling agencies. The Company's investment in the acquisition of the U.S. Dibrom(R) insecticide business resulted in additions to intangible assets of $5,203,900 (as of December 31, 1998). As of December 31, 1998, the Company does not have any material commitments for future capital expenditures. 22 25 As part of an amendment to the Company's credit agreement in May 1998, the Company increased its credit limit under its fully- secured existing long-term line of credit to $24,000,000 from $20,500,000 and extended the expiration date of the long-term line of credit to July 31, 2000 from July 31, 1999. The Company had $14,000,000 of availability under its long-term line of credit agreement as of December 31, 1998. There has been constant public pressure upon the federal and state governments to require FIFRA product registrants to supply new scientific data (such as toxicological and environmental fate tests), which has resulted in government action requiring additional studies and the submission of more data. Based on facts known today, the Company estimates it will spend approximately $3,000,000 in 1999 on these and other studies. Because scientific analyses are constantly improving, it cannot be determined with any degree of certainty, whether or not material new or additional tests may be required. For further information, refer to PART I, Item 1, Business, Competition of the Annual Report. AMVAC is a manufacturer and formulator of chemicals for crops, human and animal health protection. This is a high risk industry with ever present industry-wide litigation. For discussions pertaining to the Company's litigation refer to PART I, Item 3, Legal Proceedings of this Annual Report. Management believes current financial resources (working capital and borrowing arrangements) and anticipated funds from operations will be adequate to meet total financial needs in 1999. Management also continues to believe, to improve its working capital position and maintain flexibility in financing interim needs, it is prudent to explore alternate sources of financing. FOREIGN EXCHANGE Management does not believe that the fluctuation in the value of the dollar in relation to the currencies of its customers in the last three fiscal years has adversely affected the Company's ability to sell products at agreed upon prices. No assurance can be given, however, that adverse currency exchange rate fluctuations will not occur in the future. Should adverse currency exchange rate fluctuations occur in geographies where the Company sells/exports its products, management is not certain such fluctuations will materially impact the Company's operating results. INFLATION Management believes inflation has not had a significant impact on the Company's operations during the past three years. 23 26 YEAR 2000 COMPLIANCE Computers, software and other equipment utilizing microprocessors that use only two digits to identify a year in a date field may be unable to process certain date-based information at or after the year 2000. This is commonly referred to as the "Year 2000 issue", and the Company is addressing this issue on several different fronts. The Company elected, as disclosed in prior filings, to install a new Enterprise Resource Planning Manufacturing software system, the decision of which, was not driven by Year 2000 compliance. The new software system is Year 2000 compliant. The installation of this system is expected to be completed, for the most part, in the early part of 1999. The Company has established a separate team to coordinate solutions to the Year 2000 issue for the Company's other internal data processing systems with a goal of having all of its internal systems Year 2000 compliant, although no assurances are made that this goal will be met. The Company is in the process of requesting Year 2000 compliance certification from each of its major vendors and suppliers for their hardware and software products and for their internal business applications and processes. Should key vendors or suppliers have significant Year 2000 issues, the Company will need to develop a contingency plan for obtaining required materials should sources be interrupted. The Company does not anticipate amounts incurred in connection with the Year 2000 compliance program will be material to its financial condition or results of operations. The Company does not believe that its business will be adversely affected by the Year 2000 issue in any material respect. Nevertheless, achieving Year 2000 compliance is dependent on many factors, some of which are not completely within the Company's control, including without limitations, the availability and cost of trained personnel and effectiveness of software upgrades used by the Company and its vendors and suppliers. Should either the company's internal systems or the internal systems of one or more significant vendors or suppliers fail to achieve Year 2000 compliance, the Company's business and its results of operations could be adversely affected. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data are listed at PART IV, Item 14, Exhibits, Financial Statement Schedules, and Reports on Form 8-K in this report. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 24 27 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 75 Co-Chairman Glenn A. Wintemute 74 Co-Chairman Eric G. Wintemute 43 Director, President and Chief Executive Officer James A. Barry 48 Director, Senior Vice President, Chief Financial Officer, Treasurer and Secretary John B. Miles 55 Director Alan B. Sass 60 Director Jesse E. Stephenson 75 Director
Herbert A. Kraft has served as Co-Chairman of the Board since July 1994. Mr. Kraft served as Chairman of the Board and Chief Executive Officer from 1969 to July 1994. Glenn A. Wintemute has served as Co-Chairman of the Board since July 1994. Mr. Wintemute served as President of the Company and all operating subsidiaries since 1984 and was elected a director in 1971. He served as President of AMVAC from 1963 to July 1994. Eric G. Wintemute has served as a director since June 1994. Mr. Wintemute has also served as President and Chief Executive Officer since July 1994. He was appointed Executive Vice President and Chief Operating Officer of the Company in January 1994, upon the Company's acquisition of GemChem. He co- founded GemChem, a national chemical distributor, in 1991 and served as its President. Mr. Wintemute was previously employed by AMVAC from 1977 to 1982. From 1982 to 1991, Mr. Wintemute worked with R. W. Greeff & Co., Inc., a former distributor of certain of AMVAC's products. During his tenure with R. W. Greeff & Co., Inc., he served as Vice President and Director. He is the son of the Company's Co-Chairman, Glenn A. Wintemute. 25 28 James A. Barry has served as a director of the Company since 1994. Mr. Barry was appointed Senior Vice President in February 1998 and Secretary in August 1998. He has served as Treasurer since July 1994 and as Chief Financial Officer of the Company and all operating subsidiaries since 1987. He also served as Vice President from 1990 through January 1998 and as Assistant Secretary from June 1990 to July 1998. From 1990 to July 1994, he also served as Assistant Treasurer. John B. Miles was appointed a director in March 1999. Mr. Miles is a Partner with the law firm McDermott Will & Emery and has held the position of Partner since 1987. Prior to 1987, Mr. Miles was a Partner with Kadison Pfaelzer Woodward Quinn & Rossi. Mr. Miles has previously served on boards of directors for public and private corporations. Dr. Allan Sass was elected a director of the Company in June 1996. Dr. Sass served as Vice President of Technology of Wheelabrator Technologies (an environmental issues firm) from 1994 through April 1996, and served as Vice President of New Business Development from 1992 to 1994. He was the Chief Executive Officer and Chairman of Westates Carbon Company, Inc. from 1985 to 1992. Westates Carbon Company, Inc. was acquired by Wheelabrator Technologies in April 1992. From 1968 to 1985, Dr. Sass was with Occidental Petroleum Corporation serving as President and Chief Executive Officer of Occidental Oil Shale, reporting directly to Dr. Armand Hammer. Jesse E. Stephenson has served as director of the Company since 1977 (except for a 10-month period following March 1992). He was the General Manager of Calhart Corporation, then a wholly-owned subsidiary of the Company, from 1968 to 1978. Mr. Stephenson is retired and is a private investor. 26 29 Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors, and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. The Company believes that during 1998 all reports required to be filed under Section 16(a) by its executive officers, directors, and greater than ten percent beneficial owners were timely filed. 27 30 ITEM 11 EXECUTIVE COMPENSATION The following table sets forth the aggregate cash and other compensation for services rendered for the years ended December 31, 1998, 1997, and 1996 paid or awarded by the Corporation and its subsidiaries to the Corporation's Chief Executive Officer and each of the four most highly compensated executive officers of the Corporation, whose aggregate remuneration exceeded $100,000 (the "named executive officers"). 28 31 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ---------------------- ANNUAL COMPENSATION(1) AWARDS PAYOUTS ------------------- ------ -------- (a) (b) (c) (d) (e) (f) (g) (h) (i) OTHER RE- SECURITIES ALL NAME ANNUAL STRICTED UNDERLYING OTHER AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION POSITION YEAR ($) ($) ($) ($) (#) ($) ($) -------- ---- ------ ----- ------ ------- --------- ------ -------- Eric G. Wintemute 1998 284,177 - - - - - 5,359(4) President and 1997 244,244 - - - - - 4,723(4) Chief Executive 1996 201,306 - - - - - 4,855(4) Officer James A. Barry 1998 152,275 - - - - - 4,803(4) Senior V.P., CFO & 1997 134,819 - - - - - 4,608(4) Secretary/Treasurer 1996 129,692 - - - 5,500(2) - 3,457(4) David B. Cassidy(3) 1998 194,010 - - - - - 5,086(4) Executive Vice 1997 175,414 - - - - - 562(4) President (AMVAC) 1996 45,769 - - - 30,000(5) - - - Herbert A. Kraft(7) 1998 - - - - - - 138,101(6) Co-Chairman 1997 - - - - - - 180,168(6) 1996 - - - - - - 226,923(6) Glenn A. Wintemute(7) 1998 - - - - - - 138,223(6) Co-Chairman 1997 - - - - - - 195,192(6) 1996 - - - - - - 226,923(6)
- ------------------- (1) No executive officer enjoys perquisites that exceed the lesser of $50,000, or 10% of such officer's salary. (2) Represents options to purchase Common Stock of the Company. The exercise price of the options is $6.82 per share and the options vest one-third on January 18, 1996, 1997 and 1998 and all options expire on January 18, 2000. (3) Mr. Cassidy joined Amvac Chemical Corporation as Executive Vice President in September 1996. (4) These amounts represent the Company's contribution to the Company's Retirement Savings Plan, a qualified plan under Internal Revenue Code Section 401(k). (5) Represents options to purchase Common Stock of the Company in accordance with the terms and conditions of Mr. Cassidy's Employment Agreement. (6) Amounts represent payments received by each individual (during calendar year) under his consulting agreement. (7) Messrs. Kraft and Wintemute retired from the Company as active employees in July 1994. The Company entered into consulting agreements with Messrs. Kraft and Wintemute in July 1994. In 1996 the consulting agreements were extended for an additional year and now expire in July 2000. 29 32 Compensation Committee Interlocks and Insider Participation The Compensation Committee of the Board for the year ended December 31, 1998, consisted of Messrs. Herbert A. Kraft, Alan B. Sass and John B. Miles. The executive compensation philosophy of the Company is aimed at (i) attracting and retaining qualified executives; (ii) motivating performance to achieve specific strategic objectives of the Company; and (iii) aligning the interest of senior management with the long-term interest of the Company's shareholders. 30 33 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT To the knowledge of the Registrant, the ownership of the Registrant's outstanding Common Stock as of March 26, 1999, by persons who are directors, beneficial owners of 5% or more of the outstanding Common Stock and by all directors and officers as a group is set forth below. Unless otherwise indicated the Registrant believes that each of the persons set forth below has the sole power to vote and to dispose of the shares listed opposite his name.
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) 23.7% 4695 MacArthur Court Newport Beach, CA 92660 Co-Chairman Glenn A. Wintemute 585,961(3) 23.5% 4695 MacArthur Court Newport Beach, CA 92660 Goldsmith & Harris et al. 193,764(4) 7.8% 80 Pine Street New York, NY 10005 Director, Eric G. Wintemute 41,903 1.68% President 4695 MacArthur Court & CEO Newport Beach, CA 92660 Director Jesse E. Stephenson 32,850(5) 1.32% 4695 MacArthur Court Newport Beach, CA 92660 Executive Vice David B. Cassidy 27,500(6) 1.1% President (AMVAC) 4695 MacArthur Court Newport Beach, CA 92660 Director, James A. Barry 5,500(7) --(10) Sr. V.P.,CFO & 4695 MacArthur Court Secretary/Treasurer Newport Beach, CA 92660 Director Dr. Allan Sass 5,500(8) --(10) 4695 MacArthur Court Newport Beach, CA 92660 Director John B. Miles 2,500(9) --(10) 4695 MacArthur Court Newport Beach, CA 92660 Directors and Officers as a group (12) 1,309,684 51.8%
- ------------------- Refer to footnotes on next page. 31 34 ITEM 12 - Continued Footnotes - --------------------- (1) Record and Beneficial. (2) Mr. Kraft owns all of his shares with his spouse in a family trust, except as to 1,430 shares held in an Individual Retirement Account. (3) This figure includes 23,220 shares of Common Stock owned by Mr. G. A. Wintemute's minor children for which Mr. Wintemute is a trustee and disclaims beneficial ownership. (4) The Company has relied on information reported on a Statement on Schedule 13G filed by Goldsmith & Harris et al. with the Securities and Exchange Commission. (5) Mr. Stephenson holds all of his shares in a family trust. This figure includes 4,500 shares of Common Stock Mr. Stephenson is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (6) This figure includes 17,500 shares of Common Stock Mr. Cassidy is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (7) This figure represents shares of Common Stock Mr. Barry is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (8) This figure includes 4,500 shares of Common Stock Dr. Sass is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (9) This figure includes 2,500 shares of Common Stock Mr. Miles is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (10) Under 1% of class. 32 35 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In connection with their retirement from the Company as active employees in July 1994, Messrs. Herbert A. Kraft and Glenn A. Wintemute entered into written consulting agreements with the Company effective July 14, 1994. Pursuant to the consulting agreements, Messrs. Kraft and Wintemute perform management and financial consulting services for the Company as assigned by the Board of Directors or the Chief Executive Officer. The agreements originally were to expire on July 14, 1999. In 1996, the agreements were extended for an additional year now scheduled to expire July 14, 2000. The agreements provide that neither Messrs. Kraft or Wintemute will be required to expend more than 400 hours in any twelve month period or forty hours in any one month period. Under the agreements, Messrs. Kraft and Wintemute each received $287,500 for the year ended July 14, 1995, $243,750 for the year ended July 14, 1996, $200,000 for the year ended July 14, 1997 and $156,250 for the year ended July 14, 1998. They will also, under the agreements, each receive $112,500 for the year ending July 14, 1999 and $100,000 for the year ending July 14, 2000. In the event of death or disability prior to July 14, 2000, such payments will continue to be paid to the individual or his estate, as applicable. The agreements also provide for continuation of medical and dental insurance benefits until the expiration of the term of the agreements. See note 11 of the Notes to the Consolidated Financial Statements in PART IV, Item 14 of this Annual Report. 33 36 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Index to Consolidated Financial Statements and Supplementary Data: DESCRIPTION ------------
PAGE NO. Report of Independent Certified Public Accountants 35 Financial Statements: Consolidated Balance Sheets as of December 31, 1998 and 1997 36 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997, and 1996 38 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997, and 1996 39 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996 40 Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements 42
(2) Financial Statement Schedules: All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits: The exhibits listed on the accompanying Index To Exhibits, page 58 are filed as part of this annual report. (b) Reports on Form 8-K were filed during the quarter ended December 31, 1998. None. 34 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, American Vanguard Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN VANGUARD CORPORATION (Registrant) /s/ Eric G. Wintemute /s/ James A. Barry - ----------------------------- ---------------------------- By: ERIC G. WINTEMUTE By: JAMES A. BARRY President, Senior Vice President, Chief Executive Officer Chief Financial Officer, and Director Secretary/Treasurer and Director March 30, 1999 March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Herbert A. Kraft /s/ Glenn A. Wintemute - ----------------------------- ---------------------------- HERBERT A. KRAFT GLENN A. WINTEMUTE Co-Chairman Co-Chairman March 30, 1999 March 30, 1999 /s/ Allan Sass /s/ Jesse E. Stephenson - ----------------------------- ---------------------------- ALLAN SASS JESSE E. STEPHENSON Director Director March 30, 1999 March 30, 1999 /s/ John Miles - ----------------------------- JOHN MILES Director March 30, 1999 35 38 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders American Vanguard Corporation We have audited the accompanying consolidated balance sheets of American Vanguard Corporation and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Vanguard Corporation and their subsidiaries at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles /s/ BDO SEIDMAN, LLP BDO SEIDMAN, LLP Los Angeles, California March 9, 1999 36 39 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
ASSETS (NOTE 3) 1998 1997 ---- ---- Current assets: Cash $ 767,000 $ 746,600 Receivables: Trade 17,786,700 21,244,600 Other 852,900 441,400 ----------- ----------- 18,639,600 21,686,000 ----------- ----------- Inventories: Finished products 13,127,700 9,847,700 Raw materials 2,608,100 3,090,200 ----------- ----------- 15,735,800 12,937,900 ----------- ----------- Prepaid expenses 814,600 1,035,600 ----------- ----------- Total current assets 35,957,000 36,406,100 Property, plant and equipment, at cost, less accumulated depreciation of $21,086,300 in 1998 and $18,541,200 in 1997(notes 1,2,3, and 5) 12,576,300 13,439,000 Land held for development 210,800 210,800 Intangible assets, net of accumulated amortization of $954,100 in 1998 and $585,300 in 1997 (Note 10) 9,616,800 4,861,700 Other assets 486,100 288,700 ----------- ----------- $58,847,000 $55,206,300 =========== ============
(CONTINUED) 37 40 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 ---- ---- Current liabilities: Current installments of long-term debt (note 2) $ 3,118,500 $ 1,059,500 Accounts payable 6,448,400 3,785,200 Accrued expenses 3,599,700 3,561,100 Accrued royalty obligation-current portion (note 10) 1,600,000 1,600,000 Income taxes payable 1,379,900 554,100 ----------- ----------- Total current liabilities 16,146,500 10,559,900 Note payable to bank (note 3) 10,000,000 14,100,000 Long-term debt, excluding current installments (note 2) 6,457,800 3,980,400 Accrued royalty obligation, excluding current portion (note 10) 1,074,300 2,659,700 Deferred income taxes (note 4) 2,040,100 2,646,500 ----------- ----------- Total liabilities 35,718,700 33,946,500 ----------- ----------- Commitments and contingent liabilities (notes 2, 3, 5, 6, 9 and 11) Stockholders' equity: (note 14) Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued - - Common stock, $.10 par value per share; authorized 10,000,000 shares; issued 2,564,182 shares in 1998 and 1997 256,400 256,400 Additional paid-in capital 3,879,000 3,879,000 Retained earnings 19,434,300 17,483,300 ----------- ----------- 23,569,700 21,618,700 Less treasury stock, at cost, 71,600 shares in 1998 and 56,600 shares in 1997 441,400 358,900 ----------- ----------- Total stockholders' equity 23,128,300 21,259,800 ----------- ----------- $58,847,000 $55,206,300 =========== =========== See summary of significant accounting policies and notes to consolidated financial statements.
38 41 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ---- ---- ---- Net sales (note 8) $67,015,600 $67,700,500 $48,627,900 Cost of sales 39,908,800 40,315,600 28,280,000 ---------- ---------- ---------- Gross profit 27,106,800 27,384,900 20,347,900 Settlement (income)/expense (note 13) (1,067,700) 951,000 284,900 Operating expenses (note 12) 23,016,100 21,649,100 16,540,000 ---------- ---------- ---------- Operating income 5,158,400 4,784,800 3,523,000 Interest expense 1,900,000 1,513,400 919,900 Interest income (4,700) (11,400) (8,300) ---------- ---------- ---------- Income before income tax expense 3,263,100 3,282,800 2,611,400 Income tax expense (note 4) 1,136,600 1,258,100 995,900 ---------- ---------- ---------- Net income $ 2,126,500 $ 2,024,700 $ 1,615,500 ========== ========== ========== Per share information: Basic and diluted net income per share $ .85 $ .81 $ .65 ========== ========== ========== Weighted average number of shares 2,502,650 2,507,829 2,472,883 ========== ========== ========== See summary of significant accounting policies and notes to consolidated financial statements.
39 42 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK TOTAL ------ ---------- -------- -------- ----- Balance, January 1, 1996 $233,100 $1,688,200 $16,345,600 $(261,500) $18,005,400 Common stock dividend 23,300 2,190,800 (2,214,100) - - Cash dividends on common stock ($.06 per share) - - (138,000) - (138,000) Treasury stock acquired - - - (97,400) (97,400) Net income - - 1,615,500 - 1,615,500 ------- --------- ---------- -------- ---------- Balance, December 31, 1996 256,400 3,879,000 15,609,000 (358,900) 19,385,500 Cash dividends on common stock ($.06 per share) - - (150,400) - (150,400) Net income - - 2,024,700 - 2,024,700 ------- --------- ---------- -------- ---------- Balance, December 31, 1997 256,400 3,879,000 17,483,300 (358,900) 21,259,800 Cash dividends on common stock ($.07 per share) - - (175,500) - (175,500) Treasury stock acquired - - - (82,500) (82,500) Net income - - 2,126,500 - 2,126,500 ------- --------- ---------- -------- ---------- Balance, December 31, 1998 $256,400 $3,879,000 $19,434,300 $(441,400) $23,128,300 ======= ========= ========== ======== ========== See summary of significant accounting policies and notes to consolidated financial statements.
40 43 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
INCREASE (DECREASE) IN CASH 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 2,126,500 $ 2,024,700 $ 1,615,500 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of property, plant and equipment 2,555,500 2,256,900 2,204,300 Amortization of other assets 505,400 475,700 144,800 Loss on abandoned projects 231,400 - - Changes in assets and liabilities associated with operations: (Increase) decrease in receivables 3,046,400 (4,957,300) (1,242,700) Increase in inventories (2,797,900) (1,587,600) (3,080,700) Decrease (increase) in prepaid expenses 221,000 (382,000) (72,600) Increase in accounts payable 2,663,100 782,900 191,500 Increase (decrease) in other payables and accrued expenses (721,000) (2,036,400) 852,100 Decrease in deferred income taxes (606,400) (49,100) (226,900) ---------- ---------- ---------- Net cash provided by (used in)operating activities 7,224,000 (3,472,200) 385,300 ---------- ---------- ---------- Cash flows from investing activities: Capital expenditures (828,100) (2,768,400) (1,451,400) Additions to intangible assets (538,500) (33,100) (76,200) Net increase in other noncurrent assets (249,200) (68,000) (150,000) ---------- ---------- ---------- Net cash used in investing activities (1,615,800) (2,869,500) (1,677,600) ---------- ---------- -----------
(Continued) 41 44 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
INCREASE (DECREASE) IN CASH 1998 1997 1996 ---- ---- ---- Cash flows from financing activities: Net borrowings (repayments) under line of credit agreement (4,100,000) 7,100,000 $ 3,100,000 Increase in long-term debt (note 10) -- 1,884,800 96,600 Payments on debt and capital lease obligations (1,229,800) (2,378,500) (1,368,100) Acquisition of treasury stock (82,500) - (97,400) Payment of cash dividends (175,500) (150,400) (138,000) ---------- ---------- ---------- Net cash provided by (used in) financing activities (5,587,800) 6,455,900 1,593,100 ---------- ---------- ---------- Net increase in cash 20,400 114,200 300,800 Cash at beginning of year 746,600 632,400 331,600 ---------- ---------- ---------- Cash at end of year $ 767,000 $ 746,600 $ 632,400 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 1,804,200 $1,562,800 $ 851,500 Income taxes 914,800 1,721,000 1,630,900 ========== ========= ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On March 15, 1996, the Company distributed 233,058 shares of Common Stock in connection with a 10% Common Stock dividend to stockholders of record as of February 29, 1996. As a result of the stock dividend, Common Stock was increased by $23,300, additional paid-in capital was increased by $2,190,800, and retained earnings was decreased by $2,214,100. In December 1996, the Company completed the acquisition of an established product line from a large chemical company (see note 10). In connection with the acquisition, the Company recorded an intangible asset in the amount of $4,662,000 in consideration of a minimum royalty obligation in the same amount. In November 1998, the Company completed the acquisition of an established product line from a subsidiary of a large chemical company (See note 10). In connection with the acquisition, the Company recorded new product acquisition costs of $5,203,900. The Company financed $1,100,000 during the year ended December 31, 1998, under a capitalized lease, its computer related software and equipment. See summary of significant accounting policies and notes to consolidated financial statements. 42 45 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business and Basis of Consolidation The Company is primarily a specialty chemical manufacturer that develops and markets safe and effective products for agricultural and commercial uses. The Company manufacturers and formulates chemicals for crops, human and animal protection. One of the Company's subsidiaries, GemChem, Inc., procures certain raw materials used in the Company's manufacturing operations and is also a distributor of various pharmaceutical and nutritional supplement products. The consolidated financial statements include the accounts of American Vanguard Corporation ("Company") and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company operates within a single operating segment. Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company's performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as good an indicator as full-year comparisons. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Long-lived Assets Intangible assets resulting from business acquisitions (see note 10), consist of cost in excess of net assets (goodwill) acquired and other intangible assets, including customer lists, product registrations, trademarks and contracts. These intangible assets are being amortized on a straight-line basis over the period of an expected benefit of years. Management has a policy to review intangible assets and productive assets at each quarterly balance sheet date for possible impairment. This policy includes recognizing write-downs if it is probable that measurable undiscounted future cash flows and/or the aggregate net cash flows of an asset, as measured by current revenues and costs (exclusive of depreciation or amortization) over the asset's remaining depreciable life, are not sufficient to recover the net book value of an asset. Revenue Recognition Sales are recognized upon shipment of products or transfer of title to the customer. 43 46 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Depreciation Depreciation of property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Fair Value of Financial Instruments The carrying values of cash, receivables and accounts payable approximate their fair values because of the short maturity of these instruments. The fair value of the Company's long-term debt and note payable to bank is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Such fair value approximates the respective carrying values of the Company's long-term debt and note payable to bank. Income Taxes Income taxes have been provided using the asset and liability method in accordance with Financial Accounting Standard No. 109, "Accounting for Income Taxes". The asset and liability method requires the recognition of deferred tax assets and liabilities for future tax consequences of temporary differences between the financial statement bases and tax bases of assets and liabilities at the date of the financial statements using the provisions of the tax laws then in effect. Per Share Information In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share ("EPS"). SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on the face of all income statements. Basic EPS is computed as net income divided by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution that could occur if securities or other contracts, which, for the Company, consists of options to purchase 174,000 shares of the Company's common stock are exercised. These options were anti-dilutive in 1998, 1997 and 1996 and as such, dilutive EPS amounts are the same as basic EPS for all periods presented. No prior year EPS amounts have been restated as a result of SFAS 128. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and 44 47 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses at the date that the financial statements are prepared. Actual results could differ from those estimates. Reclassifications Certain prior years' amounts have been reclassified to conform to the current year's presentation. Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure", ("SFAS 129") issued by the FASB is effective for financial statements ended after December 15, 1997. The new standard reinstates various securities disclosure requirements previously in effect under Accounting Principles Board Opinion No. 15, which has been superseded by SFAS No. 128. Adoption of SFAS No. 129 did not have an impact on the Company's financial position or results of operations. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS 130") issued by the FASB. SFAS 130 establishes standards for reporting and displaying of comprehensive income and its components in a full set of general-purpose financial statements. The Company has no material components of other comprehensive net income and accordingly adoption of this Statement did not have an impact on the Company's current disclosures and presentation. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", ("SFAS 131") issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. This Statement requires that public companies report certain information about their operating segments, products and services, and the geographic areas in which they operate. Because the Company operates within a single operating segment, adoption of this Statement did not have an impact on the Company's current disclosures and presentation. 45 48 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (1) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1998 and 1997 consists of the following:
ESTIMATED 1998 1997 USEFUL LIVES ---- ---- ------------ Land $ 2,382,600 $ 2,382,600 Buildings and improvements 4,708,600 4,573,600 10 to 30 years Machinery and equipment 23,384,900 22,864,000 3 to 10 years Office furniture,fixtures and equipment 2,393,800 1,128,800 3 to 10 years Automotive equipment 105,000 105,000 3 to 6 years Construction in progress 687,700 926,200 ---------- ---------- 33,662,600 31,980,200 Less accumulated depreciation 21,086,300 18,541,200 ---------- ---------- $12,576,300 $13,439,000 =========== ===========
(2) LONG-TERM DEBT Long-term debt of the Company at December 31, 1998 and 1997 is summarized as follows:
1998 1997 ---- ---- Note payable, secured by certain real property, payable in monthly installments of $87,500 plus interest at prime plus .5% (prime was 7.75% at December 31, 1998), with remaining unpaid principal due December 1, 2000 $ 2,012,500 $ 3,062,500 Note payable, secured by certain real property, payable in monthly installments of $6,125, plus interest at prime with remaining unpaid principal due October 15, 2004 1,757,900 1,831,400 Note payable, secured by certain real property, payable in monthly principal and interest installments of $923 with remaining unpaid principal due July 1, 2001, interest rate at 8.00% 87,700 91,300 Obligations under product acquisition agreement (see note 10) 4,666,200 - Obligations under capitalized leases (see note 5) 1,052,000 54,700 ---------- ---------- 9,576,300 5,039,900 Less current installments 3,118,500 1,059,500 ---------- ---------- $ 6,457,800 $ 3,980,400 ========== ==========
46 49 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Approximate principal payments on long-term debt mature as follows: 1999 $3,118,500 2000 2,661,500 2001 1,980,200 2002 352,200 2003 73,500 Thereafter 1,390,400 ---------- $9,576,300 ==========
(3) NOTE PAYABLE TO BANK Under a credit agreement with a bank as amended in May 1998, the Company may borrow up to $24,000,000. The note bears interest at a rate of prime plus .25% (prime was 7.75% at December 31, 1998), which is payable monthly. Additionally, the Company, at its option, may pay a fixed rate of interest offered by the bank for terms not less than 30 nor more than 180 days and provided that any such period of time does not extend beyond the expiration date of the credit agreement. Substantially all of the Company's assets not otherwise specifically pledged as collateral on existing loans and capital leases are pledged as collateral under the credit agreement. The note payable expires on July 31, 2000. The Company had $14,000,000 available under this credit agreement as of December 31, 1998. The credit agreement, among other financial covenants, limits payments of cash dividends to a maximum of 25% of net income. The Company was in compliance with the financial covenants as of December 31, 1998. The balance outstanding at December 31, 1998 and 1997 was $10,000,000 and $14,100,000 respectively. The average amount outstanding during the years ended December 31, 1998 and 1997 was $16,938,100 and $13,288,600. The weighted average interest rate during the years ended December 31, 1998 and 1997 was 8.02% and 8.14%. (4) INCOME TAXES The components of income tax expense are:
1998 1997 1996 ---- ---- ---- Current: Federal $1,493,200 $ 997,800 $ 936,400 State 249,800 197,600 285,200 Other, primarily foreign - 8,200 1,200 Deferred: Federal (524,300) (20,700) (134,000) State (82,100) 75,200 (92,900) --------- --------- ---------- $1,136,600 $1,258,100 $ 995,900 ========= ========= ==========
47 50 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to income before income tax expense as a result of the following:
1998 1997 1996 ---- ---- ---- Computed tax provision at statutory Federal rates $1,109,500 $1,116,200 $ 887,900 Increase (decrease) in taxes resulting from: State taxes, net of Federal income tax benefit 25,800 180,800 144,000 Nondeductible expenses 37,600 35,900 28,000 Other (primarily foreign taxes) -- 8,200 1,900 Benefit of research and development and alternative minimum tax credits (36,300) (83,000) (65,900) --------- --------- ---------- $1,136,600 $1,258,100 $ 995,900 ======== ========= ==========
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability at December 31, 1998 and 1997 relate to the following:
1998 1997 ---- ---- Plant and equipment, principally due to differences in depreciation and capitalized interest $2,019,600 $2,654,800 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 (387,800) (307,800) State income taxes (57,000) (91,900) Vacation pay accrual (105,500) (113,500) Imputed interest on royalty obligation 139,900 85,800 Discount on accounts receivable 453,300 433,000 Other (22,400) (13,900) --------- --------- Net deferred income tax liability $2,040,100 $2,646,500 ========= =========
48 51 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Company believes it is more likely than not that the deferred tax assets above will be realized in the normal course of business. (5) LEASES The Company leases certain manufacturing equipment, and office furniture, fixtures and equipment under long-term capital lease agreements. Property, plant and equipment at December 31, 1998 include the following leased property under capital leases by major classes: Machinery and equipment $ 47,300 Office furniture, fixtures and equipment 1,237,500 ---------- 1,284,800 Less accumulated depreciation 76,700 ---------- $1,208,100 ==========
The following is a schedule of future minimum lease payments for capital leases as of December 31, 1998 Year ending December 31: 1999 $ 312,700 2000 340,000 2001 340,000 2002 264,400 ---------- Total minimum lease payments 1,257,100 Less amount representing interest 205,100 ----------- Present value of net minimum lease payment $1,052,000 ===========
49 52 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (6) LITIGATION AND ENVIRONMENTAL DBCP LAWSUITS A. CALIFORNIA MATTERS In 1997, Amvac was served with complaints in two actions filed in the San Francisco Superior Court entitled the Sultana Community Services District v. Shell Oil Co., et.al. and the County of San Joaquin v. Shell Oil Co., et.al. Both complaints allege property damage resulting from Dibromochloropropane ("DBCP") contamination of water supply. Both complaints name as defendants AMVAC, Shell Oil Company, Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company, and Velsicol Chemical Company. In Sultana Plaintiff has not produced documentation to support its claim for damage. Any damages proven may be significantly offset by Plaintiff's receipt of a Government grant for a new well. The County of San Joaquin matter was dismissed on March 8, 1999 and the Court confirmed Amvac's settlement for $5,000 and thereby barred potential cross-complaints by other defendants. The settlement included a release for the five wells claimed to have been damaged and for the next two wells, of the nine other identified wells, if they should exceed MCL contaminant levels in the future. B. HAWAII MATTERS AMVAC and the Company were served with complaints, on February 7, 1997 and March 4, 1997 respectively. The actions were filed in the Circuit Court of the Second Circuit, State of Hawaii entitled Board of Water Supply of the County of Maui v. Shell Oil Co., et.al. The suit names as defendants the Company, AMVAC, Shell Oil Company, the Dow Chemical Company, Occidental Chemical Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and Brewer Environmental Industry, Inc. The Maui Pineapple Company has recently been named as a cross-defendant. The Compliant alleges property damage resulting from DBCP contamination of between two and four wells of the Board's water wells. Formal discovery is ongoing as to the identity of the applications of DBCP that might have been made near the wells and the level of contamination of the wells. The Plaintiff alleges damages of approximately 16 million dollars for all four wells. The Plaintiff alleges Amvac sold approximately 20% of the DBCP on Maui. Procedural defenses of the Board's standing to sue and expiration of the statute of limitations remain defenses. On October 20, 1997, AMVAC was served with a Complaint in which it was named as a Defendant, filed in the Circuit Court, First Circuit, state of Hawaii entitled Patrickson, et.al. v. Dole Food Co., et.al. alleging damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. Other named defendants are: Dole Food Co., Dole Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers Association of Hawaii, Shell Oil Company, Dow Chemical Company, 50 53 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit & Steamship, Standard Fruit company De Costa Rica, Standard Fruit company De Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading corporation, and Del Monte Fresh Produce. The ten named plaintiffs are citizens of Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a class action on behalf of other workers so exposed in these four countries. The defendants subsequently removed the case to the United States District Court in Hawaii. On March 8, 1999, the Judge in the U.S. District Court dismissed the case based on the defendants' agreement to pay any judgement that might be entered in the plaintiff's nation of origin. The court order allows plaintiffs to return to the United States if the foreign courts do not accept jurisdiction. The plaintiffs reported that they have filed suit in each of the countries. None of the defendants have been served with these suits. No discovery has taken place on the individual claims. Without discovery, it is unknown if any plaintiff was exposed to Amvac DBCP and too early to provide any evaluation of the likelihood of an unfavorable outcome. There may be statute of limitation defenses available to defendants. Amvac intends to contest the cases vigorously. C. MISSISSIPPI MATTERS On May 30,1996, AMVAC was served with five complaints in which it is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc., Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison County, First Judicial District of Mississippi. Each case alleged damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. These cases have been removed to U.S. District Court for the Southern District of Mississippi, Southern Division. Three of the cases were conditionally dismissed on the basis of forum non conveniens. Another case was closed for administrative purposes due to its similarity to the other matters. Only one case is still open but no substantive activity has occurred since its filing. Between April and October 1998, plaintiffs filed notices of appeal in each of the cases. The United States Court of Appeals, Fifth Circuit suspended the briefing schedule until the record on appeal is completed. As of this date the appeals are pending. Defendants have learned one of the plaintiffs has filed suit in Panama, but no defendant has been served. No discovery has taken place and therefore it is unknown whether any of the plaintiffs were exposed to Amvac DBCP or what statute of limitation defense might apply. Amvac intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. 51 54 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED PHOSDRIN(R) LAWSUIT On September 21, 1995, AMVAC was served with a complaint filed in the Superior Court of King County, Washington entitled Ricardo Ruiz Guzman, et.al. v. Amvac Chemical Corporation, et. al. (the "Guzman Case"). The Complaint is for unspecified monetary damages based on Plaintiffs' (farm workers') alleged injuries from their exposure to the pesticide Phosdrin(R). Defendants removed the case to the United States District Court. On October 14, 1997 the United States District Court dismissed all Plaintiffs' claims against AMVAC with prejudice. Plaintiff's appeal of the judgement to the United States Court of Appeals for the Ninth Circuit was argued on November 2, 1998. It is currently impossible to predict the outcome of the matter. AMVAC's insurance carrier has assumed costs of the appeal. NAA DATA TRADE SECRET On November 1, 1996 AMVAC filed an action in U.S. District Court in Oregon against four defendants relating to their misuse of AMVAC's exclusive right associated with Naphthalene Acetic Acid ("NAA") (Amvac Chemical Corporation v. Termilind, Inc., et.al.). On November 25, 1996, defendants Termilind and Inchema asserted counterclaims against AMVAC: violation of antitrust laws (Sherman Act section 2 and ORS 646.730), unfair competition, tortuous interference, defamation, and breach of contract. On January 5, 1999, the Court granted AMVAC's Motion for Partial Summary Judgement on AMVAC's claim for tortious interference with prospective business relations finding that AMVAC had proved three of the five elements of the tort. To prevail on this claim, AMVAC must still prove the defendant's intent to interfere and its damages resulting from the defendant's conduct. Formal discovery is continuing and no trial date has been set for the matter. It is too early to provide any evaluation of the likelihood of an unfavorable outcome. ENVIRONMENTAL During 1998, AMVAC continued activities to address environmental conditions at the railroad right-of-way which is located adjacent to AMVAC's Commerce, California 52 55 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED facility (the "Facility"). The railroad right-of-way is jointly owned by the Union Pacific Railroad and the Burlington Northern and Santa Fe Railway Company, and is managed on behalf of both companies by the latter. The site investigation and remediation activities have been conducted pursuant to a January 10, 1996, enforceable agreement and order entered into by AMVAC and the California Department of Toxic Substances Control ("DTSC"). A site investigation and health risk assessment were conducted and completed by AMVAC during the first two quarters of 1997. AMVAC prepared a draft Remedial Action Plan ("RAP") in May, 1997 which evaluated several options for remediating soils at the railroad right-of-way. The RAP concluded that the most appropriate option for remediation was the excavation and offsite disposal of soils which exceeded risk-based cleanup levels. DTSC approved the draft RAP on June 25, 1997. Remedial activities commenced on July 4, 1997 and were completed on July 12, 1997. A post-remediation report was prepared by AMVAC and submitted to DTSC on October 13, 1997. AMVAC received DTSC approval of the remedial activities in a letter dated June 26, 1998 (the "Letter"). In the Letter, DTSC stated, among other things, that ..."the Site, in its current condition, does not appear to pose a threat to human health or the environment based upon the conclusion of the Post Remediation Risk Assessment ("PRRA") and no further remedial action is required." However, due to elevated concentrations of arsenic left in place at depths from 11 to 45 feet below ground surface, DTSC requires that a land use covenant be recorded on the property prior to issuance of site certification in accordance with Chapter 6.85 of the California Health & Safety Code, and that reviews be conducted by AMVAC every five years to evaluate whether the completed remediation remains protective of public health and the environment. In March, 1997, the Facility was accepted into the DTSC's Expedited Remedial Action Program ("ERAP"). The remaining environmental investigation and any remediation activities related to the ten underground storage tanks at the Facility which had been closed in 1995 will be addressed by AMVAC under ERAP. Soil characterization activities at other areas of the Facility are expected to commence in the second or third quarter of 1999 and to be conducted in phases over the next two to three years. These activities are required at all facilities which currently have, or in the past had, hazardous waste management permits. Because AMVAC previously held a hazardous waste storage permit, AMVAC is subject to these requirements. The Company is subject to numerous federal and state laws and governmental regulations concerning environmental matters and employee health and safety. The Company continually adapts its manufacturing process to the environmental control standards of various regulatory agencies. The EPA and other federal and state agencies have the 53 56 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED authority to promulgate regulations that could have an impact on the Company's operations. AMVAC expends substantial funds to minimize the discharge of materials into the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, AMVAC recovers raw materials and increases product yield by recycling in order to partially offset increasing pollution abatement costs. The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. Federal and state authorities may seek fines and penalties for violation of the various laws and governmental regulations. As part of its continuing environmental program, except as disclosed above, the Company has been able to comply with such proceedings and orders without any materially adverse effect on its business. (7) EMPLOYEE DEFERRED COMPENSATION PLAN The Company maintains a deferred compensation plan (Plan) for all eligible employees. The Plan calls for each eligible employee, at the employee's election, to participate in an income deferral arrangement under Internal Revenue Code Section 401(k) whereby the Company will match the first $5.00 of weekly employee contributions. The Plan also permits employees to contribute an additional 15% of their salaries of which the Company will match 50% of the first 6% of the additional contribution. The Company's contributions to the Plan amounted to approximately $215,400, $195,100 and $196,600 in 1998, 1997 and 1996. (8) MAJOR CUSTOMERS AND EXPORT SALES In 1998, there were two major customers that accounted for 29% and 12% of the Company's consolidated sales. In 1997, there were sales to a major customer that accounted for 29% of the Company's consolidated sales. In 1996, there were two major customers that accounted for 33% and 10% of the Company's consolidated sales. These companies are distributors or buying cooperatives. Export sales were $5,085,700, $6,646,000 and $3,535,500 for 1998, 1997 and 1996. (9) ROYALTIES The Company has various royalty agreements in place extending through December 2003, some of which relate to the Company's acquisition of 54 57 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED certain products. Royalty expenses were $149,700, $426,700 and $416,900 for 1998, 1997 and 1996. (10) BUSINESS ACQUISITIONS In November 1998, the Company completed the acquisition of a product line from a wholly-owned subsidiary of a large chemical company. The Company acquired all of the seller's existing product as of November 2, 1998 for an agreed upon value of $2,907,000 as well as all U.S. Environmental Protection Agency ("EPA") and state registrations, an extensive data package, trademarks and all product related intellectual property. The purchase price was $6,000,000, (in addition to the cost of inventory acquired) subject to certain reductions if the product registrations and uses with the EPA (and similar state agencies) are restricted or canceled. The agreement also calls for royalty payments at an agreed upon per unit price for all product sold in the U.S. during the calendar years 2002, 2003 and 2004. As a result of the acquisition, the Company has recorded product line acquisition costs of approximately $5,203,900 (as discounted for imputed interest) as an intangible asset in the 1998 consolidated financial statements and inventory costs of $2,907,000. Under the acquisition agreement, all payments are due in 1999 except for $3,500,000, of which $1,500,000 is due on December 31, 2000 and $2,000,000 on December 31, 2001. In December 1996, the Company completed the acquisition of an established product line from a large chemical manufacturer. The Company acquired all of the seller's existing product as of December 31, 1996 for an agreed upon value of $1,463,800 as well as identifiable intangible assets, including customer lists, existing contracts and product registrations and trademarks with an agreed upon value of $1,538,500 and other intangible assets of $3,123,500. In consideration of the above, the Company paid cash for the existing 55 58 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED product and recorded a minimum obligation of $4,662,000. (11) COMMITMENTS In July 1994, the Company entered into consulting agreements with two former employees who are the current Co-Chairmen of the Company's Board of Directors. The agreements originally were set to expire in July 1999 and provided for total remuneration of $1,000,000 over the five year period to be paid to each former employee. In 1996, the consulting agreements were extended for an additional year through July 2000 with additional remuneration of $100,000 to be paid to each former employee. The Company has an employment agreement with an officer of one of its subsidiaries. The employment agreement commenced September 16, 1996 and expires August 31, 1999. The employment agreement originally provided for an annual salary of $170,000 which amount was adjusted to $189,000 effective January 1, 1999. Annual increases are at the discretion of the Board of Directors but shall not be less than the increase in an agreed upon cost of living index. The Company also entered into an employment agreement with an officer of one of its subsidiaries. The employment agreement commenced February 1, 1999 and expires December 31, 2001. The employment agreement provides for an annual salary of $170,000. Annual increases are at the discretion of the Board of Directors but shall not be less than the increase in an agreed upon cost of living index. Amounts to be paid under the aforementioned consulting and employment agreements are summarized as follows:
Year ending December 31, 1999 $ 495,400 2000 278,300 2001 170,000 --------- $ 943,700 =========
In July 1995, the Company entered into a noncancellable operating sublease for its corporate headquarters expiring in October 1999. The 56 59 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED lease contains a provision to pass through to the Company the Company's pro rata share of the building's operating expenses commencing July 1, 1996 in excess of the amount passed through to the sublandlord during the first year of the sublease. Rent expense for the years ended December 31, 1998, 1997 and 1996 was $137,400, $131,800 and $131,800. Future minimum lease payments under the terms of the sublease are as follows:
Year ending December 31, 1999 $109,800 ========
(12) RESEARCH AND DEVELOPMENT Research and development expenses were $2,611,900, $2,241,300, and $1,932,700 for the years ended December 31, 1998, 1997 and 1996. (13) SETTLEMENT The Company was awarded a settlement of $1,845,000 by neutral arbitrators in a binding action. A portion of this award, $777,300, was recorded as an offset to related professional/legal costs in 1998. The balance appears as a separate line item titled "Settlement" on the Company's Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996. The 1997 and 1996 amounts represent professional/legal costs that relate to the 1998 settlement. 57 60 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (14) SUBSEQUENT EVENT -- UNAUDITED On March 31, 1999, the Company announced that the Board of Directors declared a cash dividend of $.06 per share. The dividend will be distributed on April 19, 1999 to stockholders of record as of April 8, 1999. 58 61 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) --
59 62 10.7 Employment Agreement between American Vanguard Corporation and Robert F. Gilbane.(6) -- 10.8 Agreement and General Release between American Vanguard Corporation and Herbert A. Kraft.(6) -- 10.9 Agreement and General Release between American Vanguard Corporation and Glenn A. Wintemute.(6) -- 10.10 American Vanguard Corporation 1994 Stock Incentive Plan.(7) -- 10.11 Amended and Restated Credit Agreement dated September 12, 1995, and related documents between the Registrant and Sanwa Bank California.(8) -- 21. List of Subsidiaries of Registrant. 56 27. Financial Data Schedule 57
- ---------------------- (1) Incorporated by reference as an Exhibit to Registrant's Form 10 Registration Statement No. 2-85599 filed June 13, 1972. (2) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed June 13, 1972. (3) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 30, 1993. (4) Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated November 23, 1993. (5) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 30, 1994. (6) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 30, 1995. (7) Incorporated by reference as Appendix A to Registrant's Proxy Material filed June 3, 1995. (8) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 28, 1996. 60 EX-21 2 LIST OF SUBSIDIARIES OF REGISTRANT 1 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES EXHIBIT 21 LISTING OF SUBSIDIARIES Subsidiaries of the Company and the jurisdiction in which each company was incorporated are listed below. Unless otherwise indicated parenthetically, 100% of the voting securities of each subsidiary are owned by the Company. All Companies indicated with an asterisk (*) are subsidiaries of AMVAC. All of the following subsidiaries are included in the Company's consolidated financial statements: AMVAC Chemical Corporation California GemChem, Inc. California 2110 Davie Corporation California (formerly ABSCO Distributing) AMVAC Chemical UK Ltd.* Surrey, England Agrosevicions Amvac, SA de CV Mexico Quimica Amvac de Mexico SA de CV Mexico Environmental Mediation, Inc. (51%) California Calhart Corporation California Manufacturers Mirror & Glass Co., Inc. California Todagco (80%)* California American Vanguard Corporation of Imperial Valley (90%)* California AMVAC Ag-Chem* California AMVAC Chemical Corporation-Nevada* Nevada EX-27 3 FINANCIAL DATA SCHEDULE
5 0000005981 AMERICAN VANGUARD CORPORATION YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 767,000 0 18,639,600 0 15,735,800 35,957,000 33,662,600 21,086,300 58,847,000 16,146,500 19,576,300 0 0 256,400 22,871,900 58,847,000 67,015,600 67,015,600 39,908,800 39,908,800 21,948,400 0 1,895,300 3,263,100 1,136,600 2,126,500 0 0 0 2,126,500 .85 .85
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