1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 [ ] 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) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value -- 2,866,524 shares as of May 11, 2001
2 AMERICAN VANGUARD CORPORATION INDEX Page Number ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000 1 Consolidated Balance Sheets as of March 31, 2001, and December 31, 2000 2 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 4 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 10 PART II - OTHER INFORMATION 11 SIGNATURE PAGE 12
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> For the three months ended March 31, ----------------------------- 2001 2000 ------------ ------------ <S> <C> <C> Net sales $ 14,863,300 $ 11,785,800 Cost of sales 9,062,400 6,283,500 ------------ ------------ Gross profit 5,800,900 5,502,300 Settlement income 208,300 -- Gain on sale of emission credits 465,500 -- Operating expenses 5,011,300 4,965,100 ------------ ------------ Operating income 1,463,400 537,200 Interest expense 469,500 408,700 Interest income (2,300) (1,100) ------------ ------------ Income/before income tax 996,200 129,600 Income tax expense 398,500 51,900 ------------ ------------ Net income $ 597,700 $ 77,700 ============ ============ Earnings per common share $ .21 $ .03 ============ ============ Earnings per common share - assuming dilution $ .20 $ .03 ============ ============ Weighted average shares outstanding (note 4) 2,869,927 2,970,703 ============ ============ Weighted average shares outstanding - assuming dilution (notes 4 & 5) 2,951,870 3,011,024 ============ ============ </TABLE> See notes to consolidated financial statements. 1
4 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (note 8) <TABLE> <CAPTION> March 31, Dec. 31, 2001 2000 ----------- ----------- (Unaudited) (Note) <S> <C> <C> Current assets: Cash $ 751,100 $ 361,000 Receivables: Trade 22,372,500 21,323,400 Other 1,965,500 1,526,300 ----------- ----------- 24,338,000 22,849,700 ----------- ----------- Inventories (note 2) 22,350,900 21,202,800 Prepaid expenses 960,600 764,200 Deferred tax asset 568,800 568,800 ----------- ----------- Total current assets 48,969,400 45,746,500 Property, plant and equipment, net (note 3) 8,907,600 9,012,800 Land held for development 210,800 210,800 Intangible assets 10,438,100 10,657,100 Other assets 442,500 463,700 ----------- ----------- $68,968,400 $66,090,900 =========== =========== </TABLE> See notes to consolidated financial statements. 2
5 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> March 31, Dec. 31, 2001 2000 ----------- ----------- (Unaudited) (Note) <S> <C> <C> Current liabilities: Current installments of long-term debt $ 3,441,700 $ 3,575,400 Accounts payable 5,324,500 6,913,600 Accrued expenses and other payables 4,783,900 4,985,300 Income taxes payable 109,800 1,149,500 ----------- ----------- Total current liabilities 13,659,900 16,623,800 Notes payable to bank (note 6) 22,300,000 15,800,000 Long-term debt, excluding current installments 2,326,000 2,847,300 Other long-term liabilities 101,300 117,700 Deferred income taxes 1,414,500 1,414,500 ----------- ----------- Total liabilities 39,801,700 36,803,300 ----------- ----------- Stockholders' Equity: 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 and outstanding 2,826,039 shares 282,900 282,700 Additional paid-in capital 5,919,900 5,906,600 Retained earnings 24,664,900 24,354,600 ----------- ----------- 30,867,700 30,543,900 Less treasury stock at cost, 222,257 shares at March 31, 2001 and, 183,285 shares at December 31, 2000 1,701,000 1,256,300 ----------- ----------- Total stockholders' equity 29,166,700 29,287,600 ----------- ----------- $68,968,400 $66,090,900 =========== =========== </TABLE> Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. See notes to consolidated financial statements. 3
6 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) <TABLE> <CAPTION> 2001 2000 ----------- ----------- <S> <C> <C> Increase (decrease) in cash Cash flows from operating activities: Net income (loss) $ 597,700 $ 77,700 Adjustments to reconcile net income loss to net cash used in operating activities: Depreciation and amortization 518,600 779,100 Changes in assets and liabilities associated with operations: Increase in receivables (1,488,300) (1,024,300) Increase in inventories (1,148,100) (3,136,300) Decrease (increase) in prepaid expenses (196,400) 77,200 Increase (decrease) in accounts payable (1,589,100) 2,442,800 Decrease in other payables and accrued expenses (1,544,900) (3,146,100) ----------- ----------- Net cash used in operating activities (4,850,500) (3,929,900) ----------- ----------- Cash flows from investing activities: Capital expenditures (179,800) (95,400) Net decrease (increase) in other noncurrent assets 6,600 (179,600) ----------- ----------- Net cash used in investing activities (173,200) (275,000) ----------- ----------- </TABLE> (Continued) See notes to consolidated financial statements. 4
7 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) <TABLE> <CAPTION> 2001 2000 ----------- ----------- <S> <C> <C> Cash flows from financing activities: Net additions under lines of credit agreement $ 6,500,000 $ 5,300,000 Principal payments on long-term debt (655,000) (685,600) Exercise of stock options 13,500 -- Purchase of treasury stock (note 7) (444,700) -- ----------- ----------- Net cash provided by financing activities 5,413,800 4,614,400 ----------- ----------- Net increase (decrease) in cash 390,100 409,500 Cash at beginning of year 361,000 550,200 ----------- ----------- Cash at end of period $ 751,100 $ 959,700 =========== =========== </TABLE> SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES: On March 20, 2001, the Company announced that the Board of Directors declared a cash dividend of $.11 per share as well as a 10% stock dividend. Both dividends will be distributed on April 13, 2001 to shareholders of record at the close of business on March 30, 2001. The cash dividend will be paid on the number of shares outstanding prior to the 10% stock dividend. Shareholders entitled to fractional shares resulting from the 10% stock dividend will receive cash in lieu of such fractional share based on the closing price of the Company's stock on March 30, 2001. Cash dividends to be paid April 13, 2001 will total $287,400. On March 16, 2000 the Company announced that the Board of Directors declared a cash dividend of $.13 per share as well as a 10% stock dividend. Both dividends were distributed on April 14, 2000. The cash dividends totaled $319,500. See notes to consolidated financial statements. 5
8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. As of January 1, 1999, the Company changed its method of computing the overhead rate to be included in inventory costs for interim financial reporting purposes. The Company's inventory overhead rate is now based on the expected amount of overhead to be incurred for the year, rather than the actual amount incurred each quarter. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 2. Inventories - The components of inventories at March 31, 2001 and December 31, 2000 consists of the following: <TABLE> <CAPTION> March 31, 2001 December 31, 2000 -------------- ----------------- <S> <C> <C> Finished Products $19,312,400 $17,358,300 Raw Materials 3,038,500 3,844,500 ----------- ----------- $22,350,900 $21,202,800 =========== =========== </TABLE> 3. Property, plant and equipment at March 31, 2001 and December 31, 2000 consists of the following: <TABLE> <CAPTION> March 31, December 31, 2001 2000 ----------- ----------- <S> <C> <C> Land $ 2,441,400 $ 2,441,400 Buildings and improvements 4,952,000 4,952,000 Machinery and equipment 23,992,600 23,938,100 Office furniture and fixtures 2,617,600 2,599,800 Automotive equipment 136,900 136,900 Construction in progress 391,600 284,100 ----------- ----------- 34,532,100 34,352,300 Less accumulated depreciation 25,624,500 25,339,500 ----------- ----------- $ 8,907,600 $ 9,012,800 =========== =========== </TABLE> See notes to consolidated financial statements. 6
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. On March 20, 2001, the Company announced that the Board of Directors declared a cash dividend of $.11 per share as well as a 10% stock dividend. Both dividends are payable on April 13, 2001 to shareholders of record at the close of business on March 30, 2001. All stock related data in the consolidated financial statements reflect the stock dividend for all periods presented. 5. Earnings Per Share ("EPS") - Basic EPS is computed as net income divided by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution that could occur if securities or other contracts, which, for the Company, consists of options to purchase shares of the Company's common stock are exercised. 6. On April 4, 2001, the Company's bank amended its fully- secured long-term line of credit agreement. The credit availability was temporarily increased from $24,000,000 to $30,000,000 for the period April 4, 2001 through August 1, 2001. On August 1, 2001 the credit availability will automatically reduce to $24,000,000 (credit availability as of March 31, 2001). The expiration date of the credit agreement was also extended to July 1, 2002. (See note 8.) 7. During the three months ended March 31, 2001, the Company purchased 38,972 shares of its Common Stock at an average sales price of $11.41 per share for a total of $444,700. These purchases were in accordance with the Company's buyback program which was announced on November 2, 2000. 8. 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 Company's credit agreement with a bank. As referenced in note 1, for further information, refer to the consolidated financial statements and footnotes thereto (specifically note 3) included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 9. Reclassification - Certain items have been reclassified in the prior period consolidated financial statements to conform with the March 31, 2001 presentation. 7
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED MARCH 31: The Company reported net income of $597,700 or $.21 per share ($.20 per share - assuming dilution) in the first quarter ended March 31, 2001 as compared to $77,700 or $.03 per share for the same period in 2000. The $597,700 of net income for 2001 includes after tax income of $404,300 or $.14 per diluted share, related to the gain on the sale of emission credits and settlement income. (Refer to disclosure below.) Net sales increased by 26% or $3,077,500 to $14,863,300 for the quarter ended March 31, 2001 from $11,785,800 for the same period in 2000. The increase in sales levels was as a result of increased sales of the Company's herbicide and insecticides, reflecting the successful product launches of Dacthal(R) and Aztec(R). The gross profit margin for the quarter ended March 31, 2001 declined to 39% from 47% in the same period in 2000. The lower margin was due to the changes in the sales mix of the Company's products. Operating expenses, which are net of other income, increased modestly to $5,011,300 for the quarter ended March 31, 2001 as compared to $4,965,100 for the same period in 2000. The differences in operating expenses by specific departmental costs are as follows: o Selling expenses increased by $58,400 to $1,638,500 for the quarter ended March 31, 2001 from $1,580,100 for the same period in 2000. This increase was due primarily to increases in variable selling expenses that relate to the sales mix of the Company's products and an increase in payroll and payroll related costs. o General and administrative expenses remained virtually unchanged with a decrease of $16,600 to $1,417,800 for the quarter ended March 31, 2001 from $1,434,400 for the same period in 2000. o Research and product development costs and regulatory registration expenses declined by $178,000 to $884,400 for the quarter ended March 31, 2001 as compared to $1,062,400 for the same period in 2000. The decrease was due to a decline in costs incurred to generate scientific data related to the registration and possible new uses of the Company's products as well as a decrease in payroll and payroll related items. 8
11 o Freight, delivery, storage and warehousing costs increased $66,400 to $1,025,000 for the three months ended March 31, 2001 as compared to $958,600 for the same period in 2000 due to the increased sales levels. o Other income/expense - During the first quarter ended March 31, 2000, the Company recognized $70,500 in other income versus other expenses of $45,500 for the same period in 2001. Interest costs were $469,500 during the three months ended March 31, 2001 as compared to $408,500 for the same period in 2000 due to higher overall debt levels in 2001. In 1986, the Company constructed an incinerator to destroy a waste gas that had been previously discharged to the atmosphere pursuant to an air permit. By reducing this emission, the Company was entitled to transfer a portion of its emission credits to others. The Company recognized in the quarter ended March 31, 2001, a net gain before taxes of $465,500 as a result of the sale of a portion of its credits. The Company settled negotiations with an insurance carrier related to the recovery of certain costs pertaining to the completed remediation work of a railroad siding which resulted in a net gain before taxes of $208,300 for the quarter ended March 31, 2001. Weather patterns can have an impact on the Company's operations. Weather conditions influence pest population by impacting gestation cycles for particular pests and the effectiveness of some of the Company's products, among other factors. The end user of some of the Company's products may, because of weather patterns, delay or intermittently disrupt field work during the planting season which may result in a reduction of the use of some of the Company's products. Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales, ordering patterns that may vary in timing, and promotional/early order programs, 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 meaningful an indicator as full-year comparisons. The primary reason is that the use cycles do not necessarily coincide with financial reporting cycles. 9
12 LIQUIDITY AND CAPITAL RESOURCES The Company used $4,850,500 in operating activities for the three months ended March 31, 2001. Net income of $597,700 and non-cash depreciation and amortization of $518,600 provided $1,116,300 of cash for operations. This was more than offset by increases of $1,488,300 in receivables, $1,148,100 in inventories and $196,400 in prepaid expenses and a decrease of $3,134,000 in payables and accrued expenses. The Company used $173,200 in investing activities during the three months ended March 31, 2001. It invested $179,800 in capital expenditures while other noncurrent assets declined by $6,600. Financing activities provided $5,413,800 for the first quarter ended March 31, 2001. The Company's net borrowings under its fully-secured revolving line of credit increased by $6,500,000. The Company made payments on its long-term debt of $655,000, purchased 38,792 shares of treasury stock for $444,700 and received $13,500 in payment for the exercise of stock options. On April 4, 2001, the Company's bank amended its fully-secured long-term line of credit agreement. The credit availability was temporarily increased from $24,000,000 to $30,000,000 for the period April 4, 2001 through August 1, 2001. On August 1, 2001 the credit availability will automatically reduce to $24,000,000 (credit availability as of March 31, 2001). The expiration date of the credit agreement was also extended to July 1, 2002. (See note 8.) Management believes current financial resources (working capital and short-term borrowing arrangements) and anticipated funds from operations will be adequate to meet financial needs during the remainder of 2001. Management continues to believe, to continue to improve its working capital position and maintain flexibility in financing interim needs, it is prudent to explore alternate sources of financing. *** The Company, from time-to-time, may discuss forward-looking information. Except for the historical information contained in this report, all forward-looking statements are estimates by the Company's management and are subject to various risks and uncertainties that may cause results to differ from management's current expectations. Such factors include weather conditions, changes in regulatory policy and other risks as detailed from time-to-time in the Company's SEC reports and filings. All forward-looking statements, if any, in this report represent the Company's judgement as of the date of this report. The Company disclaims, however, any intent or obligation to update forward- looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The Company's indebtedness to its primary lender is evidenced by a fully-secured line of credit with a variable rate of interest, which fluctuates with changes in the lender's referenced rate. 10
13 PART II. OTHER INFORMATION The Company was not required to report any matters or changes for any items of Part II. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) The Company did not file any reports on Form 8-K during the three months ended March 31, 2001. 11
14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN VANGUARD CORPORATION Dated: May 11, 2001 By: /s/ Eric G. Wintemute ---------------------------------- Eric G. Wintemute President, Chief Executive Officer and Director Dated: May 11, 2001 By: /s/ J. A. Barry ---------------------------------- J. A. Barry Senior Vice President, Chief Financial Officer, Secretary/Treasurer and Director 12