UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
AMERICAN VANGUARD CORPORATION(Exact name of registrant as specified in its charter)
(949) 260-1200
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 PROCEEDINGSDURING 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 — 2,864,524 shares as of November 7, 2001.
TABLE OF CONTENTS
AMERICAN VANGUARD CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIESConsolidated Statements of Operations
(Unaudited)
See notes to consolidated financial statements.
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AMERICAN VANGUARD CORPORATIONAND SUBSIDIARIESConsolidated Balance Sheets
(Continued)
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Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date.
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AMERICAN VANGUARD CORPORATIONAND SUBSIDIARIESConsolidated Statements of Cash Flows
For The Nine Months Ended September 30, 2001 and 2000
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AMERICAN VANGUARD CORPORATIONAND SUBSIDIARIESConsolidated Statements of Cash Flows, Continued
Supplemental schedule of non-cash investing and financial activities:
On September 18, 2001, the Company announced that the Board of Directors declared a cash dividend of $.06 per share. The dividend was paid October 19, 2001 to stockholders of record as of the close of business on October 5, 2001. The Company recorded a liability and a reduction of retained earnings for $171,900 as of September 30, 2001.
On September 12, 2000, the Company announced that the Board of Directors declared a cash dividend of $.05 per share ($.045 per share after giving effect for a 10% stock dividend distributed on April 13, 2001). The dividend was paid October 20, 2000 to stockholders of record as of the close of business on October 6, 2000. The Company recorded a liability and reduction of retained earnings of $134,600 as of September 30, 2000.
During the nine months ended September 30, 2000, the Company completed the acquisition of two established product lines from two large chemical manufacturers. In connection with these acquisitions, the Company recorded intangible assets in the amount of $1,450,000 in consideration of its debt obligation in the same amount.
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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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Notes to Consolidated Financial Statements, Continued
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Company, from time-to-time, may discuss forward-looking statements including 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; changes in regulatory policy; 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 regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. Securities and Exchange Commission.
The Company’s business depends on the free flow of products and services through the channels of commerce. Recently, in response to terrorists' activities and threats aimed at the United States, transportation, mail, financial and other services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or other services could have a material adverse effect on the business, results of operations and financial condition. Furthermore, the Company may experience an increase in operating costs, such as costs for transportation, insurance and security as a result of the activities and potential activities. The Company may also experience delays in receiving payments from payers that have been affected by the terrorist activities and potential activities. The U.S. economy in general is being adversely affected by the terrorist activities and potential activities and any economic downturn could adversely impact results of operations, impair the ability to raise capital or otherwise adversely affect the ability to grow the business.
RESULTS OF OPERATIONS
Quarter Ended September 30:
The Company reported net income of $1,484,500 or $.51 per share (assuming dilution) in the third quarter ended September 30, 2001 as compared to $1,017,100 or $.34 per share for the same period in 2000.
Net sales increased by 15% or $3,233,700 to $24,655,500 for the quarter ended September 30, 2001 from $21,421,800 for the same period in 2000. The increase in sales was a result of increased sales of the Company’s insecticides, herbicides and fungicides product lines which served to more than offset a decline in the Company’s soil fumigants product line.
The gross profit margin for the quarter ended September 30, 2001 increased to 46.3% from 41.4% for the same period in 2000, due primarily to a change in product mix.
Operating expenses, which are net of other income, increased to $8,649,400 for the quarter ended September 30, 2001 as compared
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to $6,790,400 for the same period in 2000. The differences in operating expenses by specific departmental costs are as follows:
Interest costs were $300,800 during the quarter ended September 30, 2001 as compared to $390,400 for same period in 2000. The Company’s average overall debt for the quarter ended September 30, 2001 was $19,800,700 as compared to $19,861,500 for the same period in 2000. Lower effective interest rates resulted in the $89,600 decline in interest costs.
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.
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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. Because of the Company’s cost structure, the combination of variable revenue streams, and changing product mixes, results in varying quarterly levels of profitability.
Nine Months Ended September 30:
The Company reported net income of $2,901,100 or $.99 per share (assuming dilution) for the nine months ended September 30, 2001 as compared to $1,784,000 or $.60 per share for the same period in 2000. The $2,901,100 of net income for 2001 includes after tax income of $457,100 or $.16 per diluted share, related to the gain on the sale of emission credits and settlement income. (Refer to disclosure below.)
Net sales increased by 17% or $8,416,300 to $59,427,700 for the nine months ended September 30, 2001 from $51,011,400 for the same period in 2000. The increase in sales was a result of increased sales of the Company’s insecticides, herbicides and fungicides product lines which served to more than offset a decline in the Company’s soil fumigants product line.
The gross profit margin for the nine months ended September 30, 2001 remained virtually unchanged at 44.5% as compared to 45.4% for the same period in 2000.
Operating expenses, which are net of other income, increased to $21,141,800 for the nine months ended September 30, 2001 as compared to $18,921,700 for the same period in 2000. The differences in operating expenses by specific departmental costs are as follows:
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Interest costs were $1,262,800 during the nine months ended September 30, 2001 as compared to $1,272,300 for same period in 2000. The Company’s average overall debt for the nine months ended September 30, 2001 was $24,283,000 as compared to $21,383,000 for the first nine months of 2000. Lower effective interest rates served to more than offset the higher average debt levels and result in a modest decline of $9,500 in interest costs.
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 nine months ended September 30, 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 nine months ended September 30, 2001. The Company also settled a dispute over data compensation which resulted in a net gain before taxes of $88,100 for the nine months ended September 30, 2001.
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LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $10,702,000 of cash during the nine months ended September 30, 2001. Net income of $2,901,100, noncash depreciation and amortization of $1,532,600, a decline in receivables of $9,167,600, along with an increase of trade accounts payable, accrued expenses and other payables of $2,018,400, provided $15,619,700 of cash for operations. Increases in inventories and prepaid expenses of $4,382,400 and $535,300, respectively, used $4,917,700 of cash for operating activities.
The Company used $2,231,400 in investing activities during the nine months ended September 30, 2001. It invested $2,245,800 in capital expenditures while other noncurrent assets declined by $14,400.
The Company used $8,146,800 in financing activities during the first nine months of 2001. The Company’s net borrowings under its fully-secured revolving line of credit declined by $5,800,000. The Company made payments on its long-term debt of $1,543,600, purchased 48,972 shares of treasury stock for $586,300, paid $287,100 in cash dividends and received $70,200 in payment for the exercise of stock options.
In May 2001, the Company announced that Amvac Chemical Corporation, a wholly-owned subsidiary of the Company, completed the acquisition of a manufacturing facility from E.I. Du Pont de Nemours and Company (“DuPont”). The facility, termed the “C-Unit” is one of three such units located on DuPont’s five hundred and ten acre complex in Axis, Alabama. The C-Unit acquisition consisted of a long-term ground lease of twenty-five acres and the purchase of all improvements thereon. The C-Unit is a multipurpose plant designed primarily to manufacture pyrethroids and organophosphates, including Fortress®, a corn soil insecticide that the Company purchased from DuPont in 2000. The acquisition of the C-Unit significantly increased the Company’s capacity while also providing flexibility and geographic diversity. Management believes, as the Company looks to acquire additional product lines, the C-Unit will allow the Company to produce compounds that could not be manufactured at the Company’s Los Angeles (Commerce, California) facility and will further complement the Company’s toll manufacturing capabilities. The Company began the commissioning phase of the C-Unit during the third quarter of 2001 and it is anticipated that this phase will be completed sometime during the first six months of 2002. The Company intends to focus its efforts, in addition to acquiring new product lines and expanding the use of its current products, on discussions with companies that in this time of consolidation
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in the Company’s industry, may be interested in utilizing the Company’s toll manufacturing capabilities in the C-Unit.
In April 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 limit was automatically amended to $24,000,000. The Company is presently in discussions with its bank to restructure its current debt which will include the expansion of its credit availability.
Management continues to believe, to finance its planned manufacturing capacity (the C-Unit), to continue to improve its working capital position, and maintain flexibility in financing interim needs, it is prudent to explore alternate sources of financing.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the
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Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.
The Company’s previous business combinations were accounted for using the purchase method. As of September 30, 2001, the net carrying amount of goodwill and other intangible assets is $10,024,900. Amortization expense during the nine-month period ended September 30, 2001 was $632,200. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations.
SFAS 143, Accounting for Asset Retirement Obligations, was issued in June 2001 and is effective for fiscal years beginning after June 15, 2002. SFAS 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made.
SFAS 144, Accounting for the Impairment of Disposal of Long-Lived Assets, was issued in August 2001 and is effective for fiscal years beginning after December 15, 2001. SFAS 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations.
SFAS 143 and SFAS 144 will be adopted on their effective dates, and adoption is not expected to result in any material effects on the Corporation's financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There are no material changes from the disclosures in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission for the year ended December 31, 2000.
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PART II. OTHER INFORMATION
The Company was not required to report any matters or changes for any items of Part II except as disclosed below.
Item 6. Exhibits and Reports on Form 8-K
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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.
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