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, 2000 |_| 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, 2001, was 2,605,882. The aggregate market value of the voting stock of the registrant held by non-affiliates at March 26, 2001, was $14,400,800. 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, 2000 <TABLE> <CAPTION> PART I PAGE NO. <S> <C> 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 7A. Quantitative and Qualitative Disclosures About Market Risk 22 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 22 PART III Item 10. Directors and Executive Officers of the Registrant 23 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 Item 13. Certain Relationships and Related Transactions 31 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32 SIGNATURES 34 </TABLE>
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), and Environmental Mediation, Inc. 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 May 2000, AMVAC acquired the worldwide Dacthal(R)("DCPA") herbicide business from GB Biosciences Corporation. The purchase included the worldwide rights, including U.S. Environmental Protection Agency ("EPA") registration rights and similar regulatory 1
4 entities in other countries, manufacturing and process technology, trademarks and all product related intellectual property. Dacthal as been sold for weed control in crops such as onions, garlic, cauliflower, cotton and strawberries for approximately thirty years. In February 2000, AMVAC acquired the Fortress(R) soil insecticide business from DuPont. The Company acquired all U.S. EPA and state registrations, manufacturing and process technology, trademarks and all product related intellectual property. The acquisition included certain rights and obligations to a closed ("SmartBox") delivery system as well as DuPont's existing finished and semi-finished inventory including the closed delivery system containers. Fortress insecticide provides control of the corn rootworm, a devastating pest in corn. 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 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 had manufactured and formulated Dibrom(R) prior to its acquisition, dating back to 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. AMVAC has attempted to position itself in smaller niche markets being divested by larger chemical companies. In addition to the product line acquisitions disclosed above, in 1997 AMVAC purchased the rights, title and interest to Vapam(R) (Metam Sodium), a soil fumigant, from Zeneca, Inc. 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. In 1993 AMVAC purchased from E.I. du Pont de Nemours & Company ("Du Pont") the rights, title and interest (including Du Pont's EPA registration rights) in Bidrin(R), an insecticide for cotton crops, and in 1991 AMVAC purchased from Rhone-Poulenc AG Company its Napthalene Acetic Acid ("NAA") plant growth regulator product line including Rhone-Poulenc's EPA registration rights. The 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 2
5 the basis of purchase orders, although it has entered into requirements contracts with certain customers. ConAgra, Inc., Tenkoz and Helena Chemical accounted for 24%, 13% and 11%, respectively, of the Company's sales in 2000. ConAgra, Inc., Helena Chemical, and Tenkoz accounted for 29%, 12% and 11%, respectively, of the Company's sales in 1999. ConAgra, Inc. and Tenkoz accounted for 29% and 12%, respectively, of the Company's sales in 1998. ConAgra and Helena Chemical are distributors of the Company's products. Tenkoz is a buying cooperative of various companies/producers. COMPETITION AMVAC faces competition from many domestic and foreign manufacturers in its marketplaces. Competition in AMVAC's marketplace is based primarily on efficacy, price, safety and ease of application. Many of such competitors are larger and have substantially greater financial and technical resources than AMVAC. AMVAC's ability to compete depends on its ability to develop additional applications for its current products and expand its product lines and customer base. AMVAC competes principally on the basis of the quality of its products and the technical service and 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 Dacthal(R), Fortress(R), Dibrom(R), Vapam(R), Bidrin(R) and NAA. AMVAC's proprietary product formulations are protected,to the extent possible, as trade secrets and, to a lesser extent, by patents and trademarks. Although AMVAC considers that, in the aggregate, its trademarks, licenses, and patents constitute a valuable asset, it does not regard its business as being materially dependent upon any single or several trademarks, licenses, or patents. AMVAC's products also receive protection afforded by the effect of FIFRA legislation that makes it unlawful to sell any 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 3
6 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 registrants, 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 $2,495,200, $2,241,100 and $2,611,900 during 2000, 1999 and 1998 respectively, related to gathering this information. Based on facts known today, AMVAC estimates it will spend approximately $3,500,000 in 2001. 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 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 2000, AMVAC continued activities to address environmental issues associated with its facility (the Facility) in Commerce, California. In March 1997, the California Environmental Protection Agency Department of Toxic Substances Control (DTSC) accepted the 4
7 Facility into its Expedited Remedial Action Program (ERAP). Under this program, the Facility must prepare and implement an environmental investigation plan. Depending on the findings of the investigation, the Facility may also be required to develop and implement remedial measures to address any historical environmental impairment. The environmental investigation and any remediation activities related to ten underground storage tanks at the Facility, which had been closed in 1995, will also be addressed by AMVAC under ERAP. Soil characterization activities, originally expected to commence in the second or third quarter of 1999, will most likely commence in the second or third quarter of 2001. These activities were not implemented in 2000 due to revisions in the site investigation plan, which have yet to be approved by the DTSC. Investigation and potential remediation activities are planned to be implemented in a phased approach over the next two to three years commencing upon approval by the DTSC. These investigation and potential remediation activities are required at all facilities which currently have, or in the past had, hazardous waste storage permits. Because AMVAC previously held a hazardous waste management permit, AMVAC is subject to these requirements. The Company is subject to numerous federal and state laws and governmental regulations concerning environmental matters and employee health and safety. The Company continually adapts its manufacturing process to the environmental control standards of the various regulatory agencies. The U.S. EPA and other federal and state agencies have the authority to promulgate regulations that could have an impact on the Company's operations. AMVAC expends substantial funds to minimize the discharge of materials in the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, AMVAC recovers raw materials and increases product yield in order to partially offset increasing pollution abatement costs. The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. Federal and state authorities may seek fines and penalties for violation of the various laws and governmental regulations. As part of its continuing environmental program, except as disclosed in PART I, Item 3, Legal Proceedings, of this Annual Report, the Company has been able to comply with such proceedings and orders without any materially adverse effect on its business. EMPLOYEES As of March 26, 2001, the Company employed approximately 180 persons. This figure includes approximately 10 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 5
8 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 office operates under the name Quimica AMVAC De Mexico S.A. de C.V. and markets chemical products for agricultural and commercial uses. The Company opened an office in August 1994, in the United Kingdom to conduct business in the European chemical market. The office, operating under the name AMVAC Chemical UK Ltd., focuses on developing product registration and distributor networks for AMVAC's product lines throughout Europe. The office is located in Surrey, England, a city southwest of London. The operating results of this operation were not material to the Company's total operating results for the years ended December 31, 2000, 1999 and 1998. The Company classifies as export sales all products bearing foreign labeling shipped to a foreign destination. <TABLE> <CAPTION> 2000 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> Export Sales $6,210,200 $5,399,400 $5,085,700 </TABLE> RISK MANAGEMENT The Company continually evaluates insurance levels for product liability, property damage and other potential areas of risk. 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). 6
9 2110 DAVIE CORPORATION DAVIE currently owns real estate for corporate use only. See also PART I, Item 2 of this Annual Report. ENVIRONMENTAL MEDIATION, INC. EMI is an environmental consulting firm. 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 February 1997, AMVAC was served with a complaint in an action filed in the San Francisco Superior Court entitled the Sultana Community Services District v. Shell Oil Co., et.al. The complaint alleges that the Sultana Community Services District's water supply was contaminated with Dibromochloropropane ("DBCP"). The complaint names as defendants AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company and Velsicol Chemical Corporation. Plaintiff has not produced documentation to support its claim for damages. Any damages proven may be significantly offset by the Plaintiff's receipt of a Government grant for a new well. As of December 31, 2000, the case was still pending. However, the five year period in which to bring this case to trial expired on January 25, 2001 so this suit can no longer be prosecuted. B. HAWAII MATTERS AMVAC and the Company were served with complaints in February 1997. The actions were filed in the Circuit Court of the Second Circuit, State of Hawaii entitled Board of Water Supply of the County of Maui v. Shell Oil Co., et.al. The suit named as defendants the Company, AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and Brewer Environmental Industry, Inc. The Maui Pineapple Company was joined as a cross-defendant. The Complaint alleged that between two and four of the Board's wells had been contaminated with DBCP. On August 2, 1999, a global settlement was reached, which included the remediation of the existing contaminated wells in addition to the installation of filtration devices on other wells for the next forty years on the island of Maui. The cash settlement was three million dollars of which AMVAC's (and the Company's) portion was $500,000. [As to matters independent of indemnity issues, the Company recovered $400,000 from one of its insurers.] The settlement agreement obligates the defendants to pay for the ongoing operation and maintenance of the filtration devices for up to forty years. The annual costs of operation and maintenance per well is estimated to be approximately $69,000, to be adjusted annually by the consumer price index. The defendants are also obligated to pay between ninety and one-hundred percent for the cost of the installation of filtration devices on other wells that may exceed the defined maximum contaminant level in the next forty years. AMVAC's share of the ongoing operation and maintenance charges and installation of additional devices on other wells is seventeen and one-half percent. The obligations of the defendants under this agreement are secured by a twenty million dollar letter of credit obtained by Dow Chemical. 9
12 AMVAC will pay seventeen and one-half percent of the annual cost of the letter of credit directly to Dow Chemical. In October 1997, AMVAC was served with a Complaint(s) in which it was named as a Defendant, filed in the Circuit Court, First Circuit, state of Hawaii and in the Circuit Court of the Second Circuit, State of Hawaii (two identical suits) entitled Patrickson, et.al. v. Dole Food Co., et.al. alleging damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. Other named defendants are: Dole Food Co., Dole Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers Association of Hawaii, Shell Oil Company, Dow Chemical Company, Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit & Steamship, Standard Fruit Company De Costa Rica, Standard Fruit company De Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading Corporation, and Del Monte Fresh Produce. The ten named Plaintiffs are citizens of four countries -- Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a class action on behalf of other workers so exposed in these four countries. The defendants subsequently removed the case to the United States District Court in Hawaii. On March 8, 1999 the Judge in the U.S. District Court dismissed the case based on the defendant's agreement to pay any judgement that might be entered in the Plaintiff's nation of origin. The court order allows Plaintiffs to return to the United States if the foreign courts do not accept jurisdiction. Plaintiffs subsequently appealed to the Ninth Circuit Court of Appeal. Oral argument was heard in the Ninth Circuit on August 9, 2000. The appellate decision has not yet been issued. The Plaintiffs reported that plaintiffs filed suit in their home countries. These suits have not yet been served on AMVAC. No discovery has taken place on the individual claims of the Plaintiffs. However, AMVAC product did not reach two of the four countries involved. Without discovery, it is unknown if any Plaintiff was exposed to AMVAC DBCP and too early to provide any evaluation of the likelihood of an unfavorable outcome. There may be statute of limitation defenses available to defendants. In order to proceed with the cases, the Plaintiffs must either litigate their claims in their native countries or convince the Ninth Circuit Court of Appeal to reverse the trial court on the motion to dismiss. AMVAC intends to contest the cases vigorously. C. MISSISSIPPI MATTERS In May 1996, AMVAC was served with five complaints in which it is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc., Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison County, First Judicial District of Mississippi. Each case alleged damages 10
13 sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. These cases have been removed to U.S. District Court for the Southern District of Mississippi, Southern Division. The Federal Court granted defense motions to dismiss in each case pursuant to the doctrine of forum non conveniens. Throughout 1999 the case was pending on appeal. On January 19, 2001, the Court issued an unpublished decision, finding that there was jurisdiction in federal court, but remanded just one case back to the trial court to determine if a stipulation which limited the plaintiff's recovery to fifty thousand dollars was binding. If the stipulation is binding, that case will be remanded to state court. If the stipulation is not binding, that case will be dismissed along with the others, requiring the plaintiffs to litigate in their native countries. No discovery has taken place on the individual claims of these Plaintiffs. However, AMVAC product was not used in at least two of the countries involved. Without discovery, it is unknown whether any of the Plaintiffs was exposed to the Company's product or what statute of limitation defense may apply. AMVAC intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. D. LOUISIANA MATTERS In November 1999, AMVAC was served with three complaints filed in the 29th Judicial District Court for the Parish of St. Charles, State of Louisiana entitled Pedro Rodrigues et. al.. V. Amvac Chemical Corporation et. al.., Andres Puerto, et. al.. V. Amvac Chemical Corporation, et. al.. and Eduardo Soriano, et. al.. v. Amvac Chemical Corporation et. al.. Other named defendants are: Dow Chemical Company, Occidental Chemical Corporation, Shell Oil company, Standard Fruit, Dole Food, Chiquita Brands, Tela Railroad Company, Compania Palma Tica, and Del Monte Fresh Produce. These suits were filed in 1996, they were not served until November 1999. The complaints allege personal injuries from alleged exposure to DBCP (punitive damages are also sought). The Plaintiffs are primarily from the countries of the Philippines, Costa Rica, Honduras, and Equador. In November 1999, the cases were removed to the United States District Court for the Eastern District of Louisiana. The Plaintiffs filed a motion to remand the cases back to the state court in December 1999, however, they subsequently withdrew their motion to remand in February 2000 stating that they would wait for an appellate court determination on similar issues in the Mississippi cases (and other cases where AMVAC is not a party in the lawsuits). These cases remain in a holding pattern, pending resolution of various jurisdictional issues in the other aforementioned suits. No discovery has taken place on the individual claims of the Plaintiffs. It is unknown whether any of the Plaintiffs claim exposure to AMVAC's product and whether their claims are barred by applicable statutes of limitation. AMVAC intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. 11
14 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 2000 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. <TABLE> <CAPTION> Calendar 2000 HIGH LOW CLOSE ------------- ------- ------- ------- <S> <C> <C> <C> First Quarter $ 10 3/8 $ 5 7/16 $ 7 7/8 Second Quarter 10 7 3/4 8 7/8 Third Quarter 8 3/8 7 7/8 8 1/8 Fourth Quarter 13 1/8 9 7/8 12 9/16 Calendar 1999 ------------- First Quarter $ 8 $ 4 7/8 $ 4 7/8 Second Quarter 6 1/8 4 5/8 5 3/8 Third Quarter 7 5 5 Fourth Quarter 6 3/8 4 7/8 6 1/8 </TABLE> As of March 26, 2001, 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 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. The Company distributed a cash dividend of $.05 per share on October 20, 2000 to stockholders of record as of the close of business on October 6, 2000. The Company distributed a cash dividend of $.13 per share as well as a 10% stock dividend on April 14, 2000 to stockholders of record at the close of business on March 31, 2000. The cash dividend was paid on the number of shares outstanding prior to the stock 13
16 dividend. Stockholders entitled to fractional shares resulting from the stock dividend received cash in lieu of such fractional share based on $7.875 per share, the closing price of the Company's stock on March 31, 2000. The Company distributed 256,857 shares of common stock in connection with the common stock dividend. As a result, common stock was increased by $25,700, additional paid-in-capital was increased by $1,997,000 and retained earnings was decreased by $2,022,700. All stock related data in the consolidated financial statements reflect the stock dividend for all periods presented. The Company distributed a cash dividend of $.06 per share on April 19, 1999 to shareholders of record at the close of business on April 8, 1999. The Company distributed a cash dividend $.07 per share on March 25, 1998 to shareholders of record at the close of business on March 13, 1998. 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 five years (1996, 1997, 1998, 1999 and 2000) as well as declaring on March 19,2001, as aforementioned, an $.11 per share cash dividend. The payment of dividends is subject to certain loan covenants described in note 3 to the Notes to Consolidated Financial Statements, which limit payments of cash dividends to a maximum of 25% of net income. 14
17 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES ITEM 6 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR WEIGHTED AVERAGE NUMBER OF SHARES AND PER SHARE DATA) <TABLE> <CAPTION> 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Operating revenues $ 77,980 $ 69,212 $ 67,016 $ 67,701 $ 48,628 ========== ========== ========== ========== ========= Operating income $ 8,828 $ 6,878 $ 5,158 $ 4,785 $ 3,523 ========== ========== ========== ========== ========= Income from operations before income tax expense $ 7,185 $ 5,223 $ 3,263 $ 3,283 $ 2,611 ========== ========== ========== ========== ========= Net income $ 4,311 $ 3,236 $ 2,127 $ 2,025 $ 1,616 ========== ========== ========== ========== ========= Earnings per common share $ 1.60 $ 1.19 $ .77 $ .74 $ .59 ========== ========== ========== ========== ========= Earnings per common share - assuming dilution $ 1.58 $ 1.19 $ .77 $ .74 $ .59 ========== ========== ========== ========== ========= Total assets $ 65,522 $ 55,579 $ 58,847 $ 55,206 $ 48,028 ========== ========== ========== ========== ========= Long-term debt and capital lease obligations, less current portion $ 2,847 $ 4,889 $ 6,458 $ 3,980 $ 4,373 ========== ========== ========== ========== ========= Stockholders' equity $ 29,288 $ 25,969 $ 23,128 $ 21,260 $ 19,386 ========== ========== ========== ========== ========= Weighted average shares outstanding 2,690,029 2,722,996 2,752,915 2,758,612 2,720,171 ========== =========== ========== ========== ========= Weighted average shares outstanding - assuming dilution 2,734,639 2,722,996 2,752,915 2,758,612 2,720,171 ========== =========== ========== ========== ========= Dividends per share of common stock $ .18 $ .06 $ .07 $ .06 $ .06 ========== =========== ========== ========== ========= </TABLE> The selected consolidated financial data set forth above with respect to each of the calendar years in the five-year period ended December 31, 2000 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, 2000. See ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." - --------------------- 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. 15
18 The Company distributed a cash dividend of $.05 per share on October 20, 2000 to stockholders of record as of the close of business on October 6, 2000. The Company distributed a cash dividend of $.13 per share as well as a 10% stock dividend on April 14, 2000 to stockholders of record at the close of business on March 31, 2000. The cash dividend was paid on the number of shares outstanding prior to the stock dividend. Stockholders entitled to fractional shares resulting from the stock dividend received cash in lieu of such fractional share based on $7.875 per share, the closing price of the Company's stock on March 31, 2000. The Company distributed 256,857 shares of common stock in connection with the common stock dividend. As a result, common stock was increased by $25,700, additional paid-in-capital was increased by $1,997,000 and retained earnings was decreased by $2,022,700. All stock related data in the consolidated financial statements reflect the stock dividend for all periods presented. The Company distributed a cash dividend of $.06 per share on April 19, 1999 to shareholders of record at the close of business on April 8, 1999. The Company distributed a cash dividend $.07 per share on March 25, 1998 to shareholders of record at the close of business on March 13, 1998. The Company distributed a cash dividend of $.06 per share on March 31, 1997 to shareholders of record at the close of business on March 20, 1997. 16
19 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS 2000 COMPARED WITH 1999: The Company reported net income of $4,311,200 or $1.60 per share ($1.58 per share - assuming dilution) in 2000 as compared to net income of $3,235,500 or $1.19 per share in 1999. Net sales in 2000 increased $8,768,000 or 13% to $77,979,700 from $69,211,700 in 1999. The record sales levels were as a result of increased sales of the Company's herbicide, insecticides (both of which reflected the successful product launches of Dacthal(R) and Fortress(R)), and soil fungicide product lines. Gross profits increased $3,310,500 to $36,573,300 in 2000 from $33,262,800 in 1999. Gross profit margins declined to 47% in 2000 from 48% in 1999. This slight decline in gross profit margins was due to the changes in the sales mix of the Company's products. Operating expenses, which are net of other income, increased by $1,460,500 to $27,745,100 in 2000 from $26,284,600 in 1999. The differences in operating expenses by specific departmental costs are as follows: o Selling expenses increased by $2,840,500 to $10,795,800 in 2000 from $7,955,300 in 1999. The increase was due to (i)increased variable selling expenses that relate to both increased sales levels and the product mix of sales, (ii) expenses related to the Company's newly acquired soil insecticide business, and (iii) increased payroll and payroll related costs. o General and administrative declined by $1,763,400 to $6,256,800 in 2000 as compared to $8,020,200 in 1999. The decrease was due primarily to a decrease in legal expenses, primarily attributable to legal actions in which the Company was the Plaintiff, and a decrease in payroll and payroll related items. o Research and product development costs and regulatory registration expenses increased by $552,800 to $5,120,200 in 2000 from $4,567,400 in 1999. The increase was due to (i)increased costs incurred to generate scientific data related to the registration and possible new uses of the Company's products, and (ii) increased licenses and registration costs. 17
20 o Freight, delivery and warehousing costs increased $92,000 to $5,859,900 in 2000 as compared to $5,767,900 in 1999. The increase was due to the increased sales levels. Interest costs remained virtually unchanged reflecting a $14,800 increase to $1,681,500 in 2000 as compared to $1,666,700 in 1999. (See note 3 to the Consolidated Financial Statements.) Income tax expense increased by $887,100 to $2,874,100 in 2000 as compared to $1,987,000 in 1999. The Company's effective tax rate was 40% for 2000 as compared to the 38% effective tax rate for 1999. (See note 4 to the Consolidated Financial Statements for additional analysis of the changes in income tax expense.) Weather patterns can have an impact on the Company's operations. The Company manufactures and formulates chemicals for crops, human and animal health protection. The end user of some of the Company's products may, because of weather patterns, delay or intermittently disrupt field work during the planting season which may result in a reduction of the use of some of the Company's products. Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company's performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as good an indicator as full-year comparisons. 1999 COMPARED WITH 1998: The Company reported net income of $3,235,500 or $1.19 per share in 1999 as compared to net income of $2,126,500 or $.77 per share in 1998. Net sales increased $2,196,100 or 3% to $69,211,700 for 1999 from $67,015,600 in 1998. Strong sales of the Company's insecticide product lines, in particular Bidrin(R) and Dibrom(R) accounted for the increase in sales (and served to more than offset a decline in sales of Company's fungicide product line). Gross profits increased $6,156,000 to $33,262,800 in 1999 from $27,106,800 in 1998. Gross profit margins improved to 48% in 1999 from 40% in 1998. The improved margin was due to the changes in the sales mix of the Company's products as well as the realization of improved raw material costs and the Company's continued efforts to improve variable costs of manufacturing. 18
21 Operating expenses, which are net of other income, increased by $3,268,500 to $26,284,600 in 1999 from $23,016,100 in 1998. The differences in operating expenses by specific departmental costs are as follows: o Selling expenses increased by $1,104,400 to $7,955,300 in 1999 from $6,850,900 in 1998. The increase was due to increases in (i) expenses related to the Company's operations in Mexico (which were opened in late 1998), and (ii) variable selling expenses that relate to the increased sales levels and product mix of sales. o General and administrative increased $2,360,600 to $8,020,200 in 1999 as compared to $5,659,600 in 1998. The increase was due to increases in (i) legal expenses, primarily attributable to legal actions in which the Company was the Plaintiff, (ii) amortization of intangible assets in connection with the acquisition of an insecticide product in November 1998, (iii) depreciation expense related to the acquisition of a new computer system placed in service in October 1998, and (iv) increased payroll and payroll related costs. o Research and product development costs and regulatory registration expenses declined by $302,100 to $4,567,400 in 1999 from $4,869,500 in 1998 primarily due to a decline in costs incurred to generate scientific data related to the registration and possible new uses of the Company's products. o Freight, delivery and warehousing costs remained virtually unchanged reflecting a modest increase of $8,400 in spite of the improvement in sales due primarily to the product mix of sales. The Company was part of a global settlement in a matter where the Plaintiffs alleged the contamination of water wells in Hawaii (Board of Water Supply of the County of Maui v. Shell Oil Co., et. al.). The Company's portion of the settlement was $500,000. The Company recovered $400,000 from one of its insurers (as to matters independent of indemnity issues). The net $100,000 of costs appear as separate line item titled "Settlement" on the Company's Consolidated Statements of Income for the year ended December 31, 1999. Interest costs were $1,666,700 in 1999 as compared to $1,900,000 in 1998. The average level of borrowing under the Company's line of credit agreement decreased by $4,640,800 to $12,297,300 in 1999 from $16,938,100 in 1998. The average level of other long- term debt increased by $2,630,800 to $8,143,900 in 1999 from 19
22 $5,513,100 in 1998, due primarily to the acquisition of a product line from a wholly-owned subsidiary of a large chemical company in November 1998. On a combined basis, the Company's average debt for 1999 was $20,441,200 as compared to $22,451,200, in 1998. Lower overall debt coupled with lower effective interest rates accounted for the lower interest costs. (See note 3 to the Consolidated Financial Statements.) Income tax expense increased by $850,400 to $1,987,000 in 1999 as compared to $1,136,600 in 1998. The Company's effective tax rate was 38% for 1999 as compared to the 35% effective tax rate for 1998. LIQUIDITY AND CAPITAL RESOURCES The Company used $1,364,600 in operating activities for the year ended December 31, 2000. Net income of $4,311,200, non-cash depreciation and amortization of $2,949,200, an increase in prepaid expenses of $55,400, a net increase in trade payables and other payables, accrued expenses and deferred taxes of $2,669,200 provided $9,985,000 of cash for operations. This was more than offset by a $6,896,700 increase in receivables, because of significant sales in December 2000, and a $4,452,900 increase in inventories. The Company used $337,000 in investing activities in 2000. It invested $521,500 in capital expenditures while other noncurrent assets declined by $184,500. Financing activities provided $1,512,400 in 2000. The Company's net borrowings under its fully-secured revolving line of credit increased by $5,700,000. The company made payments on its long-term debt by $3,195,100, paid $454,300 in cash dividends, purchased 57,885 of treasury stock for $569,400 and received $31,200 in payment for the exercise of stock options. The Company's fully-secured $24,000,000 long-term line of credit was renewed in June 2000 and now expires on June 1, 2002. As of December 31, 2000, the Company had $8,200,000 in availability under its line of credit. 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 $3,500,000 in 2001 on these and other studies. Because scientific analyses are constantly improving, it cannot be determined with any degree of certainty, whether or not 20
23 material new or additional tests may be required. For further information, refer to PART I, Item 1, Business, Competition of the Annual Report. AMVAC is a manufacturer and formulator of chemicals for crops, human and animal health protection. This is a high risk industry with ever present industry-wide litigation. For discussions pertaining to the Company's litigation refer to PART I, Item 3, Legal Proceedings of this Annual Report. Management believes current financial resources (working capital and borrowing arrangements) and anticipated funds from operation will be adequate to meet total financial needs in 2001. 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. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued FASB No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard requires all derivatives to be recorded on the balance sheet as either assets or liabilities and be measured at fair value. Gains or losses from changes in the derivative value are to be accounted for based on how the derivative is used and whether it qualifies for hedge accounting. When this statement is adopted in January 2001, it had no material impact on the Company's consolidated financial statements. In September 2000, the Financial Accounting Standards Board issued FASB No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a placement of FASB Statement No. 125." This statement revises the standards for accounting for securitizations and other transfers of financial assets and provides consistent standards for distinguishing transfers from sales and secured borrowings. This statement is effective for transactions occurring after March 31, 2001 and is not expected to have a material impact on the Company's consolidated financial statements. In December 1999, the SEC staff released Staff Accounting Bulletin SAB No. 101, "Revenue Recognition in Financial Statements". SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in the financial statements. SAB 101 must be applied to the financial statements no later than the quarter ending September 30, 2000. The Company does not believe that the adoption of SAB 101 will have a material effect on the Company's financial results. In March 2000, the Financial Accounting Standards Board issued Interpretation FIN No. 44 Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion No. 25 for (a) the definition of employee for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 2, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The Company believes that the impact of FIN 44 will not have a material effect on the Company's financial position. 21
24 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. ITEM 7A 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 line of credit with a variable rate of interest, which fluctuates with changes in the lender's referenced rate. At December 31, 2000, the Company's outstanding indebtedness on the line of credit was $15,800,000 with a referenced rate of 9.50%. A 1% change in the referenced rate during 2000 would have increased or decreased the Company's interest expense, based on the weighted outstanding balance, by approximately $130,000. The Company does not use derivative financial instruments for speculative or trading purposes. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data are listed at PART IV, Item 14, Exhibits, Financial Statement Schedules, and Reports on Form 8-K in this report. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22
25 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following persons are the current Directors and Executive Officers of Registrant: <TABLE> <CAPTION> Name of Director/Officer Age Capacity ---------------- --- --------- <S> <C> <C> Herbert A. Kraft 77 Co-Chairman Glenn A. Wintemute 76 Co-Chairman Eric G. Wintemute 45 Director, President and Chief Executive Officer James A. Barry 50 Director, Senior Vice President, Chief Financial Officer, Treasurer and Secretary Jay R. Harris 66 Director John B. Miles 57 Director Carl R. Soderlind 67 Director </TABLE> 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. He is the son of the Company's Co-Chairman, Glenn A. Wintemute. James A. Barry has served as a director since June 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 23
26 all operating subsidiaries since 1987. He also served as Vice President from 1990 through January 1998 and as Assistant Secretary from June 1990 to July 1998. From 1990 to July 1994, he also served as Assistant Treasurer. Jay R. Harris has served as director since March 2000. Mr. Harris is President and Founder of Goldsmith & Harris, a broker dealer providing investment research to institutional and professional investors. He has held this position since 1982, the year Goldsmith & Harris (or its predecessors) was founded. Mr. Harris is also a professional investor. John B. Miles has served as a director since March 1999. Mr. Miles is a Partner with the law firm McDermott Will & Emery and has held the position of Partner since 1987. Prior to 1987, Mr. Miles was a partner with Kadison Pfaelzer Woodward Quinn & Rossi. Mr. Miles has previously served on boards of directors for public and private corporations. Carl R. Soderlind has served as a director since June 2000. Mr. Soderlind is Chairman and Chief Executive Officer of Golden Bear Oil Specialties, a producer of niche specialty oil and chemical products used in a variety of industrial applications. Mr. Soderlind has held this position since 1997. From 1961 to 1996 he served in various capacities of Witco Corporation, with his most recent position being Senior Executive Vice President and member of the Management Committee. 24
27 Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors, and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on the Company's review of the copies of such forms received by the Company, or representations obtained from certain reporting persons, the Company believes that during the year ended December 31, 2000 all filing requirements applicable to its officers, directors, and greater than ten percent beneficial stockholders were complied with. 25
28 ITEM 11 EXECUTIVE COMPENSATION The following table sets forth the aggregate cash and other compensation for services rendered for the years ended December 31, 2000, 1999, and 1998 paid or awarded by the Corporation and its subsidiaries to the Corporation's Chief Executive Officer and each of the four most highly compensated executive officers of the Corporation, whose aggregate remuneration exceeded $100,000 (the "named executive officers"). 26
29 SUMMARY COMPENSATION TABLE <TABLE> <CAPTION> LONG-TERM COMPENSATION ------------------------- ANNUAL COMPENSATION(1) AWARDS PAYOUTS --------------------- ------ ------- (a) (b) (c) (d) (e) (f) (g) (h) (i) OTHER RE- SECURITIES ALL NAME ANNUAL STRICTED UNDERLYING OTHER AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION POSITION YEAR ($) ($)(6) ($) ($) (#) ($) ($) -------- ---- ------- ------ ------- -------- ----------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Eric G. Wintemute 2000 457,333 - - - - - 5,360(4) President and 1999 328,550 - - - 55,000(2) - 5,082(4) Chief Executive Officer 1998 284,177 - - - - - 5,359(4) James A. Barry 2000 179,000 - - - - - 5,360(4) Senior V.P., CFO & 1999 148,000 - - - - - 4,700(4) Secretary/Treasurer 1998 152,275 - - - - - 4,803(4) David B. Cassidy 2000 239,454 - - - - - 5,360(4) Executive Vice 1999 188,885 - - - - - 5,130(4) President (AMVAC) 1998 194,010 - - - - - 5,086(4) Glen D. Johnson(3) 2000 206,669 - - - - - 5,160(4) Sr. Vice President 1999 153,654 - - - 33,000(5) - 2,110(4) (AMVAC) 1998 - - - - - - - Robert F. Gilbane 2000 205,317 - - - - - 5,360(4) President (GemChem) 1999 177,300 - - - - - 5,125(4) 1998 168,633 - - - - - 5,125(4) </TABLE> - ------------------- (1) No executive officer enjoys perquisites that exceed the lesser of $50,000, or 10% of such officer's salary. (2) Represents options to purchase Common Stock of the Company in accordance with the terms and conditions of Mr. Wintemute's Employment Agreement. (3) Mr. Johnson joined AMVAC Chemical Corporation as Senior Vice President in February, 1999. (4) These amounts represent the Company's contribution to the Company's Retirement Savings Plan, a qualified plan under Internal Revenue Code Section 401(k). (5) Represents options to purchase Common Stock of the Company in accordance with the terms and conditions of Mr. Johnson's Employment Agreement. (6) Included in salary column. No stock options were exercised by the named executive officers during the fiscal year ended December 31, 2000. The following table sets forth information concerning unexercised stock options held by each of the persons named as executive officers as of December 31, 2000. 2000 YEAR-END OPTION VALUES Number of Securities Underlying Value of Unexercised Unexercised Options in-the Money Options at Fiscal Year End at Fiscal Year End -------------------------- --------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Eric G. Wintemute 22,000 33,000 $264,000 $396,000 James A. Barry -- -- -- -- David B. Cassidy 33,000 -- $396,000 -- Glen D. Johnson 11,000 22,000 $132,000 $264,000 Robert F. Gilbane -- -- -- -- 27
30 Compensation Committee Interlocks and Insider Participation The Compensation Committee of the Board for the year ended December 31, 2000, consisted of Messrs. Jay R. Harris and Carl R. Soderlind. The executive compensation philosophy of the Company is aimed at (i) attracting and retaining qualified executives; (ii) motivating performance to achieve specific strategic objectives of the Company; and (iii) aligning the interest of senior management with the long-term interest of the Company's shareholders. 28
31 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT To the knowledge of the Registrant, the ownership of the Registrant's outstanding Common Stock as of March 26, 2001, 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. <TABLE> <CAPTION> Amount and Nature Office Name and Address of Beneficial Percent (if any) Beneficial Owner Ownership(1) of Class - -------- ---------------- -------------- -------- <S> <C> <C> <C> Co-Chairman Herbert A. Kraft 633,414(2) 24.3% 4695 MacArthur Court Newport Beach, CA 92660 Co-Chairman Glenn A. Wintemute 600,449(3) 23.0% 4695 MacArthur Court Newport Beach, CA 92660 Goldsmith & Harris et. al. 103,770(4) 4.0% 80 Pine Street New York, NY 10005 Director Jay R. Harris 140,314(5) 5.4% 4695 MacArthur Court Newport Beach, CA 92660 Director, Eric G. Wintemute 79,093(6) 3.0% President & CEO 4695 MacArthur Court Newport Beach, CA 92660 President Bob Gilbane 56,855 2.2% (GEMCHEM) 4695 MacArthur Court Newport Beach, CA 92660 Executive Vice David B. Cassidy 44,000(7) 1.7% President (AMVAC) 4695 MacArthur Court Newport Beach, CA 92660 Senior Vice Glen D. Johnson 22,000(8) __(11) President (AMVAC) 4695 MacArthur Court Newport Beach, CA 92660 Director John B. Miles 3,750(9) __(11) 4695 MacArthur Court Newport Beach, CA 92660 Director Carl R. Soderlind 5,844(10) __(11) 4695 MacArthur Court Newport Beach, CA 92660 Director, James A. Barry 2,090 __(11) Sr. V.P., CFO & 4695 MacArthur Court Secretary/Treasurer Newport Beach, CA 92660 Directors and Officers as a group(13) 1,588,884 58.8% </TABLE> ITEM 12 - Continued Footnotes 29
32 - --------------------- (1) Record and Beneficial. (2) Mr. Kraft owns all of his shares with his spouse in a family trust, except as to 1,573 shares held in an Individual Retirement Account. (3) This figure includes 12,221 shares of Common Stock owned by Mr. G. A. Wintemute's minor child for which Mr. Wintemute is a trustee and disclaims beneficial ownership. (4) This figure does not include shares beneficially owned by Jay R. Harris. Mr. Harris is a control person of Goldsmith & Harris. (5) This figure includes 2,500 shares of Common Stock Mr. Harris is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (6) This figure includes 33,000 shares of Common Stock Mr. Wintemute is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this report as well as 2,200 shares of Common Stock owned by Mr. Wintemute's minor children for which Mr. Wintemute is a trustee and disclaims beneficial ownership. (7) This figure includes 33,000 shares of Common Stock Mr. Cassidy is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (8) This figure represents 22,000 shares of Common Stock Mr. Johnson is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (9) This figure represents 3,750 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) This figure includes 2,500 shares of Common Stock Mr. Soderlind is entitled to acquire pursuant to stock options exercisable within sixty days of the filing of this Annual Report. (11) Under 1% of class. 30
33 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to a consulting agreement, Herbert A. Kraft, Co-Chairman of the Company, performs management and financial consulting services for the Company as assigned by the Board of Directors or the Chief Executive Officer. Mr. Kraft's agreement expires July 14, 2001 and calls for a remuneration amount of $100,000 (for the period July 14, 2000 through July 14, 2001). 31
34 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Index to Consolidated Financial Statements and Supplementary Data: <TABLE> <CAPTION> DESCRIPTION PAGE NO. <S> <C> Report of Independent Certified Public Accountants 35 Financial Statements: Consolidated Balance Sheets as of December 31, 2000 and 1999 36 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999, and 1998 38 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999, and 1998 39 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999, and 1998 40 Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements 42 (2) Financial Statement Schedules: </TABLE> All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits: The exhibits listed on the accompanying Index To Exhibits, page 58 are filed as part of this annual report 32
35 (b) Reports on Form 8-K were filed during the quarter ended December 31, 2000. Date of the Report: November 7, 2000 Item Reported: 5. Other Events. Description: On November 2, 2000, American Vanguard Corporation issued a press release announcing that, in addition to the Company's results of operations for the three and nine months ended September 30, 2000, in light of the Company's performance and prospects, the Board of Directors has authorized the repurchase of up to 11% (300,000) of American Vanguard's outstanding shares of common stock. The shares may be purchased from time to time in open market transactions, depending on price availability and the Company's cash position. There were approximately 2.7 million shares of American Vanguard's common stock outstanding as of November 2, 2000. 33
36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, American Vanguard Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN VANGUARD CORPORATION (Registrant) /s/ Eric G. Wintemute /s/ James A. Barry - ----------------------------- ------------------- By: ERIC G. WINTEMUTE By: JAMES A. BARRY President, Senior Vice President, Chief Executive Officer Chief Financial Officer, and Director Secretary/Treasurer and March 30, 2001 Director March 30, 2001 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, 2001 March 31, 2001 /s/ John B. Miles /s/ Carl R. Soderlind - ----------------------- --------------------- JOHN B. MILES CARL R. SODERLIND Director Director March 30, 2001 March 30, 2001 /s/ Jay R. Harris - ---------------------- JAY R. HARRIS Director March 30, 2001 34
37 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders' American Vanguard Corporation We have audited the accompanying consolidated balance sheets of American Vanguard Corporation and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2000, 1999 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 these financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. 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 Subsidiaries as of December 31, 2000 and 1999 and the results of their operations and cash flows for the years ended December 31, 2000, 1999 and 1998, in conformity with accounting principles generally accepted in the United States of America. /s/ BDO Seidman, LLP Los Angeles, California March 2, 2001 (Except for Note 16, which is unaudited) 35
38 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 <TABLE> <CAPTION> ASSETS (NOTE 3) 2000 1999 ---- ---- <S> <C> <C> Current assets: Cash $ 361,000 $ 550,200 Receivables: Trade 21,323,400 15,119,800 Other 1,526,300 833,200 ----------- ----------- 22,849,700 15,953,000 ----------- ----------- Inventories: Finished products 17,358,300 14,258,700 Raw materials 3,844,500 2,491,200 ----------- ----------- 21,202,800 16,749,900 ----------- ----------- Prepaid expenses 764,200 819,600 Deferred tax asset 568,800 158,500 ----------- ----------- Total current assets 45,746,500 34,231,200 Property, plant and equipment, at cost, less accumulated depreciation of $25,339,500 in 2000 and $23,545,600 in 1999 (notes 1,2,3, and 5) 9,012,800 10,514,200 Land held for development 210,800 210,800 Intangible assets, net of accumulated amortization of $2,319,900 in 2000 and $1,440,500 in 1999 (note 10) 10,657,100 10,086,400 Other assets 463,700 695,200 ----------- ----------- $66,090,900 $55,737,800 =========== =========== </TABLE> (CONTINUED) 36
39 See summary of significant accounting policies and notes to consolidated financial statements. AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 <TABLE> <CAPTION> 2000 1999 ----------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt (note 2) $ 3,575,400 $ 3,022,200 Note payable to bank (note 3) -- 10,100,000 Accounts payable 6,913,600 2,946,300 Accrued expenses 4,171,900 4,541,400 Accrued royalty obligations-current portion (note 10) 813,400 1,112,300 Income taxes payable 1,149,500 1,064,200 ----------- ----------- Total current liabilities 16,623,800 22,786,400 Long-term debt, excluding current installments (note 2) 2,847,300 5,145,600 Note payable to bank (note 3) 15,800,000 -- Other long-term liabilities 117,700 101,700 Deferred income taxes (note 4) 1,414,500 1,735,200 ----------- ----------- Total liabilities 36,803,300 29,768,900 ----------- ----------- 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 2,827,039 shares in 2000 and 2,564,182 shares in 1999 282,700 256,400 Additional paid-in capital 5,906,600 3,879,000 Retained earnings 24,354,600 22,520,200 ----------- ----------- 30,543,900 26,655,600 Less treasury stock, at cost, 183,285 shares in 2000 and 114,000 shares in 1999 1,256,300 686,700 ----------- ----------- Total stockholders' equity 29,287,600 25,968,900 ----------- ----------- $66,090,900 $55,737,800 =========== =========== </TABLE> See summary of significant accounting policies and notes to consolidated financial statements. 37
40 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Net sales (note 8) $77,979,700 $69,211,700 $67,015,600 Cost of sales 41,406,400 35,948,900 39,908,800 ----------- ----------- ----------- Gross profit 36,573,300 33,262,800 27,106,800 Settlement (income)/expense (notes 6 and 13) - 100,000 (1,067,700) Operating expenses (note 12) 27,745,100 26,284,600 23,016,100 ----------- ----------- ----------- Operating income 8,828,200 6,878,200 5,158,400 Interest expense 1,681,500 1,666,700 1,900,000 Interest income (38,600) (11,000) (4,700) ----------- ----------- ----------- Income before income tax expense 7,185,300 5,222,500 3,263,100 Income tax expense (note 4) 2,874,100 1,987,000 1,136,600 ----------- ----------- ----------- Net income $ 4,311,200 $ 3,235,500 $ 2,126,500 =========== =========== =========== Earnings per common share $ 1.60 $ 1.19 $ .77 =========== =========== =========== Earnings per common share - assuming dilution $ 1.58 $ 1.19 $ .77 =========== =========== =========== Weighted average shares outstanding 2,690,029 2,722,996 2,752,915 =========== =========== =========== Weighted average shares outstanding - assuming dilution 2,734,639 2,722,996 2,752,915 =========== =========== =========== </TABLE> See summary of significant accounting policies and notes to consolidated financial statements. 38
41 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 <TABLE> <CAPTION> ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK TOTAL ------ ---------- -------- --------- ----- <S> <C> <C> <C> <C> <C> Balance, January 1, 1998 $256,400 $3,879,000 $17,483,300 $ (358,900) $21,259,800 Cash dividends on common stock ($.07 per share) - - (175,500) - (175,500) Treasury stock acquired - - - (82,500) (82,500) Net income - - 2,126,500 - 2,126,500 -------- ---------- ----------- ----------- ----------- Balance, December 31, 1998 256,400 3,879,000 19,434,300 (441,400) 23,128,300 Cash dividends on common stock ($.06 per share) - - (149,600) - (149,600) Treasury stock acquired - - - (245,300) (245,300) Net income - - 3,235,500 - 3,235,500 -------- ---------- ----------- ----------- ----------- Balance, December 31, 1999 256,400 3,879,000 22,520,200 (686,700) 25,968,900 Common stock dividend 25,700 1,997,000 2,022,700 - - Cash dividends on common stock ($.18 per share) - - (454,100) - (454,100) Treasury stock acquired - - (569,600) (569,600) Stock options exercised 600 30,600 - - 31,200 Net income - - 4,311,200 - 4,311,200 -------- ---------- ----------- ----------- ----------- Balance, December 31, 2000 $282,700 $5,906,600 $24,354,600 $(1,256,300) $29,287,600 ======== ========== =========== =========== =========== </TABLE> See summary of significant accounting policies and notes to consolidated financial statements. 39
42 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 <TABLE> <CAPTION> INCREASE (DECREASE) IN CASH 2000 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 4,311,200 $ 3,235,500 $ 2,126,500 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of property, plant and equipment 2,022,900 2,459,500 2,555,500 Amortization of other assets 926,300 755,300 505,400 Loss on abandoned projects - - 231,400 Deferred income taxes (731,000) (463,400) (606,400) Changes in assets and liabilities associated with operations: (Increase) decrease in receivables (6,896,700) 2,686,600 3,046,400 Increase in inventories (4,452,900) (1,014,100) (2,797,900) Decrease (increase) in prepaid expenses 55,400 (5,000) 221,000 Increase (decrease) in accounts payable 3,967,300 (3,502,100) 2,663,100 Increase (decrease) in other payables and accrued expenses (567,100) (834,300) (721,000) ---------- ---------- ---------- Net cash provided by (used in) operating activities (1,364,600) 3,318,000 7,224,000 ---------- ---------- ---------- Cash flows from investing activities: Capital expenditures (521,500) (397,400) (828,100) Additions to intangible assets - - (538,500) Net (increase) decrease in other noncurrent assets 184,500 22,300 (249,200) ---------- ---------- ---------- Net cash used in investing activities (337,000) (375,100) (1,615,800) ---------- ---------- ---------- (Continued) </TABLE> 40
43 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED <TABLE> <CAPTION> INCREASE (DECREASE) IN CASH 2000 1999 1998 ----------- ---------- ---------- <S> <C> <C> <C> Net borrowings (repayments) under line of credit agreement $ 5,700,000 $ 100,000 $(4,100,000) Payments on debt and capital lease obligations (3,195,100) (2,864,800) (1,229,800) Exercise of stock options 31,200 - - Purchase of treasury stock (569,400) (245,300) (82,500) Payment of cash dividends (454,300) (149,600) (175,500) ----------- ---------- ---------- Net cash provided by (used in) financing activities 1,512,400 (3,159,700) (5,587,800) ----------- ---------- ---------- Net increase (decrease) in cash (189,200) (216,800) 20,400 Cash at beginning of year 550,200 767,000 746,600 ----------- ---------- ---------- Cash at end of year $ 361,000 $ 550,200 $ 767,000 =========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 1,380,100 $ 1,374,900 $ 1,804,200 Income taxes 3,590,000 2,738,800 914,800 =========== ========== ========== </TABLE> SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On April 14, 2000, the Company distributed 256,857 shares of Common Stock in connection with a 10% Common Stock dividend to stockholders of record as of March 31, 2000. As a result of the stock dividend, Common Stock was increased by $25,700, additional paid-in capital was increased by $1,997,000, and retained earnings was decreased by $2,022,700. During the year ended December 31, 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 and a corresponding debt obligation in the same amount (See note 10). In October 1999, the Company entered into an Exclusive License Agreement which granted the Company ownership of labels and registrations of an established product line and issued a note payable in the amount $1,456,300. In November 1998, the Company completed the acquisition of an established product line from a subsidiary of a large chemical company (See note 10). In connection with the acquisition, the Company recorded product acquisition costs of $5,203,900. The Company financed $1,237,500 during the year ended December 31, 1998, under a capitalized lease for computer related software and equipment. See summary of significant accounting policies and notes to consolidated financial statements. 41
44 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business and Basis of Consolidation The Company is primarily a specialty chemical manufacturer that develops and markets safe and effective products for agricultural and commercial uses. The Company manufacturers and formulates chemicals for crops, human and animal protection. The consolidated financial statements include the accounts of American Vanguard Corporation ("Company") and 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"), and Environmental Mediation, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company operates within a single operating segment. The Company's subsidiary, 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. Because of elements inherent to the Company's business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company's performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as good an indicator as full-year comparisons. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Long-lived Assets intangible assets resulting from business acquisitions (see note 10), consist of cost in excess of net assets (goodwill) acquired and other intangible assets, including customer lists, product registrations, trademarks and contracts. These intangible assets are being amortized on a straight-line basis over the period of an expected benefit, usually 15 years. Management has a policy to review intangible assets and productive assets at each quarterly balance sheet date for possible impairment. This policy includes recognizing write-downs if it is probable the measurable undiscounted future cash flows and/or the aggregate net cash flows of an asset, as measured by current revenues and costs (exclusive of depreciation or amortization) over the asset's remaining depreciable life, are not sufficient to recover the net book value of an asset. Revenue Recognition Sales are recognized upon shipment of products or transfer of title to the customer. 42
45 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED DEPRECIATION Depreciation of property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Fair Value of Financial Instruments The carrying values of cash, receivables and accounts payable approximate their fair values because of the short maturity of these instruments. The fair value of the Company's long-term debt and note payable to bank is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Such fair value approximates the respective carrying values of the Company's long-term debt and note payable to bank. Income Taxes Income taxes have been provided using the asset and liability method in accordance with Financial Accounting Standard No. 109, "Accounting for Income Taxes". The asset and liability method requires the recognition of deferred tax assets and liabilities for future tax consequences of temporary differences between the financial statement bases and tax bases of assets and liabilities at the date of the financial statements using the provisions of the tax laws then in effect. Per Share Information Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share ("EPS") requires dual presentation of basic EPS and diluted EPS on the face of all income statements. Basic EPS is computed as net income divided by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution that could occur if securities or other contracts, which, for the Company, consists of options to purchase shares of the Company's common stock are exercised. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and 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. 43
46 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES Summary of Significant Accounting Policies, Continued RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued FASB No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard requires all derivatives to be recorded on the balance sheet as either assets or liabilities and be measured at fair value. Gains or losses from changes in the derivative value are to be accounted for based on how the derivative is used and whether it qualifies for hedge accounting. When this statement is adopted in January 2001, it had no material impact on the Company's consolidated financial statements. In September 2000, the Financial Accounting Standards Board issued FASB No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a placement of FASB Statement No. 125." This statement revises the standards for accounting for securitizations and other transfers of financial assets and provides consistent standards for distinguishing transfers from sales and secured borrowings. This statement is effective for transactions occurring after March 31, 2001 and is not expected to have a material impact on the Company's consolidated financial statements. In December 1999, the SEC staff released Staff Accounting Bulletin SAB No. 101, "Revenue Recognition in Financial Statements". SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in the financial statements. SAB 101 must be applied to the financial statements no later than the quarter ending September 30, 2000. The Company does not believe that the adoption of SAB 101 will have a material effect on the Company's financial results. In March 2000, the Financial Accounting Standards Board issued Interpretation FIN No. 44 Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion No. 25 for (a) the definition of employee for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 2, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The Company believes that the impact of FIN 44 will not have a material effect on the Company's financial position. 44
47 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (1) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 2000 and 1999 consists of the following: <TABLE> <CAPTION> ESTIMATED 2000 1999 USEFUL LIVES ----------- ----------- --------------- <S> <C> <C> <C> Land $ 2,441,400 $ 2,382,600 Buildings and improvements 4,952,000 4,727,300 10 to 30 years Machinery and equipment 23,938,100 23,825,700 3 to 10 years Office furniture, fixtures and equipment 2,599,800 2,467,900 3 to 10 years Automotive equipment 136,900 136,900 3 to 6 years Construction in progress 284,100 519,400 ----------- ----------- 34,352,300 34,059,800 Less accumulated depreciation 25,339,500 23,545,600 ----------- ----------- $ 9,012,800 $10,514,200 =========== =========== </TABLE> (2) LONG-TERM DEBT Long-term debt of the Company at December 31, 2000 and 1999 is summarized as follows: <TABLE> <CAPTION> 2000 1999 ---------- ---------- <S> <C> <C> Note payable, secured by certain real property, payable in monthly installments of $87,500 plus interest at prime plus .5% (prime was 9.50% at December 31, 2000), with remaining unpaid principal due December 1, 2000 $ - $1,050,000 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 1,610,900 1,684,400 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% 78,900 83,400 Obligations under product acquisition agreements (see note 10) 4,203,100 4,546,600 Obligations under capitalized leases (see note 5) 529,800 803,400 ---------- ---------- 6,422,700 8,167,800 Less current installments 3,575,400 3,022,200 ---------- ---------- $2,847,300 $5,145,600 ========== ========== </TABLE> Approximate principal payments on long-term debt mature as follows: 2001 $3,575,400 2002 1,059,400 2003 266,800 2004 245,200 2005 73,500 Thereafter 1,202,400 ---------- $6,422,700 ========== 45
48 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (3) NOTE PAYABLE TO BANK Under a credit agreement with a bank as amended in June 2000, the Company may borrow up to $24,000,000. The note bears interest at a rate of prime plus .25% (prime was 9.50% at December 31, 2000), 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 June 1, 2002. The Company had $8,200,000 available under this credit agreement as of December 31, 2000. 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, 2000. The balance outstanding at December 31, 2000 and 1999 was $15,800,000 and $10,100,000 respectively. The average amount outstanding during the years ended December 31, 2000 and 1999 was $13,046,400 and $12,297,300. The weighted average interest rate during the years ended December 31, 2000 and 1999 was 8.62% and 8.02%. (4) INCOME TAXES The components of income tax expense are: <TABLE> <CAPTION> 2000 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> Current: Federal $3,132,500 $2,236,100 $1,493,200 State 472,600 212,400 249,800 Deferred: Federal (650,700) (435,300) (524,300) State (80,300) (26,200) (82,100) ---------- ---------- ---------- $2,874,100 $1,987,000 $1,136,600 ========== ========== ========== </TABLE> 46
49 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to income before income tax expense as a result of the following: 2000 1999 1998 --------- ---------- ---------- Computed tax provision at statutory Federal rates $2,443,400 $1,775,700 $1,109,500 Increase (decrease) in taxes resulting from: State taxes, net of Federal income tax benefit 348,800 203,700 25,800 Nondeductible expenses 85,900 32,100 37,600 Benefit of tax credits (4,000) (24,500) (36,300) --------- ---------- ---------- $2,874,100 $1,987,000 $1,136,600 ========== ========== ========== 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, 2000 and 1999 relate to the following: 2000 1999 ----------- ----------- Current: Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 $ 547,400 $ 415,900 State income taxes 175,200 56,100 Vacation pay accrual 105,300 106,800 Imputed interest on royalty obligation (144,700) (157,900) Discount on accounts receivable (155,800) (307,600) Other 41,400 45,200 ----------- ----------- Net deferred tax asset 568,800 158,500 ----------- ----------- Non-Current: Plant and equipment, principally due to differences in depreciation and capitalized interest (1,414,500) (1,735,200) ----------- ----------- Net deferred tax liability (1,414,500) (1,735,200) ----------- ----------- Total net deferred tax liability $ (845,700) $(1,576,700) =========== =========== The Company believes it is more likely than not that the deferred tax assets above will be realized in the normal course of business. 47
50 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (5) LEASES The Company leases certain manufacturing equipment, and office furniture, fixtures and equipment under long-term capital lease agreements. Property, plant and equipment at December 31, 2000 and 1999 include the following leased property under capital leases by major classes: 2000 1999 ---------- ---------- Machinery and equipment $ 47,300 $ 47,300 Office furniture, fixtures and equipment 1,237,500 1,237,500 ---------- ---------- 1,284,800 1,284,800 Less accumulated depreciation 590,700 333,700 ---------- ---------- $ 694,100 $ 951,100 ========== ========== The following is a schedule of future minimum lease payments for capital leases as of December 31, 2000: Year ending December 31: 2001 $ 340,000 2002 250,800 --------- Total minimum lease payments 590,800 Less amount representing interest (61,000) --------- Present value of net minimum lease payments $ 529,800 ========= 48
51 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (6) LITIGATION AND ENVIRONMENTAL DBCP LAWSUITS A. CALIFORNIA MATTERS In February 1997, AMVAC was served with a complaint in an action filed in the San Francisco Superior Court entitled the Sultana Community Services District v. Shell Oil Co., et.al. The complaint alleges that the Sultana Community Services District's water supply was contaminated with Dibromochloropropane ("DBCP"). The complaint names as defendants AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Chevron Chemical Company and Velsicol Chemical Corporation. Plaintiff has not produced documentation to support its claim for damages. Any damages proven may be significantly offset by the Plaintiff's receipt of a Government grant for a new well. As of December 31, 2000, the case was still pending. However, the five year period in which to bring this case to trial expired on January 25, 2001 so this suit can no longer be prosecuted. B. HAWAII MATTERS AMVAC and the Company were served with complaints in February 1997. The actions were filed in the Circuit Court of the Second Circuit, State of Hawaii entitled Board of Water Supply of the County of Maui v. Shell Oil Co., et.al. The suit named as defendants the Company, AMVAC, Shell Oil Company, The Dow Chemical Company, Occidental Chemical Company, Occidental Petroleum Corporation, Occidental Chemical Corporation, and Brewer Environmental Industry, Inc. The Maui Pineapple Company was joined as a cross-defendant. The Complaint alleged that between two and four of the Board's wells had been contaminated with DBCP. On August 2, 1999, a global settlement was reached, which included the remediation of the existing contaminated wells in addition to the installation of filtration devices on other wells for the next forty years on the island of Maui. The cash settlement was three million dollars of which AMVAC's (and the Company's) portion was $500,000. [As to matters independent of indemnity issues, the Company recovered $400,000 from one of its insurers.] The settlement agreement obligates the defendants to pay for the ongoing operation and maintenance of the filtration devices for up to forty years. The annual costs of operation and maintenance per well is estimated to be approximately $69,000, to be adjusted annually by the consumer price index. The defendants are also obligated to pay between ninety and one-hundred percent for the cost of the installation of filtration devices on other wells that may exceed the defined maximum contaminant level in the next forty years. AMVAC's share of the ongoing operation and maintenance charges and installation of additional devices on other wells is seventeen and one-half percent. The obligations of the defendants under this agreement are secured by a twenty million dollar letter of credit obtained by Dow Chemical. AMVAC will pay 49
52 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED seventeen and one-half percent of the annual cost of the letter of credit directly to Dow Chemical. In October 1997, AMVAC was served with a Complaint(s) in which it was named as a Defendant, filed in the Circuit Court, First Circuit, state of Hawaii and in the Circuit Court of the Second Circuit, State of Hawaii (two identical suits) entitled Patrickson, et.al. v. Dole Food Co., et.al. alleging damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. Other named defendants are: Dole Food Co., Dole Fresh Fruit, Dole Fresh Fruit International, Pineapple Growers Association of Hawaii, Shell Oil Company, Dow Chemical Company, Occidental Chemical Corporation, Standard Fruit Company, Standard Fruit & Steamship, Standard Fruit Company De Costa Rica, Standard Fruit company De Honduras, Chiquita Brands, Chiquita Brands International, Martrop Trading Corporation, and Del Monte Fresh Produce. The ten named Plaintiffs are citizens of four countries--Guatemala, Costa Rica, Panama, and Equador. The case was also filed as a class action on behalf of other workers so exposed in these four countries. The defendants subsequently removed the case to the United States District Court in Hawaii. On March 8, 1999 the Judge in the U.S. District Court dismissed the case based on the defendant's agreement to pay any judgement that might be entered in the Plaintiff's nation of origin. The court order allows Plaintiffs to return to the United States if the foreign courts do not accept jurisdiction. Plaintiffs subsequently appealed to the Ninth Circuit Court of Appeal. Oral argument was heard in the Ninth Circuit on August 9, 2000. The appellate decision has not yet been issued. The Plaintiffs reported that plaintiffs filed suit in their home countries. These suits have not yet been served on AMVAC. No discovery has taken place on the individual claims of the Plaintiffs. However, AMVAC product did not reach two of the four countries involved. Without discovery, it is unknown if any Plaintiff was exposed to AMVAC DBCP and too early to provide any evaluation of the likelihood of an unfavorable outcome. There may be statute of limitation defenses available to defendants. In order to proceed with the cases, the Plaintiffs must either litigate their claims in their native countries or convince the Ninth Circuit Court of Appeal to reverse the trial court on the motion to dismiss. AMVAC intends to contest the cases vigorously. 50
53 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED C. MISSISSIPPI MATTERS In May 1996, AMVAC was served with five complaints in which it is named as a Defendant. Other named defendants are: Coahoma Chemical Co. Inc., Shell Oil Company, Dow Chemical Co., Occidental Chemical Co., Standard Fruit Co., Standard Fruit and Steamship Co., Dole Food Co., Inc., Dole Fresh Fruit Co., Chiquita Brands, Inc., Chiquita Brands International, Inc. and Del Monte Fresh Produce, N.A. The cases were filed in the Circuit Court of Harrison County, First Judicial District of Mississippi. Each case alleged damages sustained from injuries caused by Plaintiff's exposure to DBCP while applying the product in their native countries. These cases have been removed to U.S. District Court for the Southern District of Mississippi, Southern Division. The Federal Court granted defense motions to dismiss in each case pursuant to the doctrine of forum non conveniens. Throughout 1999 the case was pending on appeal. On January 19, 2001, the Court issued an unpublished decision, finding that there was jurisdiction in federal court, but remanded just one case back to the trial court to determine if a stipulation which limited the plaintiff's recovery to fifty thousand dollars was binding. If the stipulation is binding, that case will be remanded to state court. If the stipulation is not binding, that case will be dismissed along with the others, requiring the plaintiffs to litigate in their native countries. No discovery has taken place on the individual claims of these Plaintiffs. However, AMVAC product was not used in at least two of the countries involved. Without discovery, it is unknown whether any of the Plaintiffs was exposed to the Company's product or what statute of limitation defense may apply. AMVAC intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. D. LOUISIANA MATTERS In November 1999, AMVAC was served with three complaints filed in the 29th Judicial District Court for the Parish of St. Charles, State of Louisiana entitled Pedro Rodrigues et. al.. V. Amvac Chemical Corporation et. al.., Andres Puerto, et. al.. V. Amvac Chemical Corporation, et. al.. and Eduardo Soriano, et. al.. v. Amvac Chemical Corporation et. al.. Other named defendants are: Dow Chemical Company, Occidental Chemical Corporation, Shell Oil company, Standard Fruit, Dole Food, Chiquita Brands, Tela Railroad Company, Compania Palma Tica, and Del Monte Fresh Produce. These suits were filed in 1996, they were not served until November 1999. The complaints allege personal injuries from alleged exposure to DBCP (punitive damages are also sought). The Plaintiffs are primarily from the countries of the Philippines, Costa Rica, Honduras, and Equador. In November 1999, the cases were removed to the United States District Court for the Eastern District of Louisiana. The Plaintiffs filed a motion to remand the cases back to the state court in December 1999, however, they subsequently withdrew their motion to remand in February 2000 stating that they would wait for an appellate court determination on similar issues in the Mississippi cases (and other cases where AMVAC is not a party in the lawsuits). 51
54 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED These cases remain in a holding pattern, pending resolution of various jurisdictional issues in the other aforementioned suits. No discovery has taken place on the individual claims of the Plaintiffs. It is unknown whether any of the Plaintiffs claim exposure to AMVAC's product and whether their claims are barred by applicable statutes of limitation. AMVAC intends to contest the cases vigorously. It is too early to provide an evaluation of the likelihood of an unfavorable outcome at this time. NAA DATA TRADE SECRET On November 1, 1996 AMVAC filed an action in U.S. District Court in Oregon against four defendants relating to their misuse of AMVAC's exclusive right associated with Naphthalene Acetic Acid ("NAA") (Amvac Chemical Corporation v. Termilind, Inc., et.al.). On November 1996, defendants Termilind and Inchema asserted counterclaims against AMVAC: violation of antitrust laws (Sherman Act section 2 and ORS 646.730), unfair competition, tortuous interference, defamation, and breach of contract. In January 1999, the court granted AMVAC's motion for partial summary judgement on AMVAC's claim for tortuous interference with prospective business relations finding that AMVAC had proved three of the five elements of the tort. In October 1999, AMVAC settled/concluded this litigation regarding its exclusive ownership of labels and registrations with the Environmental Protection Agency ("EPA") for NAA. In connection with this settlement, the Company acquired labels and registrations of this established product line. (See Note 10). ENVIRONMENTAL During 2000, AMVAC continued activities to address environmental issues associated with its facility (the Facility) in Commerce, California and the adjacent railroad right-of-way. In March 1997, the California Environmental Protection Agency Department of Toxic Substances Control (DTSC) accepted the Facility into its Expedited Remedial Action Program (ERAP). Under this program, the Facility must prepare and implement an environmental investigation plan. Depending on the findings of the investigation, the Facility may also be required to develop and implement remedial measures to address any historical environmental impairment. The environmental investigation and any remediation activities related to ten underground storage tanks at the Facility, which had been closed in 1995, will also be addressed by AMVAC under ERAP. Soil characterization activities, originally expected to commence in the second or their quarter of 1999, will most likely commence in the second or third quarter of 2001. These activities were not implemented in 2000 due to revisions in the site investigation plan, which have yet to be approved by the DTSC. Investigation and potential remediation activities are planned to be implemented in a phased approach over the next two to three years commencing upon approval by the DTSC. These investigation and potential 52
55 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED remediation activities are required at all facilities which currently have, or in the past had, hazardous waste storage permits. Because AMVAC previously held a hazardous waste management permit, AMVAC is subject to these requirements. The Company is subject to numerous federal and state laws and governmental regulations concerning environmental matters and employee health and safety. The Company continually adapts its manufacturing process to the environmental control standards of the various regulatory agencies. The U.S. EPA and other federal and state agencies have the authority to promulgate regulations that could have an impact on the Company's operations. AMVAC expends substantial funds to minimize the discharge of materials in the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, AMVAC recovers raw materials and increases product yield in order to partially offset increasing pollution abatement costs. The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. Federal and state authorities may seek fines and penalties for violation of the various laws and governmental regulations. As part of its continuing environmental program, except as disclosed elsewhere, 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 $311,800, $250,000 and $215,400 in 2000, 1999 and 1998. (8) MAJOR CUSTOMERS AND EXPORT SALES In 2000 there were three companies that accounted for 24%, 13% and 11% of the Company's consolidated sales. In 1999 there were three companies that accounted for 29%, 12% and 11% of the Company's consolidated sales. In 1998, there were two major customers that accounted for 29% and 12% of the Company's consolidated sales. These companies are distributors or buying cooperatives. Worldwide export sales were $6,210,200, $5,399,400 and $5,085,700 for 2000, 1999 and 1998. 53
56 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (9) ROYALTIES The Company has various royalty agreements in place extending through December 2007, some of which relate to the Company's acquisition of certain products. Royalty expenses were $1,069,300, $ 109,400 and $149,700 for 2000, 1999 and 1998. (10) BUSINESS ACQUISITIONS In 2000, the Company completed the acquisition of a product line from a wholly-owned subsidiary of a large chemical company. The purchase included the worldwide rights including U. S. Environmental Protection Agency ("EPA") registrations rights and similar regulatory entities in other countries worldwide, manufacturing and process technology, trademarks and all product related intellectual property. In addition, the Company entered into a royalty obligation commencing on or about May 2002 to continue for five years from May 2002. Additionally, in 2000, the Company completed the acquisition of a product line from a large chemical company. The Company acquired all U.S. EPA and state registrations, manufacturing and process technology, trademarks and all product related intellectual property. The acquisition included all rights and obligations to a closed delivery system as well as the seller's existing finished and semi-finished inventory including the closed delivery system containers. The acquired inventory was on consignment subject to quarterly payment terms for all inventory withdrawn from consignment. In the event all of the seller's inventory has not been withdrawn from consignment, the Company shall be obligated to pay for such inventory by May 1, 2001. In 1999, the Company settled litigation regarding its exclusive ownership of labels and registrations of an established product line (see Note 6). In connection with this settlement, the Company entered into an Exclusive License Agreement which granted the Company's ownership of the labels and EPA registrations. In 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 1998, as well as all U.S. EPA and state registrations, an extensive data package, trademarks and all product related intellectual property. The purchase price was 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. 54
57 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following schedule represents intangible assets recognized in connection with business acquisitions: Amount ------------ Intangible assets at December 31, 1998 $ 9,241,700 Acquisitions during fiscal 1999 1,456,300 Amortization expense (690,000) ----------- Intangible assets at December 31, 1999 10,008,000 Acquisitions during fiscal 2000 1,450,000 Amortization expense (844,400) ----------- Intangible assets at December 31, 2000 $10,613,600 =========== The following schedule represents the Company's obligations under product acquisition agreements: Amount ----------- Obligations under acquisition agreements at December 31, 1998 $ 7,340,500 Additional obligations acquired 1,456,300 Payments on existing obligations (3,137,900) ----------- Obligations under acquisition agreements at December 31, 1999 5,658,900 Additional obligations acquired 1,450,000 Payments on existing obligations (2,905,800) ----------- Obligations under acquisition agreements at December 31, 2000 $ 4,203,100 =========== Future commitments on obligations under product acquisition agreements are due as follows: December 31 Amount ----------- ---------- 2001 $3,146,700 2002 732,300 2003 193,300 2004 130,800 ---------- Total $4,203,100 ========== (11) COMMITMENTS In July 1994, the Company entered into a consulting agreement with a former employee who is the current Co-Chairman of the Company's Board of Directors. The agreement originally was set to expire in July 1999 and provided for total remuneration of $1,000,000 over the five year period. In 1996, the consulting agreement was extended for an additional year through July 2000 with additional remuneration of $100,000 to be paid to the former employee. In 2000 the consulting agreement was extended for an additional year through July 2001 with an additional remuneration of $100,000 to be paid to the former employee. The Company has entered into an employment agreement with an officer which commenced January 15, 1999 and expires January 15, 2003. The employment agreement provides for fixed minimum salary levels for each year of the agreement through January 15, 2002. The annual increase for the year ending January 15, 2003 shall not be less than the increase in an agreed upon cost of living index. The Company also entered into an employment agreement with an officer of one of its subsidiaries. The employment agreement commenced January 1, 1999 and expires December 31, 2001. The employment agreement provided for a fixed minimum salary through December 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. Amounts to be paid under the aforementioned consulting and employment agreements are summarized as follows: Year ending December 31, 2001 $ 654,200 2002 418,000 2003 17,400 ---------- $1,089,600 ========== 55
58 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In November 1999, the Company entered into an operating lease for its corporate headquarters expiring in October 2004. The lease contains a provision to pass through to the Company the Company's pro rata share of the building's operating expenses. Rent expense for the years ended December 31, 2000, 1999 and 1998 was $259,700, $198,654 and $137,400. Future minimum lease payments under the terms of the lease are as follows: Year ending December 31, 2001 $ 280,400 2002 302,500 2003 321,000 2004 267,500 ---------- $1,171,400 ========== (12) RESEARCH AND DEVELOPMENT Research and development expenses were $2,495,200, $2,241,100 and $2,611,900 for the years ended December 31, 2000, 1999 and 1998. (13) SETTLEMENT(S) The Company was part of a global settlement in a matter where the Plaintiffs alleged the contamination of water wells in Hawaii. The Company's portion of the settlement was $500,000. The Company recovered $400,000 from one of its insurers resulting in a net expense of $100,000. The Company was awarded a settlement of $1,845,000 by neutral arbitrators in a binding action. A portion of this award, $777,300, was recorded as an offset to related professional/legal costs in 1998. The balance appears as a separate line item titled "Settlement" on the Company's Consolidated Statements of Income for the year ended December 31, 1998. (14) STOCK OPTIONS Incentive Stock Option Plans ("ISOP") Under the terms of the Company's ISOP, under which options to purchase 220,000 shares of common stock can be issued, all key employees are eligible to receive non-assignable and non-transferrable options to purchase shares. The exercise price of any option may not be less than the fair market value of the shares on the date of grant; provided, however, that the exercise price of any option granted to an eligible employee owning more than 10% of the outstanding common stock may not be less than 110% of the fair market value of the shares underlying such option on the date of grant. No options granted may be exercisable more than five years after the date of grant. The options granted generally vest evenly over a three year period, beginning from the date of the grant. There were no options granted under the Company ISOP in During 2000. Nonstatutory Stock Options ("NSSO") During 2000, the Company granted nonstatutory stock options to purchase an aggregate of 6,000 shares of common stock to three individuals. These options are non-assignable and non-transferable, are exercisable over a five year period from the date of grant and vested upon grant. Option activity within each plan is as follows: <TABLE> <CAPTION> Non- Weighted Incentive Statutory Average Stock Option Stock Price Plans Options Per Share ------------ --------- --------- <S> <C> <C> <C> Balance outstanding, December 31, 1997 2,200 34,000 $ 6.00 Options granted, $5.20 -- 5,000 $ 5.20 ----- ------- ------ Balance outstanding, December 31, 1998 2,200 39,000 $ 5.90 Options granted, range from $4.72 - $5.95 1,100 90,750 $ 5.00 ----- ------- ------ Balance outstanding, December 31, 1999 3,300 129,750 $ 5.08 Options granted, $8.13 -- 6,000 $ 8.13 Options exercised, $5.20 -- (6,000) $(5.20) ----- ------- ------ Balance outstanding, December 31, 2000 3,300 129,750 $ 5.59 ===== ======= ====== </TABLE> 56
59 AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Information relating to stock options at December 31, 2000 summarized by exercise price are as follows: <TABLE> <CAPTION> Outstanding Exercisable ------------------------------------ -------------------- Weighted Average Weighted Average ------------------------------------ -------------------- Life Exercise Exercise Shares (Months) Price Shares Price ------- -------- -------- ------ -------- <S> <C> <C> <C> <C> <C> Exercise Price Per Share Incentive Stock Option Plan: $5.95 1,100 52.00 $ 5.95 1,100 $ 5.95 $6.36 2,200 12.00 $ 6.36 2,200 $ 6.36 ------- ------ ------ ------ ------ 3,300 25.35 $ 6.22 3,000 $ 6.22 ======= ====== ====== ====== ====== Nonstatutory Stock Options: $4.44 - $4.72 68,750 29.00 $ 4.66 35,750 $ 4.61 $5.20 - $5.88 41,250 31.33 $ 5.46 19,250 $ 5.65 $8.13 - $9.36 19,750 17.10 $ 8.98 19,750 $ 8.98 ------- ------ ------ ------ ------ 129,750 27.93 $ 5.57 74,750 $ 6.03 ======= ====== ====== ====== ====== </TABLE> All stock options issued to employees have an exercise price not less than the fair market value of the Company's common stock on the date of the grant, and in accordance with accounting for such options utilizing the intrinsic value method there is no related compensation expense recorded in the Company's consolidated financial statements. Had compensation cost for stock-based compensation been determined based on the fair value of the grant dates consistent with the method of FASB 123, the Company's net loss and loss per share for the years ended December 31, 2000 and 1999 would have been increased to the pro forma amounts presented: 2000 1999 1998 ---------- ---------- ---------- Net income attributable to common stockholders $4,311,200 $3,235,500 $2,126,500 Pro forma $4,287,649 $3,211,949 $2,116,622 Earnings per common share $ 1.60 $ 1.19 $ .77 Pro forma $ 1.59 $ 1.18 $ .77 The fair value of option grants is estimated on the date of grant utilizing the Black-Scholes option-pricing model with the weighted average assumptions for grants in 2000; expected life of options was 5 years, expected volatility of 11.8%, risk-free interest rate of 5% and a 0% dividend yield. The weighted average fair value on the date of grants for options granted during 2000 was $8.13 per option. (15) SUBSEQUENT EVENT - UNAUDITED 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. (16) QUARTERLY DATA - UNAUDITED <TABLE> <CAPTION> MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------- ---------- ------------ ----------- <S> <C> <C> <C> <C> QUARTERLY DATA - 2000 Net Sales $11,785,800 $17,803,800 $21,421,800 $26,968,300 Gross Profit 5,502,300 8,786,700 8,869,700 13,414,600 Net Income 77,700 689,200 1,017,100 2,527,200 Basic Net income per share .03 .26 .38 .95 Diluted net income per share .03 .25 .37 .93 QUARTERLY DATA - 1999 Net Sales 10,186,200 17,660,100 17,119,800 24,245,600 Gross Profit 4,221,500 8,163,500 7,355,700 13,522,100 Net Income (loss) (525,400) 619,300 679,100 2,462,500 Basic and diluted net income (loss) per share (.19) .23 .25 .91 </TABLE> 57
60 INDEX TO EXHIBITS ITEM 14(a)3 <TABLE> <CAPTION> Page Sequentially Numbered ------------ <S> <C> 2.1 Purchase and Sales Agreement dated November 15, 1993, between Amvac Chemical Corporation and E.I. du Pont de Nemours and Company.(4) -- 3.1 Certificate of Incorporation of Registrant.(1) -- 3.2 Bylaws of Registrant (as amended as of January 14, 1993).(3) -- 4.1 Specimen Certificate of Common Stock.(2) -- 10.1 Indemnification Agreement dated January 6, 1993 between Registrant and each of its officers and directors.(3) -- 10.2 Line of Credit Agreement dated June 18, 1991, related amendments one through eight between the Registrant and Sanwa Bank California and related Security Agreement.(3) -- 10.3 Line of Credit Agreement dated April 30, 1993, and related amendments, between the Registrant and Sanwa Bank California and related Security Agreement.(5) -- 10.4 Line of Credit Agreement dated April 14, 1994, and related amendments, between the Registrant and Sanwa Bank California and related Security Agreement.(6) -- 10.5 Employment Agreement between American Vanguard Corporation and Eric G. Wintemute.(6) -- 10.6 Employment Agreement between American Vanguard Corporation and Alfred J. Moskal.(6) -- 10.7 Employment Agreement between American Vanguard Corporation and Robert F. </TABLE> 58
61 <TABLE> <S> <C> 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) -- 10.12 Employment Agreement between American Vanguard Corporation and Eric G. Wintemute(9) -- 10.13 Amendment to Credit Agreement dated July 6, 2000, and related documents between Registrant and Sanwa Bank California 60 21. List of Subsidiaries of Registrant 64 </TABLE> - ---------------------- (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. (9) Incorporated by reference as an Exhibit to Registrant's Form 10-K filed March 29, 2000. 59