Form 10-Q for period ended June 30, 2005

10-Q 1 d10q.htm FORM 10-Q FOR PERIOD ENDED JUNE 30, 2005 Form 10-Q for period ended June 30, 2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

¨	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 001-13795

AMERICAN VANGUARD CORPORATION


Delaware		95-2588080
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification Number)

4695 MacArthur Court, Newport Beach, California		92660
(Address of principal executive offices)		(Zip Code)

(949) 260-1200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.10 Par Value—18,259,358 shares as of August 8, 2005.

AMERICAN VANGUARD CORPORATION

INDEX


		Page Number
PART I—FINANCIAL INFORMATION

Item 1.

	Financial Statements.

	Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004	1

	Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004	2

	Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004	4

	Notes to Consolidated Financial Statements	6

Item 2.

	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.

	Quantitative and Qualitative Disclosure About Market Risk	16

Item 4.

	Controls and Procedures	16

PART II—OTHER INFORMATION		17

SIGNATURES		20

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share amounts)

(Unaudited)


	For the three months ended June 30						For the six months ended June 30
	2005			2004			2005			2004
Net sales	$	37,325		$	31,492		$	78,555		$	65,711
Cost of sales		21,529			17,744			45,214			36,773

Gross profit		15,796			13,748			33,341			28,938
Operating expenses		11,038			9,497			23,170			20,778

Operating income		4,758			4,251			10,171			8,160
Interest expense		380			328			719			642
Interest income		(9	)		—			(11	)		(1	)
Interest capitalized		(81	)		(20	)		(144	)		(35	)

Income before income taxes		4,468			3,943			9,607			7,554
Income tax expense		1,720			1,538			3,724			2,946

Net income	$	2,748		$	2,405		$	5,883		$	4,608

Earnings per common share—basic	$	.15		$	.13		$	.32		$	.26

Earnings per common share—assuming dilution	$	.14		$	.13		$	.31		$	.24

Weighted average shares outstanding—basic (notes 5 & 6)		18,240			17,945			18,231			17,936

Weighted average shares outstanding—assuming dilution (notes 5 & 6)		19,281			19,205			19,275			19,137

See notes to consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS (note 7)


	June 30, 2005		Dec. 31, 2004
	(Unaudited)		(Note)
Current assets:
Cash	$	1,232	$	457
Receivables:
Trade		41,400		27,773
Other		350		532

		41,750		28,305

Inventories (note 3)		48,290		43,635
Prepaid expenses		909		1,479
Deferred tax asset		140		140

Total current assets		92,321		74,016
Property, plant and equipment, net (note 2)		29,696		26,118
Land held for development		211		211
Intangible assets		20,565		21,161
Other assets		769		840

	$	143,562	$	122,346

(Continued)

See notes to consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY


	June 30, 2005			Dec. 31, 2004
	(Unaudited)			(Note)
Current liabilities:
Current installments of long-term debt	$	5,107		$	5,107
Accounts payable		14,352			12,984
Accrued program costs		20,373			10,335
Accrued expenses and other payables		2,947			5,791
Accrued royalty obligations		1,261			1,837
Income taxes payable		—			1,687

Total current liabilities		44,040			37,741
Long-term debt, excluding current installments		29,421			19,474
Deferred income taxes		1,159			1,159

Total liabilities		74,620			58,374

Stockholders’ Equity:
Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued		—			—
Common stock, $.10 par value per share; authorized 40,000,000 shares; issued 19,914,270 shares at June 30, 2005 and 19,862,288 shares at December 31, 2004		1,990			1,986
Additional paid-in capital		10,628			9,560
Accumulated other comprehensive income		(195	)		(207	)
Retained earnings		59,264			55,378

		71,687			66,717
Less treasury stock at cost, 1,670,098 shares at June 30, 2005 and December 31, 2004		(2,745	)		(2,745	)

Total stockholders’ equity		68,942			63,972

	$	143,562		$	122,346

Note:

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date.

See notes to consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For The Six Months Ended June 30, 2005 and 2004

(Unaudited)


Increase (decrease) in cash	2005			2004
Cash flows from operating activities:
Net income	$	5,883		$	4,608
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		3,496			2,451
Changes in assets and liabilities associated with operations:
Increase in receivables		(13,445	)		(3,268	)
Increase in inventories		(4,655	)		(6,405	)
Decrease (increase) in prepaid expenses and other current assets		586			(328	)
Increase (decrease) in accounts payable		1,368			(5,944	)
Increase in other payables and accrued expenses		4,931			6,854

Net cash used in operating activities		(1,836	)		(2,032	)

Cash flows from investing activities:
Capital expenditures		(6,478	)		(5,259	)
Net decrease in other non-current assets		55			540

Net cash used in investing activities		(6,423	)		(4,719	)

(Continued)

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(In thousands)

For The Six Months Ended June 30, 2005 and 2004

(Unaudited)


Increase (decrease) in cash	2005			2004
Cash flows from financing activities:
Net borrowings under line of credit agreement	$	12,000		$	10,800
Proceeds from issuance of long-term debt		—			1,288
Principal payments on long-term debt		(2,053	)		(3,296	)
Exercise of common stock options		77			27
Payment of cash dividends		(1,002	)		(726	)
Purchase of treasury stock		—			(301	)

Net cash provided by financing activities		9,022			7,792

Net increase in cash		763			1,041
Cash at beginning of year		457			887
Effect of exchange rate changes on cash		12			(12	)

Cash as of June 30	$	1,232		$	1,916

Supplemental schedule of non-cash investing and financial activities:

On March 21, 2005, the Company announced that the Board of Directors declared a 2 for 1 stock split (100% stock dividend) and a cash dividend of $0.11 per share ($0.055 as adjusted for the 2 for 1 stock split). Both dividends were distributed on April 15, 2005 to stockholders of record at the close of business on March 29, 2005. The cash dividend was paid on the number of shares outstanding prior to the 2 for 1 stock split. Stockholders entitled to fractional shares resulting from the stock split received cash in lieu of such fractional share based on the closing price of the Company’s stock on March 29, 2005.

See notes to consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Columnar Numbers in thousands except for share data)

(Unaudited)

1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

2. Property, plant and equipment at June 30, 2005 and December 31, 2004 consists of the following:


	June 30, 2005		December 31, 2004
Land	$	2,441	$	2,441
Buildings and improvements		5,180		5,105
Machinery and equipment		47,070		44,772
Office furniture, fixtures and equipment		3,500		3,378
Automotive equipment		209		209
Construction in progress		7,511		3,999

		65,911		59,904
Less accumulated depreciation		36,215		33,786

	$	29,696	$	26,118

3. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The components of inventories consist of the following:


	June 30, 2005		December 31, 2004
Finished products	$	43,595	$	39,244
Raw materials		4,695		4,391

	$	48,290	$	43,635

4. Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Selective enterprise information is as follows:


	Three Months Ended June 30				Six Months Ended June 30
	2005		2004		2005		2004
Net sales:
Crop	$	28,900	$	23,971	$	65,000	$	54,975
Non-crop		8,425		7,521		13,555		10,736

	$	37,325	$	31,492	$	78,555	$	65,711

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

5. On March 21, 2005, the Company announced that the Board of Directors declared a 2 for 1 stock split (100% stock dividend) and a cash dividend of $0.11 per share ($0.055 as adjusted for the 2 for 1 stock split). Both dividends were distributed on April 15, 2005 to stockholders of record at the close of business on March 29, 2005. The cash dividend was paid on the number of shares outstanding prior to the 2 for 1 stock split. Stockholders entitled to fractional shares resulting from the stock split received cash in lieu of such fractional share based on the closing price of the Company’s stock on March 29, 2005. Accordingly, all weighted average share, and per share amounts have been restated to reflect the stock split.

6. 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.

The components of basic and diluted earnings per share were as follows:


	Three Months Ended June 30				Six Months Ended June 30
	2005		2004		2005		2004
Numerator:
Net income	$	2,748	$	2,405	$	5,883	$	4,608

Denominator:
Weighted averages shares outstanding		18,240		17,945		18,231		17,936
Assumed exercise of stock options		1,041		1,260		1,044		1,201

		19,281		19,205		19,275		19,137

7. Substantially all of the Company’s assets not otherwise specifically pledged as collateral on existing loans and capital leases, are pledged as collateral under the Company’s credit agreement with a bank. As referenced in note 1, for further information, refer to the consolidated financial statements and footnotes thereto (specifically note 2) included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

8. Reclassification – Certain items have been reclassified in the prior period consolidated financial statements to conform with the June 30, 2005 presentation.

9. Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the consolidated balance sheets.

Comprehensive income and its components consist of the following:


	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005		2004
Net income	$	2,748	$	2,405		$	5,883	$	4,608
Foreign currency translation adjustment		14		(122	)		12		(12	)

Comprehensive income	$	2,762	$	2,283		$	5,895	$	4,596

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

10. Stock-Based Compensation—SFAS No. 123 “Accounting for Stock-Based Compensation”, allows companies to measure compensation cost in connection with employee share option plans using a fair value based method or to continue to use an intrinsic value based method as defined by APB No. 25 Accounting for Stock Issued to Employees, which generally does not result in a compensation cost. The Company accounts for stock-based compensation under APB 25, and does not recognize stock-based compensation expense upon the issuance of its stock options because the option terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. The following table illustrates the effect on net earnings and basic and diluted earnings per share if the Company had recognized compensation expense upon issuance of the options, based on the Black-Scholes option pricing model:


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income, as reported	$	2,748		$	2,405		$	5,883		$	4,608
Stock-based employee compensation expense included in reported net income, net of related tax effects		—			—			—			—
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(147	)		(150	)		(295	)		(300	)

Pro forma	$	2,601		$	2,255		$	5,588		$	4,308

Earnings per common share—basic, as reported	$	.15		$	.13		$	.32		$	.26

Pro forma	$	.14		$	.13		$	.31		$	.24

Earnings per common share—diluted, as reported	$	.14		$	.13		$	.31		$	.24

Pro forma	$	.13		$	.12		$	.29		$	.23

11. Recently Issued Accounting Guidance—In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment”. This statement is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation” and superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees”. This statement requires that the cost resulting from all stock-based payment transactions be recognized through the financial statements at an amount based on the fair value of an award at the date of its grant. The statement was to have been effective for all periods beginning after June 15, 2005, however, in April 2005, the Securities and Exchange Commission (“SEC”) adopted a new rule that amends the compliance dates. The new rule allows companies to implement SFAS No. 123R at the beginning of the Company’s next fiscal year, instead of the next reporting period, that begins after June 15, 2005. This means that given the fact that the Company is a calendar year-end company, the Company does not need to comply with SFAS No. 123R until the interim financial statements for the first quarter of 2006. The SEC’s new rule does not change the accounting required by SFAS No. 123R; it changes only the dates for compliance with the standard. The Company will incur compensation expenses beginning in the first quarter of 2006 for any non-vested options granted prior to 2006. The Company is still assessing the financial statement impact of adoption.

In December 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” which requires that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) be recognized as current-period charges. In addition, the statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company will adopt this statement as required, and the Company does not believe the adoption will have a material effect on the Company’s results of operations or financial condition.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,” which eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The statement defines a nonmonetary exchange with commercial substance as one in which the future cash flows of an entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal years beginning after June 15, 2005. The Company will adopt this statement as required, and it does not believe the adoption will have a material effect on the Company’s results of operation or financial condition.

In May 2005, the Financial Accounting Standards Board issued Statement No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,” or SFAS No. 154. SFAS No. 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No. 154 generally requires retrospective application to prior periods’ financial statements of voluntary changes in accounting principles. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, SFAS No. 154 does not change the transition provisions of any existing accounting pronouncements. The Company does not believe the adoption of SFAS No. 154 will have a material effect on its results of operations or financial condition.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Columnar Numbers in thousands)

FORWARD-LOOKING STATEMENTS/RISK FACTORS:

The Company, from time-to-time, may discuss forward-looking statements including assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources general business regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. Securities and Exchange Commission (the “SEC”). It is not possible to foresee or identify all such factors. For more detailed information, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, Risk Factors, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

RESULTS OF OPERATIONS

Quarter Ended June 30 (columnar numbers in thousands):


	2005		2004		Change
Net sales:
Crop	$	28,900	$	23,971	$	4,929
Non-crop		8,425		7,521		904

	$	37,325	$	31,492	$	5,833

Gross profit:
Crop	$	12,312	$	10,905	$	1,407
Non-crop		3,484		2,843		641

	$	15,796	$	13,748	$	2,048

The Company reported net income of $2,748,000 or $.14 per diluted share for the second quarter ended June 30, 2005 as compared to net income of $2,405,000 or $.13 per diluted share for the same period in 2004. (Net income and per share data have been restated to reflect the effect of a 2 for 1 stock split that was distributed on April 15, 2005.)

Net sales for the second quarter 2005 increased by 19% to $37,235,000 from $31,492,000 in the same period of 2004. The increase sales levels were primarily as a result of increased sales (primarily attributable to higher sales volume) of the Company’s product lines used for crop protection. There were no unusual or infrequent events or transactions outside of the ordinary course of business which materially impacted net sales. (Weather patterns can have an impact on the Company’s operations. Refer to the disclosure below.)

Gross profits increased to $15,796,000 for the three months ended June 30, 2005 from $13,748,000 in the second quarter of 2004. Gross profit margins declined to 42% in the quarter ended June 30, 2005 from 44% in the same period in 2004. The decline in gross profit margins was due to the changes in the sales mix of the Company’s products.

Gross profit margins may not be comparable to those of other companies, since some companies include their distribution network in cost of goods sold and the Company, as well as others, include distribution costs in operating expenses (or other line items other than cost of goods sold).

Operating expenses, which are net of other income and expenses, increased by $1,541,000 to $11,038,000 in the second quarter of 2005 from $9,497,000 in the same period of 2004. The differences in operating expenses by specific departmental costs are as follows:


	2005		2004		Change
Selling	$	3,313	$	3,136	$	177
General and administrative		3,746		2,973		773
Research, product development and regulatory		1,680		1,569		111
Freight, delivery and warehousing		2,299		1,819		480

	$	11,038	$	9,497	$	1,541

•

Selling expenses increased by $177,000 to $3,313,000 in the second quarter of 2005 from $3,136,000 in the same period of 2004. The increase was due primarily to increases in advertising and promotion and payroll and payroll related costs.

•

General and administrative expenses increased by $773,000 to $3,746,000 in the quarter ended June 30, 2005, as compared to $2,973,000 in the same period in 2004. The increase was due primarily to increased legal expenses (which accounted for approximately 89% or $688,000 of the increase) and an increase in payroll and payroll related costs. A significant portion of the increase in legal costs relates to legal proceedings between AMVAC Chemical Corporation and FMC Corporation relating to, among other things, AMVAC’s rights to sell its bifenthrin products under its current labels (the “FMC Proceedings”). (For further information, refer to Item 1 of Part II of this Report under the heading “FMC Proceedings”.)

•

Research and product development costs and regulatory registration expenses increased by $111,000 to $1,680,000 in the quarter ended June 30, 2005 from $1,569,000 in the same period of 2004. The increase was a result of higher costs incurred to generate scientific data related to the registration and possible new uses of the Company’s products.

•

Freight, delivery and warehousing costs increased $480,000 to $2,299,000 for the second quarter of 2005 as compared to $1,819,000 in the same period of 2004 due to the increased sales levels as well as the product mix of sales.

Interest costs before capitalized interest and interest income were $380,000 in the quarter ended June 30, 2005 as compared to $328,000 in the same period in 2004. The Company’s average overall debt for the quarter ended June 30, 2005 was $27,453,000 as compared to $42,945,000 for the same period in 2004. Notwithstanding the higher overall average debt in 2004, higher effective interest rates accounted for the higher gross interest costs. The Company capitalized $81,000 of interest costs related to construction in progress during the second quarter of 2005 as compared to $20,000 in 2004. The Company also recognized $9,000 in interest income for the quarter ended June 30, 2005.

Income tax expense increased by $182,000 to $1,720,000 for the quarter ended June 30, 2005 as compared to $1,538,000 for the same period 2004 related to higher income before income taxes. The effective tax rate for the period ended June 30, 2005 was 38.5% as compared to 39% in the same period in 2004.

Weather patterns can have an impact on the Company’s operations. Weather conditions influence pest population by impacting gestation cycles for particular pests and the effectiveness of some of the Company’s products, among other factors. The end user of some of the Company’s products may, because of weather patterns, delay or intermittently disrupt field work during the planting season which may result in a reduction of the use of some of the Company’s products. During the six months ended June 30, 2005, weather patterns did not have a material adverse effect on the Company’s results of operations.

Because of elements inherent to the Company’s business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales, ordering patterns that may vary in timing, and

promotional programs, measuring the Company’s performance on a quarterly basis, (gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as meaningful an indicator as full-year comparisons. The primary reason is that the use cycles do not necessarily coincide with financial reporting cycles. Because of the Company’s cost structure, the combination of variable revenue streams, and the changing product mixes, results in varying quarterly levels of profitability.

Six Months Ended June 30 (columnar numbers in thousands):


	2005		2004		Change
Net sales:
Crop	$	65,000	$	54,975	$	10,025
Non-crop		13,555		10,736		2,819

	$	78,555	$	65,711	$	12,844

Gross profit:
Crop	$	27,325	$	25,402	$	1,923
Non-crop		6,016		3,536		2,480

	$	33,341	$	28,938	$	4,403

The Company reported net income of $5,883,000 or $.31 per diluted share for the six months ended June 30, 2005 as compared to net income of $4,608,000 or $.24 per diluted share for the same period in 2004. (Net income and per share data have been restated to reflect the effect of a 2 for 1 stock split that was distributed on April 15, 2005.)

Net sales for the first six months of 2005 increased by 20% to $78,555,000 from $65,711,000 in the same period of 2004. The increase sales levels were primarily as a result of increased sales (primarily attributable to higher sales volume) of the Company’s product lines used for crop protection. There were no unusual or infrequent events or transactions outside of the ordinary course of business which materially impacted net sales. (Weather patterns can have an impact on the Company’s operations. Refer to the disclosure above.)

Gross profits increased to $33,341,000 for the six months ended June 30, 2005 from $28,938,000 in the same period in 2004. Gross profit margins declined to 42% in the six months ended June 30, 2005 from 44% in the same period in 2004. The decline in gross profit margins was due to the changes in the sales mix of the Company’s products.

As stated above, gross profit margins may not be comparable to those of other companies, since some companies include their distribution network in cost of goods sold and the Company, as well as others, include distribution costs in operating expenses (or other line items other than cost of goods sold).

Operating expenses, which are net of other income and expenses, increased by $2,392,000 to $23,170,000 in the first six months of 2005 from $20,778,000 in the same period of 2004. The differences in operating expenses by specific departmental costs are as follows:


	2005		2004		Change
Selling	$	9,015	$	8,291	$	724
General and administrative		6,655		5,784		871
Research, product development and regulatory		3,137		2,914		223
Freight, delivery and warehousing		4,363		3,789		574

	$	23,170	$	20,778	$	2,392

•

Selling expenses increased by $724,000 to $9,015,000 in the first six months of 2005 from $8,291,000 in the same period of 2004. The increase was due primarily to an increase in variable selling expenses (that relate to both increased sales levels and the product mix of sales) and payroll and payroll related costs.

•

General and administrative expenses increased by $871,000 to $6,655,000 in the six months ended June 30, 2005, as compared to $5,784,000 in the same period in 2004. The increase was due primarily to increased legal expenses (which accounted for approximately 87% or $758,000 of the increase) and an increase in payroll and payroll related costs. As previously mentioned, a significant portion of the increase in legal costs relates to the FMC Proceedings.

•

Research and product development costs and regulatory registration expenses increased by $223,000 to $3,137,000 in the six months ended June 30, 2005 from $2,914,000 in the same period of 2004. The increase was a result of higher costs incurred to generate scientific data related to the registration of the Company’s products coupled with higher licenses and registration fees.

•

Freight, delivery and warehousing costs increased $574,000 to $4,363,000 for the first six months of 2005 as compared to $3,789,000 in the same period of 2004 due to the increased sales levels.

Interest costs before capitalized interest and interest income were $719,000 in the six months ended June 30, 2005 as compared to $642,000 in the same period in 2004. The Company’s average overall debt for the six months ended June 30, 2005 was $27,690,000 as compared to $38,277,000 for the same period in 2004. Notwithstanding the higher overall average debt in 2004, higher effective interest rates accounted for the higher gross interest costs. The Company capitalized $144,000 of interest costs related to construction in progress during the first six months of 2005 as compared to $35,000 in 2004. The Company also recognized $11,000 in interest income for the six months ended June 30, 2005 as compared to $1,000 in the same period in 2004.

Income tax expense increased by $778,000 to $3,724,000 for the six months ended June 30, 2005 as compared to $2,946,000 for the same period 2004 related to higher income before income taxes.

LIQUIDITY AND CAPITAL RESOURCES

The Company used $1,836,000 in operating activities during the six months ended June 30, 2005. Net income of $5,883,000, non-cash depreciation and amortization of $3,496,000, a decrease in prepaid expenses of $586,000 and an increase in trade payables and other payables and accrued expenses of $1,368,000 and $4,931,000, respectively, provided $16,264,000 of cash for operations. Increases in receivables and inventories of $13,445,000 and $4,655,000, respectively, used $18,100,000 in cash for operating activities.

The Company used $6,423,000 in investing activities during the six months ended June 30, 2005. It invested $6,478,000 in capital expenditures while other non-current assets declined by $55,000.

Financing activities provided $9,022,000 during the during the six months ended June 30, 2005. Net borrowing under the Company’s fully-secured revolving line of credit increased by $12,000,000. The Company received $77,000 from the issuance of common stock. The Company made payments on its debt of $2,053,000 and paid cash dividends of $1,002,000.

Management continues to believe, to continue to improve its working capital position and maintain flexibility in financing interim needs, it is prudent to explore all available sources of financing. Accordingly, the Company filed a universal shelf registration statement on Form S-3 with the SEC on February 25, 2005 pursuant to which, the Company may issue common and preferred stock, warrants and debt securities, from time to time, up to an aggregate offering price of $50,000,000. The terms of any future offering will be established at the time of the offering.

RECENTLY ISSUED ACCOUNTING GUIDANCE

In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment”. This statement is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation” and superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees”. This statement requires that the cost resulting from all share-based payment transactions be recognized through the financial statements at an amount based on the fair value of an award at the date of its grant. The statement was to have been effective for all periods beginning after June 15, 2005, however, in April 2005, the SEC adopted a new rule that amends the compliance dates. The new rule allows companies to implement SFAS No. 123R at the beginning of the Company’s next fiscal year, instead of the next reporting period, that begins after June 15, 2005. This means that given the fact that the Company is a calendar year-end company, the Company does not need to comply with SFAS No. 123R until the interim financial statements for the first quarter of 2006. The SEC’s new rule does not change the accounting required by SFAS No. 123R; it changes only the dates for compliance with the standard. The Company will incur compensation expenses beginning in the first quarter of 2006 for any non-vested options granted prior to 2006. The Company is still assessing the financial statement impact of adoption.

CRITICAL ACCOUNTING POLICIES

Certain of the Company’s policies require the application of judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on historical experience, terms of existing contracts, commonly accepted industry practices and other assumptions that the Company believes are reasonable under the circumstances. These estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to

be necessary. Actual results may differ from these estimates under different assumptions or conditions. The Company’s critical accounting polices and estimates include:

Revenue Recognition

Revenue from sales is recognized at the time title and the risks of ownership passes. This is when the customer has made the fixed commitment to purchase the goods, the products are shipped per the customers’ instructions, the sales price is determinable, and collection is reasonably assured.

Long-lived Assets

The carrying value of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Measurement of the impairment loss is based on the fair value of the asset. Generally, fair value will be determined using valuation techniques such as the present value of expected future cash flows.

Property, Plant and Equipment and Depreciation

Property, plant and equipment includes the cost of land, buildings, machinery and equipment, office furniture and fixtures, automobiles, and construction projects and significant improvements to existing plant and equipment. Interest costs related to significant construction projects may be capitalized at the Company’s weighted average cost of capital. Expenditures for maintenance and minor repairs are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and the gain or loss realized on disposition is reflected in earnings. All plant and equipment is depreciated using the straight-line method, utilizing estimated useful property lives. Building lives range from 10 to 30 years; machinery and equipment lives range from 3 to 15 years; office furniture and fixture lives range from 3 to 10 years; automobile lives range from 3 to 6 years; construction projects and significant improvements to existing plant and equipment lives range from 3 to 15 years when placed in service.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, have been translated at year end exchange rates and profit and loss accounts have been translated using weighted average yearly exchange rates. Adjustments resulting from translation have been recorded in the equity section of the balance sheet as cumulative translation adjustments in other comprehensive income.

The effect of foreign currency exchange gains and losses on transactions that are denominated in currencies other than the entity’s functional currency are remeasured into the functional currency using the end of the period exchange rates. The effects of remeasurement related to foreign currency transactions are included in current profit and loss accounts.

Goodwill and Other Intangible Assets

The primary identifiable intangible assets of the Company relate to product rights associated with its product acquisitions. The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets. Under the provisions of SFAS No. 142, identifiable intangibles with finite lives are amortized and those with indefinite lives are not amortized. The estimated useful life of an identifiable intangible asset to the Company is based upon a number of factors including the effects of demand, competition, and expected changes in the marketability of the Company’s products. The Company tests identifiable intangible assets for impairment at least annually, relying on a number of factors including operating results, business plans and future cash flows. Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate elements of property. The impairment

test for identifiable intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss, if any, is recognized for the amount by which the carrying value exceeds the fair value of the asset. Fair value is typically estimated using a discounted cash flow analysis, which requires the Company to estimate the future cash flows anticipated to be generated by the particular asset(s) being tested for impairment as well as select a discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, the Company considers historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by the Company in such areas as future economic conditions, industry-specific conditions, product pricing and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets, goodwill and identifiable intangible assets. As of January 1, 2002, the Company had an immaterial amount of goodwill and amortization related to the goodwill. As such, the adoption of SFAS 142 did not have a material impact on the Company’s financial statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The Company’s indebtedness to its primary lender is evidenced by a line of credit with a variable rate of interest, which fluctuates with changes in the lender’s reference rate. For more information, please refer to the applicable disclosures in the Company’s Form 10-K filed with the SEC for the year ended December 31, 2004. The Company does not use derivative financial instruments for speculative or trading purposes.

The Company conducts business in various foreign currencies, primarily in Europe and Mexico. Therefore changes in the value of the currencies of such countries or regions affect the Company’s financial position and cash flows when translated into U.S. Dollars. As of June 30, 2005, the Company had not established a formal foreign currency hedging program. The Company has mitigated and will continue to mitigate a portion of its currency exchange exposure through operation of decentralized foreign operating companies in which the majority of all costs are local-currency based. A 10% change in the value of all foreign currencies would have an immaterial effect on the Company’s financial position and cash flows.

Item 4. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that the Company’s disclosure controls and procedures are effective in all material respects in ensuring that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal controls over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

The Company was not required to report any matters or changes for any items of Part II except as disclosed below.

Item 1. Legal Proceedings

FMC Proceedings

AMVAC Chemical Corporation v. FMC Corporation [Case No. SACV 05-511 AHS (ANx); FMC Corporation v. AMVAC Chemical Corporation (Civil Action No. 05 cv 2593)

AMVAC Chemical Corporation and FMC Corporation are parties to certain civil legal proceedings relating to, among other things, AMVAC’s rights to sell its bifenthrin products under its current labels. (For further information, refer to the Company’s current report on Form 8-K filed June 24, 2005, SEC File No. 001-13795.)

AMVAC and FMC have entered into a written settlement that resolves all claims subject to such proceedings. Except in connection with the finalization of such settlement and the dismissal of such legal proceedings, the settlement will end the Company’s expenditure of significant legal costs in connection with such proceedings. The Company believes that the settlement will not have a material adverse effect on the Company, its business or operations.

Nicaragua Suits

Flavio Apolinar Castillo et al. v. AMVAC Chemical Corporation et al., No. 535/04 and Luis Cristobal Martinez Suazo et al. v. AMVAC Chemical Corporation et al., No. 679/04.

In prior descriptions of pending litigation and other matters, several suits filed in Nicaragua in January 2003 on behalf of banana workers claiming exposure to 1,2-dibromo-3-chloropropane (“DBCP”) were mentioned. It was reported that Amvac Chemical Corporation (“AMVAC”) had been named in these suits, but was not served with the complaints. These banana workers claim personal injuries from alleged exposure to DBCP in the 1970’s.

On May 5, 2005, AMVAC received two suits filed in Nicaragua in 2004 that name AMVAC, The Dow Chemical Company, Dole Food Co., Dole Fresh Fruit, and Standard Fruit Company. The two suits for personal injuries for sterility and reduced sperm counts have been filed on behalf of a total of 15 banana workers: Flavio Apolinar Castillo et al. v. AMVAC Chemical Corporation et al., No. 535/04 and Luis Cristobal Martinez Suazo et al. v. AMVAC Chemical Corporation et al., No. 679/04. These plaintiffs each claim $1 million in special and general damages and $5 million in punitive damages.

AMVAC has retained an attorney in Nicaragua and understands that these suits have not been officially served, but constitute first notice and an invitation to attend a mediation. One of these suits is based on Public Law 364 that requires the posting of a $100,000 bond and sets forth a lessened standard of proof to show that the claimed injuries are due to DBCP.

AMVAC contends that the Nicaragua courts do not have jurisdiction over it and that Public Law 364 does not provide due process of law. AMVAC intends to contest personal jurisdiction. It is presently unknown as to how many of these 15 plaintiffs actually claim exposure to AMVAC’s product nor is there any verification of the claimed injuries.

A review of court filings in Chinandega, Nicaragua, by local counsel found 10 suits filed by multiple plaintiffs pursuant to Public Law 364 in 2003 that name AMVAC. These suits have never been served. In the 10 suits, all but 10 plaintiffs were dismissed.

Six additional suits based on Public Law 364 were also discovered that were filed between December 2004 and April 2005 in Nicaragua naming AMVAC and include a total of 45 plaintiffs. None of these six additional suits has been served. Each of these plaintiffs claims $1 million in special and general damages and $5 million in punitive damages.

Other Matters

The Company may be, from time to time, involved in other legal proceedings arising in the ordinary course of its business. The results of litigation cannot be predicted with certainty. The Company has and will continue to expend resources and incur expenses in connection with these proceedings. There can be no assurance that the Company will be successful in these proceedings. While the Company continually evaluates insurance levels for product liability, property damage and other potential areas of risk, an adverse determination in one or more of these proceedings could subject the Company to significant liabilities, which could have a material adverse effect on its financial condition and operating results.

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders on June 9, 2005. There were present at the Annual Meeting, in person or by proxy, stockholders holding 16,559,153 shares, representing 91% of the total number of shares outstanding and entitled to vote at the meeting with such percentage representing a quorum. Three matters were submitted to a vote of the Stockholders.

1. The following individuals were nominated and elected to serve as directors as set forth below:


	Votes “For”	Votes to “Withhold Authority”
Herbert A. Kraft	14,374,009	2,185,144
Glenn A. Wintemute	14,359,636	2,199,517
Eric G. Wintemute	14,376,769	2,182,384
John B. Miles	14,300,368	2,258,785
Jay R. Harris	16,508,303	50,850
Carl R. Soderlind	16,492,153	67,000
Irving J. Thau	16,486,591	72,562

2. The appointment by the Board of Directors of BDO Seidman, LLP as the Company’s independent registered public accounting firm for the year 2005 was ratified by a vote of the stockholders. A total of 16,550,024 votes were cast in favor of the appointment, 6,989 votes cast against, and 2,140 votes were counted as abstentions.

3. The American Vanguard Corporation Amended and Restated 1994 Stock Incentive Plan was approved by a vote of the stockholders. The Board recommended a vote for the proposal. A total of 12,618,144 votes were cast in favor of the proposal, 144,953 were cast against, 64,911 votes were counted as abstentions, and 3,371,145 were counted as broker non-votes.

Item 6. Exhibits

Exhibits required to filed by Item 601 of Regulation S-K:


Exhibit No.		Description
10.1		Description of Compensatory Arrangements Applicable to Non-Employee Directors for 2005 (incorporated herein by reference to Exhibit 10.1 of Form 8-K filed June 14, 2005, SEC File No. 001-13795).*

10.2		Amended and Restated 1994 Stock Incentive Plan, as amended and restated through May 12, 2005 (incorporated herein by reference to Exhibit 10.2 of Form 8-K filed June 14, 2005, SEC File No. 001-13795).*

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

*	Constitutes a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AMERICAN VANGUARD CORPORATION

Dated: August 8, 2005	By:	/s/ ERIC G. WINTEMUTE
		Eric G. Wintemute President, Chief Executive Officer and Director

Dated: August 8, 2005	By:	/s/ JAMES A. BARRY
		James A. Barry Senior Vice President, Chief Financial Officer, Secretary/Treasurer

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents