hi
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJune 30, 20222023
☐ 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $.10 par value | AVD | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☒ | |
Non-Accelerated Filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 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 — 29,581,62729,297,022 shares as of November 2, 2022.August 1, 2023.
AMERICAN VANGUARD CORPORATION
INDEX
Page Number | |||
3 | |||
4 | |||
5 | |||
6 | |||
8 | |||
9 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||
| |||
| |||
| |||
| |||
| |||
| |||
| |||
|
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
| For the Three Months |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net sales |
| $ | 152,117 |
|
| $ | 147,298 |
|
| $ | 449,636 |
|
| $ | 398,063 |
|
| $ | 132,790 |
|
| $ | 148,203 |
|
| $ | 257,674 |
|
| $ | 297,797 |
|
Cost of sales |
|
| (90,733 | ) |
|
| (90,234 | ) |
|
| (267,280 | ) |
|
| (243,729 | ) |
|
| (89,881 | ) |
|
| (98,872 | ) |
|
| (176,230 | ) |
|
| (197,070 | ) |
Gross profit |
|
| 61,384 |
|
|
| 57,064 |
|
|
| 182,356 |
|
|
| 154,334 |
|
|
| 42,909 |
|
|
| 49,331 |
|
|
| 81,444 |
|
|
| 100,727 |
|
Operating expenses |
|
| (50,140 | ) |
|
| (48,410 | ) |
|
| (145,550 | ) |
|
| (132,934 | ) |
|
| (39,155 | ) |
|
| (38,518 | ) |
|
| (74,423 | ) |
|
| (75,165 | ) |
Adjustment to bargain purchase gain on business acquisition |
|
| — |
|
|
| 292 |
|
|
| — |
|
|
| 171 |
| ||||||||||||||||
Operating income |
|
| 11,244 |
|
|
| 8,946 |
|
|
| 36,806 |
|
| �� | 21,571 |
|
|
| 3,754 |
|
|
| 10,813 |
|
|
| 7,021 |
|
|
| 25,562 |
|
Change in fair value of equity investments |
|
| (454 | ) |
|
| (668 | ) |
|
| (857 | ) |
|
| 103 |
| ||||||||||||||||
Other income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 672 |
| ||||||||||||||||
Change in fair value of equity investment |
|
| (55 | ) |
|
| (486 | ) |
|
| (77 | ) |
|
| (403 | ) | ||||||||||||||||
Interest expense, net |
|
| (1,086 | ) |
|
| (962 | ) |
|
| (2,256 | ) |
|
| (2,921 | ) |
|
| (3,211 | ) |
|
| (772 | ) |
|
| (4,898 | ) |
|
| (1,170 | ) |
Income before provision for income taxes and loss on equity |
|
| 9,704 |
|
|
| 7,316 |
|
|
| 33,693 |
|
|
| 19,425 |
| ||||||||||||||||
Income before provision for income taxes |
|
| 488 |
|
|
| 9,555 |
|
|
| 2,046 |
|
|
| 23,989 |
| ||||||||||||||||
Income tax expense |
|
| (2,963 | ) |
|
| (1,517 | ) |
|
| (10,187 | ) |
|
| (5,324 | ) |
|
| (1,541 | ) |
|
| (2,725 | ) |
|
| (1,181 | ) |
|
| (7,224 | ) |
Income before loss on equity method investment |
|
| 6,741 |
|
|
| 5,799 |
|
|
| 23,506 |
|
|
| 14,101 |
| ||||||||||||||||
Loss on equity method investment |
|
| — |
|
|
| (301 | ) |
|
| — |
|
|
| (388 | ) | ||||||||||||||||
Net income |
| $ | 6,741 |
|
| $ | 5,498 |
|
| $ | 23,506 |
|
| $ | 13,713 |
| ||||||||||||||||
Earnings per common share—basic |
| $ | .23 |
|
| $ | .18 |
|
| $ | .80 |
|
| $ | .46 |
| ||||||||||||||||
Earnings per common share—assuming dilution |
| $ | .23 |
|
| $ | .18 |
|
| $ | .78 |
|
| $ | .45 |
| ||||||||||||||||
Net income (loss) |
| $ | (1,053 | ) |
| $ | 6,830 |
|
| $ | 865 |
|
| $ | 16,765 |
| ||||||||||||||||
Net income (loss) per common share—basic |
| $ | (.04 | ) |
| $ | .23 |
|
| $ | .03 |
|
| $ | .57 |
| ||||||||||||||||
Net income (loss) per common share—assuming dilution |
| $ | (.04 | ) |
| $ | .23 |
|
| $ | .03 |
|
| $ | .55 |
| ||||||||||||||||
Weighted average shares outstanding—basic |
|
| 29,214 |
|
|
| 29,892 |
|
|
| 29,496 |
|
|
| 29,854 |
|
|
| 28,428 |
|
|
| 29,602 |
|
|
| 28,397 |
|
|
| 29,639 |
|
Weighted average shares outstanding—assuming dilution |
|
| 29,805 |
|
|
| 30,390 |
|
|
| 30,128 |
|
|
| 30,470 |
|
|
| 28,428 |
|
|
| 30,225 |
|
|
| 28,985 |
|
|
| 30,289 |
|
See notes to the Condensed Consolidated Financial Statements.
3
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net income |
| $ | 6,741 |
|
| $ | 5,498 |
|
| $ | 23,506 |
|
| $ | 13,713 |
| ||||||||||||||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income (loss) |
| $ | (1,053 | ) |
| $ | 6,830 |
|
| $ | 865 |
|
| $ | 16,765 |
| ||||||||||||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Foreign currency translation adjustment, net of tax effects |
|
| (2,764 | ) |
|
| (3,459 | ) |
|
| (1,748 | ) |
|
| (3,048 | ) |
|
| 3,505 |
|
|
| (6,064 | ) |
|
| 6,051 |
|
|
| 1,016 |
|
Comprehensive income |
| $ | 3,977 |
|
| $ | 2,039 |
|
| $ | 21,758 |
|
| $ | 10,665 |
|
| $ | 2,452 |
|
| $ | 766 |
|
| $ | 6,916 |
|
| $ | 17,781 |
|
See notes to the Condensed Consolidated Financial Statements.
4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
|
| September 30, |
|
| December 31, |
|
| June 30, 2023 |
|
| December 31, |
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 20,808 |
|
| $ | 16,285 |
|
| $ | 14,632 |
|
| $ | 20,328 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Trade, net of allowance for doubtful accounts of $4,535 and $3,938, respectively |
|
| 194,515 |
|
|
| 149,326 |
| ||||||||
Trade, net of allowance for doubtful accounts of $6,135 and $5,136, respectively |
|
| 151,479 |
|
|
| 156,492 |
| ||||||||
Other |
|
| 10,022 |
|
|
| 9,595 |
|
|
| 11,473 |
|
|
| 9,816 |
|
Total receivables, net |
|
| 204,537 |
|
|
| 158,921 |
|
|
| 162,952 |
|
|
| 166,308 |
|
Inventories |
|
| 192,309 |
|
|
| 154,306 |
|
|
| 237,587 |
|
|
| 184,190 |
|
Prepaid expenses |
|
| 16,967 |
|
|
| 12,488 |
|
|
| 17,546 |
|
|
| 15,850 |
|
Income taxes receivable |
|
| 2,180 |
|
|
| — |
|
|
| 5,436 |
|
|
| 1,891 |
|
Total current assets |
|
| 436,801 |
|
|
| 342,000 |
|
|
| 438,153 |
|
|
| 388,567 |
|
Property, plant and equipment, net |
|
| 68,598 |
|
|
| 66,111 |
|
|
| 73,452 |
|
|
| 70,912 |
|
Operating lease right-of-use assets |
|
| 25,402 |
|
|
| 25,386 |
|
|
| 23,724 |
|
|
| 24,250 |
|
Intangible assets, net |
|
| 187,207 |
|
|
| 197,841 |
|
|
| 178,624 |
|
|
| 184,664 |
|
Goodwill |
|
| 46,215 |
|
|
| 46,260 |
|
|
| 48,219 |
|
|
| 47,010 |
|
Other assets |
|
| 11,936 |
|
|
| 16,292 |
|
|
| 10,193 |
|
|
| 10,769 |
|
Deferred income tax assets, net |
|
| 16 |
|
|
| 270 |
|
|
| 293 |
|
|
| 141 |
|
Total assets |
| $ | 776,175 |
|
| $ | 694,160 |
|
| $ | 772,658 |
|
| $ | 726,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| ||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current installments of other liabilities |
| $ | — |
|
| $ | 802 |
| ||||||||
Accounts payable |
|
| 81,919 |
|
|
| 67,140 |
|
| $ | 78,876 |
|
| $ | 69,000 |
|
Customer prepayments |
|
| 222 |
|
|
| 63,064 |
|
|
| 27,368 |
|
|
| 110,597 |
|
Accrued program costs |
|
| 108,016 |
|
|
| 63,245 |
|
|
| 80,333 |
|
|
| 60,743 |
|
Accrued expenses and other payables |
|
| 24,390 |
|
|
| 20,745 |
|
|
| 13,273 |
|
|
| 20,982 |
|
Income taxes payable |
|
| — |
|
|
| 3,006 |
| ||||||||
Current operating lease liabilities |
|
| 5,329 |
|
|
| 5,059 |
|
|
| 5,493 |
|
|
| 5,279 |
|
Total current liabilities |
|
| 219,876 |
|
|
| 223,061 |
|
|
| 205,343 |
|
|
| 266,601 |
|
Long-term debt, net |
|
| 148,414 |
|
|
| 52,240 |
|
|
| 160,750 |
|
|
| 51,477 |
|
Long-term operating lease liabilities |
|
| 20,536 |
|
|
| 20,780 |
|
|
| 18,884 |
|
|
| 19,492 |
|
Other liabilities, net of current installments |
|
| 5,457 |
|
|
| 5,335 |
|
|
| 4,923 |
|
|
| 4,167 |
|
Deferred income tax liabilities, net |
|
| 19,324 |
|
|
| 20,006 |
|
|
| 13,683 |
|
|
| 14,597 |
|
Total liabilities |
|
| 413,607 |
|
|
| 321,422 |
|
|
| 403,583 |
|
|
| 356,334 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
|
| 3,446 |
|
|
| 3,426 |
| ||||||||
Common stock, $0.10 par value per share; authorized 40,000,000 shares; issued |
|
| 3,464 |
|
|
| 3,444 |
| ||||||||
Additional paid-in capital |
|
| 101,426 |
|
|
| 101,450 |
|
|
| 106,719 |
|
|
| 105,634 |
|
Accumulated other comprehensive loss |
|
| (15,532 | ) |
|
| (13,784 | ) |
|
| (6,131 | ) |
|
| (12,182 | ) |
Retained earnings |
|
| 325,698 |
|
|
| 304,385 |
|
|
| 327,911 |
|
|
| 328,745 |
|
Less treasury stock at cost, 4,884,200 shares at September 30, 2022 and 3,361,040 shares at December 31, 2021 |
|
| (52,470 | ) |
|
| (22,739 | ) | ||||||||
Less treasury stock at cost, 5,438,093 shares at June 30, 2023 and 5,029,892 shares at December 31, 2022 |
|
| (62,888 | ) |
|
| (55,662 | ) | ||||||||
Total stockholders’ equity |
|
| 362,568 |
|
|
| 372,738 |
|
|
| 369,075 |
|
|
| 369,979 |
|
Total liabilities and stockholders' equity |
| $ | 776,175 |
|
| $ | 694,160 |
|
| $ | 772,658 |
|
| $ | 726,313 |
|
See notes to the Condensed Consolidated Financial Statements.
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three and NineSix Months Ended SeptemberJune 30, 20222023
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
| Accumulated |
|
|
|
| Treasury Stock |
|
|
|
|
| Common Stock |
|
| Additional |
| Accumulated |
|
|
|
| Treasury Stock |
|
|
|
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shares |
|
| Amount |
|
| Total |
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||||||||
Balance, December 31, 2021 |
|
| 34,248,218 |
|
| $ | 3,426 |
|
| $ | 101,450 |
|
| $ | (13,784 | ) |
| $ | 304,385 |
|
|
| 3,361,040 |
|
| $ | (22,739 | ) |
| $ | 372,738 |
| ||||||||||||||||||||||||||||||||
Common stock issued under ESPP |
|
| 26,751 |
|
|
| 2 |
|
|
| 434 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 436 |
| ||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (736 | ) |
|
| — |
|
|
| — |
|
|
| (736 | ) | ||||||||||||||||||||||||||||||||
Balance, December 31, 2022 |
|
| 34,446,194 |
|
| $ | 3,444 |
|
| $ | 105,634 |
|
| $ | (12,182 | ) |
| $ | 328,745 |
|
|
| 5,029,892 |
|
| $ | (55,662 | ) |
| $ | 369,979 |
| ||||||||||||||||||||||||||||||||
Stocks issued under ESPP |
|
| 22,101 |
|
|
| 2 |
|
|
| 478 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 480 |
| ||||||||||||||||||||||||||||||||
Cash dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (851 | ) |
|
| — |
|
|
| — |
|
|
| (851 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,563 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,563 |
|
|
| — |
|
|
| — |
|
|
| 1,474 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,474 |
|
Stock options exercised; grants, termination |
|
| (183,093 | ) |
|
| (18 | ) |
|
| (2,156 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,174 | ) |
|
| (4,466 | ) |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 332,404 |
|
|
| (6,219 | ) |
|
| (6,219 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,835 |
|
|
| (557 | ) |
|
| (557 | ) | |||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
Balance, March 31, 2022 |
|
| 34,091,876 |
|
|
| 3,410 |
|
|
| 101,291 |
|
|
| (6,704 | ) |
|
| 313,584 |
|
|
| 3,693,444 |
|
|
| (28,958 | ) |
|
| 382,623 |
| ||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (742 | ) |
|
| — |
|
|
| — |
|
|
| (742 | ) | ||||||||||||||||||||||||||||||||
Balance, March 31, 2023 |
|
| 34,463,829 |
|
|
| 3,446 |
|
|
| 107,591 |
|
|
| (9,636 | ) |
|
| 329,812 |
|
|
| 5,057,727 |
|
|
| (56,219 | ) |
|
| 374,994 |
| ||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.030 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (848 | ) |
|
| — |
|
|
| — |
|
|
| (848 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,064 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,064 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,505 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,505 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,273 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,273 |
|
|
| — |
|
|
| — |
|
|
| 1,067 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,067 |
|
Stock options exercised; grants, termination |
|
| 351,358 |
|
|
| 35 |
|
|
| 892 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 927 |
|
|
| 179,845 |
|
|
| 18 |
|
|
| (1,939 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,921 | ) |
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 606 |
|
|
| (13 | ) |
|
| (13 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 380,366 |
|
|
| (6,669 | ) |
|
| (6,669 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,830 |
|
|
| — |
|
|
| — |
|
|
| 6,830 |
| ||||||||||||||||||||||||||||||||
Balance, June 30, 2022 |
|
| 34,443,234 |
|
|
| 3,445 |
|
|
| 103,456 |
|
|
| (12,768 | ) |
|
| 319,672 |
|
|
| 3,694,050 |
|
|
| (28,971 | ) |
|
| 384,834 |
| ||||||||||||||||||||||||||||||||
Common stock issued under ESPP |
|
| 24,489 |
|
|
| 2 |
|
|
| 399 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 401 |
| ||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (715 | ) |
|
| — |
|
|
| — |
|
|
| (715 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,764 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,764 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,560 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,560 |
| ||||||||||||||||||||||||||||||||
Stock options exercised; grants, termination |
|
| (3,776 | ) |
|
| (1 | ) |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10 |
| ||||||||||||||||||||||||||||||||
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 387,340 |
|
|
| (7,499 | ) |
|
| (7,499 | ) | ||||||||||||||||||||||||||||||||
Accelerated share repurchase pending final settlement |
|
| — |
|
|
| — |
|
|
| (4,000 | ) |
|
| — |
|
|
| — |
|
|
| 802,810 |
|
|
| (16,000 | ) |
|
| (20,000 | ) | ||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,741 |
|
|
| — |
|
|
| — |
|
|
| 6,741 |
| ||||||||||||||||||||||||||||||||
Balance, September 30, 2022 |
|
| 34,463,947 |
|
| $ | 3,446 |
|
| $ | 101,426 |
|
| $ | (15,532 | ) |
| $ | 325,698 |
|
|
| 4,884,200 |
|
| $ | (52,470 | ) |
| $ | 362,568 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,053 | ) |
|
| — |
|
|
| — |
|
|
| (1,053 | ) | ||||||||||||||||||||||||||||||||
Balance, June 30, 2023 |
|
| 34,643,674 |
|
| $ | 3,464 |
|
| $ | 106,719 |
|
| $ | (6,131 | ) |
| $ | 327,911 |
|
|
| 5,438,093 |
|
| $ | (62,888 | ) |
| $ | 369,075 |
|
See notes to the Condensed Consolidated Financial Statements.
6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three and NineSix Months Ended SeptemberJune 30, 20212022
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
| Accumulated |
|
|
|
| Treasury Stock |
|
|
|
|
| Common Stock |
|
| Additional |
| Accumulated |
|
|
|
| Treasury Stock |
|
|
|
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shares |
|
| Amount |
|
| AVD |
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shares |
|
| Amount |
|
| AVD |
| ||||||||||||||||
Balance, December 31, 2020 |
|
| 33,922,433 |
|
| $ | 3,394 |
|
| $ | 96,642 |
|
| $ | (9,322 | ) |
| $ | 288,182 |
|
|
| 3,061,040 |
|
| $ | (18,160 | ) |
| $ | 360,736 |
| ||||||||||||||||||||||||||||||||
Balance, December 31, 2021 |
|
| 34,248,218 |
|
| $ | 3,426 |
|
| $ | 101,450 |
|
| $ | (13,784 | ) |
| $ | 304,385 |
|
|
| 3,361,040 |
|
| $ | (22,739 | ) |
| $ | 372,738 |
| ||||||||||||||||||||||||||||||||
Common stock issued under ESPP |
|
| 25,120 |
|
|
| 2 |
|
|
| 338 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 340 |
|
|
| 26,751 |
|
|
| 2 |
|
|
| 434 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 436 |
|
Cash dividends on common stock ($0.02 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (596 | ) |
|
| — |
|
|
| — |
|
|
| (596 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,503 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,503 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,792 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,792 |
| ||||||||||||||||||||||||||||||||
Stock options exercised; grants, termination |
|
| (73,231 | ) |
|
| (7 | ) |
|
| (2,787 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,794 | ) | ||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,071 |
|
|
| — |
|
|
| — |
|
|
| 3,071 |
| ||||||||||||||||||||||||||||||||
Balance, March 31, 2021 |
|
| 33,874,322 |
|
|
| 3,389 |
|
|
| 95,985 |
|
|
| (11,825 | ) |
|
| 290,657 |
|
|
| 3,061,040 |
|
|
| (18,160 | ) |
|
| 360,046 |
| ||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.02 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (600 | ) |
|
| — |
|
|
| — |
|
|
| (600 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,914 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,914 |
| ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,806 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,806 |
| ||||||||||||||||||||||||||||||||
Stock options exercised; grants, termination |
|
| 387,329 |
|
|
| 39 |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
| ||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,144 |
|
|
| — |
|
|
| — |
|
|
| 5,144 |
| ||||||||||||||||||||||||||||||||
Balance, June 30, 2021 |
|
| 34,261,651 |
|
|
| 3,428 |
|
|
| 97,813 |
|
|
| (8,911 | ) |
|
| 295,201 |
|
|
| 3,061,040 |
|
|
| (18,160 | ) |
|
| 369,371 |
| ||||||||||||||||||||||||||||||||
Common stock issued under ESPP |
|
| 25,662 |
|
|
| 2 |
|
|
| 401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 403 |
| ||||||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.02 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (594 | ) |
|
| — |
|
|
| — |
|
|
| (594 | ) | ||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (736 | ) |
|
| — |
|
|
| — |
|
|
| (736 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,459 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,459 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,711 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,711 |
|
|
| — |
|
|
| — |
|
|
| 1,563 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,563 |
|
Stock options exercised; grants, termination |
|
| (14,648 | ) |
|
| (2 | ) |
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| (183,093 | ) |
|
| (18 | ) |
|
| (2,156 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,174 | ) |
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 300,000 |
|
|
| (4,579 | ) |
|
| (4,579 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 332,404 |
|
|
| (6,219 | ) |
|
| (6,219 | ) | |||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,498 |
|
|
| — |
|
|
| — |
|
|
| 5,498 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
Balance, September 30, 2021 |
|
| 34,272,665 |
|
| $ | 3,428 |
|
| $ | 99,917 |
|
| $ | (12,370 | ) |
| $ | 300,105 |
|
|
| 3,361,040 |
|
| $ | (22,739 | ) |
| $ | 368,341 |
| ||||||||||||||||||||||||||||||||
Balance, March 31, 2022 |
|
| 34,091,876 |
|
|
| 3,410 |
|
|
| 101,291 |
|
|
| (6,704 | ) |
|
| 313,584 |
|
|
| 3,693,444 |
|
|
| (28,958 | ) |
|
| 382,623 |
| ||||||||||||||||||||||||||||||||
Cash dividends on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (742 | ) |
|
| — |
|
|
| — |
|
|
| (742 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,064 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,064 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,273 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,273 |
| ||||||||||||||||||||||||||||||||
Stock options exercised; grants, termination |
|
| 351,358 |
|
|
| 35 |
|
|
| 892 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 927 |
| ||||||||||||||||||||||||||||||||
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 606 |
|
|
| (13 | ) |
|
| (13 | ) | ||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,830 |
|
|
| — |
|
|
| — |
|
|
| 6,830 |
| ||||||||||||||||||||||||||||||||
Balance, June 30, 2022 |
|
| 34,443,234 |
|
|
| 3,445 |
|
|
| 103,456 |
|
|
| (12,768 | ) |
|
| 319,672 |
|
|
| 3,694,050 |
|
|
| (28,971 | ) |
|
| 384,834 |
|
See notes to the Condensed Consolidated Financial Statements.
7
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the Nine Months Ended September 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 23,506 |
|
| $ | 13,713 |
|
| $ | 865 |
|
| $ | 16,765 |
|
Adjustments to reconcile net income to net cash used in operating |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization of property, plant and equipment and intangible assets |
|
| 16,649 |
|
|
| 17,045 |
| ||||||||
Depreciation of property, plant and equipment |
|
| 4,322 |
|
|
| 4,077 |
| ||||||||
Amortization of intangibles assets |
|
| 6,707 |
|
|
| 6,927 |
| ||||||||
Amortization of other long-term assets |
|
| 2,656 |
|
|
| 2,981 |
|
|
| 1,117 |
|
|
| 1,739 |
|
Loss on disposal of property, plant and equipment |
|
| 265 |
|
|
| — |
| ||||||||
Accretion of discounted liabilities |
|
| 28 |
|
|
| (10 | ) | ||||||||
Amortization of deferred loan fees |
|
| 174 |
|
|
| 294 |
| ||||||||
Provision for bad debts |
|
| 597 |
|
|
| 1,202 |
|
|
| 902 |
|
|
| 470 |
|
Loan principal and interest forgiveness |
|
| — |
|
|
| (672 | ) | ||||||||
Fair value adjustment to contingent consideration |
|
| 621 |
|
|
| 520 |
|
|
| — |
|
|
| 635 |
|
Stock-based compensation |
|
| 4,396 |
|
|
| 5,309 |
|
|
| 2,541 |
|
|
| 2,836 |
|
Change in deferred income taxes |
|
| (64 | ) |
|
| (560 | ) |
|
| (1,015 | ) |
|
| 109 |
|
Changes in liabilities for uncertain tax positions or unrecognized tax benefits |
|
| 419 |
|
|
| — |
| ||||||||
Change in fair value of equity investments |
|
| 857 |
|
|
| (103 | ) |
|
| 77 |
|
|
| 403 |
|
Loss on equity method investment |
|
| — |
|
|
| 388 |
| ||||||||
Adjustment to bargain purchase gain on business acquisition |
|
| — |
|
|
| (171 | ) | ||||||||
Other |
|
| 117 |
|
|
| 412 |
| ||||||||
Net foreign currency adjustments |
|
| 218 |
|
|
| (330 | ) |
|
| (382 | ) |
|
| (20 | ) |
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Increase in net receivables |
|
| (46,289 | ) |
|
| (42,979 | ) | ||||||||
Decrease (increase) in net receivables |
|
| 6,092 |
|
|
| (18,645 | ) | ||||||||
Increase in inventories |
|
| (38,987 | ) |
|
| (4,325 | ) |
|
| (50,900 | ) |
|
| (27,774 | ) |
Increase in prepaid expenses and other assets |
|
| (4,272 | ) |
|
| (2,194 | ) |
|
| (1,749 | ) |
|
| (3,652 | ) |
(Increase) decrease in income tax receivable/payable, net |
|
| (5,201 | ) |
|
| 2,031 |
| ||||||||
Increase in net operating lease liability |
|
| 10 |
|
|
| 183 |
| ||||||||
Change in income tax receivable/payable, net |
|
| (3,510 | ) |
|
| (3,526 | ) | ||||||||
Increase (decrease) in net operating lease liability |
|
| 132 |
|
|
| (21 | ) | ||||||||
Increase in accounts payable |
|
| 14,418 |
|
|
| 7,769 |
|
|
| 9,105 |
|
|
| 19,439 |
|
Decrease in customer prepayments |
|
| (62,831 | ) |
|
| (38,272 | ) |
|
| (83,225 | ) |
|
| (62,789 | ) |
Increase in accrued program costs |
|
| 45,016 |
|
|
| 33,982 |
|
|
| 19,607 |
|
|
| 35,987 |
|
Increase in other payables and accrued expenses |
|
| 2,555 |
|
|
| 4,025 |
| ||||||||
Decrease in other payables and accrued expenses |
|
| (7,824 | ) |
|
| (602 | ) | ||||||||
Net cash used in operating activities |
|
| (45,678 | ) |
|
| (174 | ) |
|
| (96,602 | ) |
|
| (27,230 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capital expenditures |
|
| (8,946 | ) |
|
| (7,963 | ) |
|
| (6,498 | ) |
|
| (5,654 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 46 |
|
|
| — |
|
|
| 44 |
|
|
| 27 |
|
Acquisition of product line |
|
| — |
|
|
| (10,000 | ) | ||||||||
Intangible assets |
|
| (1,078 | ) |
|
| (285 | ) |
|
| (718 | ) |
|
| (1,044 | ) |
Investments |
|
| — |
|
|
| (183 | ) | ||||||||
Net cash used in investing activities |
|
| (9,978 | ) |
|
| (18,431 | ) |
|
| (7,172 | ) |
|
| (6,671 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payments under line of credit agreement |
|
| (64,000 | ) |
|
| (57,408 | ) |
|
| (54,050 | ) |
|
| (56,600 | ) |
Borrowings under line of credit agreement |
|
| 160,000 |
|
|
| 86,000 |
|
|
| 162,500 |
|
|
| 105,000 |
|
Payment of contingent consideration |
|
| — |
|
|
| (250 | ) | ||||||||
Net receipt from the issuance of common stock under ESPP |
|
| 837 |
|
|
| 743 |
| ||||||||
Receipt from the issuance of common stock under ESPP |
|
| 480 |
|
|
| 436 |
| ||||||||
Net receipt from the exercise of stock options |
|
| 783 |
|
|
| 172 |
|
|
| 32 |
|
|
| 765 |
|
Payment for tax withholding on stock-based compensation awards |
|
| (2,020 | ) |
|
| (2,915 | ) |
|
| (1,948 | ) |
|
| (2,012 | ) |
Repurchase of common stock |
|
| (33,731 | ) |
|
| (4,579 | ) |
|
| (7,226 | ) |
|
| (6,232 | ) |
Payment of cash dividends |
|
| (2,072 | ) |
|
| (1,789 | ) |
|
| (1,702 | ) |
|
| (1,330 | ) |
Net cash provided by financing activities |
|
| 59,797 |
|
|
| 19,974 |
|
|
| 98,086 |
|
|
| 40,027 |
|
Net increase in cash and cash equivalents |
|
| 4,141 |
|
|
| 1,369 |
| ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (5,688 | ) |
|
| 6,126 |
| ||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 382 |
|
|
| (574 | ) |
|
| (8 | ) |
|
| (354 | ) |
Cash and cash equivalents at beginning of period |
|
| 16,285 |
|
|
| 15,923 |
|
|
| 20,328 |
|
|
| 16,285 |
|
Cash and cash equivalents at end of period |
| $ | 20,808 |
|
| $ | 16,718 |
|
| $ | 14,632 |
|
| $ | 22,057 |
|
See notes to the Condensed Consolidated Financial Statements.
8
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except share data)
(Unaudited)
1. Summary of Significant Accounting Policies — The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD” or “the Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of consolidating adjustments, eliminations and normal recurring accruals) considered necessary for a fair statementpresentation have been included. Operating results for the three-three and nine-month periodssix months ended SeptemberJune 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. The financial statements and related notes do not include all information and footnotes required by US GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.
The Company continues to closely monitor the impact of the novel coronavirus (COVID-19) pandemic on all aspects of its business, including how the pandemic will impact its customers, business partners, and employees. The Company is considered an essential business by most governments2022. Certain operating cash flow items have been reclassified in the jurisdictions and territories in whichprior period condensed consolidated financial statements to conform with the Company operates and, as a result, did not incur significant disruptions from the COVID-19 pandemic during the three- and nine-month periods ended SeptemberJune 30, 2022 and 2021. During the three- and nine-month periods ended September 30, 2022, the Company experienced strong demand for its domestic crop and international products, and generally more normal business activities including face-to-face meetings with customers and suppliers etc. The Company established a pandemic working group at the start of the COVID-19 pandemic.
Looking forward, the Company is unable to predict the impact that the pandemic may have on its future financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its customers in the near term will depend on future developments, which are highly uncertain and, beyond extrapolating our experience since the start of the pandemic, cannot be predicted with confidence. The Company continues to monitor its business for adverse impacts of the pandemic, including some continuing volatility in foreign exchange markets, supply-chain disruptions in certain markets, and increased costs of employee safety and retention, among others.2023 presentation.
2. Leases — The Company has operating leases for warehouses, manufacturing facilities, offices, cars, railcars and certain equipment. The lease term includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend (or not terminate) that the Company is reasonably certain to exercise. The Company has leases with a lease term ranging from 1one year year to 20 years years.
. Finance leases are immaterial to the accompanying condensed consolidated financial statements. There were no lease transactions with related parties as of and for the three- and nine-monthsix-month periods presented in the table below.
The operating lease expense for the three-month periodsthree months ended SeptemberJune 30, 2022,2023 and 2021,2022, was $1,6531,674 and $1,5681,619, respectively, and $4,8763,310 and $4,4643,223 for the nine-month periodssix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. Additional information related to operating leases are as follows:
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| Three months |
|
| Three months |
|
| Nine months |
|
| Nine months |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Cash paid for amounts included in the |
| $ | 1,613 |
|
| $ | 1,260 |
|
| $ | 4,846 |
|
| $ | 4,271 |
|
| $ | 1,544 |
|
| $ | 1,559 |
|
| $ | 3,187 |
|
| $ | 3,233 |
|
ROU assets obtained in exchange for new |
| $ | 2,378 |
|
| $ | 5,805 |
|
| $ | 4,202 |
|
| $ | 17,872 |
|
| $ | 693 |
|
| $ | 898 |
|
| $ | 2,576 |
|
| $ | 1,825 |
|
The weighted-average remaining lease term and discount rate related to the operating leases as of SeptemberJune 30, 20222023 were as follows:
Weighted-average remaining lease term (in years) |
| |||
Weighted-average discount rate |
| % |
9
Future minimum lease payments under non-cancellable operating leases as of SeptemberJune 30, 20222023 were as follows:
2022 (excluding nine-months ended September 30, 2022) |
| $ | 1,603 |
| ||||
2023 |
|
| 5,977 |
| ||||
2023 (excluding six months ended June 30, 2023) |
| $ | 3,235 |
| ||||
2024 |
|
| 5,132 |
|
|
| 5,880 |
|
2025 |
|
| 4,610 |
|
|
| 5,330 |
|
2026 |
|
| 3,439 |
|
|
| 4,077 |
|
2027 |
|
| 2,700 |
| ||||
Thereafter |
|
| 8,580 |
|
|
| 6,200 |
|
Total lease payments |
|
| 29,341 |
|
|
| 27,422 |
|
Less: imputed interest |
|
| (3,476 | ) |
|
| (3,045 | ) |
Total |
| $ | 25,865 |
|
| $ | 24,377 |
|
Amounts recognized in the condensed consolidated balance sheets: |
|
|
| |||||
Operating lease liabilities, current |
| $ | 5,329 |
| ||||
Operating lease liabilities, long-term |
| $ | 20,536 |
|
9
Amounts recognized in the condensed consolidated balance sheets at June 30, 2023:
Operating lease liabilities, current |
| $ | 5,493 |
|
Operating lease liabilities, long-term |
| $ | 18,884 |
|
3. Revenue Recognition —The Company recognizes revenue from the sale of its products, which include crop and non-crop products. The Company sells its products to customers, which include distributors, retailers, and growers. In addition, the Company recognizes royalty income from licensing agreements. Based on similar economic and operational characteristics, the Company’s business is aggregated intoThe Company has one reportable segment. one reportable segment.Selective enterprise information of sales disaggregated by category and geographic region is as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
U.S. crop |
| $ | 69,115 |
|
| $ | 66,722 |
|
| $ | 220,503 |
|
| $ | 184,052 |
|
| $ | 56,212 |
|
| $ | 63,513 |
|
| $ | 118,105 |
|
| $ | 151,349 |
|
U.S. non-crop |
|
| 18,936 |
|
|
| 21,622 |
|
|
| 53,648 |
|
|
| 60,563 |
|
|
| 16,878 |
|
|
| 20,996 |
|
|
| 30,759 |
|
|
| 34,753 |
|
Total U.S. |
|
| 88,051 |
|
|
| 88,344 |
|
|
| 274,151 |
|
|
| 244,615 |
|
|
| 73,090 |
|
|
| 84,509 |
|
|
| 148,864 |
|
|
| 186,102 |
|
International |
|
| 64,066 |
|
|
| 58,954 |
|
|
| 175,485 |
|
|
| 153,448 |
|
|
| 59,700 |
|
|
| 63,694 |
|
|
| 108,810 |
|
|
| 111,695 |
|
Total net sales: |
| $ | 152,117 |
|
| $ | 147,298 |
|
| $ | 449,636 |
|
| $ | 398,063 |
|
| $ | 132,790 |
|
| $ | 148,203 |
|
| $ | 257,674 |
|
| $ | 297,797 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Goods and services transferred at a point |
| $ | 152,117 |
|
| $ | 147,298 |
|
| $ | 449,493 |
|
| $ | 397,762 |
|
| $ | 132,790 |
|
| $ | 148,166 |
|
| $ | 257,631 |
|
| $ | 297,654 |
|
Goods and services transferred over time |
|
| — |
|
|
| — |
|
|
| 143 |
|
|
| 301 |
|
|
| — |
|
|
| 37 |
|
|
| 43 |
|
|
| 143 |
|
Total net sales: |
| $ | 152,117 |
|
| $ | 147,298 |
|
| $ | 449,636 |
|
| $ | 398,063 |
|
| $ | 132,790 |
|
| $ | 148,203 |
|
| $ | 257,674 |
|
| $ | 297,797 |
|
Contract assets relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property and amounted to $3,000 and $3,9003,100 at SeptemberJune 30, 20222023 and December 31, 2021, respectively.2022. The short-term and long-term contract assets of $1,5252,493 and $1,475607 are included in other receivables and other assets, respectively, on the condensed consolidated balance sheets as of SeptemberJune 30, 2022. The2023. As of December 31, 2022, the short-term and long-term assets ofamounted to $1,8252,098 and $2,0751,002 are included in other receivables and other assets, respectively, on the condensed consolidated balance sheets as of December 31, 2021., respectively.
The Company sometimes receives payments from its customers in advance of goods and services being provided in return for early cash incentive programs. These payments are included in customer prepayments on the condensed consolidated balance sheets. Revenue recognized for the three-three and nine-month periodssix months ended SeptemberJune 30, 2022,2023, that was included in customer prepayments at the beginning of 2022,2023, was $27242,966 and $63,06465,725, respectively.respectively, and $17,500 was refunded to a customer. The Company expects to recognize all its remaining customer prepayments as revenue in fiscal 2022.2023.
10
4. Property, Plant and Equipment — Property, plant and equipment at SeptemberJune 30, 20222023 and December 31, 20212022 consists of the following:
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, 2022 |
| ||||
Land |
| $ | 2,755 |
|
| $ | 2,756 |
|
| $ | 2,764 |
|
| $ | 2,757 |
|
Buildings and improvements |
|
| 19,909 |
|
|
| 19,844 |
|
|
| 21,062 |
|
|
| 20,794 |
|
Machinery and equipment |
|
| 140,309 |
|
|
| 132,159 |
|
|
| 146,476 |
|
|
| 142,980 |
|
Office furniture, fixtures and equipment |
|
| 10,419 |
|
|
| 10,094 |
|
|
| 11,304 |
|
|
| 13,231 |
|
Automotive equipment |
|
| 1,595 |
|
|
| 1,832 |
|
|
| 1,506 |
|
|
| 1,584 |
|
Construction in progress |
|
| 7,898 |
|
|
| 8,199 |
|
|
| 7,811 |
|
|
| 5,897 |
|
Total gross value |
|
| 182,885 |
|
|
| 174,884 |
|
|
| 190,923 |
|
|
| 187,243 |
|
Less accumulated depreciation |
|
| (114,287 | ) |
|
| (108,773 | ) |
|
| (117,471 | ) |
|
| (116,331 | ) |
Total net value |
| $ | 68,598 |
|
| $ | 66,111 |
|
| $ | 73,452 |
|
| $ | 70,912 |
|
The Company recognized depreciation expense related to property and equipment of $2,0912,143 and $2,4961,974 for the three-month periodsperiod ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The Company recognized depreciation expense related to property and equipment of $6,2074,322 and $6,3414,077 for the nine-month periodssix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively.
Substantially all of the Company’s assets are pledged as collateral to its banks.
10
5. Inventories — Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) or average cost methods. The components of inventories consist of the following:
|
| September 30, |
|
| December 31, 2021 |
|
| June 30, |
|
| December 31, 2022 |
| ||||
Finished products |
| $ | 163,359 |
|
| $ | 138,159 |
|
| $ | 203,210 |
|
| $ | 155,128 |
|
Raw materials |
|
| 28,950 |
|
|
| 16,147 |
|
|
| 34,377 |
|
|
| 29,062 |
|
|
| $ | 192,309 |
|
| $ | 154,306 |
|
| $ | 237,587 |
|
| $ | 184,190 |
|
6. Segment Reporting — Based on similar economic and operational characteristics, the Company’s business is aggregated into The Company has one reportable segment. Selective enterprise information is as follows:
|
| For the three months |
|
|
|
|
|
|
| For the three months |
|
|
|
|
|
| ||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 69,115 |
|
| $ | 66,722 |
|
| $ | 2,393 |
|
|
| 4 | % |
| $ | 56,212 |
|
| $ | 63,513 |
|
| $ | (7,301 | ) |
|
| -11 | % |
U.S. non-crop |
|
| 18,936 |
|
|
| 21,622 |
|
|
| (2,686 | ) |
|
| -12 | % |
|
| 16,878 |
|
|
| 20,996 |
|
|
| (4,118 | ) |
|
| -20 | % |
U.S. total |
|
| 88,051 |
|
|
| 88,344 |
|
|
| (293 | ) |
|
| 0 | % |
|
| 73,090 |
|
|
| 84,509 |
|
|
| (11,419 | ) |
|
| -14 | % |
International |
|
| 64,066 |
|
|
| 58,954 |
|
|
| 5,112 |
|
|
| 9 | % |
|
| 59,700 |
|
|
| 63,694 |
|
|
| (3,994 | ) |
|
| -6 | % |
Net sales: |
| $ | 152,117 |
|
| $ | 147,298 |
|
| $ | 4,819 |
|
|
| 3 | % |
| $ | 132,790 |
|
| $ | 148,203 |
|
| $ | (15,413 | ) |
|
| -10 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 34,502 |
|
| $ | 30,237 |
|
| $ | 4,265 |
|
|
| 14 | % |
| $ | 21,703 |
|
| $ | 23,913 |
|
| $ | (2,210 | ) |
|
| -9 | % |
U.S. non-crop |
|
| 8,811 |
|
|
| 8,882 |
|
|
| (71 | ) |
|
| -1 | % |
|
| 7,109 |
|
|
| 9,244 |
|
|
| (2,135 | ) |
|
| -23 | % |
U.S. total |
|
| 43,313 |
|
|
| 39,119 |
|
|
| 4,194 |
|
|
| 11 | % |
|
| 28,812 |
|
|
| 33,157 |
|
|
| (4,345 | ) |
|
| -13 | % |
International |
|
| 18,071 |
|
|
| 17,945 |
|
|
| 126 |
|
|
| 1 | % |
|
| 14,097 |
|
|
| 16,174 |
|
|
| (2,077 | ) |
|
| -13 | % |
Total gross profit: |
| $ | 61,384 |
|
| $ | 57,064 |
|
| $ | 4,320 |
|
|
| 8 | % |
| $ | 42,909 |
|
| $ | 49,331 |
|
| $ | (6,422 | ) |
|
| -13 | % |
11
|
| For the nine months |
|
|
|
|
|
|
| For the six months |
|
|
|
|
|
| ||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 220,503 |
|
| $ | 184,052 |
|
| $ | 36,451 |
|
|
| 20 | % |
| $ | 118,105 |
|
| $ | 151,349 |
|
| $ | (33,244 | ) |
|
| -22 | % |
U.S. non-crop |
|
| 53,648 |
|
|
| 60,563 |
|
|
| (6,915 | ) |
|
| -11 | % |
|
| 30,759 |
|
|
| 34,753 |
|
|
| (3,994 | ) |
|
| -11 | % |
U.S. total |
|
| 274,151 |
|
|
| 244,615 |
|
|
| 29,536 |
|
|
| 12 | % |
|
| 148,864 |
|
|
| 186,102 |
|
|
| (37,238 | ) |
|
| -20 | % |
International |
|
| 175,485 |
|
|
| 153,448 |
|
|
| 22,037 |
|
|
| 14 | % |
|
| 108,810 |
|
|
| 111,695 |
|
|
| (2,885 | ) |
|
| -3 | % |
Net sales: |
| $ | 449,636 |
|
| $ | 398,063 |
|
| $ | 51,573 |
|
|
| 13 | % |
| $ | 257,674 |
|
| $ | 297,797 |
|
| $ | (40,123 | ) |
|
| -13 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 104,599 |
|
| $ | 78,313 |
|
| $ | 26,286 |
|
|
| 34 | % |
| $ | 40,585 |
|
| $ | 56,186 |
|
| $ | (15,601 | ) |
|
| -28 | % |
U.S. non-crop |
|
| 24,826 |
|
|
| 28,047 |
|
|
| (3,221 | ) |
|
| -11 | % |
|
| 14,298 |
|
|
| 16,730 |
|
|
| (2,432 | ) |
|
| -15 | % |
U.S. total |
|
| 129,425 |
|
|
| 106,360 |
|
|
| 23,065 |
|
|
| 22 | % |
|
| 54,883 |
|
|
| 72,916 |
|
|
| (18,033 | ) |
|
| -25 | % |
International |
|
| 52,931 |
|
|
| 47,974 |
|
|
| 4,957 |
|
|
| 10 | % |
|
| 26,561 |
|
|
| 27,811 |
|
|
| (1,250 | ) |
|
| -4 | % |
Total gross profit: |
| $ | 182,356 |
|
| $ | 154,334 |
|
| $ | 28,022 |
|
|
| 18 | % |
| $ | 81,444 |
|
| $ | 100,727 |
|
| $ | (19,283 | ) |
|
| -19 | % |
7. Accrued Program Costs — The Company offers various discounts to customers based on the volume purchased within a defined time period, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments, which are usually made at the end of a growing season, to distributors, retailers or growers. The Company describes these payments as “Programs”. Programs are a critical part of doing business in both the U.S. crop and non-crop chemicals marketplaces. These discount Programs represent variable consideration. Revenues from sales are recorded at the net sales price, which is the transaction price net of the impact of Programs and includes estimates of variable consideration. Variable consideration includes amounts expected to be paid to its customers estimated using the expected value method. Each quarter management reviews individual sale transactions with Programs to determine what, if any, estimated program liabilities have been incurred. Once this initial calculation is made for the specific quarter, sales and marketing management, along with support from financial analysts, reviews the accumulated Program balance and, for volume driven payments, make assessments of whether or not customers are tracking in a manner that indicates that they will meet the requirements set out in agreed upon terms and conditions attached to each Program. Following this assessment, management makes adjustments to the accumulated accrual to properly reflect the Company’s best estimate of the liability at the balance sheet date. Programs are then reviewed with executive management for final approval. Programs are paid out predominantly on an annual basis, usually in the final quarter of the financial year or the first quarter of the following year. No significant changes in estimates were made during the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022,2023, and 2021.2022.
11
8. Cash Dividends on Common Stock —The Company has declared and paid the following cash dividends in the periods covered by this Form 10-Q:
Declaration Date |
| Record Date |
| Distribution Date |
| Dividend |
|
| Total |
| ||
September 12, 2022 |
| September 23, 2022 |
| October 7, 2022 |
| $ | 0.025 |
|
| $ | 715 |
|
June 6, 2022 |
| June 24, 2022 |
| July 8, 2022 |
| $ | 0.025 |
|
| $ | 742 |
|
March 14, 2022 |
| March 25, 2022 |
| April 15, 2022 |
| $ | 0.025 |
|
| $ | 736 |
|
December 13, 2021 |
| December 27, 2021 |
| January 10, 2022 |
| $ | 0.020 |
|
| $ | 594 |
|
September 13, 2021 |
| October 1, 2021 |
| October 15, 2021 |
| $ | 0.020 |
|
| $ | 594 |
|
June 8, 2021 |
| June 24, 2021 |
| July 8, 2021 |
| $ | 0.020 |
|
| $ | 600 |
|
March 10, 2021 |
| March 15, 2021 |
| April 15, 2021 |
| $ | 0.020 |
|
| $ | 596 |
|
December 7, 2020 |
| December 23, 2022 |
| January 6, 2021 |
| $ | 0.020 |
|
| $ | 592 |
|
Declaration Date |
| Record Date |
| Distribution Date |
| Dividend |
|
| Total |
| ||
June 12, 2023 |
| June 28, 2023 |
| July 14, 2023 |
| $ | 0.030 |
|
| $ | 848 |
|
March 13, 2023 |
| March 24, 2023 |
| April 14, 2023 |
| $ | 0.030 |
|
| $ | 851 |
|
December 13, 2022 |
| December 28, 2022 |
| January 11, 2023 |
| $ | 0.030 |
|
| $ | 851 |
|
June 6, 2022 |
| June 24, 2022 |
| July 8, 2022 |
| $ | 0.025 |
|
| $ | 742 |
|
March 14, 2022 |
| March 25, 2022 |
| April 15, 2022 |
| $ | 0.025 |
|
| $ | 736 |
|
December 13, 2021 |
| December 27, 2021 |
| January 10, 2022 |
| $ | 0.020 |
|
| $ | 594 |
|
9. EarningsNet income (loss) Per Share — The components of basic and diluted earningsnet income (loss) per share were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income attributable to AVD |
| $ | 6,741 |
|
| $ | 5,498 |
|
| $ | 23,506 |
|
| $ | 13,713 |
|
Denominator: (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding-basic |
|
| 29,214 |
|
|
| 29,892 |
|
|
| 29,496 |
|
|
| 29,854 |
|
Dilutive effect of stock options and grants |
|
| 591 |
|
|
| 498 |
|
|
| 632 |
|
|
| 616 |
|
Weighted average shares outstanding-diluted |
|
| 29,805 |
|
|
| 30,390 |
|
|
| 30,128 |
|
|
| 30,470 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) | $ | (1,053 | ) |
| $ | 6,830 |
|
| $ | 865 |
|
| $ | 16,765 |
|
Denominator: (in thousands) |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding-basic |
| 28,428 |
|
|
| 29,602 |
|
|
| 28,397 |
|
|
| 29,639 |
|
Dilutive effect of stock options and grants |
| — |
|
|
| 623 |
|
|
| 588 |
|
|
| 650 |
|
Weighted average shares outstanding-diluted |
| 28,428 |
|
|
| 30,225 |
|
|
| 28,985 |
|
|
| 30,289 |
|
12
Due to a net loss for the three-month period ended June 30, 2023, stock options and other grants were excluded from the computation of diluted net income (loss) per share. For the three-three-month period ended June 30, 2023, and nine-monthsix-month periods ended SeptemberJune 30, 2022,2023, and 2021, respectively,2022, no stock options were excluded from the computation of diluted earningsnet income (loss) per share.
10. Debt — The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at SeptemberJune 30, 20222023 and December 31, 2021.2022. The Company has no short-term debt as of SeptemberJune 30, 20222023 and December 31, 2021.2022. The debt is summarized in the following table:
Long-term indebtedness ($000's) |
| September 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
Revolving line of credit |
| $ | 149,300 |
|
| $ | 53,300 |
|
| $ | 160,750 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (886 | ) |
|
| (1,060 | ) |
|
| (863 | ) |
|
| (823 | ) |
Net long-term debt |
| $ | 148,414 |
|
| $ | 52,240 |
| ||||||||
Total indebtedness, net of deferred loan fees |
| $ | 159,887 |
|
| $ | 51,477 |
|
The Company’s main bank is Bankdeferred loan fees as of June 30, 2023 are included in other assets on the West, a wholly-owned subsidiary of the French bank, BNP Paribas. Bank of the West has been the Company’s bank for more than 40 years and is the syndication manager for the Company’s loans.condensed consolidated balance sheets.
The Company and certain of its affiliates are parties to a revolving line of credit agreement entitled the “Third Amended and Restated Loan and Security Agreement” dated as of August 5, 2021 (the “Credit Agreement”), which is a senior secured lending facility among AMVAC, the Company’s principal operating subsidiary, as Borrower Agent and (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by Bank of the West as administrative agent, documentation agent, syndication agent, collateral agent and sole lead arranger, and book runner, on the other hand. The Credit Agreement consists of a line of credit of up to $275,000, an accordion feature of up to $150,000, a letter of credit and swingline sub-facility (each having limits of $25,000) and has a maturity date of August 5, 2026. The Credit Agreement amendsamended and restatesrestated the previous credit facility, which had a maturity date of June 30, 2022. With respect to key financial covenants, the Credit Agreement contains two;two: namely, borrowers are required to maintain a Total Leverage (“TL”) Ratio of no more than 3.5-to-1, during the first three years, stepping down to 3.25-to-1 as of September 30, 2024, and a Fixed Charge Coverage Ratio ("FCCR") of at least 1.25-to-1.1.25-to-1. In addition, to the extent that it completes acquisitions totaling $15 million or more in any 90-day period, AMVAC may step-up the TL Ratio by 0.5-to-1, not to exceed 4.00-to-1, for the next three full consecutive quarters. Acquisitions below $50 million do not require Agent consent. Distributions to the Company’s shareholders are limited to net income for the four fiscal quarter period ending on the fiscal quarter immediately prior to the fiscal quarter in which the current distribution was declared.
12
The Company’s borrowing capacity varies with its financial performance, measured in terms of Consolidated EBITDA as defined in the Credit Agreement, for the trailing twelve-month period. Under the Credit Agreement, revolving loans bear interest at a variable rate based, at borrower’s election with proper notice, on either (i) LIBOR plus the “Applicable Margin” which is based upon the Total Leverage (“TL”) Ratio (“LIBOR Revolver Loan”) or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month LIBOR Rate plus 1.00%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). The Company and the Lenders entered into an amendment to the Credit Agreement, effective March 9, 2023, whereby LIBOR was replaced by SOFR with a credit spread adjustment of 10.0 bps for all SOFR periods. The revolving loans now bear interest at a variable rate based at our election with proper notice, on either (i) SOFR plus 0.1% per annum and the “Applicable Margin” or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month SOFR Rate plus 1.10%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). Interest payments for LIBORSOFR Revolver Loans are payable on the last day of each interest period (either one, two, threeone-, three- or six months,six- month periods, as selected by the borrower)Company) and the maturity date, while interest payments for Adjusted Base Rate Revolver Loans are payable on the last business day of each calendar quarter month and the maturity date.date. The interest rate as of Septemberon June 30, 20222023, was 4.466.83%. Interest was $2,699 and $745 for the three months ended June 30, 2023 and 2022, respectively, and $4,241 and $1,146 for the six months ended June 30, 2023 and 2022, respectively.
As of June 30, 2023, the Company was in compliance with the TL Ratio but noncompliant with respect to the FCCR. On August 3, 2023, the Company obtained a waiver for the FCCR noncompliance.
At September 30, 2022,According to the Company was compliant with all covenants to its current credit agreement. Also, at September 30, 2022, the Company’s total Funded Debt amounted to $149,300. At that date the Company’s rolling four quarter Consolidated EBITDA (as defined in the Credit Agreement) amounted to $77,167, which results in a leverage ratioterms of1.93, as compared to a maximum leverage ratio permitted under the Credit Agreement, of 3.5. At September 30, 2022,as amended, and based on our performance against the most restrictive covenant listed above, the Company hashad the capacity to increase its borrowings by up to $120,78322,858, according to the terms thereof. This compares to an available borrowing capacity of and $94,973200,372 as of SeptemberJune 30, 2021. At2023 and December 31, 2021,2022, respectively.
11. Classification Corrections — Corrections to the condensed consolidated statements of operations for the three and six months ended June 30, 2022 were made in connection with the Company’s operations in Australia, where the Company had borrowing capacitysells its products to distribution companies as well as directly to growers via third-party agents. The Company identified errors related to the classification of $178,705.third-party agent’s commission amounts. The levelCompany evaluated these errors and the impact to previously issued financial statements and concluded that the impact of borrowing capacitythis classification error is driven by three factors: (1) ournot material to any previously issued quarterly or annual financial performance, as measured in EBITDA for bothstatements. However, management has recorded correcting adjustments to the trailing twelve-month periodpreviously reported financial statement line items and proforma basis arising from acquisitions, (2) net borrowings, and (3) the leverage covenant (the TL Ratio).
Agrinos had an existing Paycheck Protection Program (PPP) loanrelated disclosures. The third-party agents’ commission in the amount of $705119 asand $278 was reclassified from net sales to operating expenses for the three and six months ended June 30, 2022, respectively. The impact was an increase in net sales and gross profit in the amount of $119 and $278 and an offsetting increase in operating expenses in the date it was acquired bysame amount. This correction did not have any impact on operating income, net income, and earnings per common share.
13
12. Change in Accounting Principle — Historically, the Company included warehousing, handling and outbound freight costs in October 2020. This PPP loan was grantedoperating expenses on its Consolidated Statements of Operations. Effective January 1, 2023, the Company elected to Agrinosinclude these costs in cost of sales instead of operating expenses on April 27, 2020. On January 7, 2021, the Small Business Administration forgave $667 in principal and $5 in interest of this PPP loan. As a result, the PPP loan was extinguished on January 7, 2021 and the total amount forgiven of $672 was recorded as other income in the Company’sits condensed consolidated statements of operationsoperations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and representsoutbound freight costs in such a non-cash financing activity onway as to present operational management with a clearer vision of the condensed consolidated statementoperational performance by business unit. This accounting change also increases the comparability of cash flowsthe Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The following table compares the Company’s historical classification with the classification after the adoption of the change in accounting for the ninethree and six months ended SeptemberJune 30, 2021.2023 and 2022:
|
| Classification after adoption of accounting change |
|
| Previous classification |
| ||||||||||
|
| For the three months ended June 30, |
|
| For the three months ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 132,790 |
|
| $ | 148,203 |
|
| $ | 132,790 |
|
|
| 148,084 |
|
Cost of sales |
|
| (89,881 | ) |
|
| (98,872 | ) |
|
| (80,263 | ) |
|
| (88,305 | ) |
Gross profit |
|
| 42,909 |
|
|
| 49,331 |
|
|
| 52,527 |
|
|
| 59,779 |
|
Operating expenses |
|
| (39,154 | ) |
|
| (38,518 | ) |
|
| (48,772 | ) |
|
| (48,966 | ) |
Operating income |
| $ | 3,755 |
|
| $ | 10,813 |
|
| $ | 3,755 |
|
| $ | 10,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Classification after adoption of accounting change |
|
| Previous classification |
| ||||||||||
|
| For the six months ended June 30, |
|
| For the six months ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 257,674 |
|
| $ | 297,797 |
|
| $ | 257,674 |
|
|
| 297,519 |
|
Cost of sales |
|
| (176,230 | ) |
|
| (197,070 | ) |
|
| (157,356 | ) |
|
| (176,547 | ) |
Gross profit |
|
| 81,444 |
|
|
| 100,727 |
|
|
| 100,318 |
|
|
| 120,972 |
|
Operating expenses |
|
| (74,423 | ) |
|
| (75,165 | ) |
|
| (93,297 | ) |
|
| (95,410 | ) |
Operating income |
| $ | 7,021 |
|
| $ | 25,562 |
|
| $ | 7,021 |
|
| $ | 25,562 |
|
The change in accounting principle did not have any impact on operating income, net income and earnings per share.
11. Reclassifications — Certain items may have been reclassified in the prior period condensed consolidated financial statements to conform with the September 30, 2022, presentation.
13
12.13. Comprehensive Income (Loss) — Total comprehensive income (loss) includes, in addition to net income (loss), changes in equity that are excluded from the condensed consolidated statementstatements of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022,2023 and 2021,2022, total comprehensive income consisted of net income attributable to American Vanguard(loss) and foreign currency translation adjustments.
13.14. Stock-Based Compensation — The following tables illustrate the Company’s stock-based compensation, unamortized stock-based compensation, and remaining weighted average amortization period.
|
| Stock-Based |
|
| Stock-Based |
|
| Unamortized |
|
| Remaining |
|
| Stock-Based |
|
| Stock-Based |
|
| Unamortized |
|
| Remaining |
| ||||||||
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Restricted Stock |
| $ | 1,184 |
|
| $ | 3,257 |
|
| $ | 8,010 |
|
|
| 2.0 |
|
| $ | 1,211 |
|
| $ | 2,410 |
|
| $ | 9,147 |
|
|
| 2.2 |
|
Unrestricted Stock |
|
| 130 |
|
|
| 369 |
|
|
| 347 |
|
|
| 0.7 |
|
|
| 130 |
|
|
| 260 |
|
|
| 477 |
|
|
| 0.9 |
|
Performance-Based Restricted Stock |
|
| 246 |
|
|
| 770 |
|
|
| 3,093 |
|
|
| 1.9 |
|
|
| (274 | ) |
|
| (129 | ) |
|
| 3,238 |
|
|
| 2.2 |
|
Total |
| $ | 1,560 |
|
| $ | 4,396 |
|
| $ | 11,450 |
|
|
|
|
| $ | 1,067 |
|
| $ | 2,541 |
|
| $ | 12,862 |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Restricted Stock |
| $ | 1,246 |
|
| $ | 3,469 |
|
| $ | 8,277 |
|
|
| 2.0 |
|
| $ | 1,079 |
|
| $ | 2,072 |
|
| $ | 9,277 |
|
|
| 2.2 |
|
Unrestricted Stock |
|
| 100 |
|
|
| 317 |
|
|
| 267 |
|
|
| 0.7 |
|
|
| 122 |
|
|
| 239 |
|
|
| 476 |
|
|
| 0.9 |
|
Performance-Based Restricted Stock |
|
| 365 |
|
|
| 1,523 |
|
|
| 3,522 |
|
|
| 2.0 |
|
|
| 72 |
|
|
| 525 |
|
|
| 3,781 |
|
|
| 2.1 |
|
Total |
| $ | 1,711 |
|
| $ | 5,309 |
|
| $ | 12,066 |
|
|
|
|
| $ | 1,273 |
|
| $ | 2,836 |
|
| $ | 13,534 |
|
|
|
|
14
The Company also granted stock options in past periods. All outstanding stock options are fully vested and exercisable and no expense was recorded during the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022,2023, and 2021.2022.
Time-Based Restricted and Unrestricted Stock — A summary of non-vested shares as of, and for, the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022,2023, and 20212022 is presented below:
|
| Three and Nine Months Ended |
|
| Three and Nine Months Ended |
| ||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||
Nonvested shares at December 31st |
|
| 817,290 |
|
| $ | 17.04 |
|
|
| 820,624 |
|
| $ | 16.64 |
|
Vested |
|
| (230,080 | ) |
|
| 17.31 |
|
|
| (197,615 | ) |
|
| 19.91 |
|
Forfeited |
|
| (24,109 | ) |
|
| 17.10 |
|
|
| (11,580 | ) |
|
| 16.95 |
|
Nonvested shares at March 31st |
|
| 563,101 |
|
|
| 16.93 |
|
|
| 611,429 |
|
|
| 15.57 |
|
Granted |
|
| 242,067 |
|
|
| 23.79 |
|
|
| 289,757 |
|
|
| 20.10 |
|
Vested |
|
| (27,482 | ) |
|
| 22.35 |
|
|
| (30,112 | ) |
|
| 16.72 |
|
Forfeited |
|
| (14,070 | ) |
|
| 18.53 |
|
|
| (11,231 | ) |
|
| 16.60 |
|
Nonvested shares at June 30th |
|
| 763,616 |
|
|
| 18.88 |
|
|
| 859,843 |
|
|
| 17.04 |
|
Granted |
|
| 13,600 |
|
| $ | 18.94 |
|
|
| 3,400 |
|
|
| 15.17 |
|
Vested |
|
| (1,262 | ) |
|
| 19.39 |
|
|
| (5,962 | ) |
|
| 15.36 |
|
Forfeited |
|
| (15,945 | ) |
|
| 20.09 |
|
|
| (13,841 | ) |
|
| 17.21 |
|
Nonvested shares at September 30th |
|
| 760,009 |
|
| $ | 18.86 |
|
|
| 843,440 |
|
| $ | 17.04 |
|
|
| Three and Six Months Ended |
|
| Three and Six Months Ended |
| ||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||
Nonvested shares at December 31st |
|
| 742,050 |
|
| $ | 18.86 |
|
|
| 817,290 |
|
| $ | 17.04 |
|
Vested |
|
| (2,017 | ) |
|
| 15.71 |
|
|
| (230,080 | ) |
|
| 17.31 |
|
Forfeited |
|
| (5,479 | ) |
|
| 19.87 |
|
|
| (24,109 | ) |
|
| 17.10 |
|
Nonvested shares at March 31st |
|
| 734,554 |
|
|
| 18.86 |
|
|
| 563,101 |
|
|
| 16.93 |
|
Granted |
|
| 279,419 |
|
|
| 21.17 |
|
|
| 242,067 |
|
|
| 23.79 |
|
Vested |
|
| (309,318 | ) |
|
| 14.83 |
|
|
| (27,482 | ) |
|
| 22.35 |
|
Forfeited |
|
| (16,354 | ) |
|
| 19.50 |
|
|
| (14,070 | ) |
|
| 18.53 |
|
Nonvested shares at June 30th |
|
| 688,301 |
|
| $ | 21.59 |
|
|
| 763,616 |
|
| $ | 18.88 |
|
14
Performance-Based Restricted Stock — A summary of non-vested performance-based shares as of, and for, the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022,2023, and 2021,2022, respectively is presented below:
|
| Three and Nine Months Ended |
|
| Three and Nine Months Ended |
| ||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||
Nonvested shares at December 31st |
|
| 379,061 |
|
| $ | 16.43 |
|
|
| 391,771 |
|
| $ | 16.26 |
|
Additional granted (forfeited) based on |
|
| (41,088 | ) |
|
| 16.56 |
|
|
| 71,180 |
|
|
| 20.53 |
|
Vested |
|
| (78,704 | ) |
|
| 17.18 |
|
|
| (175,087 | ) |
|
| 19.78 |
|
Forfeited |
|
| (7,074 | ) |
|
| 16.77 |
|
|
| (505 | ) |
|
| 19.26 |
|
Nonvested shares at March 31st |
|
| 252,195 |
|
|
| 16.17 |
|
|
| 287,359 |
|
|
| 15.16 |
|
Granted |
|
| 83,190 |
|
|
| 23.63 |
|
|
| 102,043 |
|
|
| 20.03 |
|
Forfeited |
|
| (7,829 | ) |
|
| 17.50 |
|
|
| — |
|
|
| — |
|
Nonvested shares at June 30th |
|
| 327,556 |
|
|
| 16.58 |
|
|
| 389,402 |
|
|
| 16.44 |
|
Forfeited |
|
| (2,577 | ) |
|
| 17.80 |
|
|
| (3,733 | ) |
|
| 17.04 |
|
Nonvested shares at September 30th |
|
| 324,979 |
|
| $ | 16.57 |
|
|
| 385,669 |
|
| $ | 16.43 |
|
|
| Three and Six Months Ended |
|
| Three and Six Months Ended |
| ||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||
Nonvested shares at December 31st |
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 379,061 |
|
| $ | 16.43 |
|
Additional granted (forfeited) based on performance achievement |
|
| — |
|
|
| — |
|
|
| (41,088 | ) |
|
| 16.56 |
|
Vested |
|
| — |
|
|
| — |
|
|
| (78,704 | ) |
|
| 17.18 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| (7,074 | ) |
|
| 16.77 |
|
Nonvested shares at March 31st |
|
| 318,699 |
|
|
| 18.05 |
|
|
| 252,195 |
|
|
| 16.17 |
|
Additional granted (forfeited) based on performance achievement |
|
| (58,827 | ) |
|
| 14.73 |
|
|
| — |
|
|
| — |
|
Granted |
|
| 94,028 |
|
|
| 21.51 |
|
|
| 83,190 |
|
|
| 23.63 |
|
Vested |
|
| (86,188 | ) |
|
| 13.99 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (3,316 | ) |
|
| 16.91 |
|
|
| (7,829 | ) |
|
| 17.50 |
|
Nonvested shares at June 30th |
|
| 264,396 |
|
| $ | 21.36 |
|
|
| 327,556 |
|
| $ | 16.58 |
|
Stock Options — The Company has stock options outstanding under its incentive stock option plans and performance incentive stock option plan. All outstanding stock options are vested and exercisable. The following tables present details for each type of plan:
15
Incentive Stock Option Plans
Activity for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022:2023:
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2021 and March 31, 2022 |
|
| 108,036 |
|
| $ | 11.49 |
|
Options exercised |
|
| (33,745 | ) |
|
| 11.49 |
|
Balance outstanding, June 30, 2022 |
|
| 74,291 |
|
| $ | 11.49 |
|
Options exercised |
|
| (1,541 | ) |
|
| 11.49 |
|
Balance outstanding, September 30, 2022 |
|
| 72,750 |
|
| $ | 11.49 |
|
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2022 |
|
| 68,896 |
|
| $ | 11.49 |
|
Options exercised |
|
| (1,537 | ) |
|
| 11.49 |
|
Balance outstanding, March 31, 2023 |
|
| 67,359 |
|
| $ | 11.49 |
|
Options exercised |
|
| (1,287 | ) |
|
| 11.49 |
|
Balance outstanding, June 30, 2023 |
|
| 66,072 |
|
| $ | 11.49 |
|
All the incentive stock options outstanding as of SeptemberJune 30, 2022,2023, have an exercise price per share of $11.49, total intrinsic value of $525422, and a remaining life of 2718 months months..
Activity for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2021:2022:
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2020 |
|
| 123,087 |
|
| $ | 11.48 |
|
Options exercised |
|
| (5,838 | ) |
|
| 11.49 |
|
Balance outstanding, March 31, 2021 |
|
| 117,249 |
|
|
| 11.48 |
|
Options exercised |
|
| (8,826 | ) |
|
| 11.35 |
|
Balance outstanding, June 30, 2021 |
|
| 108,423 |
|
|
| 11.49 |
|
Options exercised |
|
| (387 | ) |
|
| 11.49 |
|
Balance outstanding, September 30, 2021 |
|
| 108,036 |
|
| $ | 11.49 |
|
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2021 and March 31, 2022 |
|
| 108,036 |
|
| $ | 11.49 |
|
Options exercised |
|
| (33,745 | ) |
|
| 11.49 |
|
Balance outstanding, June 30, 2022 |
|
| 74,291 |
|
| $ | 11.49 |
|
15
Performance Incentive Stock Option Plan
ActivityThere was no activity for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022:2023. There were 81,808 performance incentive stock options outstanding as of June 30, 2023, with an exercise price per share of $11.49 and a remaining life of 18 months.
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2021 and March 31, 2022 |
|
| 114,658 |
|
| $ | 11.49 |
|
Options exercised |
|
| (32,850 | ) |
|
| 11.49 |
|
Balance outstanding, June 30 and September 30, 2022 |
|
| 81,808 |
|
| $ | 11.49 |
|
Activity for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2021:2022:
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2020 |
|
| 114,658 |
|
| $ | 11.49 |
|
Options exercised |
|
| — |
|
|
| — |
|
Balance outstanding, September 30, 2021 |
|
| 114,658 |
|
| $ | 11.49 |
|
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2021 |
|
| 114,658 |
|
| $ | 11.49 |
|
Options exercised |
|
| (32,850 | ) |
|
| 11.49 |
|
Balance outstanding, June 30, 2022 |
|
| 81,808 |
|
| $ | 11.49 |
|
All the performance incentive stock options outstanding as of SeptemberJune 30, 2022,2023, have an exercise price per share of $11.49, total intrinsic value of $590522, and a remaining life of 2718 months months..
14.15. Legal Proceedings — — During the reporting period, there have been no material developments in legal proceedings that were reported in the Company’s Form 10-K for the year ended December 31, 2021,2022, except as described below.
EPA FIFRA/RCRA Matter.Department of Justice and Environmental Protection Agency Investigation. On November 10, 2016, the CompanyAMVAC was served with a grand jury subpoena from the United States Attorney’s Office for the Southern District of Alabama, seeking documents regarding the importation, transportation, and management of a specific pesticide. The Company retained defense counsel to assist in responding to the subpoena and otherwise in defending the Company’s interests. AMVAC is cooperating in the investigation.
Since April 2018, After interviewing multiple witnesses (including three employees before a grand jury in February 2022) and making multiple document requests, the Department of Justice (“DOJ”DoJ”) has conducted several interviews of AMVAC employees and issued supplemental document requests in connection with the investigation. In November 2020, DOJ issued a second grand jury subpoena seeking records and related communications with regard to a submission made by the Company to the Environmental Protection Agency (“EPA”) in connection with a request to amend a pesticide’s registration. Soon thereafter, DOJ also identified the Company and one of its non-executive employeesa manager-level employee as targets of the government’s investigation. In January 2021, DOJ and EPA informed the Company that it is investigatingDoJ’s investigation focused on potential violations of two environmental statutes, the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) and the Resource Conservation and Recovery Act (“RCRA”), as well as obstruction of an agency proceeding and false statement statutes. DOJ also identified evidence that it contends supports alleged violations with respect to both the Company and the individual target. As part of discussions regarding possible resolution, in October 2021, the Company presented its evaluation of the legal and factual issues raised by the government (which do not include any allegations of harm to human health or the environment) to both DOJ and USEPA. Further, three corporate witnesses were interviewed by the grand jury in Mobile, Alabama in February 2022. Following that interview,In March 2022, the individual target entered into a plea agreement which was entered by the court having jurisdictionrelating to provision of false information in this matter in May 2022.a government proceeding. In July 2022, the DOJ outlined its current viewDoJ sent correspondence to the Company’s counsel to the effect that it was focusing on potential RCRA violations relating to the reimportation of Australian containers in 2015. Our defense counsel spoke with DoJ on the investigationsubject in early October 2022 and indicatedthen again in May 2023, at which times DoJ expressed an interest in reachingresolving the matter. The Company anticipates further discussion on resolution of the matter. Further discussions on that subject are imminent. The Company expects that talks regarding potential resolution will resume in the near future.
16
The governmental agencies involved in this investigation have a range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of FIFRA, RCRA and other federal statutes including, but not limited to, injunctive relief, fines, penalties and modifications to business practices and compliance programs, including the appointment of a monitor. If violations are established, the amount of any fines or monetary penalties which could be assessed and the scope of possible non-monetary relief would depend on, among other factors, findings regarding the amount, timing, nature and scope of the violations, and the level of cooperation provided to the governmental authorities during the investigation. As a result, the Company cannot yet anticipate the timing or predict the ultimate resolution of this investigation, financial or otherwise, which could have a material adverse effect on our business prospects, operations, financial condition and cash flow.flows. Accordingly, we havethe Company has not recorded a loss contingency for this matter.
16
Harold ReedPitre etc. v. AMVACAgrocentre Ladauniere et al. During January 2017, On February 11, 2022, a strawberry grower named Les Enterprises Pitre, Inc. filed a complaint in the Company was served with two StatementsSuperior Court, District of Claim that had been filed on March 29, 2016 withLabelle, Province of Quebec, Canada, entitled Pitre, etc. v. Agrocentre Ladauniere, Inc. etal, including Amvac Chemical Corporation, seeking damages in the Courtamount of Queen’s Bench of Alberta, Canada (as case numbers 160600211 and 160600237) in which plaintiffs, Harold Reed (an applicator) and 819596 Alberta Ltd. dba Jem Holdings (an application equipment rental company), allege physical injury and damage to equipment, respectively,approximately $5 million arising from stunted growth of, and reduced yield from, its strawberry crop allegedly from the application of AMVAC’s soil fumigant, Vapam, in spring of 2021. Examinations of plaintiff were held in mid-August 2022, during which plaintiff in effect confirmed that he had planted his seedlings before expiration of the full-time interval following product application (as per the product label), that he had failed to follow the practice of planting a firefew test seedlings before planting an entire farm, and that occurred during anhe had placed his blind trust in his application adviser on all manner of timing and rate. An examination of the Company’s potato sprout inhibitor, SmartBlock, at a potato storage facility in Coaldale, Alberta on April 2, 2014. Four other related matters were subsequently consolidated into this case (alleging loss of potatoes, damage to equipment, damage to Quonset huts and loss of business income). The parties have exchanged written discovery, and depositions of persons most knowledgeable tookwitness is scheduled to take place during the first quarter of 2019. Citing the length of the cases’ pendency and the expense, in December 2019, plaintiff Reed voluntarily dismissed two actions (160600211 and 160600237) for no consideration. Over the course of 2020, discovery was completed, and the parties held a mediation on March 11, 2021; however, no settlement was reached. The parties participated in a second mediation in August 2022, during which plaintiffs significantly lowered their collective demands, and all parties were ableNovember 2023. Information to reach a settlement under the terms of which three co-defendants (including the Company) are equally sharing in a cash contribution. The Company’s contribution toward settlement was largely covered by pre-existing reserves and, in any event,date is not materialsufficient to its financial performanceform a judgment as to either the probability or operations. The courtamount of loss; thus, the Company has entered an order of dismissal with prejudice pursuant to the settlement agreement; thus,not recorded a loss contingency for this matter is resolved.matter.
Notice of Intention to Suspend DCPA Suspension Proceedings. In MayOn April 28, 2022, the USEPA issuedpublished a notice of intentionintent to suspend (“NOITS”) DCPA, the active ingredient of an herbicidal productherbicide marketed by the Company under the name Dacthal, onDacthal. The agency cited as the basis for the suspension that the Company acted allegedly inappropriately in providingdid not take appropriate steps to provide data studies that had been requested byin support of the agency.registration review. In fact, the agency had requested 89 data studies and, over the course of several years, the Company had supplied 69 suchcooperated in performing the vast majority of the nearly 90 studies requested by USEPA and had been working constructively on mutually acceptable timetables eitherin good faith to complete, ormeet the agency’s schedule. After an appeals court (the Environmental Appeals Board) clarified the proper standard for use at the hearing (namely, whether registrant took appropriate steps to obtain waivers for,respond to the balance of the studies. The Company petitioned an administrative law judge (“ALJ”) to appeal the notice of intention to suspend ("NOITS"). In response to USEPA’s motion,data call-in), a hearing was held in January 2023 before the ALJ, granted an acceleratedby which time USEPA had narrowed the scope of its claim to nine outstanding studies, all of which have been completed by the Company and 8 of 9 of which have been submitted to the agency and none of which are necessary for USEPA to commence its risk assessment. In April 2022, the ALJ reached a decision, to upholdfinding that the agency acted within its authority in issuing the NOITS. The Company,company is in turn, has appealed the ALJ’s decision to the Environmental Appeals Board (“EAB”),midst of discussions with USEPA on the ground thatterms of a settlement, and, to date, the basis was erroneous,parties have agreed to extend the company’s deadline for filing an appeal. During the course of these proceedings, AMVAC has been free to make, sell and distribute both with respectthe technical grade material and end-use product and may continue to statutory constructiondo so unless and factual inferences being improperly made inuntil there is an adverse ruling at both the agency’s favor. In October 2022, the EAB reversed the ALJ’s order, finding that that court had used a statutorily improper standard (namely, whether the Company had submitted all requested data as opposed to the proper standard of whether the Company acted appropriately in responding to the data call-ins)trial and appellate level (if any). The matter has been remanded to the ALJ, which has setCompany believes that a hearing date of January 24, 2023. At the same time, USEPA has expressed an interest in settlement of the matter; thus, the Company, USEPAloss is neither probable nor estimable and, the Office of General Counsel are engaged in settlement discussions in parallel with the proceedings at the ALJ. At this stage, the Company is unable to predict the probable outcome of the matter and, accordingly,consequently, has not recorded a loss contingency with respect thereto.for this matter.
15.16. Recent Issued Accounting Guidance —
Accounting Standards Adopted
In November 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2021-10, “Disclosures by Business Entities about Government Assistance.” This ASU codifies new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded, and significant terms and conditions associated with such transactions. The guidance is effective for annual periods beginning after December 15, 2021. Effective January 1, 2022, the Company adopted ASU No. 2021-10 on a prospective basis. The adoption of this standard was not material to the Company’s condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers.” This ASU requires an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. The ASU is effective for fiscal years and interim periods beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the impact of adopting this ASU and does not expect a material impact on its condensed consolidated financial statements.
The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its condensed consolidated financial statements.
17
16.17. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires certain disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard established a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, long-term investments, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which are considered Level 2 liabilities, approximates fair value based uponas they bear interest at a variable rate that represents current rates and terms available to the Company for similar debt.market rates.
17
The Company measures its contingent earn-out liabilities in connection with business acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The Company may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring. The Company did not have any contingent earn-out liabilities at June 30, 2023 and December 31, 2022.
The following table illustrates the Company’s contingent considerationearn-out liability movements related to its business acquisitions:acquisitions as of, and for, the three-and six-month periods ended June 30, 2022:
|
| Three months ended |
|
| Three months ended |
| ||
Balance, June 30 |
| $ | 1,367 |
|
| $ | 2,116 |
|
Fair value adjustment |
|
| — |
|
|
| (493 | ) |
Payments on existing obligations |
|
| (1,292 | ) |
|
| — |
|
Accretion of discounted liabilities |
|
| 10 |
|
|
| (1 | ) |
Foreign exchange effect |
|
| (85 | ) |
|
| (57 | ) |
Balance, September 30 |
| $ | — |
|
| $ | 1,565 |
|
|
|
|
|
|
|
| ||
|
| Nine months ended |
|
| Nine months ended |
| ||
Balance, December 31 |
| $ | 786 |
|
| $ | 2,468 |
|
Purchase price adjustment |
|
| — |
|
|
| (955 | ) |
Fair value adjustment |
|
| 635 |
|
|
| 520 |
|
Payments on existing obligations |
|
| (1,292 | ) |
|
| (250 | ) |
Accretion of discounted liabilities |
|
| 28 |
|
|
| (10 | ) |
Foreign exchange effect |
|
| (157 | ) |
|
| (208 | ) |
Balance, September 30 |
| $ | — |
|
| $ | 1,565 |
|
|
| Three months ended |
|
| Six months ended |
| ||
Balance, March 31, 2022 and December 31, 2021 |
| $ | 1,437 |
|
| $ | 786 |
|
Fair value adjustment |
|
| 36 |
|
|
| 635 |
|
Accretion of discounted liabilities |
|
| 11 |
|
|
| 17 |
|
Foreign exchange effect |
|
| (117 | ) |
|
| (71 | ) |
Balance, June 30, 2022 |
| $ | 1,367 |
|
| $ | 1,367 |
|
18
The contingent consideration in the amount of $786 is included in current installments of other liabilities on the condensed consolidated balance sheets as of December 31, 2021.
17.18. Accumulated Other Comprehensive Loss (“AOCL”)—The following table lists the beginning balance, annual activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency (FX) translation adjustments:
Total | ||||
Balance, December 31, 2022 | $ | (12,182 | ) | |
Foreign currency translation adjustment, net of tax effects of ($132) | 2,546 | |||
Balance, March 31, 2023 | (9,636 | ) | ||
Foreign currency translation adjustment, net of tax effects of ($122) | 3,505 | |||
Balance, June 30, 2023 | $ | (6,131 | ) | |
Balance, December 31, 2021 | $ | (13,784 | ) | |
Foreign currency translation adjustment, net of tax effects of ($48) | 7,080 | |||
Balance, March 31, 2022 | (6,704 | ) | ||
Foreign currency translation adjustment, net of tax effects of $109 | (6,064 | ) | ||
Balance, June 30, 2022 | $ | (12,768 | ) | |
|
|
| ||
|
|
|
| |
|
|
|
| |
|
|
| ||
|
|
| ||
|
| |||
|
|
| ||
|
|
| ||
|
|
|
|
18. 19. Equity Investments — In February 2016, AMVAC Netherlands BV made an investment in Biological Products for Agriculture (“Bi-PA”). Bi-PA develops biological plant protection products that can be used for the control of pests and disease of agricultural crops. As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company’s ownership position in Bi-PA was 15%. Since this investment does not have a readily determinable fair value, the Company has elected to measure the investment at cost less impairment, if any, and also records an increase or decrease for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Bi-PA. The Company periodically reviews the investment for possible impairment. There was no impairment or observable price changes on the investment during the three-three and nine-month periodssix months ended SeptemberJune 30, 2023 and 2022. The Company recorded an impairment in the amount of $399 during the three- and nine-month periods ended September 30, 2021.The investment is recorded within other assets on the condensed consolidated balance sheets and amounted to $2,8842,869 as of SeptemberJune 30, 20222023 and December 31, 2021.2022.
On April 1, 2020, AMVAC purchased 6.25 million shares, an ownership of approximately 8%, of common stock of Clean Seed Capital Group Ltd. (TSX Venture Exchange: “CSX”) for $1,190. The shares are publicly traded, have a readily determinable fair value, and are considered a Level 1 investment. The fair value of the stock amounted to $659708 and $1,516784 as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The Company recorded a loss of $45455 and $269486 for the three-month periodsthree months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively.The Company recorded a loss of $85777 and a gain of $502403 for the nine-month periodssix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The investment is recorded within other assets on the condensed consolidated balance sheets.
1918
19. Product and Business Acquisitions — The Company did not complete any acquisitions during the three- and nine-month periods ended September 30, 2022. The Company completed one product acquisition during the three- and nine-months ended September 30, 2021. The acquisition was completed on July 1, 2021, for $10,000 in cash consideration. The acquisition was accounted for as an asset acquisition and the $10,000 in consideration was allocated as follows: product registrations and product rights $8,225, trade names and trademarks $1,650, and prepaid asset $125.
20. Income Taxes —Income tax expense for the three and six months ended June 30, 2023 and 2022, is computed using the estimated effective tax rates applicable to each of the domestic and international taxable jurisdictions for the full year. The Company’s tax rate is subject to management’s quarterly review and revision, as necessary. The Company’s provision for income taxes and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign income (loss) before income taxes. Income tax expense was $2,9631,541 and $1,5172,725 for the three-month period ended SeptemberJune 30, 2023, and 2022, respectively, and 2021,$1,181 and $7,224 for the six months ended June 30, 2023, and 2022, respectively. The effective income tax rate was 30.5315.36% and 20.728.5% for the three-month periods ended SeptemberJune 30, 2023 and 2022, respectively, and 2021, respectively. Income tax expense was $10,187 and $5,324 for the nine months ended September 30, 2022, and 2021, respectively. The effective tax rate for the nine-month periods ended September 30, 2022 and 2021, was 30.257.7% and 27.430.1%, for the six months ended June 30, 2023 and 2022, respectively. For the three- and nine-month periodsthree-month period ended SeptemberJune 30, 2022,2023, the effective income tax rate increased compared to the same periodsperiod of 2021 reflecting the mix2022 primarily due to withholding tax charges, net of income tax credits, associated with interest on certain intercompany loans, and losses incurred at certain entities which did not result in different jurisdictions. Fora benefit for income tax years beginning after December 31, 2021,purposes as these entities continue to maintain a valuation allowance against their net deferred tax assets. In addition to these factors, the Tax Cuts and Jobs Act (“TCJA”) of 2017 amends Internal Revenue Code Section 174 Costs wherein research and development expenditures will no longer be deductedincrease in the effective income tax yearrate for the six months ended June 30, 2023, as compared to the same period in 2022 is due to establishing liabilities for uncertain tax positions in certain jurisdictions, partially offset by a benefit from the remeasurement of certain U.S. federal and state deferred taxes.
It is expected that such costs are incurred but must now$1,814 of unrecognized tax benefits will be capitalized and amortized over either a five- or fifteen-year period, depending onreleased within the locationnext twelve months due to expiration of the activities performed. The effective tax rate is based on the projected income for the full year and is subject to ongoing review and adjustment by management.statute of limitations.
21. Stock Re-purchase Programs — The Company periodically repurchases shares of its common stock under a board-authorized repurchase program through a combination of open market transactions and accelerated share repurchase (ASR) arrangements.
On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to 1,000,000 shares of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws. During 2022 and 2023, the Company purchased 761,985 shares of its common stock for a total of $14,558 at an average price of $19.11 per share under this plan which terminated on March 8, 2023.
On May 25, 2023, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase up to $15,000 of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws. During the three months ended June 30, 2023, the Company purchased 380,366 shares of its common stock for a total of $6,669 at an average price of $17.51 per share under this plan.
The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three-three and nine-month periodssix months ended SeptemberJune 30, 2022. There were no such purchases during the three-2023 and nine-month periods ended September 30, 2021.2022.
Month ended |
| Total number of |
|
| Average price |
|
| Total amount paid |
|
| Maximum number |
| ||||
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
Balance at March 31, 2022 |
|
| 332,404 |
|
|
|
|
| $ | 6,219 |
|
|
| 667,596 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
April 30, 2022 |
|
| 100 |
|
| $ | 19.99 |
|
| $ | 2 |
|
|
| 667,496 |
|
May 31, 2022 |
|
| 506 |
|
| $ | 19.99 |
|
| $ | 11 |
|
|
| 666,990 |
|
Balance at June 30, 2022 |
|
| 606 |
|
| $ | 19.99 |
|
| $ | 13 |
|
|
| 666,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
August 31, 2022 |
|
| 165,039 |
|
| $ | 19.59 |
|
| $ | 3,234 |
|
|
| 501,951 |
|
September 30, 2022 |
|
| 222,301 |
|
| $ | 19.19 |
|
| $ | 4,265 |
|
|
| 279,650 |
|
Balance at September 30, 2022 |
|
| 387,340 |
|
| $ | 19.36 |
|
| $ | 7,499 |
|
|
| 279,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total number of shares repurchased |
|
| 720,350 |
|
| $ | 19.06 |
|
| $ | 13,731 |
|
|
| 279,650 |
|
Three months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
| |||
June 30, 2023 |
|
| 380,366 |
|
| $ | 17.51 |
|
| $ | 6,669 |
|
June 30, 2022 |
|
| 606 |
|
| $ | 19.99 |
|
| $ | 13 |
|
|
|
|
|
|
|
|
|
|
| |||
Six months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
| |||
June 30, 2023 |
|
| 408,201 |
|
| $ | 17.88 |
|
| $ | 7,226 |
|
June 30, 2022 |
|
| 333,010 |
|
| $ | 18.71 |
|
| $ | 6,232 |
|
On August 22, 2022, pursuant to a BoardAs of Directors resolution,June 30, 2023, the Company entered into an accelerated share repurchase arrangementmay yet purchase up to repurchase $20,0008,331 of its common stock. Under the agreement, the Company paid $20,000 and immediately received an initial delivery of 802,810 shares in the amount of $16,000, which the Company recorded as treasury shares. The Company recorded the remaining $4,000 as a reduction to additional paid-in capital pending final settlement in the fourth quarter of 2022. The final number of shares that the Company ultimately receivesstock under the agreement will be determined based on the average of the Rule 10b-18 volume-weighted average prices of the Company’s common stock during the term of the agreement, less and agreed discount, and subject to adjustments pursuant to the terms of the agreement.
The table below summarizes the number of shares of the Company’s common stock that were received under the accelerated share repurchase arrangement during the three- and nine-month periods ended September 30, 2022. There were no such transactions during the three- and nine-month periods ended September 30, 2021.
20
Month ended |
| Total number of |
|
| Average price |
|
| Total amount paid |
| |||
August 31, 2022 |
|
| 802,810 |
|
| $ | 19.93 |
|
| $ | 16,000 |
|
In summary, the Company added a total of 1,190,150 and 1,523,160 of treasury shares of the Company’s common stock during the three- and nine-month periods ended September 30, 2022.its current 10b5-1 plan.
22. Supplemental Cash Flow Information
|
| For the Nine Months Ended September 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest |
| $ | 2,073 |
|
| $ | 2,839 |
|
| $ | 2,556 |
|
| $ | 1,100 |
|
Income taxes, net |
| $ | 15,530 |
|
| $ | 3,836 |
|
| $ | 5,641 |
|
| $ | 10,749 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
ROU assets exchanged for lease liabilities |
| $ | 4,202 |
|
| $ | 17,872 |
| ||||||||
Deferred consideration in connection with business acquisitions: |
| $ | — |
|
| $ | 635 |
| ||||||||
Cash dividends declared and included in accrued expenses |
| $ | 715 |
|
| $ | 594 |
|
| $ | 848 |
|
| $ | 742 |
|
2119
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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 Annual 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 3., Quantitative and Qualitative Disclosures about Market Risk, and Part II, Item 1A., Risk Factors, in this Quarterly Report on Form 10-Q.
MANAGEMENT OVERVIEWEffective January 1, 2023, the Company includes warehousing, handling and outbound freight costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The change in accounting principle did not have any impact on operating income, net income and earnings per share. Please refer to Note 12 to the condensed consolidated financial statements for further details.
Overview of the Company’s Performance
DuringThe Company’s financial performance for the thirdsecond quarter of 2022, the agriculture industry continued to demonstrate resiliency. Driven by geopolitical conditions, corn and soybean commodity prices for row crops remained high. Further, supply chain conditions continued to improve across many industries. Further, thus far, the industry has been able to compensate for the effects of inflation through price increases. The Company responded to these conditions by increasing prices, where possible, and deployed its factory assets to continue meeting demand. Consequently, the Company’s overall operating results for the third quarter of 2022 improved modestly in terms of net sales and more significantly in terms of profitability, as compared with those of the same period of 2021. Led by increased sales within our international business, consolidated net sales increased by 3% (to end at $152,1172023 declined as compared to $147,298)the second quarter of 2022. While commodity prices remained stable, in the face of increasing interest rates, the distribution channel within domestic crop implemented strict measures to control inventory and net income increased by 23% (to $6,741otherwise limit the carrying costs of working capital. As a result, customers are allowing inventories to reduce to low levels before ordering closer to the time of use. In addition, during the quarter, the Company experienced supply unavailability of one of its high-margin herbicides. Within the non-crop business, retailers – whether big box stores, nurseries, or garden centers – broke with traditional stocking patterns and both delayed placing orders until closer to time of use and ordered less product, relying on the Company to hold inventory. Further, during the period, our international businesses experienced significant market pressure from $5,498).China-based suppliers that flooded the Central American markets with low-priced generic goods.
OnAgainst this backdrop, on a consolidated basis, domestic sales were flat, anddeclined by 14% while international sales increased 9%declined by 6%, resulting in an overall net sales improvementdecline of 3%10%. By contrast,Overall cost of sales was virtually flat, quarter-over-quarter. This lower comparative increase in cost of sales was a result of higher selling prices and a favorable mix of higher-margin products in the third quarter of 2022, as compared to the same period of the prior year.decreased by 9%. Cost of sales were 60%68% of sales in the third quarter of 2022,2023, as compared to 61%67% for the same period of 2021.2022. These factors, taken together yieldedwith slightly higher manufacturing costs (both labor and service-related), resulted in a 8% increase13% decrease in gross profit (to $42,909 in 2023 from $49,311 in the comparable quarter of 2022), while overall gross margin percent improveddeclined to 40%32% from 39% quarter-over-quarter, as a result of selling more higher margin products, increased prices, and better factory performance.33% quarter-over-quarter.
Operating expenses remained flat at 33%increased to $39,154 for the three-months period ended June 30, 2023 from $38,518, as compared to prior year; further, operating expenses as a percent of net sales notwithstanding significant inflationary pressure. rose to 29% in the second quarter of 2023 from 26% in the comparable period of 2022, largely due to higher research, product development costs, regulatory expenses costs and increase sales and marketing expenses.
Operating income for the period increased by 26% (to $11,244decreased to $3,755 from $8,946),$10,813, driven by reduced sales, decreased gross margin percentage and proportionately higher operating expenses. During the overall sales increase,second quarter, the Company experienced significantly higher selling prices and improved factory utilization. Interest expense was flat as compared withinterest expenses, due to comparatively higher interest rates. Income before taxes ended at $489 including a profitable performance for most of the same periodCompany’s operating entities around the world, offset by losses in a small number of 2021, whilebusinesses. One of the businesses which lost money in the quarter is in Brazil. Losses at that entity generate a tax benefit, offset by a valuation allowance. As a result, net tax expense rose by 95% (from $1,517exceeded income before taxes, resulting in a net loss for the third quarter of 2021quarter. Additionally, a withholding tax charge was incurred on interest relating to $2,963 in the same period of 2022) due to an increase in taxable income and higher effective tax rate. intercompany debt.
20
These factors yielded a net incomeloss for the period of $6,741, a 23% increase over$1,052, as compared to $5,498net income of $6,830 in the thirdsecond quarter of 2021.2022. Details on our financial performance are set forth below.
22
RESULTS OF OPERATIONS
Quarter Ended SeptemberJune 30, 20222023 and 2021:2022:
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 69,115 |
|
| $ | 66,722 |
|
| $ | 2,393 |
|
|
| 4 | % |
| $ | 56,212 |
|
| $ | 63,513 |
|
| $ | (7,301 | ) |
|
| -11 | % |
U.S. non-crop |
|
| 18,936 |
|
|
| 21,622 |
|
|
| (2,686 | ) |
|
| -12 | % |
|
| 16,878 |
|
|
| 20,996 |
|
|
| (4,118 | ) |
|
| -20 | % |
Total U.S. |
|
| 88,051 |
|
|
| 88,344 |
|
|
| (293 | ) |
|
| 0 | % |
|
| 73,090 |
|
|
| 84,509 |
|
|
| (11,419 | ) |
|
| -14 | % |
International |
|
| 64,066 |
|
|
| 58,954 |
|
|
| 5,112 |
|
|
| 9 | % |
|
| 59,700 |
|
|
| 63,694 |
|
|
| (3,994 | ) |
|
| -6 | % |
Total net sales: |
| $ | 152,117 |
|
| $ | 147,298 |
|
| $ | 4,819 |
|
|
| 3 | % |
| $ | 132,790 |
|
| $ | 148,203 |
|
| $ | (15,413 | ) |
|
| -10 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 34,613 |
|
| $ | 36,485 |
|
| $ | (1,872 | ) |
|
| -5 | % |
| $ | (34,509 | ) |
| $ | (39,600 | ) |
| $ | 5,091 |
|
|
| -13 | % |
U.S. non-crop |
|
| 10,125 |
|
|
| 12,740 |
|
|
| (2,615 | ) |
|
| -21 | % |
|
| (9,769 | ) |
|
| (11,752 | ) |
|
| 1,983 |
|
|
| -17 | % |
Total U.S. |
|
| 44,738 |
|
|
| 49,225 |
|
|
| (4,487 | ) |
|
| -9 | % |
|
| (44,278 | ) |
|
| (51,352 | ) |
|
| 7,074 |
|
|
| -14 | % |
International |
|
| 45,995 |
|
|
| 41,009 |
|
|
| 4,986 |
|
|
| 12 | % |
|
| (45,603 | ) |
|
| (47,520 | ) |
|
| 1,917 |
|
|
| -4 | % |
Total cost of sales: |
| $ | 90,733 |
|
| $ | 90,234 |
|
| $ | 499 |
|
|
| 1 | % |
| $ | (89,881 | ) |
| $ | (98,872 | ) |
| $ | 8,991 |
|
|
| -9 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 34,502 |
|
| $ | 30,237 |
|
| $ | 4,265 |
|
|
| 14 | % |
| $ | 21,703 |
|
| $ | 23,913 |
|
| $ | (2,210 | ) |
|
| -9 | % |
U.S. non-crop |
|
| 8,811 |
|
|
| 8,882 |
|
|
| (71 | ) |
|
| -1 | % |
|
| 7,109 |
|
|
| 9,244 |
|
|
| (2,135 | ) |
|
| -23 | % |
Total U.S. |
|
| 43,313 |
|
|
| 39,119 |
|
|
| 4,194 |
|
|
| 11 | % |
|
| 28,812 |
|
|
| 33,157 |
|
|
| (4,345 | ) |
|
| -13 | % |
International |
|
| 18,071 |
|
|
| 17,945 |
|
|
| 126 |
|
|
| 1 | % |
|
| 14,097 |
|
|
| 16,174 |
|
|
| (2,077 | ) |
|
| -13 | % |
Total gross profit |
| $ | 61,384 |
|
| $ | 57,064 |
|
| $ | 4,320 |
|
|
| 8 | % |
| $ | 42,909 |
|
| $ | 49,331 |
|
| $ | (6,422 | ) |
|
| -13 | % |
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
|
| 50 | % |
|
| 45 | % |
|
|
|
|
|
|
|
| 39 | % |
|
| 38 | % |
|
|
|
|
|
| ||||
U.S. non-crop |
|
| 47 | % |
|
| 41 | % |
|
|
|
|
|
|
|
| 42 | % |
|
| 44 | % |
|
|
|
|
|
| ||||
Total U.S. |
|
| 49 | % |
|
| 44 | % |
|
|
|
|
|
|
|
| 39 | % |
|
| 39 | % |
|
|
|
|
|
| ||||
International |
|
| 28 | % |
|
| 30 | % |
|
|
|
|
|
|
|
| 24 | % |
|
| 25 | % |
|
|
|
|
|
| ||||
Total gross margin |
|
| 40 | % |
|
| 39 | % |
|
|
|
|
|
|
|
| 32 | % |
|
| 33 | % |
|
|
|
|
|
|
Our domestic crop business recorded net sales during the second quarter of 2023 that were 4% higher11% lower than those of the thirdsecond quarter of 20212022 ($69,11556,212 as compared to $66,722)$63,513). Year-over-year gainsThis overall decline was largely attributable to a broad-based slowdown in distribution channel purchasing, as our customers focused on inventory reduction in the face of rising interest rates and higher carrying costs for working capital. Within our several product lines, there was nevertheless a degree of variability. While overall net sales of our corn products were posted by Dacthal (a leading weed control solution forrelatively stable year-over-year, with soil insecticides higher compared to the second quarter of the prior year, we recorded reduced sales of our Impact post-emergent corn herbicides, due largely to higher-than-normal inventory levels of generic herbicides in the distribution channel. Further, we recorded no sales of Dacthal®, our specialty crop herbicide, in the second quarter due to unavailability of goods from our overseas supply chain partner as compared to second quarter of the prior year, when inventory was readily available, and demand was strong in light of news of a variety of high value vegetable crops including onions), Folex (which benefited from favorable harvest weather conditions and thepotential suspension. In our cotton products, we experienced an increase in 2022 cotton acres in the Mississippi Delta region), and Bidrin (our cottonsales of our foliar insecticide, Bidrin®, which benefitted from increased early-season pest pressure). These gains were partially offset by lowera decline in sales of corn soil insecticide Aztec, dueFolex®, our harvest defoliant – we expect that these sales will shift to later in 2023. The cotton market was also influenced by a shiftdecline in customer purchasing patterns,cotton commodity prices and temporarily delayeda decline in planted cotton acres (down approximately 2 million acres year-over-year). Partially offsetting these declines, we saw an increase in sales of Thimet for sugarcane applications which were curtailed at the end of the quarter due to the impact of Hurricane Ian on logistics in Florida. Further, while drought conditions in our Western and Southwestern markets adversely impacted the physical volume of our soil fumigants products, we achievedwith improved netagricultural water allocation in the western region and stronger sales through appropriate price adjustments.of our Thimet® granular insecticide for use in peanuts and sugar cane.
Cost of sales within the domestic crop business decreased by 5%13% (from $36,485$39,600 in 20212022 to $34,613$34,509 in 2022) primarily2023) as a result of selling more higher-margindecreased volumes, lower in-bound freight costs and a change in the mix of products and improvedsold, as compared to the second quarter of 2022. Our net factory performance. Ascost for the quarter rose, due largely to increased factory overhead costs. Domestic crop recorded a result of these factors and increased pricing, domestic crop generated an 14% increase9% decrease in gross profit (from $30,237$23,913 in 2022 to $21,703 in 2023) and an overall improvement in gross margin percentage to 39% versus 38% for the thirdcomparable quarter of 2021 to $34,502 this year) on a 4% increase in sales.2022.
21
Our domestic non-crop businessposted a decline20 % decrease in net sales in the thirdsecond quarter of 2022,2023, as compared to the same period in the prior year (down 12%($16,878 in 2023 v. $20,996 in 2022). We experienced lower demand for our consumer pest control products, as retail channels significantly tightened their procurement activity in order to $18,936reduce working capital carrying costs. Many such retailers are operating on a just-in-time approach toward stocking, which is a break from $21,622 in 2021). In the quarter, demand forhistorical norm. Additionally, our non-crop business recorded lower net sales from our OHP nursery and ornamental products declined, as consumer spending paused on concerns over a possible economic recession. Conversely, we saw an uptick in demand for goods that we supplybusinesses, which were similarly influenced by inventory reduction at point of sale. Partially offsetting these decreases, our Dibrom® mosquito adulticide generated higher sales compared to professional pest control applicators and landscapers. Mosquito control product sales were belowthe same quarter of the prior year, third quarter, butas wet weather in the aftermathwestern United States has engendered greater mosquito pressure and, with it, the upsurge of Hurricane Ian channel inventoriesvector-borne diseases such as malaria and Zika virus. Finally, royalty and license fees for our Envance proprietary solutions were higher than the second quarter of our Dibrom adulticide are being depleted and is expected to be replenished in the next two quarters.last year.
Cost of sales within the domestic non-crop business declineddecreased by 21%about 17% in the thirdsecond quarter of 2022,2023, as compared to the same period in the prior year (from $12,740$11,752 to $9,769). This was driven by a different mix of products including some lower margin products. This, in 2021turn, led to $10,125a decrease in 2022), primarily resulting from lower sales offset by price increases and improved factory performance and associated overhead cost recovery. Grossgross profit for domestic non-crop decreased by 1%of 23% (from $8,882$9,244 in 20212022 to $8,811$7,109 in 2022).2023) and yielded a gross margin percentage of 42% versus 44% for the comparable quarter in 2022.
23
Net sales of our international businesses rosedeclined by 9%about 6% during the period ($64,06659,700 in 20222023 vs. $58,954$63,694 in 2021)2022). Broadly speaking, we experienced sales decreases in herbicides and constituted 42%soil fumigants, partially offset by increases in fungicides, foliar insecticides and granular soil insecticides Counter® and Mocap®. Regionally speaking, we posted sales decreases in the Central American market through our AgriCenter group due to Asian suppliers flooding the market with low-priced, generic products and drought conditions in Panama. Similarly, demand for our Assure II herbicide for soybeans in Canada lessened, following historically stronger sales in the first quarter. Net sales of our consolidated quarterly sales. These results were achieved despitebusiness in Brazil declined due to general market conditions that reflect price erosion competition from generic products sourced in Asia. Partly offsetting these decreases, our Australian business delivered higher sales and steady gross profits versus the challenges posed byprior year, as the strong US Dollar and various production, supply, and transportation difficulties. The business benefited from sales increases in soil fumigants, Mocap and Nemacur soil insecticides and an especially strongaddition of AgNova products has enhanced our market position. Similarly, our performance in Brazil, where our Counter nematicide sales are accelerating. Our Central American business experienced increased demand in the pineapple, banana, and citrus markets, along with continuing expansion of our Greenplants micronutrient solutions. In Mexico remained solid, despite drought conditions, our business experienced good performance by penetrating previously untapped regions of the country with at-plant fumigants and herbicides on high-value crops. Despite sufficient rainfall and heavy demand for molluscicides and other insecticide products for use on canola, winter wheat and pulse, our Australian operations posted lower sales as a result of supply constraints and transportation-related difficulties.some temporary product manufacturing impediments.
Cost of sales in our international business increaseddecreased by 12%4% (from $41,009$47,520 in 20212022 to $45,995$45,603 in 2022)2023), on sales that increasedand gross profit decreased by 9% and was impacted by cost increases (including logistics and freight) of the third-party products that we distribute.13% (to $14,097 in 2023 from $16,174 in 2022). Gross profitmargin percentage for the international businesses increased by 1% (to $18,071 in 2022business dropped to 24% from $17,945 in 2021).25% quarter-over-quarter.
On a consolidated basis,gross profit for the thirdsecond quarter of 2023 decreased by 13% (from $49,331 in 2022 increased by 8% (from $57,064to $42,909 in 2021 to $61,384 in 2022)2023). OverallTaken together, the overall gross margin percentage ended at 40%32% in the thirdsecond quarter of 2022,2023, as compared to 39%33% in the thirdsecond quarter of the prior year. The primary driver for this increase was higher selling prices coupled with improved factory performance, partially offset by inflation on raw materials and logistics and, for our international businesses, higher purchases costs related to increases in the US Dollar.
Operating expenses increased by $1,730$637 to $50,140$39,155 for the three-month period ended SeptemberJune 30, 2022,2023, as compared to the same period in 2021.2022. The changes in operating expenses by department are as follows:
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Selling |
| $ | 14,162 |
|
| $ | 12,462 |
|
| $ | 1,700 |
|
|
| 14 | % |
| $ | 13,200 |
|
| $ | 12,717 |
|
| $ | 483 |
|
|
| 4 | % |
General and administrative |
|
| 15,570 |
|
|
| 15,727 |
|
|
| (157 | ) |
|
| -1 | % |
|
|
|
|
|
|
|
|
|
|
| |||||
Other |
|
| 16,542 |
|
|
| 16,258 |
|
|
| 284 |
|
|
| 2 | % | ||||||||||||||||
Proxy contest activities |
|
| — |
|
|
| 1,785 |
|
|
| (1,785 | ) |
|
| -100 | % | ||||||||||||||||
Research, product development and regulatory |
|
| 8,513 |
|
|
| 7,674 |
|
|
| 839 |
|
|
| 11 | % |
|
| 9,413 |
|
|
| 7,758 |
|
|
| 1,655 |
|
|
| 21 | % |
Freight, delivery and warehousing |
|
| 11,895 |
|
|
| 12,547 |
|
|
| (652 | ) |
|
| -5 | % | ||||||||||||||||
Subtotal |
| $ | 50,140 |
|
| $ | 48,410 |
|
| $ | 1,730 |
|
|
| 4 | % |
| $ | 39,155 |
|
| $ | 38,518 |
|
| $ | 637 |
|
|
| 2 | % |
•
22
On April 1, 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. The Company recorded a negative fair value adjustmentsadjustment in the amount of $454 and $269 for$55 during the three months ended SeptemberJune 30, 20222023 and 2021, respectively.$486 during the comparative three months of the prior year.
24
Interest costs net of capitalized interest were $1,086$3,211 in the three-month period ended SeptemberJune 30, 2022,2023, as compared to $962$772 in the same period of 2021.2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Three months ended September 30, 2022 |
|
| Three months ended September 30, 2021 |
|
| Three months ended June 30, 2023 |
|
| Three months ended June 30, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
| ||||||||||||
Revolving line of credit (average) |
| $ | 125,441 |
|
| $ | 1,104 |
|
|
| 3.5 | % |
| $ | 147,171 |
|
| $ | 889 |
|
|
| 2.4 | % |
| $ | 152,750 |
|
| $ | 2,699 |
|
|
| 7.1 | % |
| $ | 124,184 |
|
| $ | 745 |
|
|
| 2.4 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 61 |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
Amortization of other deferred liabilities |
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
Other interest expense |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| 571 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
Subtotal |
|
| 125,441 |
|
|
| 1,174 |
|
|
| 3.7 | % |
|
| 147,171 |
|
|
| 1,013 |
|
|
| 2.8 | % |
|
| 152,750 |
|
|
| 3,325 |
|
|
| 8.7 | % |
|
| 124,184 |
|
|
| 837 |
|
|
| 2.7 | % |
Capitalized interest |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| — |
|
|
| (114 | ) |
|
| — |
|
|
| — |
|
|
| (65 | ) |
|
| — |
|
Total |
| $ | 125,441 |
|
| $ | 1,086 |
|
|
| 3.5 | % |
| $ | 147,171 |
|
| $ | 962 |
|
|
| 2.6 | % |
| $ | 152,750 |
|
| $ | 3,211 |
|
|
| 8.4 | % |
| $ | 124,184 |
|
| $ | 772 |
|
|
| 2.5 | % |
The Company’s average overall debt for the three-month period ended SeptemberJune 30, 20222023 was $125,441,$152,750, as compared to $147,171$124,184 for the three-month period ended SeptemberJune 30, 2021. Our borrowings in the three-month period ended September 30, 2022, were lower mainly due to cash generated over the last 12 months used to pay down debt, partially offset by the acquisition activity over the same period and increases in working capital in support of business growth. As can be seen from the table above, the2022. The effective bank interest rate on our revolving line of credit was 3.5%7.1% and 2.4% at each offor the three-month periodperiods ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
Income tax expense increaseddecreased by $1,446$1,184 to $2,963$1,541 for the three-month period ended SeptemberJune 30, 2022,2023, as compared to $1,517$2,725 for the comparable period in 2021.2022. The effective tax rates for the three-month period ended SeptemberJune 30, 2023, and 2022, were 315.36% and 2021, were 30.5% and 20.7%28.5%, respectively. The increase in the effective tax rate for all interim periodsthe three months ended June 30, 2023 compared to the same period in 2022 is basedprimarily due to withholding tax charges, net of income tax credits, associated with interest on the projectedcertain intercompany loans, and losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain a valuation allowance against their net deferred tax assets.
We generated income before provision for income taxes of $489 and $9,555 for the full yearthree months ended June 30, 2023 and is subject to ongoing review and adjustment by management. The increase in effective tax rate was primarily driven by the mix of our domestic and international income.
2022, respectively. Our net loss (after income taxes) for the three-month period ended SeptemberJune 30, 2022,2023, was $6,741$1,052 or $0.23($0.04) per basic and diluted share, as compared to $5,498a net income of $6,830 or $0.18$0.23 per basic and diluted share in the same quarter of 2021.2022.
NineSix Months Ended SeptemberJune 30, 20222023 and 2021:2022:
Overview of the Company’s Performance
During the first nine months of 2022,Within the global agricultural industry, maintainedthe first six months of 2023 marked a plateau to the upcycle that beganhad begun in 2021. Commodity prices remained high, driven in part bywere relatively stable, although corn and soybean prices showed vacillation. Wheat prices have risen and fallen with developments arising from the Russian invasion of Ukraine, which has servedUkraine. However, rising interest rates have engendered a newfound sense of fiscal rectitude among farmers, retailers and distributors. In an effort to reduce exports from both Russia and Ukraine, of corn, wheat, sunflower oil and fertilizer inputs intocontrol the global market, and a stronger farm economy in the U.S. Inflation in multiple countries has led to highercarrying costs of working capital, the distribution channel for crop products has tightened its procurement practices and consequently reduced demand. We have seen the same sudden shift within the non-crop markets, where big box stores, nurseries and garden centers have sharply curtailed inventory stocking. On the international side, while we have experienced consistent performance in certain markets (Mexico and Australia), LATAM markets have been flooded with low-priced generic goods and transportation; however, the strength of the farm economy was able to absorbfrom China-based companies. Amidst these effects during the subject period. Following extraordinary activity in the first quarter, domestic distribution within our industry slowed procurement modestly during the second and third quarters. All told,market dynamics, the Company’s overall operating results for the first ninesix months of 2022 improved in most all respects2023 declined over those of the same period of 2021.in 2022.
On a consolidated basis, with domestic sales up 12%down 20% and international sales updown by 14%3%, overall net sales increaseddecreased by 13% (to $449,636$257,674 in 2023 from $398,063)$297,797 in 2022). Cost of sales were up 10%reduced by 11% on an absolute basis but decreasedand, as a consequence of the comparative declines between domestic and international business, increased as a percent of net sales to 59%68% from 61%66%. Factory performance improvedWhile factory activity during the first nine monthshalf of 2022,2023 was strong, increased factory overhead costs yielded a higher net factory cost, as compared to thatthe first six months of 2021.2022. These factors, taken together, yielded an increasea 19% decrease in gross profit which was up $28,022 or 18% period-over-period(to $81,444 in 2023 from $100,727 in 2022) and improvedgross margin percentage declined to 41% of net sales, up32% from 39% during34% in the first nine monthshalf of 2021. Operating2022. In the first half of 2023, operating expenses rose on an absolute basis by 10% but declinedwere down approximately 1%, as compared to those of the prior year period and increased as a percentpercentage of net sales to 32% as compared to 33% of net sales29% from 25% for the same period of the prior year.
23
Interest expense declined slightly, while incomeincreased significantly during the period due to lower cash receipts, primarily driven by the reduced sales of our Aztec product in the last three quarters driven by supply chain challenges. This has resulted in higher average borrowings, coupled with higher interest rates, resulting in significantly higher interest expense.
Income tax expense increased to $10,187 from $5,324 duringdecreased as income before taxes was lower than the comparable period last year, primarily as a resultfirst half of stronger financial performance and higher effective tax rate. Overall, the prior year. The Company’s net income for the period increased by 71%, endingended at $23,506,$865, as compared to $13,713 during$16,765 in the first nine monthshalf of the prior year. Details on our financial performance are set forth below.
25
RESULTS OF OPERATIONS
NineSix months ended SeptemberJune 30, 2022,2023, and 20212022
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 220,503 |
|
| $ | 184,052 |
|
| $ | 36,451 |
|
|
| 20 | % |
| $ | 118,105 |
|
| $ | 151,349 |
|
| $ | (33,244 | ) |
|
| -22 | % |
U.S. non-crop |
|
| 53,648 |
|
|
| 60,563 |
|
|
| (6,915 | ) |
|
| -11 | % |
|
| 30,759 |
|
|
| 34,753 |
|
|
| (3,994 | ) |
|
| -11 | % |
Total U.S. |
|
| 274,151 |
|
|
| 244,615 |
|
|
| 29,536 |
|
|
| 12 | % |
|
| 148,864 |
|
|
| 186,102 |
|
|
| (37,238 | ) |
|
| -20 | % |
International |
|
| 175,485 |
|
|
| 153,448 |
|
|
| 22,037 |
|
|
| 14 | % |
|
| 108,810 |
|
|
| 111,695 |
|
|
| (2,885 | ) |
|
| -3 | % |
Total net sales: |
| $ | 449,636 |
|
| $ | 398,063 |
|
| $ | 51,573 |
|
|
| 13 | % |
| $ | 257,674 |
|
| $ | 297,797 |
|
| $ | (40,123 | ) |
|
| -13 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 115,904 |
|
| $ | 105,739 |
|
| $ | 10,165 |
|
|
| 10 | % |
| $ | (77,520 | ) |
| $ | (95,163 | ) |
| $ | 17,643 |
|
|
| -19 | % |
U.S. non-crop |
|
| 28,822 |
|
|
| 32,516 |
|
|
| (3,694 | ) |
|
| -11 | % |
|
| (16,461 | ) |
|
| (18,023 | ) |
|
| 1,562 |
|
|
| -9 | % |
Total U.S. |
|
| 144,726 |
|
|
| 138,255 |
|
|
| 6,471 |
|
|
| 5 | % |
|
| (93,981 | ) |
|
| (113,186 | ) |
|
| 19,205 |
|
|
| -17 | % |
International |
|
| 122,554 |
|
|
| 105,474 |
|
|
| 17,080 |
|
|
| 16 | % |
|
| (82,249 | ) |
|
| (83,884 | ) |
|
| 1,635 |
|
|
| -2 | % |
Total cost of sales: |
| $ | 267,280 |
|
| $ | 243,729 |
|
| $ | 23,551 |
|
|
| 10 | % |
| $ | (176,230 | ) |
| $ | (197,070 | ) |
| $ | 20,840 |
|
|
| -11 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
| $ | 104,599 |
|
| $ | 78,313 |
|
| $ | 26,286 |
|
|
| 34 | % |
| $ | 40,585 |
|
| $ | 56,186 |
|
| $ | (15,601 | ) |
|
| -28 | % |
U.S. non-crop |
|
| 24,826 |
|
|
| 28,047 |
|
|
| (3,221 | ) |
|
| -11 | % |
|
| 14,298 |
|
|
| 16,730 |
|
|
| (2,432 | ) |
|
| -15 | % |
Total U.S. |
|
| 129,425 |
|
|
| 106,360 |
|
|
| 23,065 |
|
|
| 22 | % |
|
| 54,883 |
|
|
| 72,916 |
|
|
| (18,033 | ) |
|
| -25 | % |
International |
|
| 52,931 |
|
|
| 47,974 |
|
|
| 4,957 |
|
|
| 10 | % |
|
| 26,561 |
|
|
| 27,811 |
|
|
| (1,250 | ) |
|
| -4 | % |
Total gross profit |
| $ | 182,356 |
|
| $ | 154,334 |
|
| $ | 28,022 |
|
|
| 18 | % |
| $ | 81,444 |
|
| $ | 100,727 |
|
| $ | (19,283 | ) |
|
| -19 | % |
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. crop |
|
| 47 | % |
|
| 43 | % |
|
|
|
|
|
|
|
| 34 | % |
|
| 37 | % |
|
|
|
|
|
| ||||
U.S. non-crop |
|
| 46 | % |
|
| 46 | % |
|
|
|
|
|
|
|
| 46 | % |
|
| 48 | % |
|
|
|
|
|
| ||||
Total U.S. |
|
| 47 | % |
|
| 43 | % |
|
|
|
|
|
|
|
| 37 | % |
|
| 39 | % |
|
|
|
|
|
| ||||
International |
|
| 30 | % |
|
| 31 | % |
|
|
|
|
|
|
|
| 24 | % |
|
| 25 | % |
|
|
|
|
|
| ||||
Total gross margin |
|
| 41 | % |
|
| 39 | % |
|
|
|
|
|
|
|
| 32 | % |
|
| 34 | % |
|
|
|
|
|
|
Our domestic crop businessrecorded net sales that were 20% above22% below those of first nine monthshalf of 2021. Assisted by consistently high crop commodity prices and a strong domestic farm economy, the Company experienced strong demand across all product categories and was able2022 (to $118,105 from $151,349). After experiencing supply chain disruptions to implement appropriate pricing actions to cover escalating material and transportation costs. Our Midwestour corn business was exceptional, with Aztec soil insecticide business during the first quarter of 2023, we experienced reduced demand during the second quarter caused by more stringent procurement patterns by the distribution channel, driven by their desire to control working capital carrying costs. This procurement slowdown translated into a significant decline in our first half sales of several herbicides and Impact herbicide brands increasing 70% over the prior year nine-month period. Our domestic cottonkey granular soil insecticides used in corn. The US crop business led bybenefited from improved sales performance of our Bidrin foliar insecticide for cotton and Folex harvest defoliant grew by over 40% in the first three quarter of 2022, as compared to the same period of 2021. Domestic Crop also benefited from very strong sales increases in Dacthalour domestic soil fumigant business for high valued vegetable crops, Assure II which is expanding sales significantly in the USpotatoes and Envoke, a newly introduced herbicide used to address glyphosate resistant weeds. The only area of demand softness was in soil fumigants, which experienced lower unit volumes due to drought conditions in Western and Southwestern states where water allocation has been implemented. However, we were able to make pricing adjustment to cover inflationary material and transportation costs in order to retain our traditional profit margins. During the first nine months of 2022, customer procurement activity was exceptionally high in the first quarter and assumed more normalized levels in the second and third quarters.high-value crops.
Cost of sales within the domestic crop business increased 10%decreased 19%, as compared to the first ninesix months of 2021,2022, primarily driven by sales that increased by 20% including increased sales of higher margin products (many of which we manufacture in our domestic facilities) and benefitting from improved factory performance.lower sales. Gross profit decreased by 28% to $40,585 from $56,186, and gross profit margin ended at 34% for domestic crop rose by 34% during the nine-month periodfirst half of 2023 as compared to $104,599 from $78,313.37% in 2022.
Our domestic non-crop business recorded an 11% decrease in net sales for the first nine monthshalf of the year (to $53,648$30,759 from $60,563)$34,753). Revenue for our Envance technologies decreased when comparedThis decrease was largely due to the same periodpurchasing slowdown in 2021, due primarilyseveral markets, as retailers sharply reduced their procurement practices in an effort to a one-time license fee receivedcontrol their inventories. Sales in 2021, and the timing of recognizing revenue for recurring royalties. Additionally, we experienced a fall-off in consumer demand for our OHP nursery and ornamental products, which we attributebusiness and sales of our consumer-oriented pest strip business both suffered from this procurement shift, as distribution channels and consumer-facing retailers sought to a pause in consumer spending caused by concerns over possible economic recession.work down inventory levels. Sales of our Dibrom® mosquito adulticide remained nearly flatrose slightly as did demand for commercial pest control products (pest stripsrainy weather in the western United States prompted unexpected non-Gulf Coast purchasing. The non-crop business benefited from steady pharmaceutical product sales business and bifenthrin).increased royalty payments relating to licenses of our Envance formulations.
24
Cost of sales within the domestic non-crop business decreased by 11%9%, (to $28,822$16,461 in 20222023 from $32,516$18,023 in 2021) on net sales that were down by 11%2022). Gross profit for domestic non-crop decreased by 11% (to $24,82615% to $14,298 in 20222023 from $28,047$16,730 in 2021),2022, due largely to decreased sales and a higher volume of lower-margin products. Gross margin percentage for the non-recurrence of a one-time, upfront license feesix months ended at 46%, as described above.compared to 48% for the same period in 2022.
26
Net sales of our international businesses increaseddecreased by 14%3% during the first three quartershalf of 20222023 (to $175,485$108,810 in 20222023 from $153,448$111,695 in 2021)2022). Central America, and Mexico both deliveredwhich had experienced double-digit growth by satisfying continuingin the first quarter, struggled during the second quarter with declining sales in Panama due to drought and the increased competition throughout the region from generic products sourced in Asia. Mexico continued to generate strong results throughout the first half, with solid demand for soil fumigants (on high-value crops), Bromacil herbicides and various granular insecticides. Brazil continued an upward trend (grew over 35%) fueled by further market penetration of our Counter granular insecticide/nematicide.Similarly, Australia matched prior yearenjoyed improved sales driven by our expanded market footprint followingfavorable weather and the integrationbenefits of integrating the acquired AgNova business, partially offsetbusiness. Brazil continues to be challenged by supplyprice erosion caused by channel inventory overstocking and logistics challenges. Significant product sales improvements included Mocap and Nemacur insecticides (together growing over 40%) and Assure II herbicide growing approximately 250%.low-priced generic pricing.
Cost of sales in our international business increaseddecreased by 16%2% (to $122,544$82,249 in 20222023 from $105,474$83,884 in 2021)2022) primarily driven by volume growth and impacted by increased prices from the strengthening US Dollar, and general inflation on materials and associated logistics costs.a decline in volume. Gross profit for the international businesses increaseddecreased by 10%4% to $52,931$26,561 in 2023 from $27,811 in 2022, and gross margin percentage ended at 24% down from 25% during the first ninesix months of 2022 from $47,974 during the same period in 2021.2022.
On a consolidated basis, net salesgross profit for the first ninesix months of 2022 increased 13%,2023 decreased by 19% (to $81,444 in 2023 from $100,727 in 2022). This decrease was due largely to reduced sales and gross profit increased by 18%. Our gross profita change in the first nine monthsmix of 2022 increased in part as a result of improved sales volumesbetween domestic and pricing, and improved factory performance.international customers. Gross margin performance, when expressed as a percentage of sales, rosedecreased to 41%32% from 39% year-over-year.34%.
Operating expenses increaseddecreased by $12,616$742 to $145,550$74,423 for the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, as compared to the same period in 2021.2022. The changes in operating expenses by department are as follows:
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Selling |
| $ | 37,844 |
|
| $ | 35,184 |
|
| $ | 2,660 |
|
|
| 8 | % |
| $ | 26,571 |
|
| $ | 23,961 |
|
| $ | 2,610 |
|
|
| 11 | % |
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Other |
|
| 50,262 |
|
|
| 46,859 |
|
|
| 3,403 |
|
|
| 7 | % |
|
| 29,028 |
|
|
| 34,691 |
|
|
| (5,663 | ) |
|
| -16 | % |
Proxy contest activities |
|
| 1,785 |
|
|
| — |
|
|
| 1,785 |
|
|
| 100 | % |
|
| 541 |
|
|
| 1,785 |
|
|
| (1,244 | ) |
|
| -70 | % |
Research, product development and regulatory |
|
| 23,241 |
|
|
| 21,221 |
|
|
| 2,020 |
|
|
| 10 | % |
|
| 18,283 |
|
|
| 14,728 |
|
|
| 3,555 |
|
|
| 24 | % |
Freight, delivery and warehousing |
|
| 32,418 |
|
|
| 29,670 |
|
|
| 2,748 |
|
|
| 9 | % | ||||||||||||||||
|
| $ | 145,550 |
|
| $ | 132,934 |
|
| $ | 12,616 |
|
|
| 9 | % |
| $ | 74,423 |
|
| $ | 75,165 |
|
| $ | (742 | ) |
|
| -1 | % |
During the nine-monthsix-month period ended SeptemberJune 30, 2023 and 2022, the Company recorded a decrease in the fair value of our equity investment in Clean Seed in the amount of $857 and recorded an increase in the amount$77, as compared to a decrease of $103$403 during the ninesix months ended SeptemberJune 30, 2021.2022. These changes in fair value of our investment directly reflect changes in the stock’s quoted market price.
2725
During the nine-month period ended September 30, 2021, a Paycheck Protection Program loan assumed on the acquisition of Agrinos in the fourth quarter of 2020 was fully extinguished with the majority of the balance forgiven and recorded as other income in the Company’s condensed consolidated statements of operations in the amount of $672.
Interest costs net of capitalized interest were $2,256$4,898 in the first nine-monthsix-month period of 2022,2023, as compared to $2,921$1,170 in the same period of 2021.2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Nine months ended September 30, 2022 |
|
| Nine months ended September 30, 2021 |
|
| Six months ended June 30, 2023 |
|
| Six months ended June 30, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
| ||||||||||||
Revolving line of credit (average) |
| $ | 111,939 |
|
| $ | 2,250 |
|
|
| 2.7 | % |
| $ | 144,405 |
|
| $ | 2,733 |
|
|
| 2.5 | % |
| $ | 123,248 |
|
| $ | 4,241 |
|
|
| 6.9 | % |
| $ | 105,076 |
|
| $ | 1,146 |
|
|
| 2.2 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 199 |
|
|
| — |
|
|
| — |
|
|
| 230 |
|
|
| — |
|
|
| — |
|
|
| 118 |
|
|
| — |
|
|
| — |
|
|
| 138 |
|
|
| — |
|
Amortization of other deferred liabilities |
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| — |
|
Other interest expense |
|
| — |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| 140 |
|
|
| — |
|
|
| — |
|
|
| 700 |
|
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
Subtotal |
|
| 111,939 |
|
|
| 2,496 |
|
|
| 3.0 | % |
|
| 144,405 |
|
|
| 3,097 |
|
|
| 2.9 | % |
|
| 123,248 |
|
|
| 5,059 |
|
|
| 8.2 | % |
|
| 105,076 |
|
|
| 1,322 |
|
|
| 2.5 | % |
Capitalized interest |
|
| — |
|
|
| (240 | ) |
|
| — |
|
|
| — |
|
|
| (176 | ) |
|
| — |
|
|
| — |
|
|
| (161 | ) |
|
| — |
|
|
| — |
|
|
| (152 | ) |
|
| — |
|
Total |
| $ | 111,939 |
|
| $ | 2,256 |
|
|
| 2.7 | % |
| $ | 144,405 |
|
| $ | 2,921 |
|
|
| 2.7 | % |
| $ | 123,248 |
|
| $ | 4,898 |
|
|
| 7.9 | % |
| $ | 105,076 |
|
| $ | 1,170 |
|
|
| 2.2 | % |
The Company’s average overall debt for the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, was $111,939,$123,248, as compared to $144,405$105,076 for the nine monthssix-month period ended SeptemberJune 30, 2021. During the period, we continued to focus on our use of revolving debt, while funding working capital for the growing business. As can be seen from the table above, our2022. Our effective bank interest rate on our revolving line of credit was 2.7%6.9% for the ninesix months ended SeptemberJune 30, 2022,2023, as compared to 2.5% for the same period of 2021.2.2% in 2022.
Income tax expense increaseddecreased by $4,863$6,043 to end at $10,187$1,181 for the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, as compared to income tax expense of $5,324$7,224 for the comparable period in 2021.2022. The effective tax rate for the ninesix months ended SeptemberJune 30, 2022,2023, was 30.2%57.7% as compared to 27.4%30.11% for the same period last year. The increase in effective income tax rate has increasedin 2023 compared to the prior year reflecting a mixis primarily due to withholding tax charges, net of income tax credits, associated with interest on certain intercompany loans, losses incurred at certain entities which did not result in differenta benefit for income tax purposes as these entities continue to maintain a valuation allowance against their net deferred tax assets, and establishing liabilities for uncertain tax positions in certain jurisdictions. For tax years beginning after December 31, 2021,These factors were partially offset by a benefit from the Tax Cutsremeasurement of certain U.S. federal and Jobs Act (“TCJA”) of 2017 amends Internal Revenue Code Section 174 wherein research and development expenditures will no longer be deducted in the tax year that such costs are incurred but must now be capitalized and amortized over either a five- or fifteen-year period, depending on the location of the activities performed. The effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management.state deferred taxes.
We generated income before provision before income taxes of $2,046 and $23,989 for the six months ended June 30, 2023 and 2022, respectively. Our net income (after income taxes) for the nine-monthsix-month period ended SeptemberJune 30, 20222023 was $23,506$865 or $0.80$0.03 per basic and $0.78 per diluted share, as compared to $13,713$16,765 or $0.46$0.57 per basic and $0.45$0.55 per diluted share in the same period of 2021.2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s operating activities utilized net cash of $45,678$96,602 during the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, as compared to $174$27,230 during the ninesix months ended SeptemberJune 30, 2021.2022. Included in the $45,678$96,602 are net income of $23,506,$865, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $19,305, loss on disposal of property, plant and equipment of $265, amortization of deferred loan fees of $174$12,146, and provision for bad debts in the amount of $597.$902, change in deferred income taxes of $1,015 and changes in liabilities for uncertain tax positions or unrecognized tax benefits of $419. Also included are stock-based compensation of $4,396, adjustment to contingent consideration in the amount of $621, increase in deferred income taxes of $64,$2,541, change in fair value of an equity investment of $857,$77, and net foreign currency adjustments of $218.$382. These together provided net cash inflows of $49,903,$15,670, as compared to $39,606$34,353 for the same period of 2021.2022.
During the nine-monthsix-month period of 2022,2023, the Company increased working capital by $97,986,$110,845, as compared to an increase of $37,611$68,187 during the same period of the prior year. Included in this change: inventories increased by $38,987,$50,900, as compared to $4,325$27,774 for the same period of 2021.2022. While increases in inventory are normal for the Company’s annual cycle, this year the Company decided this yearhas seen distinct changes in buying patterns across its global markets as customers are pushing back purchase close to bring in raw materials earlier than in prior seasons in order to secure our needstime of key materials for the balance of the yearuse as they manage working capital and the start of the next growing season.interest expense.
28
Customer prepayments decreased by $62,831,$83,225, as compared to $38,272$62,789 in the same period of 2021,2022, driven by customer decisions regarding demand, payment timing and our cash incentive programs. The $83,225 also includes a repayment to a customer in the amount of $17,500 due to the lack of product availability caused by supply chain disruptions. Our accounts payable balances increased by $14,418,$9,105, as compared to $19,439 in the same period of 2022, as we work to manage inventory growth. Accounts receivables decreased by $6,092, as compared to an increase of $7,769$18,645 in the same period of 2021,2022. This is primarily driven by increased factory activity levels. Accounts receivablesa decrease in sales. Prepaid expenses increased by $46,289,$1,749, as compared to an increase of $42,979$3,652 in the same period of 2021. This is primarily driven2022. Income tax receivable changed by increased group sales and strong international growth. Prepaid expenses increased by $4,272,$3,510, as compared to $2,194 in the same period of 2021. Income tax receivable increased by $5,201, as compared to a decrease of $2,031$3,526 in the prior year. Accrued programs increased by $45,016, (as$19,607, as compared to $33,982$35,987 in the prior year), which is normal at this point in the growing season.year, driven by lower sales activity. Finally, other payables and accrued expenses increaseddecreased by $2,555,$7,824, as compared to $4,025an increase of $602 in the prior year.
With regard to our
26
Accrued program accrual, the increase (as noted above) primarily reflects our volume and mix of sales (certain productscosts are marketed with higher levels of program accruals), and mix of customers in the first nine months of 2022, as compared to the prior year. The Company accrues programsrecorded in line with the growing season upon which specific products are targeted. Typically crop products have a growing season that ends on September 30th of each year. During the first ninesix months of 2022,2023, the Company made accruals for programs in the amount of $78,640$44,714 and payments in the amount of $33,869.$25,124, resulting in a net increase in accrued program costs of $19,607. During the first ninesix months of the prior year, the Company made accruals in the amount of $59,267$67,274 and made payments in the amount of $25,353.$31,367, resulting in a net increase of accrued program costs of $35,987. The increasedecrease in accruals for programs in the first ninesix months of 2022,2023, compared to the same period in 2021,2022, is a direct result of an increase inlower sales of qualifying products.
Cash used for investing activities for the nine-monthsix-month period ended SeptemberJune 30, 2023, and 2022 was $7,172 and 2021 was $9,978 and $18,431,$6,671, respectively. The $18,431 in 2021 includes a product acquisition in the amount of $10,000. No such acquisition took place in the current year. In 2022,2023, the Company spent $8,946$6,498 on purchases of fixed assets primarily focused on continuing to invest in manufacturing infrastructure. In addition,infrastructure, as compared to $5,654 for the same period of prior year. The Company made a payment of $1,000 to Clean Seed to amend$650 for a license agreement under which royalty-bearing license rights were converted to fully paid-up, royalty-free, perpetual license rights,product acquisition and spent $78$68 on patents for the Envance technology business. In addition, the Company received proceeds from disposal of property, plant and equipment in the amount of $44, as compared to $27 in prior year.
During the nine-month periodsix months ended SeptemberJune 30, 2022,2023, financing activities provided $59,797,$98,086, as compared to $19,974$40,027 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $96,000$108,450 during the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, as compared to $28,592$48,400 in the same period of the prior year. The Company paid dividends to stockholders amounting to $2,072$1,702 during the ninesix months ended SeptemberJune 30, 2022,2023, as compared to $1,789$1,330 in the same period of 2021.2022. The Company paid $13,731$7,226 for the repurchase of 720,350408,201 shares of its common stock during the nine-monthsix-month period ended SeptemberJune 30, 2022 and $20,000 in connection with an accelerated share repurchase program. There were no such purchases2023, as compared to $6,232 for 333,010 shares during the nine-monthsix-month period ended SeptemberJune 30, 2021.2022. The Company received $837$512 for the issuance of ESPP shares under ESPP duringand exercise of stock options for the nine-month periodsix months ended SeptemberJune 30, 2022,2023, as compared to $743$1,202 for the same period lastin prior year. The Company also received $783 from the exercise of stock options during the nine-month period ended September 30, 2022, as compared to $172 in the prior period. Lastly, in exchange for shares of common stock returned by employees, the Company paid $2,020$1,948 and $2,915$2,012 for tax withholding on stock-based compensation awards during the nine-monthssix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at SeptemberJune 30, 20222023 and December 31, 2021.2022. These are summarized in the following table:
Long-term indebtedness ($000's) |
| September 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
Revolving line of credit |
| $ | 149,300 |
|
| $ | 53,300 |
|
| $ | 160,750 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (886 | ) |
|
| (1,060 | ) |
|
| (863 | ) |
|
| (823 | ) |
Net long-term debt |
| $ | 148,414 |
|
| $ | 52,240 |
|
| $ | 159,887 |
|
| $ | 51,477 |
|
At SeptemberAs of June 30, 2022,2023, the Company was compliantin compliance with all covenants to its credit agreement. Also, at September 30, 2022, the Company’s totalConsolidated Funded Debt amountedRatio but noncompliant with respect to $149,300. At that date the Company’s rolling four quarterFixed Charge Covenant ratio (“FCCR”). The noncompliance was driven by a reduction in the Consolidated EBITDA (as defined(in the numerator of the FCCR calculation) during the twelve months ended June 30, 2023, coupled with higher-than-normal distributions (in the denominator of the FCCR calculation) arising from share repurchases made by the Company during the same period. On August 3, 2023, the Company obtained a waiver for the FCCR noncompliance. The impact of most of the share repurchases will be eliminated from the denominator in the FCCR calculation in the third quarter of 2023.
At June 30, 2023, according to the terms of the Credit Agreement, see Note 10) amounted to $77,167, which results in a leverage ratio of 1.93, as compared to a maximum leverage ratio permitted underamended, and based on our performance against the Credit Agreement of 3.5. At September 30, 2022,most restrictive covenant listed above, the Company hashad the capacity to increase its borrowings by up to $120,783, according$22,858, compared to the terms thereof. This compares to an available borrowing capacity of $94,973$200,372 as of September 30, 2021. At December 31, 2021, the Company had borrowing capacity of $178,705. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for both the trailing twelve-month period and proforma basis arising from acquisitions, (2) net borrowings, and (3) the leverage covenant (the TL Ratio).2022.
We believe that anticipated cash flow from operations, existing cash balances and available borrowings under our amended senior credit facility will be sufficient to provide us with liquidity necessary to fund our working capital and cash requirements for the next twelve months.
2927
RECENTLY ISSUED ACCOUNTING GUIDANCE
Please refer to Note 1516 in the accompanying Notesnotes to the condensed consolidated financial statements for recently issued accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company continually re-assesses the critical accounting policies used in preparing its financial statements. In the Company’s Form 10-K filed with the SEC for the year ended December 31, 2021,2022, the Company provided a comprehensive statement of critical accounting policies. These policies have been reviewed in detail as part of the preparation work for this Form 10-Q. After our review of these matters, we have determined that, during the subject reporting period, there has been no material change to the critical accounting policies that are listed in the Company’s Form 10-K for the year ended December 31, 2021.2022.
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 updates to estimates and assumptions are reflected in the condensed consolidated financial statements in the period that these updates are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions. Our estimates did not change materially during the three-three and nine-monthssix months ended SeptemberJune 30, 2022.2023.
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, 20212022, and noteNote 10 in the accompanying notes to the condensed consolidated financial statements.
The Company faces market risk to the extent that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency as to foreign subsidiaries’ revenues, expenses, assets and liabilities. The Company currently does not engage in hedging activities with respect to such exchange rate risks.
Assets and liabilities outside the U.S. are located in regions where the Company has subsidiaries or joint ventures: Central America, South America, North America, Europe, Asia, and Australia. The Company’s investments in foreign subsidiaries and joint ventures with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company does not hedge these net investments.
Item 4. CONTROLS AND PROCEDURES
As of SeptemberJune 30, 2022,2023, the Company has a comprehensive set of disclosure controls and procedures designed to ensure that all information required to be disclosed in our filings under the Securities Exchange Act (1934) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of SeptemberJune 30, 2022,2023, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has concluded, based on their evaluation, that the Company’s disclosure controls and procedures are effective to provide reasonable assurance of the achievement of the objectives described above.
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 controls over financial reporting.
3028
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
Please refer to Note 1415 in the accompanying Notesnotes to the condensed consolidated financial statements for legal updates.
Item 1A. Risk Factors
The Company continually re-assesses the business risks, and as part of that process detailed a range of risk factors in the disclosures in American Vanguard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, filed on March 14, 2022. There16, 2023. The following disclosure amends and supplements those risk factors and, except to the extent restated below, there are no material changes to the risk factors as so stated.
DomesticDisruption in the global supply chain is creating delays, unavailability and regional inflation trends, increased interest ratesadverse conditions for our industry—Despite improvement in container availability and other factors could leadfreight costs, the global supply chain continues to present risk. Industry consolidation, coupled with longer-term production commitments, has materially affected the erosionCompany’s supply of economiesraw materials and adversely impactintermediates in the Company. Both the US and many other countries are experiencing inflation, which, in turn, is leading to increase costs in multiple industry segments, including agriculture and related industries. The persistence of inflation has led central bankers to increase interest rates within their regions.past. There is no guarantee that these measuresthe supply chain condition will arrestmaterially improve any time soon or that the inflationary trend. Further, these factors, taken together with reduced productivity and constraintsCompany will avoid material disruption. Such disruption could have a material adverse effect on the laborCompany’s operations, financial condition or cash flows.
The Company is dependent upon sole source or a limited number of suppliers for certain of its raw materials and active ingredients—There are a limited number of suppliers of certain important raw materials used by the Company in a number of its products. Certain of these raw materials are available solely from single or very few sources either domestically or overseas. In connection with supply could leadchain disruptions in 2022 phosphorus and related compounds were increasingly difficult to recessionary periodssource for our entire industry; ensuring a continuous supply required extraordinary efforts both with respect to sourcing and production planning. Similarly, in the regionsfirst half of 2023, DCPA, the active ingredient in which the Company does business. While the Company takes measures within its control to manage the effects of inflation, higher interest rates and other factors, ultimately, they are outsideone of the Company’s control. Further,high-margin herbicides, was unavailable from its overseas supplier. That said, there is no guarantee that any of our suppliers will be willing or able to supply products to the persistence and/Company reliably, continuously and at the levels anticipated by the Company or severity of onerequired by the market. If these sources prove to be unreliable and the Company is not able to supplant or more of themotherwise second source these products, it is possible that the Company will not achieve its projected sales which, in turn, could adversely affect the Company's consolidated financial performancestatements.
The Company benefits from customer early pay in meeting its working capital needs—As is the case with other companies in this industry, the Company receives cash from certain major customers at year-end in exchange for granting discounts on the Company’s products during the first half of the following year. The Company typically uses this cash to pay down secured debt and for other working capital needs. This flow of cash obviates the need for additional borrowing, which, in turn, preserves borrowing capacity used in part for paying customer programs in the middle of the calendar year and, consequently, reduces interest expense. There is no guarantee that the Company’s customers will continue to support the early pay program at current levels. Further a material change in this program could have an adverse effect upon the Company’s liquidity and its ability to meet working capital demands.
Public statements made by USEPA regarding their preliminary findings in connection with the registration review of the Company’s products could adversely affect product sales and/or operationscommercial viability. Registrations for the Company’s products are subject to registration review by the USEPA from time to time. In the course of the Company.review, the Company submits, and the USEPA reviews, data studies. At any stage in the course of the review, USEPA may reach preliminary findings that could impair the commercial viability of a product. For example, in connection with USEPA’s review of the DCPA registration, based upon a comparative thyroid assay study (which is comparatively rare and quite complex), based upon limited data points, the USEPA found an adverse effect upon neonate rodents. Consequently, in June 2023, the agency published preliminary findings, noting its concern that based upon current, permitted use patterns, the product could have an adverse effect upon human health and, in particular, pregnant women. At the same time, the agency invited the Company to examine mitigation measures to allay their concerns, which the Company is doing. There is no guarantee that mitigation measures or additional data proffered by the Company will be sufficient to overcome USEPA’s conclusions. Further, it is possible that the agency could take more drastic measures to either reduce the use or cancel the registration of the product. Regulatory activities of this nature, whether in connection with DCPA or other products of significance, could have a material adverse effect upon the Company’s financial performance.
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Item 2. Purchases of Equity Securities by the Issuer
The Company periodically repurchases shares of its common stock under a board-authorized repurchase program through a combination of open market transactions, and accelerated share repurchase (ASR) arrangements.
On March 8, 2022,May 25, 2023, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to 1,000,000 shares$15 million of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws.
The table below summarizes the number of shares of our common stock that were repurchased during the three- and nine-month periods ended September 30, 2022. There were no such purchases during the three- and nine-month periods ended September 30, 2021. The shares and respective amount are recorded as treasury shares on the Company’s condensed consolidated balance sheet.
Month ended |
| Total number of |
|
| Average price |
|
| Total amount paid |
|
| Maximum number |
| ||||
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
Balance at March 31, 2022 |
|
| 332,404 |
|
|
|
|
| $ | 6,219 |
|
|
| 667,596 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
April 30, 2022 |
|
| 100 |
|
| $ | 19.99 |
|
| $ | 2 |
|
|
| 667,496 |
|
May 31, 2022 |
|
| 506 |
|
| $ | 19.99 |
|
| $ | 11 |
|
|
| 666,990 |
|
Balance at June 30, 2022 |
|
| 606 |
|
| $ | 19.99 |
|
| $ | 13 |
|
|
| 666,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
August 31, 2022 |
|
| 165,039 |
|
| $ | 19.59 |
|
| $ | 3,234 |
|
|
| 501,951 |
|
September 30, 2022 |
|
| 222,301 |
|
| $ | 19.19 |
|
| $ | 4,265 |
|
|
| 279,650 |
|
Balance at September 30, 2022 |
|
| 387,340 |
|
| $ | 19.36 |
|
| $ | 7,499 |
|
|
| 279,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total number of shares repurchased |
|
| 720,350 |
|
| $ | 19.06 |
|
| $ | 13,731 |
|
|
| 279,650 |
|
On August 22, 2022, pursuant to a Board of Directors resolution, the Company entered into an accelerated share repurchase arrangement to repurchase $20,000 of its common stock. Under the agreement, the Company paid $20,000 and immediately received an initial delivery of 802,810 shares in the amount of $16,000, which the Company recorded as treasury shares. The Company recorded the remaining $4,000 as a reduction to additional paid-in capital pending final settlement in the fourth quarter of 2022. The final number of shares that the Company ultimately receives under the agreement will be determined based on the average of the Rule 10b-18 volume-weighted average prices of the Company’s common stock during the term of the agreement, less and agreed discount, and subject to adjustments pursuant to the terms of the agreement.
31
The table below summarizes the number of shares of the Company’s common stock that were received under the accelerated share repurchase arrangementrepurchased during the three-three and nine-month periodssix months ended SeptemberJune 30, 2022. There were no such transactions during the three-2023 and nine-month periods ended September 30, 2021.2022.
Month ended |
| Total number of |
|
| Average price |
|
| Total amount paid |
| |||
August 31, 2022 |
|
| 802,810 |
|
| $ | 19.93 |
|
| $ | 16,000 |
|
Three months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
| |||
June 30, 2023 |
|
| 380,366 |
|
| $ | 17.51 |
|
| $ | 6,669 |
|
June 30, 2022 |
|
| 606 |
|
| $ | 19.99 |
|
| $ | 13 |
|
|
|
|
|
|
|
|
|
|
| |||
Six months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
| |||
June 30, 2023 |
|
| 408,201 |
|
| $ | 17.88 |
|
| $ | 7,226 |
|
June 30, 2022 |
|
| 333,010 |
|
| $ | 18.71 |
|
| $ | 6,232 |
|
In summary,
As of June 30, 2023, the Company added a totalmay yet purchase up to $8,331 of 1,190,150 and 1,523,160 of treasury shares of the Company’sits common stock during the three- and nine-month periods ended September 30, 2022.under its current 10b5-1 plan.
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Item 6. Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K:
Exhibit No. | Description | |
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. | |
101 | The following materials from American Vanguard Corp’s Quarterly Report on Form 10-Q for the quarter ended | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
american vanguard corporation | ||
Dated: | By: | /s/ eric g. wintemute |
Eric G. Wintemute | ||
Chief Executive Officer and Chairman of the Board | ||
Dated: | By: | /s/ david t. johnson |
David T. Johnson | ||
Chief Financial Officer & Principal Accounting Officer |
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