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 MARCH 31,SEPTEMBER 30, 2023
☐ 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, |
| 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, $0.10$.10 Par Value—Value — 29,415,13628,750,439 shares as of April 27,November 2, 2023.
AMERICAN VANGUARD CORPORATION
INDEX
| Page Number | |||
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| Condensed Consolidated Statements of Comprehensive Income (Loss) |
| 4 | |
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| 5 | |||
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| 6 | |||
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8 | ||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 30 | |||
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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 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net sales |
| $ | 124,885 |
|
| $ | 149,593 |
|
Cost of sales |
|
| (86,348 | ) |
|
| (98,198 | ) |
Gross profit |
|
| 38,537 |
|
|
| 51,395 |
|
Operating expenses |
|
| (35,272 | ) |
|
| (36,646 | ) |
Operating income |
|
| 3,265 |
|
|
| 14,749 |
|
Change in fair value of an equity investment |
|
| (22 | ) |
|
| 83 |
|
Interest expense, net |
|
| (1,686 | ) |
|
| (398 | ) |
Income before provision for income taxes |
|
| 1,557 |
|
|
| 14,434 |
|
Income tax benefit (expense) |
|
| 361 |
|
|
| (4,499 | ) |
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
Earnings per common share—basic |
| $ | 0.07 |
|
| $ | 0.33 |
|
Earnings per common share—assuming dilution |
| $ | 0.07 |
|
| $ | 0.33 |
|
Weighted average shares outstanding—basic |
|
| 28,367 |
|
|
| 29,677 |
|
Weighted average shares outstanding—assuming dilution |
|
| 29,073 |
|
|
| 30,349 |
|
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 149,516 |
|
| $ | 152,267 |
|
| $ | 407,191 |
|
| $ | 450,063 |
|
Cost of sales |
|
| (106,432 | ) |
|
| (102,629 | ) |
|
| (282,662 | ) |
|
| (299,698 | ) |
Gross profit |
|
| 43,084 |
|
|
| 49,638 |
|
|
| 124,529 |
|
|
| 150,365 |
|
Operating expenses |
|
| (38,893 | ) |
|
| (38,394 | ) |
|
| (113,317 | ) |
|
| (113,559 | ) |
Operating income |
|
| 4,191 |
|
|
| 11,244 |
|
|
| 11,212 |
|
|
| 36,806 |
|
Change in fair value of equity investments |
|
| (247 | ) |
|
| (454 | ) |
|
| (324 | ) |
|
| (857 | ) |
Interest expense, net |
|
| (3,384 | ) |
|
| (1,086 | ) |
|
| (8,282 | ) |
|
| (2,256 | ) |
Income before provision for income taxes |
|
| 560 |
|
|
| 9,704 |
|
|
| 2,606 |
|
|
| 33,693 |
|
Income tax expense |
|
| (885 | ) |
|
| (2,963 | ) |
|
| (2,066 | ) |
|
| (10,187 | ) |
Net income (loss) |
| $ | (325 | ) |
| $ | 6,741 |
|
| $ | 540 |
|
| $ | 23,506 |
|
Net income (loss) per common share—basic |
| $ | (.01 | ) |
| $ | .23 |
|
| $ | .02 |
|
| $ | .80 |
|
Net income (loss) per common share—assuming dilution |
| $ | (.01 | ) |
| $ | .23 |
|
| $ | .02 |
|
| $ | .78 |
|
Weighted average shares outstanding—basic |
|
| 27,919 |
|
|
| 29,214 |
|
|
| 28,236 |
|
|
| 29,496 |
|
Weighted average shares outstanding—assuming dilution |
|
| 27,919 |
|
|
| 29,805 |
|
|
| 28,656 |
|
|
| 30,128 |
|
See notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
3
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
| For the three months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
Other comprehensive income: |
|
|
|
|
|
| ||
Foreign currency translation adjustment, net of tax effects |
|
| 2,546 |
|
|
| 7,080 |
|
Comprehensive income |
| $ | 4,464 |
|
| $ | 17,015 |
|
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | (325 | ) |
| $ | 6,741 |
|
| $ | 540 |
|
| $ | 23,506 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment, net of tax effects |
|
| (3,123 | ) |
|
| (2,764 | ) |
|
| 2,928 |
|
|
| (1,748 | ) |
Comprehensive income (loss) |
| $ | (3,448 | ) |
| $ | 3,977 |
|
| $ | 3,468 |
|
| $ | 21,758 |
|
See notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
|
| March 31, |
|
| December 31, |
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 19,568 |
|
| $ | 20,328 |
|
Receivables: |
|
|
|
|
|
| ||
Trade, net of allowance for doubtful accounts of $5,692 and $5,136, respectively |
|
| 166,120 |
|
|
| 156,492 |
|
Other |
|
| 9,999 |
|
|
| 9,816 |
|
Total receivables, net |
|
| 176,119 |
|
|
| 166,308 |
|
Inventories |
|
| 219,080 |
|
|
| 184,190 |
|
Prepaid expenses |
|
| 15,324 |
|
|
| 15,850 |
|
Income taxes receivable |
|
| 4,879 |
|
|
| 1,891 |
|
Total current assets |
|
| 434,970 |
|
|
| 388,567 |
|
Property, plant and equipment, net |
|
| 71,538 |
|
|
| 70,912 |
|
Operating lease right-of-use assets |
|
| 24,460 |
|
|
| 24,250 |
|
Intangible assets, net |
|
| 181,909 |
|
|
| 184,664 |
|
Goodwill |
|
| 47,366 |
|
|
| 47,010 |
|
Other assets |
|
| 10,610 |
|
|
| 10,769 |
|
Deferred income tax assets, net |
|
| 220 |
|
|
| 141 |
|
Total assets |
| $ | 771,073 |
|
| $ | 726,313 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |||||||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 74,887 |
|
| $ | 69,000 |
|
Customer prepayments |
|
| 70,338 |
|
|
| 110,597 |
|
Accrued program costs |
|
| 71,379 |
|
|
| 60,743 |
|
Accrued expenses and other payables |
|
| 38,038 |
|
|
| 20,982 |
|
Operating lease liabilities, current |
|
| 5,367 |
|
|
| 5,279 |
|
Total current liabilities |
|
| 260,009 |
|
|
| 266,601 |
|
Long-term debt, net |
|
| 97,000 |
|
|
| 51,477 |
|
Operating lease liabilities, long term |
|
| 19,614 |
|
|
| 19,492 |
|
Other liabilities, net of current installments |
|
| 4,648 |
|
|
| 4,167 |
|
Deferred income tax liabilities, net |
|
| 14,808 |
|
|
| 14,597 |
|
Total liabilities |
|
| 396,079 |
|
|
| 356,334 |
|
Commitments and contingent liabilities (Notes 15 and 17) |
|
|
|
|
|
| ||
Stockholders' equity: |
|
|
|
|
|
| ||
Preferred stock, $0.10 par value per share; authorized 400,000 shares; none issued |
|
| — |
|
|
| — |
|
Common stock, $0.10 par value per share; authorized 40,000,000 shares; issued |
|
| 3,446 |
|
|
| 3,444 |
|
Additional paid-in capital |
|
| 107,591 |
|
|
| 105,634 |
|
Accumulated other comprehensive loss |
|
| (9,636 | ) |
|
| (12,182 | ) |
Retained earnings |
|
| 329,812 |
|
|
| 328,745 |
|
Less treasury stock at cost, 5,057,727 shares at March 31, 2023 and 5,029,892 shares at December 31, 2022 |
|
| (56,219 | ) |
|
| (55,662 | ) |
Total stockholders’ equity |
|
| 374,994 |
|
|
| 369,979 |
|
Total liabilities and stockholders’ equity |
| $ | 771,073 |
|
| $ | 726,313 |
|
|
| September 30, |
|
| December 31, |
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 11,529 |
|
| $ | 20,328 |
|
Receivables: |
|
|
|
|
|
| ||
Trade, net of allowance for doubtful accounts of $6,274 and $5,136, respectively |
|
| 185,619 |
|
|
| 156,492 |
|
Other |
|
| 11,919 |
|
|
| 9,816 |
|
Total receivables, net |
|
| 197,538 |
|
|
| 166,308 |
|
Inventories |
|
| 247,932 |
|
|
| 184,190 |
|
Prepaid expenses |
|
| 8,517 |
|
|
| 15,850 |
|
Income taxes receivable |
|
| 6,071 |
|
|
| 1,891 |
|
Total current assets |
|
| 471,587 |
|
|
| 388,567 |
|
Property, plant and equipment, net |
|
| 73,205 |
|
|
| 70,912 |
|
Operating lease right-of-use assets |
|
| 22,907 |
|
|
| 24,250 |
|
Intangible assets, net |
|
| 174,918 |
|
|
| 184,664 |
|
Goodwill |
|
| 47,426 |
|
|
| 47,010 |
|
Other assets |
|
| 12,435 |
|
|
| 10,769 |
|
Deferred income tax assets, net |
|
| 366 |
|
|
| 141 |
|
Total assets |
| $ | 802,844 |
|
| $ | 726,313 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |||||||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 71,054 |
|
| $ | 69,000 |
|
Customer prepayments |
|
| 5,998 |
|
|
| 110,597 |
|
Accrued program costs |
|
| 90,367 |
|
|
| 60,743 |
|
Accrued expenses and other payables |
|
| 16,555 |
|
|
| 20,982 |
|
Current operating lease liabilities |
|
| 5,553 |
|
|
| 5,279 |
|
Total current liabilities |
|
| 189,527 |
|
|
| 266,601 |
|
Long-term debt, net |
|
| 218,000 |
|
|
| 51,477 |
|
Long-term operating lease liabilities |
|
| 18,102 |
|
|
| 19,492 |
|
Other liabilities, net of current installments |
|
| 4,805 |
|
|
| 4,167 |
|
Deferred income tax liabilities, net |
|
| 13,709 |
|
|
| 14,597 |
|
Total liabilities |
|
| 444,143 |
|
|
| 356,334 |
|
Commitments and contingent liabilities (Note14) |
|
|
|
|
|
| ||
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 |
|
| 3,467 |
|
|
| 3,444 |
|
Additional paid-in capital |
|
| 108,937 |
|
|
| 105,634 |
|
Accumulated other comprehensive loss |
|
| (9,254 | ) |
|
| (12,182 | ) |
Retained earnings |
|
| 326,752 |
|
|
| 328,745 |
|
Less treasury stock at cost, 5,915,182 shares at September 30, 2023 and 5,029,892 shares at December 31, 2022 |
|
| (71,201 | ) |
|
| (55,662 | ) |
Total stockholders’ equity |
|
| 358,701 |
|
|
| 369,979 |
|
Total liabilities and stockholders' equity |
| $ | 802,844 |
|
| $ | 726,313 |
|
See notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three and Nine Months Ended March 31,September 30, 2023
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
|
|
|
| Treasury Stock |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||
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 declared on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (851 | ) |
|
| — |
|
|
| — |
|
|
| (851 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,474 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,474 |
|
Stock options exercised; grants, termination |
|
| (4,466 | ) |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,835 |
|
|
| (557 | ) |
|
| (557 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
Balance, March 31, 2023 |
|
| 34,463,829 |
|
|
| 3,446 |
|
|
| 107,591 |
|
|
| (9,636 | ) |
|
| 329,812 |
|
|
| 5,057,727 |
|
|
| (56,219 | ) |
|
| 374,994 |
|
Cash dividends declared on common stock ($0.030 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (848 | ) |
|
| — |
|
|
| — |
|
|
| (848 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,505 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,505 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,067 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,067 |
|
Stock options exercised; grants, termination |
|
| 179,845 |
|
|
| 18 |
|
|
| (1,939 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,921 | ) |
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 380,366 |
|
|
| (6,669 | ) |
|
| (6,669 | ) |
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 |
|
Common stock issued under ESPP |
|
| 27,924 |
|
|
| 3 |
|
|
| 497 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 500 |
|
Cash dividends declared on common stock ($0.030 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (834 | ) |
|
| — |
|
|
| — |
|
|
| (834 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,123 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,123 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,716 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,716 |
|
Stock options exercised; grants, termination |
|
| (5,167 | ) |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 477,089 |
|
|
| (8,313 | ) |
|
| (8,313 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (325 | ) |
|
| — |
|
|
| — |
|
|
| (325 | ) |
Balance, September 30, 2023 |
|
| 34,666,431 |
|
| $ | 3,467 |
|
| $ | 108,937 |
|
| $ | (9,254 | ) |
| $ | 326,752 |
|
|
| 5,915,182 |
|
| $ | (71,201 | ) |
| $ | 358,701 |
|
See notes to the Condensed Consolidated Financial Statements.
6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three and March 31,Nine Months Ended September 30, 2022
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
|
| Accumulated Other |
|
|
|
|
| Treasury Stock |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,474 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,474 |
|
Stock options exercised; grants, |
|
| (4,466 | ) |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,835 |
|
|
| (557 | ) |
|
| (557 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
Balance, March 31, 2023 |
|
| 34,463,829 |
|
| $ | 3,446 |
|
| $ | 107,591 |
|
| $ | (9,636 | ) |
| $ | 329,812 |
|
|
| 5,057,727 |
|
| $ | (56,219 | ) |
| $ | 374,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2021 |
|
| 34,248,218 |
|
| $ | 3,426 |
|
| $ | 101,450 |
|
| $ | (13,784 | ) |
| $ | 304,385 |
|
|
| 3,361,040 |
|
| $ | (22,739 | ) |
| $ | 372,738 |
|
Stocks issued under ESPP |
|
| 26,751 |
|
|
| 2 |
|
|
| 434 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 436 |
|
Cash dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (736 | ) |
|
| — |
|
|
| — |
|
|
| (736 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,563 |
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,563 |
| |
Stock options exercised; grants, |
|
| (183,093 | ) |
|
| (18 | ) |
|
| (2,156 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,174 | ) |
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 332,404 |
|
|
| (6,219 | ) |
|
| (6,219 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
Balance, March 31, 2022 |
|
| 34,091,876 |
|
| $ | 3,410 |
|
| $ | 101,291 |
|
| $ | (6,704 | ) |
| $ | 313,584 |
|
|
| 3,693,444 |
|
| $ | (28,958 | ) |
| $ | 382,623 |
|
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
|
|
|
| Treasury Stock |
|
|
|
| ||||||||||||||
|
| 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 declared on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (736 | ) |
|
| — |
|
|
| — |
|
|
| (736 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,563 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,563 |
|
Stock options exercised; grants, termination |
|
| (183,093 | ) |
|
| (18 | ) |
|
| (2,156 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,174 | ) |
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 332,404 |
|
|
| (6,219 | ) |
|
| (6,219 | ) | |||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
Balance, March 31, 2022 |
|
| 34,091,876 |
|
|
| 3,410 |
|
|
| 101,291 |
|
|
| (6,704 | ) |
|
| 313,584 |
|
|
| 3,693,444 |
|
|
| (28,958 | ) |
|
| 382,623 |
|
Cash dividends declared 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 |
|
Common stock issued under ESPP |
|
| 24,489 |
|
|
| 2 |
|
|
| 399 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 401 |
|
Cash dividends delcared 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 |
|
See notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
67
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the three months |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
| $ | 540 |
|
| $ | 23,506 |
|
Adjustments to reconcile net income to net cash used in operating |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization of property, plant and equipment and intangible assets |
|
| 5,539 |
|
|
| 5,230 |
| ||||||||
Depreciation and amortization of property, plant and equipment |
|
| 6,396 |
|
|
| 6,207 |
| ||||||||
Amortization of intangibles assets |
|
| 10,009 |
|
|
| 10,442 |
| ||||||||
Amortization of other long-term assets |
|
| 714 |
|
|
| 1,173 |
|
|
| 1,445 |
|
|
| 2,656 |
|
Loss on disposal of property, plant and equipment |
|
| 7 |
|
|
| 265 |
| ||||||||
Accretion of discounted liabilities |
|
| — |
|
|
| 28 |
| ||||||||
Amortization of deferred loan fees |
|
| 174 |
|
|
| 174 |
| ||||||||
Provision for bad debts |
|
| 581 |
|
|
| 494 |
|
|
| 952 |
|
|
| 597 |
|
Fair value adjustment of contingent consideration |
|
| — |
|
|
| 599 |
| ||||||||
Fair value adjustment to contingent consideration |
|
| — |
|
|
| 621 |
| ||||||||
Stock-based compensation |
|
| 1,474 |
|
|
| 1,563 |
|
|
| 4,257 |
|
|
| 4,396 |
|
Change in deferred income taxes |
|
| 122 |
|
|
| 207 |
|
|
| (977 | ) |
|
| (64 | ) |
Change in liabilities for uncertain tax positions or unrecognized tax benefits |
|
| 371 |
|
|
| — |
| ||||||||
Other |
|
| 94 |
|
|
| 2 |
| ||||||||
Foreign currency transaction gains |
|
| (446 | ) |
|
| (261 | ) | ||||||||
Changes in liabilities for uncertain tax positions or unrecognized tax benefits |
|
| 467 |
|
|
| — |
| ||||||||
Change in fair value of equity investments |
|
| 324 |
|
|
| 857 |
| ||||||||
Net foreign currency adjustments |
|
| 199 |
|
|
| 218 |
| ||||||||
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Increase in net receivables |
|
| (8,779 | ) |
|
| (33,660 | ) |
|
| (29,055 | ) |
|
| (46,289 | ) |
Increase in inventories |
|
| (33,731 | ) |
|
| (11,738 | ) |
|
| (58,163 | ) |
|
| (38,987 | ) |
Decrease (increase) in prepaid expenses and other assets |
|
| 600 |
|
|
| (800 | ) | ||||||||
Change in income tax receivable/payable, net |
|
| (2,965 | ) |
|
| 3,046 |
| ||||||||
Increase in prepaid expenses and other assets |
|
| (633 | ) |
|
| (4,272 | ) | ||||||||
Increase in income tax receivable/payable, net |
|
| (4,046 | ) |
|
| (5,201 | ) | ||||||||
Increase in net operating lease liability |
|
| 227 |
|
|
| 10 |
| ||||||||
Increase in accounts payable |
|
| 5,655 |
|
|
| 9,677 |
|
|
| 1,240 |
|
|
| 14,418 |
|
Decrease in customer prepayments |
|
| (22,759 | ) |
|
| (44,528 | ) |
|
| (104,590 | ) |
|
| (62,831 | ) |
Increase in accrued program costs |
|
| 10,660 |
|
|
| 24,601 |
|
|
| 29,779 |
|
|
| 45,016 |
|
(Decrease) increase in other payables and accrued expenses |
|
| (500 | ) |
|
| 2,145 |
|
|
| (4,406 | ) |
|
| 2,555 |
|
Net cash used in operating activities |
|
| (41,452 | ) |
|
| (32,315 | ) |
|
| (145,854 | ) |
|
| (45,678 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capital expenditures |
|
| (2,590 | ) |
|
| (3,294 | ) |
|
| (8,589 | ) |
|
| (8,946 | ) |
Proceeds from disposal of property, plant and equipment |
|
| — |
|
|
| 54 |
|
|
| 200 |
|
|
| 46 |
|
Acquisition of a product line |
|
| (703 | ) |
|
| — |
| ||||||||
Intangible assets |
|
| (15 | ) |
|
| (1,010 | ) |
|
| (759 | ) |
|
| (1,078 | ) |
Net cash used in investing activities |
|
| (3,308 | ) |
|
| (4,250 | ) |
|
| (9,148 | ) |
|
| (9,978 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payments under line of credit agreement |
|
| (27,300 | ) |
|
| (12,000 | ) |
|
| (62,800 | ) |
|
| (64,000 | ) |
Borrowings under line of credit agreement |
|
| 72,000 |
|
|
| 58,000 |
|
|
| 228,500 |
|
|
| 160,000 |
|
Net receipt from the issuance of common stock under ESPP |
|
| 480 |
|
|
| 436 |
|
|
| 980 |
|
|
| 837 |
|
Net receipt from the exercise of stock options |
|
| 18 |
|
|
| — |
|
|
| 46 |
|
|
| 783 |
|
Receipt payment for tax withholding on stock-based compensation awards |
|
| (13 | ) |
|
| (2,174 | ) | ||||||||
Payment for tax withholding on stock-based compensation awards |
|
| (1,957 | ) |
|
| (2,020 | ) | ||||||||
Repurchase of common stock |
|
| (557 | ) |
|
| (6,219 | ) |
|
| (15,539 | ) |
|
| (33,731 | ) |
Payment of cash dividends |
|
| (851 | ) |
|
| (594 | ) |
|
| (2,550 | ) |
|
| (2,072 | ) |
Net cash provided by financing activities |
|
| 43,777 |
|
|
| 37,449 |
|
|
| 146,680 |
|
|
| 59,797 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (983 | ) |
|
| 884 |
|
|
| (8,322 | ) |
|
| 4,141 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 223 |
|
|
| 672 |
|
|
| (477 | ) |
|
| 382 |
|
Cash and cash equivalents at beginning of period |
|
| 20,328 |
|
|
| 16,285 |
|
|
| 20,328 |
|
|
| 16,285 |
|
Cash and cash equivalents at end of period |
| $ | 19,568 |
|
| $ | 17,841 |
|
| $ | 11,529 |
|
| $ | 20,808 |
|
|
|
|
|
|
|
|
See notes to the condensed consolidated financial statements.Condensed Consolidated Financial Statements.
7
8
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to the 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 presentationstatement have been included. Operating results for the three monthsthree- and nine-month periods ended March 31,September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 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, 2022. Certain operating cash flow items have been reclassified in the prior period condensed consolidated financial statements to conform with the March 31,September 30, 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 one year to 20 twenty yearsyears..
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-monththree- and nine-month periods presented in the table below.
The operating lease expense for the three monthsthree-month periods ended March 31,September 30, 2023, and 2022, was $1,6371,701 and $1,6041,653, respectively, and $5,012 and $4,876 for the nine-month periods ended September 30, 2023 and 2022, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. OtherAdditional information related to operating leases are as follows:
|
| Three months |
|
| Three months |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 1,644 |
|
| $ | 1,674 |
|
Right-of-use assets obtained in exchange for new liabilities |
| $ | 1,884 |
|
| $ | 926 |
|
|
| Three months |
|
| Three months |
|
| Nine months |
|
| Nine months |
| ||||
Cash paid for amounts included in the |
| $ | 1,601 |
|
| $ | 1,613 |
|
| $ | 4,788 |
|
| $ | 4,846 |
|
ROU assets obtained in exchange for new lease |
| $ | 643 |
|
| $ | 2,378 |
|
| $ | 3,220 |
|
| $ | 4,202 |
|
The weighted-average remaining lease term and discount rate related to the operating leases as of March 31,September 30, 2023 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 March 31,September 30, 2023 were as follows:
2023 (excluding three months ended March 31, 2023) |
| $ | 4,625 |
|
2024 |
|
| 5,657 |
|
2025 |
|
| 5,143 |
|
2026 |
|
| 3,926 |
|
2027 |
|
| 2,662 |
|
Thereafter |
|
| 6,200 |
|
Total lease payments |
| $ | 28,213 |
|
Less: imputed interest |
|
| (3,232 | ) |
Total |
| $ | 24,981 |
|
|
|
|
| |
Amounts recognized in the condensed consolidated balance sheet: |
|
|
| |
Operating lease liabilities, current |
| $ | 5,367 |
|
Operating lease liabilities, long term |
| $ | 19,614 |
|
8
2023 (excluding nine-months ended September 30, 2023) |
| $ | 1,682 |
|
2024 |
|
| 6,113 |
|
2025 |
|
| 5,538 |
|
2026 |
|
| 4,251 |
|
2027 |
|
| 2,736 |
|
Thereafter |
|
| 6,200 |
|
Total lease payments |
|
| 26,520 |
|
Less: imputed interest |
|
| (2,865 | ) |
Total |
| $ | 23,655 |
|
Amounts recognized in the condensed consolidated balance sheets: |
|
|
| |
Operating lease liabilities, current |
| $ | 5,553 |
|
Operating lease liabilities, long-term |
| $ | 18,102 |
|
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.agreements within the U.S non-crop business. The Company has one reportable segment.Selective enterprise information of sales disaggregated by category and geographic region is as follows:
|
| Three Months Ended |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. crop |
| $ | 61,876 |
|
| $ | 88,193 |
|
| $ | 67,749 |
|
| $ | 69,101 |
|
| $ | 185,823 |
|
| $ | 220,303 |
|
U.S. non-crop |
|
| 13,899 |
|
|
| 13,396 |
|
|
| 19,250 |
|
|
| 18,946 |
|
|
| 50,041 |
|
|
| 53,844 |
|
Total U.S. |
|
| 75,775 |
|
|
| 101,589 |
|
|
| 86,999 |
|
|
| 88,047 |
|
|
| 235,864 |
|
|
| 274,147 |
|
International |
|
| 49,110 |
|
|
| 48,004 |
|
|
| 62,517 |
|
|
| 64,220 |
|
|
| 171,327 |
|
|
| 175,916 |
|
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | 149,516 |
|
| $ | 152,267 |
|
| $ | 407,191 |
|
| $ | 450,063 |
|
Timing of revenue recognition: |
|
|
|
|
|
| ||||||||||||||||||
Goods and services transferred at a point in time |
| $ | 124,842 |
|
| $ | 149,487 |
| ||||||||||||||||
Goods and services transferred over time |
|
| 43 |
|
|
| 106 |
| ||||||||||||||||
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
The Company recognized revenue for substantially all of its net sales at a point in time.
Contract assets relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property and amounted to $3,100 at March 31,September 30, 2023 and December 31, 2022. The contract assets of $3,100 are included in other receivables on the condensed consolidated balance sheets as of September 30, 2023. The short-term and long-term contract assets of $2,2952,098 and $8051,002 are included in other receivables and other assets, respectively, on the condensed consolidated balance sheetssheet as of March 31, 2023. As of December 31, 2022, the short-term and long-term assets amounted to $2022.2,098 and $1,002, 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 monthsthree- and nine-month periods ended March 31,September 30, 2023, that was included in customer prepayments at the beginning of 2023, was $22,75916,374 and $17,50082,099, respectively, and $22,500 was reclassifiedrefunded to accrued expenses and other payables.customers. The Company expects to recognize all its remaining customer prepayments as revenue in fiscal 2023.
10
4. Property, Plant and Equipment — Property, plant and equipment at March 31,September 30, 2023 and December 31, 2022 consists of the following:
|
| March 31, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
Land |
| $ | 2,761 |
|
| $ | 2,757 |
|
| $ | 2,762 |
|
| $ | 2,757 |
|
Buildings and improvements |
|
| 20,918 |
|
|
| 20,794 |
|
|
| 21,009 |
|
|
| 20,794 |
|
Machinery and equipment |
|
| 146,047 |
|
|
| 142,980 |
|
|
| 147,376 |
|
|
| 142,980 |
|
Office furniture, fixtures and equipment |
|
| 11,266 |
|
|
| 13,231 |
|
|
| 10,846 |
|
|
| 13,231 |
|
Automotive equipment |
|
| 1,490 |
|
|
| 1,584 |
|
|
| 1,205 |
|
|
| 1,584 |
|
Construction in progress |
|
| 4,622 |
|
|
| 5,897 |
|
|
| 8,805 |
|
|
| 5,897 |
|
Total |
|
| 187,104 |
|
|
| 187,243 |
| ||||||||
Total gross value |
|
| 192,003 |
|
|
| 187,243 |
| ||||||||
Less accumulated depreciation |
|
| (115,566 | ) |
|
| (116,331 | ) |
|
| (118,798 | ) |
|
| (116,331 | ) |
Property, plant and equipment, net |
| $ | 71,538 |
|
| $ | 70,912 |
| ||||||||
Total net value |
| $ | 73,205 |
|
| $ | 70,912 |
|
The Company recognized depreciation expense related to property and equipment of $2,1792,074 and $2,1032,130 for the three monthsthree-month periods ended March 31,September 30, 2023 and 2022, respectively. The Company recognized depreciation expense related to property and equipment of $6,396 and $6,207 for the nine-month periods ended September 30, 2023 and 2022, respectively.
Substantially all of the Company’s assets are pledged as collateral withto its lender banks.lenders.
9
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 method.methods. The components of inventories consist of the following:
|
| March 31, |
|
| December 31, |
| ||
Finished products |
| $ | 185,992 |
|
| $ | 155,128 |
|
Raw materials |
|
| 33,088 |
|
|
| 29,062 |
|
Inventories |
| $ | 219,080 |
|
| $ | 184,190 |
|
6. Segment Reporting — Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Selective enterprise information is as follows:
|
| For the three months ended |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 61,876 |
|
| $ | 88,193 |
|
| $ | (26,317 | ) |
|
| -30 | % |
U.S. non-crop |
|
| 13,899 |
|
|
| 13,396 |
|
|
| 503 |
|
|
| 4 | % |
Total U.S. |
|
| 75,775 |
|
|
| 101,589 |
|
|
| (25,814 | ) |
|
| -25 | % |
International |
|
| 49,110 |
|
|
| 48,004 |
|
|
| 1,106 |
|
|
| 2 | % |
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | (24,708 | ) |
|
| -17 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 41,254 |
|
| $ | 54,200 |
|
| $ | (12,946 | ) |
|
| -24 | % |
U.S. non-crop |
|
| 8,453 |
|
|
| 7,629 |
|
|
| 824 |
|
|
| 11 | % |
Total U.S. |
|
| 49,707 |
|
|
| 61,829 |
|
|
| (12,122 | ) |
|
| -20 | % |
International |
|
| 36,641 |
|
|
| 36,369 |
|
|
| 272 |
|
|
| 1 | % |
Total cost of sales: |
| $ | 86,348 |
|
| $ | 98,198 |
|
| $ | (11,850 | ) |
|
| -12 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 20,622 |
|
| $ | 33,993 |
|
| $ | (13,371 | ) |
|
| -39 | % |
U.S. non-crop |
|
| 5,446 |
|
|
| 5,767 |
|
|
| (321 | ) |
|
| -6 | % |
Total U.S. |
|
| 26,068 |
|
|
| 39,760 |
|
|
| (13,692 | ) |
|
| -34 | % |
International |
|
| 12,469 |
|
|
| 11,635 |
|
|
| 834 |
|
|
| 7 | % |
Total gross profit: |
| $ | 38,537 |
|
| $ | 51,395 |
|
| $ | (12,858 | ) |
|
| -25 | % |
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
|
| 33 | % |
|
| 39 | % |
|
|
|
|
|
| ||
U.S. non-crop |
|
| 39 | % |
|
| 43 | % |
|
|
|
|
|
| ||
Total U.S. |
|
| 34 | % |
|
| 39 | % |
|
|
|
|
|
| ||
International |
|
| 25 | % |
|
| 24 | % |
|
|
|
|
|
| ||
Gross margin: |
|
| 31 | % |
|
| 34 | % |
|
|
|
|
|
|
|
| September 30, |
|
| December 31, 2022 |
| ||
Finished products |
| $ | 216,767 |
|
| $ | 155,128 |
|
Raw materials |
|
| 31,165 |
|
|
| 29,062 |
|
|
| $ | 247,932 |
|
| $ | 184,190 |
|
6
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”. 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 that are expected to be paid to its customers estimated using the expected value method. Each quarter management comparesreviews 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 executive andsupport from financial management, reviewanalysts, reviews the accumulated Program balance and, for volume-drivenvolume 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 monthsthree- and nine-month periods ended March 31,September 30, 2023, and 20222022. .
7
10
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 Per Share |
|
| Total Paid |
| ||
March 13, 2023 |
| March 24, 2023 |
| April 14, 2023 |
| $ | 0.030 |
|
| $ | 851 |
|
December 12, 2022 |
| December 28, 2022 |
| January 11, 2023 |
| $ | 0.030 |
|
| $ | 851 |
|
March 14, 2022 |
| March 25, 2022 |
| April 15, 2022 |
| $ | 0.025 |
|
| $ | 736 |
|
December 13,2021 |
| December 27, 2021 |
| January 10, 2022 |
| $ | 0.020 |
|
| $ | 594 |
|
Declaration Date |
| Record Date |
| Distribution Date |
| Dividend |
|
| Total |
| ||
September 12, 2023 |
| September 22, 2023 |
| October 6, 2023 |
| $ | 0.030 |
|
| $ | 834 |
|
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 |
|
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 |
|
11
9.8. Net Income (Loss) Earnings Per Share — The components of basic and diluted earningsnet income (loss) per share were as follows:
|
| Three Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
| ||||||||||||||||
Denominator: |
|
|
|
|
|
| ||||||||||||||||||
Net income (loss) |
| $ | (325 | ) |
| $ | 6,741 |
|
| $ | 540 |
|
| $ | 23,506 |
| ||||||||
Denominator: (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted average shares outstanding-basic |
|
| 28,367 |
|
|
| 29,677 |
|
|
| 27,919 |
|
|
| 29,214 |
|
|
| 28,236 |
|
|
| 29,496 |
|
Dilutive effect of stock options and grants |
|
| 706 |
|
|
| 672 |
|
| $ | — |
|
|
| 591 |
|
|
| 420 |
|
|
| 632 |
|
Weighted average shares outstanding-diluted |
|
| 29,073 |
|
|
| 30,349 |
|
|
| 27,919 |
|
|
| 29,805 |
|
|
| 28,656 |
|
|
| 30,128 |
|
Due to a net loss for the three-month period ended September 30, 2023, stock options and other grants were excluded from the computation of diluted net loss per share as the impact is anti dilutive. For the three monthsthree-month ended March 31,September 30, 2022, and nine-month periods ended September 30, 2023, and 2022, no stock options or restricted stock awards were excluded from the computation of diluted earningsincome (loss) per share.
10.9. Debt — The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at March 31,September 30, 2023 and December 31, 2022. The Company has no short-term debt as of March 31,September 30, 2023 and December 31, 2022. The debt is summarized in the following table:
Long-term indebtedness ($000's) |
| March 31, 2023 |
|
| December 31, 2022 |
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||
Revolving line of credit |
| $ | 97,000 |
|
| $ | 52,300 |
|
| $ | 218,000 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (761 | ) |
|
| (823 | ) |
|
| (897 | ) |
|
| (823 | ) |
Total indebtedness, net of deferred loan fees |
| $ | 96,239 |
|
| $ | 51,477 |
| ||||||||
Net long-term debt |
| $ | 217,103 |
|
| $ | 51,477 |
|
The deferred loan fees as of March 31,September 30, 2023 are included in other assets on the 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 (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by BMO Bank, N.A. (formerly Bank of the WestWest) as administrative agent, documentation agent, syndication agent, collateral agent and sole lead arranger, 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, 2026.2026. The Credit Agreement amended and restated the previous credit facility, which had a maturity date of June 30, 2022. With respect to key financial covenants, the Credit Agreement contains 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,December 31, 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.
11
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%0.5%, and (z) the Daily One-Month LIBOR Rate plus 1.00%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%0.5%, and (z) the Daily One-Month SOFR Rate plus 1.10%1.10%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). Interest payments for SOFR Revolver Loans are payable on the last day of each interest period (either one-, three- or six- months,month periods, as selected by the Company) and the maturity date, while interest payments for Adjusted Base Rate Revolver Loans are payable on the last business day of each month and the maturity date. date. The interest rate on March 31,September 30, 2023, was 6.537.04%. Interest was $3,384 and $1,086 for the three months ended September 30, 2023 and 2022, respectively, and $8,282 and $2,256 for the nine months ended September 30, 2023 and 2022, respectively.
As of March 31,
12
On November 7, 2023, the Company wasentered into Amendment Number Six to the Third Amended Loan and Security Agreement that provided relief in compliance with the TL Ratio but noncompliantrespect of both financial covenants. Specifically, with respect to the FCCR. The noncomplianceMaximum Total Leverage Ratio, the existing ratio of 3.5 through September 30, 2024 and 3.25 through December 31, 2024 and thereafter was drivenchanged to 5.5 through September 30, 2023, 4.5 for the lesser extent by a reduction in the Consolidated EBITDA (in the numerator of the FCCR calculation) during the twelve months ended Marchperiods ending December 31, 2023 and to a greater extent by higher-than-normal distributions (in the denominator of the FCCR calculation) arising from share repurchases made by the Company during the same period. On May 8, 2023, the Company obtained a waiver of the FCCR for the twelve months ended March 31, 2023, and an adjustment to the FCCR terms2024, 4.0 for the period ending June 30, 2023. The impact2024, 3.5 through September 30, 2024 and returning to 3.25 from December 31, 2024 and thereafter. In addition, the Minimum Fixed Charge Coverage Ratio was changed from 1.25 to 1.0 for the periods ending September 30, 2023, December 31, 2023 and March 31, 2024 and returning to 1.25 for the period ending June 30, 2024 and thereafter. Further, after the delivery of mostfinancial statements and a covenant compliance certificate for the period ending December 31, 2023 assuming Total Leverage is less than 2.75, then Borrowers may terminate the covenant modification period (“CMP”) and revert to the terms of the existing Credit Agreement. Further, for the duration of the CMP, the Company is restricted from making share repurchases will disappear fromrepurchases. Finally, the denominator in the FCCR calculation in the third quarterApplicable Margin (SOFR and Adjusted Base Rate) and Letter of 2023.Credit fees increase by 0.50 basis points for each tier of interest during CMP.
At March 31,As of September 30, 2023, accordingby virtue of Amendment Number Six to the Third Amended Loan and Security Agreement, the Company is deemed to be in compliance with its financial covenants.
According to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $111,92228,760. This compares to an available borrowing capacity of and $200,372 as of September 30, 2023 and December 31, 2022.2022, respectively.
11.10. Classification Corrections — A correctionCorrections to the condensed consolidated statements of operations for the three and nine months ended March 31,September 30, 2022 waswere made in connection with the Company’s operations in Australia, where the Company sells its products to distribution companies as well as directly to growers via third-party agents. The Company identified errors related to the classification of third-party agent’s commission amounts. The Company evaluated these errors and the impact to previously issued financial statements and concluded that the impact of this classification error is not material to any previously issued quarterly or annual financial statements. However, management has recorded a correction adjustmentcorrecting adjustments to the previously reported financial statement line items and related disclosures. The third-party agents’ commission in the amount of $158150 and $427 was reclassified from net sales to operating expenses.expenses for the three and nine months ended September 30, 2022, respectively. The impact was an increase in net sales and gross profit in the amount of $158150 and $427 and an offsetting increase in operating expenses in the same amount. This correctionThese corrections did not have any impact on operating income, net income (loss), and earningsnet income (loss) per common share.
12. 11.Change in Accounting Principle — Historically, the Company included warehousing, handling and outbound freight costs in operating expenses on its Consolidated Statements of Operations. Effective January 1, 2023, the Company elected to include these 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 these 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. This change in accounting principle does not impact operating income, net income (loss), and net income (loss) per share. The following table compares the Company’s historical classification with the classification after the adoption of the change in accounting for the three and nine months ended March 31,September 30, 2023 and 2022:
13
|
| Classification after adoption of accounting change |
|
| Historical classification |
|
| Classification after adoption |
|
| Classification prior to adoption |
| ||||||||||||||||||||
|
| For the three months ended March 31 |
|
| For the three months ended March 31 |
|
| For the three months ended September 30, |
|
| For the three months ended September 30, |
| ||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net sales |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | 124,885 |
|
|
| 149,593 |
|
| $ | 149,516 |
|
| $ | 152,267 |
|
| $ | 149,516 |
|
|
| 152,267 |
|
Cost of sales |
|
| (86,348 | ) |
|
| (98,198 | ) |
|
| (77,093 | ) |
|
| (88,242 | ) |
|
| (106,432 | ) |
|
| (102,629 | ) |
|
| (91,938 | ) |
|
| (90,733 | ) |
Gross profit |
|
| 38,537 |
|
|
| 51,395 |
|
|
| 47,792 |
|
|
| 61,351 |
|
|
| 43,084 |
|
|
| 49,638 |
|
|
| 57,578 |
|
|
| 61,534 |
|
Operating expenses |
|
| (35,272 | ) |
|
| (36,646 | ) |
|
| (44,527 | ) |
|
| (46,602 | ) |
|
| (38,893 | ) |
|
| (38,394 | ) |
|
| (53,387 | ) |
|
| (50,290 | ) |
Operating income |
| $ | 3,265 |
|
| $ | 14,749 |
|
| $ | 3,265 |
|
| $ | 14,749 |
|
| $ | 4,191 |
|
| $ | 11,244 |
|
| $ | 4,191 |
|
| $ | 11,244 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Classification after adoption |
|
| Classification prior to adoption |
| ||||||||||||||||||||||||||
|
| For the nine months ended September 30, |
|
| For the nine months ended September 30, |
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||
Net sales |
| $ | 407,191 |
|
| $ | 450,063 |
|
| $ | 407,191 |
|
|
| 450,063 |
| ||||||||||||||||
Cost of sales |
|
| (282,662 | ) |
|
| (299,698 | ) |
|
| (249,294 | ) |
|
| (267,280 | ) | ||||||||||||||||
Gross profit |
|
| 124,529 |
|
|
| 150,365 |
|
|
| 157,897 |
|
|
| 182,783 |
| ||||||||||||||||
Operating expenses |
|
| (113,317 | ) |
|
| (113,559 | ) |
|
| (146,685 | ) |
|
| (145,977 | ) | ||||||||||||||||
Operating income |
| $ | 11,212 |
|
| $ | 36,806 |
|
| $ | 11,212 |
|
| $ | 36,806 |
|
12
The change in accounting principle did not have any impact on operating income, net income and earnings per share.
13.12. Comprehensive Income (Loss) — Total comprehensive income (loss) includes, in addition to net income (loss), changes in equity that are excluded from the condensed consolidated statementsstatement of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three-monththree- and nine-month periods ended March 31,September 30, 2023, and 2022, total comprehensive income (loss) consisted of net income attributable to American Vanguard(loss) and foreign currency translation adjustments.
14.13. Stock-Based Compensation — The following tables illustrate the Company’s stock-based compensation (included in operating expenses in the condensed consolidated statements of operations), unamortized stock-based compensation, and remaining weighted average amortization period.
|
| Stock-Based |
|
| Unamortized |
|
| Remaining |
|
| Stock-Based |
|
| Stock-Based |
|
| Unamortized |
|
| Remaining |
| |||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Time-Based Restricted Stock |
| $ | 1,198 |
|
| $ | 5,304 |
|
|
| 1.7 |
| ||||||||||||||||
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Restricted Stock |
| $ | 1,187 |
|
| $ | 3,597 |
|
| $ | 7,764 |
|
|
| 2.0 |
| ||||||||||||
Unrestricted Stock |
|
| 130 |
|
|
| 87 |
|
|
| 0.2 |
|
|
| 130 |
|
|
| 390 |
|
|
| 347 |
|
|
| 0.7 |
|
Performance-Based Restricted Stock |
|
| 146 |
|
|
| 1,978 |
|
|
| 1.7 |
|
|
| 399 |
|
|
| 270 |
|
|
| 2,832 |
|
|
| 2.0 |
|
Total |
| $ | 1,474 |
|
| $ | 7,369 |
|
|
|
|
| $ | 1,716 |
|
| $ | 4,257 |
|
| $ | 10,943 |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
March 31, 2022 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Time-Based Restricted Stock |
| $ | 993 |
|
| $ | 5,411 |
|
|
| 1.7 |
| ||||||||||||||||
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Restricted Stock |
| $ | 1,184 |
|
| $ | 3,257 |
|
| $ | 8,010 |
|
|
| 2.0 |
| ||||||||||||
Unrestricted Stock |
|
| 117 |
|
|
| 78 |
|
|
| 0.2 |
|
|
| 130 |
|
|
| 369 |
|
|
| 347 |
|
|
| 0.7 |
|
Performance-Based Restricted Stock |
|
| 453 |
|
|
| 2,319 |
|
|
| 1.7 |
|
|
| 246 |
|
|
| 770 |
|
|
| 3,093 |
|
|
| 1.9 |
|
Total |
| $ | 1,563 |
|
| $ | 7,808 |
|
|
|
|
| $ | 1,560 |
|
| $ | 4,396 |
|
| $ | 11,450 |
|
|
|
|
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 monthsthree- and nine-month periods ended March 31,September 30, 2023, and 2022.
Time-based
14
Time-Based Restricted and Unrestricted Stock — A summary of nonvested time based restrictednon-vested shares as of, and unrestricted stockfor, the three- and nine-month periods ended September 30, 2023, and 2022 is presented below:
|
| Three Months Ended |
|
| Three Months Ended |
|
| Three and Nine Months Ended |
|
| Three and Nine Months Ended |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Nonvested shares at December 31st |
|
| 742,050 |
|
| $ | 18.86 |
|
|
| 817,290 |
|
| $ | 17.04 |
|
|
| 742,050 |
|
| $ | 18.86 |
|
|
| 817,290 |
|
| $ | 17.04 |
|
Vested |
|
| (2,017 | ) |
|
| 15.71 |
|
|
| (230,080 | ) |
|
| 17.31 |
|
|
| (2,017 | ) |
|
| 15.71 |
|
|
| (230,080 | ) |
|
| 17.31 |
|
Forfeited |
|
| (5,479 | ) |
|
| 19.87 |
|
|
| (24,109 | ) |
|
| 17.10 |
|
|
| (5,479 | ) |
|
| 19.87 |
|
|
| (24,109 | ) |
|
| 17.10 |
|
Nonvested shares at March 31st |
|
| 734,554 |
|
| $ | 18.86 |
|
|
| 563,101 |
|
| $ | 16.93 |
|
|
| 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 |
| ||||||||||||||||
Granted |
|
| 9,745 |
|
|
| 13.63 |
|
|
| 13,600 |
|
|
| 18.94 |
| ||||||||||||||||
Vested |
|
| (3,666 | ) |
|
| 16.79 |
|
|
| (1,262 | ) |
|
| 19.39 |
| ||||||||||||||||
Forfeited |
|
| (15,080 | ) |
|
| 21.70 |
|
|
| (15,945 | ) |
|
| 20.09 |
| ||||||||||||||||
Nonvested shares at September 30th |
|
| 679,300 |
|
| $ | 21.50 |
|
|
| 760,009 |
|
| $ | 18.86 |
|
Performance-Based Restricted Stock — A summary of nonvestednon-vested performance-based stockshares as of, and for, the three- and nine-month periods ended September 30, 2023, and 2022, respectively is presented below:
|
| Three Months Ended |
|
| Three Months Ended |
|
| Three and Nine Months Ended |
|
| Three and Nine Months Ended |
| ||||||||||||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Nonvested shares at December 31st |
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 379,061 |
|
| $ | 16.43 |
|
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 379,061 |
|
| $ | 16.43 |
|
Additional granted (forfeited) based on performance achievement |
|
| — |
|
|
| — |
|
|
| (41,088 | ) |
|
| 16.56 |
|
|
| — |
|
|
| — |
|
|
| (41,088 | ) |
|
| 16.56 |
|
Vested |
|
| — |
|
|
| — |
|
|
| (78,704 | ) |
|
| 17.18 |
|
|
| — |
|
|
| — |
|
|
| (78,704 | ) |
|
| 17.18 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| (7,074 | ) |
|
| 16.77 |
|
|
| — |
|
|
| — |
|
|
| (7,074 | ) |
|
| 16.77 |
|
Nonvested shares at March 31st |
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 252,195 |
|
| $ | 16.17 |
|
|
| 318,699 |
|
|
| 18.05 |
|
|
| 252,195 |
|
|
| 16.17 |
|
Additional granted (forfeited) based on |
|
| (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 |
| ||||||||||||||||
Forfeited |
|
| (466 | ) |
|
| 20.03 |
|
|
| (2,577 | ) |
|
| 17.80 |
| ||||||||||||||||
Nonvested shares at September 30th |
|
| 263,930 |
|
| $ | 21.36 |
|
|
| 324,979 |
|
| $ | 16.57 |
|
13
15
Stock Options — A summary ofThe Company has stock options is presented below: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:
Time-based Incentive Stock Option Plans
Activity of the incentive stock option plans for the three monthsthree- and nine-month periods ended March 31,September 30, 2023:
|
| 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 |
|
|
| 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 |
|
Options exercised |
|
| (1,200 | ) |
|
| 11.49 |
|
Balance outstanding, September 30, 2023 |
|
| 64,872 |
|
| $ | 11.49 |
|
All outstanding stock options as of March 31, 2023 have an exercise price of $11.49 and a remaining life of 21 months.
There was no activity during the three months ended March 31, 2022. There were 108,036 incentive stock options outstanding as of March 31, 2022 withSeptember 30, 2023, have an exercise price per share of $11.49, total intrinsic value of $0, and a remaining life of 33 15 monthsmonths..
Activity for the three- and nine-month periods ended September 30, 2022:
Performance-based
|
| 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 |
|
Performance Incentive Stock Option Plan
There was no activityActivity for the three monthsthree- and nine-month periods ended March 31, 2023September 30, 2023:
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2022 |
|
| 81,808 |
|
| $ | 11.49 |
|
Options exercised |
|
| — |
|
|
| — |
|
Balance outstanding, March 31, June 30, and September 30, 2023 |
|
| 81,808 |
|
| $ | 11.49 |
|
Activity for the three- and 2022. There were nine-month periods ended September 30, 2022:81,808
and 114,658
|
| 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 |
|
of
All the performance incentive stock options outstanding as of March 31,September 30, 2023, and 2022, withhave an exercise price per share of $11.49, total intrinsic value of $0, and a remaining life of 21 15 monthsand 33 months, respectively.
.
16
15.14. 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, 2022, except as described below.
Department of Justice and Environmental Protection Agency Investigation. On November 10, 2016, AMVAC 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. After interviewing multiple witnesses (including three employees before a grand jury in February 2022) and making multiple document requests, the Department of Justice (“DoJ”) identified the Company and a manager-level employee as targets of the government’s investigation. DoJ’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. In March 2022, the individual target entered into a plea agreement relating to provision of false information in a government proceeding. In July 2022, the DoJ 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 spokehas spoken with DoJ on the subject in early October 2022, at which timeintermittently over the past several months, and DoJ expressed an interest in resolving the matter and stated that it would get back tomatter. The Company anticipates further discussion on resolution of the Company with its position.matter.
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 flows. Accordingly, the Company has not recorded a loss contingency for this matter.
Pitre etc. v. Agrocentre Ladauniere et al. On February 11, 2022, a strawberry grower named Les Enterprises Pitre, Inc. filed a complaint in the Superior Court, District of Labelle, Province of Quebec, Canada, entitled Pitre, etc. v. Agrocentre Ladauniere, Inc. etal, including Amvac Chemical Corporation, seeking damages in the amount of 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
14
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 few test seedlings before planting an entire farm, and that he had placed his blind trust in his application adviser on all manner of timing and rate. An examination of the Company’s most knowledgeable witness is scheduled to take place in June 2023. The Company believes that the claims have no merit and intends to defend the matter. At this stage in the proceedings, there is not sufficient information to form a judgment as to either the probability or amount of loss; thus, the Company has not recorded a loss contingency for this matter.
Catalano v. AMVAC Chemical Corp. On June 6, 2022, AMVAC was served with a summons and complaint for a matter entitled Andrew Catalano and Ruth Catalano v. AMVAC in the Superior Court of the State of California, County of Orange (30-2022-01263987-CU-PL-CXC) in which plaintiff, who worked as a professional applicator of pesticides, including Orthene (for which AMVAC is registrant) seeks damages for an injury (specifically, cardiomyopathy) allegedly arising from his exposure to this product. AMVAC is unaware of any link between cardiovascular disease and Orthene (which has been commercially available for over 30 years) and believes that this case has no merit and intends to defend it vigorously. The Company filed an answer in early July, including multiple affirmative defenses. Further, the parties continue to engage in discovery, and plaintiffs have been unable to supply any data establishing a causal link between use of this product and the heart condition that plaintiff alleges. At this stage, there is not sufficient information to form a judgment as to either the probability or amount of any loss; thus, the Company has not recorded a loss contingency for this matter.
Notice of Intention to Suspend DCPA.DCPA. On April 28, 2022, the USEPA published a notice of intent to suspend (“NOITS”) DCPA, the active ingredient of an herbicide marketed by the Company under the name Dacthal. The agency cited as the basis for the suspension that the Company did not take appropriate steps to provide data studies requested in support of the registration review. In fact, over the course of several years, the Company cooperated in performing the vast majority of the nearly 90 studies requested by USEPA and had been working in good faith to meet 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 respond to the data call-in), a hearing was held in January 2023 before the ALJ, by which time USEPA had narrowed the scope of its claim to nine outstanding studies, all of which have been started by the Company and none of which are necessary for USEPA to commence its risk assessment. The parties have filed their post-hearing briefs, andIn April 2023, the ALJ reached a decision, finding that the agency acted within its authority in issuing the NOITS. On approximately August 22, 2023, the company entered into a settlement agreement with USEPA pursuant to which the Company expects thatwaived the ALJ will renderright to appeal and accepted a decisionsuspension of the registration in consideration of the near future. Duringagency reinstating the courseregistration within 75 days after submission of these proceedings, AMVACthe final study (which was subsequently provided to the agency on or about August 18, 2023). That period expired on or about November 3, 2023, after which, barring a finding of inadequacy in meeting study protocols, the agency has been freeten days within which to make, sell and distribute bothreinstate. In connection with this matter, the technical grade material and end-use product and may continue to do so unless and until there is an adverse ruling at both the trial and appellate level (if any). The Company believes that a loss is neither probable nor estimable and, consequently, has not set aside a reserve in connection with this matter.
Reyes v. AMVAC. On September 28, 2023, the Company received correspondence from counsel for ex-employee Jorge Reyes Jr. addressed to the California Department of Industrial Relations alleging a host of wage and hour violations under California law. This is a precursor to a civil filing under applicable state law. Subsequently, plaintiff, putatively on behalf of the class of similarly situated, non-exempt California-based employees, served a summons and complaint on the Company’s registered agent that had been electronically filed as Case No. 238TCV23665, encaptioned, Jorge Reyes v. AMVAC etc., etal., with the Superior Court for the County of Los Angeles, Central District. As is typical of these sorts of action, plaintiff alleges wages and hours violations of all imaginable types, including overtime, minimum wage, sick leave, rest periods and so on. The Company intends to defend the matter vigorously, does not believe that the claims have any merit. Accordingly, the Company has not recorded a loss contingency for this matter.
16.15. RecentRecently Issued Accounting Guidance — In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,as amended and supplemented by subsequent ASUs (collectively, “ASU 2020-04” and “ASU 2022-06”), which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for borrowing instruments, which use LIBOR as a reference rate, and is available through December 31, 2024. The Company has evaluated this ASU and does not expect its adoption to have 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
17.16. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires expandedcertain 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:
15
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s borrowings, which are considered Level 2 liabilities, approximates fair value as they bear interest at a variable rate atthat represents current market rates.
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 notnot have any contingent earn-out liabilities at March 31,September 30, 2023 and December 31, 2022.
The following table illustrates the Company’s contingent considerationearn-out liability movements related to its business acquisitions as of, and for the three monthsthree- and nine-month periods ended March 31,September 30, 2022:
|
| Three months ended |
|
| Three months ended |
|
| Nine months ended |
| |||
Balance, December 31, 2021 |
| $ | 786 |
| ||||||||
Balance, June 30, 2022 and December 31, 2021, respectively |
| $ | 1,367 |
|
| $ | 786 |
| ||||
Fair value adjustment |
|
| 599 |
|
|
| — |
|
|
| 635 |
|
Payments on existing obligations |
|
| (1,292 | ) |
|
| (1,292 | ) | ||||
Accretion of discounted liabilities |
|
| 6 |
|
|
| 10 |
|
|
| 28 |
|
Foreign exchange effect |
|
| 46 |
|
|
| (85 | ) |
|
| (157 | ) |
Balance, March 31, 2022 |
| $ | 1,437 |
| ||||||||
Balance, September 30, 2022 |
| $ | — |
|
| $ | — |
|
18
18.17. Accumulated Other Comprehensive Loss (“AOCL”)—The following table lists the beginning balance, quarterlyannual activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency translation adjustments:
|
| Total |
| |
Balance, December 31, 2022 |
| $ | (12,182 | ) |
Foreign currency translation adjustment, net of tax effects of ($ |
|
| 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 | ) | ||
Foreign currency translation adjustment, net of tax effects of $133 | (3,123 | ) | ||
Balance, September 30, 2023 | $ | ( | ) | |
|
|
|
| |
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 | ) | ||
Foreign currency translation adjustment, net of tax effects of $81 | (2,764 | ) | ||
Balance, September 30, 2022 | $ | ( | ) |
19. 18. 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 March 31,September 30, 2023 and December 31, 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 monthsthree- and nine-month periods ended March 31,September 30, 2023 and 2022. The investment is recorded within other assets on the condensed consolidated balance sheets and amounted to $2,869 as of March 31,September 30, 2023 and December 31, 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 $762460 and $784 as of March 31,September 30, 2023 and December 31, 2022, respectively. The Company recorded a loss of $22247 and $454 for the three-month periods ended September 30, 2023 and 2022, respectively. The Company recorded a loss of $324 and a gain of $83857 for the three monthsnine-month periods ended March 31,September 30, 2023 and 2022, respectively.The investment is recorded within other assets on the condensed consolidated balance sheets.sheets and the associated gains and losses are included in the change in fair value of equity investments.
20.19. Income Taxes —— Income tax benefitexpense for the three and nine months ended September 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 $361885 and $2,963 for the three monthsthree-month period ended March 31,September 30, 2023, as compared to income tax expense ofand 2022, respectively, and $4,4992,066 and $10,187 for the three-monthsnine months ended March 31, 2022.September 30, 2023 and 2022, respectively. The effective income tax rate was 158.0% and 30.5% for the threethree-month periods ended September 30, 2023 and 2022, respectively, and 79.3% and 30.2% for the nine months ended March 31,September 30, 2023 was computed based onand 2022, respectively.
For the estimatedthree-month period ended September 30, 2023, the increase in the effective income tax rate compared to the same period in 2022, is primarily attributable to an increase in 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.
Additionally, for the full year, adjustednine-month period ended September 30, 2023, the increase in the effective income tax rate compared to the same period in 2022, is due to withholding tax charges ( net of income tax credits) associated with interest on certain intercompany loans and the establishment of liabilities for uncertain tax positions in certain jurisdictions. The increase in the effective income tax rate is partially offset by a benefit from the remeasurement of certain U.S. federal and state deferred taxes, partially offset by an expense attributed to establishing liabilities for uncertain tax positions in the U.S. and India. This calculation resulted in an effective tax rate of minus taxes.
23.2
% for the three months ended March 31, 2023, as compared to 19
31.2% for the three months ended March 31, 2022.
It is expected that $1,5501,814 of unrecognized tax benefits will be released within the next twelve months due to expiration of the statute of limitations.
16
21.20. Stock Re-purchase ProgramPrograms — —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. The 10b5-1share 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 September 30, 2023, the Company purchased 477,089 shares of its common stock for a total of $8,313 at an average price of $17.42 per share under this plan. During the nine months ended September 30, 2023, the Company purchased 885,290 shares of its common stock for a total of $15,539 at an average price of $17.55 per share under this plan.
The table below summarizes the number of shares of the Company’s common stock that were repurchased through open market transactions during the three and nine months ended March 31,September 30, 2023 and 2022.
Three months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
|
| Maximum number of shares that may yet be purchased under the plan |
| ||||
March 31, 2023 |
|
| 27,835 |
|
| $ | 19.96 |
|
| $ | 557 |
|
|
| — |
|
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
Three months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
| |||
September 30, 2023 |
|
| 477,089 |
|
| $ | 17.42 |
|
| $ | 8,313 |
|
September 30, 2022 |
|
| 387,340 |
|
| $ | 19.36 |
|
| $ | 7,499 |
|
|
|
|
|
|
|
|
|
|
| |||
Nine months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
| |||
September 30, 2023 |
|
| 885,290 |
|
| $ | 17.55 |
|
| $ | 15,539 |
|
September 30, 2022 |
|
| 720,350 |
|
| $ | 19.06 |
|
| $ | 13,731 |
|
On August 22, 2022, pursuant to a Board of Directors resolution, the Company entered into an ASR 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. On December 14, 2022, the ASR was completed, and pursuant to the settlement terms of the ASR, the Company received an additional 131,892 shares of its common stock. The average price paid for all of the shares delivered under the ASR was $21.40 per share.
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.
Three months ended |
| Total number of |
|
| Average price |
|
| Total amount paid |
| |||
September 30, 2022 |
|
| 802,810 |
|
| $ | 19.93 |
|
| $ | 16,000 |
|
Pursuant to Amendment Number Six to the Third Amended Loan and Security Agreement, effective November 7, 2023, the Company is currently prevented from making stock repurchases.
20
22.21. Supplemental Cash Flow Information
|
| For the three months |
|
| For the Nine Months Ended September 30, |
| ||||||||||
Cash paid during the period: |
| 2023 |
|
| 2022 |
| ||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
Supplemental cash flow information: |
|
|
|
|
|
| ||||||||||
Cash paid during the period for: |
|
|
|
|
|
| ||||||||||
Interest |
| $ | 1,316 |
|
| $ | 387 |
|
| $ | 7,317 |
|
| $ | 2,073 |
|
Income taxes, net |
| $ | 2,104 |
|
| $ | 1,454 |
|
| $ | 7,643 |
|
| $ | 15,530 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deferred consideration in connection with business acquisitions: |
|
| — |
|
| $ | 599 |
| ||||||||
Cash dividends declared and included in accrued expenses |
| $ | 851 |
|
| $ | 736 |
|
| $ | 834 |
|
| $ | 715 |
|
22. Subsequent Event —October 9, 2023, the Company completed the acquisition of Punto Verde, a well-established distributor in Guayaquil, Ecuador, to strengthen its product portfolio and market access in the Latin American region, for a total consideration of approximately $4,800. The acquisition will be accounted for as a business combination on the Company's consolidated financial statements.
1721
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.,1A, Risk Factors, in this Quarterly Report on Form 10-Q.
Effective January 11,1, 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 thisthese 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 (loss) and earningsnet income (loss) per share. Please refer to note 12Note 11 to the condensed consolidated financial statements for further details.
MANAGEMENT OVERVIEW
Overview of the Company’s Performance
Domestic crop sales,The third quarter of 2023 has been marked by the same factors that have lingered over the course of the full year to date, namely: destocking by customers that seek to avoid the high carrying costs of inventory; supply chain issues with a key herbicide; procurement of goods closer to time-of-use; the influence of low-cost generic products exported to multiple markets from China-based suppliers working within a strained economy; and therefore,a strong US Dollar with relatively stable commodity prices. These factors have tended to affect different markets somewhat disparately, as will be noted from the discussion below.
Within this context, the Company’s financial performance for the firstthird quarter of 2023 declined in most material respects as compared to the third quarter of 2022. Domestically, sales of both crop and non-crop products were nearly flat with those of the comparable periodquarter in 2022. WhileAs a result of the domestic farm economy remains strong, supply disruptions and delays in raws and intermediates compounds used to manufactureconservative procurement trend, inventory of many of our crop products within the Company’sdistribution channel was at historic lows, even though end customer demand was strong; this was true, for example of Aztec, our leading corn soil insecticide, coupled with shiftsinsecticide. Further, we experienced mixed results among other crop protection products. For example, sales of soil fumigants in procurement timing for its herbicides, yielded significantly lowerthe Pacific Northwest were strong (as this is the application season and weather was favorable), while sales in its domestic crop business, as compared to this time last year. By contrast, bothof cotton products (primarily into the south and southwest) were affected by reduced planted acres and unfavorable weather. Within the domestic non-crop business, retailers continued to demonstrate conservative stocking patterns. Nevertheless, we experienced steady demand for nursery, ornamental and professional pest control products. Within our international businesses recordedbusiness, sales were down slightly, higher sales for the period. With lower sales of the higher margin domestic crop business, the Company’s overall saleswhile some regions (e.g., Mexico) showed greater strength and profit performance were adversely affected. While operating expenses declined, factory costs rose primarily as a result of not having the raw materials availableothers (e.g., Central America and Brazil) continued to manufacture the corn soil insecticides products and as a result gross profit declined. Further, higher interest expenses (partially offset by lower tax expenses) yielded lower net income for the quarter, as compared to last year.experience market pressure from low-priced, generic goods from China-based suppliers.
OnAgainst this backdrop, on a consolidated basis, domestic sales declined 25%by 1% while international rosesales declined by 2%3%, resulting in an overall net sales decline of 17%2%. Further, overallOverall cost of sales which has been subject to a change in definition to now incorporate the cost of outbound logisticsincreased by 4% and freight expenses, decreased by 12%. Cost of sales were 69%was 71% of sales in 2023, as compared to 66%67% for the same period of 2022. These factors, taken together with slightly higher net manufacturing costs (both labor and service-related), yieldedresulted in a 25%13% decrease in gross profit (to $38,537$43,084 in 2023 from $51,395$49,638 in the comparable quarter of 2022), while overall gross margin percent declined to 31%29% from 34%33% quarter-over-quarter.
Operating expenses declinedincreased slightly to $35,272 in Q1$38,893 for the three-months period ended September 30, 2023 from $36,646; however,$38,394 in the same quarter of the prior year; further, operating expenses as a percent of net sales rose to 28%26% in the firstthird quarter of 2023 from 24%25% in the comparable period of 2022.2022, largely due to higher research, product development costs, regulatory expenses costs and increased sales and marketing expenses.
22
Operating income for the period decreased to $3,265$4,191 from $14,749,$11,244, driven by the reduced sales, higher freight charges (an element of cost of sales), a decreased gross margin percentage and proportionately higher operating expenses. TheDuring the third quarter, the Company recordedexperienced significantly higher interest expenseexpenses, due to federalincreased borrowing and significantly higher interest rate increases duringrates. Income before taxes ended at $560 including a profitable performance for most of the intervening year. Company’s operating entities around the world, offset by losses in certain businesses, including Brazil. Losses at that entity generate a tax benefit, which was not realized as a result of maintaining a full valuation allowance. As a result, net tax expense exceeded income before taxes, resulting in a net loss for the quarter.
These factors yielded a net incomeloss for the period of $1,918,$325, as compared to $9,935net income of $6,741 in the firstthird quarter of 2022. Details on our financial performance are set forth below.
18
RESULTS OF OPERATIONS
Quarter Ended March 31:September 30, 2023 and 2022:
|
| For the three months ended |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 61,876 |
|
| $ | 88,193 |
|
| $ | (26,317 | ) |
|
| -30 | % |
U.S. non-crop |
|
| 13,899 |
|
|
| 13,396 |
|
|
| 503 |
|
|
| 4 | % |
Total U.S. |
|
| 75,775 |
|
|
| 101,589 |
|
|
| (25,814 | ) |
|
| -25 | % |
International |
|
| 49,110 |
|
|
| 48,004 |
|
|
| 1,106 |
|
|
| 2 | % |
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | (24,708 | ) |
|
| -17 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 41,254 |
|
| $ | 54,200 |
|
| $ | (12,946 | ) |
|
| -24 | % |
U.S. non-crop |
|
| 8,453 |
|
|
| 7,629 |
|
|
| 824 |
|
|
| 11 | % |
Total U.S. |
|
| 49,707 |
|
|
| 61,829 |
|
|
| (12,122 | ) |
|
| -20 | % |
International |
|
| 36,641 |
|
|
| 36,369 |
|
|
| 272 |
|
|
| 1 | % |
Total cost of sales: |
| $ | 86,348 |
|
| $ | 98,198 |
|
| $ | (11,850 | ) |
|
| -12 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 20,622 |
|
| $ | 33,993 |
|
| $ | (13,371 | ) |
|
| -39 | % |
U.S. non-crop |
|
| 5,446 |
|
|
| 5,767 |
|
|
| (321 | ) |
|
| -6 | % |
Total U.S. |
|
| 26,068 |
|
|
| 39,760 |
|
|
| (13,692 | ) |
|
| -34 | % |
International |
|
| 12,469 |
|
|
| 11,635 |
|
|
| 834 |
|
|
| 7 | % |
Total gross profit: |
| $ | 38,537 |
|
| $ | 51,395 |
|
| $ | (12,858 | ) |
|
| -25 | % |
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
|
| 33 | % |
|
| 39 | % |
|
|
|
|
|
| ||
U.S. non-crop |
|
| 39 | % |
|
| 43 | % |
|
|
|
|
|
| ||
Total U.S. |
|
| 34 | % |
|
| 39 | % |
|
|
|
|
|
| ||
International |
|
| 25 | % |
|
| 24 | % |
|
|
|
|
|
| ||
Gross margin: |
|
| 31 | % |
|
| 34 | % |
|
|
|
|
|
|
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 67,749 |
|
| $ | 69,101 |
|
| $ | (1,352 | ) |
|
| -2 | % |
U.S. non-crop |
|
| 19,250 |
|
|
| 18,946 |
|
|
| 304 |
|
|
| 2 | % |
Total U.S. |
|
| 86,999 |
|
|
| 88,047 |
|
|
| (1,048 | ) |
|
| -1 | % |
International |
|
| 62,517 |
|
|
| 64,220 |
|
|
| (1,703 | ) |
|
| -3 | % |
Total net sales |
|
| 149,516 |
|
|
| 152,267 |
|
|
| (2,751 | ) |
|
| -2 | % |
Total cost of sales |
|
| (106,432 | ) |
|
| (102,629 | ) |
|
| (3,803 | ) |
|
| 4 | % |
Total gross profit |
| $ | 43,084 |
|
| $ | 49,638 |
|
| $ | (6,554 | ) |
|
| -13 | % |
Total gross margin |
|
| 29 | % |
|
| 33 | % |
|
|
|
|
|
|
Our domestic crop business recorded net sales during the first quarter of 2023 that were 30%2% lower than those of the firstthird quarter of 2022 ($61,87667,749 as compared to $88,193)$69,101). Despite having taken extraordinary measuresOur cotton products were negatively influenced by a year-over-year decline in US cotton acreage of up to 25% in key Southeast and Mississippi delta regions resulting in reduced sales of our foliar insecticide Bidrin. Further, late planting of cotton in 2023 led to some delayed applications of our Folex harvest defoliant from this year’s third quarter to the prior year to position suppliers in both the US and China,fourth quarter. In addition, we recorded no sales of our herbicide Dacthal, as the Company experienced significant delays in obtaining critical intermediate compounds necessary to formulate our leading granular soil insecticide Aztec®. Ultimately, the Company was able to manufacture and sell only about one-thirdis awaiting reinstatement of the volume of Aztec as it had forecasted. Having already recorded strong sales of Counter® in fourth quarter of 2022, we worked with customers to place other alternative products during the first quarter of 2023 (i.e., Smartchoice®, Index® and Force®) and sold out of those products. Nevertheless, overall netproduct registration after having submitted data study requirements. These declines were largely offset by significantly higher sales of our corn soil insecticides were down about 45% compared to the first quarter of the prior year. In addition, salesinsecticide Aztec, as corn rootworm pressure intensified, while channel inventories are at historical lows. Sales of our Impact post-emergent corn herbicides, which (as they related to the wholesale distribution channel)Thimet insecticide for use against wireworm infestation in sugarcane were very strong in the prior quarter, decreased in the first quarter due largely to higher-than-normal inventory levels of glyphosate and glufosinate (neither of which the Company sells) in the distribution channel. Further, procurement activity for Dacthal, a specialty crop herbicide, had shifted earlier (into the fourth quarter of 2022) than had been the case in the first quarter of 2022. This resulted in a nearly 40% decline in quarterly sales ofthird quarter. Similarly, our portfolio of herbicide products. By contrast, partially offsetting these declines, we saw a 30% increase in sales of ourmetam sodium soil fumigants versus the prior year due in part to the gradual elimination of agricultural water allocation restrictions in California following abundant rainfallalso posted larger sales, as late summer and record snowpack accumulation.early autumn dry weather patterns facilitated increased third quarter application.
Cost of sales within the domestic crop business decreased by 24% (from $54,200 in 2022 to $41,254 in 2023) as a result of decreased volumes, as compared to the first quarter of 2022. In-bound freight costs rose due, in part, to our efforts to expedite shipment of intermediate compounds for Aztec production. Less favorable factory performance (arising from increased labor costs, higher service charges (at our Axis plant) and increased waste disposal charges (at our Los Angeles facility), coupled with lower factory absorption rates due to raw material supply delays that resulted in lower than expected output, led to a 35% decrease in gross profit for domestic crop (from $33,993 in 2022 to $20,622 in 2023).
Our domestic non-crop businessposted a 4% increase inincreased net sales in the firstthird quarter of 2023, as compared to the same period in the prior year ($13,899 in 2023 v. $13,396 in 2022)19,250 versus $18,936). In this category, our Dibrom® mosquito adulticide generated steady sales compared to the same quarter, of the prior year, as hurricane and tropical storm activity season were consistent with the prior year. Further, royalty and license fees for our Envance proprietary solutions were higher than the first quarter of last year. By contrast, we experienced lighter than normal demand for our commercial pest control products, including pest strips. In addition, we recorded slightly lower net sales from our OHP nursery and ornamental businessproducts remained relatively flat, as consumer spending on such products remained steady. Likewise, we saw a normal late summer/early fall demand for goods that we supply to professional pest control applicators and the pharmaceutical productslandscapers. Sales of our GemChem business.
19
Costmosquito control product were slightly lower than those of sales within the domestic non-crop business rose by about 11% in the first quarter 2023, as compared to the same period in the prior year (from $7,629 to $8,453). This was driven by a different mix of products including some lower margin products. With higher costs of sales on a concomitantly lower increase in net sales, gross profit for domestic non-crop decreased by 6% (from $5,767 in 2022 to $5,446 in 2023).third quarter.
Net sales of our international businesses rosedeclined by about 2%3% during the period ($49,11062,517 in 2023 vs. $48,004$64,220 in 2022). This group and constituted 42% of businesses experienced increasesour consolidated quarterly sales in herbicides, fungicides,the three months ended September 30, 2023 and plant growth regulators, partially offset by minor sales decreases in soil fumigants, foliar insecticides,2022, respectively. These results arose from a number of factors, including the foreign exchange effect of a strong US Dollar, various supply-chain constraints, industry-wide channel inventory destocking and soil insecticides. We postedintensified competition of generic products from Asia. The business benefited from sales increases in theseveral countries of our Mocap and Nemacur soil insecticides and our Counter nematicide in Brazil. Conversely, our Central American market throughbusiness, while maintaining a strong presence in the pineapple, banana, and citrus markets, posted lower sales attributed to significant drought conditions in the region and continued pricing pressure caused by a surge of imported generic products from China. In Mexico, our AgriCenter group (up 11%) and enjoyed improved demand forbusiness recorded good performance driven by our Assure II herbicide in Canada. Our Australian business delivered higher sales and gross profits versus the prior year, as they focused on a more profitable product mix. OurBromacil herbicide. We experienced relatively flat performance in Mexico remained solid, despite temporary product importation impediments. By contrast, net sales ofAustralia, as well as with respect to our business in Brazil declined due to general market inventories. Further, the international business ofgrowth regulators, biorational products and our Agrinos a key part of our Green Solutions platform, declined slightly in the quarter with lower sales in India and China, partially offset by a modest increase in Ukraine.portfolio.
Cost of sales in our international business increased by 1% (from $36,369 in 2022 to $36,641 in 2023), which is consistent with the relative increase in net sales. Gross profit
23
Operating expenses were flat at $38,893 for the international businesses increased by about 7% (to $12,469 in 2023 from $11,635 in 2022), which was above the corresponding increase in net sales; the disparity was due largely to the shortage of high-value products produced by the Company domestically.
On a consolidated basis, gross profit for the first quarter of 2023 decreased by 25% (from $51,395 in 2022 to $38,537 in 2023). Decreased sales volume, unavailability of high-margin crop products and higher factory costs all factored into yielding reduced profitability. Overall gross margin percentagethree-month period ended at 31% in the first quarter ofSeptember 30, 2023, as compared to 34% in$38,394 for the firstsame quarter of the prior year.
Operating expenses decreased by $1,374 or 4% to $35,272 for the three months ended March 31, 2023, as compared to the same period in 2022. The differenceschanges in operating expenses by departmentnature are as follows:
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Selling |
| $ | 13,371 |
|
| $ | 11,243 |
|
| $ | 2,128 |
|
|
| 19 | % |
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other |
|
| 9,130 |
|
|
| 14,994 |
|
|
| (5,864 | ) |
|
| -39 | % |
Proxy activities |
|
| 541 |
|
|
| — |
|
|
| 541 |
|
|
| 100 | % |
Amortization |
|
| 3,360 |
|
|
| 3,439 |
|
|
| (79 | ) |
|
| -2 | % |
Research, product development and regulatory |
|
| 8,870 |
|
|
| 6,970 |
|
|
| 1,900 |
|
|
| 27 | % |
|
| $ | 35,272 |
|
| $ | 36,646 |
|
| $ | (1,374 | ) |
|
| -4 | % |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Sales and marketing |
| $ | 14,718 |
|
| $ | 14,311 |
|
| $ | 407 |
|
|
| 3 | % |
General and administrative |
|
| 15,095 |
|
|
| 15,570 |
|
|
| (475 | ) |
|
| -3 | % |
Research, product development and regulatory |
|
| 9,080 |
|
|
| 8,513 |
|
|
| 567 |
|
|
| 7 | % |
|
| $ | 38,893 |
|
| $ | 38,394 |
|
| $ | 499 |
|
|
| 1 | % |
20
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 adjustmentadjustments in the amount of $22 during$247 and $454 for the three months ended March 31,September 30, 2023 and a positive adjustment in the amount of $83 during the comparative three months of the prior year.2022, respectively.
Interest costs net of capitalized interest were $1,686$3,384 in the first three months ofthree-month period ended September 30, 2023, as compared to $398$1,086 in the same period of 2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Q1 2023 |
|
| Q1 2022 |
|
| Three months ended September 30, 2023 |
|
| Three months ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
| ||||||||||||
Revolving line of credit (average) |
| $ | 90,486 |
|
| $ | 1,542 |
|
|
| 6.8 | % |
| $ | 85,756 |
|
| $ | 401 |
|
|
| 1.9 | % |
| $ | 200,247 |
|
| $ | 3,578 |
|
|
| 7.1 | % |
| $ | 125,441 |
|
| $ | 1,104 |
|
|
| 3.5 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| 56 |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| — |
|
Amortization of other deferred liabilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
Other interest expense |
|
| 17,500 |
|
|
| 128 |
|
|
| 2.9 | % |
|
| — |
|
|
| 9 |
|
|
| — |
| ||||||||||||||||||||||||
Other interest (income) |
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
| ||||||||||||||||||||||||
Subtotal |
| $ | 107,986 |
|
| $ | 1,733 |
|
|
| 6.4 | % |
| $ | 85,756 |
|
| $ | 485 |
|
|
| 2.3 | % |
|
| 200,247 |
|
|
| 3,590 |
|
|
| 7.2 | % |
|
| 125,441 |
|
|
| 1,174 |
|
|
| 3.7 | % |
Capitalized interest |
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| — |
|
|
| (87 | ) |
|
| — |
|
|
| — |
|
|
| (206 | ) |
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
Total |
| $ | 107,986 |
|
| $ | 1,686 |
|
|
| 6.2 | % |
| $ | 85,756 |
|
| $ | 398 |
|
|
| 1.9 | % |
| $ | 200,247 |
|
| $ | 3,384 |
|
|
| 6.8 | % |
| $ | 125,441 |
|
| $ | 1,086 |
|
|
| 3.5 | % |
The Company’s average overall debt for the three monthsthree-month period ended March 31,September 30, 2023 was $90,486,$200,247, as compared to $85,756$125,441 for the three-month period ended September 30, 2022. Our borrowings in the three-month period ended September 30, 2023, were higher primarily as a result of customer decisions to slow down purchases from buying early to now buying as close to time of use as possible, resulting in increased working capital for the company as we work through this change in the market places in which we operate. As can be seen from the table above, the effective bank interest rate on our revolving line of credit was 7.1% and 3.5% at each of the three-month period ended September 30, 2023 and 2022, respectively.
Income tax expense decreased by $2,078 to $885 for the three-month period ended September 30, 2023, as compared to $2,963 for the comparable period in 2022. The effective tax rates for the three-month period ended September 30, 2023 and 2022, were 158.0% and 30.5%, respectively. The increase in the effective tax rate for the three months ended March 31, 2022. September 30, 2023 as compared to the same period in 2022, is primarily attributable to an increase in losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain valuation allowances against their net deferred tax assets.
Our borrowingsnet loss for the three-month period ended September 30, 2023, was $325 or ($0.01) per basic and diluted share, as compared to net income of $6,741 or $0.23 per basic and diluted share in the threesame quarter of 2022.
24
Nine Months Ended September 30, 2023 and 2022:
Overview of the Company’s Performance
During much of the year-to-date in 2023, the global agricultural industry has been influenced by a handful of dynamics. First, commodity prices have remained relatively stable; this has been so since the Russian invasion of Ukraine. Second, the US Dollar has been strong, while the Chinese economy has weakened. This, in turn, has created foreign exchange impacts for US-based businesses that serve international markets. In addition, China-based suppliers have oversupplied certain markets (e.g., Central America) with low-priced generic products. Third, the cost of money has risen to the point that customers have engaged in destocking activity to limit carrying costs for inventory. Finally, supply chain disruptions continued to arise from time to time, particularly among domestic companies that import goods from Asia and India. Against that backdrop, the Company’s overall operating results for the first nine months of 2023 declined as compared to those of the same period of 2022.
On a consolidated basis, with domestic sales down 14% and international down by 3%, overall net sales decreased by 10% (to $407,191 from $450,036). Cost of sales were down 9% on an absolute basis but increased as a percent of net sales to 69% from 67%. Factory performance was less cost efficient during the first nine months of 2023, as compared to that of 2022. These factors, taken together, yielded an decrease in gross profit margin to 31% of net sales from 33% during the first nine months of 2022. Operating expenses were flat on an absolute basis but increased as a percent of net sales to 28% as compared to 25% of net sales for the same period of the prior year.
Interest expense rose sharply due to higher interest rates and higher average borrowing, while income tax expense decreased significantly to $2,066 from $10,187 during the comparable period last year, primarily as a result of lower income before taxes. Overall, the Company’s net income for the period decreased to $540 from $23,506 during the first nine months of the prior year. Details on our financial performance are set forth below.
RESULTS OF OPERATIONS
Nine months ended March 31,September 30, 2023, and 2022
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 185,823 |
|
| $ | 220,303 |
|
| $ | (34,480 | ) |
|
| -16 | % |
U.S. non-crop |
|
| 50,041 |
|
|
| 53,844 |
|
|
| (3,803 | ) |
|
| -7 | % |
Total U.S. |
|
| 235,864 |
|
|
| 274,147 |
|
|
| (38,283 | ) |
|
| -14 | % |
International |
|
| 171,327 |
|
|
| 175,916 |
|
|
| (4,589 | ) |
|
| -3 | % |
Total net sales |
|
| 407,191 |
|
|
| 450,063 |
|
|
| (42,872 | ) |
|
| -10 | % |
Total cost of sales |
|
| (282,662 | ) |
|
| (299,698 | ) |
|
| 17,036 |
|
|
| -6 | % |
Total gross profit |
| $ | 124,529 |
|
| $ | 150,365 |
|
| $ | (25,836 | ) |
|
| -17 | % |
Total gross margin |
|
| 31 | % |
|
| 33 | % |
|
|
|
|
|
|
Our domestic crop business recorded net sales that were higher16% lower than those of the first nine months of 2022. The main driver of this performance was in our herbicide product category. Dacthal, which is used on a wide variety of high-value crops was unavailable for sale this year, as the company awaits the reinstatement of its registration. Additionally, our Impact post-emergent corn herbicide posted lower sales this year due to an unexpected grower preference for low-priced non-selective herbicides. Offsetting this decline was our leading soil insecticide Aztec, which rebounded from earlier supply constraints and saw strong demand in light of heavy rootworm pressure throughout the Midwest region. Our domestic cotton business, led by Bidrin foliar insecticide and Folex harvest defoliant, declined during the first three quarters of 2023 due to lower cotton acreage, moderate pest pressure, and a delay in harvest defoliant applications. At the same time, we posted modest increases in our soil fumigant and sugarcane products. The US crop business continues to experience the effects of channel inventory destocking, driven by high interest rate carrying costs. This has led to very cautious purchasing patterns throughout the domestic business since the beginning of the second quarter.
Year-to-date, the Company’s domestic crop business was slowed by supply chain disruption of its premier corn soil insecticide Aztec and herbicide Dacthal during the first quarter. During the second quarter, both US crop and US non-crop experienced slowed sales resulting from global destocking on the part of our distribution channels. Crop sales declines were partially offset by stronger sales of soil fumigants. Within non-crop, big box stores and retailers slowed and reduced procurement activity and departed from the historical norm of maintaining about 6 months’ inventory to about 30 days’ inventory. Within our International business, Central America and Brazil were adversely affected by the export of low-priced generic product from China, partially offset by strong performances in Mexico and Australia.
25
Our domestic non-crop business recorded an 8% decrease in net sales for the first nine months of the year (to $49,791 from $53,844). We experienced a nine month reduction in consumer demand for our OHP nursery and ornamental products, most of which occurred earlier this year and now has normalized in the most recent quarter. Sales of our Dibrom® mosquito adulticide remained nearly flat while sales for commercial pest control products (pest strips and bifenthrin) declined, due in part to measures imposed by distribution to control inventory carrying costs. License revenue for our Envance technologies increased when compared to the same period in 2022, due to an increase in contractually guaranteed royalty fees.
Net sales of our international businesses declined by 3% during the first three quarters of 2023 (to $171,327 in 2023 from $175,916 in 2022). Central America experienced a rare multi-quarter sales decline due to continuing regional drought conditions and increased competitive pressure from Chinese imports. Brazil continued to gain further market penetration of our Counter granular insecticide/nematicide, but the overall business suffered otherwise from intense channel inventory destocking in the region. Mexico delivered solid performance by satisfying continuing strong demand for Bromacil herbicides and granular soil insecticides, offset somewhat by lower sales of our soil fumigant products. Australia posted higher sales with our expanded market footprint following full integration of the AgNova business, despite the recurrence of drought conditions in parts of the continent.
Operating expenses decreased by $242 to $113,317 for the nine-month period ended September 30, 2023, as compared to the same period in 2022. The changes in operating expenses by department are as follows:
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Sales and marketing |
| $ | 41,288 |
|
| $ | 38,271 |
|
| $ | 3,017 |
|
|
| 8 | % |
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other |
|
| 44,125 |
|
|
| 50,262 |
|
|
| (6,137 | ) |
|
| -12 | % |
Proxy contest activities |
|
| 541 |
|
|
| 1,785 |
|
|
| (1,244 | ) |
|
| -70 | % |
Research, product development and regulatory |
|
| 27,363 |
|
|
| 23,241 |
|
|
| 4,122 |
|
|
| 18 | % |
|
| $ | 113,317 |
|
| $ | 113,559 |
|
| $ | (242 | ) |
|
| 0 | % |
During the nine-month period ended September 30, 2023, the Company recorded a decrease in the fair value of our equity investment in Clean Seed in the amount of $324 compared to $857 during the nine months ended September 30, 2022. These changes in fair value of our investment directly reflect changes in the stock’s quoted market price.
26
Interest costs net of capitalized interest were $8,282 in the first nine-month period of 2023, as compared to $2,256 in the same period of 2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Nine months ended September 30, 2023 |
|
| Nine months ended September 30, 2022 |
| ||||||||||||||||||
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
| ||||||
Revolving line of credit (average) |
| $ | 149,009 |
|
| $ | 7,819 |
|
|
| 7.0 | % |
| $ | 111,939 |
|
| $ | 2,250 |
|
|
| 2.7 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 174 |
|
|
| — |
|
|
| — |
|
|
| 199 |
|
|
| — |
|
Amortization of other deferred liabilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
Other interest expense |
|
| — |
|
|
| 657 |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
|
| — |
|
Subtotal |
|
| 149,009 |
|
|
| 8,650 |
|
|
| 7.7 | % |
|
| 111,939 |
|
|
| 2,496 |
|
|
| 3.0 | % |
Capitalized interest |
|
| — |
|
|
| (368 | ) |
|
| — |
|
|
| — |
|
|
| (240 | ) |
|
| — |
|
Total |
| $ | 149,009 |
|
| $ | 8,282 |
|
|
| 7.4 | % |
| $ | 111,939 |
|
| $ | 2,256 |
|
|
| 2.7 | % |
The Company’s average overall debt for the nine-month period ended September 30, 2023, was $149,009, as compared to $111,939 for the nine months ended September 30, 2022. During the period, our average borrowings increased due to share repurchase programs and an increase in inventory due to a slowdown in sales as a result of increased working capital as the business worked through the logistics challenges related to Aztec.channel destocking. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 6.8%7.0% for the threenine months ended March 31,September 30, 2023, as compared to 1.9% in2.7% for the same period of 2022.
Income tax benefit was $361expense decreased by $8,121 to $2,066 for the three monthsnine-month period ended March 31,September 30, 2023, as compared to an income tax expense of $4,499$10,187 for the three-months ended March 31,comparable period in 2022. The effective income tax raterates for the three monthsnine-month period ended March 31,September 30, 2023 was computed based onand 2022, were 79.3% and 30.2%, respectively.
The increase in the estimated effective tax rate for the full year, adjustednine months ended September 30, 2023, as compared to the same period in 2022, is primarily attributable to an increase in 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. Additionally, the Company recorded withholding tax charges (net of income tax credits) associated with interest on certain intercompany loans and the establishment of liabilities for uncertain tax positions in certain jurisdictions. These factors are partially offset by a benefit from the remeasurement of certain U.S. federal and state deferred taxes, partially offset by an expense attributed to establishing liabilities for uncertain tax positions in the U.S. and India. This calculation resulted in an effective tax rate of minus 23.2% for the three months ended March 31, 2023, as compared to 31.2% for the three months ended March 31, 2022.
It is expected that $1,550 of unrecognized tax benefits will be released within the next twelve months due to expiration of the statute of limitations.taxes.
Our overall net income for the first three months ofnine-month period ended September 30, 2023 was $1,918$540 or $0.07$0.02 per basic and diluted share, as compared to $9,935$23,506 or $0.33$0.80 per basic and $0.78 per diluted share in the first quartersame period of 2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company usedCompany’s operating activities utilized net cash of $41,447 in operating activities$145,854 during the three monthsnine-month period ended March 31,September 30, 2023, as compared to $32,315$45,678 during the threenine months ended March 31,September 30, 2022. Included in the $41,447$145,854 are net income of $1,918,$540, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $6,253,$17,850, loss on disposal of property, plant and equipment of $7, amortization of deferred loan fees of $174 and provision for bad debts in the amount of $581 and other in the amount of $94.$952. Also included are stock-based compensation of $1,474, decrease$4,257, increase in deferred income taxes of $122, change$977, changes in liabilities for uncertain tax positions or unrecognized tax benefits of $371,$467, change in fair value of an equity investment of $324, and net change in foreign currency adjustmentadjustments of $446.$199. These together provided net cash inflows of $10,367,$23,793, as compared to $18,942$49,903 for the same period of 2022.
21
During the first three monthsnine-month period of 2023, the Company increased net working capital by $52,995,$160,094, as compared to $55,031an increase of $59,659 during the same period of the prior year. Included in this change: inventories increased by $33,731,$58,163, as compared to $11,738$38,987 for the first quartersame period of 2022. While increases in inventory are normal for the Company’s annual cycle, the increase was bigger due to slowed sales resulting from global destocking on the part of our distribution channels.
27
Customer prepayments decreased by $22,759,$104,590, as compared to $44,528$62,831 in the same period of 2022, driven by customer decisions regarding demand, payment timing and our cash incentive programs. Our accounts payable balances increased by $5,655,$1,240, as compared to $9,677an increase of $14,418 in the same period of 2022, driven by decreased factory activity levels. Accounts receivables increased by $29,055, as compared to an increase of $46,289 in the same period of 2022. Accounts receivableThis is primarily driven by lower overall sales. Prepaid expenses increased by $8,779,$633, as compared to $33,660 in the same period of 2022. Prepaid expenses decreased by $600, as compared to $800$4,272 in the same period of 2022. Income tax receivable increasedchanged by $2,965,$4,046, as compared to a decrease of $3,046$5,201 in the prior year. Accrued programs increased by $10,660, as$29,779, (as compared to $24,601$45,016 in the prior year, as a result of both higheryear), which is normal at this point in the growing season and is related to sales and the mix of those sales including products with higher program elements incorporated in pricing.volume. Finally, other payables and accrued expenses decreased by $500, as$4,406 compared to an increase of $2,145$2,555 in the prior year.
With regard to our program accrual, the increase (as noted above) primarily reflects our level and mix of sales and customers in the first quarter of 2023, as compared to the prior year. The Company accrues programs 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 quarternine months of 2022,2023, the Company made accruals for programs in the amount of $23,669$62,248 and made payments in the amount of $13,033.$32,469. During the first quarternine months of the prior year, the Company made accruals in the amount of $40,469$78,885 and made payments in the amount of $15,752.$33,869. The decrease in accruals for programs in the first nine months of 2023, compared to the same period in 2022, is a direct result of an decrease in sales of qualifying products.
Cash used for investing activities was $3,308 for the three monthsnine-month period ended March 31,September 30, 2023, as compared to $4,250 forand 2022 was $9,148 and $9,978, respectively. In 2023, the three months ended March 31, 2022. The Company spent $2,590$8,589 on purchases of fixed assets acquisitions primarily focused on continuing to invest in manufacturing infrastructure.infrastructure, as compared to $8,946 for the same period of prior year. The Company spent $759 on patents and other intangible assets in 2023 as compared to $1,078 in 2022. In addition, the Company made a paymentreceived proceeds from disposal of $703 for a product acquisitionproperty, plant and spent $15 on patents forequipment in the Envance technology business.amount of $200, as compared to $46 in prior year.
During the threenine months ended March 31,September 30, 2023, financing activities provided $43,777,$146,680, as compared to $37,449$59,797 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $44,700 in$165,700 during the first quarter ofnine-month period ended September 30, 2023, as compared to $46,000$96,000 in the same period of the prior year. The Company paid dividends to stockholders amounting to $851$2,550 during the threenine months ended March 31,September 30, 2023, as compared to $594$2,072 in the same period of 2022. The Company paid $557$15,539 for the repurchase of 27,835885,290 shares of its common stock during the three monthsnine-month period ended March 31,September 30, 2023, as compared to $6,219$13,731 for 720,350 shares and $20,000 related to purchase 332,404an accelerated share repurchase agreement during the nine-month period ended September 30, 2022. The Company received $1,026 for the issuance of ESPP shares inand exercise of stock options for the nine months ended September 30, 2023, as compared to $1,620 for the same period of thein prior year. The Company received $18 from the exercise of stock options. Lastly, in exchange for shares of common stock returned by employees, wethe Company paid $13$1,957 and $2,174$2,020 for tax withholding on stock-based compensation awards during the threenine months ended March 31,September 30, 2023 and 2022, respectively.
The Company’s main bank is Bank of the West,Company has a wholly owned subsidiary of BMO Financial Group. Bank of the West has been the Company’s bank for more than 30 years and is the syndication manager for the Company’s revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at March 31,September 30, 2023 and December 31, 2022. The debt isThese are summarized in the following table:
Long-term indebtedness |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Revolving line of credit |
| $ | 97,000 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (761 | ) |
|
| (823 | ) |
Total indebtedness |
| $ | 96,239 |
|
| $ | 51,477 |
|
Long-term indebtedness ($000's) |
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Revolving line of credit |
| $ | 218,000 |
|
| $ | 52,300 |
|
As of March 31,September 30, 2023, by virtue of Amendment Number Six to the Third Amended Loan and Security Agreement, the Company wasis deemed to be in compliance with the Consolidated Funded Debt Ratio but noncompliant with respectits financial covenants (refer to Note 9 to the Fixed Charge Covenant ratio (“FCCR”). The noncompliance was driven by a reduction in the Consolidated EBITDA (in the numerator of the FCCR calculation) during the twelve months ended March 31, 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 May 8, 2023, the Company obtained a waiver of the FCCRcondensed consolidated financial statements for the twelve months ended March 31, 2023, and an adjustment to the FCCR terms for the period ending June 30, 2023. The impact of most of the share repurchases will be eliminated from the denominator in the FCCR calculation in the third quarter of 2023.further details).
At March 31,September 30, 2023, according to the terms of the Credit Agreement, as amended, and based onincluding our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $111,922. This compares$28,760, compared to an available borrowing capacity of $200,372 as of December 31, 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.
22
RECENTLY ISSUED ACCOUNTING GUIDANCE
Please refer to Note 1615 in the accompanying Notes to the Condensed Consolidated Financial Statementscondensed consolidated financial statements for recently issued and adopted 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, 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, 2022.
28
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 revisionsupdates to estimates and assumptions are reflected in the condensed consolidated financial statements in the period that revisionsthese 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- and nine-months ended September 30, 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, 2022.2022 and Note 9 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 March 31,September 30, 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 March 31,September 30, 2023, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, hadhas 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.
23
29
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 14 in the accompanying Notes to the Condensed Consolidated Financial Statementscondensed 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, 2022, filed on March 16, 2023. The following disclosure amends and supplements those risk factors and, except to the extent restated below, thereThere are no material changes to the risk factors as so stated.stated, except as follows:
Disruption in the global supply chain is creating delays, unavailability and adverse conditions for our industry—Despite improvement in container availability and freight costs, the global supply chain continues to present risk. Industry consolidation, coupled with longer-term production commitments, has materially affected the Company’s supply of rawsraw materials and intermediates in the past. There is no guarantee that the supply chain condition will materially improve any time soon or that the Company will continue to avoid material disruption. Such disruption could have a material adverse effect on the Company’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 chain disruptions in 2022 phosphorus and related compounds were increasingly difficult to source for our entire industry; ensuring a continuous supply required extraordinary efforts both with respect to sourcing and production planning. Similarly, in the first half of 2023, DCPA, the active ingredient in one of the Company’s 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 Company reliably, continuously and at the levels anticipated by the Company or required by the market. If these sources prove to be unreliable and the Company is not able to supplant or otherwise 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 statements.
The Company benefits from customer early pay in meeting its working capital needs. needs—As is the case with other companies in this industry, the Company receives cash from certain major domestic 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 commercial viability. Registrations for the Company’s products are subject to registration review by the USEPA from time to time. In the course of the 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.
30
Item 2. Purchases of Equity Securities by the Issuer
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. 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.
The table below summarizes the number of shares of ourthe Company’s common stock that were repurchased during the three months ended March 31, 2023 and the three months ended March 31, 2022. The shares and respective amount are recorded as treasury shares on the Company’s condensed consolidated balance sheets.September 30, 2023.
Three months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
|
| Maximum number of shares that may yet be purchased under the plan |
| ||||
March 31, 2023 |
|
| 27,835 |
|
| $ | 19.96 |
|
| $ | 557 |
|
|
| — |
|
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
Month ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
| |||
July 31, 2023 |
|
| 325,224 |
|
| $ | 17.80 |
|
| $ | 5,788 |
|
August 31, 2023 |
|
| 151,865 |
|
| $ | 16.63 |
|
| $ | 2,525 |
|
Total |
|
| 477,089 |
|
| $ | 17.42 |
|
| $ | 8,313 |
|
Pursuant to Amendment Number Six to the Third Amended Loan and Security Agreement, effective November 7, 2023, the Company is currently prevented from making stock repurchases.
24Item 3. Defaults Upon Senior Securities
N/A
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
N/A
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 September 30, 2023, has been formatted in Inline XBRL. |
25
31
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 |
26
32