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 SEPTEMBER 30, 2017MARCH 31, 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) (949) 260-1200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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, $0.10 par value | AVD | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☒ | |
Non-Accelerated Filer | ☐ |
| Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.10$0.10 Par Value—29,794,60729,415,136 shares as of October 26, 2017.April 27, 2023.
INDEX
Page Number | |||
3 | |||
4 | |||
Condensed Consolidated Balance Sheets | 5 | ||
6 | |||
7 | |||
8 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||
| |||
| |||
| |||
| |||
| |||
| 24 | ||
25 | |||
26 |
2
PART I. FINANCIALFINANCIAL 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, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net sales |
| $ | 89,975 |
|
| $ | 82,447 |
|
| $ | 238,553 |
|
| $ | 224,645 |
|
Cost of sales |
|
| 51,943 |
|
|
| 49,461 |
|
|
| 136,102 |
|
|
| 132,761 |
|
Gross profit |
|
| 38,032 |
|
|
| 32,986 |
|
|
| 102,451 |
|
|
| 91,884 |
|
Operating expenses |
|
| 31,570 |
|
|
| 28,286 |
|
|
| 84,175 |
|
|
| 77,429 |
|
Operating income |
|
| 6,462 |
|
|
| 4,700 |
|
|
| 18,276 |
|
|
| 14,455 |
|
Interest expense, net |
|
| 375 |
|
|
| 301 |
|
|
| 1,073 |
|
|
| 1,304 |
|
Income before provision for income taxes and loss on equity method investments |
|
| 6,087 |
|
|
| 4,399 |
|
|
| 17,203 |
|
|
| 13,151 |
|
Income tax expense |
|
| 1,954 |
|
|
| 1,378 |
|
|
| 5,015 |
|
|
| 3,672 |
|
Income before loss on equity method investments |
|
| 4,133 |
|
|
| 3,021 |
|
|
| 12,188 |
|
|
| 9,479 |
|
Loss from equity method investments |
|
| 115 |
|
|
| 180 |
|
|
| 226 |
|
|
| 309 |
|
Net income |
|
| 4,018 |
|
|
| 2,841 |
|
|
| 11,962 |
|
|
| 9,170 |
|
Income (loss) attributable to non-controlling interest |
|
| 71 |
|
|
| 36 |
|
|
| (117 | ) |
|
| (253 | ) |
Net income attributable to American Vanguard |
| $ | 4,089 |
|
| $ | 2,877 |
|
| $ | 11,845 |
|
| $ | 8,917 |
|
Earnings per common share—basic |
| $ | .14 |
|
| $ | .10 |
|
| $ | .41 |
|
| $ | .31 |
|
Earnings per common share—assuming dilution |
| $ | .14 |
|
| $ | .10 |
|
| $ | .40 |
|
| $ | .30 |
|
Weighted average shares outstanding—basic |
|
| 29,193 |
|
|
| 28,957 |
|
|
| 29,064 |
|
|
| 28,886 |
|
Weighted average shares outstanding—assuming dilution |
|
| 29,783 |
|
|
| 29,496 |
|
|
| 29,648 |
|
|
| 29,385 |
|
See notes to the condensed consolidated financial statements.
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income |
| $ | 4,018 |
|
| $ | 2,841 |
|
| $ | 11,962 |
|
| $ | 9,170 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (67 | ) |
|
| (436 | ) |
|
| 970 |
|
|
| (888 | ) |
Comprehensive income |
|
| 3,951 |
|
|
| 2,405 |
|
|
| 12,932 |
|
|
| 8,282 |
|
Income (loss) attributable to non-controlling interest |
|
| 71 |
|
|
| 36 |
|
|
| (117 | ) |
|
| (253 | ) |
Comprehensive income attributable to American Vanguard |
| $ | 4,022 |
|
| $ | 2,441 |
|
| $ | 12,815 |
|
| $ | 8,029 |
|
|
| 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 |
|
See notes to the condensed consolidated financial statements.
4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
|
| 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 |
|
ASSETS
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 9,045 |
|
| $ | 7,869 |
|
Receivables: |
|
|
|
|
|
|
|
|
Trade, net of allowance for doubtful accounts of $45 and $42, respectively |
|
| 100,043 |
|
|
| 83,777 |
|
Other |
|
| 3,630 |
|
|
| 3,429 |
|
Total receivables, net |
|
| 103,673 |
|
|
| 87,206 |
|
Inventories |
|
| 123,315 |
|
|
| 120,576 |
|
Prepaid expenses |
|
| 13,543 |
|
|
| 11,424 |
|
Total current assets |
|
| 249,576 |
|
|
| 227,075 |
|
Property, plant and equipment, net |
|
| 49,495 |
|
|
| 50,295 |
|
Intangible assets, net of applicable amortization |
|
| 141,127 |
|
|
| 121,433 |
|
Other assets |
|
| 28,917 |
|
|
| 31,153 |
|
|
| $ | 469,115 |
|
| $ | 429,956 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |||||||
Current liabilities: |
|
|
|
|
|
|
|
|
Current installments of other liabilities |
| $ | 99 |
|
| $ | 26 |
|
Accounts payable |
|
| 29,355 |
|
|
| 24,358 |
|
Deferred revenue |
|
| — |
|
|
| 3,848 |
|
Accrued program costs |
|
| 65,650 |
|
|
| 42,930 |
|
Accrued expenses and other payables |
|
| 8,704 |
|
|
| 12,072 |
|
Income taxes payable |
|
| 1,684 |
|
|
| 13,840 |
|
Total current liabilities |
|
| 105,492 |
|
|
| 97,074 |
|
Long-term debt, net of deferred loan fees |
|
| 57,379 |
|
|
| 40,951 |
|
Other liabilities, excluding current installments |
|
| 2,789 |
|
|
| 2,868 |
|
Deferred income tax liabilities |
|
| 6,712 |
|
|
| 6,706 |
|
Total liabilities |
|
| 172,372 |
|
|
| 147,599 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued |
|
| — |
|
|
| — |
|
Common stock, $.10 par value per share; authorized 40,000,000 shares; issued 32,236,629 shares at September 30, 2017 and 31,819,695 shares at December 31, 2016 |
|
| 3,224 |
|
|
| 3,183 |
|
Additional paid-in capital |
|
| 74,423 |
|
|
| 71,699 |
|
Accumulated other comprehensive loss |
|
| (3,881 | ) |
|
| (4,851 | ) |
Retained earnings |
|
| 230,962 |
|
|
| 220,428 |
|
|
|
| 304,728 |
|
|
| 290,459 |
|
Less treasury stock at cost, 2,450,634 shares at September 30, 2017 and December 31, 2016 |
|
| (8,269 | ) |
|
| (8,269 | ) |
American Vanguard Corporation stockholders’ equity |
|
| 296,459 |
|
|
| 282,190 |
|
Non-controlling interest |
|
| 284 |
|
|
| 167 |
|
Total stockholders’ equity |
|
| 296,743 |
|
|
| 282,357 |
|
|
| $ | 469,115 |
|
| $ | 429,956 |
|
See notes to the condensed consolidated financial statements.
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three and Nine Months Ended September 30, 2017March 31, 2023 and March 31, 2022
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
|
| Accumulated Other |
|
|
|
|
|
| Treasury Stock |
|
|
|
|
|
| Non- |
|
|
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Comprehensive Loss |
|
| Retained Earnings |
|
| Shares |
|
| Amount |
|
| AVD Total |
|
| Controlling Interest |
|
| Total |
| ||||||||||
Balance, December 31, 2016 |
|
| 31,819,695 |
|
| $ | 3,183 |
|
| $ | 71,699 |
|
| $ | (4,851 | ) |
| $ | 220,428 |
|
|
| 2,450,634 |
|
| $ | (8,269 | ) |
| $ | 282,190 |
|
| $ | 167 |
|
| $ | 282,357 |
|
Stocks issued under ESPP |
|
| 16,349 |
|
|
| 2 |
|
|
| 248 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 250 |
|
|
| — |
|
|
| 250 |
|
Cash dividends on common stock ($0.015 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (435 | ) |
|
| — |
|
|
| — |
|
|
| (435 | ) |
|
| — |
|
|
| (435 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 757 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 757 |
|
|
| — |
|
|
| 757 |
|
Stock based compensation |
|
| — |
|
|
| — |
|
|
| 1,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,080 |
|
|
| — |
|
|
| 1,080 |
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
| 377,916 |
|
|
| 37 |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 53 |
|
|
| — |
|
|
| 53 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,452 |
|
|
| — |
|
|
| — |
|
|
| 3,452 |
|
|
| (39 | ) |
|
| 3,413 |
|
Balance, March 31, 2017 |
|
| 32,213,960 |
|
|
| 3,222 |
|
|
| 73,043 |
|
|
| (4,094 | ) |
|
| 223,445 |
|
|
| 2,450,634 |
|
|
| (8,269 | ) |
|
| 287,347 |
|
|
| 128 |
|
|
| 287,475 |
|
Cash dividends on common stock ($0.015 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (437 | ) |
|
| — |
|
|
| — |
|
|
| (437 | ) |
|
| — |
|
|
| (437 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 280 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 280 |
|
|
| — |
|
|
| 280 |
|
Stock based compensation |
|
| — |
|
|
| — |
|
|
| 1,242 |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| 1,242 |
|
|
| — |
|
|
| 1,242 |
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
| (1,836 | ) |
|
| — |
|
|
| (1,517 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,517 | ) |
|
| — |
|
|
| (1,517 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,304 |
|
|
| — |
|
|
| — |
|
|
| 4,304 |
|
|
| 227 |
|
|
| 4,531 |
|
Balance, June 30, 2017 |
|
| 32,212,124 |
|
|
| 3,222 |
|
|
| 72,768 |
|
|
| (3,814 | ) |
|
| 227,312 |
|
|
| 2,450,634 |
|
|
| (8,269 | ) |
|
| 291,219 |
|
|
| 355 |
|
|
| 291,574 |
|
Stocks issued under ESPP |
|
| 17,667 |
|
|
| 2 |
|
|
| 303 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 305 |
|
|
| — |
|
|
| 305 |
|
Cash dividends on common stock ($0.015 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (439 | ) |
|
| — |
|
|
| — |
|
|
| (439 | ) |
|
| — |
|
|
| (439 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (67 | ) |
|
| — |
|
|
| (67 | ) |
Stock based compensation |
|
| — |
|
|
| — |
|
|
| 1,263 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,263 |
|
|
| — |
|
|
| 1,263 |
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
| 6,838 |
|
|
| — |
|
|
| 89 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 89 |
|
|
| — |
|
|
| 89 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,089 |
|
|
| — |
|
|
| — |
|
|
| 4,089 |
|
|
| (71 | ) |
|
| 4,018 |
|
Balance, September 30, 2017 |
|
| 32,236,629 |
|
| $ | 3,224 |
|
| $ | 74,423 |
|
| $ | (3,881 | ) |
| $ | 230,962 |
|
|
| 2,450,634 |
|
| $ | (8,269 | ) |
| $ | 296,459 |
|
| $ | 284 |
|
| $ | 296,743 |
|
|
| 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 |
|
See notes to the condensed consolidated financial statements.
6
AMERICAN VANGUARD CORPORATIONCORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the Nine Months Ended September 30, |
|
| For the three months |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income |
| $ | 11,962 |
|
| $ | 9,170 |
|
| $ | 1,918 |
|
| $ | 9,935 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization of fixed and intangible assets |
|
| 12,358 |
|
|
| 12,367 |
| ||||||||
Amortization of other long term assets |
|
| 3,995 |
|
|
| 3,935 |
| ||||||||
Amortization of discounted liabilities |
|
| 20 |
|
|
| 28 |
| ||||||||
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 |
| ||||||||
Amortization of other long-term assets |
|
| 714 |
|
|
| 1,173 |
| ||||||||
Provision for bad debts |
|
| 581 |
|
|
| 494 |
| ||||||||
Fair value adjustment of contingent consideration |
|
| — |
|
|
| 599 |
| ||||||||
Stock-based compensation |
|
| 3,585 |
|
|
| 1,656 |
|
|
| 1,474 |
|
|
| 1,563 |
|
Excess tax benefit from exercise of stock options |
|
| — |
|
|
| (82 | ) | ||||||||
Increase in deferred income taxes |
|
| 6 |
|
|
| — |
| ||||||||
Loss from equity method investment |
|
| 226 |
|
|
| 309 |
| ||||||||
Change in deferred income taxes |
|
| 122 |
|
|
| 207 |
| ||||||||
Change in liabilities for uncertain tax positions or unrecognized tax benefits |
|
| 371 |
|
|
| — |
| ||||||||
Other |
|
| 94 |
|
|
| 2 |
| ||||||||
Foreign currency transaction gains |
|
| (446 | ) |
|
| (261 | ) | ||||||||
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Increase in net receivables |
|
| (15,746 | ) |
|
| (19,202 | ) |
|
| (8,779 | ) |
|
| (33,660 | ) |
Increase in inventories |
|
| (2,213 | ) |
|
| (5,201 | ) |
|
| (33,731 | ) |
|
| (11,738 | ) |
Increase in prepaid expenses and other assets |
|
| (3,678 | ) |
|
| (1,011 | ) | ||||||||
(Decrease) increase in income tax receivable/payable, net |
|
| (12,137 | ) |
|
| 1,519 |
| ||||||||
Decrease (increase) in prepaid expenses and other assets |
|
| 600 |
|
|
| (800 | ) | ||||||||
Change in income tax receivable/payable, net |
|
| (2,965 | ) |
|
| 3,046 |
| ||||||||
Increase in accounts payable |
|
| 4,556 |
|
|
| 7,925 |
|
|
| 5,655 |
|
|
| 9,677 |
|
Decrease in deferred revenue |
|
| (3,848 | ) |
|
| (8,847 | ) | ||||||||
Decrease in customer prepayments |
|
| (22,759 | ) |
|
| (44,528 | ) | ||||||||
Increase in accrued program costs |
|
| 22,720 |
|
|
| 30,536 |
|
|
| 10,660 |
|
|
| 24,601 |
|
(Decrease) increase in other payables and accrued expenses |
|
| (3,562 | ) |
|
| 3,098 |
|
|
| (500 | ) |
|
| 2,145 |
|
Net cash provided by operating activities |
|
| 18,244 |
|
|
| 36,200 |
| ||||||||
Net cash used in operating activities |
|
| (41,452 | ) |
|
| (32,315 | ) | ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures |
|
| (5,333 | ) |
|
| (6,122 | ) |
|
| (2,590 | ) |
|
| (3,294 | ) |
Investment |
|
| (950 | ) |
|
| (3,283 | ) | ||||||||
Acquisition of product lines and other intangible assets |
|
| (25,904 | ) |
|
| (224 | ) | ||||||||
Proceeds from disposal of property, plant and equipment |
|
| — |
|
|
| 54 |
| ||||||||
Acquisition of a product line |
|
| (703 | ) |
|
| — |
| ||||||||
Intangible assets |
|
| (15 | ) |
|
| (1,010 | ) | ||||||||
Net cash used in investing activities |
|
| (32,187 | ) |
|
| (9,629 | ) |
|
| (3,308 | ) |
|
| (4,250 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Payments under line of credit agreement |
|
| (59,025 | ) |
|
| (24,000 | ) |
|
| (27,300 | ) |
|
| (12,000 | ) |
Borrowings under line of credit agreement |
|
| 76,000 |
|
|
| — |
|
|
| 72,000 |
|
|
| 58,000 |
|
Payments on other long-term liabilities |
|
| (26 | ) |
|
| (541 | ) | ||||||||
Tax benefit from exercise of stock options |
|
| — |
|
|
| 82 |
| ||||||||
Net payments from the issuance of common stock (sale of stock under ESPP, exercise of stock options, and shares purchased for tax withholding) |
|
| (820 | ) |
|
| 204 |
| ||||||||
Net receipt from the issuance of common stock under ESPP |
|
| 480 |
|
|
| 436 |
| ||||||||
Net receipt from the exercise of stock options |
|
| 18 |
|
|
| — |
| ||||||||
Receipt payment for tax withholding on stock-based compensation awards |
|
| (13 | ) |
|
| (2,174 | ) | ||||||||
Repurchase of common stock |
|
| (557 | ) |
|
| (6,219 | ) | ||||||||
Payment of cash dividends |
|
| (1,161 | ) |
|
| (289 | ) |
|
| (851 | ) |
|
| (594 | ) |
Net cash provided by (used in) financing activities |
|
| 14,968 |
|
|
| (24,544 | ) | ||||||||
Net increase in cash and cash equivalents |
|
| 1,025 |
|
|
| 2,027 |
| ||||||||
Net cash provided by financing activities |
|
| 43,777 |
|
|
| 37,449 |
| ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (983 | ) |
|
| 884 |
| ||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 151 |
|
|
| (957 | ) |
|
| 223 |
|
|
| 672 |
|
Cash and cash equivalents at beginning of period |
|
| 7,869 |
|
|
| 5,524 |
|
|
| 20,328 |
|
|
| 16,285 |
|
Cash and cash equivalents at end of period |
| $ | 9,045 |
|
| $ | 6,594 |
|
| $ | 19,568 |
|
| $ | 17,841 |
|
|
|
|
|
|
|
|
See notes to the condensed consolidated financial statements.
7
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. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of consolidating adjustments, eliminations and normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ninethree months ended September 30, 2017March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further2023. The financial statements and related notes do not include all information refer toand footnotes required by US GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Reportannual report on Form 10-K for the year ended December 31, 2016.2022. Certain operating cash flow items have been reclassified in the prior period condensed consolidated financial statements to conform with the March 31, 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 years.
Finance leases are immaterial to the accompanying condensed consolidated financial statements. There were no lease transactions with related parties as of and for the three-month periods presented in the table below.
The operating lease expense for the three months ended March 31, 2023 and 2022 was $1,637 and $1,604, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. Other information related to operating leases 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 |
|
The weighted-average remaining lease term and discount rate related to the operating leases as of March 31, 2023 were as follows:
Weighted-average remaining lease term (in years) | 5.68 | |||||
Weighted-average discount rate | 4.12 | % |
Future minimum lease payments under non-cancellable operating leases as of March 31, 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 |
|
2.8
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. The Company has one reportable segment. Selective enterprise information of sales disaggregated by category and geographic region is as follows:
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net sales: |
|
|
|
|
|
| ||
U.S. crop |
| $ | 61,876 |
|
| $ | 88,193 |
|
U.S. non-crop |
|
| 13,899 |
|
|
| 13,396 |
|
Total U.S. |
|
| 75,775 |
|
|
| 101,589 |
|
International |
|
| 49,110 |
|
|
| 48,004 |
|
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
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 |
|
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, 2023 and December 31, 2022. The short-term and long-term contract assets of $2,295 and $805 are included in other receivables and other assets, respectively, on the condensed consolidated balance sheets as of March 31, 2023. As of December 31, 2022, the short-term and long-term assets amounted to $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 months ended March 31, 2023, that was included in customer prepayments at the beginning of 2023, was $22,759 and $17,500 was reclassified to accrued expenses and other payables. The Company expects to recognize all its remaining customer prepayments as revenue in fiscal 2023.
4. Property, Plant and Equipment — Property, plant and equipment at September 30, 2017March 31, 2023 and December 31, 20162022 consists of the following:
|
| March 31, |
|
| December 31, |
| ||
Land |
| $ | 2,761 |
|
| $ | 2,757 |
|
Buildings and improvements |
|
| 20,918 |
|
|
| 20,794 |
|
Machinery and equipment |
|
| 146,047 |
|
|
| 142,980 |
|
Office furniture, fixtures and equipment |
|
| 11,266 |
|
|
| 13,231 |
|
Automotive equipment |
|
| 1,490 |
|
|
| 1,584 |
|
Construction in progress |
|
| 4,622 |
|
|
| 5,897 |
|
Total |
|
| 187,104 |
|
|
| 187,243 |
|
Less accumulated depreciation |
|
| (115,566 | ) |
|
| (116,331 | ) |
Property, plant and equipment, net |
| $ | 71,538 |
|
| $ | 70,912 |
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Land |
| $ | 2,458 |
|
| $ | 2,458 |
|
Buildings and improvements |
|
| 16,610 |
|
|
| 15,515 |
|
Machinery and equipment |
|
| 106,641 |
|
|
| 102,146 |
|
Office furniture, fixtures and equipment |
|
| 4,701 |
|
|
| 5,016 |
|
Automotive equipment |
|
| 398 |
|
|
| 387 |
|
Construction in progress |
|
| 2,220 |
|
|
| 8,047 |
|
Total gross value |
|
| 133,028 |
|
|
| 133,569 |
|
Less accumulated depreciation |
|
| (83,533 | ) |
|
| (83,274 | ) |
Total net value |
| $ | 49,495 |
|
| $ | 50,295 |
|
The Company recognized depreciation expense related to property plant and equipment of $2,033$2,179 and $2,021$2,103 for the three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. During the three months ended September 30, 2017 and 2016, the Company eliminated from assets and accumulated depreciation $1,126 and $285, respectively, of fully depreciated assets.
The Company recognized depreciation expense related to property, plant and equipment of $6,112 and $6,334 for the nine months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017 and 2016, the Company eliminated from assets and accumulated depreciation $5,884 and $410, respectively, of fully depreciated assets.
Substantially all of the Company’s assets are pledged as collateral with its lender banks.
9
3.
5. Inventories — Inventories are stated at the lower of cost or market.net realizable value. Cost is determined using the first-in, first-out (“FIFO”) or average cost method. 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 |
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Finished products |
| $ | 107,966 |
|
| $ | 103,832 |
|
Raw materials |
|
| 15,349 |
|
|
| 16,744 |
|
|
| $ | 123,315 |
|
| $ | 120,576 |
|
As of September 30, 2017, we believe our inventories are valued at lower of cost or market.
In July 2015, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASU”) 2015-11, Inventory (Topic 330). Topic 330 currently requires an entity to measure inventory at the lower of cost or market, where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This ASU limits the scope to inventory that is measured using first-in, first-out (FIFO) or average cost and requires inventory be measured at the lower of costs or net realizable value. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this new standard effective January 1, 2017. There was no impact on this adoption.
4. 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:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| For the three months ended |
|
|
|
|
|
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Insecticides |
| $ | 24,866 |
|
| $ | 25,478 |
|
| $ | 102,249 |
|
| $ | 89,496 |
| ||||||||||||||||
Herbicides/soil fumigants/fungicides |
|
| 32,717 |
|
|
| 34,242 |
|
|
| 68,783 |
|
|
| 80,009 |
| ||||||||||||||||
Other, including plant growth regulators |
|
| 17,191 |
|
|
| 13,328 |
|
|
| 30,680 |
|
|
| 23,148 |
| ||||||||||||||||
Net sales: |
|
| 74,774 |
|
|
| 73,048 |
|
|
| 201,712 |
|
|
| 192,653 |
| ||||||||||||||||
Non-crop |
|
| 15,201 |
|
|
| 9,399 |
|
|
| 36,841 |
|
|
| 31,992 |
| ||||||||||||||||
Total net sales: |
| $ | 89,975 |
|
| $ | 82,447 |
|
| $ | 238,553 |
|
| $ | 224,645 |
| ||||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
US |
| $ | 65,842 |
|
| $ | 60,033 |
|
| $ | 173,877 |
|
| $ | 161,661 |
| ||||||||||||||||
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 |
|
| 24,133 |
|
|
| 22,414 |
|
|
| 64,676 |
|
|
| 62,984 |
|
|
| 49,110 |
|
|
| 48,004 |
|
|
| 1,106 |
|
|
| 2 | % |
Total net sales: |
| $ | 89,975 |
|
| $ | 82,447 |
|
| $ | 238,553 |
|
| $ | 224,645 |
|
| $ | 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 | % |
|
|
|
|
|
|
5. 7. Accrued Program Costs—In accordance with FASB ASC 605, The Company offers various discounts to customers based on the Company classifies amounts expectedvolume purchased within a defined time period, other pricing adjustments, volume incentives or other key performance driven payments, which are usually made at the end of a growing season, to be paid to its customers as a reduction of sales revenues.distributors, retailers or growers. The Company describes these payments as “Programs.” Programs are a critical part of doing business in both the US agriculturalU.S. crop and non-crop chemicals market places. For accounting purposes, programsmarketplaces. These discount Programs represent variable consideration. Revenues from sales are recorded as a reduction in gross sales and include market discounts from gross sales, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments made to distributors, retailers or growers, at the endnet sales price, which is the transaction price net of a growing season.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 compares individual sale transactions with programsPrograms to determine what, if any, estimated program liability hasliabilities have been incurred. Once this initial calculation is made for the specific quarter, sales and marketing management, along with executive and financial management, review the accumulated programProgram 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 will makemakes adjustments to the accumulated accrual to properly reflect the Company’s best estimate of the liability at the balance sheet date. The majority of adjustments are made at, or close to, the end of the crop season, at which time customer performance can be more fully assessed. Programs are paid out predominantly on an annual basis, usually in the final quarter of the financial year or the first quarter of the following year. No significant changes in estimates were made during the three and nine months ended September 30, 2017March 31, 2023 and 2016, respectively. 2022.
6. 10
8. Cash Dividends on Common Stock —The Company has declared and/orand 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 Per Share |
|
| Total Paid |
| ||
September 18, 2017 |
| October 5, 2017 |
| October 19, 2017 |
| $ | 0.015 |
|
| $ | 439 |
|
June 8, 2017 |
| June 30, 2017 |
| July 14, 2017 |
| $ | 0.015 |
|
| $ | 437 |
|
March 7, 2017 |
| March 31, 2017 |
| April 14, 2017 |
| $ | 0.015 |
|
| $ | 435 |
|
December 18, 2016 |
| December 23, 2016 |
| January 6, 2017 |
| $ | 0.010 |
|
| $ | 289 |
|
7. ASC 260 9. Earnings Per Share (“EPS”) requires dual presentation of basic EPS and diluted EPS on the face of the condensed consolidated statements of operations. Basic EPS is computed as net income divided by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution that could occur if securities or other contracts, which, for the Company, consists of options to purchase shares of the Company’s common stock, are exercised.
— The components of basic and diluted earnings per share were as follows:
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
Denominator: |
|
|
|
|
|
| ||
Weighted average shares outstanding-basic |
|
| 28,367 |
|
|
| 29,677 |
|
Dilutive effect of stock options and grants |
|
| 706 |
|
|
| 672 |
|
Weighted average shares outstanding-diluted |
|
| 29,073 |
|
|
| 30,349 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to AVD |
| $ | 4,089 |
|
| $ | 2,877 |
|
| $ | 11,845 |
|
| $ | 8,917 |
|
Denominator: (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic |
|
| 29,193 |
|
|
| 28,957 |
|
|
| 29,064 |
|
|
| 28,886 |
|
Dilutive effect of stock options and grants |
|
| 590 |
|
|
| 539 |
|
|
| 584 |
|
|
| 499 |
|
|
|
| 29,783 |
|
|
| 29,496 |
|
|
| 29,648 |
|
|
| 29,385 |
|
For the three and nine months ended September 30, 2017March 31, 2023 and 2016, 2022, no stock options or restricted stock awards were excluded from the computation of diluted earnings per share.
8.10. Debt — The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at September 30, 2017March 31, 2023 and December 31, 2016.2022. The Company has no short termshort-term debt as of September 30, 2017March 31, 2023 and December 31, 2016. These are2022. The debt is summarized in the following table:
Long-term indebtedness ($000's) |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Revolving line of credit |
| $ | 97,000 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (761 | ) |
|
| (823 | ) |
Total indebtedness, net of deferred loan fees |
| $ | 96,239 |
|
| $ | 51,477 |
|
The deferred loan fees as of March 31, 2023 are included in other assets on the condensed consolidated balance sheets.
Long-term indebtedness ($000's) |
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Revolving line of credit |
| $ | 58,375 |
|
| $ | 41,400 |
|
Deferred loan fees |
|
| (996 | ) |
|
| (449 | ) |
Net long-term debt |
| $ | 57,379 |
|
| $ | 40,951 |
|
AsThe Company and certain of June 30, 2017,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, Chemical Corporation (“AMVAC”), the Company’s principal operating subsidiary, as borrower, and affiliatesBorrower Agent (including the Company AMVAC CV and AMVAC BV), as guarantors and/or borrowers, entered into a Third Amendment to Second AmendedBorrowers, on the one hand, and Restated Credit Agreement (the “Credit Agreement”) with a group of commercial lenders led by Bank of the West (AMVAC’s primary bank) as administrative agent, swing line lenderdocumentation agent, syndication agent, collateral agent and Letter of Credit (“L/C”) issuer.sole lead arranger, on the other hand. The Credit Agreement is a senior secured lending facility, consistingconsists of a line of credit of up to $250 million,$275,000, an accordion feature of up to $100 million$150,000, a letter of credit and swingline sub-facility (each having limits of $25,000) and has a maturity date of August 5, 2026. The Credit Agreement amended and restated the previous credit facility, which had a maturity date of June 30, 2022. TheWith respect to key financial covenants, the Credit Agreement contains two key financial covenants;two: namely, borrowers are required to maintain a Consolidated Funded DebtTotal Leverage (“TL”) Ratio of no more than 3.25-to-13.5-to-1, during the first three years, stepping down to 3.25-to-1 as of September 30, 2024, and a Consolidated Fixed Charge CovenantCoverage 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 monthtwelve-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 Rate”Margin” which is based upon the Consolidated Funded DebtTotal Leverage (“TL”) Ratio (“EurocurrencyLIBOR Revolver Loan”) or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month LIBOR Rate plus 1.00%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). The Company and the Lenders entered into an amendment to the Credit Agreement, effective March 9, 2023, whereby LIBOR was replaced by SOFR with a credit spread adjustment of 10.0 bps for all SOFR periods. The revolving loans now bear interest at a variable rate based at our election with proper notice, on either (i) SOFR plus 0.1% per annum and the “Applicable Margin” or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month LIBORSOFR Rate plus 1.00%1.10%, plus, in the case of (x), (y) or (z) the Applicable RateMargin (“AlternateAdjusted Base Rate Revolver Loan”). Interest payments for Eurocurrency RateSOFR Revolver Loans are payable on the last day of each interest period (either one, two, threeone-, three- or sixsix- months, as selected by the borrower)Company) and the maturity date, while interest payments for AlternateAdjusted Base Rate Revolver Loans are payable on the last business day of each month and the maturity date. The interest rate on March 31, 2023, was 6.53%.
As of March 31, 2023, the Company was in compliance with the TL Ratio but noncompliant with respect to the FCCR. The noncompliance was driven to the lesser extent by a reduction in the Consolidated EBITDA (in the numerator of the FCCR calculation) during the twelve months ended March 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 terms for the period ending June 30, 2023. The impact of most of the share repurchases will disappear from the denominator in the FCCR calculation in the third quarter of 2023.
At September 30, 2017,March 31, 2023, according to the terms of the Credit Agreement, as amended, and based on itsour performance against the most restrictive covenantscovenant listed above, the Company had the capacity to increase its borrowings by up to $124,724.$111,922. This compares to an available borrowing capacity of $95,985$200,372 as of September 30, 2016.December 31, 2022.
11. Classification Corrections — A correction to the condensed consolidated statements of operations for the three months ended March 31, 2022 was 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 levelCompany identified errors related to the classification of borrowing capacitythird-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 drivennot material to any previously issued quarterly or annual financial statements. However, management has recorded a correction adjustment to previously reported financial statement line items and related disclosures. The third-party agents’ commission in the amount of $158 was reclassified from net sales to operating expenses. The impact was an increase in net sales and gross profit in the amount of $158 and an offsetting increase in operating expenses in the same amount. This correction did not have any impact on operating income, net income, and earnings per common share.
12. 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 three factors: (1) ourbusiness unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as measuredmost peer companies include warehousing, handling and outbound freight costs in EBITDA for trailing twelve month period, which has improved, (2) net borrowings, which have decreasedcost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and (3)facilitate comparisons with most of the leverage covenant (beingCompany’s peer companies. The following table compares the number of times EBITDA the Company may borrow under its credit facility agreement).
9. Reclassification—Certain items may have been reclassified in the prior period condensed consolidated financial statements to conformCompany’s historical classification with the September 30, 2017 presentation.classification after the adoption of the change in accounting for the three months ended March 31, 2023 and 2022:
|
| Classification after adoption of accounting change |
|
| Historical classification |
| ||||||||||
|
| For the three months ended March 31 |
|
| For the three months ended March 31 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | 124,885 |
|
|
| 149,593 |
|
Cost of sales |
|
| (86,348 | ) |
|
| (98,198 | ) |
|
| (77,093 | ) |
|
| (88,242 | ) |
Gross profit |
|
| 38,537 |
|
|
| 51,395 |
|
|
| 47,792 |
|
|
| 61,351 |
|
Operating expenses |
|
| (35,272 | ) |
|
| (36,646 | ) |
|
| (44,527 | ) |
|
| (46,602 | ) |
Operating income |
| $ | 3,265 |
|
| $ | 14,749 |
|
| $ | 3,265 |
|
| $ | 14,749 |
|
12
The change in accounting principle did not have any impact on operating income, net income and earnings per share.
10.13. Comprehensive Income — Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the condensed consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three and nine monththree-month periods ended September 30, 2017March 31, 2023 and 2016,2022, total comprehensive income consisted of net income attributable to American Vanguard and foreign currency translation adjustments.
11. Stock Based Compensation—The Company accounts for stock-based awards to employees and directors in accordance with FASB ASC 718, “Share-Based Payment,” which requires the measurement and recognition of compensation for all share-based payment awards made to employees and directors including shares of common stock granted for services, employee stock options, and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values.
14. Stock-Based Compensation — The following tables illustrate the Company’s stock basedstock-based compensation, unamortized stock-based compensation, and remaining weighted average periodamortization period.
|
| Stock-Based |
|
| Unamortized |
|
| Remaining |
| |||
March 31, 2023 |
|
|
|
|
|
|
|
|
| |||
Time-Based Restricted Stock |
| $ | 1,198 |
|
| $ | 5,304 |
|
|
| 1.7 |
|
Unrestricted Stock |
|
| 130 |
|
|
| 87 |
|
|
| 0.2 |
|
Performance-Based Restricted Stock |
|
| 146 |
|
|
| 1,978 |
|
|
| 1.7 |
|
Total |
| $ | 1,474 |
|
| $ | 7,369 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |||
March 31, 2022 |
|
|
|
|
|
|
|
|
| |||
Time-Based Restricted Stock |
| $ | 993 |
|
| $ | 5,411 |
|
|
| 1.7 |
|
Unrestricted Stock |
|
| 117 |
|
|
| 78 |
|
|
| 0.2 |
|
Performance-Based Restricted Stock |
|
| 453 |
|
|
| 2,319 |
|
|
| 1.7 |
|
Total |
| $ | 1,563 |
|
| $ | 7,808 |
|
|
|
|
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 months ended March 31, 2023 and 2022.
Time-based Restricted and Unrestricted Stock — A summary of nonvested time based restricted and unrestricted stock is presented below:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||
Nonvested shares at December 31st |
|
| 742,050 |
|
| $ | 18.86 |
|
|
| 817,290 |
|
| $ | 17.04 |
|
Vested |
|
| (2,017 | ) |
|
| 15.71 |
|
|
| (230,080 | ) |
|
| 17.31 |
|
Forfeited |
|
| (5,479 | ) |
|
| 19.87 |
|
|
| (24,109 | ) |
|
| 17.10 |
|
Nonvested shares at March 31st |
|
| 734,554 |
|
| $ | 18.86 |
|
|
| 563,101 |
|
| $ | 16.93 |
|
Performance-Based Restricted Stock — A summary of nonvested performance-based stock is presented below:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||
Nonvested shares at December 31st |
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 379,061 |
|
| $ | 16.43 |
|
Additional granted (forfeited) based on performance achievement |
|
| — |
|
|
| — |
|
|
| (41,088 | ) |
|
| 16.56 |
|
Vested |
|
| — |
|
|
| — |
|
|
| (78,704 | ) |
|
| 17.18 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| (7,074 | ) |
|
| 16.77 |
|
Nonvested shares at March 31st |
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 252,195 |
|
| $ | 16.17 |
|
13
Stock Options — A summary of stock options is presented below:
Time-based Incentive Stock Option Plans
Activity of the incentive stock option plans for the three and nine months ended September 30, 2017March 31, 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 |
|
All outstanding stock options as of March 31, 2023 have an exercise price of $11.49 and 2016.a remaining life of 21 months.
|
| Stock-Based Compensation for the Three months ended |
|
| Stock-Based Compensation for the Nine months ended |
|
| Unamortized Stock-Based Compensation |
|
| Remaining Weighted Average Period (years) |
| ||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Stock Options |
| $ | 80 |
|
| $ | 250 |
|
| $ | 94 |
|
|
| 0.3 |
|
Restricted Stock |
|
| 635 |
|
|
| 2,068 |
|
|
| 4,475 |
|
|
| 1.2 |
|
Performance Based Restricted Stock |
|
| 299 |
|
|
| 920 |
|
|
| 1,901 |
|
|
| 2.0 |
|
Performance Based Options |
|
| 249 |
|
|
| 347 |
|
|
| 69 |
|
|
| 0.3 |
|
Total |
| $ | 1,263 |
|
| $ | 3,585 |
|
| $ | 6,539 |
|
|
|
|
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Stock Options |
| $ | 71 |
|
| $ | 252 |
|
| $ | 497 |
|
|
| 1.2 |
|
Restricted Stock |
|
| 406 |
|
|
| 1,100 |
|
|
| 2,545 |
|
|
| 1.8 |
|
Performance Based Restricted Stock |
|
| 100 |
|
|
| 240 |
|
|
| 857 |
|
|
| 1.4 |
|
Performance Based Options |
|
| 11 |
|
|
| 64 |
|
|
| 173 |
|
|
| 1.2 |
|
Total |
| $ | 588 |
|
| $ | 1,656 |
|
| $ | 4,072 |
|
|
|
|
|
Stock Options—DuringThere was no activity during the three and nine months ended September 30, 2017, the Company did not grant any employees options to acquire shares of common stock.
Option activity within each plan is as follows:
|
| Incentive Stock Option Plans |
|
| Weighted Average Price Per Share |
|
| Exercisable Weighted Average Price Per Share |
| |||
Balance outstanding, December 31, 2016 |
|
| 541,905 |
|
| $ | 9.33 |
|
| $ | 7.97 |
|
Options exercised |
|
| (15,000 | ) |
|
| 7.50 |
|
|
| — |
|
Options forfeited |
|
| (3,919 | ) |
|
| 11.49 |
|
|
| — |
|
Balance outstanding, March 31, 2017 |
|
| 522,986 |
|
|
| 9.37 |
|
|
| 7.99 |
|
Options exercised |
|
| (21,300 | ) |
|
| 7.50 |
|
|
| — |
|
Options forfeited |
|
| (3,183 | ) |
|
| 11.49 |
|
|
| — |
|
Balance outstanding, June 30, 2017 |
|
| 498,503 |
|
|
| 9.43 |
|
|
| 8.03 |
|
Options exercised |
|
| (12,000 | ) |
|
| 7.50 |
|
|
| — |
|
Options forfeited |
|
| (4,285 | ) |
|
| 11.49 |
|
|
| — |
|
Balance outstanding, September 30, 2017 |
|
| 482,218 |
|
| $ | 9.46 |
|
| $ | 8.05 |
|
Information relating toMarch 31, 2022. There were 108,036 incentive stock options at September 30, 2017, summarized by exercise price is as follows:
|
| Outstanding Weighted Average |
|
| Exercisable Weighted Average |
| ||||||||||||||
Exercise Price Per Share |
| Shares |
|
| Remaining Life (Months) |
|
| Exercise Price |
|
| Shares |
|
| Exercise Price |
| |||||
Incentive Stock Option Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$7.50 |
|
| 250,050 |
|
|
| 38 |
|
| $ | 7.5 |
|
|
| 250,050 |
|
| $ | 7.50 |
|
$11.32—$14.75 |
|
| 232,168 |
|
|
| 83 |
|
|
| 11.58 |
|
|
| 34,334 |
|
|
| 12.07 |
|
|
|
| 482,218 |
|
|
|
|
|
| $ | 9.46 |
|
|
| 284,384 |
|
| $ | 8.05 |
|
The weighted average exercise prices for options granted, and exercisable, and the weighted average remaining contractual life for options outstanding as of September 30, 2017, were as follows:March 31, 2022 with an exercise price per share of $11.49 and a remaining life of 33 months.
As of September 30, 2017 |
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life (Months) |
|
| Intrinsic Value (thousands) |
| ||||
Incentive Stock Option Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
| 482,218 |
|
| $ | 9.46 |
|
|
| 60 |
|
| $ | 6,480 |
|
Expected to Vest |
|
| 480,800 |
|
| $ | 9.46 |
|
|
| 60 |
|
| $ | 6,464 |
|
Exercisable |
|
| 284,384 |
|
| $ | 8.05 |
|
|
| 41 |
|
| $ | 4,222 |
|
Performance-based Incentive Stock Option Plan
DuringThere was no activity for the three months ended September 30, 2017March 31, 2023 and 2016, the Company recognized stock-based compensation related to stock options2022. There were 81,808 and 114,658 of $80 and $71, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized stock-based compensation related to stock options of $250 and $252, respectively.
As of September 30, 2017, the Company had approximately $94 of unamortized stock-based compensation related to unvested stock options outstanding. This amount will be recognized over the weighted-average period of 0.3 years. This projected expense will change if any stock options are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.
Common stock grants — A summary of non-vested shares as of, and for, the nine months ended September 30, 2017 and 2016 is presented below:
|
| Nine Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2016 |
| ||||||||||
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||||
Nonvested shares at December 31st |
|
| 324,756 |
|
| $ | 14.75 |
|
|
| 362,841 |
|
| $ | 20.43 |
|
Granted |
|
| 251,475 |
|
|
| 16.10 |
|
|
| — |
|
|
| — |
|
Vested |
|
| (10,100 | ) |
|
| 12.95 |
|
|
| (127,274 | ) |
|
| 31.29 |
|
Forfeited |
|
| (6,544 | ) |
|
| 15.26 |
|
|
| (16,008 | ) |
|
| 23.67 |
|
Nonvested shares at March 31st |
|
| 559,587 |
|
|
| 15.38 |
|
|
| 219,559 |
|
|
| 14.59 |
|
Granted |
|
| 38,502 |
|
|
| 17.08 |
|
|
| 140,541 |
|
|
| 15.08 |
|
Vested |
|
| (188,400 | ) |
|
| 15.22 |
|
|
| (22,639 | ) |
|
| 15.63 |
|
Forfeited |
|
| (6,593 | ) |
|
| 15.55 |
|
|
| (6,457 | ) |
|
| 14.98 |
|
Nonvested shares at June 30th |
|
| 403,096 |
|
|
| 15.61 |
|
|
| 331,004 |
|
|
| 14.72 |
|
Granted |
|
| 1,000 |
|
|
| 19.90 |
|
|
| 1,668 |
|
|
| 16.75 |
|
Vested |
|
| (1,065 | ) |
|
| 12.88 |
|
|
| (2,566 | ) |
|
| 19.18 |
|
Forfeited |
|
| (5,209 | ) |
|
| 15.80 |
|
|
| (12,822 | ) |
|
| 14.98 |
|
Nonvested shares at September 30th |
|
| 397,822 |
|
| $ | 15.63 |
|
|
| 317,284 |
|
| $ | 14.69 |
|
Common stock grants — During the nine months ended September 30, 2017, the Company issued a total of 290,977 shares of common stock to employees and directors. 24,312 shares vested immediately, 3,900 shares will vest in three equal tranches on the employee’s anniversary, 1,000 shares will cliff vest after one year of service, 2,500 shares will cliff vest after two years of service, and the remaining shares will cliff vest after three years of service. The shares granted in 2017 were average fair valued at $16.24 per share. The fair value was determined by using the publicly traded share price as of the date of grant. The Company will recognize as expense the value of restricted shares over the required service period.
During the nine months ended September 30, 2016, the Company issued a total of 142,209 shares of restricted common stock to employees. Of these, 21,139 shares vested immediately and the remaining 121,070 shares will cliff vest after three years of service. The shares granted in 2016 were average fair valued at $15.10 per share. The fair value was determined by using the publicly traded share price as of the date the grant was approved. The Company will recognize as expense the value of restricted shares over the required service period.
During the three months ended September 30, 2017 and 2016, the Company recognized stock-based compensation related to restricted shares of $635 and $406, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized stock-based compensation related to restricted shares of $2,068 and $1,100, respectively.
As of September 30, 2017, the Company had approximately $4,475 of unamortized stock-based compensation related to unvested restricted shares. This amount will be recognized over the weighted-average period of 1.2 years. This projected expense will change if any restricted shares are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.
Performance Based Shares—A summary of non-vested performance based shares as of, and for, the nine months ended September 30, 2017 and 2016, respectively is presented below:
|
| Nine Months Ended September 30, 2017 |
|
| Nine Months Ended September 30, 2016 |
| ||||||||||
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||||
Nonvested shares at December 31st |
|
| 119,022 |
|
| $ | 14.18 |
|
|
| 104,403 |
|
| $ | 17.05 |
|
Granted |
|
| 121,194 |
|
|
| 15.40 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| (9,395 | ) |
|
| 17.65 |
|
Nonvested shares at March 31st |
|
| 240,216 |
|
|
| 14.80 |
|
|
| 95,008 |
|
|
| 16.99 |
|
Granted |
|
| 7,400 |
|
|
| 15.88 |
|
|
| 52,170 |
|
|
| 14.39 |
|
Vested |
|
| (48,046 | ) |
|
| 14.92 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (12,560 | ) |
|
| 12.92 |
|
|
| (19,612 | ) |
|
| 28.25 |
|
Nonvested shares at June 30th |
|
| 187,010 |
|
|
| 14.93 |
|
|
| 127,566 |
|
|
| 14.20 |
|
Forfeited |
|
| (953 | ) |
|
| 15.21 |
|
|
| (8,544 | ) |
|
| 14.39 |
|
Nonvested shares at September 30th |
|
| 186,057 |
|
| $ | 14.93 |
|
|
| 119,022 |
|
| $ | 14.18 |
|
Performance Based Shares — During the nine months ended September 30, 2017, the Company issued a total of 128,594 performance based shares to employees. The shares granted during the nine months of 2017 have an average fair value of $15.43. The fair value was determined by using the publicly traded share price as of the date of grant. The Company will recognize as expense the value of the performance based shares over the required service period from grant date. The shares will cliff vest on February 8, 2020 with a measurement period commencing January 1, 2017 and ending December 31, 2019. Eighty percent of these performance based shares are based upon the financial performance of the Company, specifically, an earnings before income taxes (“EBIT”) goal weighted at 50% and a net sales goal weighted at 30%. The remaining 20% of performance based shares are based upon AVD stock price appreciation over the same performance measurement period. The EBIT and net sales goals measure the relative growth of the Company’s EBIT and net sales for the performance measurement period, as compared to the median growth of EBIT and net sales for an identified peer group. The stockholder return goal measures the relative growth of the fair market value of the Company’s stock price over the performance measurement period, as compared to that of the Russell 2000 Index and the median fair market value of the common stock of the comparator companies, identified in the Company’s 2016 Proxy Statement. All parts of these awards vest in three years, but are subject to reduction to a minimum (or even zero) for recording less than the targeted performance and to increase to a maximum of 200% for achieving in excess of the targeted performance.
During the nine months ended September 30, 2016, the Company granted a total of 52,170 performance based shares that will cliff vest on January 6, 2019 with a measurement period commencing January 1, 2016 and ending December 31, 2018. Eighty percent of these performance based shares are based upon the financial performance of the Company, specifically, EBIT goal weighted at 50% and a net sales goal weighted at 30%. The remaining 20% of performance based shares are based upon AVD stock price appreciation over the same performance measurement period. The EBIT and net sales goals measure the relative growth of the Company’s EBIT and net sales for the performance measurement period, as compared to the median growth of EBIT and net sales for an identified peer group. The stockholder return goal measures the relative growth of the fair market value of the Company’s stock price over the performance measurement period, as compared to that of the Russell 2000 Index and the median fair market value of the common stock of the comparator companies, identified in the Company’s 2015 Proxy Statement. All parts of these awards vest in three years, but are subject to reduction to a minimum (or even zero) for recording less than the targeted performance and to increase to a maximum of 200% for achieving in excess of the targeted performance.
As of September 30, 2017, performance based shares related to EBIT and net sales have an average fair value of $16.10 per share. The fair value was determined by using the publicly traded share price as of the date of grant. The performance based shares related to the Company’s stock price have an average fair value of $12.60 per share. The fair value was determined by using the Monte Carlo valuation method. For awards with performance conditions, the Company recognizes share-based compensation cost on a straight-line basis for each performance criteria over the implied service period.
During the three months ended September 30, 2017 and 2016, the Company recognized stock-based compensation related to performance based shares of $299 and $100, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized stock-based compensation related to performance based shares of $920 and $240, respectively.
As of September 30, 2017, the Company had approximately $1,901 of unamortized stock-based compensation expense related to unvested performance based shares. This amount will be recognized over the weighted-average period of 2.0 years. This projected expense will change if any performance based shares are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.
Performance Incentive Stock Options—During the nine months ended September 30, 2017 and 2016, the Company did not grant any employees performance incentive stock options to acquire shares of common stock.
Performance option activity is as follows:
|
| Incentive Stock Option Plans |
|
| Weighted Average Price Per Share |
|
| Exercisable Weighted Average Price Per Share |
| |||
Balance outstanding, December 31, 2016 and March 31, 2017 |
|
| 82,334 |
|
| $ | 11.49 |
|
| $ | — |
|
Options forfeited |
|
| (50 | ) |
|
| 11.49 |
|
|
| — |
|
Balance outstanding, June 30, 2017 |
|
| 82,284 |
|
|
| 11.49 |
|
|
| — |
|
Options forfeited |
|
| (618 | ) |
|
| 11.49 |
|
|
| — |
|
Balance outstanding, September 30, 2017 |
|
| 81,666 |
|
| $ | 11.49 |
|
| $ | — |
|
Information relating to stock options at September 30, 2017 summarized by exercise price is as follows:
|
| Outstanding Weighted Average |
|
| Exercisable Weighted Average |
| ||||||||||||||
Exercise Price Per Share |
| Shares |
|
| Remaining Life (Months) |
|
| Exercise Price |
|
| Shares |
|
| Exercise Price |
| |||||
Performance Incentive Stock Option Plan: |
|
| 81,666 |
|
|
| 3 |
|
| $ | 11.49 |
|
|
| — |
|
| $ | — |
|
The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of September 30, 2017 are as follows:March 31, 2023 and 2022, with an exercise price per share of $11.49 and a remaining life of 21 and 33 months, respectively.
As of September 30, 2017 |
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life (Months) |
|
| Intrinsic Value (thousands) |
| ||||
Performance Incentive Stock Option Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
| 81,666 |
|
| $ | 11.49 |
|
|
| 3 |
|
| $ | 932 |
|
Expected to Vest |
|
| 79,814 |
|
| $ | 11.49 |
|
|
| 3 |
|
| $ | 911 |
|
Exercisable |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
During the three months ended September 30, 2017 and 2016, the Company recognized stock-based compensation related to performance stock options of $249 and $11, respectively. During the nine months ended September 30, 2017 and 2016, the Company recognized stock-based compensation related to performance stock options of $347 and $64, respectively. As of September 30, 2017, the Company assessed the likelihood of achieving the performance measures based on peer group information currently available for the performance based options granted in 2014. Based on the performance thus far, the Company has concluded that it is likely that the performance measure based on EBIT and net sales will be met at 200% of targeted performance and have considered the related additional expense as of September 30, 2017. The performance options based on market price will also be met at 200%, however, the market condition is reflected in the grant date fair value valuation and no additional expenses were recognized as of September 30, 2017.
As of September 30, 2017, the Company had approximately $69 of unamortized stock-based compensation expenses related to unvested performance incentive stock options outstanding. This amount will be recognized over the weighted-average period of 0.3 years. This projected expense will change if any performance incentive stock options are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.
In March 2016, FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718). The new standard changes the accounting for certain aspects of share-based payments to employees. The standard requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital (“APIC”) pools. The standard also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. Cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity in the statement of cash flows. In addition, the standard allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The Company assessed the impact of the adoption of this new standard and determined there was no material impact on the 2016 consolidated financial statements. The Company has considered the different options for treatment of forfeitures in accounting for stock compensation and has elected to continue to account for such adjustments on the estimated basis. The Company adopted this new standard as of January 1, 2017 on a prospective basis. The impact of this adoption was not material.
12. 15. Legal Proceedings—Proceedings — During the reporting period, there have been no material developments in legal proceedings that are pending or threatened againstwere reported in the Company,Company’s Form 10-K for the year ended December 31, 2022, except as described below.
EPA FIFRA/RCRA Matter.Department of Justice and Environmental Protection Agency Investigation. On November 10, 2016, the CompanyAMVAC was served with a grand jury subpoena out offrom the U.S. District CourtUnited 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 whichresponding to the U.S.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”) sought productionidentified the Company and a manager-level employee as targets of documentsthe 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 Company’s reimportation of depleted ThimetAustralian containers from Canada and Australia. The Company has retainedin 2015. Our defense counsel spoke with DoJ on the subject in early October 2022, at which time DoJ expressed an interest in resolving the matter and during 2017 yearstated that it would get back to date has substantially completed the production. During the third quarter, the Company receivedwith its position.
The governmental agencies involved in this investigation have a request from DoJrange of civil and criminal penalties they may seek to interview severalimpose against corporations and individuals who mayfor 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 knowledgeableassessed and the scope of possible non-monetary relief would depend on, among other factors, findings regarding the amount, timing, nature and scope of the matter. Those interviews are likelyviolations, and the level of cooperation provided to take placethe governmental authorities during the fourth quarter. Atinvestigation. As a result, the Company cannot yet anticipate the timing or predict the ultimate resolution of this stage, DoJ has not made clear its intentions with regard to either its theory of the caseinvestigation, financial or potential criminal enforcement. Thus, it is too early to tell whetherotherwise, which could have a loss is probable or reasonably estimable.material adverse effect on our business prospects, operations, financial condition and cash flows. Accordingly, the Company has not recorded a loss contingency onfor this matter.
Harold ReedPitre etc. v. AMVACAgrocentre Ladauniere et al. During January 2017,al. On February 11, 2022, a strawberry grower named Les Enterprises Pitre, Inc. filed a complaint in the Company was served with two StatementsSuperior Court, District of Claim that had been filed on March 29, 2016 withLabelle, Province of Quebec, Canada, entitled Pitre, etc. v. Agrocentre Ladauniere, Inc. etal, including Amvac Chemical Corporation, seeking damages in the Courtamount of Queen’s Bench of Alberta, Canada (as case numbers 160600211 and 160600237) in which plaintiffs Harold Reed (an applicator) and 819596 Alberta Ltd. dba Jem Holdings (an application equipment rental company) allege physical injury and damage to equipment, respectively,approximately $5 million arising from stunted growth of, and reduced yield from, its strawberry crop allegedly from the application of AMVAC’s soil fumigant, Vapam, in spring of
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 firefew test seedlings before planting an entire farm, and that occurred during anhe had placed his blind trust in his application adviser on all manner of timing and rate. An examination of the Company’s potato sprout inhibitor, SmartBlock, at a potato storage facilitymost knowledgeable witness is scheduled to take place in Coaldale, Alberta on April 2, 2014. Plaintiffs allege, among other things, that Amvac was negligent and failed to warn them of the risks of such application. Reed seeks damages of $250 for alleged pain and suffering, while Jem Holdings seeks $60 in alleged lost equipment; both plaintiffs also seek unspecified damages as well. Also during January 2017, the Company received notice that four related actions relating to the same incident were filed with the same court: (i) Van Giessen Growers, Inc. v Harold Reed et al (No. 160303906)(in which grower seeks $400 for alleged loss of potatoes); (ii) James Houweling et al. v. Harold Reed et al. (No. 160104421)(in which equipment owner seeks damages for alleged lost equipment); (iii) Chin Coulee Farms, etc. v. Harold Reed et al. (No. 150600545)(in which owner of potatoes and truck seeks $530 for alleged loss thereof); and (iv) Houweling Farms v. Harold Reed et al. (No. 15060881)(in which owner of several Quonset huts seeks damages for alleged lost improvements, equipment and business income equal to $4,300). The Company was subsequently named as cross-defendant in those actions by Reed. During the third quarter, counsel for the Company filed a Statement of Defence (the Canadian equivalent of an answer), alleging that Reed was negligent in his application of the product and that the other cross-defendants were negligent for using highly flammable insulation and failing to maintain sparking electrical fixtures in the storage units affected by the fire.June 2023. The Company believes that the claims against it in these matters are withouthave no merit and intends to defend them vigorously.the matter. At this stage in the proceedings, however, itthere is too earlynot sufficient information to determine whetherform a loss is probablejudgment as to either the probability or reasonably estimable; accordingly,amount of loss; thus, the Company has not recorded a loss contingency.contingency for this matter.
13. Environmental— DuringCatalano 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 reporting period, thereSuperior 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 material development in respect of a pending environmental matter as follows:
Environmental Site Characterization. As reported in greater detail in the Company’s Form 10-K for the period ended December 31, 2016, soil and groundwater characterization commenced at our Los Angeles manufacturing facility in December 2002 in conjunction with a Site Investigation Plan that was approved by the Department of Toxic Substances Control (“DTSC”). Site investigation (including extensive soil, soil gas, groundwater and air testing) continued through 2014, at the conclusion of which the Company submitted a remedial action plan (“RAP”) to DTSC. Under the provisions of the RAP, the Company proposed not to disturb sub-surface contaminants, but to continue monitoring, maintain the cover above affected soil, enter into restrictive covenants regarding the potentialcausal link between use of this product and the property in the future, and provide financial assurances relating to the requirements of the RAP. In January 2017, the RAP was circulated for public comment. DTSC responded to those comments and, on September 29, 2017, approved the RAP as submitted by the Company. The Company intends to prepare an operation and maintenance plan, to record covenants on certain affected parcels and to obtain further clarification on financial assurance obligations relating to the RAP.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 does not believe that costs to be incurred in connection with the RAP will be material and has not recorded a loss contingency for this matter.
Notice of Intention to Suspend 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, and the Company expects that the ALJ will render a decision in the near future. During the course of these activities.proceedings, AMVAC has been free to make, sell and distribute both 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 recorded a loss contingency for this matter.
14. Recently16.Recent Issued Accounting Guidance— Guidance — In November 2016,March 2020, the FASB issued ASU 2016-18, Statement of Cash Flows2020-04 Reference Rate Reform (Topic 230). The new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. Based on the composition848): Facilitation of the Company’s cashEffects of Reference Rate Reform on Financial Reporting,as amended and cash equivalent,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 of the new standard is not expected to have a material impact on ourits condensed consolidated cash flowsfinancial statements.
The Company expects to adopt the standard for the financial year beginning January 1, 2018.
In August 2016, FASBreviewed all other recently issued ASU 2016-15, Statement of Cash Flows (Topic 230). The new standard addresses eight specific classification issues within the current practice regarding the manner in which certain cash receiptsaccounting pronouncements and cash payments are presented. The new standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company has reviewed the eight specific issues addressed and doesconcluded that they were either not believe that the adoption of ASU 2016-15 will have a material impact on its statement of cash flows. The Company expects to adopt the revised standard for the financial year beginning January 1, 2018.
In October 2016 FASB issued ASU 2016-16, Income Taxes (Topic 740). Current US GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new standard, an entity is to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new standard doesapplicable or not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The new standard is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. The Company has considered its activities with regard to such intra-entity transfers, does not expect the adoption of ASU 2016-16expected to have a materialsignificant impact on ourto its condensed consolidated financial statements and will adopt the standard for the financial year beginning January 1, 2018.statements.
In February 2016, FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. We will evaluate our operating lease arrangements to determine the impact of this amendment on the consolidated financial statements. The evaluation will include an extensive review of our leases, which are primarily related to our manufacturing sites, regional sales offices, lease vehicles, and office equipment. The ultimate impact will depend on the Company’s lease portfolio at the time the new standard is adopted. The Company expects to adopt ASU 2016-02 for the financial year beginning on January 1, 2019.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In March 2016, FASB issued an amendment to the standard, ASU 2016-08, to clarify the implementation guidance on principal versus agent considerations. Under the amendment, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be
provided by the other party (that is, the entity is an agent). In April 2016, FASB issued another amendment to the standard, ASU 2016-10, to clarify identifying performance obligations and the licensing implementation guidance, which retaining the related principles for those areas. The standard and the amendments are effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). These amendments will be effective upon adoption of Topic 606. This standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows.
We have completed an initial scoping analysis of the effect of the standards to identify the revenue streams that may be affected by this ASU. The Company is currently completing detailed contract reviews to evaluate whether the adoption could result in a change in the timing or amount of revenue recognition. For certain products that are deemed to have no alternative use accompanied by an enforceable right to payment, recognition will change from point in time, to over time. The Company is also evaluating the impact on timing and amounts of revenue recognition on certain licenses granted for the use of its intellectual property, as well as other revenue transactions. The Company is in the process of determining what changes are needed to existing accounting policies and controls, as well as disclosures. As of November 2, 2017, the Company has not yet determined whether the impact of adoption of Topic 606 will have a material impact on the Company’s financial condition, results of operations or cash flows. The Company anticipates utilizing the modified retrospective method adoption for the financial year beginning January 1, 2018.
15. 17. Fair Value of Financial Instruments—Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded 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 valuesamount of the Company’s financial instruments, which principally include cash receivables and cash equivalents, short-term investments, accounts receivable, accounts payable approximate theirand accrued expenses, approximates fair valuesvalue because of the relatively short maturity of thesesuch instruments. The fair valuecarrying amount of the Company’s long-term debt payable toborrowings, which are considered Level 2 liabilities, approximates fair value as they bear interest at a variable rate at 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 bank is estimated basedfair value hierarchy. The Company may use various valuation techniques depending on the quoted market pricesterms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring. The Company did not have any contingent earn-out liabilities at March 31, 2023 and December 31, 2022. The following table illustrates the Company’s contingent consideration movements related to its business acquisitions as of and for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Such fair value approximates the respective carrying values of the Company’s long-term debt payable to bank.three months ended March 31, 2022:
|
| Three months ended |
| |
Balance, December 31, 2021 |
| $ | 786 |
|
Fair value adjustment |
|
| 599 |
|
Accretion of discounted liabilities |
|
| 6 |
|
Foreign exchange effect |
|
| 46 |
|
Balance, March 31, 2022 |
| $ | 1,437 |
|
16.
18. Accumulated Other Comprehensive Income (“AOCI”)Loss —The following table lists the beginning balance, annualquarterly activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency translation adjustments:
|
| Total |
| |
Balance, December 31, 2016 |
| $ | (4,851 | ) |
FX translation |
|
| 757 |
|
Balance, March 31, 2017 |
|
| (4,094 | ) |
FX translation |
|
| 280 |
|
Balance, June 30, 2017 |
|
| (3,814 | ) |
FX translation |
|
| (67 | ) |
Balance, September 30, 2017 |
| $ | (3,881 | ) |
Total | ||||
Balance, December 31, 2022 | $ | (12,182 | ) | |
Foreign currency translation adjustment, net of tax effects of ($89) | 2,546 | |||
Balance, March 31, 2023 | $ | (9,636 | ) | |
Balance, December 31, 2021 | $ | (13,784 | ) | |
Foreign currency translation adjustment, net of tax effects of ($48) | 7,080 | |||
Balance, March 31, 2022 | $ | (6,704 | ) |
17. 19. Equity Method Investments—TyraTech Inc. (“TyraTech”) is a Delaware corporation that specializes in developing, marketing and selling pesticide products containing natural oils. As of September 30, 2017, the Company’s ownership position in TyraTech was approximately 15.11%. The Company utilizes the equity method of accounting with respect to this investment. As a result, our net income includes losses from equity method investments, which represents our proportionate share of TyraTech’s estimated net losses for the current accounting period. For the three and nine months ended September 30, 2017, the Company recognized losses of $29 and $140, respectively, as a result of the Company’s ownership position in TyraTech. The Company recognized losses of $180 and $309, respectively, for the three and nine months ended September 30, 2016.
The Company’s investment in TyraTech is included in other assets on the condensed consolidated balance sheets. At September 30, 2017, the carrying value of the Company’s investment in TyraTech was $2,044 and the quoted market value of its shareholding was $1,210 based on the London Stock Exchange, Alternative Investment Market (“AIM”). At September 30, 2017, the Company performed an impairment review of its investment in TyraTech and concluded that the implied decrease in value was not other than temporary and no impairment charge was required.
On June 27, 2017, both Amvac Netherlands BV and Huifeng Agrochemical Company, Ltd (“Huifeng”) made individual capital contributions of $950 to the Huifeng Amvac Innovation Co. Ltd (“Hong Kong Joint Venture”). As of September 30, 2017, the Company’s ownership position in the Hong Kong Joint Venture was 50%. The Company utilizes the equity method of accounting with respect to this investment. On July 7, 2017, the Hong Kong Joint Venture purchased the shares of Profeng Australia, Pty Ltd.(“Profeng”), for a total consideration of $1,900. The purchase consists of Profeng Australia, Pty Ltd Trustee and Profeng Australia Unit Trust. Both Trust and Trustee were previously owned by Huifeng via its wholly owned subsidiary Shanghai Biological Focus center. For the three and nine months ended September 30, 2017, the Company recognized losses of $86 and $86, respectively, as a result of the Company’s ownership position in the Hong Kong Joint Venture. There were no similar losses recognized in the prior year comparative period.
18. Cost Method Investment–In February 2016, the CompanyAMVAC Netherlands BV made an equity investment in Biological Products for Agriculture (“Bi-PA”) through its Netherlands wholly-owned subsidiary.. Bi-PA develops biological plant protection products that can be used for the control of pests and disease of agricultural crops. As of September 30, 2017,March 31, 2023 and 2022, the Company’s ownership position in Bi-PA is 15%was 15%. At September 30, 2017,Since this investment does not have readily determinable fair value, the carrying valueCompany 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 the Company’s investment in Bi-PA is $3,283.Bi-PA. The Company utilizes the cost method of accounting with respect to this investment and periodically reviewreviews the investment for possible impairment. There was no impairment or observable price changes on the investment as of September 30, 2017.during the three months ended March 31, 2023 and 2022. The investment is recorded within other assets on the condensed consolidated balance sheets.sheets and amounted to $2,869 as of March 31, 2023 and December 31, 2022.
19. Income Taxes – Income tax expense increased by $576On 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 end at an expense$762 and $784 as of $1,954March 31, 2023 and December 31, 2022, respectively. The Company recorded a loss of $22 and a gain of $83 for the three months ended September 30, 2017,March 31, 2023 and 2022, respectively.The investment is recorded within other assets on the condensed consolidated balance sheets.
20. Income Taxes — Income tax benefit was $361 for the three months ended March 31, 2023, as compared to $1,378income tax expense of $4,499 for the comparable period in 2016.three-months ended March 31, 2022. The effective income tax rate for the three months ended March 31, 2023 was computed based on the estimated effective tax rate for the quarter was 32.1%,full year, adjusted for 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 31.3%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.
16
21. Stock Re-purchase Program — 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 same periodopen 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 10b5-1 plan terminated on March 8, 2023.
The table below summarizes the number of shares of the prior year. Income tax expense was $5,015 forCompany’s common stock that were repurchased during the ninethree months ended September 30, 2017, as compared to $3,672 for the nine months ended September 30, 2016. The effective tax rate for the nine months ended September 30, 2017March 31, 2023 and 2016 was 29.2% and 27.9%, respectively. The effective tax rate is based on the projected income for the full year and is subject to ongoing review and adjustment by management.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 |
|
During the first quarter of 2017, the Company adopted ASU 2016-09, “Improvement to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based payments, including treatment of excess tax benefits and forfeitures, as well as consideration of minimum statutory tax withholding requirements. Under the new standard, all excess tax benefits and tax deficiencies will be recognized as income tax expense or benefit in the income statement as discrete items in the reporting period in which they occur. For the nine months ended September 30, 2017, a discrete tax benefit of $333 was recognized as part of the income tax expense.
The Company has effectively settled its examination with the Internal Revenue Service (“IRS”) for the tax years ended December 31, 2012 and 2014. As a result, the Company increased deferred tax assets and income taxes payable at December 31, 2016 by $12,598. The Company’s 2015 federal income tax return is still subject to IRS examination. The Company’s state income tax returns are subject to examination for the 2012 through 2015 tax years. On April 3, 2017, the Company paid the IRS $11,580.
20. Acquisitions – During the first nine months of 2017, the Company completed two acquisitions with a combined purchase consideration of $25,100. The preliminary allocation of the purchase price was $22,000 to product rights, $1,900 to trademarks, and $1,200 to customer lists.
The operating results of these acquisitions are immaterial to the accompanying condensed consolidated financial statements individually and in the aggregate. Therefore, pro forma financial data is not presented.
On June 6, 2017, the Company’s principal operating subsidiary, Amvac Chemical Corporation, completed an acquisition of certain assets relating to the abamectin, chlorothalonil and paraquat product lines from a group of companies, including Adama Agricultural Solutions, Ltd. The consideration for the acquired assets was paid in cash and has initially been allocated to inventory and intangible assets. The acquired products were included in the Company’s results of operations from June 6, 2017 (the date of acquisition).
On August 22, 2017, the Company’s Netherlands-based subsidiary, AMVAC Netherlands BV, completed the acquisition of certain selective herbicides and contact fungicides including chlorothanonil, ametryn, and isopyrazam, sold in the Mexican agricultural market. The assets were purchased from Syngenta AG. The consideration for the acquired assets was paid in cash and has initially been allocated to inventory and intangible assets. The acquired products were included in the Company’s results of operations from August 22, 2017 (the date of acquisition).
21. Subsequent Events – On October 2, 2017, the Company’s subsidiary, AMVAC Chemical, completed its acquisition of OHP, Inc., a US-based distribution company specializing in the greenhouse and nursery production markets throughout the United States and Puerto Rico. OHP will continue to operate in its horticultural markets using OHP brands.
On October 27, 2017, the Company’s wholly-owned subsidiary, AMVAC Netherlands BV, completed its acquisition of Grupo Agricenter, a distribution company based in Central America.
The combined cash consideration was approximately $41,750, plus inventory and other deferred performance driven payments. These acquisitions were funded from the borrowings on our credit facility agreement.
22. Supplemental Cash Flow Information
|
|
|
| For the three months |
| |||||
Cash paid during the period: |
| 2023 |
|
| 2022 |
| ||
Interest |
| $ | 1,316 |
|
| $ | 387 |
|
Income taxes, net |
| $ | 2,104 |
|
| $ | 1,454 |
|
Non-cash transactions: |
|
|
|
|
|
| ||
Deferred consideration in connection with business acquisitions: |
|
| — |
|
| $ | 599 |
|
Cash dividends declared and included in accrued expenses |
| $ | 851 |
|
| $ | 736 |
|
17
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 1A., Risk factors and Item 7A.3., Quantitative and Qualitative Disclosures about Market Risk, and Part II, Item 1A., Risk Factors, in the Company’s Annualthis Quarterly Report on Form 10-K10-Q.
Effective January 11, 2023, the Company includes warehousing, handling and outbound freight costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The change in accounting principle did not have any impact on operating income, net income and earnings per share. Please refer to note 12 to the condensed consolidated financial statements for further details.
Overview of the year ended December 31, 2016.Company’s Performance
MANAGEMENT OVERVIEW
OverallDomestic crop sales, and therefore, the Company’s financial performance for the first quarter ended September 30, 2017 included sales of $89,975, which were up approximately 9%,2023 declined in most material respects as compared to the comparable period in 2022. While the domestic farm economy remains strong, supply disruptions and delays in raws and intermediates compounds used to manufacture the Company’s leading corn soil insecticide, coupled with shifts in procurement timing for its herbicides, yielded significantly lower sales of $82,447 for the third quarter of 2016. Our gross profit performance ended at $38,032 or 42% of sales,in its domestic crop business, as compared to $32,986 or 40% ofthis time last year. By contrast, both the domestic non-crop and international businesses recorded slightly higher sales for the comparable quarter last year. Operatingperiod. With lower sales of the higher margin domestic crop business, the Company’s overall sales and profit performance were adversely affected. While operating expenses declined, factory costs increasedrose primarily as a result of not having the raw materials available to 35% of salesmanufacture 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 three months ended September 30, 2017quarter, as compared to 34%last year.
On a consolidated basis, domestic sales declined 25% while international rose by 2%, resulting in an overall net sales decline of 17%. Further, overall cost of sales, which has been subject to a change in definition to now incorporate the cost of outbound logistics and freight expenses, decreased by 12%. Cost of sales were 69% of sales in 2023, as compared to 66% for the same period of 2022. These factors, taken together with higher manufacturing costs (both labor and service-related), yielded a 25% decrease in priorgross profit (to $38,537 in 2023 from $51,395 in the comparable quarter of 2022), while overall gross margin percent declined to 31% from 34% quarter-over-quarter.
Operating expenses declined to $35,272 in Q1 2023 from $36,646; however, operating expenses as a percent of net sales rose to 28% in the first quarter of 2023 from 24% in the comparable period of 2022.
Operating income for the period decreased to $3,265 from $14,749, driven by the reduced sales, decreased gross margin percentage and proportionately higher operating expenses. The Company recorded higher interest expense due to federal interest rate increases during the intervening year. OverallThese factors yielded net income increased by $1,212 or 42% at $0.14 per basic and diluted sharefor the period of $1,918, as compared to $0.10 per basic and diluted share this time last year.
Overall$9,935 in the first quarter of 2022. Details on our financial performance are set forth below.
18
RESULTS OF OPERATIONS
Quarter Ended March 31:
|
| 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 | % |
|
|
|
|
|
|
Our domestic crop business recorded net sales during the first quarter of 2023 that were 30% lower than those of the first quarter of 2022 ($61,876 as compared to $88,193). Despite having taken extraordinary measures in the prior year to position suppliers in both the US and China, 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-third 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 net sales of our corn soil insecticides were down about 45% compared to the first quarter of the prior year. In addition, sales of our Impact post-emergent corn herbicides, which (as they related to the wholesale distribution channel) were 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 nine month period ended September 30, 2017 included improvedfourth quarter of 2022) than had been the case in the first quarter of 2022. This resulted in a nearly 40% decline in quarterly sales of our portfolio of herbicide products. By contrast, partially offsetting these declines, we saw a 30% increase in sales of our soil fumigants versus the prior year due in part to the gradual elimination of agricultural water allocation restrictions in California following abundant rainfall and record snowpack accumulation.
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 business posted a 4% increase in net income,sales in the first quarter 2023, as compared to the same period in 2016. Sales for the period were up approximately 6% to $238,553, as compared to $224,645 for the first nine months of 2016. Under absorption of factory costs for the nine month period reduced from 4% of sales to 3% of sales. Our gross profit performance ended at $102,451 or 43% of sales, as compared to $91,884 or 41% of sales for the comparable prior period. Operating expenses remained flat at 35% of net sales and net income improved by $2,928 or 33% to $0.41 per basic share and $0.40 per diluted share, as compared to $0.31 per basic and $0.30 per diluted share.
Net sales for our crop business were up 2% in the quarter and 5% year to date, as compared to the same periods of the prior year. This included a benefit of approximately $7,150 in sales of products from acquisitions concluded earlier in 2017, partially offset by a reduction in the price of Impact in the form of a $2,100 program accruals against inventory in the channel Our non-crop business was up 62% in the three month period ended September 30, 2017 and 15% in the nine month period, as compared to this time last year due primarily to strong sales of our mosquito control insecticide Dibrom® in the aftermath of domestic hurricanes. Our international sales were up 8% for the three months ended September 30, 2017 and were up 3% for the nine months ended September 30, 2017. A more detailed discussion of general market conditions and sales performance by category of products appears below.
When considering the condensed consolidated balance sheet, as of September 30, 2017, net debt was increased by $12,891 and $16,428, as compared to September 30, 2016 and December 31, 2016, respectively. This increase is partly the result of funding product line acquisitions announced during the third quarter of 2017. Debt, net of deferred loan fees, at September 30, 2017 and at December 31, 2016 were $57,379 and $40,951, respectively. Inventory ended the quarter at $123,315 including the impact of newly acquired products and was $120,576 as of December 31, 2016. This compared to $141,678 as of September 30, 2016.
Quarter Ended September 30:
|
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides |
| $ | 24,866 |
|
| $ | 25,478 |
|
| $ | (612 | ) |
|
| -2 | % |
Herbicides/soil fumigants/fungicides |
|
| 32,717 |
|
|
| 34,242 |
|
|
| (1,525 | ) |
|
| -4 | % |
Other, including plant growth regulators |
|
| 17,191 |
|
|
| 13,328 |
|
|
| 3,863 |
|
|
| 29 | % |
Total crop |
|
| 74,774 |
|
|
| 73,048 |
|
|
| 1,726 |
|
|
| 2 | % |
Non-crop |
|
| 15,201 |
|
|
| 9,399 |
|
|
| 5,802 |
|
|
| 62 | % |
|
| $ | 89,975 |
|
| $ | 82,447 |
|
| $ | 7,528 |
|
|
| 9 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides |
| $ | 16,141 |
|
| $ | 17,029 |
|
| $ | (888 | ) |
|
| -5 | % |
Herbicides/soil fumigants/fungicides |
|
| 19,551 |
|
|
| 18,146 |
|
|
| 1,405 |
|
|
| 8 | % |
Other, including plant growth regulators |
|
| 10,230 |
|
|
| 9,609 |
|
|
| 621 |
|
|
| 6 | % |
Total crop |
|
| 45,922 |
|
|
| 44,784 |
|
|
| 1,138 |
|
|
| 3 | % |
Non-crop |
|
| 6,021 |
|
|
| 4,677 |
|
|
| 1,344 |
|
|
| 29 | % |
|
| $ | 51,943 |
|
| $ | 49,461 |
|
| $ | 2,482 |
|
|
| 5 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides |
| $ | 8,725 |
|
| $ | 8,449 |
|
| $ | 276 |
|
|
| 3 | % |
Herbicides/soil fumigants/fungicides |
|
| 13,166 |
|
|
| 16,096 |
|
|
| (2,930 | ) |
|
| -18 | % |
Other, including plant growth regulators |
|
| 6,961 |
|
|
| 3,719 |
|
|
| 3,242 |
|
|
| 87 | % |
Gross profit crop |
|
| 28,852 |
|
|
| 28,264 |
|
|
| 588 |
|
|
| 2 | % |
Gross profit non-crop |
|
| 9,180 |
|
|
| 4,722 |
|
|
| 4,458 |
|
|
| 94 | % |
|
| $ | 38,032 |
|
| $ | 32,986 |
|
| $ | 5,046 |
|
|
| 15 | % |
Gross margin crop |
|
| 39 | % |
|
| 39 | % |
|
|
|
|
|
|
|
|
Gross margin non-crop |
|
| 60 | % |
|
| 50 | % |
|
|
|
|
|
|
|
|
Total gross margin |
|
| 42 | % |
|
| 40 | % |
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US |
| $ | 65,842 |
|
| $ | 60,033 |
|
| $ | 5,809 |
|
|
| 10 | % |
International |
|
| 24,133 |
|
|
| 22,414 |
|
|
| 1,719 |
|
|
| 8 | % |
|
| $ | 89,975 |
|
| $ | 82,447 |
|
| $ | 7,528 |
|
|
| 9 | % |
The improved quarterly sales performance was driven by three primary factors. First, we experienced increased demand of our mosquito control product Dibrom® in the Gulf states following Hurricane Harvey and Hurricane Irma. Second, our cotton harvest defoliant Folex® generated strong sales arising from an increase in U.S. cotton acres planted (which were up about 20% over the prior year). Third, we posted incremental quarterly revenues as a result of three products acquired from Adama during the second quarter. Partially offsetting these year-over-year increases were lower sales of our corn herbicide in the Midwest market, slower sales of soil fumigants due primarily to weather-related factors, and a decline in one of our insecticides sold in international markets.
Across our crop business, net sales of our insecticides group were down approximately 2% to end at $24,866, as compared to $25,478 during the third quarter of 2016. Within this category, net sales of our granular insecticides were up approximately 4%, as compared to prior year, with some gains in Aztec, Counter and Thimet products, offset by timing declines in our Mocap and Nemacur products sold primarily in International markets. Net sales of our non-granular crop insecticides were down marginally, although this category did benefit from sales of the newly acquired Abamectin insecticide product, Abba Ultra®.
Within the group of herbicides/fungicides/fumigants used in crop applications, net sales for the third quarter of 2017 declined by approximately 4% to $32,717 from $34,242 in the comparable period of 2016. Net sales of our herbicide products increased approximately 20%, with the introduction of our newest paraquat herbicide, Parazone®, more than offsetting reduced sales of our post emergent corn herbicide, Impact®, which resulted from highly competitive market conditions this year in the Midwest region. During the three months ended September 30, 2017, we announced reduced Impact selling prices and accrued an appropriate rebate for channel inventory in response to anticipated competition in the post emergent herbicide market for the new growing season. This resulted in a charge to income (as a reduction in net sales) in the amount of approximately $2,100 during the period.
Sales of Dacthal® for use on a wide variety of high-valued vegetable crops held steady with the prior year and we enjoyed increased($13,899 in 2023 v. $13,396 in 2022). In this category, our Dibrom® mosquito adulticide generated steady sales of our international herbicide products Hyvar® and Krovar®, up almost 100% compared to the same quarter of 2016. Our soil fumigants business declined from the prior year’s third quarter due to an application rate reduction by one of our customers,year, as hurricane and significant disruptions in post-harvest applications caused in the Southeast U.S. by Hurricane Irma. In fungicides, we had steady sales of our PCNB product and posted additional sales of the newly acquired chlorothalonil fungicide, Equus.
Within the group of other products (which includes plant growth regulators, molluscicides and tolling activity), net salestropical storm activity season were up 29%, as compared to the third quarter of 2016. Significant quarterly sales of our Folex® cotton defoliant alongconsistent with our growth regulator product NAA drove this positive performance. Offsetting these strong factors were somewhat lower sales of our Metaldehyde granules, our SmartBlock potato sprout inhibitor, and our toll manufacturing revenue which will be recognized in the fourth quarter of 2017.
Our non-crop sales ended the third quarter of 2017 at $15,201 up 62%, as compared to $9,399 for the same period of the prior year. The main driverFurther, royalty and license fees for our Envance proprietary solutions were higher than the first quarter of this gain was the year-over-year increase in our aerial-applied mosquito adulticide Dibrom® due to the increasedlast year. By contrast, we experienced lighter than normal demand for insect control following the Hurricanes Harvey and Irma that struck Texas, Florida and other Southeastern states. We experienced slightly lower quarterly sales of our insecticide products for commercial pest control products, including pest strips. In addition, we recorded slightly lower net sales from our OHP nursery and ourornamental business and the pharmaceutical products.
Our international sales increased 8% ending at $24,133, as compared to $22,414 for the third quarter of the prior year. This performance was driven by strong salesproducts of our Hyvar® and Krovar® herbicide brands, offset by lower Mocap and Nemacur insecticides.GemChem business.
Our cost19
Cost of sales forwithin the third quarter of 2017 was $51,943 or 58% of sales. This compared to $49,461 or 60% of sales for the same period of 2016. The Company aggregates a number of key variable, semi-variable and fixed cost components within reported cost of sales. The raw materials element of our cost of sales remained approximately flat as compared to this time last year. The third quarter was a strong manufacturing quarter with high output, as the Company prepares for the new US growing season which, commences on October 1. Factory performancedomestic non-crop business rose by about 11% in the thirdfirst quarter of 2017 was slightly stronger than the prior year. As a result, the unrecovered element of factory costs decreased to 2% of sales as compared to a cost of 3% of sales in the same period of the prior year. Finally, the Company made more sales with higher margins in 2017 primarily driven by strong market performance in some of our key markets.
Gross profit for the third quarter of 2017 improved by $5,046, or 15%, to end at $38,032, as compared to $32,986 for the third quarter of 2016. Gross margin percentage ended at 42% in the three months ended September 30, 2017, as compared to 40% in the same period of the prior year. This strong performance was primarily driven by sales of higher margin products, production planning, and a $1,000 improvement in factory under absorption costs in light of strong factory utilization rates and inventory cost adjustments based upon capacity use studies.
As discussed below in detail by department, operating expenses increased by $3,284 to $31,570 for the three months ended September 30, 2017,2023, as compared to the same period in 2016. Thatthe 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 arosein net sales, gross profit for domestic non-crop decreased by 6% (from $5,767 in 2022 to $5,446 in 2023).
Net sales of our international businesses rose by about 2% during the period ($49,110 in 2023 vs. $48,004 in 2022). This group of businesses experienced increases in herbicides, fungicides, and plant growth regulators, partially offset by minor sales decreases in soil fumigants, foliar insecticides, and soil insecticides. We posted sales increases in the Central American market through our AgriCenter group (up 11%) and enjoyed improved demand for 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. Our performance in Mexico remained solid, despite temporary product importation impediments. By contrast, net sales of our business in Brazil declined due to general market inventories. Further, the international business of 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.
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 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 incurred one-timedomestically.
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 (of approximately $800) relatedall factored into yielding reduced profitability. Overall gross margin percentage ended at 31% in the first quarter of 2023, as compared to multiple acquisitions. In addition, we incurred higher regulatory costs relating to re-registration requirements for several of our organophosphate active ingredients, which constitute an important part34% in the first quarter of the Company’s portfolio, and heightened investmentprior 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 product development to help fill our pipeline with new products (of approximately $1,440). Further, we invested more heavily in SIMPAS (an increase of approximately $400), particularly in connection with the GPS integration effort, in order to bring that technology closer to commercialization. These expenditures should serve to generate a long term return on investment.
2022. The differences in operating expenses by department 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 | % |
|
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Selling |
| $ | 6,671 |
|
| $ | 7,096 |
|
| $ | (425 | ) |
|
| -6 | % |
General and administrative |
|
| 9,227 |
|
|
| 7,546 |
|
|
| 1,681 |
|
|
| 22 | % |
Research, product development and regulatory |
|
| 7,324 |
|
|
| 5,200 |
|
|
| 2,124 |
|
|
| 41 | % |
Freight, delivery and warehousing |
| �� | 8,348 |
|
|
| 8,444 |
|
|
| (96 | ) |
|
| -1 | % |
|
| $ | 31,570 |
|
| $ | 28,286 |
|
| $ | 3,284 |
|
|
| 12 | % |
Selling expenses decreasedincreased by $425 to end at $6,671$2,128 for the three months ended September 30, 2017,March 31, 2023, as compared with the same period of the prior year. This included increased costs associated with employees and travel expenses as the business continues to grow and return to normal face to face contact with customers, and other costs supporting long term growth offset to a degree by the beneficial movements in some key exchange rates.
20
General and administrative expenses increased by $1,681 to end at $9,227 for the three months ended September 30, 2017, as compared to the same period of 2016. The increaseCompany spent $541 in cost was driven primarily by financial and legal diligence related acquisition costs and to a lesser extent, intangible asset amortizationfees associated with product acquisitions.
Research, product development costs and regulatory expenses increased by $2,124 to end at $7,324$1,900 for the three months ended September 30, 2017,March 31, 2023, as compared to the same period of 2016.2022. The increase is related to more regulatory activity defendingmain drivers were increased costs associated with the commercialization of our expanding portfolio of productsSIMPAS delivery system and additionalcosts associated with product defense and product development studies, again driven by expanding portfolio and continued progress on ouractivities.
On April 1, 2020, the Company made a strategic investment in developing SIMPAS technology.
Freight, delivery and warehousing costs forClean Seed Inc., in the amount of $1,190. The Company recorded a negative fair value adjustment in the amount of $22 during the three months ended September 30, 2017 were $8,348 or 9.4%March 31, 2023, and a positive adjustment in the amount of sales as compared to $8,444 or 10.2% of sales for$83 during the same period in 2016. This improvement was primarily driven by reduced inventory levels driving overall lower warehouse costs and mix of sales, including lower sales of our high volume bulk fumigant products, in comparison to the same periodcomparative three months of the prior year.
Interest costs net of capitalized interest were $375$1,686 in the first three months ended September 30, 2017,of 2023, as compared to $301$398 in the same period of 2016.2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Three months ended September 30, 2017 |
|
| Three months ended September 30, 2016 |
|
| Q1 2023 |
|
| Q1 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
| ||||||||||||
Revolving line of credit (average) |
| $ | 44,897 |
|
| $ | 320 |
|
|
| 2.9 | % |
| $ | 44,617 |
|
| $ | 241 |
|
|
| 2.2 | % |
| $ | 90,486 |
|
| $ | 1,542 |
|
|
| 6.8 | % |
| $ | 85,756 |
|
| $ | 401 |
|
|
| 1.9 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| — |
|
|
| 62 |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
Subtotal |
|
| 44,897 |
|
|
| 377 |
|
|
| 3.4 | % |
|
| 44,617 |
|
|
| 303 |
|
|
| 2.7 | % | ||||||||||||||||||||||||
Notes payable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Amortization of other deferred liabilities |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
Other interest expense |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| 17,500 |
|
|
| 128 |
|
|
| 2.9 | % |
|
| — |
|
|
| 9 |
|
|
| — |
|
Subtotal |
|
| 44,897 |
|
|
| 391 |
|
|
| 3.5 | % |
|
| 44,626 |
|
|
| 323 |
|
|
| 2.9 | % |
| $ | 107,986 |
|
| $ | 1,733 |
|
|
| 6.4 | % |
| $ | 85,756 |
|
| $ | 485 |
|
|
| 2.3 | % |
Capitalized interest |
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| (22 | ) |
|
| — |
|
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| — |
|
|
| (87 | ) |
|
| — |
|
Total |
| $ | 44,897 |
|
| $ | 375 |
|
|
| 3.3 | % |
| $ | 44,626 |
|
| $ | 301 |
|
|
| 2.7 | % |
| $ | 107,986 |
|
| $ | 1,686 |
|
|
| 6.2 | % |
| $ | 85,756 |
|
| $ | 398 |
|
|
| 1.9 | % |
The Company’s average overall debt for the three months ended September 30, 2017March 31, 2023 was approximately flat at $44,897,$90,486, as compared to $44,626$85,756 for the three months ended September 30, 2016. DuringMarch 31, 2022. Our borrowings in the quarter, we continuedthree months ended March 31, 2023 were higher when compared to focus on managing ourthe same period of the prior year, mainly as a result of increased working capital and controlling our usage of revolving debt. Furthermore, we continuedas the business worked through the logistics challenges related to follow our strategy in making product line acquisitions that fit our portfolio.Aztec. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 3.4%6.8% for the three months ended September 30, 2017,March 31, 2023, as compared to 2.7%1.9% in 2016.2022.
Income tax expense increased by $576 to end at an expense of $1,954benefit was $361 for the three months ended September 30, 2017,March 31, 2023, as compared to $1,378an income tax expense of $4,499 for the comparable period in 2016.three-months ended March 31, 2022. The effective income tax rate for the three months ended March 31, 2023 was computed based on the estimated effective tax rate for the quarter was 32.1%, as comparedfull year, adjusted for a benefit from the remeasurement of certain U.S. federal and state deferred taxes, partially offset by an expense attributed to 31.3%establishing liabilities for uncertain tax positions in the same period of the prior year. OurU.S. and India. This calculation resulted in an effective tax rate increased due to a relatively stronger performanceof minus 23.2% for our domestic business, which is in a higher tax rate jurisdiction, offset by an increase in excess tax benefits related to stock options. Furthermore, the effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management.
During the three months ended September 30, 2017 the Company recognized a loss of $29 on our investment in TyraTech based upon its forecasted financial performance for 2017. ThisMarch 31, 2023, as compared to a loss of $180 recognized in the comparable period of 2016. The Company’s investment in TyraTech is included in other assets on the condensed consolidated balance sheets.
During31.2% for the three months ended September 30, 2017,March 31, 2022.
It is expected that $1,550 of unrecognized tax benefits will be released within the Company recognized a loss of $86 through its Hong Kong Joint Venture on our investment in Profeng. No comparable loss was recognized in 2016. The Company’s investment in the Hong Kong Joint Venture is included in other assets on the condensed consolidated balance sheets.
Non-controlling interest amountednext twelve months due to a loss of $71 in the three months ended September 30, 2017, as compared to $36 in the same periodexpiration of the prior year. Non-controlling interest represents the sharestatute of net income that is attributable to the minority stockholder of our majority owned subsidiary, Envance.limitations.
Our overall net income for the first three months ended September 30, 2017of 2023 was $4,089$1,918 or $0.14$0.07 per basic and diluted share, as compared to $2,877$9,935 or $0.10$0.33 per basic and diluted share in the first quarter of 2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash of $41,447 in operating activities during the three months ended March 31, 2023, as compared to $32,315 during the three months ended March 31, 2022. Included in the $41,447 are net income of $1,918, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $6,253, provision for bad debts in the amount of $581 and other in the amount of $94. Also included are stock-based compensation of $1,474, decrease in deferred income taxes of $122, change in liabilities for uncertain tax positions or unrecognized tax benefits of $371, and net change in foreign currency adjustment of $446. These together provided net cash inflows of $10,367, as compared to $18,942 for the same period of 2016.2022.
Nine Months Ended September 30:21
|
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides |
| $ | 102,249 |
|
| $ | 89,496 |
|
| $ | 12,753 |
|
|
| 14 | % |
Herbicides/soil fumigants/fungicides |
|
| 68,783 |
|
|
| 80,009 |
|
|
| (11,226 | ) |
|
| -14 | % |
Other, including plant growth regulators |
|
| 30,680 |
|
|
| 23,148 |
|
|
| 7,532 |
|
|
| 33 | % |
Total crop |
|
| 201,712 |
|
|
| 192,653 |
|
|
| 9,059 |
|
|
| 5 | % |
Non-crop |
|
| 36,841 |
|
|
| 31,992 |
|
|
| 4,849 |
|
|
| 15 | % |
Total net sales |
| $ | 238,553 |
|
| $ | 224,645 |
|
| $ | 13,908 |
|
|
| 6 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides |
| $ | 64,495 |
|
| $ | 59,244 |
|
| $ | 5,251 |
|
|
| 9 | % |
Herbicides/soil fumigants/fungicides |
|
| 38,221 |
|
|
| 42,907 |
|
|
| (4,686 | ) |
|
| -11 | % |
Other, including plant growth regulators |
|
| 17,418 |
|
|
| 15,184 |
|
|
| 2,234 |
|
|
| 15 | % |
Total crop |
|
| 120,134 |
|
|
| 117,335 |
|
|
| 2,799 |
|
|
| 2 | % |
Non-crop |
|
| 15,968 |
|
|
| 15,426 |
|
|
| 542 |
|
|
| 4 | % |
Total cost of sales |
| $ | 136,102 |
|
| $ | 132,761 |
|
| $ | 3,341 |
|
|
| 3 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides |
| $ | 37,754 |
|
| $ | 30,252 |
|
| $ | 7,502 |
|
|
| 25 | % |
Herbicides/soil fumigants/fungicides |
|
| 30,562 |
|
|
| 37,102 |
|
|
| (6,540 | ) |
|
| -18 | % |
Other, including plant growth regulators | �� |
| 13,262 |
|
|
| 7,964 |
|
|
| 5,298 |
|
|
| 67 | % |
Gross profit crop |
|
| 81,578 |
|
|
| 75,318 |
|
|
| 6,260 |
|
|
| 8 | % |
Gross profit non-crop |
|
| 20,873 |
|
|
| 16,566 |
|
|
| 4,307 |
|
|
| 26 | % |
Total gross profit |
| $ | 102,451 |
|
| $ | 91,884 |
|
| $ | 10,567 |
|
|
| 12 | % |
Gross margin crop |
|
| 40 | % |
|
| 39 | % |
|
|
|
|
|
|
|
|
Gross margin non-crop |
|
| 57 | % |
|
| 52 | % |
|
|
|
|
|
|
|
|
Total gross margin |
|
| 43 | % |
|
| 41 | % |
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US |
| $ | 173,877 |
|
| $ | 161,661 |
|
| $ | 12,216 |
|
|
| 8 | % |
International |
|
| 64,676 |
|
|
| 62,984 |
|
|
| 1,692 |
|
|
| 3 | % |
Total net sales |
| $ | 238,553 |
|
| $ | 224,645 |
|
| $ | 13,908 |
|
|
| 6 | % |
Sales forDuring the ninefirst three months ended September 30, 2017 improvedof 2023, the Company increased net working capital by nearly 6% to end at $238,553,$52,995, as compared to $224,645, this time last year. This year-over-year improvement was driven by three major factors: first, our cotton products generated strong sales arising from an increase in U.S. cotton acres planted; second, we experienced incremental sales attributable to the acquisition of three new products; and third, increased post-hurricane demand for our mosquito adulticide. Partially offsetting these year-over-year increases were lower sales of our corn herbicide into the Midwest market and slower sales of soil fumigants primarily due to several weather-related application interruptions.
Across our crop business, net sales of our insecticides group were up approximately 14% to end at $102,249, as compared to $89,496$55,031 during the nine months ended September 30, 2016. Within this category, net sales of our non-granular insecticides increased by 38% driven by our cotton insecticide Bidrin® which posted significantly increased sales due to the increase in 2017 U.S. cotton acres and an increase in foliar pest pressure, as compared to extremely low infestation levels of 2016. Further, net sales of our granular soil insecticides were up 9%. This increase was due to the strong performance of our granular products including corn insecticides Aztec® and SmartChoice; Thimet® (used primarily in peanuts and sugar cane) and Counter®, which is largely used for nematode control in corn and sugar beets. We also recorded additional sales with our newly acquired insecticide Abba Ultra®. Offsetting these increases, in our International business, sales of Mocap were relatively flat, and we experienced softer sales of our Nemacur® brand.
Within the group of herbicides/fungicides/fumigants used in crop applications, net sales for the nine months ended September 30, 2017 declined by approximately 14% to $68,783 from $80,009 in the comparable period of 2016. During the period, we saw significantly weaker sales of our corn herbicide, Impact® in the Midwest region caused by wide-spread generic price reductions on competitive post-emergent herbicide products. Further, as mentioned above, our soil fumigants business declined by approximately 14% from the prior year due to excessively wet weather in several regions of the United States which inhibited the application of these liquid products. We experienced a modest decline in sales of our Scepter® soybean herbicide, sold in the U.S. market, and our Hyvar® and Krovar® herbicides, which are sold in international markets. Offsetting these declines were a slight increase in sales of Dacthal®, for use on a wide variety of high valued vegetable crops, and incremental sales of the newly acquired chlorothalonil fungicide, Equus® and paraquat herbicide, Parazone®.
Within the group of other products (which includes plant growth regulators, molluscicides and tolling activity), net sales were up about 33%, as compared to the first half of 2016. This improvement was driven by both significantly higher sales of our Folex® cotton defoliant, due to increased harvested cotton acres in 2017, and stronger sales of our growth regulator product NAA. Offsetting these upside performances, our tolling revenues were lower as a result of timing and will catch up in the final quarter of the year.
Our year-to-date non-crop sales ended up about 15% at $36,841, as compared to $31,992 for the same period of the prior year. This category benefitted from much higher sales of our aerial-applied mosquito adulticide Dibrom® resulting from hurricane Harvey (Texas) and Hurricane Irma (Florida & Georgia). These positive factors were partially offsetIncluded in this change: inventories increased by lower sales of our pharmaceutical products and a lower royalty payment received on our Envance consumer pest control products.
Our international sales ended up 3% at $64,676,$33,731, as compared to $62,984$11,738 for the first nine monthquarter of the prior year. This was a result of increase in sales in our Counter and Aztec products that is somewhat offset2022. Customer prepayments decreased by reduced sales of our Hyvar® and Krovar® herbicides, our Nemacur insecticide, and relatively flat sales of our Mocap insecticide and a variety of other products.
Our cost of sales for the nine months ended at $136,102 or 57% of net sales. This compares$22,759, as compared to $132,761 or 59% of net sales$44,528 in the same period of 2016. The decrease in cost of sales as a percentage of net sales in 2017 was primarily the result of three drivers: first, our purchasing team has contained raw material prices; second, our manufacturing performance has improved including some minor inflation in manufacturing costs more than offset by better manufacturing output as we have continued to manage inventory and output levels in our plants; and third, the Company made more sales with higher margins in 2017 primarily2022, driven by strong market performance in some ofcustomer decisions regarding demand, payment timing and our key markets.
Gross profit for the nine months ended September 30, 2017 improvedcash incentive programs. Our accounts payable balances increased by $10,567, or 12%, to end at $102,451,$5,655, as compared to $91,884 for the nine months of 2016. Gross margin percentage ended at 43% in the first nine months of 2017, as compared to 41%$9,677 in the same period of the prior year. This strong performance was primarily driven by containing raw material pricing, effective production planning and favorable sales mix performance.
As discussed below in detail by department, operating expenses2022. Accounts receivable increased by $6,746 to $84,175 for the nine months ended September 30, 2017,$8,779, as compared to the same period in 2016. That increase arose from one-time charges for outside services related to acquisition diligence activities (of approximately $936), legal defense of the criminal investigation related to the importation of Thimet containers (of approximately $1,900), regulatory costs for re-registration of several organophosphate patents and field trials for development uses and products (of approximately $1,600), and further investment in business development personnel, SIMPAS technology and support for Smartbox systems in the field (of approximately $1,200).
The changes in operating expenses by department are as follows:
|
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Selling |
| $ | 19,833 |
|
| $ | 19,597 |
|
| $ | 236 |
|
|
| 1 | % |
General and administrative |
|
| 27,137 |
|
|
| 23,263 |
|
|
| 3,874 |
|
|
| 17 | % |
Research, product development and regulatory |
|
| 19,013 |
|
|
| 15,995 |
|
|
| 3,018 |
|
|
| 19 | % |
Freight, delivery and warehousing |
|
| 18,192 |
|
|
| 18,574 |
|
|
| (382 | ) |
|
| -2 | % |
|
| $ | 84,175 |
|
| $ | 77,429 |
|
| $ | 6,746 |
|
|
| 9 | % |
Selling expenses increased by $236 to end at $19,833 for the nine months ended September 30, 2017, as compared to the same period of 2016. The main drivers were an increase in advertising and marketing activities in both our domestic and international regions offset by lower quality complaints.
General and administrative expenses increased by $3,874 to end at $27,137 for the nine months ended September 30, 2017, as compared to the same period of 2016. The main drivers for the increase are primarily driven by increased legal costs (including approximately $2,246 in costs of defending discovery in connection with a criminal investigation), both legal and financial acquisitions related diligence costs, and intangible asset amortization associated with product acquisitions.
Research, product development costs and regulatory expenses increased by $3,018 to end at $19,013 for the nine months ended September 30, 2017, as compared to the same period of 2016. The main drivers were additional regulatory studies, increased staffing as we drive product development across our expanding portfolio and business development activities, primarily focused on our new SIMPAS technology.
Freight, delivery and warehousing costs for the nine months ended September 30, 2017 were $18,192 or 7.6% of sales as compared to $18,574 or 8.2% of sales for the same period in 2016. This improvement was primarily driven by reduced inventory levels driving overall carrying costs and the mix of sales and customer destinations in 2017 year to date, as compared to the same period of the prior year.
Interest costs net of capitalized interest were $1,073 in the first nine months of 2017, as compared to $1,304$33,660 in the same period of 2016. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Nine months ended September 30, 2017 |
|
| Nine months ended September 30, 2016 |
| ||||||||||||||||||
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
| ||||||
Revolving line of credit (average) |
| $ | 44,706 |
|
| $ | 870 |
|
|
| 2.6 | % |
| $ | 63,949 |
|
| $ | 1,098 |
|
|
| 2.3 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 182 |
|
|
| — |
|
|
| — |
|
|
| 187 |
|
|
| — |
|
Subtotal |
|
| 44,706 |
|
|
| 1,052 |
|
|
| 3.1 | % |
|
| 63,949 |
|
|
| 1,285 |
|
|
| 2.7 | % |
Notes payable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| 1 |
|
|
| — |
|
Amortization of other deferred liabilities |
|
| — |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| 28 |
|
|
| — |
|
Other interest expense |
|
| — |
|
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| — |
|
Subtotal |
|
| 44,706 |
|
|
| 1,138 |
|
|
| 3.4 | % |
|
| 63,976 |
|
|
| 1,349 |
|
|
| 2.8 | % |
Capitalized interest |
|
| — |
|
|
| (65 | ) |
|
| — |
|
|
| — |
|
|
| (45 | ) |
|
| — |
|
Total |
| $ | 44,706 |
|
| $ | 1,073 |
|
|
| 3.2 | % |
| $ | 63,976 |
|
| $ | 1,304 |
|
|
| 2.7 | % |
The Company’s average overall debt for the nine months ended September 30, 2017 was $44,706,2022. Prepaid expenses decreased by $600, as compared to $63,976 for the nine months ended September 30, 2016. During the period, we continued to focus on managing our working capital and controlling our usage of revolving debt. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 3.1% for the nine months ended September 30, 2017, as compared to 2.7% in 2016.
Income tax expense increased by $1,343 to end at an expense of $5,015 for the nine months ended September 30, 2017, as compared to $3,672 for the comparable period in 2016. The effective tax rate for the nine months ended September 30, 2017 was 29.2%, as compared to 27.9%$800 in the same period of 2022. Income tax receivable increased by $2,965, as compared to a decrease of $3,046 in the prior year. Our effective tax rateAccrued programs increased due to a relatively stronger performance for our domestic business, which is in a higher tax rate jurisdiction, offset by an increase in excess tax benefits related to stock options. Furthermore, the effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management.
During the nine months ended September 30, 2017 we recognized a loss of $140 on our investment in TyraTech. This compared to a loss of $309 recognized in the comparable period of 2016. This reflected their forecast financial performance for 2017 and a true up of their 2016 performance, which improved in comparison to 2015. The Company’s investment in TyraTech is included in other assets on the condensed consolidated balance sheets.
During the nine months ended September 30, 2017, the Company recognized a loss of $86 through our Hong Kong Joint Venture on its investment in Profeng. No comparable loss was recognized in 2016. The Company’s investment in the Hong Kong Joint Venture is included in other assets on the condensed consolidated balance sheets.
Non-controlling interest amounted to an income of $117 in the nine months ended September 30, 2017,$10,660, as compared to $253$24,601 in the same periodprior year, as a result of both higher sales and the prior year. Non-controlling interest represents the sharemix of net income that is attributable to the minority stockholder of our majority owned subsidiary, Envance.
Our overall net income for the nine months ended September 30, 2017 was $11,845 or $.41 per basicthose sales including products with higher program elements incorporated in pricing. Finally, other payables and $0.40 per diluted share,accrued expenses decreased by $500, as compared to $8,917 or $0.31 per basic and $0.30 per diluted sharean increase of $2,145 in the same periodprior year.
With regard to our program accrual, the increase (as noted above) primarily reflects our level and mix of 2016.
LIQUIDITY AND CAPITAL RESOURCES
Although our net income forsales and customers in the nine months ended September 30, 2017 increased by $2,792first quarter of 2023, as compared to the same period in 2016, cash generated by operating activities decreased by $17,956. This was principally due to a tax payment to the IRS for back taxes of $11,580 and a net decrease of $557 to other tax liability activities. Other items that changed cash generated by operating activities are as described: non-cash depreciation, amortization of intangibles and other long term assets and discounted future liabilities generated $16,373, as compared to $16,330 in the prior year; stock based compensation of $3,585 as compared to $1,656 for the nine months ended September 30, 2016; and other non-cash adjustments including loss from equity method investment provided a net cash inflow of $32,152, as compared to $27,383 in the same period of 2016.
As of September 30, 2017, our working capital increased to $144,084, as compared to $130,001 at December 31, 2016. This change was mainly driven by the increase in accounts receivable. This time last year our working capital amounted to $153,466. The cash generated as a result of this reduction as of September 30, 2017 has been used to make product line acquisitions and to pay down debt.
During the nine months ended September 30, 2017, net sales ended up 6% at $238,553, as compared to the same period of 2016. At September 30, 2017 accounts receivable increased by 9%, as compared to the balance as of September 30, 2016. During the nine months ended September 30, 2017 the level of accounts receivable increased by $15,746, as compared to December 31, 2016. This change is driven by timing and by the mix of sales of products, customers and regions in the period to September 30, 2017.
Inventories at September 30, 2017 ended at $123,315 ($141,678 at September 30, 2016), which was an increase of $2,213 as compared to December 31, 2016. It is normal at this point in the agricultural season to see our inventories increase as we work to supply grower demand in a timely manner. This year we continued to control inventory levels to focus on managing our working capital levels. As of September 30, 2017, we believe our inventories are valued at the lower of cost or market.
year. The Company accrues product specific programs based on agreementsin line with customers and calculated as a percentage of sales. Program accruals at any balance sheet date depend on the mix of customers and products sold in the previous period. The level of the accrual at any point is also affected by the growing season that is the focus of the product and the agreed periodicity of payments.upon which specific products are targeted. Typically crop products have a growing season that ends on September 30thof each year. During the nine months ended September 30, 2017,first quarter of 2022, the Company made accruals for programs in the amount of $23,669 and made payments in the amount of $13,033. During the first quarter of the prior year, the Company made accruals in the amount of $37,738. Programs are primarily paid out to customers either in the final quarter of the fiscal year or the first quarter of the next fiscal year. However, some programs for some products and markets are paid either more frequently or at different times in the calendar year. During the first nine months of 2017, the Company made payments in the amount of $15,018. Payments are not generally significant in the second and third quarters of each fiscal year. During the nine months ended September 30, 2016, the Company accrued $45,456$40,469 and made payments in the amount of $14,920.$15,752.
Prepaid expenses at September 30, 2017 amounted to $13,543 ($12,270 at September 30, 2016),Cash used for investing activities was $3,308 for the three months ended March 31, 2023, as compared to $ 11,424 at December 31, 2016. As of September 30, 2017, accounts payable amounted to $29,355 ($23,268 at September 30, 2016), as compared to $24,358 at December 31, 2016. In 2017, we have continued to focus on improving our demand forecasting, planning for production and management of inventories. The increase in accounts payables as of September 30, 2017, as compared to September 30, 2016 and December 31, 2016, is primarily due to demand driven higher raw material purchases towards the end of the third quarter and planning$4,250 for the start of the final quarter of the year.
three months ended March 31, 2022. The Company utilized $32,187 for investing activities during the nine months ended September 30, 2017, as compared to $9,629 during the same period of 2016. The Company made investments in capital expenditures in the current year,spent $2,590 on fixed assets acquisitions primarily focused on expanding plant capabilities. Furthermore, during the nine month period, the Company paid a total of $25,904 to complete four product line acquisitions and, furthermore, made a $950 capital contribution to the Hong Kong Joint Venture. That capital contribution was then usedcontinuing to invest in Profeng, a business in Australia. During the same period of the prior yearmanufacturing infrastructure. In addition, the Company made a $3,283 investment inpayment of $703 for a Belgian Company that develops biological plant protection products that can be usedproduct acquisition and spent $15 on patents for the control of pests and disease of agricultural crops and a small level of capital spending on our the manufacturing plants.Envance technology business.
During the ninethree months ended September 30, 2017March 31, 2023, financing activities provided $14,966, principally from the borrowings on the Company’s senior credit facility,$43,777, as compared to utilizing $24,544 for the nine months ended September 30, 2016. This included a net borrowing of $16,975 against our facility, as compared to a net repayment of $24,000 for the same period last year. This overall performance for 2017 year to date was driven by generating cash from operations, managing our working capital while spending on fixed assets to ensure our manufacturing facilities are well maintained and fit for purpose. Further, the Company received $820 from the sale of common stock under its Employee Stock Purchase Plan and issuance of stock options, as compared to providing $204 for the same period of last year. Finally,$37,449 during the nine months to September 30, 2017 we paid dividends to investors in the amount of $1,161 as compared to $289 for the same period of the prior year.
Net borrowings under the Credit Agreement amounted to $44,700 in the first quarter of 2023, as compared to $46,000 in the same period of the prior year. The Company paid dividends to stockholders amounting to $851 during the three months ended March 31, 2023, as compared to $594 in the same period of 2022. The Company paid $557 for the repurchase of 27,835 shares of its common stock during the three months ended March 31, 2023, as compared to $6,219 to purchase 332,404 shares in the same period of the prior year. The Company received $18 from the exercise of stock options. Lastly, in exchange for shares of common stock returned by employees, we paid $13 and $2,174 for tax withholding on stock-based compensation awards during the three months ended March 31, 2023 and 2022, respectively.
The Company’s main bank is Bank of the West, a wholly owned subsidiary of BMO Financial Group. Bank of the West has abeen 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 September 30, 2017March 31, 2023 and December 31, 2016. These are2022. The debt is summarized in the following table:
Long-term indebtedness ($000's) |
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||
|
| Long-term |
|
| Total |
|
| Long-term |
|
| Total |
| ||||||||||||
Long-term indebtedness |
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||
Revolving line of credit |
| $ | 58,375 |
|
| $ | 58,375 |
|
| $ | 41,400 |
|
| $ | 41,400 |
|
| $ | 97,000 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (996 | ) |
|
| (996 | ) |
|
| (449 | ) |
|
| (449 | ) |
|
| (761 | ) |
|
| (823 | ) |
Net long-term debt |
| $ | 57,379 |
|
| $ | 57,379 |
|
| $ | 40,951 |
|
| $ | 40,951 |
| ||||||||
Total indebtedness |
| $ | 96,239 |
|
| $ | 51,477 |
|
As of June 30, 2017, AMVAC Chemical Corporation (“AMVAC”), the Company’s principal operating subsidiary, as borrower, and affiliates (includingMarch 31, 2023, the Company AMVAC CV and AMVAC BV), as guarantors and/or borrowers, entered into a Third Amendment to Second Amended and Restated Credit Agreement (the “Credit Agreement”)was in compliance with a group of commercial lenders led by Bank of the West (AMVAC’s primary bank) as agent, swing line lender and Letter of Credit (“L/C”) issuer. The Credit Agreement is a senior secured lending facility, consisting of a line of credit of up to $250 million, an accordion feature of up to $100 million and a maturity date of June 30, 2022. The Credit Agreement contains two key financial covenants; namely, borrowers are required to maintain a Consolidated Funded Debt Ratio of no more than 3.25-to-1 and a Consolidated Fixed Charge Covenant Ratio of at least 1.25-to-1. The Company’s borrowing capacity varies with its financial performance, measured in terms of EBITDA, 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 Rate” which is based upon the Consolidated Funded Debt Ratio (“Eurocurrency Rate Loan”) or (ii)but noncompliant with respect to the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month LIBOR Rate plus 1.00%, plus,Fixed Charge Covenant ratio (“FCCR”). The noncompliance was driven by a reduction in the caseConsolidated EBITDA (in the numerator of (x), (y) or (z) the Applicable Rate (“Alternate Base Rate Loan”). Interest payments for Eurocurrency Rate Loans are payable onFCCR calculation) during the last daytwelve months ended March 31, 2023, coupled with higher-than-normal distributions (in the denominator of each interest period (either one, two, three or six months, as selectedthe FCCR calculation) arising from share repurchases made by the borrower)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 maturity date, while interest paymentsFCCR terms for Alternate Base Rate Loans are payable on the last business dayperiod ending June 30, 2023. The impact of each month andmost of the maturity date.share repurchases will be eliminated from the denominator in the FCCR calculation in the third quarter of 2023.
At September 30, 2017,March 31, 2023, according to the terms of the Credit Agreement, as amended, and based on itsour performance against the most restrictive covenantscovenant listed above, the Company had the capacity to increase its borrowings by up to $124,724.$111,922. This compares to an available borrowing capacity of $95,985$200,372 as of September 30, 2016. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for trailing twelve month period, which has improved, (2) net borrowings, which have decreased and (3) the leverage covenant (being the number of times EBITDA the Company may borrow under its credit facility agreement).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
In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230). The new standard requires that a statement of cash flows explain the change during the periodPlease refer to Note 16 in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. Based on the composition of the Company’s cash and cash equivalent, adoption of the new standard is not expected to have a material impact on our consolidated cash flows statements. The Company expects to adopt the standard for the financial year beginning January 1, 2018.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The new standard addresses eight specific classification issues within the current practice regarding the manner in which certain cash receipts and cash payments are presented. The new standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company has reviewed the eight specific issues addressed and does not believe that the adoption of ASU 2016-15 will have a material impact on its statement of cash flows. The Company expects to adopt the revised standard for the financial year beginning January 1, 2018.
In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740). Current US GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new standard, an entity is to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new standard does not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The new standard is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. The Company has considered its activities with regard to such intra-entity transfers, does not expect the adoption of ASU 2016-16 to have a material impact on our consolidated financial statements and will adopt the standard for the financial year beginning January 1, 2018.
In February 2016, FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. We will evaluate our operating lease arrangements to determine the impact of this amendment on the consolidated financial statements. The evaluation will include an extensive review of our leases, which are primarily related to our manufacturing sites, regional sales offices, lease vehicles, and office equipment. The ultimate impact will depend on the Company’s lease portfolio at the time the new standard is adopted. The Company expects to adopt ASU 2016-02 for the financial year beginning on January 1, 2019.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In March 2016, FASB issued an amendmentaccompanying Notes to the standard, ASU 2016-08, to clarify the implementation guidance on principal versus agent considerations. Under the amendment, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrangeCondensed Consolidated Financial Statements for that good or service to be provided by the other party (that is, the entity is an agent). In April 2016, FASBrecently issued another amendment to the standard, ASU 2016-10, to clarify identifying performance obligations and the licensing implementation guidance, which retaining the related principles for those areas. The standard and the amendments are effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). These amendments will be effective upon adoption of Topic 606. This standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows.adopted accounting standards.
We have completed an initial scoping analysis of the effect of the standards to identify the revenue streams that may be affected by this ASU. The Company is currently completing detailed contract reviews to evaluate whether the adoption could result in a change in the timing or amount of revenue recognition. For certain products that are deemed to have no alternative use accompanied by an enforceable right to payment, recognition will change from point in time, to over time. The Company is also evaluating the impact on timing and amounts of revenue recognition on certain licenses granted for the use of its intellectual property, as well as other revenue transactions. The Company is in the process of determining what changes are needed to existing accounting policies and controls, as well as disclosures. As of November 2, 2017, the Company has not yet determined whether the impact of adoption of Topic 606 will have a material impact on the Company’s financial condition, results of operations or cash flows. The Company anticipates utilizing the modified retrospective method adoption for the financial year beginning January 1, 2018.
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, 2016,2022, 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, 2016.2022.
Certain of the Company’s policies require the application of judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on historical experience, terms of existing contracts, commonly accepted industry practices and other assumptions that the Company believes are reasonable under the circumstances. These estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements in the period that revisions are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions.
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, 2016 and the Company’s Form 8-K filed with the SEC on or about July 6, 2017.2022.
The Company conducts business in various foreign currencies, primarily in Europe, Mexico, Central and South America. Thereforefaces market risk to the extent that changes in the value of the currencies of such countries or regionsforeign currency exchange rates affect the Company’s financial positionour non-U.S. dollar functional currency as to foreign subsidiaries’ revenues, expenses, assets and cash flows when translated into U.S. Dollars.liabilities. The Company has mitigatedcurrently does not engage in hedging activities with respect to such exchange rate risks.
Assets and will continue to mitigate a portion of its currency exchange exposure through natural hedges based onliabilities outside the operation of decentralized foreign operating companiesU.S. are located in which the majority of all costs are local-currency based. Furthermore,regions where the Company has establishedsubsidiaries 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 procedure for covering forward exchange rates on specific purchase orders when appropriate. A 10% change infunctional currency other than the value of all foreign currencies would have an immaterial effect onU.S. dollar are generally considered long-term. Accordingly, the Company’s financial position and cash flows.Company does not hedge these net investments.
Item 4. CONTROLS AND PROCEDURES
As of September 30, 2017,March 31, 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 September 30, 2017,March 31, 2023, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, hashad 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
The Company was not required to report any matters or changes for any items of Part II except as disclosed below.
DuringItem 1. Legal Proceedings
Please refer to Note 14 in the reporting period, there have been no material developments in legal proceedings that are pending or threatened against the Company, except as described below.
EPA FIFRA/RCRA Matter. On November 10, 2016, the Company was served with a grand jury subpoena out of the U.S. District Court for the Southern District of Alabama in which the U.S. Department of Justice (“DoJ”) sought production of documents relatingaccompanying Notes to the Company’s reimportation of depleted Thimet containers from Canada and Australia. The Company has retained defense counsel and during 2017 year to date has substantially completed the production. During the third quarter, the Company received a request from DoJ to interview several individuals who may be knowledgeable of the matter. Those interviews are likely to take place during the fourth quarter. At this stage, DoJ has not made clear its intentions with regard to either its theory of the case or potential criminal enforcement. Thus, it is too early to tell whether a loss is probable or reasonably estimable. Accordingly, the Company has not recorded a loss contingency on this matter.
Harold Reed v. AMVAC et al. During January 2017, the Company was served with twoCondensed Consolidated Financial Statements of Claim that had been filed on March 29, 2016 with the Court of Queen’s Bench of Alberta, Canada (as case numbers 160600211 and 160600237) in which plaintiffs Harold Reed (an applicator) and 819596 Alberta Ltd. dba Jem Holdings (an application equipment rental company) allege physical injury and damage to equipment, respectively, arising from a fire that occurred during an application of the Company’s potato sprout inhibitor, SmartBlock, at a potato storage facility in Coaldale, Alberta on April 2, 2014. Plaintiffs allege, among other things, that Amvac was negligent and failed to warn them of the risks of such application. Reed seeks damages of $250 for alleged pain and suffering, while Jem Holdings seeks $60 in alleged lost equipment; both plaintiffs also seek unspecified damages as well. Also during January 2017, the Company received notice that four related actions relating to the same incident were filed with the same court: (i) Van Giessen Growers, Inc. v Harold Reed et al (No. 160303906)(in which grower seeks $400 for alleged loss of potatoes); (ii) James Houweling et al. v. Harold Reed et al. (No. 160104421)(in which equipment owner seeks damages for alleged lost equipment); (iii) Chin Coulee Farms, etc. v. Harold Reed et al. (No. 150600545)(in which owner of potatoes and truck seeks $530 for alleged loss thereof); and (iv) Houweling Farms v. Harold Reed et al. (No. 15060881)(in which owner of several Quonset huts seeks damages for alleged lost improvements, equipment and business income equal to $4,300). The Company was subsequently named as cross-defendant in those actions by Reed. During the third quarter, counsel for the Company filed a Statement of Defence (the Canadian equivalent of an answer), alleging that Reed was negligent in his application of the product and that the other cross-defendants were negligent for using highly flammable insulation and failing to maintain sparking electrical fixtures in the storage units affected by the fire. The Company believes that the claims against it in these matters are without merit and intends to defend them vigorously. At this stage in the proceedings, however, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company has not recorded a loss contingency.legal updates.
13. Environmental— During the reporting period, there has been a material development in respect of a pending environmental matter as follows:
Environmental Site Characterization. As reported in greater detail in the Company’s Form 10-K for the period ended December 31, 2016, soil and groundwater characterization commenced at our Los Angeles manufacturing facility in December 2002 in conjunction with a Site Investigation Plan that was approved by the Department of Toxic Substances Control (“DTSC”). Site investigation (including extensive soil, soil gas, groundwater and air testing) continued through 2014, at the conclusion of which the Company submitted a remedial action plan (“RAP”) to DTSC. Under the provisions of the RAP, the Company proposed not to disturb sub-surface contaminants, but to continue monitoring, maintain the cover above affected soil, enter into restrictive covenants regarding the potential use of the property in the future, and provide financial assurances relating to the requirements of the RAP. In January 2017, the RAP was circulated for public comment. DTSC responded to those comments and, on September 29, 2017, approved the RAP as submitted by the Company. The Company intends to prepare an operation and maintenance plan, to record covenants on certain affected parcels and to obtain further clarification on financial assurance obligations relating to the RAP. At this stage, the Company does not believe that costs to be incurred in connection with the RAP will be material and has not recorded a loss contingency for these activities.
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, 2016,2022, filed on March 7, 2017. In preparing this document, we have reviewed all the16, 2023. The following disclosure amends and supplements those risk factors included in that document and, find thatexcept to the extent restated below, there are no material changes to thosethe risk factors.factors as so stated.
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 raws 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. 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. As is the case with other companies in this industry, the Company receives cash from certain major customers at year-end in exchange for granting discounts on the Company’s products during the first half of the following year. The Company typically uses this cash to pay down secured debt and for other working capital needs. This flow of cash obviates the need for additional borrowing, which, in turn, preserves borrowing capacity used in part for paying customer programs in the middle of the calendar year and, consequently, reduces interest expense. There is no guarantee that the Company’s customers will continue to support the early pay program at current levels. Further a material change in this program could have an adverse effect upon the Company’s liquidity and its ability to meet working capital demands.
Item 2. Purchases of Equity Securities by the Issuer
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 table below summarizes the number of shares of our 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.
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 |
|
24
|
Item 6. Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K:
Exhibit No. | Description | |
| ||
18.1 | ||
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 |
25
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.
americanvanguardcorporation | ||
Dated: | By: | /s/ ericg. wintemute |
Eric G. Wintemute | ||
Chief Executive Officer and Chairman of the Board | ||
Dated: | By: | /s/ davidt. johnson |
David T. Johnson | ||
Chief Financial Officer & Principal Accounting Officer |
26
33