UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

For The Year Ended December 31, 20172020

OR

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

For The Transition Period From                      To                      

Commission file number 001-13795

 

AMERICAN VANGUARD CORPORATION

 

 

Delaware

 

95-2588080

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

4695 MacArthur Court, Newport Beach, California

 

92660

(Address of principal executive offices)

 

(Zip Code)

(949) 260-1200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:class

Trading

Symbol(s)

 

Name of each exchange on which registered:registered

Common Stock, $.10 par value

 

AVD

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.    Yes      No  

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

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

 

  (Do not check if a smaller reporting company)

  

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

The aggregate market value of the voting stock of the registrant held by non-affiliates is $513.4$404.6 million. This figure is estimated as of June 30, 20172020 at which date the closing price of the registrant’s Common Stock on the New York Stock Exchange was $17.25$13.76 per share. For purposes of this calculation, shares owned by executive officers, directors, and 5% stockholders known to the registrant have been deemed to be owned by affiliates. The number of shares of $.10 par value Common Stock outstanding as of June 30, 2017,2020, was 29,761,490.30,178,057. The number of shares of $.10 par value Common Stock outstanding as of February 16, 201824, 2021 was 29,848,921.30,902,319.

 

 

 


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

December 31, 20172020

 

 

 

 

 

Page No.

 

 

PART I

 

 

 

 

 

 

 

Item 1.

 

Business

 

12

 

 

 

 

 

Item 1A.

 

Risk Factors

 

710

 

 

 

 

 

Item 1B.

 

Unresolved Staff Comments

 

1014

 

 

 

 

 

Item 2.

 

Properties

 

1014

 

 

 

 

 

Item 3.

 

Legal Proceedings

 

1215

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

1415

 

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

 

1516

 

 

 

 

 

Item 6.

 

Selected Financial Data

 

18

 

 

 

 

 

Item 7.

 

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

 

19

 

 

 

 

 

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

3229

 

 

 

 

 

Item 8.

 

Financial Statements and Supplementary Data

 

3229

 

 

 

 

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

3229

 

 

 

 

 

Item 9A.

 

Controls and Procedures

 

3229

 

 

 

 

 

Item 9B.

 

Other Information

 

3533

 

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

3534

 

 

 

 

 

Item 11.

 

Executive Compensation

 

3534

 

 

 

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

3534

 

 

 

 

 

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

3534

 

 

 

 

 

Item 14.

 

Principal Accountant Fees and Services

 

3534

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

3635

 

 

 

 

 

Item 16.

 

Form 10-K Summary

 

3638

 

 

 

 

 

SIGNATURES AND CERTIFICATIONS

 

4039

 

 

i


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

PART I

Unless otherwise indicated or the context otherwise requires, the terms “Company,” “we,” “us,” and “our” refer to American Vanguard Corporation and its consolidated subsidiaries (“AVD”).

Forward-looking statements in this report, including without limitation, statements relating to the Company’s plans, strategies, objectives, expectations, intentions, and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties. (Refer to Part I, Item 1A, Risk Factors and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, included in this Annual Report.)

All dollar amounts reflected in the consolidated financial statements are expressed in thousands, except per share data.

ITEM 1

BUSINESS

American Vanguard Corporation (“AVD”) was incorporated under the laws of the State of Delaware in January 1969 and operates as a holding company. Unless the context otherwise requires, references to the “Company” or the “Registrant,” in this Annual Report refer to AVD. The Company conducts its business through its principle operating subsidiaries, including AMVAC Chemical Corporation (“AMVAC”), for its domestic business and AMVAC Netherlands BV (“AMVAC BV”) for its international business.

The subsidiaries in the U.S. include: AMVAC, GemChem, Inc. (“GemChem”), 2110 Davie CorporationEnvance Technologies, LLC (“DAVIE”Envance”), Quimica Amvac de Mexico S.A. deTyraTech Inc. (“TyraTech”) and OHP Inc. (“OHP”).

Internationally, the Company operates its business through the following subsidiaries: AMVAC BV, AMVAC C.V. (“AMVAC M”CV”), AMVAC Hong Kong Limited (“AMVAC Hong Kong”), AMVAC Mexico Sociedad de Responsabilidad Limitada (“AMVAC M Srl”M”), AMVAC de Costa Rica Sociedad de Responsabilidad Limitada (“AMVAC CR Srl”), AMVAC Switzerland GmbH (“AMVAC S”), AMVAC do Brasil Representácoes Ltda (“AMVAC B”), AMVAC C.V. (“AMVAC CV”), AMVAC Netherlands BV (“AMVAC BV”), Envance Technologies, LLC (“Envance”) and AMVAC Singapore Pte, Ltd (“AMVAC Sgpr”) and, Huifeng AMVAC Innovation Co. Limited (“Hong Kong JV”), OHP Inc. (“OHP”) and Grupo AgriCenter (including the parent AgriCenter S.A. and its subsidiariessubsidiaries) (“AgriCenter”), AMVAC do Brasil Representácoes Ltda (“AMVAC do Brasil”), Agrovant Comércio de Produtos Agrícolas Ltda. (“Agrovant”), Defensive – Indústria, Comérico & Representação Comerial Ltda. (“Defensive”), American Vanguard Australia PTY Ltd (“AVD Australia”), AgNova Technologies PTY Ltd (“AgNova”), and the Agrinos group (“Agrinos”).

Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Refer to Part II, Item 7 for selective enterprise information.

AMVAC

AMVAC is a California corporation that traces its history from 1945 and is a specialty chemical manufacturer that develops and markets products for agricultural, commercial and consumer uses. It manufactures and formulates chemicals for crops, turf and ornamental plants, and human and animal health protection. These chemicals, which include insecticides, fungicides, herbicides, molluscicides, growth regulators, and soil fumigants, are marketed in liquid, powder, and granular forms. In prior years, AMVAC considered itself a distributor-formulator, but now AMVAC primarily synthesizes, formulates, and distributes its own proprietary products or custom manufactures, formulates or formulatesdistributes for others. In addition, the Company has carved out a leadership position in closed delivery systems, currently offers certain of its products in SmartBox, Lock ‘n Load and EZ Load systems, and is developingcommercializing a precision application technology known as SIMPAS (see “Intellectual Property” below) which will permitpermits the delivery of multiple products (from AMVAC and/or other companies) at variable rates in a single pass. AMVAC has historically expanded its business through both the acquisition of established chemistries, (which it has revived in the marketplace) and the development and commercialization of new formulations or compounds through licensing arrangements. arrangements and by expanding its distribution network to gain broader market access.

AMVAC BV is a Netherlands Corporation that was established in 2012 and is based in Utrecht, near Amsterdam in the Netherlands. AMVAC BV sells product both directly and through its network of subsidiaries in various international territories.

Below is a description of the Company’s acquisition/licensing activity over the past fivefour years.

On October 27, 2017,8, 2020, the Company’s Netherlands-basedAustralian subsidiary, AMVAC BV,AVD Australia, completed the purchase of AgriCenter S.A., a distributionall outstanding shares of AgNova. AgNova is an Australian company based in Costa Rica. AgriCenter marketsthat sources, develops, and distributes end-use chemicalspecialty crop protection and biological products throughout Central America, primarilyproduction solutions for crop applications.agricultural and horticultural producers and for selected non-crop users. AgNova has an established reputation for cost-effective product development from original concept through evaluation, registration, marketing, and sales, with new technologies flowing from its development pipeline. AgNova is committed to the provision of innovative, value-adding solutions for agriculture and related industries. The acquired assets included product registration, trade names and trademarks, customer lists, personnel,workforce, fixed assets, goodwill and existing working capital.

2


On October 2, 2017,2020, the Company’s principal operating subsidiary, AMVAC, completed the purchase of all outstanding shares of the Agrinos Group Companies (Agrinos), except for Agrinos AS. Agrinos AS was taken under administration as a bankruptcy estate by the Norwegian bankruptcy court in Oslo. In addition to the shares of Agrinos, AMVAC acquired substantially allcertain intellectual property rights. Agrinos is a fully integrated biological input supplier with proprietary technology, internal manufacturing, and global distribution capabilities. Its High Yield Technology® product platform works in conjunction with other nutritional crop inputs to increase crop yield, improve soil health and reduce the environmental footprint of the assets of OHP, a US-based distribution company specializing in the greenhouse and nursery production markets.traditional agricultural practices. The acquired assets included existing product rights,registration, trade names and trademarks, customer relationships, personnel, goodwill,lists, workforce, fixed assets, two factories and existing working capital.

On August 22, 2017,April 1, 2020, the Company’s principal operating subsidiary, AMVAC, BV,acquired 6,250,000 common shares of Clean Seed Capital Group Ltd. (Clean Seed), representing an ownership of approximately 8%. In addition, AMVAC licensed from Clean Seed certain intellectual property rights related to Clean Seed’s SMART planting technologies.

On December 20, 2019, the Company’s principal operating subsidiary, AMVAC, completed the purchase of certain assets related to four herbicide products from E.I. du Pont de Nemours and Company, doing-business-as Corteva Agriscience and Dow Agrosciences, LLC., for use in the U.S.. The purchased assets included end-use registrations, registration data, trademarks (specifically, Classic®, First Rate®, Python® and Hornet®), on-hand inventory, commercial sales information, know-how and certain product supply arrangements.

On July 1, 2019, the Company completed the acquisition of certain selective herbicidesthree crop protection products for the U.S. market from Raymat Crop Science, Inc. and contact fungicides including chlorothanonil, ametryn,its affiliate, Esstar Crop Science, Inc. The acquired products are the miticide etoxazole, the insect growth regulator Diflubenzuron, and isopyrazam, sold in the Mexican agricultural market. The assets were purchased from Syngenta AG and used on various crops such as sugarcane, tomatoes, potatoes and hot peppers.a rice herbicide bispyribac sodium (Arroz). The acquired assets included product registrations, trademarks and trade names, customer lists and associated on-hand inventory.   

1


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

On June 6, 2017, the Company’s principal operating subsidiary, AMVAC, completed an acquisition of certain herbicides, fungicides and insecticides assets relating to the abamectin, chlorothalonil and paraquat product lines from a group of companies, including Adama Agricultural Solutions, Ltd. These products are used on a wide range of crops such as citrus, cotton, nuts, fruits and vegetables.  The acquired assets included product registrations, trademarks and trade names, customer lists, and associated inventory.

On January 13, 2017,10, 2019, the Company acquired from The Andersons, Inc. certain assets relating to proprietary formulations containing PCNB, chlorothalonil and propiconazole which are marketed under the name FFII and FFIII. The acquired assets included end use registrations.  

On June 27, 2017, both AMVAC BV and Huifeng made individual capital contributions of $950 to the Hong Kong JV. On July 7, 2017, the Hong Kong JV purchased 100% of the shares of Profeng Australia, Pty Ltd. (“Profeng”), for a total consideration of $1,900.

On February 29, 2016, AMVAC BV purchased shares constituting a 15% interest in BiPA NV/SA, a Belgian company specializing in the development and early commercialization of biological products for use in agriculture. Through this investment, AMVAC BV obtained possible future access to a pipeline of new biological products for potential commercialization either individually in certain territories or in combination with the Company’s existing product portfolio.

On October 26, 2015, AMVAC entered into a license and supply agreement with Badische Anilin-und Soda Fabrik (“BASF”) under which BASF sold and AMVAC acquired certain assets (principally inventory) relating to the imazaquin product line. Imazaquin is an herbicide that is used on soybeans and for certain non-crop applications.

On April 29, 2015, the registrant’s international subsidiary AMVAC CV,do Brazil completed the acquisitionpurchase of Defensive and Agrovant, two distribution companies based in Brazil. Defensive and Agrovant market and distribute crop protection products and micronutrients with focus on the fruit and vegetable market segments throughout Brazil. The acquired entities are holding assets that consist, in part, of product registration, trade names and trademarks, customer lists, workforce, fixed assets, and existing working capital.

On December 28, 2018, the Company’s international subsidiary AMVAC BV completed the purchase of certain assets related to the bromacilQuizalofop product family from E.I. du Pont de Nemours and Company. Quizalofop is an herbicide marketed under the name Assure II for use on canola, soybeans and pulse (among other things) in Canada and the U.S.. The acquired assets included product rights, registration data, trademarks, and on-hand inventory. Subsequently, AMVAC BV transferred the acquired assets related to the U.S. market to AMVAC.

On December 14, 2018, AMVAC completed the purchase of certain assets related to the trichlorfon product line from DuPont Crop Protection.Bayer AG and Bayer CropScience AG (“Bayer”). Trichlorfon is an insecticide marketed under the name Dylox in turf, ornamental and other markets. This transaction included product registrations, trademarks and manufacturing know-how. AMVAC manufactures and supplies formulated end use products to Bayer (for the professional turf market) and to SBM (for the consumer lawn market).

On November 9, 2018, AMVAC completed the purchase of all of the outstanding shares of TyraTech, Inc. and, in the process, delisted TyraTech from the AIM market of the London Stock Exchange. TyraTech develops non-toxic insecticides and green solutions for pest control. Their patented technology platform leverages synergistic essential oil combinations to target invertebrate pest receptors that are not active in humans and other mammals.

On June 20, 2018, AMVAC completed the purchase of certain intangible assets related to the bromacil product family including end use registrations in the U.S.. The assets acquired includedwere purchased from Bayer AG. Bromacil is a broad-spectrum residual herbicide used for non-agricultural industrial vegetation control and on many crops such as pineapples, citrus, agave and asparagus. Marketed under the Hyvar® and Krovar® trademarks, productbrands, bromacil herbicides are valued and long-established weed control tools. Amvac already owned these registrations trade names, customer lists and associated inventory. The territory included allfor markets outside North America.  

On April 6, 2015, the registrant’s international subsidiary, AMVAC CV, completed the acquisition of certain assets related to the Nemacur® insecticide/nematicide product line from Adama Agricultural Solutions Ltd (“Adama”). The assets acquired include product registrations, trademarks, customer lists, manufacturing know-howU.S. and associated inventory. The territories include European countries.

On March 25, 2013, AVD made an equity investment in TyraTech Inc. (“TyraTech”),Canada through a Delaware corporation that specializes in developing, marketing and selling pesticide products containing natural oils and other natural ingredients. As of December 31, 2017, the Company’s ownership position in TyraTech was approximately 15.11%.  At a special meeting conducted on December 27, 2017, TyraTech shareholders approved the sale of its Vamouse product line to Alliance Pharmaceuticals, Ltd and the use of some of the proceeds from such sale for a tender offer for TyraTech shares.  That tender offer was concluded in January 2018.  AMVAC elected not to exercise its right to sell into such tender offer and, as a result, the Company’s ownership interest in TyraTech increased to approximately 35% at the conclusion of that transaction.  prior purchase.

Seasonality

The agricultural chemical industry, in general, is cyclical in nature. The demand for AMVAC’sAVD’s products tends to be seasonal. Seasonal usage, however, does not necessarily follow calendar dates, but more closely follows varying growing seasonal patterns, weather conditions, geography, weather related pressure from pests and customer marketing programs.

3


Backlog

AMVAC does not believe that backlog is a significant factor in its business. AMVACAVD primarily sells its products on the basis of purchase orders. The purchase orders although fromare typically fulfilled within a short time to time it has entered into requirements contracts with certain customers.frame. As a result, backlog is not considered a significant factor of AVD’s business.

Customers

The Company’s largest three customers accounted for 13%17%, 10%12% and 10% of the Company’s sales in 2017; 15%2020; 18%, 11%14% and 7% in 2019; and 12%, 9% and 8% in 2016; and 14%, 11% and 10% in 2015.2018.

2


AMERICAN VANGUARD CORPORATIONDistribution

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Distribution

In the U.S. AMVAC predominantly distributes its products domestically through national distribution companies and buying groups or co-operatives, which purchase AMVAC’s goods on a purchase order basis and, in turn, sell them to retailers/growers/end-users. The Company manages its international sales through

Internationally, AMVAC BV which has sales offices or wholly owned distributors in Mexico, Central America, Brazil, Australia, and Costa RicaIndia, and sales force executives or sales agents in a number of other territories. The Company’s domestic and international distributors, agents and customers typically have long-established relationships with retailers/end-users, far-reaching logistics, transportation capabilities and/or customer service expertise. The markets for AMVACAVD products vary by region, target crop, use and type of distribution channel. AMVAC’sAVD’s customers are experts at addressing these various markets.

As more fully described above, during 2017, the Company acquired two distribution companies: the first, OHP, a domestic company operating in the turf and ornamental market, and the second, AgriCenter, which operates in several countries within Central America.  Both of these businesses primarily market and distribute the formulated end-use product of third parties under either the brand of the third party or as a private label product. Prior to being acquired by the Company, both OHP and AgriCenter distributed small quantities of the Company’s products.

Competition

In its many marketplaces, AMVACAVD faces competition from both domestic and foreign manufacturers. Many of our competitors are larger and have substantially greater financial and technical resources than AMVAC. AMVAC’sAVD. AVD’s capacity to compete depends on its ability to develop additional applications for its current products and/or expand its product lines and customer base. AMVACAVD competes principally on the basis of the quality, andproduct efficacy, of its products, price, and the technical service and support given to its customers.

Generally, the treatment against pests of any kind is broad in scope, there being more than one way, or one product, for treatment, eradication, or suppression.customer support. In some cases, AMVACAVD has positioned itself in smaller niche markets, which are no longer addressed by larger companies. In other cases, for example in the MidwesternMidwest corn market,and soybean markets, the Company competes directly with larger competitors.

Manufacturing

Through its four domesticsix manufacturing facilities (see Item 2, Properties), AMVACAVD synthesizes many of the technical grade active ingredients that are in its end-use products. Further, AMVACthe Company formulates and packages its end use products at its own facilities or at the facilities of third-party formulators.formulators in the U.S. and at various international locations. Furthermore, we noted earlier that, in October 2020, the Company completed the purchase of Agrinos. That biological business owns two manufacturing sites, one in the U.S. and the second in Mexico, and has product manufactured at a third-party facility in India.

Raw Materials

AMVACAVD utilizes numerous companies to supply the various raw materials and components used in manufacturing its products. Many of these materials are readily available from domestic sources. In those instances where there is a single source of supply or where the source is not domestic, AMVACAVD seeks to secure its supply by either long-term (multi-year) arrangements or purchasing on long lead times from its suppliers. Further, where the availability or cost of certain raw materials may be subject to the effect of tariffs, the Company may order goods at times or in volumes out of the ordinary course in order to optimize pricing and to ensure supply.

Intellectual Property

AMVAC’sAVD’s proprietary product formulations are protected, to the extent possible, as trade secrets and, to a lesser extent, by patents. Certain of the Company’s closed delivery systems are patented, and AMVACthe Company has made applications for related inventionsboth pending and issued patents relating to expand its equipment portfolio, particularly with respect to its Smart Integrated Multi-Product Precision Application System, (“SIMPAS”)SIMPAS and Ultimus technology. Further, AMVAC’sAVD’s trademarks bring value to its products in both domestic and foreign markets. AMVACAVD considers that, in the aggregate, its product registrations, trademarks, licenses, customer lists and patents constitute a valuable asset.assets. While it does not regard its current business as being materially dependent upon any single product registration, trademark, license, or patent, it believes that patents will play an increasingly important role in its developmental equipment technology may bring significant value in future years.years, including with respect to its Envance essential oils technology.

4


EPA Registrations

In the United States, AMVAC’sU.S., AVD’s products also receive protection afforded by the terms of the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”) legislation. The legislation makes, pursuant to which it is unlawful to sell any pesticide in the United States,U.S., unless such

3


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

pesticide has first been registered by the United StatesU.S. Environmental Protection Agency (“USEPA”). Substantially allMost of AMVAC’sthe Company’s products that are sold in United States,the U.S. are subject to USEPA registration and periodic re-registration requirements and are registered in accordance with FIFRA. This registration by USEPA is based, among other things, on data demonstrating that the product will not cause unreasonable adverse effects on human health or the environment, when used according to approved label directions. In addition, each state requires a specific registration before any of AMVAC’sAVD’s products can be marketed or used in that state. State registrations are predominantly renewed annually with a smaller number of registrations that are renewed on a multiple year basis.

Foreign jurisdictions typically have similar registration requirements by statute.

The USEPA, state, and foreign agencies have required, and may require in the future, that certain scientific data requirements be performed on registered products sold by AMVAC. AMVAC,AVD. AVD, on its own behalf and in joint efforts with other registrants, has furnished, and is currently furnishing, required data relative to specific products.

Under FIFRA, the federal government requires registrants to submit a wide range of scientific data to support U.S. registrations. This requirement results in operating expenses in such areas as regulatory compliance, with USEPA and other such bodies in the markets in which the Company sells its products. In addition, at times, the Company is required to generate new formulations of existing products or to produce new products in order to remain compliant. AMVACThe Company expensed $14,232, $11,544,$15,613, $13,989 and $9,831$16,047, during 2017, 20162020, 2019 and 20152018, respectively, on these activities.

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Registration

 

$

9,450

 

 

$

7,750

 

 

$

6,375

 

 

$

10,914

 

 

$

9,046

 

 

$

10,749

 

Product development

 

 

4,782

 

 

 

3,794

 

 

 

3,456

 

 

 

4,699

 

 

 

4,943

 

 

 

5,298

 

 

$

14,232

 

 

$

11,544

 

 

$

9,831

 

 

$

15,613

 

 

$

13,989

 

 

$

16,047

 

 

Environmental

Commerce Site

During 2017,2020, AMVAC continued activities to address environmental issues associated with its facility in Commerce, CA. (the “Facility”). An outline of the history of those activities follows.

In 1995, the California Department of Toxic Substances Control (“DTSC”) conducted a Resource Conservation and Recovery Act (“RCRA”) Facility Assessment (“RFA”) of those facilities having hazardous waste storage permits. In March 1997, the RFA culminated in DTSC accepting the Facility into its Expedited Remedial Action Program. Under this program, the Facility was required to conduct an environmental investigation and health risk assessment. This activity then took two paths: first, the RCRA permit closure and second, the larger site characterization.

With respect to the RCRA permit closure, in 1998, AMVAC began the formal process to close its hazardous waste permit at the Facility (which had allowed AMVAC to store hazardous waste longer than 90 days) as required by federal regulations. Formal regulatory closure actions began in 2005 and were completed in 2008, as evidenced by DTSC’s October 1, 2008 acknowledgement of AMVAC’s Closure Certification Report.

With respect to the larger site characterization, soil and groundwater characterization activities began in December 2002 in accordance with the Site Investigation Plan that was approved by DTSC. Additional activities were conducted from 2003 to 2014, with oversight provided by DTSC. In 2014, the Company submitted a remedial action plan (“RAP”) to DTSC, under the provisions of which, 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 intendscontinues to conduct groundwater monitoring and maintain the cover above affected soil and is working with DTSC 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.

5


Other Environmental

AMVAC is subject to numerous federal and state laws and governmental regulations concerning environmental matters and employee health and safety at its foursix manufacturing facilities.facilities both in the U.S. and abroad. The Company continually adapts its manufacturing, processstorage, transportation, handling and disposal processes to the environmental control standards of the various regulatory agencies.and other agencies to which it is subject. The USEPA and other foreign, federal and state agencies have the authority to promulgate regulations that could have an impact on the Company’s operations.

4


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

AMVAC expends substantial funds to minimize the risk of discharge of materials in the environment and to comply with the governmental regulations relating to protection of the environment. Wherever feasible, AMVACthe Company recovers and recycles raw materials and increases product yield in order to partially offset increasing pollution abatement costs.

The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns.

EmployeesHuman Capital Resources

We believe that, beyond being essential to our operations, our people have inestimable worth independent of our business. As outlined in our Human Rights Policy (see, www.american-vanguard.com under ESG tab), we believe that it is fundamental to our corporate responsibility and, indeed, to our humanity, that we recognize, respect and nurture the freedom and dignity of all persons. Accordingly, we have insinuated that belief throughout the fabric of our operations in our approach toward our employees. Indeed, the first two core values underlying our commitment to sustainability (see, 2017/2018 Sustainability Report, www.american-vanguard.com under ESG tab) are “Safety First” – which is a culture that begins with highly-regulated manufacturing plants, continues into the design of science-backed products and extends into market-leading delivery systems – and “Making a Difference” – under which, by rewarding achievement and giving our employees a voice, we attract diverse employees who want to make a difference in their careers, in the company and in the communities that we serve.

The most salient feature of success in managing human capital has been our ability to attract and retain excellent talent. We are not the largest company within our sector – in fact, we are possibly the smallest public company dedicated to crop inputs and precision application technology. However, we have consistently drawn high-achieving, successful personnel from much larger competitors, largely due to the fact that we are not only collegial and nimble, but also offer employees the chance to make a difference, to be themselves, to think creatively.

Another important practice in managing human capital is that we offer among the most generous healthy benefits in the industry – minimal employee contribution, copays, out-of-pocket limits. (See also the Compensation Discussion & Analysis in our 2020 Proxy Statement at www.american-vanguard.com, click on SEC filings). We also provide a comprehensive wellness program, with annual biometric testing and incentives for health coaching. These programs serve to keep the employee population and their families healthy. Further, these programs are, for the most part, self-insured and represent a direct and important investment in our people.

We are also one of the only public companies of which we are aware that gives awards of our common stock to the entire full-time workforce. Most public companies limit their stock awards to those in the highest echelon. We do not. Rather, we believe that all employees should share in our long-term success and that those who work for the company should have the perspective of both employee and shareholder. This practice also engenders a sense of greater permanency in the work relationship through which employees are more inclined to propose plans and solutions for the future. Similarly, unlike many public companies, we allocate our incentive compensation throughout the entire workforce, thereby rewarding their contribution to our companywide performance.As of December 31, 2017,2020, the Company employed 605771 employees. This includes 130 employees that joined the Company following the acquisitions completed during the final quarter of 2017. The Company employed 395671 employees as of December 31, 20162019 and 369624 employees as of December 31, 2015.2018. From time to time, due to the seasonality of its business, AMVACAVD uses temporary contract personnel to perform certain duties primarily related to packaging of its products. None of the Company’s employees are subject to a collective bargaining agreement. The Company believes it maintains positive relations with its employees.

Domestic operations

AMVAC is a California corporation that was incorporated under the name of Durham Chemical in August 1945. The name of the corporation was subsequently changed to AMVAC in January 1973.1971. As the Company’s main operating subsidiary, AMVAC owns and/or operates the Company’s domestic manufacturing facilities and is also the parent company (owns 99%) of AMVAC CV.facilities. AMVAC manufactures, formulates, packages and sells its products in the USAU.S. and is a wholly owned subsidiary of AVD.

GemChem is a California corporation that was incorporated in 1991 and was subsequently purchased by the Company in 1994. GemChem sells into the pharmaceutical, cosmetic and nutritional markets and, in addition, to purchasingpurchases key raw materials for the Company. GemChem is a wholly owned subsidiary of AVD.

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DAVIE owns real estate for corporate use only. The site is the home to the Company’s research center and also provides accommodation for the Company’s production control team. See also Part I, Item 2 of this Annual Report on Form 10-K. DAVIE is a wholly owned subsidiary of AVD.

On October 2, 2017, AMVAC purchased substantially all of the assets of OHP, a domestic distribution company specializing in products for the turf and ornamental market. OHP markets and sells end use products for third-parties, either under third-party brands or else as its own label products.

Envance is a Delaware Limited Liability Company and is a majoritywholly owned subsidiary of the Company. It was formed in 2012 with joint venture partner, TyraTech. AMVAC’s initial shareholding was 60% and its shareholdingwhich increased to 87% in 2015. Prior to November 8, 2018 the Company also owned 34.38% of TyraTech. On November 8, the Company acquired the remaining 65.62% of the shares of TyraTech Inc. and, as a result, TyraTech became a wholly owned subsidiary of the Company on November 9, 2018. Also, as a result of acquiring 100% of TyraTech, Envance became a wholly owned subsidiary of the Company. Envance has the rights to develop and commercialize pesticide products and technologies made from natural oils in global consumer, commercial, professional, crop protection and seed treatment markets and has begun bringing products to market.

On October 2, 2017, AMVAC, through a wholly-owned acquisition subsidiary, subsequently renamed OHP, purchased substantially all of the assets of OHP, a domestic distribution company specializing in products for the turfmarket and ornamental market. OHP markets and sells end use products for third parties, either under the third party brand or else as own label products.  license its intellectual property to third-parties.

International operations

In July 2012, the Company formed AMVAC CV, which is incorporated in the Netherlands, for the purpose of managing foreign sales on behalf of the Company. AMVAC CV is owned jointly by AMVAC as the general partner, and AVD International, LLC (also formed in July 2012 as a wholly owned subsidiary of AMVAC), as the limited partner, and is therefore a wholly owned subsidiary of AMVAC.

AMVAC Hong Kong was formed in November 2019 and is wholly owned by AMVAC. AMVAC Hong Kong took over the role of AMVAC CV as of January 1, 2020.

AMVAC BV is a registered Dutch private limited liability company that was formed in July 2012. AMVAC BV is located in the Netherlands and is wholly owned by AMVAC CV. During 2017,2020, the international business sold the Company’s products in 6355 countries, as compared to 5955 countries in 2016.2019.

AMVAC M Srl is a wholly owned subsidiary of AMVAC BV and was originally formed in 1998 (originally formed as AMVAC M(as Quimica Amvac de Mexico S.A. de C.V and subsequently changed to AMVAC Mexico Srl in 2013)Sociedad de Responsabilidad Limitada “AMVAC M”) to conduct the Company’s business in Mexico.  

AMVAC Sgpr is a wholly owned subsidiary of AMVAC BV and was formed on April 12, 2016. This new entity was formed to conduct the Company’s business in the Asia Pacific and China region.

5


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Hong Kong JV is a 50% owned joint venture with Huifeng (Hong Kong) Limited, a wholly owned subsidiary of Huifeng Agrochemical Company, Ltd, (“Huifeng”) a China based, basic chemical manufacturer. The Hong Kong JV was formed on August 2, 2016. The purpose of the joint venture is to be a technology transfer platform between the co-owners, including the development of proprietary agrochemical formulations and precision application systems for crop protection. Furthermore, it is intended to be used to develop both partners’ business in the region. This included, in 2017, the acquisition of 100% of the shares of Profeng.

On October 27, 2017, AMVAC BV purchased 100% of the stock of AgriCenter, located in Costa Rica, which owned shares in subsidiaries located in Costa Rica, Panama, Nicaragua, Honduras, the Dominican Republic, Mexico, Guatemala, and El Salvador. These affiliated entities, collectively known as AgriCenter, market, sell and distribute end-use chemical and biological products throughout Central America primarily for crop applications.

On January 10, 2019, AMVAC BV acquired 100% of the stock of Defensive and Agrovant, two distribution companies based in Brazil. Defensive and Agrovant market and distribute crop protection products and micronutrients with focus on the fruit and vegetable market segments throughout Brazil.

On October 8, 2020, American Vanguard Australia Pty Ltd acquired 100% of the stock of AgNova, an Australian company that sources, develops, and distributes specialty crop protection and production solutions for agricultural and horticultural producers, and for selected non-crop users.

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On October 2, 2020, the Company’s principal operating subsidiary, AMVAC, completed the purchase of all outstanding shares of Agrinos and certain intellectual property rights. Agrinos is a fully integrated biological input supplier with proprietary technology, internal manufacturing, and global distribution capabilities and has operating entities in the U.S., Mexico, India, Brazil, China, Ukraine, and Spain.

The Company classifies as international sales all products bearing foreign labeling shipped to a foreign destination.

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

International sales

 

$

98,905

 

 

$

83,259

 

 

$

77,295

 

 

$

186,980

 

 

$

185,961

 

 

$

153,958

 

Percentage of net sales

 

 

27.9

%

 

 

26.7

%

 

 

26.7

%

 

 

40.8

%

 

 

39.7

%

 

 

33.9

%

 

The Company’s Operations in a Pandemic

Having been categorized as a pandemic in March 2020 by the World Health Organization, the novel coronavirus (COVID-19) has since spread, at the time of this document, to infect over 100 million people and caused over 2 million fatalities worldwide. Like many other companies, we have had to adapt quickly and frequently to ensure the health and safety of the workplace while maintaining operations without disruption. Our mission was driven in part by our legal status. Under applicable federal guidelines (at https://www.cisa.gov), the Company is part of the nation’s “critical infrastructure” and falls within three of the 16 sectors that are specially permitted to operate:  “Food and Agriculture” sector (engaged in “the production of chemicals and other substances used by the food and agriculture industry, including pesticides, herbicides etc.”), the “Chemical” sector (supporting the operation . . . of facilities (particularly those with high risk chemicals . . . whose work cannot be done remotely and requires the presence of highly trained personnel to ensure safe operations”) and the “Public Works and Infrastructure Support Services” sector (in support of public health including pest control and exterminators, landscapers and others who provide services to residences and businesses). In issuing guidance on Coronavirus, then President Donald J. Trump said, “If you work in a critical infrastructure industry, as defined by the Department of Homeland Security, such as healthcare services and pharmaceutical and food supply, you have a special responsibility to maintain your normal work schedule[emphasis added].” We have found that state COVID-19 orders and, indeed, even those of countries in which the outbreak has been most pronounced, have consistently excepted food supply as an area essential to the survival of its populations and, as such, had given special permission to companies, such as ours, to continue to operate during the pandemic.

In light of our status within the critical infrastructure, at the outset of the pandemic, the Company took swift action to understand, contain and mitigate the risks posed by this pandemic. Specifically, we formed a Pandemic Work Group to design and implement protocols for social distancing, make provisions for the workforce to work remotely where possible, establish quarantine, tracing and leave-of-absence policies for those who present COVID-like symptom or may have been in touch with those who have. Further, the group has kept current with local, state, federal and international laws and restrictions that could affect the business; provided real-time information to the workforce including with respect to testing and vaccinations; and drawn from political commentary and news statements concrete directions on how best to continue operations. We have also prepared contingency plans to permit the continued operation of our factories, in the event that there are critical staffing issues due to attrition. Further, we have continuously monitored supply chain, transport, logistics and border closures and have reached out to third-parties to make clear that we are continuing to operate, that we have our own policies relating to health and safety (e.g., all staff who can work remotely were instructed so to do and were provided with the necessary IT equipment, no third-party visitors, no face-to-face meetings) and are committed to compliance with COVID-19 policies of our business partners. Our CEO and the Pandemic Work Group have held regular “state of the company” calls with the functional heads of our businesses across the globe to ensure that our information is shared in a timely manner and that our direction is clear.

In keeping with our charge to operate as an essential business and by virtue of our efforts to contain and mitigate the risks posed by the pandemic, we have been able to manage our business with minimal disruption during the reporting period. As referred to in this Form 10-K (see Note 1 to the Consolidated Financial Statements), the coronavirus has affected our overall performance to a degree. Lost opportunities for certain new product launches, inability to meet both existing and potential new customers face-to-face, reduced demand for commodity crops sold to restaurants, and foreign exchange effects in Brazil, Mexico and Australia, have likely limited the Company’s top-line growth by up to several million dollars and the associated profitability, to an indeterminate degree, since the inception of the pandemic.  

Risk Management

The Company regularly monitors matters, whether insurable or not, that could pose material risk to its operations, the safety of its employees and neighbors, and its financial performance. The Risk Committee of the Board of Directors (“Board”) was formed in 2010, consists of threefour members of the Board and meets regularly. AllHowever, all members of the Board are invited to and typicallyregularly attend Risk Committee meetings. Working with senior management, the committee continuously evaluates the Company’s risk profile, identifies mitigation measures and ensures that the Company is prudently managing these risks. In

8


Further, in support of the Risk Committee, senior management has appointed a risk manager and designated several senior executives to lead teamswho is focused on addressing each of the most material risks facing the Company; these groups perform analysis with the benefit of operational knowledge.Company. The top risks identified by management and being addressed by risk teams (in no particular order) include: adverse political and regulatory climate; managing inventory and optimizing manufacturing efficiency; succession planning and bench strength; maintaining a competitive edge in the marketplace; the possibility of an environmental event; undervaluation of the Company; availability of acquisition and licensing targets and cyber-terrorism. Over the course of 2017, the Company continued to implement its enterprise risk management program, which extends to all areas of potential risk and is a permanent feature in the Company’s operation. In addition, the Company continually evaluates insurance levels for product liability, property damage and other potential areas of risk. Management believes its facilities and equipment are adequately insured against loss from usual business risks including cyber-terrorism.

Environmental, Social and Governance (“ESG”)

At the center of our ESG commitment is the principle of Sustainable Agriculture. While this concept has been used by many to mean many different things, we have given it a very clear meaning. In our parlance, Sustainable Agriculture is broad enough to encompass a comprehensive ESG program, but clear enough to give us direction in our outlook and purpose in our activities. Please click on the “ESG” tab at www.american-vanguard.com to access the documents mentioned below.

Access to food is a basic human right and is at the core of our commitment to sustainable agriculture. All people should be able to rely on a stable, affordable food supply both now and into the future. We are committed to meeting that need upon a foundation of social responsibility and equity. In that vein, we believe that sustainable agriculture must include these three principles:

Climate Equity – as outlined in our Climate Change Commitment, we are committed to making enterprise-wide, progressive and measurable efforts to do our part to help to arrest the trend of global warming. In making decisions, taking actions and conducting our operations we are mindful of climate equity, which holds that climate change has three primary effects – generational, regional and individual. To that end, we believe that reducing our carbon footprint and, through our products and services, enabling others to do so will advance climate equity consistent with the goal of a 2-degree warmer world, as outlined in the Paris Agreement. Whether in terms of eco-friendly products – such as natural oils from Envance (used in Proctor & Gamble’s Zevo product line), microbial High Yield solutions from Agrinos (that enhance soil health and promote carbon sequestration) or tailored bionutritional products from Greenplants – or delivery systems, such as our SIMPAS precision application system that maximizes yield while minimizing the environmental footprint – we are endeavoring to making the planet a better place than we found it.

Environmental Equity – we recognize that our planet has limited resources and that what we do with them has an effect on the habitat for both humans and other species, both for today and tomorrow. We also recognize that our activities can affect the environment generationally, regionally and individually. We are, therefore, committed to environmental equity in our operations. Specifically, and as more fully outlined in our sustainability reports, we seek to conserve finite resources such as water, land and energy while protecting the environment and enhancing biodiversity, so that these resources are available in amounts and quality to support our neighbors and future generations. In addition, we have committed significant resources toward supporting growers with precision application technology – like SIMPAS and Ultimus – that enable growers to manage, optimize and trace the use of crop and soil inputs, and to use only what is needed, precisely where it is needed. Furthermore, we are mindful of those who might be disproportionately affected by what we do, such as loaders and applicators of our products. To that end, we have been at the forefront of user-friendly, closed delivery systems (from Lock ‘n Load to SMARTBox to SIMPAS/SmartCartridges) to minimize exposure and maximize safety for those on-the-ground.

Food Equity – we are committed to the proposition that access to food is a basic human right. Implicit in that commitment is the principle of food equity, which has three aspects, once again, generational, regional and individual. First, food security – we believe it is essential to ensure the long-term sustainability and competitiveness of the global agricultural industry. We contribute toward food security by investing in eco-friendly solutions and in new technology, like SIMPAS, that give growers the best tools possible to ensure that their operations are viable, both today and tomorrow. Second, food availability – ensuring that food gets from field to table. As we saw in the pandemic, the supply chain for food can be broken, and those who suffer most are often those farthest from the fields. To that end, we support farm-to-field efforts and programs to reduce food waste. Third, food affordability – ensuring that food prices can be maintained for all, including the impoverished. We do this by giving farmers effective tools, including precision application equipment, that optimize their costs, boost their yield, and enable them to produce and market food at reasonable prices.

Social Responsibility – our discussion of Sustainable Agriculture would not be complete without specific mention of our commitment to social responsibility. This concept is inherent in all forms of equity, be they climate, environmental or food related. However, social responsibility gives us pause to consider factors of a more fundamental nature, such as human rights. Our Human Rights Policy details our essential belief that we respect and support human rights, both within and without our operations. We believe that it is fundamental to our corporate responsibility and, indeed, to our humanity, that we recognize, respect and nurture the freedom and dignity of all persons. To that end, we support the tenets of the International Bill of Human Rights, including the United Nations Universal Declaration of Human Rights, the UN framework on Corporate Responsibility to Respect Human Rights (which is one section of the UN Guiding Principles on Business and Human Rights) and the UN International Labor Organization on Fundamental Principles and Rights at Work.  

9


Under the umbrella of Sustainable Agriculture, we are committed to operating our business with a sense of mindfulness – toward the climate, toward the environment and toward the good of humans and other species. We consider ourselves to be part of a broader mission – one of ensuring that people can rely upon a stable, affordable food supply both now and in the future. It is a privilege to be part of that mission. With that privilege comes responsibility, and we take that responsibility seriously.  

Available Information

The Company makes available free of charge (through its website, www.american-vanguard.com), its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). All reports filed with the SEC are available free of charge on the SEC website, www.sec.gov. Also available free of charge on the Company’s website are the Company’s Audit Committee, Compensation Committee, Finance Committee and Nominating and Corporate Governance Committee Charters, the Company’s Corporate Governance Guidelines, the Company’s Code of Conduct and Ethics, and the Company’s Employee Complaint Procedures for Accounting and Auditing Matters andMatters. Beneath the “ESG” tab at that site, you will also find links to the Company’s policy on Stockholder NominationCorporate Sustainability Reports, Climate Change Commitment and Communication.Human Rights Policy. The Company’s Internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

6


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

ITEM 1A.

RISKRISK FACTORS

Regulatory/Legislative/Litigation Risks

The regulatory climate remains challenging to the Company’s interests both domestically and internationally—Various agencies within the U.S. (both federal and state) and foreign governments continue to exercise increased scrutiny in permitting continued uses (or the expansion of such uses) of oldermany chemistries, including manyseveral of the Company’s products and, in some cases, have initiated or entertained challenges to these uses. The challenge of the regulatory climate is even more pronounced in certain other geographical regions (outside the U.S.) where the Company faces resistance to the continued use of certain of its products. For example, the EUEuropean Union (“EU”) employs a hazard-based analysis when considering whether product registrations can be maintained; under this approach, EU regulatory authorities typically do not weigh benefit against risk in their assessments and routinely cancel products for which a safer alternative is available, notwithstanding the benefit of the cancelled product. There is no guarantee that this regulatory climate will change in the near term or that the Company will be able to maintain or expand the uses of many of its products in the face of thesesuch regulatory challenges.

USEPA has proposed further limitationsProduct liability judgments on glyphosate by domestic courts present a litigation risk to companies in this industry—Multiple judgments have been rendered by domestic courts in product liability cases against Bayer/Monsanto in connection with injuries allegedly arising from exposure to the continued registrationherbicide product, glyphosate. The basis was purported carcinogenicity based largely upon the findings of organophosphates—On September 25, 2015a certain international organization, in spite of significant scientific evidence to the USEPA published incontrary. While the Federal Register draft human health risk assessments for fourCompany does not sell glyphosate, the theory of these results could put one or more of the Company’s organophosphate (“OP”) compounds (marketed under the names Bidrin®, Counter®, Folex® and Mocap®) in which it recommends the application of a 10X safety factor under the FQPA (Food Quality Protection Act) in light of the alleged possibility of neurodevelopmental harm to women and children based on epidemiological data. Since that time, in the face of objection from industry, the agency has applied this safety factor to all registered OPs, as they have come up for review or renewal. The Company, like many in our industry, believes that the basis for applying this safety factor is not based upon sound science and that the limited studies upon which the agency is relying (for which raw data is not available even to the agency) do not establish a causal link between the perceived harm and the use of its products. Accordingly, the Company intends to take all action necessary to defend its registrations. We have been joined in this effort by other companies that are similarly concerned about the potential impact of USEPA’s action. Nevertheless, thereproducts at risk. There is no guarantee that one or more product liability actions would not be brought against the Company’sCompany on a similar basis, and it is possible that adverse rulings in any such actions will alter the course that USEPA has proposed and, if the agency’s position becomes final, some uses of the company’s OP products could be limited or cancelled. Such action could have a material adverse effect upon the Company’s financial performance in future reporting periods.

The trend of passing pesticide “ban-bills” in various states could put one or more of the Company’s products at risk—In certain states, including Maryland and New York, state and/or local legislatures have passed legislation banning the use of specific pesticides, such as chlorpyrifos, in spite of valid registrations at USEPA and/or the equivalent state agency. While the Company does not sell chlorpyrifos products, there is no guarantee that one or more of its registered products would not be targeted in state or local legislation of this nature. Further, such legislation could have a material adverse effect upon the Company’s financial performance in future reporting periods.

Use of the Company’s products is subject to continuing challenges from activist groups—Use of agrochemical products, including the Company’s products, is regularly challenged by activist groups in many jurisdictions under a multitude of federal, state and foreign statutes, including FIFRA, the Food Quality Protection Act, Endangered Species Act (“ESA”) and the Clean Water Act, to name a few. These challenges typically take the form of lawsuits or administrative proceedings against the USEPA and/or other federal, state or foreign agencies, the filing of amicus briefs in pending actions, the introduction of legislation that is inimical to the Company’s interests, and/or adverse comments made in response to public comment invited by regulatory agencies in the course of registration, re-registration or label expansion. The most prominent of these actions include a line of cases under which environmental groups have sought to suspend, cancel or otherwise restrict the use of pesticides that have been approved by USEPA on the ground that that agency failed to confer with the National Marine Fishery Service and/or the Fish and Wildlife Service under the ESA with respect to biological opinions relating to the use of such products. While industry has been active in defending registrations and proposing administrative and legislative approaches to address serious resource issues at the affected agencies, these cases continue to be brought. It is possible that one or more of these challenges could succeed, resulting in a material adverse effect upon one or more of the Company’s products.

10


USEPA has proposed further limitations on the continued registration of organophosphates— In September 2015, the USEPA published in the Federal Register a memorandum entitled, “Literature Review on Neurodevelopmental Effects & FQPA Safety Factor Determination for the Organophosphate Pesticides,” in which it adopted a position recommending the application of a 10X safety factor under the FQPA (Food Quality Protection Act) in light of the alleged possibility of neurodevelopmental harm to women and children based on epidemiological data. Since that time, in the face of objection from industry, the agency has applied this safety factor to all registered Organophosphate Pesticides (“Ops” or “OP”), including those owned by the Company, as they have come up for review or renewal. The Company, like many in our industry, believes that applying this safety factor is not based upon sound science and that the limited studies upon which the agency is relying (for which raw data is not available even to the agency) do not establish a causal link between the perceived harm and the use of its products. Accordingly, the Company intends to take all action necessary to defend its registrations. We have been joined in this effort by other companies that are similarly concerned about the potential impact of USEPA’s action. Nevertheless, there is no guarantee that the Company’s actions will alter the course that USEPA has proposed; if the agency’s position becomes final, some uses of the Company’s OP products could be limited or cancelled. Such action could have a material adverse effect upon the Company’s financial performance in future reporting periods.

The distribution and sale of the Company’s products are subject to prior governmental approvals and thereafter ongoing governmental regulation—The Company’s products are subject to laws administered by federal, state and foreign governments, including regulations requiring registration, approval and labeling of its products. The labeling requirements restrict the use of, and type of, application for our products. More stringent restrictions could make our products less available, which would adversely affect our revenues and profitability. Substantially all of the Company’s products are subject to the USEPA (and/or similar agencies in the various territories or jurisdictions in which we do business) registration and re-registration requirements and are registered in accordance with FIFRA or similar laws. Such registration requirements are based, among other things, on data demonstrating that the product will not cause unreasonable adverse effects on human health or the environment when used according to approved label directions. All states, where any of the Company’s products are used, also require registration before products, such as the Company sells, can be marketed or used in that state. Governmental regulatory authorities have required, and may require in the future, that certain scientific data requirements be performedfulfilled on the Company’s products. The Company, on its behalf and also in joint efforts with other registrants, has furnished, and is currently furnishing certain required data relative to its products. There can be no assurance, however, that the USEPA or similar agencies will not request that certain tests or studies be repeated, or that more stringent legislation or requirements will not be imposed in the future. The Company can provide no assurance that any testing approvals or registrations will be granted on a timely basis, if at all, or that its resources will be adequate to meet the costs of regulatory compliance.

7


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

The manufacturing of the Company’s products is subject to governmental regulations—The Company currently owns and operates threefive manufacturing facilities which are located in Los Angeles, California; Axis, Alabama; and Marsing, Idaho, Clackamas, Oregon, and Ethojoa, Mexico, and owns and has manufacturing services provided in a fourthat an additional facility in Hannibal, Missouri, (the “Facilities”). The Facilities operate under the laws and regulations imposed by relevant country, state and local authorities. The manufacturing of key ingredients for certain of the Company’s products occurs at the Facilities. An inability to renew or maintain a license or permit, or a significant increase in the fees for such licenses or permits, could impede the Company’s manufacture of one or more of its products and/or increase the cost of production; this, in turn, would materially and adversely affect the Company’s ability to provide customers with its products in a timely and affordable manner.

Pandemic/Climate Risks

The COVID-19 pandemic may interfere with the Company’s business—Over the past year, the novel coronavirus pandemic has spread around the globe, infecting over 100 million persons and resulting in over 2 million fatalities. While the company has been able to operate without interruption, during the reporting period, and has seen comparative minimal impact on the markets that it serves, there is no guarantee that the pandemic, as it continues, will not disrupt our supply chain, customers or end-users of our products.

Climate Change may adversely affect the Company’s business—Over the course of the past several years, global climate conditions have become increasingly inconsistent, volatile and unpredictable. Many of the regions in which the Company does business have experienced excessive moisture, cold, drought and/or heat of an unprecedented nature at various times of the year. In some cases, these conditions have either reduced or obviated the need for the Company’s products, whether pre-plant, at-plant, post-emergent or at harvest. Due to the unpredictable nature of these conditions, growers and distributors appear to have become increasingly conservative in procurement practices and the accumulation of inventory. Further, the random nature of climactic change has made it increasingly difficult to forecast market demand and, consequently, financial performance, from year-to-year. There is no guarantee that climate change will abate in the near future, and it is possible that such change will continue to hinder the Company’s ability to forecast its sales performance with accuracy and otherwise adversely affect the Company’s financial performance.

11


The Company’s business may be adversely affected by weather effects—Demand for many of the Company’s products tends to vary with weather conditions and weather-related pressure from pests. Adverse weather conditions, then, may reduce the Company’s revenues and profitability. In light of the possibility of adverse seasonal effects, there can be no assurance that the Company will maintain sales performance at historical levels in any particular region.

The Company may be subject to environmental liabilitiesWhile theThe Company expends substantial funds to minimizeis fully committed toward minimizing the risk of discharge of materials into the environment and to complycomplying with governmental regulations relating to protection of the environment, its neighbors and its workforce,workforce. Nevertheless, federal and state authorities may nevertheless seek fines and penalties for any violation of the various laws and governmental regulations. In addition, while the Company continually adapts its manufacturing processes to the environmental control standards of regulatory authorities, it cannot completelyentirely eliminate the risk of accidental contamination or injury from hazardous or regulated materials. Further, these various governmental agencies could, among other things, impose potential civil and criminal liability arising under RCRA forin connection with the Company’s importation (transportation, handling, and storage) of depleted Thimet containers (see, “Legal Proceedings” below)). In short, the Company may be held liable for significant damages or fines relating to any environmental contamination, injury, or compliance violation which could have a material adverse effect on the Company’s consolidated financial condition, statements of operations and cash flows.

Acquisition/Investment Risks

Newly acquired businesses or product lines may not generate forecasted results.  resultsWhile the Company conducts due diligence on acquisitionsusing a combination of internal and employs rigorous investmentthird-party resources and applies what it believes to be appropriate criteria for each transaction before making acquisitions, there is no guarantee that a business or product line acquired by the Company will generate results that meet or exceed results that were forecasted by the Company inwhen evaluating the acquisition. There are many factors that could affect the performance of a newly acquired business or product line. While the Company uses conservative assumptions that are based upon due diligence and other market information in valuing a business or product line prior to concluding an acquisition, actual results generated post-closing could vary widely from the Company’s forecast and, as such, could have a material effect upon the Company’s overall financial performance.

The Company’s investment in foreign businesses may pose additional risks.  risksWith the expansion of its footprint internationally, and, in particular, with the business acquired in Central America in 2017, the Company now carries on business at a material level in some jurisdictions that have a history of political, economic or currency-related instability including civil unrest, government takings without reimbursement, and customers with a potentially higher risk profile regarding accounts receivable collectivity compared to the imposition of penalties without due process of law.Company’s legacy business. While such instability may not be present at the current time, there is no guarantee that conditions will not change in one or more jurisdictions quickly and without notice, nor is there any guarantee that the Company would be able to recoup its investment in such territories in light of such changes.changes and potential losses due to economic factors, devaluation of local currencies, or the collectability risk from customers. Adverse changes of this nature could have a material effect upon the Company’s overall financial performance.

The Company’s investment in technology may not generate forecasted returns.  returnsThe Company has had a history of investing in technological innovation, primarily focused onincluding with respect to product delivery systems, essential oil technology and biologicals, as one of its core strategies. We have focused on technology in closed delivery systems, fumigant application and precision application, to name a few. These investments are based upon the premise that new technology will allow for safer handling or lower overall toxicity profile of the Company’s products,product portfolio, appeal to regulatory agencies and the market we serve, gain commercial acceptance, and command a return that is sufficiently in excess of the investment. However, there is no guarantee that a new technology will be successfully commercialized, generate a material return or maintain market appeal for a substantial period of time.appeal. Further, many types of development costs must be expensed in the period in which they are incurred. This, in turn, tends to put downward pressure on period profitability. There can be no assurance that these expenses will be recovered through successful long-term commercialization of a new technology.

The Company’s businessgrowth has been fueled in part by acquisitions—Over the past few decades, the Company’s growth has been driven by acquisitions and licensing of both established and developmental products from third-parties. There is no guarantee that acquisition targets or licensing opportunities meeting the Company’s investment criteria will remain available or will be affordable. If such opportunities do not present themselves, then the Company may be adversely affected by cyclical and seasonal effects—Demand for the Company’s products tendsunable to be seasonal. Seasonal usage follows varying agricultural seasonal patterns, weather conditions and weather related pressure from pests. Weather patterns can have an impact on the Company’s operations. For example, the end user of its products may, because of weather patterns, delay or intermittently disrupt field work during the planting season, which may resultduplicate historical growth rates in a reduction of the use of some products and therefore may, at some point, reduce the Company’s revenues and profitability. In light of the possibility of adverse seasonal effects, there can be no assurance that the Company will maintain sales performance at historical levels in any particular region.future years.

The Company is dependent upon certain sole source 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 manya number of its products. Certain of these raw materials are available solely from single sources either domestically or overseas. Starting January 1, 2017, the Chinese

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(Dollars in thousands, except per share data)

government has placed significant restrictions on chemical manufacturing in the People's Republic of China.  This, in turn, has led to closure of multiple manufacturing plants and scarcity of supply for certain products that are imported by the Company.  In conjunction with the purchase and/or licensing of certain product lines, the Company has entered into multi-year supply arrangements under which such counterparties are the sole source of either active ingredients and/or formulated end-use product and, in some cases, the manufacturer has entered the market as a competitor. The Company is actively pursuing new supply agreements to mitigate the risk of product supply from the People’s Republic of China, by either approving new suppliers outside of China, or conversely by pursuing new Chinese suppliers who have a stronger in situ backward integration position. There is no guarantee that any of our suppliers will be willing or able to supply these 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 suppliers,products, it is possible that the Company will not realizeachieve its projected sales which, in turn, could adversely affect the Company's consolidated financial statements.

To the extent that capacity utilization is not fully realized at its manufacturing facilities, the Company may experience lower profitability—While the Company endeavors continuously to maximize utilization of it manufacturing facilities, our success in these endeavors is dependent upon many factors, including fluctuating market conditions, product life cycles, weather conditions, availability of raw materials, equipment failures, and regulatory constraints, among other things. There can be no assurance that the Company will be able to maximize the utilization of capacity at its manufacturing facilities.12


The Company’s continued success depends, in part, upon a limited number of key employees—Within certain functions, the Company relies heavily on a small number of key employees to manage ongoing operations and to perform strategic planning. In some cases, there are no internal candidates who are qualified to succeed these key personnel in the short term. In the event that the Company were to lose one or more key employees, there is no guarantee that Company could replace them with people having comparable skills. Further, the loss of key personnel could adversely affect the operation of our business.

The Company faces competition in certain markets from new technologies and demand for organically produced food—The Company faces competition from larger companies that market new chemistries genetically modified (“GMO”) seeds and other similar technologies (e.g., RNA interference) in certain of the crop protection sectors in which the Company competes, particularly that of corn. In fact, many growers that have chosen to use GMO seeds have reduced their use of the types of pesticides sold by the Company. At the same time, the demand for organically-produced food, which, generally speaking, is made without the use of synthetic chemicals (which constitute most of the Company’s products) continues to increase.competes. There is no guarantee that the Company will maintain its market share or pricing levels in sectors that are subject to competition from companies that market new technologies. Further, it is possible that increased demand for organic crops may, over time, reduce the demand for the Company’s products.

The Company faces competition from generic competitors that source product from countries having lower cost structures—The Company continues to face competition from competitors around the globe that may enter the market through either offers to pay data compensation, or similar means in foreign jurisdictions, and then subsequently source material from countries having lower cost structures (typically India and China). These competitors typically tend to operate at thinner gross margins and, with low costs of goods, tend to drive pricing and profitability of subject product lines downward. There is no guarantee that the Company will maintain market share and pricing overwhen facing such generic competitors, or that such competitors will not offer generic versions of the Company’s products in the future.

The Company’s key customers typically carry competing product lines and may be influenced by the Company’s larger competitors—A significant portion of the Company’s products are sold to national distributors in the United States,U.S., which also carry product lines of competitors that are much larger than the Company. Typically, revenues from the sales of these competing product lines and related program incentives constitute a greater part of our distributors’ income than do revenues from sales and program incentives arising from the Company’s product lines. With the recent consolidation among domestic distribution companies, these considerations have become more pronounced. In light of these facts, there is no assurance that such customers will continue to market our products aggressively or successfully, or that the Company will be able to influence such customers to continue to purchase our products instead of those of our competitors.

Industry consolidation may threaten the Company’s position in various markets—The global agricultural chemical industry continues to undergo significant consolidation. Many of the Company’s competitors have grown or are expected to grow through mergers and acquisitions. As a result, these competitors will tend to be in position to realize greater economies of scale, offer more diverse portfolios and thereby exert greater influence throughout the distribution channels. Consequently, the Company may find it more difficult to compete in various markets. While such merger activity may generate acquisition opportunities for the Company,

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(Dollars in thousands, except per share data)

there is no guarantee that the Company will benefit from such opportunities. Further, there is a risk that the Company’s future performance may be hindered by the growth of its competitors through consolidation.

The Company is dependent on a limited number of customers, which makes it vulnerable to the continued relationship with and financial health of those customers—In 20172020, 2019 and 2016,2018, our top three customers accounted for 33%39%, 39% and 34%29%, respectively, of the Company’s sales. The Company’s future prospects may depend on the continued business of such customers and on our continued status as a qualified supplier to such customers. The Company cannot guarantee that these key customers will continue to buy products from us at current levels. The loss of a key customer could have a material adverse effect on the Company’s consolidated financial statements.

General Risks

The carrying value of certain assets on the Company’s consolidated balance sheets may be subject to impairment depending upon market trends and other factors—The Company regularly reviews the carrying value of certain assets, including long-lived assets, inventory, fixed assets and intangibles. Depending upon the class of assets in question, the Company takes into account various factors including, among others, sales, trends, market conditions, cash flows, profit margins and the like. Based upon this analysis, where circumstances warrant the Company may leave such carrying values unchanged or adjust them as appropriate. There is no guarantee that these carrying values can be maintained indefinitely, and it is possible that one or more such assets could be subject to impairment which, in turn, could have an adverse impact upon the Company’s consolidated financial statements.

The Company’s computing systems are subject to cyber security risksIn the course of its operations the Company relies on its computing systems, including access to the internet, the use of third partythird-party applications and the storage and transmission of data through such systems. While the Company has implemented security measures to protect these systems, there is no guarantee that a third party maythird-party will not penetrate these defenses through hacking, phishing or otherwise and either compromise, corrupt or shut down these systems. Further, in the event of such incursion it is possible that confidential business information and private personal data could be confiscated.taken. Such an event could adversely affect both the Company’s ability to operate, its reputation with key stakeholders and its overall financial performanceperformance.

13


Reduced financial performance may limit the Company’s ability to borrow under its credit facility—The Company has historically grown net sales and net income through both expansion of current product lines, the acquisition of product lines from third partiesthird-parties and during 2017, the acquisition of both domestic and international distributors with strong niche market positions. In order to finance such acquisitions, the Company has drawn upon its senior credit facility. However, the Company’s borrowing capacity under the senior credit facility depends, in part, upon its satisfaction of a negative covenant that sets a maximum ratio of borrowed debt to earnings (as measured over the trailing 12 month12-month period). There is no guarantee that the Company will continue to generate earnings necessary to ensure that it has sufficient borrowing capacity to support future acquisitions or that, when necessary, the lender group will amend the senior credit facility to provide for such borrowing capacity.Further, despite the Company’s long-standing relationship with its lenders, in light of the uncertainties in global financial markets there is no guarantee that the Company’s lenders will be either willing or able to continue lending to the Company at such rates and in such amounts as may be necessary to meet the Company’s working capital needs.

The Company is subject to taxation related risks in multiple jurisdictions—The Company is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be contested or overturned by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In 2017, the U.S. enacted significant tax reform, and in the long-term certain provisions of the new law may adversely affect us. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the EU, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development (“OECD”), are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operations may be adversely impacted. In response to the economic situation of the COVID-19 pandemic, President Donald Trump signed into law The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, on March 27, 2020.  The Company has considered both the income tax and non-income tax provisions of the CARES Act and has determined it has no significant impact.

To the extent that capacity utilization is not fully realized at its manufacturing facilities, the Company may experience lower profitability—While the Company endeavors continuously to maximize utilization of it manufacturing facilities, our success in these endeavors is dependent upon many factors, including fluctuating market conditions, product life cycles, weather conditions in our key markets, availability of raw materials, equipment failures, and regulatory constraints, among other things. There can be no assurance that the Company will be able to maximize the utilization of capacity at its manufacturing facilities. Underutilization of such manufacturing resources could have a material adverse effect upon the Company’s financial performance.  

The Company’s growth has been fueledcontinued success depends, in part, by acquisitionupon a limited number of key employeesOverWithin certain functions, the past few decades,Company relies heavily on a small number of key employees to manage ongoing operations and to perform strategic planning. In some cases, there are no internal candidates who are qualified to succeed these key personnel in the Company’s growth has been driven by acquisition and licensing of both established and developmental products from third parties. Thereshort term. In the event that the Company were to lose one or more key employees, there is no guarantee that acquisition targets or licensing opportunities meetingCompany could replace them with people having comparable skills. Further, the Company’s investment criteria will remain available or will be affordable. If such opportunities do not present themselves, thenloss of key personnel could adversely affect the Company may be unable to record consistent growth in future years.operation of our business.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM  2

PROPERTIES

AMVAC owns in fee the Facility constituting approximately 152,000 square feet of improved land in Commerce, California (“Commerce”) on which its West Coast manufacturing, some of its warehouse facilities and some of its manufacturing administrative offices are located.

DAVIE owns in fee approximately 72,000 square feet of warehouse, office and laboratory space on approximately 118,000 square feet of land in Commerce, California, which is leased to AMVAC. In 2013, the Company made a significant investment in the Glenn A. Wintemute Research Center, which houses the Company’s primary research laboratory supporting synthesis, formulation and other new product endeavors.

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AMERICAN VANGUARD CORPORATIONIn 2001, AMVAC completed the acquisition of a manufacturing facility (the “Axis Facility”) from E.I. DuPont de Nemours and Company (“DuPont”). The Axis Facility was one of three such units located on DuPont’s 510-acre complex in Axis, Alabama. The acquisition consisted of a long-term ground lease of 25 acres and the purchase of all improvements thereon. The facility is a multi-purpose plant designed for synthesis of active ingredients and formulation and packaging of finished products. In 2018, FMC Corporation acquired from DuPont a business unit, which held, among other things, the Axis Facility. Prior to expiration of the lease, AMVAC and FMC negotiated the terms of a new lease, which has a term of 15 years and the option to renew for two, 5-year periods.

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

On December 28, 2007, AMVAC purchased certain manufacturing assets relating to the production of Thimet and Counter and located at BASF’s multi-plant facility situated in Hannibal, Missouri (the “Hannibal Site”). Subject to the terms and conditions of the Agreement, AMVAC purchased certain buildings, manufacturing equipment, office equipment, fixtures, supplies, records, raw materials, intermediates and packaging constituting the “T/C Unit” of the Hannibal Site. The parties entered into a ground lease and a manufacturing and shared services agreement, under which BASF continues to supply various shared services to AMVAC for the Hannibal Site.

On March 7, 2008, AMVAC acquired from Bayer CropScience Limited Partnership, (“BCS LP”), a U.S. business of Bayer CropScience GmbH, a facility (the “Marsing Facility”) located in Marsing, ID, which consists of approximately 17 acres of improved real property, 15 of which are owned by AMVAC and two of which AMVAC leases from the City of Marsing for a term of 25 years.property. The Marsing Facility is engaged in the blending of liquid and powder raw materials and the packaging of some of the Company’s finished goods inventory in liquid, powder and pelletized formulations which are sold both in the USU.S. and internationally. With this acquisition,In addition, during 2019, the Company purchased approximately three acres of unimproved real estate immediately adjacent to the Marsing Facility for potential storage and operational use in the future.  

On October 2, 2020, AMVAC acquired the ability to formulate flowable materials. In connection with the acquisition, AMVAC and BCS LP agreed to enter into a master processor agreement under which AMVAC provides certain third party manufacturing services to BCS LP on an ongoing basis that continued into 2015. Following the termination of the master supply agreement, AMVAC and BCS LP have continued to trade on a normal commercial basis.

In 2001, AMVAC completed the acquisition of a manufacturing facility (the “Axis Facility”) from E.I. DuPont de Nemours and Company (“DuPont”). The Axis Facility is one of three such units located on DuPont’s 510 acre complex in Axis, Alabama. The acquisition consisted of a long-term ground lease of 25 acres and the purchase of all improvements thereon. The facilityoutstanding shares of Agrinos which is a multi-purpose plant designedfully integrated biological input supplier with proprietary technology, internal manufacturing, and global distribution capabilities. Its High Yield Technology® product platform works in conjunction with other nutritional crop inputs to increase crop yield, improve soil health and reduce the environmental footprint of traditional agricultural practices. Agrinos has two primary biological production facilities, a state-of-the-art microbial fermentation facility based in Clackamas, Oregon, and a facility in Sonora, Mexico. The Clackamas and Sonora facilities are used as both manufacturing sites, and operational centers for synthesis of active ingredientsglobal supply chain and formulation and packaging of finished products.logistics. 

AMVACAVD regularly adds chemical processing equipment to enhance or expand its production capabilities. AMVACThe Company believes its facilities are in good operating condition, are suitable and adequate for current needs, have flexibility to change products, and can produce at greater rates as required. Facilities and equipment are insured against losses from fire as well as other usual business risks. The Company knows of no material defects in title to, or encumbrances on, any of its properties except that substantially all of the Company’s assets are pledged as collateral under the Company’s credit facility agreements with its primary lender group. For further information, refer to note 2 of the Notes to the Consolidated Financial Statements in Part IV,II, Item 158 of this Annual Report on Form 10-K.

AMVACAVD owns approximately 42 acres of unimproved land in Texas for possible future expansion.

The Company leases approximately 19,953 square feet of office space located at 4695 MacArthur Court in Newport Beach, California. In September 2015, the lease was amended and was extended to expire on June 30, 2021. The premises have served as the Company’s corporate headquarters since 1994.

GemChem, OHP, Envance and TyraTech (Envance and TyraTech are co-located), AMVAC BV’s, GemChem’s, AMVAC M’s, AMVAC M Srl’s, AMVAC CR Srl’s, AMVAC Sgpr’s, OHP’sAgNova, Agrinos and AgriCenter’s facilities consist of administration, development centers (in the case of Envance and TyraTech) and/or sales offices which are leased.

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(Dollars In addition, Defensive and Agrovant (the Company’s indirect, wholly owned subsidiaries in thousands, except per share data)

Brazil) own and/or lease administration and sales offices and warehouse space in Jaboticabal, Brazil.

ITEM  3

A. DBCP Cases

Over the coursePlease refer to Note 4 of the past 30 years, AMVAC and/or the Company have been named or otherwise implicated in a number of lawsuits concerning injuries allegedly arising from either contamination of water supplies or personal exposure to 1, 2-dibromo-3-chloropropane (“DBCP®”). DBCP was manufactured by several chemical companies, including Dow Chemical Company, Shell Oil Company and AMVAC, and was approved by the USEPA to control nematodes. DBCP was also applied on banana farms in Latin America. The USEPA suspended registrations of DBCP in October 1979, except for use on pineapples in Hawaii. That suspension was partially based on 1977 studies by other manufacturers that indicated a possible link between male fertility and exposure to DBCP among their factory production workers involved with producing the product.

At present, there are three domestic lawsuits and approximately 85 Nicaraguan lawsuits filed by former banana workers in which AMVAC has been named as a party. Only two of the Nicaraguan actions have actually been served on AMVAC.  With respect to Nicaraguan matters, there was no change in status during 2017. As described more fully below, activity in domestic cases during 2017 is as follows.  The one case remaining in Delaware includes 57 plaintiffs who have appealed a lower court finding that the matter was barred by the statute of limitations; this matter has been stayed pending a ruling by the Delaware Supreme Court on the question of when or if the statute of limitations has run out.  In Hawaii, in the matter of Patrickson, et. al. v. Dole Food Company, following the appellate court’s remandNotes to the trial court for adjudicationConsolidated Financial Statements in 2016, there has been no activity; while in Adams, there has been no activity since 2014, when the court granted dismissal of co-defendant Dole on the basis of a worker’s compensation bar and gave plaintiffs leave to amend their complaint in light of that ruling.

Nicaraguan Matters

A review of court filings in Chinandega, Nicaragua, has found 85 suits alleging personal injury allegedly due to exposure to DBCP and involving approximately 3,592 plaintiffs have been filed against AMVAC and other parties. Of these cases, only two – Flavio Apolinar Castillo et al. v. AMVAC et al., No. 535/04 and Luis Cristobal Martinez Suazo et al. v. AMVAC et al., No. 679/04 (which were filed in 2004 and involve 15 banana workers) – have been served on AMVAC. All but one of the suits in Nicaragua have been filed pursuant to Special Law 364, an October 2000 Nicaraguan statute that contains substantive and procedural provisions that Nicaragua’s Attorney General previously expressed as unconstitutional. Each of the Nicaraguan plaintiffs’ claims $1 million in compensatory damages and $5 million in punitive damages. In all of these cases, AMVAC is a joint defendant with Dow Chemical Company and Dole Food Company, Inc. AMVAC contends that the Nicaragua courts do not have jurisdiction over it and that Public Law 364 violates international due process of law. AMVAC has objected to personal jurisdiction and demanded under Law 364 that the claims be litigated in the United States. In 2007, the court denied these objections, and AMVAC appealed the denial. It is not presently known as to how many of these plaintiffs actually claim exposure to DBCP at the time AMVAC’s product was allegedly used nor is there any verification of the claimed injuries. Further, to date, plaintiffs have not had success in enforcing Nicaraguan judgments against domestic companies before U.S. courts. With respect to these Nicaraguan matters, AMVAC intends to defend any claim vigorously. Furthermore, the Company does not believe that a loss is either probable or reasonably estimable and has not recorded a loss contingency for these matters.

Delaware DBCP Cases

Abad Castillo and Marquinez.  On or about May 31, 2012, two cases (captioned Abad Castillo and Marquinez) were filed with the United States District Court for the District of Delaware (USDC DE No. 1:12-CV-00695-LPS) involving claims for physical injury arising from alleged exposure to DBCP over the course of the late 1960’s through the mid-1980’s on behalf of 2,700 banana plantation workers from Costa Rica, Ecuador, Guatemala, and Panama.  Defendant Dole brought a motion to dismiss 22 plaintiffs from Abad Castillo on the ground that they were parties in cases that had been filed by HendlerLaw, P.C. in Louisiana.  On September 19, 2013, the appeals court granted, in part, and denied, in part, the motion to dismiss, holding that 14 of the 22 plaintiffs should be dismissed.  On May 27, 2014, the district court granted Dole’s motion to dismiss the matter without prejudice on the ground that the applicable statute of limitations had expired in 1995.  Then, on August 5, 2014, the parties stipulated to summary judgment in favor of defendants (on the same ground as the earlier motion) and the court entered judgment in the matter.  Plaintiffs were given an opportunity to appeal; however, only 57 of the 2,700 actually entered an appeal.  Thus, at this stage, only 57 plaintiffs remain in the action.  On or about June 18, 2017, the Third Circuit Court submitted a certified question of law to the Delaware Supreme Court on the question of when the tolling period ended. The Delaware Supreme Court heard oral argument on January 17, 2018 and is expected to issue a ruling within 90 days. During the pendencyPart II, item 8 of this question, these matters will be effectively stayed.  At any rate, the Company believes that a loss is neither probable nor reasonably estimable in these matters and has not recorded a loss contingency.Annual Report on Form 10-K.  

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Hawaiian DBCP Matters

Patrickson, et. al. v. Dole Food Company, et al. In October 1997, AMVAC was served with two complaints in which it was named as a defendant, filed in the Circuit Court, First Circuit, State of Hawai’i and in the Circuit Court of the Second Circuit, State of Hawai’i (two identical suits) entitled Patrickson, et. al. v. Dole Food Company, et. al (“Patrickson Case”) alleging damages sustained from injuries (including sterility) to banana workers caused by plaintiffs’ exposure to DBCP while applying the product in their native countries. Other named defendants include: Dole Food Company, Shell Oil Company and Dow Chemical Company. After several years of law and motion activity, the court granted judgment in favor of the defendants based upon the statute of limitations on July 28, 2010. On August 24, 2010, the plaintiffs filed a notice of appeal. On October 21, 2015, the Hawai’i Supreme Court granted the appeal and overturned the lower court decision, ruling that the State of Hawai’i now recognizes cross-jurisdictional tolling, that plaintiffs filed their complaint within the applicable statute of limitations and that the matter is to be remanded to the lower court for further adjudication. No discovery has taken place in this matter, and, at this stage in the proceedings, the Company does not believe that a loss is either probable or reasonably estimable and, accordingly, has not recorded a loss contingency for this matter.

Adams v. Dole Food Company et al. On approximately November 23, 2007, AMVAC was served with a suit filed by two former Hawaiian pineapple workers (and their spouses), alleging that they had testicular cancer due to DBCP exposure; the action is captioned Adams v. Dole Food Company et al in the First Circuit for the State of Hawaii. Plaintiff alleges that they were exposed to DBCP between 1971 and 1975. AMVAC denies that any of its product could have been used at the times and locations alleged by these plaintiffs. Following the dismissal of Dole Food Company on the basis of the exclusive remedy of worker’s compensation benefits, plaintiffs appealed the dismissal. The court of appeals subsequently remanded the matter to the lower court in February 2014, effectively permitting plaintiffs to amend their complaint to circumvent the workers’ compensation bar. There has been no activity in the case since that time. The Company does not believe that a loss is either probable or reasonably estimable and has not recorded a loss contingency for this matter.

B. Other Matters

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 relating to the Company’s reimportation of depleted Thimet containers from Canada and Australia.  The Company has retained defense counsel and has substantially completed the production during the course of which it incurred approximately $2,350 in legal costs and fees responding to this subpoena.  During the third quarter of 2017, 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 second quarter of 2018. At this stage, DoJ has not made clear its intentions with regard to either its theory of the case or potential criminal or civil 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.

Walker v. AMVAC.  On or about April 10, 2017, the Company was served with a summons and complaint that had been filed with the United State District Court for the Eastern District of Tennessee under the caption Larry L. Walker v. AMVAC (as No. 4:17-cv-00017).  Plaintiff seeks contract damages, correction of inventorship, accounting and injunctive relief arising from for the Company’s alleged misuse of his confidential information to support a patent application (which was subsequently issued) for a post-harvest corn herbicide that the Company has not commercialized.  Plaintiff claims further that he, not the Company, should be identified as the inventor in such application.  The Company believes that these claims are without merit and intends to defend vigorously.  On May 24, 2017, the Company filed a motion to dismiss this action, or in the alternative, for transfer of venue, on the ground that (i) the complaint fails to state claim upon which relief can be granted, (ii) the contracts cited by plaintiff in his complaint include a forum selection clause requiring that disputes are to be adjudicated in the U.S. District Court for the Central District of California, and (iii) the doctrine of forum non conveniens applies.  The District Court in Tennessee has yet to rule on the motion. At this stage in the proceedings, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company has not recorded a loss contingency.  

Harold Reed v. AMVAC et al.  During January 2017, the Company was served with two 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 pain and suffering, while Jem Holdings seeks $60 in lost equipment; both plaintiffs also seek unspecified damages as well.  Also during

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(Dollars in thousands, except per share data)

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 loss of potatoes); (ii) James Houweling et al. v. Harold Reed et al. (No. 160104421)(in which equipment owner seeks damages for lost equipment); (iii) Chin Coulee Farms, etc. v. Harold Reed et al. (No. 150600545)(in which owner of potatoes and truck seeks $530 for loss thereof); and (iv) Houweling Farms v. Harold Reed et al. (No. 15060881)(in which owner of several Quonset huts seeks damages for 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 of 2017, 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.

Galvan v. AMVAC In an action entitled Graciela Galvan v. AMVAC filed on April 7, 2014 with the Superior Court for the State of California for the County of Orange (No. 00716103CXC), plaintiff, a former employee, alleges violations of wages and hours requirements under the California Labor Code. The Company completed the deposition of putative class representative and participated in mediation on the matter. In February 2016, the court granted plaintiff’s motion for class certification with respect to only one of the seven original claims (namely, that allegedly discretionary bonus payments made to class members during the subject period should have been taken into account when calculating overtime).  The Company believes that such bonus payments were discretionary and, as such, were properly excluded from overtime calculations.  Nevertheless, in the interest of saving defense costs, the Company engaged in settlement discussions with plaintiff’s counsel over the course of several months.  During the third quarter of 2016, the Company recorded a loss contingency to cover the estimated amount of settlement.  During December 2016, the parties reached agreement on terms of settlement, and, on February 9, 2018, the court gave its final approval to the terms of the class settlement.  The settlement was not material to the Company’s consolidated financial statements and the Company is to provide the court with a report of administration of the settlement proceeds to the class in August 2018, after which the Company expects that the matter will be dismissed with prejudice.

ITEM 4

MINE SAFETY DISCLOSURES

Not Applicable

1415


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

PART II

ITEM  5

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Effective March 7, 2006, the Company listed its $0.10 par value common stock (“Common Stock”) on the New York Stock Exchange under the ticker symbol AVD. From January 1998 through March 6, 2006, the Common Stock was listed on the American Stock Exchange under the ticker symbol AVD. The Company’s Common Stock traded on The NASDAQ Stock Market under the symbol AMGD from March 1987 through January 1998.

The following table sets forth the range of high and low sales prices as reported for the Company’s Common Stock for the calendar quarters indicated.

 

 

High

 

 

Low

 

Calendar 2017

 

 

 

 

 

 

 

 

First quarter

 

$

19.35

 

 

$

14.65

 

Second quarter

 

 

18.80

 

 

 

15.20

 

Third quarter

 

 

23.35

 

 

 

17.10

 

Fourth quarter

 

 

24.00

 

 

 

18.01

 

Calendar 2016

 

 

 

 

 

 

 

 

First quarter

 

$

17.07

 

 

$

9.63

 

Second quarter

 

 

17.41

 

 

 

12.60

 

Third quarter

 

 

17.92

 

 

 

14.45

 

Fourth quarter

 

 

20.00

 

 

 

14.20

 

 

Holders

As of February 16, 2018,12, 2021, the number of stockholders of the Company’s Common Stock was approximately 4,744,5,048, which includes beneficial owners with shares held in brokerage accounts under street name and nominees.

Dividends

The Company has issued a cash dividend in each of the last twenty-twotwenty-four years dating back to 1996. Cash dividends declared during the past three years are summarized in the table below.

 

Declaration Date

 

Distribution Date

 

Record Date

 

Dividend

Per Share

 

 

Total

Paid

 

December 12, 2017

 

January 10, 2018

 

December 27, 2017

 

$

0.015

 

 

$

438

 

September 18, 2017

 

October 19, 2017

 

October 5, 2017

 

 

0.015

 

 

 

439

 

June 15, 2017

 

July 14, 2017

 

June 30, 2017

 

 

0.015

 

 

 

437

 

March 16, 2017

 

April 15, 2017

 

March 31,2017

 

 

0.015

 

 

 

435

 

Total 2017

 

 

 

 

 

$

0.060

 

 

$

1,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 8, 2016

 

January 6, 2017

 

December 23, 2016

 

$

0.010

 

 

$

289

 

October 11, 2016

 

November 11, 2016

 

October 28, 2016

 

 

0.010

 

 

 

289

 

June 13, 2016

 

July 12, 2016

 

June 30, 2016

 

 

0.010

 

 

 

289

 

Total 2016

 

 

 

 

 

$

0.030

 

 

$

867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 16, 2015

 

April 17, 2015

 

April 3, 2015

 

$

0.020

 

 

$

572

 

Total 2015

 

 

 

 

 

$

0.020

 

 

$

572

 

Declaration Date

 

Distribution Date

 

Record Date

 

Dividend

Per Share

 

 

Total

Paid

 

December 7, 2020

 

January 6, 2021

 

December 23, 2020

 

$

0.020

 

 

$

592

 

March 9, 2020

 

April 16, 2020

 

March 26, 2020

 

 

0.020

 

 

 

586

 

Total 2020

 

 

 

 

 

$

0.040

 

 

$

1,178

 

December 9, 2019

 

January 9, 2020

 

December 26, 2019

 

$

0.020

 

 

$

582

 

September 16, 2019

 

October 17, 2019

 

October 3, 2019

 

 

0.020

 

 

 

582

 

June 10, 2019

 

July 12, 2019

 

June 28, 2019

 

 

0.020

 

 

 

580

 

March 6, 2019

 

April 10, 2019

 

March 27, 2019

 

 

0.020

 

 

 

580

 

Total 2019

 

 

 

 

 

$

0.080

 

 

$

2,324

 

December 10, 2018

 

January 10, 2019

 

December 27, 2018

 

$

0.020

 

 

$

581

 

September 18, 2018

 

October 17, 2018

 

October 3, 2018

 

 

0.020

 

 

 

588

 

June 11, 2018

 

July 12, 2018

 

June 28, 2018

 

 

0.020

 

 

 

587

 

March 8, 2018

 

April 13, 2018

 

March 30, 2018

 

 

0.020

 

 

 

586

 

Total 2018

 

 

 

 

 

$

0.080

 

 

$

2,342

 

 

15


AMERICAN VANGUARD CORPORATIONShare Repurchase Program

AND SUBSIDIARIES

(Dollars in thousands, exceptOn November 5, 2018, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate amount of shares with a total purchase price not to exceed $20,000 of its common stock, par value $0.10 per share, data)

Purchasesin the open market, depending upon market conditions over the short to mid-term. The Shares Repurchase Program expired on March 8, 2019. During 2019 and 2018, the Company purchased a total of Equity Securities by the Issuer

None610,406 shares for a total of $9,891 at an average price of $16.20 per share.  

 

Securities Authorized for Issuance Underunder Equity Compensation Plans

 

Plan Category

 

Number of securities to be issued upon exercise

of outstanding options,

warrants, and rights

 

 

Weighted-average

exercise price of

outstanding options,

warrants, rights

 

 

Number of securities

remaining available for

future issuance

under equity

compensation plans

 

 

Number of securities to

be issued upon exercise

of outstanding options,

warrants, and rights

 

 

Weighted-average

exercise price of

outstanding options,

warrants, rights

 

 

Number of securities

remaining available for

future issuance under

equity compensation plans

 

Equity compensation plans approved

by security holders

 

 

554,449

 

 

$

9.60

 

 

 

2,000,579

 

 

 

237,745

 

 

$

11.49

 

 

 

1,104,637

 

Total

 

 

554,449

 

 

$

9.60

 

 

 

2,000,579

 

 

 

237,745

 

 

$

11.49

 

 

 

1,104,637

 

 

16


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Stock Performance Graph

The following graph presents a comparison of the cumulative, five-year total return for the Company, the S&P 500 Stock Index, and a peer group (Specialty Chemical Industry). The graph assumes that the beginning values of the investments in the Company, the S&P 500 Stock Index, and the peer group of companies each was $100 on December 31, 2012.2015. All calculations assume reinvestment of dividends. Returns over the indicated period should not be considered indicative of future returns.

 


17


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

ITEM 6

SELECTED FINANCIAL DATA

The following table set forth the Company’s selected consolidated financial data set forth below with respect to each of the calendar years in the five-year period ended December 31, 2017, have been derived from the Company’s consolidated financial statements and are qualified in their entirety by reference to the more detailed consolidated financial statements and the independent registered public accounting firm’s reports thereon, which are included elsewhere in this Report on Form 10-K as of December 31, 2017 and 2016 and for each of the threefive years in the period ended December 31, 2017. See2020 and should be read in conjunction with our audited consolidated financial statements and notes thereto included under Part II, Item 7, “Management’s Discussion and Analysis8 of Financial Condition and Results of Operations.”this annual report.

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Net sales

 

$

355,047

 

 

$

312,113

 

 

$

289,382

 

 

$

298,634

 

 

$

381,021

 

 

$

458,704

 

 

$

468,186

 

 

$

454,272

 

 

$

355,047

 

 

$

312,113

 

Gross profit

 

$

147,392

 

 

$

128,288

 

 

$

111,902

 

 

$

114,496

 

 

$

171,347

 

 

$

172,590

 

 

$

177,354

 

 

$

182,631

 

 

$

147,392

 

 

$

128,288

 

Operating income

 

$

26,794

 

 

$

20,540

 

 

$

11,524

 

 

$

6,710

 

 

$

55,735

 

 

$

22,908

 

 

$

26,221

 

 

$

39,021

 

 

$

26,794

 

 

$

20,540

 

Income before provision for income taxes and loss on

equity investments

 

$

24,853

 

 

$

18,917

 

 

$

8,962

 

 

$

3,644

 

 

$

53,834

 

 

$

18,447

 

 

$

19,012

 

 

$

33,596

 

 

$

24,853

 

 

$

18,917

 

Net income attributable to American Vanguard

 

$

20,274

 

 

$

12,788

 

 

$

6,591

 

 

$

4,841

 

 

$

34,449

 

 

$

15,242

 

 

$

13,601

 

 

$

24,195

 

 

$

20,274

 

 

$

12,788

 

Earnings per common share

 

$

0.70

 

 

$

0.44

 

 

$

0.23

 

 

$

0.17

 

 

$

1.22

 

 

$

0.52

 

 

$

0.47

 

 

$

0.83

 

 

$

0.70

 

 

$

0.44

 

Earnings per common share—assuming dilution

 

$

0.68

 

 

$

0.44

 

 

$

0.23

 

 

$

0.17

 

 

$

1.19

 

 

$

0.51

 

 

$

0.46

 

 

$

0.81

 

 

$

0.68

 

 

$

0.44

 

Total assets (1)

 

$

535,592

 

 

$

429,956

 

 

$

435,270

 

 

$

463,590

 

 

$

439,917

 

 

$

680,293

 

 

$

670,098

 

 

$

593,587

 

 

$

535,592

 

 

$

429,956

 

Working capital (1)

 

$

128,681

 

 

$

130,001

 

 

$

139,850

 

 

$

197,073

 

 

$

132,486

 

 

$

160,401

 

 

$

197,561

 

 

$

164,660

 

 

$

128,681

 

 

$

130,001

 

Long-term debt, excluding current installments

 

$

77,486

 

 

$

40,951

 

 

$

68,321

 

 

$

98,605

 

 

$

50,671

 

 

$

171,324

 

 

$

148,766

 

 

$

96,671

 

 

$

77,486

 

 

$

40,951

 

Stockholders’ equity

 

$

305,314

 

 

$

282,357

 

 

$

268,326

 

 

$

261,003

 

 

$

257,795

 

 

$

(18,160

)

 

$

344,156

 

 

$

329,230

 

 

$

305,314

 

 

$

282,357

 

Weighted average shares outstanding—basic

 

 

29,100

 

 

 

28,859

 

 

 

28,673

 

 

 

28,436

 

 

 

28,301

 

 

 

29,450

 

 

 

29,030

 

 

 

29,326

 

 

 

29,100

 

 

 

28,859

 

Weighted average shares outstanding—assuming dilution

 

 

29,703

 

 

 

29,394

 

 

 

29,237

 

 

 

28,912

 

 

 

28,899

 

 

 

29,993

 

 

 

29,656

 

 

 

30,048

 

 

 

29,703

 

 

 

29,394

 

Dividends per share of common stock

 

$

0.06

 

 

$

0.03

 

 

$

0.02

 

 

$

0.17

 

 

$

0.22

 

 

$

0.04

 

 

$

0.08

 

 

$

0.08

 

 

$

0.06

 

 

$

0.03

 

 

The results for reporting periods beginning after January 1, 2018 are presented under Accounting Standards Codification (“ASC”) 606. Prior period results are not adjusted and continue to be reported in accordance with historic revenue recognition, ASC 605.

Effective January 1, 2019, the Company adopted ASC 842, Leases. See Description of Business, Basis of Consolidation, Basis of Presentation and Significant Accounting Policies in notes to the Consolidated Financial Statements. Prior period results are not adjusted and continue to be reported in accordance with ASC 840.

18


ITEM  7

(1)

The Company’s consolidated balance sheets as of December 31, 2015, 2014, and 2013 reflects certain reclassifications for deferred income taxes and income taxes payables.  

18


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

ITEM  7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Generally, “may,” “could,” “will,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue” and similar words identify forward-looking statements. Forward-looking statements appearing in this Report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations and are subject to risks and uncertainties that can cause actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. SEC.Security and Exchange Commission (“SEC”). It is not possible to foresee or identify all such factors. We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Report.

The discussion and analysis of our financial condition and results of operations for 2020, as compared to 2019 appears below. As permitted by SEC rules, we have omitted the discussion and analysis of our financial condition and results of operations for 2019 compared to 2018. See Item 7, “Management’s Discussions and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the year ended December 31, 2019, for this discussion.  

MANAGEMENT OVERVIEW

TheDespite a prolonged pandemic which affected the general global business environment over most of the year, the Company’s operating resultsperformance in 2017 were improved over those of 2016,2020 was steady, with a slight decline in the top line and an improvement in net income. While net sales up 14% ($355,047were down 2%, as compared to $312,113, year over year)2019 ($458,704, as compared to $468,186), net income attributable to American Vanguard up 58% ($20,274 v. $12,788), gross profit up about 15% ($147,392 v. $128,288), gross margin slightly up to 42% of net sales and operating expenseswas up about 12% ($120,598 v. $107,748), but15,242, as compared to $13,601) due for the most part to the beneficial effect of both a business combination (specifically, a bargain purchase gain relating to the Agrinos acquisition) and the release of liabilities for uncertain tax positions (relating to acquisitions that were completed in 2017 and 2019). As the reader will note, many of the other factors (gross margin, factory performance and operating expenses) were in line with the prior year.

In summary, our results for 2020 were as follows. Net sales performance was mixed across our businesses. The top line of our U.S. Crop segment was up slightly, notwithstanding the restrictions placed on our activities by pandemic related protocols, which caused our customers and employees to operate on a virtual basis across the entire distribution channel. By contrast, sales of our U.S. Non-Crop business declined primarily due to reduced demand for our mosquito adulticide product, as customers worked down channel inventory. International sales rose with the addition of businesses that were acquired late in the year (Agrinos and AgNova) and improved performance in Mexico, partially offset by a restructuring in the supply channel in Central America and market softness in Brazil. Factory performance was in line with 2019.   

As a result of the sales dynamics just described, absolute gross profit during 2020 was approximately 3% below that of 2019 ($172,590 vs. $177,354). Despite the sales driven decline, gross profit when expressed as a percentage of sales to 34%remained exactly in 2017line with the prior year at 38%. Operating expenses increased by less than 2% ending at $154,339, as compared to 35%$151,133 in 2016.  

Top line sales2019. This performance was drivenincluded multiple offsetting puts-and-takes. Within this category, selling expenses were down about 6%, while general and administrative increased by about 3%; however, that comparison is substantially impacted by the beneficial impact on 2019 expenses that did not recur in part by growth of certain existing product lines, particularly domestic cotton products (in light of increase cotton acreage and pest pressure) and vector control products (following heightened hurricane activity)2020, including: the fair value adjustments to contingent consideration associated with 2017 acquisitions ($3,866), and a break-up fee on an acquisition that did not complete ($500). On the addition of new salesother hand, in 2020, we did benefit from the four acquisitions thatrelease of environmental reserves established at the Company completed largely intime of the second half of 2017. Gross profit increased as a result of continued improvement in factory performance, organic growth in the Company’s sales and the addition of products and businesses acquired during 2017. Operating expenses rose on an absolute basis, as the Company continued to invest in the maintenance of registrations of several important products, professional fees related to acquisitions, continued development2019 acquisition of our SIMPAS precision application technology and litigationBrazilian entity ($1,227), incurred a charge related to the DoJ proceedings against us, butchange in fair value of certain liabilities associated with an acquisition ($250), offset by a profit on sale of some product registrations ($493). Expenses relating to Regulatory, R&D and Product Development rose by about 9%, primarily due to higher reregistration activity and continued work on our SIMPAS delivery system. Finally, freight rose by about 4% in light of increased sales of bulk products, such as soil fumigants. Overall, operating profit declined by about 13% (to $22,908 in 2020 from $26,221 in 2019).

During 2020, we benefitted from the recognition of a preliminary bargain purchase gain in the amount of $4,657 arising from the acquisition of Agrinos. Agrinos was acquired out of bankruptcy. This provided the Company with an opportunity to acquire Agrinos at an advantageous purchase price, which was below the preliminary fair value of the net assets acquired, resulting in the above-mentioned bargain purchase gain.

The Company also recorded a gain on change in fair value on a strategic equity investment in the amount of $717.

19


In spite of having a slightly higher average debt level, our interest expense dropped as a percentageby about 28% (to $5,178 in 2020 from $7,209 in 2019) due both to timing of sales. Due to our acquisition activities, our borrowings increasedand a drop in 2017 as comparedinterest rates. This enabled us to 2016. As a result, net interest expense was $1,941 in 2017, as compared to $1,623 in 2016.  Ourreport income before provision for income taxes included a one-time benefit of $3,433$18,447, as compared to $19,012 in connection with the enactment of the Tax Cuts and Jobs Act (“Tax Reform Act”) on December 22, 2017. 2019.

Our effective tax rate decreased to 18% in 2017, as compared to 30% in 2016. Net income increased to $0.68 per diluted share ($0.70 per basic share)for 2020 ended at 16.7%, as compared to $0.4427.4% in 2019. This improvement is primarily due to two factors; the bargain purchase gain (which is not taxable) and the net benefit of releasing liabilities (in the amount of $2,092) for uncertain tax positions related to current year positions and to acquisitions completed in 2017 and in 2019. All told, then, for the 2020 year we recorded net income up 12% at $15,242 (as compared to $13,601 in 2019) and earnings per diluted (and basic) share of $0.51 (as compared to $0.46 in 2016.  2019).

When considering the consolidated balance sheet, long-term debt increased by $36,535decreased to $77,486 at$107,442 as of December 31, 2017,2020, from $148,766 as compared to $40,951 this time last year.of December 31, 2019. The increaseddecreased level of debt was driven by fourthe Company’s strong cash management during 2020, including a strong response from the Company’s biggest customers to our early-pay programs. The Company’s liquidity position improved with a closing borrowing capacity of $86,736 as of December 31, 2020, as compared to $26,977 as of December 31, 2019. Furthermore, inventories remain flat at $163,784, as of December 31, 2020, as compared to inventories of $163,313, this time last year. This included inventory associated with the two business acquisitions completed in the final three months of the year that amounted to approximately $8,340.

Results of Operations

2020 Compared with 2019:

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

223,167

 

 

$

220,635

 

 

$

2,532

 

 

1%

 

U.S. non-crop

 

 

48,557

 

 

 

61,590

 

 

 

(13,033

)

 

-21%

 

Total U.S.

 

 

271,724

 

 

 

282,225

 

 

 

(10,501

)

 

-4%

 

International

 

 

186,980

 

 

 

185,961

 

 

 

1,019

 

 

1%

 

Total net sales

 

$

458,704

 

 

$

468,186

 

 

$

(9,482

)

 

-2%

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

124,827

 

 

$

125,206

 

 

$

(379

)

 

0%

 

U.S. non-crop

 

 

26,332

 

 

 

31,877

 

 

 

(5,545

)

 

-17%

 

Total U.S.

 

 

151,159

 

 

 

157,083

 

 

 

(5,924

)

 

-4%

 

International

 

 

134,955

 

 

 

133,749

 

 

 

1,206

 

 

1%

 

Total cost of sales

 

$

286,114

 

 

$

290,832

 

 

$

(4,718

)

 

-2%

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

98,340

 

 

$

95,429

 

 

$

2,911

 

 

3%

 

U.S. non-crop

 

 

22,225

 

 

 

29,713

 

 

 

(7,488

)

 

-25%

 

Total U.S.

 

 

120,565

 

 

 

125,142

 

 

 

(4,577

)

 

-4%

 

International

 

 

52,025

 

 

 

52,212

 

 

 

(187

)

 

0%

 

Total gross profit

 

$

172,590

 

 

$

177,354

 

 

$

(4,764

)

 

-3%

 

Gross margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

44%

 

 

43%

 

 

 

 

 

 

 

 

 

U.S. non-crop

 

46%

 

 

48%

 

 

 

 

 

 

 

 

 

Total U.S.

 

44%

 

 

44%

 

 

 

 

 

 

 

 

 

International

 

28%

 

 

28%

 

 

 

 

 

 

 

 

 

Total gross margin

 

38%

 

 

38%

 

 

 

 

 

 

 

 

 

20


Our U.S. crop business recorded net sales that were about 1% higher than those of the prior year period ($223,167 versus $220,635). After a brief period of anticipatory buying during the financial yearfirst few months of the pandemic, the distribution channel followed conservative procurement practices for the second and particularly inthird quarters of 2020. Reduced ethanol demand, low crop commodity pricing, a strained farm economy and the COVID-19 pandemic all contributed to this approach. In the final quarter of the year. Notwithstanding theyear, however, corn and soybean commodity price began to escalate, and Midwest purchasing patterns began to normalize, which, in turn, benefitted our soil insecticide product lines. We saw a strong performance in our soil fumigant business driven by a rebound in usage by potato growers, as pandemic-impacted restaurants and schools began to reopen. Newly acquired products, primarily for soybean, rice and corn applications, contributed to a year-over-year increase in long term debt,sales and bolstered U.S. Crop gross margins as a result. Partially offsetting these increases, we recorded lower net sales of our foliar insecticide Bidrin due to low cotton commodity prices (and a concomitant decline of 11% in planted cotton acres - down 1.5 million acres to 12.2 million), unfavorable weather conditions, (drought in West Texas and hurricanes in the Company’s borrowing capacitySoutheast region) and reduced foliar pest pressure. Our cotton harvest defoliant Folex generated slightly lower sales following multiple hurricanes that struck the region destroying some harvestable acreage.

Cost of sales within the domestic crop business was slightly lower than 2019 (down to $124,827 from $125,206), gross profit improved by 3% ($98,340 in 2020 vs. $95,429 in 2019), and gross margin increased to $139,241 as44% of December 31, 2017sales as compared to $104,853 at the same time in 2016, and inventory, including goods purchased with our acquisitions, increased only slightly ($123,124 v. $120,576) at year-end.43% last year.

19


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Results of Operations

2017 Compared with 2016:

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

132,137

 

 

$

119,226

 

 

$

12,911

 

 

 

11

%

Herbicides/soil fumigants/fungicides

 

 

121,581

 

 

 

123,540

 

 

 

(1,959

)

 

 

-2

%

Other, including plant growth regulators

 

 

47,691

 

 

��

29,438

 

 

 

18,253

 

 

 

62

%

Total crop

 

 

301,409

 

 

 

272,204

 

 

 

29,205

 

 

 

11

%

Non-crop

 

 

53,638

 

 

 

39,909

 

 

 

13,729

 

 

 

34

%

Total net sales

 

$

355,047

 

 

$

312,113

 

 

$

42,934

 

 

 

14

%

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

84,008

 

 

$

78,945

 

 

$

5,063

 

 

 

6

%

Herbicides/soil fumigants/fungicides

 

 

67,558

 

 

 

66,299

 

 

 

1,259

 

 

 

2

%

Other, including plant growth regulators

 

 

31,951

 

 

 

19,139

 

 

 

12,812

 

 

 

67

%

Total crop

 

 

183,517

 

 

 

164,383

 

 

 

19,134

 

 

 

12

%

Non-crop

 

 

24,138

 

 

 

19,442

 

 

 

4,696

 

 

 

24

%

Total cost of sales

 

$

207,655

 

 

$

183,825

 

 

$

23,830

 

 

 

13

%

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

48,129

 

 

$

40,281

 

 

$

7,848

 

 

 

19

%

Herbicides/soil fumigants/fungicides

 

 

54,023

 

 

 

57,241

 

 

 

(3,218

)

 

 

-6

%

Other, including plant growth regulators

 

 

15,740

 

 

 

10,299

 

 

 

5,441

 

 

 

53

%

Gross profit crop

 

 

117,892

 

 

 

107,821

 

 

 

10,071

 

 

 

9

%

Gross profit non-crop

 

 

29,500

 

 

 

20,467

 

 

 

9,033

 

 

 

44

%

Total gross profit

 

$

147,392

 

 

$

128,288

 

 

$

19,104

 

 

 

15

%

Gross margin crop

 

 

39

%

 

 

40

%

 

 

 

 

 

 

 

 

Gross margin non-crop

 

 

55

%

 

 

51

%

 

 

 

 

 

 

 

 

Total gross margin

 

 

42

%

 

 

41

%

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S

 

$

256,142

 

 

$

228,854

 

 

$

27,288

 

 

 

12

%

International

 

 

98,905

 

 

 

83,259

 

 

 

15,646

 

 

 

19

%

Total net sales

 

$

355,047

 

 

$

312,113

 

 

$

42,934

 

 

 

14

%

Following is a more detailed discussionSales of our U.S. non-crop business were down about 21% ($48,557 in 2020 vs. $61,590 in 2019). Our Dibrom® mosquito adulticide sales, performance by category.  Domesticwhich constitute a significant portion of overall non-crop sales, finishedwere down in 2020 as mosquito control distributors continued to work down channel inventory. Net sales of pest strips and other commercial pest control products were down significantly in 2020 as a result of widespread closure of restaurants, schools, malls and many other commercial enterprises due to pandemic restrictions. In addition, COVID protocols adversely impacted the year at $256,142,activity of commercial pest control operators. Offsetting these factors, net sales from our OHP nursery and ornamental business were 9% higher than 2019, as compared to $228,854 in 2016, an increase of 12%. Sales were positively impacted by strong growth in our US cotton products Bidrin® and Folex®; a stable Midwest corn soil insecticide market where procurement in the distribution channel appears to have normalized; hurricane-driven demand for our superior mosquito adulticide, Dibrom®;homeowner garden and $21,978 in incremental sales of newly acquiredlandscape products and businesses primarily inaccelerated during the second half of 2020 at retail locations around the year. Offsetting these increases, we experienced significant competitive pricing pressurecountry. Finally, our TyraTech/Envance revenues grew steadily with both direct product sales and royalty income exceeding the prior year performance.

Cost of sales in our U.S. non-crop business declined by 17% in comparison to the US post-emergent corn herbicide market for our product Impact®prior year ($26,332 in 2020 vs. $31,877 in 2019), gross profit declined by 25% ($22,225 in 2020 vs. $29,713 in 2019), and gross margin percentage declined slightly lower annual sales from our soil fumigant products mainly driven by wet weatherto 46% in the early part of the year in the western states.

International sales increased 19% year-over year ($98,905 in 20172020, as compared to $83,25948% in 2016), driven by increased sales associated with the key AgriCenter acquisition, made in October 2017, strong tolling revenues, and increased sales of Counter and Aztec. These gains were offset by slower sales of our Mocap® and Nemacur® insecticides.2019.

The relative sales performance of our crop and non-crop businesses is as follows: Net sales of our cropinternational businesses were increased by 1% in 2020 ($186,980 vs. $185,961in 2019).  During 2020, our international group successfully balanced several positive and negative factors. We enjoyed strong demand for our soil fumigants, our Counter nematicide and our bromacil herbicides, particularly in Mexico, while experiencing reduced sales of one of our traditional insecticides (Mocap) due to regulatory phase-out in the EU. We benefitted from the addition of an acquired biological products business (Agrinos) and an established Australian supplier/distributor (AgNova). However, these gains were offset in 2017 were $301,409, which constitutes an increasepart by softer demand in Central America, primarily due to a restructuring in the supply channel, and in Brazil, primarily due to the devaluation of 11%the Brazilian Real in comparison to last year, limited customer access (in light of coronavirus protocols), and competitive market conditions.

Cost of sales in our international business increased slightly (about 1%) to $134,955 in 2020 from $133,749 in 2019. Gross profit at approximately the same level as the prior year ($52,025 in 2020 vs. $52,212 in 2019), and gross margin held steady at 28% (as posted in both years).

On a consolidated basis, gross profit for the year decreased by 3% (ending at $172,590 in 2020, as compared to net sales of $272,204$177,354 in 2016. Net sales of our non-crop products2019). Gross margin percentage remained at 38%, exactly in 2017 were $53,638, which is an increase of approximately 34% as compared to $39,909 in 2016. A more detailed discussion of product groups and products having an effect on net sales for each of the crop and non-crop businesses appears below.

In our crop business, net sales of insecticides in 2017 ended at $132,137, which was an 11% increase as compared to sales of $119,226 in 2016. For the same period, annual net sales of our granular soil insecticides were up 8% above 2016. We saw increased

20


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

year-over-year sales from our Thimet® used in peanuts, sugar cane and potatoes, alongline with increased domestic sales of our cotton foliar insecticide, Bidrin®. We saw modest sales increases in our domestic corn soil insecticides Aztec®, SmartChoice® and Counter® offset by some modest sales declines in our international sales of Mocap® and Nemacur®.  We also benefitted from the mid-year acquisition of abamectin which added net sales of approximately $2,000 to our results. In general, our overall agricultural insecticide business showed a solid performance in 2017.

Within the product group of herbicides/soil fumigants/fungicides, our crop net sales in 2017 ended at $121,581, as compared to $123,540 in 2016. Our fumigant product line continued to perform well despite a slight year-over-year decline in revenue caused by wet weather in both the Western and Southeastern regions of the US which inhibited some on-ground application of this liquid product. In the midwest, we experienced an intensely competitive environment during the year in the post-emergent corn herbicide market and sales of our Impact® herbicide declined when compared to the prior year.              This performance was substantially offset by strong performances of both our newly acquired paraquat herbicide and our chlorothalonil fungicide. These products were acquired in mid-year and contributed over $14,000 to this category.

Within our other product group (which includes plant growth regulators, molluscicides and third party manufacturing activity) we experienced an increase of 62% in net sales, ending at $47,691 in 2017, as compared to $29,438 in 2016. The main drivers of this performance were stronger year-over-year sales of our cotton defoliant Folex® due to the 20% increase in U.S. cotton acreage in 2017 as compared to the prior year, an increase in toll manufacturing activity, and the inclusion of sales in Latin America by our newly acquired AgriCenter business.

Within our non-crop business, 2017 net sales increased by 34% to $53,638 as compared to $39,909 in 2016.  The sales increase resulted from sales in the last three months of the year following the acquisition of OHP, our new niche horticultural distribution business. In addition, our core non crop product portfolio had a very solid year led by naled sales (our Dibrom® brand mosquito adulticide) which rose 69% in 2017, as a result of the intense hurricane season, headlined by the persistent torrential rains of Harvey over the eastern Texas coastal region. In response to the emergency, AMVAC ramped up production significantly, FEMA utilized all available Dibrom inventories (both from the Company and in the market) and the resulting mosquito control operation was successful. We also recorded a 92% increase in our PCNB product sales as we continue to build our market position, an 18% increase in our Pest Strip® products, and modest increases in several of our other commercial pest control products.  This performance was offset by the short-term decline in our pharmaceutical products arising from customers having ordered additional product in 2016 in light of uncertain supply conditions.

Our cost of sales for 2017 was $207,655 or 58% of sales. This compared to $183,825 or 58% of sales for 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 last year. During the year, our Impact product line endured increased competition resulting in some weakening of market price and accordingly, increased cost of sales when compared to sales revenue as a result. Furthermore, the distribution businesses acquired in the final quarter performed well and added to net sales, as indicated above. In general terms the cost of sales related to distribution activities tends to be higher than those of our core business portfolio because those businesses are selling fully marked up third party products while the Company’s core portfolio benefits from the upstream manufacturing activity. Our manufacturing performance for the year was strong and in-line with our targets; specifically, our factory underabsorption costs dropped to $12,865 or 3.6% of net sales in 2017 as compared to $17,739 or 5.7% of net sales in 2016.  

Gross profit for 2017 improved by $19,104 or 15% to end at $147,392 for the year ended December 31, 2017, as compared to $128,288 for the prior year. Gross margin as a percent of net sales, however, was 42% for 2017 as compared to 41% in 2016. While the Company experienced continuous improvement in factory performance and factory cost recovery and strong performance on raw material purchasing, these benefits were offset by competitive pricing pressure in the Midwest herbicide market and a larger volume of lower-margin sales through newly acquired distribution businesses.

21


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Operating expenses in 20172020 increased by $12,850$3,206 to $120,598$154,339 or 34% of sales, as compared to $107,748$151,133 or 35%32% in 2016.2019. The differences in operating expenses by department are as follows:

 

 

2017

 

 

2016

 

 

Change

 

 

% Change

 

 

2020

 

 

2019

 

 

Change

 

 

% Change

 

Selling

 

$

29,112

 

 

$

27,442

 

 

$

1,670

 

 

 

6

%

 

$

42,389

 

 

$

45,121

 

 

$

(2,732

)

 

 

-6

%

General and administrative

 

 

37,660

 

 

 

32,128

 

 

 

5,532

 

 

 

17

%

 

 

48,828

 

 

 

46,593

 

 

 

2,235

 

 

 

5

%

Research, product development and regulatory

 

 

26,076

 

 

 

21,298

 

 

 

4,778

 

 

 

22

%

 

 

26,310

 

 

 

24,070

 

 

 

2,240

 

 

 

9

%

Freight, delivery and warehousing

 

 

27,750

 

 

 

26,880

 

 

 

870

 

 

 

3

%

 

 

36,812

 

 

 

35,349

 

 

 

1,463

 

 

 

4

%

 

$

120,598

 

 

$

107,748

 

 

$

12,850

 

 

 

12

%

Total Operating Expenses

 

$

154,339

 

 

$

151,133

 

 

$

3,206

 

 

 

2

%

 

Selling expenses decreased by 6% to $42,389 for the year ended December 31, 2020, as compared to $45,121 in 2019. The main drivers were the reduction in travel and entertainment expenses across all of our global operating subsidiaries, as a result of restrictions imposed in response to the COVID-19 pandemic. These reductions included the favorable impact of lower foreign currency exchange rates (as they relate to the translation to U.S. Dollars of operating expenses recorded in foreign currencies at our international subsidiaries). This performance was offset, in part, by the addition of activities of the newly acquired businesses.

21


General and administrative expenses increased by 5% to $48,828 for the year ended December 31, 2020, as compared to $46,593 in 2019. The main drivers for the slight increase were associated with the additional costs for the activities of businesses acquired in the final quarter of 2020, the beneficial impact on 2019 expenses of fair value adjustments to contingent consideration associated with 2017 acquisitions ($3,866) and a break-up fee ($500) arising from an unconsummated acquisition that did not re-occur in the current year. Although, these items that were not repeated in the current year, the negative effect was partially offset by the reduction in travel and entertainment expenses in response to the COVID-19 pandemic, a reduction in environmental reserves associated with our Brazilian business ($1,227), and a gain  associated with the sales of certain registration ($485). The cost reductions just described were partly offset by an expense associated with a change in the fair value of contingent consideration in the amount of $250.

Research, product development and regulatory expenses increased by 9% to $26,310 in 2020, as compared to $24,070 in 2019. The main drivers were increases in our product defense and product development costs, primarily resulting from increased activities in our newly acquired businesses, partially offset by the general delays in activities with third-party service providers caused by pandemic related disruption.

Freight, delivery and warehousing costs for the year ended December 31, 2020 increased by 4% to $36,812, as compared to $35,349 in 2019. This is mainly due to product mix and locations of customers. When expressed as a percentage of sales, freight costs increased slightly year over year to 7.9% in 2020, as compared to 7.5% in 2019.

Selling expenses increased by $1,670In July 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. Subsequent to $29,112 for the year ended December 31, 2017, as comparedinitial investment, the Company recorded positive fair value adjustments in the amount of $717.

At the end of 2020 the Company completed on the acquisition of Agrinos. In addition to $27,442a manufacturing plant in 2016.California, Agrinos has operating entities in a number of foreign countries including a manufacturing site in Mexico. The main drivers forCompany acquired Agrinos out of bankruptcy and secured an economically advantageous purchase. The Company engaged a third-party valuation specialist to assist in establishing the increased expenses are expanded activities in both international and domestic sales operations resulting from acquisitions.  However, selling expenses as a percentpreliminary fair value of net sales actually decreased from 8.8% in 2016 to 8.2% in 2017.

General and administrative expenses increased by $5,532 to $37,660 for the year ended December 31, 2017, as compared to $32,128 in 2016.assets acquired. The main drivers for the increase arevaluation is mainly driven by an increasefuture projected cash flows. The preliminary fair value of the net assets acquired, established with the assistance of a third-party valuation specialist, indicates that this acquisition resulted in legal expenses related toa bargain purchase gain as the DoJ proceedings againstfair value of the acquired net assets exceeds the purchase price consideration. Accordingly, the Company has recorded a preliminary gain in the amount of approximately $1,200, expenses of $1,821 incurred$4,657 included in professional feesoperating income in connection with the product and business acquisitions completed in 2017 including; the expense of the acquisition process, increased amortization expenses as a result of the valuation of the acquisitions, and the administrative operating expenses of such acquisitions from the closing date of the respective acquisitions.  2020.

Research, product development and regulatory expenses increased by $4,778 to $26,076 for the year ended December 31, 2017, as compared to $21,298 in 2016. The increase is driven by additional regulatory activity defending our expanded portfolio of products, product development studies, driven by our expanded portfolio and continued progress on the development of our SIMPAS technology.

Freight, delivery and warehousing costs for the year ended December 31, 2017 increased by $870 to $27,750, as compared to $26,880 in 2016. When expressed as a percentage of sales, freight costs decreased slightly year over year to 7.8% in 2017, as compared to 8.6% in 2016.  This is mainly due to product mix and locations of customers.

Net interest expense was $1,941$5,178 in 2017,2020, as compared to $1,623$7,209 in 2016.2019. Interest costs are summarized in the following table:

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Average Indebtedness and Interest expense

 

Average

Debt

 

 

Interest

Expense

 

 

Interest

Rate

 

 

Average

Debt

 

 

Interest

Expense

 

 

Interest

Rate

 

 

Average

Debt

 

 

Interest

Expense

 

 

Interest

Rate

 

 

Average

Debt

 

 

Interest

Expense

 

 

Interest

Rate

 

Working capital revolver

 

$

51,103

 

 

$

1,547

 

 

 

3.0

%

 

$

59,897

 

 

$

1,382

 

 

 

2.3

%

 

$

170,801

 

 

$

5,158

 

 

 

3.0

%

 

$

166,828

 

 

$

6,857

 

 

 

4.1

%

Notes payable

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

1

 

 

 

5.0

%

Interest income

 

 

 

 

 

(41

)

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

(89

)

 

 

 

 

 

 

 

 

(182

)

 

 

 

Amortization of debt issuance costs

 

 

 

 

 

293

 

 

 

 

 

 

 

 

 

250

 

 

 

 

Amortization of deferred loan fees

 

 

 

 

 

300

 

 

 

 

 

 

 

 

 

534

 

 

 

 

Amortization of other deferred liabilities

 

 

 

 

 

82

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

149

 

 

 

 

Other interest expense

 

 

 

 

 

143

 

 

 

 

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

110

 

 

 

 

 

 

 

 

 

166

 

 

 

 

Subtotal

 

 

51,103

 

 

 

2,024

 

 

 

4.0

%

 

 

59,917

 

 

 

1,707

 

 

 

2.8

%

 

 

170,801

 

 

 

5,502

 

 

 

3.2

%

 

 

166,828

 

 

 

7,524

 

 

 

4.5

%

Capitalized interest

 

 

 

 

 

(83

)

 

 

 

 

 

 

 

 

(84

)

 

 

 

 

 

 

 

 

(324

)

 

 

 

 

 

 

 

 

(315

)

 

 

 

Total

 

$

51,103

 

 

$

1,941

 

 

 

3.8

%

 

$

59,917

 

 

$

1,623

 

 

 

2.7

%

 

$

170,801

 

 

$

5,178

 

 

 

3.0

%

 

$

166,828

 

 

$

7,209

 

 

 

4.3

%

 

The Company’s average overall debt for the year ended December 31, 20172020 was $51,103$170,801, as compared to $59,917$166,828 for the year ended December 31, 2016.2019. On a gross basis, our effective interest rate increaseddecreased on our working capital revolver to 3.0%, as compared to 2.3%4.1% in 2016.2019. This increasedecrease was driven by increasesdecreases in the LIBOR rate. After adjustments related to capitalized interest and including expenses related to the amortization of deferred liabilities, the overall effective interest rate was 3.8%3.0% for 2017 as compared to 2.7% in 2016.2020 and 4.3% 2019.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law.  The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a tax on deemed repatriated earnings of foreign subsidiaries.  The Tax Reform Act reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, we

22


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

revalued our ending net deferred tax assets and liabilities at December 31, 2017, provisionally resulting in a deferred tax benefit of $4,683 that is included in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided for a one-time deemed mandatory repatriation of Post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017.  We have performed a review of our foreign entities and have estimated that the amount of deemed repatriated income amounts to $30,085, on which the Company has estimated that there will be a tax expense of $1,250. That amount is also included in the provision for income taxes for the year ended December 31, 2017.  The net tax benefits from the Tax Reform Act are reflected in our financial results in accordance with Staff Accounting Bulletin No. 118 (SAB 118), which was issued to address the application of US GAAP in situations when the registrant does not have the necessary information available, prepared or analyzed (including computation) in reasonable detail to complete the accounting for uncertain income tax effects of the Tax Reform Act. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities and of the impact of the deemed repatriation. Any subsequent adjustment to these amounts will be recorded to income tax expense in the quarter of 2018 when the analysis is complete.

Our provision for income taxes for 20172020 was $4,443,$3,080, as compared to $5,540$5,202 for 2016.2019. The effective tax rate for 20172020 was 18%16.7%, as compared to 30%27.4% in 2016. The decrease in the effective tax rate was primarily driven by the inclusion of the one-time net tax benefit associated with the Tax Reform Act enacted on December 22, 2017, in the amount of $3,433. The decrease is partially offset by lower percentage of earnings in jurisdictions with lower income tax rate.2019.

The Company has effectively settled its examination withis subject to U.S. federal income tax as well as to income tax in multiple state jurisdictions. Federal income tax returns of the Company are subject to Internal Revenue Service (“IRS”) examination for the 2017 through 2019 tax years ended December 31, 2012 through 2014.  The Company’s 2015 and 2016 federalyears. State income tax returns are still subject to IRS examination.examination for the 2016 through 2019 tax years. The Company has other state and foreign income tax returns subject to examination.

22


For the yearyears ended December 31, 2017,2020 and 2019, the Company recorded net losses on its equity investmentinvestments of $49. For the same period of 2016, the Company recorded losses on its equity investment of $353. In 2017, our net income was reduced by $87, as compared to $236 in 2016, representing the share of net income of our majority owned subsidiary that was charged to the non-controlling interest.  $125 and $209, respectively.

Net income attributable to American Vanguard ended at $20,274was $15,242 or $0.68$0.51 per diluted share in 20172020 as compared to $12,788$13,601 or $0.44$0.46 per diluted share in 2016.2019.

Liquidity and Capital Resources

The Company generated $59,001$89,198 of cash from operating activities provided during the year ended December 31, 2017,2020, as compared to $46,406$9,569 in the prior year. Included in the $59,001$89,198 are net income of $20,361,$15,242, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $22,290.  Stock based$23,849, amortization of deferred loan fees of $300, revision of contingent consideration of $250, provision for bad debts in the amount of $1,002. In addition, stock-based compensation of $4,714,$6,561, loss from equity method investments of $125, change in investment fair value of $49 and$717, change in value of deferred income taxes of $398, provided$969, change in reserves for uncertain tax positions of $2,092, a bargain purchase gain in the amount of $4,657 and other items amounting to $128, resulted in net cash inflowsprovided by operating activities of $47,812,$40,960, as compared to $37,843$43,686 for the same period of 2016.2019.

During 20172020, the Company generated $11,189 from reducingdecreased working capital by $37,160, as compared to generating $8,563 during 2016. This change excluded increases in working capital related to the products and businesses acquired during 2017.position at December 31, 2019. Included in this change;change: accounts receivables decreased by $15,559, inventories reduceddecreased by $16,183 as a result of consistent efforts from our sales, inventory$7,421, income taxes increased by $287, and operations planning team to balance manufacturing cost recovery, plant capacity and customer needs.prepaid expenses decreased by $140. Deferred revenue as of December 31, 2017 increased by $10,726,$36,803, as compared to December 31, 2016 primarily as a result of2019, driven by individual customer decisions to make early payments in return for early cash incentive programs. Our accounts payable balances increaseddecreased by $3,322 driven$8,124, program accruals decreased by increased manufacturing activity$2,517 and capital spending in the final quarter of the year.  In addition accounts receivables and prepaid expenses reduced by $754 and $647 respectively. Offsetting these positive changes, the Company made payments to the IRS following the concluding of the 2012 to 2014 audit in the amount of $12,073other payables and accrued programs reduced year-on-year by $4,529. Finally other payablesexpenses decreased by $3,841.$775.  

With regard to our program accrual, these reduced as noted above,the year-over-year change is primarily reflecting ourdriven by the mix of sales and customers in 20172020, as compared to the prior year. The Company accrues programs in line with the growing season upon which specific products are targeted. Most of our programs relate to domestic sales. Typically, crop productsdomestic crops have a growing season that ends on September 30th of each year. During 2017, the Company made accruals for programs in the amount of $59,806 and made payments in the amount of $63,682. During the prior year,2020, the Company made accruals in the amount of $70,448$66,622 and made payments in the amount of $71,889.$68,880. During 2019, the Company made accruals in the amount of $63,579, acquired certain liabilities in the amount of $7,247 as part of an acquisition, and made payments in the amount of $60,476.

In 2016, inventory reduced by $15,901, accounts payables increased by $9,015, other payables increased by $4,631Because the estimate for the program accrual is a material component of the presentation of the Company’s overall financial performance, the Company believes that the process it uses is critical in setting the accrual at the appropriate level. The Company’s process for developing the estimate involves a detailed review of each related transaction and income tax receivable reduced by $1,186.  Offsetting these positive changes, accounts receivables increased by $11,817, prepaid expenses increased by $3,872, deferred revenues decreased by $5,040 and program costs by $1,441.includes the input of a significant number of senior employees to enable the Company to set the accrual using consistently applied judgements, subject to the particular circumstances of any individual transaction.  

23


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Cash used for investing activities was $89,512amounted to $35,795 for the year ended December 31, 20172020, as compared to $14,137$54,837 in 2016.2019. The Company spent $81,896$23,356 in business and product acquisitions including intangible assets, goodwill, working capital and fixed assets.assets as well as patent application costs. The Company spent $1,190 on an equity investment. In addition, $6,666in 2020, $11,249 was spent on fixed assetscapital expenditures primarily focused on continuing to invest in manufacturing infrastructureinfrastructure. In 2019, the Company spent $41,852 in business and $950product acquisitions including intangible assets, goodwill, working capital and fixed assets as well as patent application costs, and $12,985 on an investment.capital expenditures primarily focused on our manufacturing facilities.  

During the year ended December 31, 20172020, financing activities provided $33,935,used $43,213, principally from the borrowingsmaking repayments on the Company’s senior credit facility, as compared to utilizing $28,545providing $46,406 for the year ended December 31, 2016.2019. This included a net borrowingrepayments of $37,025 from$41,624 on our credit facility in 2017,2020, as compared to a net repaymentborrowings of $27,600$51,900 in 2016.  We paid $751 in debt issuance costs related to2019. During the amendment of our credit facility.  In 2017,year, we paid dividends to stockholders amounting to $1,600,$1,168, as compared to $578$2,323 in 2016.2019. Finally, the Company did not repurchase common stock at market in 2020, as compared to repurchases of $2,604 in prior year.  

The Company has various loans in place that together constitute the long-term loan balances shown in the consolidated balance sheets as at December 31, 20172020 and 2016.2019. These are summarized in the following table:

 

Indebtedness

 

2017

2016

 

 

 

2020

 

 

2019

 

$000’s

 

Long-term

 

 

Long-term

 

 

Revolving line of credit

 

$

78,425

 

 

$

41,400

 

 

 

$

107,900

 

 

$

149,300

 

Debt issuance costs

 

 

(939

)

 

 

(449

)

 

 

 

(458

)

 

 

(534

)

Total indebtedness

 

$

77,486

 

 

$

40,951

 

 

 

$

107,442

 

 

$

148,766

 

 

The Company’s main bank is Bank of the West, a wholly-owned subsidiary of the French bank, BNP Paribas. Bank of the West has been the Company’s bank for more than 30 years and is the syndication manager for the Company’s loans.

As23


The revolving line of June 30, 2017,credit agreement (the “Credit Agreement”) is a senior secured lending facility among AMVAC, Chemical Corporation (“AMVAC”), the Company’s principal operating subsidiary, as borrower, and affiliates (including the Company, AMVAC CV and AMVAC BV), as guarantors and/or borrowers, entered into a Third Amendment to Second Amendedon the one hand, and Restated Credit Agreement (the “Credit Agreement”) with a group of commercial lenders led by Bank of the West as agent, swing line lender and Letter of Credit (“L/C”) issuer.  The Credit Agreement is a senior secured lending facility,issuer on the other hand, consisting of a line of credit of up to $250,000, an accordion feature of up to $100,000 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 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” which is based upon the Consolidated Funded Debt Ratio (“Eurocurrency Rate 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 Rate (“Alternate Base Rate Loan”). Interest payments for Eurocurrency Rate Loans are payable on the last day of each interest period (either one, two, three or six months, as selected by the borrower) and the maturity date, while interest payments for Alternate Base Rate Loans are payable on the last business day of each month and the maturity date. The interest rate on December 31, 2020 was 2.75%.  

As of April 22, 2020, AMVAC, as borrower, and certain affiliates amended the Credit Agreement., The Credit Agreement, as amended, has the same term and loan commitments, however the maximum permitted consolidated funded debt ratio (the “CFD Ratio”) has been increased from 3.25-to-1 to the following schedule: 4.00-to-1 through September 30, 2020, stepping down to 3.75-to-1 through December 31, 2020, 3.5-to-1 through March 31, 2021 and 3.25-to-1 thereafter. In addition, to the extent that it completes acquisitions totaling $15 million or more in any 90-day period, AMVAC may step-up the CFD Ratio by 0.5-to-1, not to exceed 4.25-to-1, for the next three full consecutive quarters. Finally, to the extent that a proposed acquisition is at least $30 million but less than $50 million, the consent of the Lead Agent is required. Larger acquisitions continue to require the consent of a majority of the Lenders.

At December 31, 2017,2020, according to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenantscovenant listed above, the Company had the capacity to increase its borrowings by up to $139,241.$86,736. This compares to an available borrowing capacity of $104,853$26,977 as of December 31, 2016.2019. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for trailing twelve monthtwelve-month period, which has improved, (2) the inclusion of proforma EBITDA related to acquisitions completed during 2017the preceding twelve months and (3) the leverage covenant (being the number of times EBITDA the Company may borrow under its credit facility agreement). The Company was in compliance with all the debt covenants as of December 31, 2017.

Contractual Obligations and Off-Balance Sheet Arrangements2020.

We believe that the combination of our cash flows from future operations, current cash on hand and the availability under the Company’s credit facility will be sufficient to meet our working capital and capital expenditure requirements and will provide us with adequate liquidity to meet our anticipated operating needs for at least the next 12 months.months from the issuance of the Annual Report. Although operating activities are expected to provide cash, to the extent of growth in the future, our operating and investing activities will use cash and, consequently, this growth may require us to access some or all of the availability under the credit facility. It is also possible that additional sources of finance may be necessary to support additional growth.

24


AMERICAN VANGUARD CORPORATIONSubstantially all of the Company’s assets are pledged as collateral under the Credit Agreement, as amended.  

AND SUBSIDIARIESContractual Obligations and Off-Balance Sheet Arrangements

(Dollars in thousands, except per share data)

The following summarizes our contractual obligations at December 31, 2017,2020, and the effects such obligations are expected to have on cash flows in future periods:

 

 

Payments Due by Period

 

 

Payments Due by Period

 

 

Total

 

 

Less than

1 Year

 

 

1—3

Years

 

 

4—5

Years

 

 

After

5 Years

 

 

Total

 

 

Less than

1 Year

 

 

1—3

Years

 

 

4—5

Years

 

 

After

5 Years

 

Long-term debt(1)

 

$

78,425

 

 

$

 

 

$

 

 

$

78,425

 

 

$

 

 

$

107,900

 

 

$

 

 

$

107,900

 

 

$

 

 

$

 

Estimated interest liability (1)(2)

 

 

8,118

 

 

 

1,804

 

 

 

3,608

 

 

 

2,706

 

 

 

 

 

 

4,856

 

 

 

3,237

 

 

 

1,619

 

 

 

 

 

 

 

Licensing obligations

 

 

589

 

 

 

127

 

 

 

240

 

 

 

222

 

 

 

 

Deferred earn outs on business acquisitions

 

 

10,741

 

 

 

5,263

 

 

 

5,478

 

 

 

 

 

 

 

Contingent consideration on business acquisitions

 

 

2,468

 

 

 

1,004

 

 

 

1,464

 

 

 

 

 

 

 

Employment agreements

 

 

2,427

 

 

 

896

 

 

 

1,531

 

 

 

 

 

 

 

 

 

2,158

 

 

 

702

 

 

 

1,456

 

 

 

 

 

 

 

Operating leases—rental properties

 

 

6,762

 

 

 

1,520

 

 

 

2,984

 

 

 

1,608

 

 

 

650

 

Operating leases—rental properties and equipment

 

 

10,542

 

 

 

3,014

 

 

 

3,405

 

 

 

2,103

 

 

 

2,020

 

Operating leases—vehicles

 

 

1,361

 

 

 

730

 

 

 

615

 

 

 

16

 

 

 

 

 

 

2,585

 

 

 

1,287

 

 

 

1,208

 

 

 

90

 

 

 

 

Transition taxes (2)

 

 

1,250

 

 

 

100

 

 

 

200

 

 

 

200

 

 

 

750

 

Transition taxes (3)

 

 

783

 

 

 

 

 

 

198

 

 

 

585

 

 

 

 

 

$

109,673

 

 

$

10,440

 

 

$

14,656

 

 

$

83,177

 

 

$

1,400

 

 

$

131,292

 

 

$

9,244

 

 

$

117,250

 

 

$

2,778

 

 

$

2,020

 

 

(1)

Under the terms of the credit facility, all debt outstanding is due when the agreement expires on June 30, 2022.


(2)

Estimated interest liability has been calculated using the currentaverage effective rate for 2020 for each category of debt over the remaining term of the debt and taking into account scheduled repayments. The revolving line has been assumed to be constant (i.e. $78,425)$107,900) throughout the remaining term. All of our debt is linked to LIBOR rates.

(3)

The Company elected to pay the transition tax related to the Tax Reform Act over an eight-year period.  Total amount has been adjusted to reflect 2017 income tax overpayment applied to transition tax.

There were no significant other off-balance sheet arrangements as of December 31, 2017.2020.

Under the terms of the credit facility, all debt outstanding is due when the agreement expires on June 30, 2022.

In addition to the above contractual obligations, $2,118$3,222 of unrecognized tax benefits and $2,257$4,195 of accrued penalties and interest have been recorded as long termlong-term liabilities as of December 31, 2017.2020. We are uncertain as to if or when such amounts may be settled, or any tax benefits may be realized.

(2)

The Company elected to pay the transition tax in an eight-year period.

25


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

 

Results of Operations

2016 Compared with 2015:

 

 

2016

 

 

2015

 

 

$ Change

 

 

% Change

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

119,226

 

 

$

117,180

 

 

$

2,046

 

 

 

2

%

Herbicides/soil fumigants/fungicides

 

 

123,540

 

 

 

111,897

 

 

 

11,643

 

 

 

10

%

Other, including plant growth regulators

 

 

29,438

 

 

 

29,013

 

 

 

425

 

 

 

1

%

Total crop

 

 

272,204

 

 

 

258,090

 

 

 

14,114

 

 

 

5

%

Non-crop

 

 

39,909

 

 

 

31,292

 

 

 

8,617

 

 

 

28

%

Total net sales

 

$

312,113

 

 

$

289,382

 

 

$

22,731

 

 

 

8

%

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

78,945

 

 

$

77,288

 

 

$

1,657

 

 

 

2

%

Herbicides/soil fumigants/fungicides

 

 

66,299

 

 

 

65,507

 

 

 

792

 

 

 

1

%

Other, including plant growth regulators

 

 

19,139

 

 

 

18,097

 

 

 

1,042

 

 

 

6

%

Total crop

 

 

164,383

 

 

 

160,892

 

 

 

3,491

 

 

 

2

%

Non-crop

 

 

19,442

 

 

 

16,588

 

 

 

2,854

 

 

 

17

%

Total cost of sales

 

$

183,825

 

 

$

177,480

 

 

$

6,345

 

 

 

4

%

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

40,281

 

 

$

39,892

 

 

$

389

 

 

 

1

%

Herbicides/soil fumigants/fungicides

 

 

57,241

 

 

 

46,390

 

 

 

10,851

 

 

 

23

%

Other, including plant growth regulators

 

 

10,299

 

 

 

10,916

 

 

 

(617

)

 

 

-6

%

Gross profit crop

 

 

107,821

 

 

 

97,198

 

 

 

10,623

 

 

 

11

%

Gross profit non-crop

 

 

20,467

 

 

 

14,704

 

 

 

5,763

 

 

 

39

%

Total gross profit

 

$

128,288

 

 

$

111,902

 

 

$

16,386

 

 

 

15

%

Gross margin crop

 

 

40

%

 

 

38

%

 

 

 

 

 

 

 

 

Gross margin non-crop

 

 

51

%

 

 

46

%

 

 

 

 

 

 

 

 

Total gross margin

 

 

41

%

 

 

39

%

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S

 

$

228,854

 

 

$

212,087

 

 

$

16,767

 

 

 

8

%

International

 

 

83,259

 

 

 

77,295

 

 

 

5,964

 

 

 

8

%

Total net sales

 

$

312,113

 

 

$

289,382

 

 

$

22,731

 

 

 

8

%

Net sales in 2016 increased by approximately 8%, as compared to the prior year. This is largely attributable to lower sales of our cotton insecticide caused by fewer planted acres in several key selling geographies and lighter foliar pest pressure. We experienced another year of solid performance from our soil fumigant products, which are used in the potato and various vegetable/fruit markets. Sales also benefited from the introduction of several new High Concentration (HC) soil insecticides, and from increased international sales of our insecticides Mocap® and Nemacur® along with first year sales of our recently acquired bromacil herbicide products.

Our international business continued to perform well during the twelve months ended December 31, 2016 with net sales of $83,259 which was a 8% improvement over the prior year. Sales benefited from our April, 2015 acquisition of two product lines – European Nemacur® purchased from Adama and the Hyvar/Krovar (bromacil) products purchased from DuPont. In 2015, the Company recorded stronger sales in Mexico and the Asian market, somewhat lower sales in Europe and Canada, and relatively flat sales in other geographic regions.

In the Midwest corn market, distributors and retailers continued to work down inventories of many crop protection products and growers remained cautious regarding input purchases due to the low corn commodity price. During the year, we have seen excess inventories decline significantly and corn commodity price stabilize, both of which should provide a basis for more normal buying patterns to resume. Despite conservative procurement described above and continued reduced insect pressure as a result of two years of harsh winter weather, the Company’s 2015 sales of insecticide and herbicide products for corn remained essentially flat with the prior year.

26


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

The Company’s total net sales for the year ended December 31, 2016 were up 8% to $312,113, as compared to $289,382 for the year ended December 31, 2015. Net sales of our crop business in 2016 were $272,204, which constitutes an increase of nearly 5% as compared to net sales of $258,090 for that business in 2015. Net sales of our non-crop products in 2016 were $39,909, which is an increase of approximately 28% as compared to $31,292 in 2015. A more detailed discussion of product groups and products having a material effect on net sales for each of the crop and non-crop businesses appears below.

In our Crop business, net sales of insecticides in 2016 ended at $119,226, which was a 2% increase as compared to $117,180 in 2015. For the same period, annual net sales of our granular soil insecticides were up 4% from 2015, primarily driven by reduced equipment sales, while sales of our corn soil insecticides remained relatively flat. We had increased year-over-year performance from our Nemacur® and Mocap® products in international markets offset by a decline in domestic Thimet® sales due to seasonally delayed purchasing which are likely to shift to later in the 2016-2017 season. Among our non-granular insecticide products for crop applications, net sales of our cotton foliar insecticide Bidrin® were down due to fewer planted acres in several prime/high usage areas of the Southeast region and lighter pest pressure.

Within the product group of herbicides/soil fumigants/fungicides, our crop net sales in 2016 were up 10% to $123,540 as compared to $111,897 in 2015. Our fumigant product line continued to perform well. Midwest restocking demand for our post-emergent corn herbicide Impact resulted in increased sales and the addition of newly acquired bromacil products Hyvar® and Krovar® contributed to an overall increase in our herbicide category. Within this group, fungicides were essentially flat with the prior year.

Within our other products group (which includes plant growth regulators, molluscicides and third party manufacturing activity), we experienced an increase of approximately 1% in net sales, ending at $29,438 in 2016, as compared to $29,013 in 2015. The major drivers of this performance were flat year-over-year sales of our cotton defoliant Folex®; a decline in our specialty fruit product NAA® and toll manufacturing; offset by an increase in sales of our potato sprout inhibitor SmartBlock® and our molluscicide Metaldehyde.

Within our non-crop business, 2016 net sales increased by 28% to $39,909 as compared to $31,292 recorded in 2015. Naled sales (our Dibrom® brand mosquito adulticide) rose 8% in 2016, and we saw slight increases in several of our products that have faced generic competition. Offsetting those gains, we posted either flat or lower year-over-year sales in our consumer bug/insect sprays, pest strips and pharmaceutical product lines.

Our cost of sales for 2016 was $183,825 or 59% of net sales. This compared to $177,480 or 61% of net sales for 2015. The decrease in cost of sales as a percentage of net sales in 2016 was driven primarily as a result of reduced factory costs, which reduced cost of sales by approximately 2.4%. This was partially offset by inflation in raw material prices, which on average amounted to an increase in cost of sales approximately ¾ of one percent. Together these factors resulted in the reduction in cost of sales by 1%.

Gross profit for 2016 increased by $16,386 to end at $128,288 for the year ended December 31, 2016, as compared to $111,902 for the prior year. Gross margin percentage for 2016 improved by 2% and ended at 41%, as compared to 39% for 2015. The improvement was driven by improved factory cost recovery.

Operating expenses in 2016 increased by $7,370 to $107,748 or 34.5% of sales as compared to $100,378 or 34% in 2015. The differences in operating expenses by department are as follows:

 

 

2016

 

 

2015

 

 

Change

 

 

Change

 

Selling

 

$

27,442

 

 

$

27,052

 

 

$

390

 

 

 

1

%

General and administrative

 

 

32,128

 

 

 

28,516

 

 

 

3,612

 

 

 

13

%

Research, product development and regulatory

 

 

21,298

 

 

 

19,116

 

 

 

2,182

 

 

 

11

%

Freight, delivery and warehousing

 

 

26,880

 

 

 

25,694

 

 

 

1,186

 

 

 

5

%

 

 

$

107,748

 

 

$

100,378

 

 

$

7,370

 

 

 

7

%

Selling expenses increased by $390 to end at $27,442 for the year ended December 31, 2016, as compared to $27,052 in 2015. The main drivers for the decrease are cost reduction actions in our advertising and marketing efforts and reductions in costs associated with both international and domestic field sales operations.

General and administrative expenses increased by $3,612 to $32,128 for the year ended December 31, 2016, as compared to $28,516 in 2015. The main drivers for the increase are primarily due to increase in legal expense, amortization expense from the product line acquisitions completed during the early part of 2016 and incentive compensation costs.

27


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Research, product development and regulatory expenses increased by $2,182 to $21,298 for the year ended December 31, 2016, as compared to $19,116 in 2015. This was driven by timing of product defense studies and from the benefits of the consolidation of two industry wide task force groups.

Freight, delivery and warehousing costs for the year ended December 31, 2016 increased by $1,186 to $26,880, as compared to $25,694 in 2015. As a percentage of sales, freight costs reduced slightly year over year, at 8.6% in 2016, as compared to 8.9% in 2015.

Net interest expense was $1,623 in 2016, as compared to $2,562 in 2015. Interest costs are summarized in the following table:

 

 

2016

 

 

2015

 

Average Indebtedness and Interest expense

 

Average

Debt

 

 

Interest

Expense

 

 

Interest

Rate

 

 

Average

Debt

 

 

Interest

Expense

 

 

Interest

Rate

 

Working capital revolver

 

$

59,897

 

 

$

1,382

 

 

 

2.3

%

 

$

94,765

 

 

$

2,027

 

 

 

2.1

%

Notes payable

 

 

20

 

 

 

1

 

 

 

5.0

%

 

 

6,809

 

 

 

266

 

 

 

3.9

%

Interest Income

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt issuance costs

 

 

 

 

 

250

 

 

 

 

 

 

 

 

 

291

 

 

 

 

Amortization of other deferred liabilities

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

135

 

 

 

 

Other interest expense

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

53

 

 

 

 

Subtotal

 

$

59,917

 

 

$

1,707

 

 

 

2.8

%

 

$

101,574

 

 

$

2,772

 

 

 

2.7

%

Capitalized interest

 

 

 

 

 

(84

)

 

 

 

 

 

 

 

 

(210

)

 

 

 

Total

 

$

59,917

 

 

$

1,623

 

 

 

2.7

%

 

$

101,574

 

 

$

2,562

 

 

 

2.5

%

The Company’s average overall debt for the year ended December 31, 2016 was $59,917 as compared to $101,574 for the comparable period of the previous year. As can be seen from the above table, on a gross basis, the effective interest rate on our working capital revolver decreased to 2.3%, as compared to 2.1% in 2015, due to lower interest rates on our new senior credit facility agreement and the absence of a fixed rate swap. After adjustments related to capitalized interest and including expenses related to the amortization of deferred liabilities, the overall effective rate was 2.7% for 2016 as compared to 2.5% in 2015. Reduction in deferred liabilities related to product line acquisitions contributed to the reduction in our effective interest rate in 2016.

Income tax expense for 2016 was $5,540, as compared to a tax expense of $2,009 for 2015. The effective tax rate for 2016 was 30%, as compared to 23% in 2015. The increase in the effective tax rate was driven by additional income generated in the U.S. as compared to the previous year. The ratio of domestic to foreign income has a material impact on the Company’s overall effective tax rate.

For the year ended December 31, 2016, the Company recorded losses on its equity investment of $353.  For the same period of 2015, the Company recorded losses on its equity investment of $629 and a loss on dilution in the amount of $7, for a total loss of $636 on its equity method investment.  In 2016, our net income was reduced by $236, representing the share of net income of our majority owned subsidiary that was allocated to the non-controlling interest.  In 2015, a net loss of $274 was allocated to the non-controlling interest share.  

Net income attributable to American Vanguard ended at $12,788 or $0.44 per diluted share in 2016 as compared to $6,591 or $.23 per diluted share in 2015.

Recently Issued Accounting Guidance

Please refer to Notes of Consolidated Financial Statements – Description of Business, Basis of Consolidation, Basis of Presentation and Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements for recently issued and adopted accounting standards.  

Foreign Exchange

Management does not believe that the fluctuation in the value of the dollar in relationThe Company faces market risk to the currencies of its customersextent that changes in the last two fiscal years has adversely affected the Company’s ability to sell products at agreed upon prices denominated in U.S. dollars, where applicable. No assurance can be given, however, that adverseforeign currency exchange rate fluctuations willrates affect our non-U.S. dollar functional currency foreign subsidiaries’ revenues, expenses, assets and liabilities. We currently do not occurengage in the future.

28


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Should adverse currencyhedging activities with respect to such exchange rate fluctuations occurrisks.

Assets and liabilities outside the U.S. are located in geographiesregions where we have subsidiaries or joint ventures: Central America, South America, North America, Europe Asia, and Australia. Our investments in foreign subsidiaries and joint ventures with a functional currency other than the Company sells/exports its products, management isU.S. dollar are generally considered long-term. Accordingly, we do not certain such fluctuations will or will not materially impact the Company’s operating results.hedge these net investments.

Inflation

Management believes inflation has not had a significantminimal impact on the Company's operations during the past two years. The Company is working diligently with its critical raw material suppliers to control inflationary pressures, conducting contract negotiations with focus on two key market shifts: first, the relatively stable price of oil and natural gas, combined with higher global prices for basic feedstocks like phosphorus, caustic soda, methanol and sulfur have prompted some suppliers to announcefollowing: reducing or delaying price increases due to higher environmental costs from suppliers mainly in China and India, managing the Company,tariff impacts by sourcing and second, the Company monitors our international suppliers' forleveraging alternate geographies where possible, currency gains versusand lastly, monitoring strengths of the U.S. dollar vs other currencies in order to secure benefits and where appropriate uses this knowledge to forestall inflation in raw materials that are purchased in dollar terms.balance tariff effects. The Company recognizes there is long-term pressure on demand for raw materials in the developing world and is utilizing its expertise to minimize inflationary pressure. The Company has been able to push back on many of the proposed price increases for actives and intermediates that are shipped to our USU.S. factories, to either avoid, minimize or forestall them.

CRITICAL ACCOUNTING POLICIES

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

25


The Company’s critical accounting policies and estimates include:

Principles of Consolidation—The Company’s Consolidated Financial Statementsconsolidated financial statements include the accounts of the Company and its subsidiaries. Less than wholly owned subsidiaries, including joint ventures, are consolidated when it is determined that the Company has a controlling financial interest, which is generally determined when the Company holds a majority voting interest. When protective rights, substantive rights or other factors exist, further analysis is performed in order to determine whether or not there is a controlling financial interest. The Consolidated Financial Statementsconsolidated financial statements reflect the assets, liabilities, revenues and expenses of consolidated subsidiaries and the non-controlling parties’ ownership share is presented as a non-controlling interest. All significant intercompany accounts and transactions are eliminated.

Revenue Recognition and Allowance for Doubtful AccountsRevenue Revenues from sales are recognized at the time title andcontrol is transferred to the risks of ownership pass.customer. This is typically the case when the customer has made the fixed commitment to purchase the goods, the products are shipped per the customer’s instructions, the sales price is fixed and determinable,can be identified, and collection is reasonably assured.probable. The Company has in placeadopted procedures to ensure that revenue isrevenues are recognized when earned. The procedures are subject to management’s review and from time to timetime-to-time certain salesrevenues are excluded until it is clear that the title has passed and there is no further recourse to the Company. We also have some arrangements whereby revenues are recognized over time for certain products that are deemed to have no alternative use accompanied by an enforceable right to payment for performance completed to date. From time to time,time-to-time, the Company may offer a program to eligible customers, in good standing, that provides extended payment terms on a portion of the sales on selected products. The Company analyzes these extended payment programs in connection with its revenue recognition policy to ensure all revenue recognition criteria are satisfied at the time of sale. The Company also earns royalty income from its licensing arrangements which qualify as functional licenses rather than symbolic licenses. Upon signing a new licensing agreement, we typically receive up-front fees, which are generally characterized as non-refundable royalties. These fees are recognized as revenue upon the execution of the license agreements. Minimum royalty fees are recognized once the Company has an enforceable right for payment. Sales-based royalty fees are typically recognized when the sales occur. We calculate and accrue estimated royalties based on the agreement terms and correspondence with the licensees regarding actual sales. Allowance for doubtful accounts is established based on estimates of losses related to customer receivable balances. Estimates are developed using either standard quantitative measures based on historical losses, adjusted for current economic conditions, or by evaluating specific customer accounts for risk of loss.

Accrued Program CostsThe Company maintains an allowance to cover its Current Expected Credit Losses ("CECL") on its trade receivables, other receivables and contract assets arising from the failure of customers to make contractual payments. The Company estimates credit losses expected over the life of its trade receivables, other receivables and contract assets based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605,most instances, the Company’s policy is to write-off trade receivables when they are deemed uncollectible. The vast majority of the Company's trade receivables, other receivables and contract assets are less than 365 days. Under the CECL impairment model, the Company classifies certain paymentsdevelops and documents its allowance for credit losses on its trade receivables based on multiple portfolios. The determination of portfolios is based primarily on geographical location, type of customer and aging.

Deferred Revenue - From time to itstime, the Company receives pre-payments from customers as a reduction of sales revenues. The Company describes these payments as “Programs”. Programs are a critical part of doing business in the U.S. agricultural chemicals business market place. For accounting purposes, programswhich are recorded as deferred revenue on the Company’s consolidated balance sheets. The Company does not recognize revenue on any such payments unless and until the customer places and binding purchase order, the goods are shipped, and control is transferred to the customer.  

Accrued Program Costs The Company offers various discounts to customers based on the volume purchased within a reduction in gross sales and include marketdefined time period, other pricing adjustments, some grower volume take upincentives or other key performance indicator driven payments made to distributors, retailers or growers, predominantlyusually at the end of a growing season. The Company describes these payments as “Programs.” Programs are a critical part of doing business in both the U.S. crop and non-crop chemicals marketplaces. These discount Programs represent variable consideration. Revenues from sales are recorded at the net sales price, which is the transaction price, and includes estimates of variable consideration. Variable consideration includes amounts expected to be paid to its customers using the expected value method. Each quarter management compares eachindividual sale transactiontransactions with program guidelinesPrograms 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 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 theagreed upon terms and conditions attached to each program. IfProgram. Following this assessment, management believes that customers are falling short of or exceeding their previously anticipated annual goals, then periodicwill make adjustments will be made to the accumulated accrual to properly reflect the Company’s best estimate of the liability at the balance

29


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

sheet date. The majority of adjustments are made at the end of the crop season, at which time customer performance can be 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.  The Company recorded accrued programs of $39,054 at December 31, 2017, as compared to $42,930 at December 31, 2016.

Inventories — The Company values its inventories at lower of cost or net realizable value. Cost is determined by the first-in, first-out (“FIFO”) or average cost method, including, as appropriate, material, labor, factory overhead and subcontracting services. The Company writes down and makes adjustmentsits inventory to its inventorythe net realizable value following assessments of slow moving and obsolete inventory and other annual adjustments to ensure that our standard costs continue to closely reflect manufacturing cost. The Company recorded an inventory reserve allowance of $3,137 at December 31, 2017, as compared to $3,594 at December 31, 2016.

Long-lived Assets— Long-lived assets primarily consist of the costs of intangible assets and of proprietary returnable packaging assets including Smartbox and Lock and Load containers.  The carrying value of long-lived assets is reviewed for impairment quarterly and/or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company evaluates recoverability of an asset group by comparing the carrying value to the future undiscounted cash flows that it expects to generate from the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, measurement of the impairment loss is based on the fair value of the asset. There were no circumstances that would indicate any impairment of the carrying value of these long-lived assets and no material impairment losses were recorded in 2017 or 2016.26


Property, Plant and Equipment and Depreciation— Property, plant and equipment includes the cost of land, buildings, machinery and equipment, office furniture and fixtures, automobiles, construction projects and significant improvements to existing plant and equipment. Interest costs related to significant construction projects are capitalized at the Company’s current weighted average effective interest rate. Expenditures for minor repairs and maintenance are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain or loss realized on disposition is reflected in earnings. All plant and equipment isassets are depreciated using the straight-line method, utilizing the estimated useful property lives. Once placed into service, building lives range from 10 to 30 years; machinery and equipment lives range from 3 to 15 years. During the years ended December 31, 2017, 2016

Leases —The Company has operating leases for warehouses, manufacturing facilities, offices, cars, railcars and 2015certain equipment. On January 1, 2019, the Company eliminated fromadopted the accounting and adoption guidance in ASC 842, Leases, for its operating leases resulting in the recognition of operating lease right-of-use (ROU) assets and accumulated depreciation $6,317, $16,652, and $549, respectively, of fully depreciated assets.  

Foreign Currency Translation— Assets andlease liabilities of foreign subsidiaries, whereon the local currency iseffective date. The Company measures ROU assets throughout the functional currency, have been translatedlease term at period end exchange rates, and profit and loss accounts have been translated using weighted average yearly exchange rates. Adjustments resulting from translation have been recorded in the equity sectioncarrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance sheet as cumulative translation adjustments in other comprehensive income (loss).of lease incentives received. The effects of foreign currency exchange gains and losses on transactions thatlease liabilities are denominated in currencies other thanmeasured at the Company’s functional currency, including transactions denominated in the local currenciespresent value of the Company’s international subsidiaries whereunpaid lease payments at the functional currency islease commencement date. Leases that include both lease and non-lease components are accounted for as a single lease component for each asset class, except for warehouses. The minimum payments under operating leases are recognized on a straight-line basis over the U.S. dollar, are remeasured to the functional currency using the end of the period exchange rates. The effects of remeasurement related to foreign currency transactions are includedlease term in the consolidated statements of operations. Operating lease expenses related to variable lease payments are recognized in cost of sales or as operating expenses in a manner consistent with the nature of the underlying lease and as the events, activities, or circumstances in the lease agreement occur. Leases with a term of less than 12 months are not recognized on the consolidated balance sheets, and the related lease expenses are recognized in the consolidated statements of operations on a straight-line basis over the lease term. The accounting for leases requires management to exercise judgment and make estimates in determining the applicable discount rate, lease term and payments due under a lease. Most of our leases do not provide an implicit interest rate, nor is it available to us from our lessors. As an alternative, we use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, including publicly available data, in determining the present value of lease payments. We also estimated the fair value of the lease and non-lease components for some of our warehouse leases based on market data and cost data. 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 1 year to 20 years. The operating leases of the Company do not contain major restrictions or covenants such as those relating to dividends or additional financial obligations. Finance leases are immaterial to the consolidated financial statements.

Goodwill and Other Intangible AssetsThe primary identifiable intangible assets of the Company relate to assets associated with its product and business acquisitions. The Company adoptedAll of the provisions of ASC 350, under which identifiable intangibles withCompany’s intangible assets have finite lives are amortized and those with indefinite lives are not amortized. The estimated useful life of an identifiable intangible asset to the Company is based upon a number of factors including the effects of demand, competition, and expected changes in the marketability of the Company’s products.

Business CombinationsThe Company re-evaluates whether theseuses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are impaired on bothinherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill or an adjustment to the gain from a bargain purchase. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and an annual basis and anytime when thererecords any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is a specific indicator for impairment, relying on a numberwithin the measurement period. Upon the conclusion of factors including operating results, business plans and future cash flows. Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets. The impairment test for identifiable intangible assets not subject to amortization consists of either a qualitative assessmentthe measurement period or a comparisonfinal determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statement of operations.

27


In the event that the Company acquires an entity in which the Company previously held a non-controlling investment, the difference between the fair value and carrying value of the investment as of the date of the acquisition is recorded as a gain or loss and recorded within net income (loss) on equity method investments in the consolidated statement of operations.

Certain of our acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future income thresholds. The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the consolidated balance sheets.

We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts. Changes in the estimated fair value of our contingent earn-out liabilities are reported in operating results.

Asset AcquisitionsIf an acquisition of an asset or group of assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition rather than a business combination. An asset acquisition does not result in the recognition of goodwill and transaction costs are capitalized as part of the cost of the asset or group of assets acquired. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible asset with itsassets acquired and liabilities assumed at the acquisition date. The acquisitions costs are allocated to the assets acquired on a relative fair value basis. Certain of our acquisition agreements include contingent earn-out arrangements, which are recognized only when the contingency is resolved, and the consideration is paid or becomes payable.

Impairment—The carrying amount. Anvalues of long-lived assets other than goodwill are reviewed for impairment loss, if any, is recognized for the amount by whichannually and/or whenever events or changes in circumstances indicate that the carrying value exceedsof such assets may not be recoverable. The Company evaluates recoverability of an asset group by comparing the carrying value to the future undiscounted cash flows that it expects to generate from the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, measurement of the impairment loss is based on the fair value of the asset. Fair value is typically estimated using a discounted cash flow analysis. When determining future cash flow estimates, the Company considers historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by the Company, in such areas as: future economic conditions, industry-specific conditions, product pricing and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets, goodwill and identifiable intangible assets. The Company performed impairment reviews for the years ended December 31, 2017 and 2016 and recorded immaterial impairment losses.

30


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

The Company reviews goodwill for impairment utilizing either a qualitative assessment or a two-step process.quantitative assessment. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs a quantitative assessment, the two-step process, the first step of the goodwill impairment test is used to identify potential impairment by comparingCompany compares the fair value of a reporting unit with its carrying values and recognizes an impairment charge for the amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. Ifthat the carrying amount of aexceeds the reporting unit exceeds itsunit’s fair value, the second step is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If the carrying amount of goodwill is greater than the implied value, an impairment charge is recognized for the difference.value. The Company annually tests goodwill for impairment inat the beginning of the fourth quarter.quarter, or earlier if triggering events occur.

Fair Value of Financial 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:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, long-term investments, accounts payable and accrued expenses approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt.

We measure our contingent earn-out liabilities in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. We may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring.

28


Foreign Currency Translation—Certain international operations use the respective local currencies as their functional currency, while other international operations use the U.S. Dollar as their functional currency. The Company considers the U.S. dollar as its reporting currency. Translation adjustments for subsidiaries where the functional currency is its local currency are included in other comprehensive income (loss). Foreign currency transaction gains (losses) resulting from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are reported in earnings. Assets and liabilities of the foreign operations denominated in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the weighted average rate of exchange during the period. Translations of intercompany loans of a long-term investment nature are included as a component of translation adjustment in other comprehensive income (loss).

Income taxesIncome tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. The Company is subject to income taxes in the United StatesU.S. and numerousa number of foreign jurisdictions. The Company assessed the realizability ofability to realize deferred tax assets and determined that based on the available evidence, including a history of taxable income and estimates of future taxable income, it is more likely than not that the deferred tax assets will be realized. Significant management judgment is required in determining the provision for income taxes and deferred tax assets and liabilities. In the event that actual results differ from these estimates, we will adjust these estimates in future periods, which may result in a change in the effective tax rate in a future period. Accounting for income taxes involves uncertainty and judgment on how to interpret and apply tax laws and regulations within the Company’s annual tax filings. Such uncertainties from time to time may result in a tax position that may be challenged and overturned by a tax authority in the future, which could result in additional tax liability, interest charges and possibly penalties. The Company classifies interest and penalties as a component of income tax expense.

31


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

ITEM 7A

QUANTITATIVE AND QUALITATIVEQUALITATIVE 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 lendergroup of lenders is evidenced by a line of credit with a variable rate of interest, which fluctuates with changes in the lender’s reference rate (LIBOR). The Company may use derivative financial instruments for trading purposes to protect trading performance from exchange rate fluctuations on material contracts, though there are no such instruments in place during any periods presented in this Annual Report.

The Company conducts business in various foreign currencies, primarily when doing business in Europe, Mexico, Central and South America. Therefore, changes in the value of the currencies of such countries or regions affect the Company’s financial position and cash flows when translated into U.S. Dollars. The Company has mitigated, and will continue to mitigate, a portion of its currency exchange exposure through natural hedges based on the operation of decentralized foreign operating companies in which the majority of all costs are local-currency based.local-currency-based. A 10% change in the value of all foreign currencies would have an immaterial effect on the Company’s financial position and cash flows. As part of an on-going process of assessing business risk, management has identified risk factors which are disclosed in Item 1A. Risk Factors of this Report on Form 10-K.

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements and Supplementary Data required by this item are listed at Part IV, Item 15, Exhibits, and Financial Statement Schedules.

ITEM 9

ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Management, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, periodically evaluate the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon this evaluation, as of December 31, 2017,2020, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective in ensuring that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported on a timely basis, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

29


Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934 for AVD and its subsidiaries (“the Company”).Company. The Company’s internal control system over financial reporting is designed to provide reasonable assurance to management and the Board of Directors as to the fair, reliable and timely preparation and presentation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America filed with the SEC.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even processes determined to be effective can provide only reasonable assurance with respect to the financial statement preparation and presentation.

Management conducted an evaluation of the Company’s internal controls over financial reporting based on a framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the effectiveness of controls and a conclusion on the evaluation. Based on this evaluation, management believes that as of December 31, 2017,2020, the Company’s internal control over financial reporting is effective.

32


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

(Dollars in thousands, except per share data)

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 20172020, excluded OHPAgrinos and AgricenterAgNova, which were both acquired by the Company in the fourth quarter of 2017.2020. Total assets acquired constituted approximately 14%less than 5% of consolidated total assets and total sales of these acquisitions constituted approximately 4% of consolidated sales and were included in the Company’s consolidated total assets and revenue from Agrinos and AgNova included in the Company’s consolidated sales, respectively, asstatements of and for the year ended December 31, 2017.operations amounted to less than 1%. Companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company under guidelines established by the SEC. The Company has elected to exclude these acquisitions from its assessment of internal controls over financial reporting.

BDO USA, LLP, the independent registered public accounting firm that audited the consolidated financial statements included in the Annual Report on Form 10-K, was engaged to attest to and report on the effectiveness of AVD’s internal control over financial reporting as of December 31, 2017.2020. Its reports arereport is included herein.

Changes in Internal Controls over Financial Reporting

There were no changes in internal controls over financial reporting during the fourth quarter of the year ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

3330


Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors and Stockholders

American Vanguard Corporation

Newport Beach, California

Opinion on Internal Control over Financial Reporting

We have audited American Vanguard Corporation’s (the “Company’s”) internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes and financial statement schedule listed in the accompanying index and our report dated March 14, 201831, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

As indicated in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of OHP, Inc.Agrinos and Agricenter S.A. (collectively referred to as the “Acquisitions”),AgNova, which were acquired on October 2, 2017 and October 27, 2017, respectively,during the fourth quarter of 2020, and which are included in the consolidated balance sheet of the Company and subsidiaries as of December 31, 2017,2020, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended. The Acquisitions combinedAgrinos and AgNova constituted approximately 14%less than 5% of total assets as of December 31, 2017,2020 and approximately 4%less than 1% of revenuestotal sales for the year then ended.ended December 31, 2020. Management did not assess the effectiveness of internal control over financial reporting of the AcquisitionsAgrinos and AgNova because of the timing of the Acquisitions.acquisition. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the Acquisitions.Agrinos and AgNova.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

31


/s/ BDO USA, LLP

Costa Mesa, California

March 14, 201831, 2021

 

 

3432


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

ITEM 9B

OTHER INFORMATION

None.

33


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

PART III

ITEM 10

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information set forth under the captions “Executive Officers of the Company,” “Election of Directors,” “Information about the Board of Directors and Committees of the Board” and “Transactions with Management and Others—Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our Annual Meeting of Stockholders to be held in 2018on June 4, 2021 (the “Proxy Statement”), which will be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2017,2020, is incorporated herein by reference.

ITEM 11

EXECUTIVE COMPENSATION

Except as specifically provided, the information set forth under the captions “Compensation of Executive Officers” and “Information about the Board of Directors and Committees of the Board—Compensation of Directors” in the Proxy Statement is incorporated herein by reference.

ITEM 12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The disclosure contained in Part II, Item 5 under “Equity Compensation Plan Information” is incorporated herein by reference. Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

ITEM 13

The information set forth under the captions “Transactions with Management and Others” and “Information about the Board of Directors and Committees of the Board” in the Proxy Statement is incorporated herein by reference.

ITEM 14

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services is incorporated herein by reference to the information set forth under the caption “Ratification of the Selection of Independent Registered Public Accounting Firm—Relationship of the Company with Independent Registered Public Accounting Firm” in the Proxy Statement.

3534


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

PART IV

ITEM 15

EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSCHEDULE

 

(a)

The following documents are filed as part of this report:

Index to Consolidated Financial Statements and Supplementary Data:

 

Description

 

Page No

Financial Statement Schedule:

Schedule II_A Valuation and Qualifying Accounts

38

Financial Statements:

 

 

Report of Independent Registered Public Accounting Firm

 

4140

Consolidated Balance Sheets as of December 31, 20172020 and 20162019

 

42

Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016,2020, 2019, and 20120185

 

43

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016,2020, 2019, and 20152018

 

44

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 20162020, 2019 and 20152018

 

45

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016,2020, 2019, and 20152018

 

46

Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements

 

47

(b)

Exhibits Index

(b) Exhibits Index

3635


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

EXHIBIT INDEX

ITEM 15

 

Exhibit

Number

 

Description of Exhibit

 

 

 

  3.1

 

Amended and Restated Certificate of Incorporation of American Vanguard Corporation (filed as Exhibit 3.1 to the Company’s Form 10-K for the year ended December 31, 2003, which was filed on March 30, 2004 with the Securities Exchange Commission and incorporated herein by reference).

 

 

 

  3.2

 

Certificate of Amendment of Amended and Restated Certificate of Incorporation of American Vanguard Corporation (filed as Exhibit 3.2 to the Company’s Form 10-Q/A for the period ended June 30, 2004, which was filed with the Securities Exchange Commission on February 23, 2005 and incorporated herein by reference).

 

 

 

  3.3

 

Amended and Restated Bylaws of American Vanguard Corporation dated as of June 5, 2014 (filed as Exhibit 99.1 to the Company’s Form 8-K, which was filed with the Securities Exchange Commission on June 7, 2014 and incorporated herein by reference.)

 

 

 

  4

 

Form of Indenture (filed as Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (File No. 333-122981) and incorporated herein by reference).

 

 

 

10.1

 

American Vanguard Corporation Employee Stock Purchase Plan (filed as Appendix BA to the Company’s Proxy Statement filed with the Securities and Exchange Commission on May 31, 2001April 23, 2018 and incorporated herein by reference).

 

 

 

10.2

 

American Vanguard Corporation Amended and Restated Stock Incentive Plan as of June 8, 2016 (filed as Appendix A to the Company’s Proxy Statement filed with the Securities and Exchange Commission on April 25, 2016 and incorporated herein by reference).

 

 

 

10.3

 

Form of Incentive Stock Option Agreement under the American Vanguard Corporation Fourth Amended and Restated Stock Incentive Plan , (filed as Exhibit 10.3 with the Company’s Annual Report on Form 10-K for the period ended December 31, 2004, which was filed with the Securities and Exchange Commission on March 16, 2005 and incorporated herein by reference).

 

 

 

10.4

 

Form of Non-Qualified Stock Option Agreement under the American Vanguard Corporation Fourth Amended and Restated Stock Incentive Plan , (filed as Exhibit 10.4 with the Company’s Annual Report on Form 10-K for the period ended December 31, 2004, which was filed with the Securities and Exchange Commission on March 16, 2005 and incorporated herein by reference).

 

 

 

10.5

 

Employment Agreement between American Vanguard Corporation and Eric G. Wintemute dated January 15, 2008 (filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the Securities Exchange Commission on March 17, 2008 and incorporated herein by reference).

 

 

 

10.8

 

Form of Change of Control Severance Agreement, dated effective as of January 1, 2004, between American Vanguard Corporation and its executive and senior officers (filed as Exhibit 10.2 to the Company’s Form 10-Q for the period ended March 31, 2004, which was filed with the Securities Exchange Commission on May 17, 2004 and incorporated herein by reference.)

 

 

 

10.9

 

Form of Amendment of Change of Control Severance Agreement, dated effective as of July 11, 2008, between American Vanguard Corporation and named executive officers and senior officers (filed as Exhibit 99.1 to the Company’s Form 8-K, which was filed on July 11, 2008 with the Securities and Exchange Commission and incorporated herein by reference).

 

 

 

10.10

 

Form of Indemnification Agreement between American Vanguard Corporation and its Directors (as filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2004, which was filed with the Securities and Exchange Commission on March 16, 2005 and incorporated herein by reference).

 

 

 

10.11

 

Description of Compensatory Arrangements Applicable to Non-Employee Directors for 2005 (filed as Exhibit 10.1 to(as set forth on page 34 of the Company’s Form 8-K,Proxy Statement which was filed with the Securities and Exchange Commission on June 15, 2005April 22, 2019 and incorporated herein by reference).

 

 

 

3736


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

Exhibit

Number

 

Description of Exhibit

 

 

 

10.12

 

American Vanguard Corporation Employee Stock Purchase Plan amended and restated as of June 30, 2011 (filed as Exhibit A to the Company’s Proxy Statement which was filed with the Securities Exchange Commission on April 2011

and is incorporated herein by reference).

10.13

Form of Restricted Stock Agreement between American Vanguard Corporation and named executive officers (fileddated as Exhibit 99.1 to the Company’s Form 8-K, which was filed with the Securities Exchange Commission on July 24, 2008 and incorporated herein by reference).of November 13, 2020.*

 

 

 

10.14

 

Form of AmendedPerformance-Based Restricted Stock Units Award Agreement between American Vanguard Corporation and Restated Change of Control Severance Agreement effectivenamed executive officer dated as of January 1, 2014 (filed as Exhibit 10.14 to the Company’s 10-K, which was filed with the Securities Exchange Commission on February 28, 2014 and incorporated herein by reference).November 13, 2020.*

 

 

 

10.15

 

Form of American Vanguard Corporation Amended and Restated Stock Incentive Plan TSR-Based Restricted Stock Units Award Agreement dated June 6, 2013 (filed as Exhibit 10.15 to the Company’s 10-K, which was filed with the Securities Exchange Commission on February 28, 2014 and incorporated herein by reference).

 

 

 

10.16

 

Form of American Vanguard Corporation Amended and Restated Stock Incentive Plan Performance-Based Restricted Stock Units Award Agreement dated June 6, 2013 (filed as Exhibit 10.16 to the Company’s 10-K, which was filed with the Securities Exchange Commission on February 28, 2014 and incorporated herein by reference).

 

 

 

10.17

 

Third Amendment to Second Amended and Restated Credit Agreement dated as of June 30, 2017 among AMVAC and certain affiliates on the other hand, and a group of commercial lenders led by Bank of the West as agent, swing line lender, and letter of credit issuer, on the other hand (filed as Exhibit 10.1 to the Company’s Form 8-K, which was filed with the Securities Exchange Commission on July 6, 2017 and is incorporated herein by reference).

 

 

 

10.18

 

EmploymentFourth Amendment to Second Amended and Restated Credit Agreement dated as of December 31, 2014November 27, 2019 among AMVAC and certain affiliates, on the one hand, and a group of commercial lenders led by Bank of the West as agent, swing line lender, and between AMVAC Chemical Corporation and Ulrich Trogeleletter of credit issuer, on the other hand (filed as Exhibit 10.18 towith the Company’s Annual Report on Form 10-K for the yearperiod ended December 31, 2016 and incorporated herein by reference)2019).

 

 

 

21

 

List of Subsidiaries of the Company.*

 

 

 

23

 

Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.*

 

 

 

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

 

Certifications Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

 

 

101

 

The following materials from American Vanguard Corp’s Annual Report on Form 10-K for the year ended December 31, 2017,2020, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Stockholders’ Equity; (iv) Consolidated Statements of Comprehensive Income; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.*

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

*

Filed herewith.

37


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

 

(c)

Valuation and Qualifying Accounts:

 

Schedule II-A—Valuation and Qualifying Accounts

Allowance for Doubtful Accounts Receivable (in thousands)

 

 

 

Balance at

 

 

Additions

Charged to

 

 

 

 

 

 

Balance at

 

Fiscal Year Ended

 

Beginning of

Period

 

 

Costs and

Expenses

 

 

Deductions

 

 

End of

Period

 

December 31, 2017

 

$

42

 

 

$

31

 

 

$

(27

)

 

$

46

 

December 31, 2016

 

$

423

 

 

$

3

 

 

$

(384

)

 

$

42

 

December 31, 2015

 

$

166

 

 

$

332

 

 

$

(75

)

 

$

423

 

 

 

Balance at

 

 

Additions

Charged to

 

 

Foreign

 

 

Balance at

 

Fiscal Year Ended

 

Beginning of

Period

 

 

Costs and

Expenses

 

 

exchange

impact

 

 

End of

Period

 

December 31, 2020

 

$

2,300

 

 

 

1,002

 

 

 

(5

)

 

$

3,297

 

December 31, 2019

 

$

1,263

 

 

 

1,035

 

 

 

2

 

 

$

2,300

 

December 31, 2018

 

$

46

 

 

 

1,216

 

 

 

1

 

 

$

1,263

 

38


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

 

Inventory Reserve (in thousands)

 

 

 

Balance at

 

 

 

 

 

 

 

Balance at

 

Fiscal Year Ended

 

Beginning of

Period

 

 

Additions

 

 

Deductions

 

 

End of

Period

 

December 31, 2017

 

$

3,594

 

 

 

 

 

$

(457

)

 

$

3,137

 

December 31, 2016

 

$

4,020

 

 

 

 

 

$

(426

)

 

$

3,594

 

December 31, 2015

 

$

2,995

 

 

$

1,025

 

 

 

 

 

$

4,020

 

 

 

Balance at

 

 

 

 

 

 

 

Balance at

 

Fiscal Year Ended

 

Beginning of

Period

 

 

Additions

 

 

Deductions

 

 

End of

Period

 

December 31, 2020

 

$

2,130

 

 

 

1,120

 

 

 

(382

)

 

$

2,868

 

December 31, 2019

 

$

1,989

 

 

 

573

 

 

 

(432

)

 

$

2,130

 

December 31, 2018

 

$

3,137

 

 

 

476

 

 

 

(1,624

)

 

$

1,989

 

 

See accompanying report of independent registered public accounting firm on page 4138 of this annual report.

ITEM 16

FORM 10-K SUMMARY

NoneNone.

3938


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

SIGNATURESSIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, American Vanguard Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN VANGUARD CORPORATION

(Registrant)

 

By:

/s/ ERIC G. WINTEMUTE

 

By:

/s/ DAVID T. JOHNSON

 

Eric G. Wintemute

Chief Executive Officer

and Chairman of the Board

 

 

David T. Johnson

Chief Financial Officer

and Principal Accounting Officer

 

 

 

 

 

 

March 14, 201831, 2021

 

 

March 14, 201831, 2021

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.

 

By:

/s/ ERIC G. WINTEMUTE

 

By:

/s/ DAVID T. JOHNSON

 

Eric G. Wintemute

Principal Executive Officer

and Chairman of the Board

 

 

David T. Johnson

Principal Financial Officer

and Principal Accounting Officer

 

 

 

 

 

 

March 14, 201831, 2021

 

 

March 14, 201831, 2021

 

 

 

 

 

By:

/s/ DEBRA EDWARDS

 

By:

/s/ JOHN L. KILLMER

 

Debra Edwards

Director

 

 

John L. Killmer

Director

 

 

 

 

 

 

March 14, 201831, 2021

 

 

March 14, 201831, 2021

 

 

 

 

 

By:

/s/ LAWRENCE S. CLARK

 

By:

/s/ SCOTT D. BASKIN

 

Lawrence S. Clark

Director

 

 

Scott D. Baskin

Director

 

 

 

 

 

 

March 14, 201831, 2021

 

 

March 14, 201831, 2021

 

 

 

 

 

By:

/s/ MORTON D. ERLICH

 

By:

/s/ ALFRED INGULLI

 

Morton D. Erlich

Director

 

 

Alfred Ingulli

Director

 

 

 

 

 

 

March 14, 201831, 2021

 

 

March 14, 201831, 2021

 

 

By:

/s/ ESMAIL ZIRAKPARVAR

Esmail Zirakparvar

Director

 

 

 

 

 

 

 

 

By:

March 14, 2018/s/ ESMAIL ZIRAKPARVAR

By:

/s/ ÉMER GUNTER

Esmail Zirakparvar

Director

Émer Gunter

Director

 

 

 

March 31, 2021

March 31, 2021

 

4039


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

Report of Independent RegisteredRegistered Public Accounting Firm

Shareholders and Board of Directors and Stockholders

American Vanguard Corporation

Newport Beach, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of American Vanguard Corporation (the “Company”) and subsidiaries as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 20172020 and 2016,2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control – Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 14, 201831, 2021 expressed an unqualified opinion thereon.

Change in Accounting Method Related to Leases

As discussed in the notes to the consolidated financial statements, the Company has changed its method of accounting for leases effective January 1, 2019 due to the adoption of Accounting Standards Codification (“ASC”) 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

40


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

Accrued Program Costs

As discussed in notes to the 2020 consolidated financial statements, the Company offers discounts to its customers based on various programs. As of December 31, 2020, the Company had accrued program costs  of $45.4 million and program costs recorded as a reduction of gross sales totaled $66.6 million in 2020. In accordance with ASC 606, Revenue from Contracts with Customers (Topic 606), these discounts represent variable consideration and revenues from sales are recorded at the net sales price, which is the transaction price, and includes estimates of variable consideration. Variable consideration includes amounts expected to be paid to customers using the expected value method. Each quarter management compares individual sale transactions with programs to determine what, if any, estimated program liabilities have been incurred.

We identified management’s determination of variable consideration related to program costs as a critical audit matter. The principal considerations for our determination included significant unobservable inputs and assumptions utilized by management in determining variable considerations for certain programs. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address this matter.

The primary procedures we performed to address the critical audit matter included:

Testing the design and operating effectiveness of certain internal controls related to management’s accounting for program costs, specifically including controls over: (i) the calculation of significant components of the program costs, and (ii) the completeness and accuracy of program costs.

Assessing the completeness and reasonableness of variable and incremental programs inclusive of significant inputs and assumptions used to determine the variable consideration through (i) evaluating current year accrued program costs by material product line against historical program cost payments, (ii) assessing management’s assumptions against trends and historical metrics and (iii) performing retrospective reviews utilizing available historical payment of program costs compared to estimates made in prior periods.

Testing the computation of the accrued program costs by re-performing or independently calculating portions of the accrued program costs and testing of the accrued program costs payments made to customers on a sample basis. Testing material portions of the underlying data used to relevant source documents, accounting records and approved program rates or amounts.

/s/ BDO USA, LLP

We have served as the Company's auditor since 1991.

Costa Mesa, California

March 14, 201831, 2021

41


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED BALANCEBALANCE SHEETS

December 31, 20172020 and 20162019

(In thousands, except share data)

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,337

 

 

$

7,869

 

 

$

15,923

 

 

$

6,581

 

Receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade, net of allowance for doubtful accounts of $46 and $42, respectively

 

 

102,534

 

 

 

83,777

 

Trade, net of allowance for doubtful accounts of $3,297 and $2,300,

respectively

 

 

130,029

 

 

 

136,075

 

Other

 

 

7,071

 

 

 

3,429

 

 

 

8,444

 

 

 

16,949

 

 

 

109,605

 

 

 

87,206

 

Inventories

 

 

123,124

 

 

 

120,576

 

Total receivables, net

 

 

138,473

 

 

 

153,024

 

Inventories, net

 

 

163,784

 

 

 

163,313

 

Prepaid expenses

 

 

10,817

 

 

 

11,424

 

 

 

10,499

 

 

 

10,457

 

Income taxes receivable

 

 

3,046

 

 

 

2,824

 

Total current assets

 

 

254,883

 

 

 

227,075

 

 

 

331,725

 

 

 

336,199

 

Property, plant and equipment, net

 

 

49,321

 

 

 

50,295

 

 

 

65,382

 

 

 

56,521

 

Intangible assets, net of applicable amortization

 

 

180,950

 

 

 

121,433

 

Operating lease right-of-use assets

 

 

12,198

 

 

 

11,258

 

Intangible assets, net of amortization

 

 

197,514

 

 

 

198,261

 

Goodwill

 

 

22,184

 

 

 

 

 

 

52,108

 

 

 

46,673

 

Other assets

 

 

28,254

 

 

 

31,153

 

 

 

18,602

 

 

 

21,186

 

Deferred income tax assets, net

 

 

2,764

 

 

 

 

Total assets

 

$

535,592

 

 

$

429,956

 

 

$

680,293

 

 

$

670,098

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current installments of other liabilities

 

$

5,395

 

 

$

26

 

 

$

2,647

 

 

$

1,513

 

Accounts payable

 

 

53,748

 

 

 

24,358

 

 

 

59,253

 

 

 

64,881

 

Deferred revenue

 

 

14,574

 

 

 

3,848

 

 

 

43,611

 

 

 

6,826

 

Accrued program costs

 

 

39,054

 

 

 

42,930

 

 

 

45,441

 

 

 

47,699

 

Accrued expenses and other payables

 

 

12,061

 

 

 

12,072

 

 

 

16,184

 

 

 

12,815

 

Income taxes payable

 

 

1,370

 

 

 

13,840

 

Operating lease liabilities, current

 

 

4,188

 

 

 

4,904

 

Total current liabilities

 

 

126,202

 

 

 

97,074

 

 

 

171,324

 

 

 

138,638

 

Long-term debt, excluding current installments

 

 

77,486

 

 

 

40,951

 

Long-term debt, net of deferred loan fees

 

 

107,442

 

 

 

148,766

 

Other liabilities, excluding current installments

 

 

10,306

 

 

 

2,868

 

 

 

9,054

 

 

 

12,890

 

Operating lease liabilities, long-term

 

 

8,177

 

 

 

6,503

 

Deferred income tax liabilities, net

 

 

16,284

 

 

 

6,706

 

 

 

23,560

 

 

 

19,145

 

Total liabilities

 

 

230,278

 

 

 

147,599

 

 

 

319,557

 

 

 

325,942

 

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 32,241,866 shares in 2017 and 31,819,695 shares in 2016

 

 

3,225

 

 

 

3,183

 

Preferred stock, $.10 par value per share; authorized 400,000 shares; NaN issued

 

 

 

 

 

 

Common stock, $.10 par value per share; authorized 40,000,000 shares; issued

33,922,433 shares in 2020 and 33,233,614 shares in 2019

 

 

3,394

 

 

 

3,324

 

Additional paid-in capital

 

 

75,658

 

 

 

71,699

 

 

 

96,642

 

 

 

90,572

 

Accumulated other comprehensive loss

 

 

(4,507

)

 

 

(4,851

)

 

 

(9,322

)

 

 

(5,698

)

Retained earnings

 

 

238,953

 

 

 

220,428

 

 

 

288,182

 

 

 

274,118

 

 

 

313,329

 

 

 

290,459

 

 

 

378,896

 

 

 

362,316

 

Less treasury stock at cost, 2,450,634 shares in 2017 and in 2016

 

 

(8,269

)

 

 

(8,269

)

American Vanguard Corporation stockholders’ equity

 

 

305,060

 

 

 

282,190

 

Non-controlling interest

 

 

254

 

 

 

167

 

Less treasury stock at cost, 3,061,040 shares in 2020 and 2019

 

 

(18,160

)

 

 

(18,160

)

Total stockholders’ equity

 

 

305,314

 

 

 

282,357

 

 

 

360,736

 

 

 

344,156

 

Total liabilities and stockholders’ equity

 

$

535,592

 

 

$

429,956

 

 

$

680,293

 

 

$

670,098

 

 

See summary of significant accounting policies and notes to consolidated financial statements.

42


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTSSTATEMENTS OF OPERATIONS

Years ended December 31, 2017, 20162020, 2019 and 20152018

(In thousands, except per share data)

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Net sales

 

$

355,047

 

 

$

312,113

 

 

$

289,382

 

 

$

458,704

 

 

$

468,186

 

 

$

454,272

 

Cost of sales

 

 

207,655

 

 

 

183,825

 

 

 

177,480

 

 

 

286,114

 

 

 

290,832

 

 

 

271,641

 

Gross profit

 

 

147,392

 

 

 

128,288

 

 

 

111,902

 

 

 

172,590

 

 

 

177,354

 

 

 

182,631

 

Operating expenses

 

 

120,598

 

 

 

107,748

 

 

 

100,378

 

 

 

154,339

 

 

 

151,133

 

 

 

143,610

 

Bargain purchase gain on business acquisition

 

 

(4,657

)

 

 

 

 

 

 

Operating income

 

 

26,794

 

 

 

20,540

 

 

 

11,524

 

 

 

22,908

 

 

 

26,221

 

 

 

39,021

 

Change in fair value of derivative instrument

 

 

 

 

 

 

 

 

1,401

 

Change in fair value of an equity investment

 

 

(717

)

 

 

 

 

 

 

Interest expense, net

 

 

1,941

 

 

 

1,623

 

 

 

2,562

 

 

 

5,178

 

 

 

7,209

 

 

 

4,024

 

Income before provision for income taxes and loss on equity investments

 

 

24,853

 

 

 

18,917

 

 

 

8,962

 

Income before provision for income taxes and loss on equity method

investment

 

 

18,447

 

 

 

19,012

 

 

 

33,596

 

Provision for income taxes

 

 

4,443

 

 

 

5,540

 

 

 

2,009

 

 

 

3,080

 

 

 

5,202

 

 

 

9,145

 

Income before loss on equity investments

 

 

20,410

 

 

 

13,377

 

 

 

6,953

 

Less net loss from equity method investments

 

 

(49

)

 

 

(353

)

 

 

(636

)

Income before loss on equity method investment

 

 

15,367

 

 

 

13,810

 

 

 

24,451

 

Less net loss from equity method investment

 

 

125

 

 

 

209

 

 

 

389

 

Net income

 

 

20,361

 

 

 

13,024

 

 

 

6,317

 

 

 

15,242

 

 

 

13,601

 

 

 

24,062

 

Net (income) loss attributable to non-controlling interest

 

 

(87

)

 

 

(236

)

 

 

274

 

Net loss attributable to non-controlling interest

 

 

 

 

 

 

 

 

133

 

Net income attributable to American Vanguard

 

$

20,274

 

 

$

12,788

 

 

$

6,591

 

 

$

15,242

 

 

$

13,601

 

 

$

24,195

 

Earnings per common share—basic

 

$

0.70

 

 

$

0.44

 

 

$

0.23

 

 

$

0.52

 

 

$

0.47

 

 

$

0.83

 

Earnings per common share—assuming dilution

 

$

0.68

 

 

$

0.44

 

 

$

0.23

 

 

$

0.51

 

 

$

0.46

 

 

$

0.81

 

Weighted average shares outstanding—basic

 

 

29,100

 

 

 

28,859

 

 

 

28,673

 

 

 

29,450

 

 

 

29,030

 

 

 

29,326

 

Weighted average shares outstanding—assuming dilution

 

 

29,703

 

 

 

29,394

 

 

 

29,237

 

 

 

29,993

 

 

 

29,656

 

 

 

30,048

 

 

See summary of significant accounting policies and notes to consolidated financial statements.

43


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31, 2017, 20162020, 2019 and 20152018

(In thousands)

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Net income

 

$

20,361

 

 

$

13,024

 

 

$

6,317

 

 

$

15,242

 

 

$

13,601

 

 

$

24,062

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

344

 

 

 

(1,310

)

 

 

(1,571

)

 

 

(3,624

)

 

 

(1,191

)

 

 

 

Comprehensive income

 

 

20,705

 

 

 

11,714

 

 

 

4,746

 

 

 

11,618

 

 

 

12,410

 

 

 

24,062

 

Less: Comprehensive income (loss) attributable to non-controlling interest

 

 

87

 

 

 

236

 

 

 

(274

)

Less: Comprehensive loss attributable to

non-controlling interest

 

 

 

 

 

 

 

 

(133

)

Comprehensive income attributable to American Vanguard

 

$

20,618

 

 

$

11,478

 

 

$

5,020

 

 

$

11,618

 

 

$

12,410

 

 

$

24,195

 

See summary of significant accounting policies and notes to consolidated financial statements

44


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years ended December 31, 2020, 2019 and 2018

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

AVD

 

 

Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

loss

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

 

Interest

 

 

Total

 

Balance, December 31, 2017

 

 

32,241,866

 

 

$

3,225

 

 

$

75,658

 

 

$

(4,507

)

 

$

238,953

 

 

 

2,450,634

 

 

$

(8,269

)

 

$

305,060

 

 

$

254

 

 

$

305,314

 

Adjustment to recognize new revenue

   recognition standard, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,214

 

 

 

 

 

 

 

 

 

2,214

 

 

 

 

 

 

2,214

 

Adjustment to recognize new standard on

   taxes on foreign asset transfers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(180

)

 

 

 

 

 

 

 

 

(180

)

 

 

 

 

 

(180

)

Stocks issued under ESPP

 

 

35,950

 

 

 

2

 

 

 

668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

670

 

 

 

 

 

 

670

 

Cash dividends on common stock ($0.08

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,342

)

 

 

 

 

 

 

 

 

(2,342

)

 

 

 

 

 

(2,342

)

Stock based compensation

 

 

 

 

 

 

 

 

5,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,805

 

 

 

 

 

 

5,805

 

Stock options exercised; grants, termination,

   and vesting of restricted stock units (net of

   shares in lieu of taxes)

 

 

475,011

 

 

 

49

 

 

 

998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,047

 

 

 

 

 

 

1,047

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

(121

)

 

 

(73

)

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

452,358

 

 

 

(7,287

)

 

 

(7,287

)

 

 

 

 

 

 

(7,287

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,195

 

 

 

 

 

 

 

 

 

24,195

 

 

 

(133

)

 

 

24,062

 

Balance, December 31, 2018

 

 

32,752,827

 

 

 

3,276

 

 

 

83,177

 

 

 

(4,507

)

 

 

262,840

 

 

 

2,902,992

 

 

 

(15,556

)

 

 

329,230

 

 

 

 

 

 

329,230

 

Stocks issued under ESPP

 

 

47,229

 

 

 

5

 

 

 

711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

716

 

 

 

 

 

 

716

 

Cash dividends on common stock ($0.08

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,323

)

 

 

 

 

 

 

 

 

(2,323

)

 

 

 

 

 

(2,323

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

 

(1,191

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,191

)

 

 

 

 

 

 

(1,191

)

Stock based compensation

 

 

 

 

 

 

 

 

7,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,160

 

 

 

 

 

 

7,160

 

Stock options exercised; grants, termination,

   and vesting of restricted stock units (net of

   shares in lieu of taxes)

 

 

433,558

 

 

 

43

 

 

 

(476

)

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

(433

)

 

 

 

 

 

(433

)

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

158,048

 

 

 

(2,604

)

 

 

(2,604

)

 

 

 

 

 

(2,604

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,601

 

 

 

 

 

 

 

 

 

13,601

 

 

 

 

 

 

13,601

 

Balance, December 31, 2019

 

 

33,233,614

 

 

 

3,324

 

 

 

90,572

 

 

 

(5,698

)

 

 

274,118

 

 

 

3,061,040

 

 

 

(18,160

)

 

 

344,156

 

 

 

 

 

 

344,156

 

Stocks issued under ESPP

 

 

49,668

 

 

 

5

 

 

 

716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

721

 

 

 

 

 

 

721

 

Cash dividends on common stock ($0.04

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,178

)

 

 

 

 

 

 

 

 

(1,178

)

 

 

 

 

 

(1,178

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

 

(3,624

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,624

)

 

 

 

 

 

 

(3,624

)

Stock based compensation

 

 

 

 

 

 

 

 

6,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,561

 

 

 

 

 

 

6,561

 

Stock options exercised; grants, termination,

   and vesting of restricted stock units (net of

   shares in lieu of taxes)

 

 

639,151

 

 

 

65

 

 

 

(1,207

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,142

)

 

 

 

 

 

(1,142

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,242

 

 

 

 

 

 

 

 

 

15,242

 

 

 

 

 

 

15,242

 

Balance, December 31, 2020

 

 

33,922,433

 

 

$

3,394

 

 

$

96,642

 

 

$

(9,322

)

 

$

288,182

 

 

 

3,061,040

 

 

$

(18,160

)

 

$

360,736

 

 

$

 

 

$

360,736

 

 

See summary of significant accounting policies and notes to consolidated financial statements

 

 

44


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years ended December 31, 2017, 2016 and 2015

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

AVD

 

 

Controlling

 

 

 

 

 

 

 

Shares

 

 

 

 

Amount

 

 

Capital

 

 

Income/(loss)

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

 

Interest

 

 

Total

 

Balance, December 31, 2014

 

 

31,550,477

 

 

 

 

$

3,156

 

 

$

66,232

 

 

$

(1,970

)

 

$

202,488

 

 

 

2,450,634

 

 

$

(8,269

)

 

$

261,637

 

 

$

(634

)

 

$

261,003

 

Stocks issued under ESPP

 

 

50,452

 

 

 

 

 

5

 

 

 

568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

573

 

 

 

 

 

 

573

 

Cash dividends on common stock ($0.02

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(572

)

 

 

 

 

 

 

 

 

(572

)

 

 

 

 

 

(572

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,571

)

 

 

 

 

 

 

 

 

 

 

 

(1,571

)

 

 

 

 

 

(1,571

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

3,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,881

 

 

 

 

 

 

3,881

 

Stock options exercised; grants, termination,

   and vesting of restricted stock units (net of

   shares in lieu of taxes)

 

 

37,296

 

 

 

 

 

3

 

 

 

(259

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(256

)

 

 

 

 

 

(256

)

Tax effect from share based compensation

 

 

 

 

 

 

 

 

 

 

(924

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(924

)

 

 

 

 

 

(924

)

Adjustment and purchase of non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

(964

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(964

)

 

 

839

 

 

 

(125

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,591

 

 

 

 

 

 

 

 

 

6,591

 

 

 

(274

)

 

 

6,317

 

Balance, December 31, 2015

 

 

31,638,225

 

 

 

 

 

3,164

 

 

 

68,534

 

 

 

(3,541

)

 

 

208,507

 

 

 

2,450,634

 

 

 

(8,269

)

 

 

268,395

 

 

 

(69

)

 

 

268,326

 

Stocks issued under ESPP

 

 

42,730

 

 

 

 

 

4

 

 

 

558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

562

 

 

 

 

 

 

562

 

Cash dividends on common stock ($0.03

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(867

)

 

 

 

 

 

 

 

 

(867

)

 

 

 

 

 

(867

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,310

)

 

 

 

 

 

 

 

 

 

 

 

(1,310

)

 

 

 

 

 

(1,310

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

3,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,167

 

 

 

 

 

 

3,167

 

Stock options exercised; grants, termination,

   and vesting of restricted stock units (net of

   shares in lieu of taxes)

 

 

138,740

 

 

 

 

 

15

 

 

 

(336

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(321

)

 

 

 

 

 

(321

)

Tax effect from share based compensation

 

 

 

 

 

 

 

 

 

 

(224

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(224

)

 

 

 

 

 

(224

)

Net income

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

12,788

 

 

 

 

 

 

 

 

 

12,788

 

 

 

236

 

 

 

13,024

 

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

 

 

34,016

 

 

 

 

 

4

 

 

 

551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555

 

 

 

 

 

 

555

 

Cash dividends on common stock ($0.06

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,749

)

 

 

 

 

 

 

 

 

(1,749

)

 

 

 

 

 

(1,749

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

 

 

344

 

 

 

 

 

 

 

 

 

 

 

 

344

 

 

 

 

 

 

344

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

4,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,714

 

 

 

 

 

 

4,714

 

Stock options exercised; grants, termination,

   and vesting of restricted stock units (net of

   shares in lieu of taxes)

 

 

388,155

 

 

 

 

 

38

 

 

 

(1,306

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,268

)

 

 

 

 

 

(1,268

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,274

 

 

 

 

 

 

 

 

 

20,274

 

 

 

87

 

 

 

20,361

 

Balance, December 31, 2017

 

 

32,241,866

 

 

 

 

$

3,225

 

 

$

75,658

 

 

$

(4,507

)

 

$

238,953

 

 

 

2,450,634

 

 

$

(8,269

)

 

$

305,060

 

 

$

254

 

 

$

305,314

 

See summary of significant accounting policies and notes to consolidated financial statements

45


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTSSTATEMENTS OF CASH FLOWS

Years ended December 31, 2017, 20162020, 2019 and 20152018

(In thousands)

 

 

2017

 

 

2016

 

 

2015

 

Increase cash

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

20,361

 

 

$

13,024

 

 

$

6,317

 

Adjustments to reconcile net income to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of fixed and intangible assets

 

 

16,959

 

 

 

16,327

 

 

 

16,474

 

Amortization of other long term assets and debt issuance costs

 

 

5,221

 

 

 

5,203

 

 

 

5,275

 

Amortization of discounted liabilities

 

 

110

 

 

 

16

 

 

 

140

 

Stock-based compensation

 

 

4,714

 

 

 

3,167

 

 

 

3,881

 

Excess tax benefit from share based compensation

 

 

 

 

 

(96

)

 

 

(23

)

Increase (decrease) in deferred income taxes

 

 

398

 

 

 

(151

)

 

 

27

 

Operating loss from equity method investment

 

 

49

 

 

 

353

 

 

 

629

 

Loss from dilution of equity method investment

 

 

 

 

 

 

 

 

7

 

Changes in assets and liabilities associated with operations, net of business

   combinations:

 

 

 

 

 

 

 

 

 

 

 

 

Decrease (increase) in net receivables

 

 

754

 

 

 

(11,817

)

 

 

13,034

 

Decrease in inventories

 

 

16,183

 

 

 

15,901

 

 

 

29,154

 

(Increase) decrease in income tax receivable/payable, net

 

 

(12,073

)

 

 

1,186

 

 

 

4,872

 

Decrease (increase) in prepaid expenses and other assets

 

 

647

 

 

 

(3,872

)

 

 

2,082

 

Increase (decrease) in accounts payable

 

 

3,322

 

 

 

9,015

 

 

 

(5,068

)

Increase (decrease) in deferred revenue

 

 

10,726

 

 

 

(5,040

)

 

 

7,990

 

Decrease in accrued program costs

 

 

(4,529

)

 

 

(1,441

)

 

 

(8,175

)

(Decrease) increase in other payables

 

 

(3,841

)

 

 

4,631

 

 

 

1,952

 

Net cash provided by operating activities

 

 

59,001

 

 

 

46,406

 

 

 

78,568

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(6,666

)

 

 

(10,630

)

 

 

(6,899

)

Investment

 

 

(950

)

 

 

(3,283

)

 

 

(125

)

Acquisitions of businesses and intangible assets

 

 

(81,896

)

 

 

(224

)

 

 

(36,667

)

Net cash used in investing activities

 

 

(89,512

)

 

 

(14,137

)

 

 

(43,691

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Payments under line of credit agreement

 

 

(103,975

)

 

 

(107,600

)

 

 

(121,400

)

Borrowings under line of credit agreement

 

 

141,000

 

 

 

80,000

 

 

 

90,880

 

Debt issuance cost

 

 

(751

)

 

 

 

 

 

 

Payment on other long-term liabilities

 

 

(26

)

 

 

(704

)

 

 

(1,543

)

Excess tax benefit from share based compensation

 

 

 

 

 

96

 

 

 

23

 

Net payment from the issuance of common stock (sale of stock under ESPP,

   exercise of stock options and shares purchased for tax withholding)

 

 

(713

)

 

 

241

 

 

 

317

 

Payment of cash dividends

 

 

(1,600

)

 

 

(578

)

 

 

(1,141

)

Net cash provided by (used in) financing activities

 

 

33,935

 

 

 

(28,545

)

 

 

(32,864

)

Net increase in cash and cash equivalents

 

 

3,424

 

 

 

3,724

 

 

 

2,013

 

Effect of exchange rate changes on cash and cash equivalents

 

 

44

 

 

 

(1,379

)

 

 

(1,374

)

Cash and cash equivalents at beginning of year

 

 

7,869

 

 

 

5,524

 

 

 

4,885

 

Cash and cash equivalents at end of year

 

$

11,337

 

 

$

7,869

 

 

$

5,524

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid (received) during the year for:

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

1,500

 

 

$

1,748

 

 

$

2,750

 

Income taxes, net

 

$

17,841

 

 

$

4,947

 

 

$

(3,697

)

 

 

2020

 

 

2019

 

 

2018

 

Increase cash

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

15,242

 

 

$

13,601

 

 

$

24,062

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization of property, plant and equipment and intangible assets

 

 

19,902

 

 

 

18,643

 

 

 

18,891

 

Loss on disposal of property, plant and equipment

 

 

119

 

 

 

 

 

 

 

Amortization of other long-term assets

 

 

3,947

 

 

 

3,983

 

 

 

4,649

 

Accretion of discounted liabilities

 

 

9

 

 

 

72

 

 

 

359

 

Amortization of deferred loan fees

 

 

300

 

 

 

224

 

 

 

235

 

Provision for bad debts

 

 

1,002

 

 

 

1,035

 

 

 

1,216

 

Revision of contingent consideration

 

 

250

 

 

 

(4,120

)

 

 

(6,050

)

Stock-based compensation

 

 

6,561

 

 

 

7,160

 

 

 

5,805

 

Increase (decrease) in deferred income taxes

 

 

969

 

 

 

2,616

 

 

 

(561

)

Changes in liabilities for uncertain tax positions or unrecognized tax benefits

 

 

(2,092

)

 

 

263

 

 

 

171

 

Change in equity investment fair value

 

 

(717

)

 

 

 

 

 

 

Loss from equity method investment

 

 

125

 

 

 

209

 

 

 

389

 

Bargain purchase gain

 

 

(4,657

)

 

 

 

 

 

 

Changes in assets and liabilities associated with operations, net of business

combinations:

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) decrease in net receivables

 

 

15,559

 

 

 

(11,383

)

 

 

(22,536

)

(Increase) decrease in inventories

 

 

7,421

 

 

 

3,817

 

 

 

(31,440

)

(Increase) decrease in income tax receivable, net

 

 

(287

)

 

 

(6,855

)

 

 

2,655

 

(Increase) decrease in prepaid expenses and other assets

 

 

140

 

 

 

(876

)

 

 

186

 

Increase in net operating lease liability

 

 

18

 

 

 

149

 

 

 

 

Increase (decrease) in accounts payable

 

 

(8,124

)

 

 

(7,977

)

 

 

9,097

 

Increase (decrease) in deferred revenue

 

 

36,803

 

 

 

(13,355

)

 

 

5,468

 

Increase (decrease) in accrued program costs

 

 

(2,517

)

 

 

5,797

 

 

 

(1,705

)

Increase (decrease) in other payables and accrued expenses

 

 

(775

)

 

 

(3,600

)

 

 

767

 

Net cash provided by operating activities

 

 

89,198

 

 

 

9,403

 

 

 

11,658

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(11,249

)

 

 

(12,985

)

 

 

(8,050

)

Investments

 

 

(1,190

)

 

 

 

 

 

 

Intangible assets

 

 

(4,014

)

 

 

(3,880

)

 

 

 

Acquisitions of businesses and product lines

 

 

(19,342

)

 

 

(37,972

)

 

 

(19,959

)

Net cash used in investing activities

 

 

(35,795

)

 

 

(54,837

)

 

 

(28,009

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net (payments) borrowings under line of credit agreement

 

 

(41,624

)

 

 

51,900

 

 

 

18,975

 

Cash paid to acquire non-controlling interest

 

 

 

 

 

 

 

 

(73

)

Payment on deferred consideration

 

 

 

 

 

(850

)

 

 

 

Net receipt (payment) from the issuance of common stock (sale of stock under

ESPP, exercise of stock options and shares purchased for tax withholding)

 

 

(421

)

 

 

283

 

 

 

1,717

 

Repurchase of common stock

 

 

 

 

 

(2,604

)

 

 

(7,287

)

Payment of cash dividends

 

 

(1,168

)

 

 

(2,323

)

 

 

(2,199

)

Net cash provided by (used in) financing activities

 

 

(43,213

)

 

 

46,406

 

 

 

11,133

 

Net increase (decrease) in cash and cash equivalents

 

 

10,190

 

 

 

972

��

 

 

(5,218

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(848

)

 

 

(559

)

 

 

49

 

Cash and cash equivalents at beginning of year

 

 

6,581

 

 

 

6,168

 

 

 

11,337

 

Cash and cash equivalents at end of year

 

$

15,923

 

 

$

6,581

 

 

$

6,168

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

5,313

 

 

$

7,121

 

 

$

3,319

 

Income taxes, net

 

$

3,881

 

 

$

9,276

 

 

$

8,449

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred consideration in connection with business and asset acquisitions

 

$

2,630

 

 

$

3,051

 

 

$

3,530

 

See summary of significant accounting policies and notes to the consolidated financial statements

 

46


AMERICAN VANGUARD CORPORATION

AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2017, 20162020, 2019 and 20152018

(Dollars in thousands, except per share data)

Description of Business, Basis of Consolidation, Basis of Presentation and Significant Accounting Policies

American Vanguard Corporation (the “Company” or “AVD”) is primarily a specialty chemical manufacturer that develops and markets safe and effective products for agricultural, commercial and consumer uses. The Company manufactures and formulates chemicals for crops, human and animal protection. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and Envance, its majority owned subsidiary.subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company operates within a single operating category.

All U.S. dollar amounts reflected in the notes to the consolidated financial statements are presented in thousands, except per share data.

The Company is closely monitoring the impact of the novel coronavirus (COVID-19) pandemic on all aspects of its business, including how the pandemic has impacted, and will likely impact, its customers, business partners, and employees. The Company is considered an essential business by most governments in the jurisdictions and territories in which the Company operates and, as a result, did not incur significant disruptions from the COVID-19 pandemic during the year ended December 31, 2020. However, the Company can identify a number of effects on its overall performance as a result of the coronavirus. While none of them alone is material, taken together, they would constitute several million dollars in lost sales opportunities and an indeterminate level of profitability. First, while the Company has recorded strong sales of new products, particularly soybean and rice herbicides, the Company believes that those sales would likely have been higher but for the fact that the Company was constrained from holding in-person meetings with existing and potential new customers to promote those products. Second, demand for certain commodities – specifically, corn, potatoes and fruits and vegetables – have experienced a drop from restaurants that have been closed (in whole or in part) due to the coronavirus. This, in turn, has softened demand for some of the Company’s products that are used on those crops and could affect future contracts. Third, local currencies in Brazil, Mexico and Australia suffered a significant decline in value versus the US dollar during the first quarter of the year, which, in turn, has affected both sales and to a lesser extent profitability of our international business. These key currencies (from the Company’s perspective) somewhat stabilized and partially recovered during the second, third, and fourth quarter of the year. Further, while it is not possible to identify all of the reasons for the fluctuation in exchange rates with certainty, it is not unreasonable to include the pandemic among its causes.

Looking forward, the Company is unable to predict the impact that the pandemic may have on its future financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its customers in the near term will depend on future developments, which are highly uncertain and, beyond extrapolating our experience over the past year, cannot be predicted with confidence. The Company continues to monitor its business for adverse impacts of the pandemic, including volatility in the foreign exchange markets, demand, supply-chain disruptions in certain markets, and increased costs of employee safety, among others.

We believe that the combination of our cash flows from future operations, current cash on hand and the availability under the Company’s credit facility will be sufficient to meet our working capital and capital expenditure requirements and will provide us with adequate liquidity to meet our anticipated operating needs for at least the next 12 months from the issuance of the Annual Report. Although operating activities are expected to provide cash, to the extent of growth in the future, our operating and investing activities will use cash and, consequently, this growth may require us to access some or all of the availability under the credit facility. It is also possible that additional sources of finance may be necessary to support additional growth.

Based on similar economic and operational characteristics, the Company’s business is aggregated into one1 reportable category. Selective enterprise information is as follows:

 

 

 

2017

 

 

2016

 

 

2015

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

132,137

 

 

$

119,226

 

 

$

117,180

 

Herbicides/soil fumigants/fungicides

 

 

121,581

 

 

 

123,540

 

 

 

111,897

 

Other, including plant growth regulators

 

 

47,691

 

 

 

29,438

 

 

 

29,013

 

Total crop

 

 

301,409

 

 

 

272,204

 

 

 

258,090

 

Non-crop

 

 

53,638

 

 

 

39,909

 

 

 

31,292

 

 

 

$

355,047

 

 

$

312,113

 

 

$

289,382

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

Crop

 

$

117,892

 

 

$

107,821

 

 

$

97,198

 

Non-crop

 

 

29,500

 

 

 

20,467

 

 

 

14,704

 

 

 

$

147,392

 

 

$

128,288

 

 

$

111,902

 

 

 

2020

 

 

2019

 

 

2018

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

223,167

 

 

$

220,635

 

 

$

240,855

 

U.S. non-crop

 

 

48,557

 

 

 

61,590

 

 

 

59,459

 

Total U.S.

 

 

271,724

 

 

 

282,225

 

 

 

300,314

 

International

 

 

186,980

 

 

 

185,961

 

 

 

153,958

 

Total net sales

 

$

458,704

 

 

$

468,186

 

 

$

454,272

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

98,340

 

 

$

95,429

 

 

$

110,172

 


U.S. non-crop

 

 

22,225

 

 

 

29,713

 

 

 

30,714

 

Total U.S.

 

 

120,565

 

 

 

125,142

 

 

 

140,886

 

International

 

 

52,025

 

 

 

52,212

 

 

 

41,745

 

Total gross profit

 

$

172,590

 

 

$

177,354

 

 

$

182,631

 

 

Due to elements inherent to the Company’s business, such as differing and unpredictable weather patterns, crop growing cycles, changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company’s performance on a quarterly basis (for example, gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not as good an indicator as full-year comparisons.

 

Reclassifications — Reclassifications—Certain prior years’ amounts have been reclassified to conform to the current year’s presentation.   

Cost of Sales—In addition to normal Cost of sales is the Company’s capitalized cost centers (i.e.,of inventory procurement and production that is sold in the respective periods. These costs include direct labor, raw materials),materials, and manufacturing overhead, Additionally the Company also includes such cost centers as Health and Safety, Environmental, Maintenance and Quality Control in cost of sales.

Operating Expenses—Operating expenses include cost centers for Selling, General and Administrative, Research, Product Development, and Regulatory, and Freight, Delivery and Warehousing.

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Selling

 

$

29,112

 

 

$

27,442

 

 

$

27,052

 

 

$

42,389

 

 

$

45,121

 

 

$

39,585

 

General and administrative

 

 

37,660

 

 

 

32,128

 

 

 

28,516

 

 

 

48,828

 

 

 

46,593

 

 

 

42,981

 

Research, product development and regulatory

 

 

26,076

 

 

 

21,298

 

 

 

19,116

 

 

 

26,310

 

 

 

24,070

 

 

 

26,428

 

Freight, delivery and warehousing

 

 

27,750

 

 

 

26,880

 

 

 

25,694

 

 

 

36,812

 

 

 

35,349

 

 

 

34,616

 

 

$

120,598

 

 

$

107,748

 

 

$

100,378

 

 

$

154,339

 

 

$

151,133

 

 

$

143,610

 

 

Advertising Expense—The Company expenses advertising costs in the period incurred. Advertising expenses, which include promotional costs, are recognized in operating costsexpenses (specifically in selling expenses) in the consolidated statements of operations and were $3,020$4,833, $5,520 and $4,865 in 2017, $2,271 in 20162020, 2019 and $3,535 in 2015.2018, respectively.

 


Cash and cash equivalents—The Company’s cash and cash equivalents consist primarily of certificates of deposit with an initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

 

Inventories —Inventories—The Company values its inventories at lower of cost or net realizable value. Cost is determined by the first-in, first-out (“FIFO”) or average cost method, including material, labor, factory overhead and subcontracting services. The Company writes down and makes adjustments to its inventory carrying values as a result of net realizable value assessments of slow moving and obsolete inventory and other annual adjustments to ensure that our standard costs continue to closely reflect manufacturingactual cost. The Company recorded an inventory reserve allowance of $3,137$2,868 and $2,130 at December 31, 2017, as compared to $3,594 at December 31, 2016.  2020 and 2019, respectively.

The components of inventories, net of reserve allowance, consist of the following:

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Finished products

 

$

107,595

 

 

$

103,832

 

 

$

149,415

 

 

$

151,917

 

Raw materials

 

 

15,529

 

 

 

16,744

 

 

 

14,369

 

 

 

11,396

 

 

$

123,124

 

 

$

120,576

 

 

$

163,784

 

 

$

163,313

 

 

Revenue Recognition and Allowance for Doubtful Accounts—Revenue from sales is recognized at the time title and the risks of ownership pass. This is when the customer has made the fixed commitment to purchase the goods, the products are shipped per the customer’s instructions, the sales price is fixed and determinable, and collection is reasonably assured.Leases The Company has in place procedures to ensure that revenue is recognized when earned. The procedures are subject to management’s reviewoperating leases for warehouses, manufacturing facilities, offices, cars, railcars and from time to time certain sales are excluded until it is clear that the title has passed and there is no further recourse to the Company. From time to time,equipment. On January 1, 2019, the Company may offer a program to eligible customers,adopted the accounting and adoption guidance in good standing, that provides extended payment terms on a portion of the sales on selected products. The Company analyzes these extended payment programs in connection with its revenue recognition policy to ensure all revenue recognition criteria are satisfied at the time of sale. Allowance for doubtful accounts is established based on estimates of losses related to customer receivable balances. Estimates are developed using either standard quantitative measures based on historical losses, adjusted for current economic conditions or by evaluating specific customer accounts for risk of loss.

Accrued Program Costs— In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605,842, Leases, for its operating leases resulting in the recognition of operating lease right-of-use (“ROU”) assets and lease liabilities on the effective date. The Company measures ROU assets throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. The lease liabilities are measured at the present value of the unpaid lease payments at the lease commencement date. Leases that include both lease and non-lease components are accounted for as a single lease component for each asset class, except for warehouse leases.

The minimum payments under operating leases are recognized on a straight-line basis over the lease term in the consolidated statements of operations. Operating lease expenses related to variable lease payments are recognized in cost of sales or as operating expenses in a manner consistent with the nature of the underlying lease and as the events, activities, or circumstances in the lease


agreement occur. Leases with a term of less than 12 months are not recognized on the consolidated balance sheets, and the related lease expenses are recognized in the consolidated statements of operations on a straight-line basis over the lease term.

The accounting for leases requires management to exercise judgment and make estimates in determining the applicable discount rate, lease term and payments due under a lease. Most of our leases do not provide an implicit interest rate, nor is it available to us from our lessors. As an alternative, the Company classifiesuses our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, including publicly available data, in determining the present value of lease payments. The Company also estimated the fair value of the lease and non-lease components for some of our warehouse leases based on market data and cost data.

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 1 year to 20 years.

The operating leases of the Company do not contain major restrictions or covenants such as those relating to dividends or additional financial obligations. Finance leases are immaterial to the consolidated financial statements. There were no lease transactions with related parties during 2020 and 2019.

The operating lease expense for the years ended December 31, 2020 and 2019 was $5,662 and $5,547, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. Additional information related to operating leases are as follows:

 

 

Year Ended

December 31, 2020

 

 

Year Ended

December 31, 2019

 

Cash paid for amounts included in the measurement of

   lease liabilities

 

$

5,657

 

 

$

5,398

 

ROU assets obtained in exchange for new liabilities

 

$

6,309

 

 

$

3,580

 

The weighted-average remaining lease term and discount rate related to the operating leases as of December 31, 2020 and 2019 were as follows:

 

 

December 31, 2020

 

 

December 31, 2019

 

Weighted-average remaining lease term (in years)

 

 

4.62

 

 

 

3.18

 

Weighted-average discount rate

 

 

3.81

%

 

 

3.68

%

Future minimum lease payments under non-cancellable operating leases as of December 31, 2020 were as follows:

 

 

December 31, 2020

 

2021

 

$

4,536

 

2022

 

 

2,879

 

2023

 

 

1,914

 

2024

 

 

1,192

 

2025

 

 

1,001

 

Thereafter

 

 

2,020

 

Total lease payments

 

$

13,542

 

Less: imputed interest

 

 

1,177

 

Total

 

$

12,365

 

 

 

 

 

 

Amounts recognized in the consolidated balance sheets:

 

 

 

 

Operating lease liabilities, current

 

$

4,188

 

Operating lease liabilities, long term

 

$

8,177

 

Revenue RecognitionThe Company recognizes revenue when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company sells its products mainly to distributors and retailers. The products include insecticides, herbicides, soil fumigants, fungicides and biologicals. In addition, the Company recognizes royalty income related to licensing arrangements which qualify as functional licenses rather than symbolic licenses. Upon signing a reductionnew licensing agreement, the Company typically receives up-front fees, which are generally characterized as non-refundable royalties. These fees are recognized as revenue upon the execution of the


license agreements. Minimum royalty fees are recognized once the Company has an enforceable right for payment. Sales-based royalty fees are typically recognized when the sales occur. The Company calculates and accrues estimated royalties based on the agreement terms and correspondence with the licensees regarding actual sales. Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Selective enterprise information of sales revenues.disaggregated by category and geographic region is as follows:

 

 

2020

 

 

2019

 

Net sales:

 

 

 

 

 

 

 

 

U.S. crop

 

$

223,167

 

 

$

220,635

 

U.S. non-crop

 

 

48,557

 

 

 

61,590

 

Total U.S.

 

 

271,724

 

 

 

282,225

 

International

 

 

186,980

 

 

 

185,961

 

Total net sales

 

$

458,704

 

 

$

468,186

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

Goods and services transferred at a point in time

 

$

455,726

 

 

$

464,967

 

Goods and services transferred over time

 

 

2,978

 

 

 

3,219

 

Total net sales

 

$

458,704

 

 

$

468,186

 

Performance ObligationsA performance obligation is a promise in a contract or sales order to transfer a distinct good or service to the customer. A transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s sales orders have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the sales orders. For sales orders with multiple performance obligations, the Company allocates the sales order’s transaction price to each performance obligation based on its relative stand-alone selling price. The stand-alone selling prices are determined based on the prices at which the Company separately sells these products. The Company’s performance obligations are satisfied either at a point in time or over time as work progresses.

On December 31, 2020, the Company had $43,611 of remaining performance obligations, which are comprised of deferred revenue and services not yet delivered. The Company expects to recognize all these remaining performance obligations as revenue in fiscal 2021.

Practical Expedients — The Company has elected to use the following practical expedients (i) not to adjust the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less and (ii) treat shipping and handling activities that occur after control of the good transfers to the customer as fulfillment activities.

Contract Balances The contract assets are included in other receivables on the consolidated balance sheets and relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property, and a contract manufacturing agreement for the production of products without alternative use. The contract manufacturing agreement was terminated in 2020 and the balance outstanding in 2019 was settled.

Deferred RevenueThe timing of revenue recognition, billings and cash collections may result in deferred revenue in the consolidated balance sheets. The Company sometimes receives payments from its customers in advance of goods and services being provided, in return for participation in its pre-payments related cash incentive program. These pre-payments are held on the Company’s consolidated balance sheets as deferred revenue until control of the related performance obligations has passed to the customers, which is generally upon shipment of products. There is no significant financing component related to the pre-payments since the Company expects to transfer the products within one year from the date payment is received. More customers participated in the Company’s cash incentive program in 2020, and at an increased average level, which resulted in a significant increase in the Company’s deferred revenue balance as of December 31, 2020 compared to the prior year.

 

 

December 31,

2020

 

 

December 31,

2019

 

Contract assets

 

$

3,200

 

 

$

6,091

 

Deferred revenue

 

$

43,611

 

 

$

6,826

 

Revenue recognized for the years ended December 31, 2020 and 2019, that was included in the deferred revenue balance at the


beginning of 2020 and 2019 was $5,652 and $20,043, respectively.

Allowance for Doubtful Accounts—The Company maintains an allowance to cover its Current Expected Credit Losses ("CECL") on its trade receivables, other receivables and contract assets arising from the failure of customers to make contractual payments. The Company estimates credit losses expected over the life of its trade receivables, other receivables and contract assets based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts. In most instances, the Company’s policy is to write-off trade receivables when they are deemed uncollectible. The vast majority of the Company's trade receivables, other receivables and contract assets are less than 365 days. Under the CECL impairment model, the Company develops and documents its allowance for credit losses on its trade receivables based on multiple portfolios. The determination of portfolios is based primarily on geographical location, type of customer and aging.

Accrued Program Costs The Company offers various discounts to customers based on the volume purchased within a defined time period, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments, which are usually made at the end of a growing season, to distributors, retailers or growers. The Company describes these payments as “Programs”.“Programs.” Programs are a critical part of doing business in both the U.S. agriculturalcrop and non-crop chemicals business market place. For accounting purposes, programsmarketplaces. These discount Programs represent variable consideration.  Revenues from sales are recorded as a reduction in gross sales and include market pricing adjustments, volume take up or other key performance indicator driven payments made to distributors, retailers or growers predominantly 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 expected to be paid to its customers estimated using the expected value method. Each quarter management compares eachindividual sale transactiontransactions with program guidelinesPrograms 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 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 theagreed upon terms and conditions attached to each program. IfProgram. Following this assessment, management believes that customers are falling short of or exceeding their previously anticipated annual goals, then periodicwill make adjustments will be made 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 the end of the crop season, at which time customer performance can be 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. 

Property, Plant and Equipment and Depreciation— Property, plant and equipment includes the cost of land, buildings, machinery and equipment, office furniture and fixtures, automobiles, construction projects and significant improvements to existing plant and equipment. Interest costs related to significant construction projects are capitalized at the Company’s current weighted average effective interest rate. Expenditures for minor repairs and maintenance are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain or loss realized on disposition is reflected in operations. All plant and equipment are depreciated using the straight-line method, utilizing the estimated useful property lives. See note 1 for useful lives.  

Intangible AssetsThe primary identifiable intangible assets of the Company relate to assets associated with its product and business acquisitions. All of the Company’s intangible assets have finite lives and are amortized. The estimated useful life of an identifiable intangible asset to the Company is based upon a number of factors including the effects of demand, competition, and expected changes in the marketability of the Company’s products.

Business CombinationsThe Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill or an adjustment to the gain from a bargain purchase. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded accrued program costs of $39,054 at December 31, 2017,in connection with a business combination as compared to $42,930 at December 31, 2016.

Long-lived Assets— Long-lived assets primarily consist of the costsacquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill or an adjustment to the gain from a bargain purchase, provided that the Company is within the measurement period. Upon the conclusion of intangiblethe measurement period or final determination of the fair value of assets andacquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statement of proprietary returnable packaging assets including Smartboxoperations.

In the event that the Company acquires an entity in which the Company previously held a non-controlling investment, the difference between the fair value and Lock and Load containers.  The carrying value of the investment as of the date of the acquisition is recorded as a gain or loss and recorded within net income (loss) on equity method investments in the consolidated statement of operations.

Certain of our acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future income thresholds. The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, the Company engages third-party valuation specialists to assist it in making estimates the fair value of contingent earn-out payments, both as part of the initial purchase price and at each subsequent financial statement date until the end of the related performance period. The Company records the estimated fair value of contingent consideration as a liability on the consolidated balance sheets.


We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts. Changes in the estimated fair value of our contingent earn-out liabilities are reported in operating results.

Asset AcquisitionsIf an acquisition of an asset or group of assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition rather than a business combination. An asset acquisition does not result in the recognition of goodwill and transaction costs are capitalized as part of the cost of the asset or group of assets acquired. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The acquisitions costs are allocated to the assets acquired on a relative fair value basis.

Impairment— The carrying values of long-lived assets isother than goodwill are reviewed for impairment quarterlyannually and/or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company evaluates recoverability of an asset group by comparing the carrying value to the future undiscounted cash flows that it expects to generate from the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, measurement of the impairment loss is based on the fair value of the asset. There were no circumstances that would indicate any impairment of the carrying value of these long-lived assets and no0 material impairment losses were recorded in 20172020, 2019 or 2016.


Property, Plant and Equipment and Depreciation— Property, plant and equipment includes the cost of land, buildings, machinery and equipment, office furniture and fixtures, automobiles, construction projects and significant improvements to existing plant and equipment. Interest costs related to significant construction projects are capitalized at the Company’s current weighted average effective interest rate. Expenditures for minor repairs and maintenance are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain or loss realized on disposition is reflected in earnings. All plant and equipment is depreciated using the straight-line method, utilizing the estimated useful property lives. See note 1 for useful lives.  

Foreign Currency Translation— Assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, have been translated at period end exchange rates, and profit and loss accounts have been translated using weighted average yearly exchange rates. Adjustments resulting from translation have been recorded in the equity section of the balance sheet as cumulative translation adjustments in other comprehensive income (loss). The effects of foreign currency exchange gains and losses on transactions that are denominated in currencies other than the Company’s functional currency, including transactions denominated in the local currencies of the Company’s international subsidiaries where the functional currency is the U.S. dollar, are remeasured to the functional currency using the end of the period exchange rates. The effects of remeasurement related to foreign currency transactions are included in the consolidated statements of operations.

Goodwill and Other Intangible Assets— The primary identifiable intangible assets of the Company relate to assets associated with its product and business acquisitions. The Company adopted the provisions of ASC 350, under which identifiable intangibles with finite lives are amortized and those with indefinite lives are not amortized. The estimated useful life of an identifiable intangible asset to the Company is based upon a number of factors including the effects of demand, competition, and expected changes in the marketability of the Company’s products. The Company re-evaluates whether these intangible assets are impaired on both a quarterly and an annual basis and anytime when there is a specific indicator for impairment, relying on a number of factors including operating results, business plans and future cash flows. Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets. The impairment test for identifiable intangible assets not subject to amortization consists of either a qualitative assessment or a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss, if any, is recognized for the amount by which the carrying value exceeds the fair value of the asset. Fair value is typically estimated using a discounted cash flow analysis. When determining future cash flow estimates, the Company considers historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by the Company, in such areas as: future economic conditions, industry-specific conditions, product pricing and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets, goodwill and identifiable intangible assets. The Company performed impairment reviews for the years ended December 31, 2017 and 2016 and recorded immaterial impairment losses.2018.

The Company reviews goodwill for impairment utilizing either a qualitative assessment or a two-step process.quantitative assessment. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs a quantitative assessment, the two-step process, the first step of the goodwill impairment test is used to identify potential impairment by comparingCompany compares the fair value of a reporting unit with its carrying amounts and recognizes an impairment charge for the amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. Ifthat the carrying amount of aexceeds the reporting unit exceeds itsunit’s fair value, the second step is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If the carrying amount of goodwill is greater than the implied value, an impairment charge is recognized for the difference.value. The Company annually tests goodwill for impairment in beginning of the fourth quarter.quarter, or earlier if triggering events occur. The Company did 0t record any impairment losses in 2020, 2019 or 2018.

Fair Value of Financial 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:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, long-term investments, accounts payable and accrued expenses approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt.

We measure our contingent earn-out liabilities in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. We may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring. Refer to Note 9 for a reconciliation of the Company’s deferred consideration.


Foreign Currency Translation— Certain international operations use the respective local currencies as their functional currency, while other international operations use the U.S. Dollar as their functional currency. The Company considers the U.S. dollar as its reporting currency. Translation adjustments for subsidiaries where the functional currency is its local currency are included in other comprehensive income (loss). Foreign currency transaction gains (losses) resulting from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are reported in earnings. Assets and liabilities of the foreign operations denominated in local currencies are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the weighted average rate of exchange during the period. Translations of intercompany loans of a long-term investment nature are included as a component of translation adjustment in other comprehensive income (loss).

Income Taxes—The Company utilizes the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In determining the need for valuation allowances, the Company considers projected future taxable income and the availability of tax planning strategies. If in the future the Company determines that it would not be able to realize its recorded deferred tax assets, an increase in the valuation allowance would be recorded, decreasing earnings in the period in which such determination is made.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the Company’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is greater than 50% likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been


recognized in the consolidated financial statements. At December 31, 20172020 and 2016,2019, the Company recorded unrecognized tax benefits of $2,118$3,222 and $1,893,$4,395, respectively.

Per Share Information—FASB ASC 260 requires dual presentation of basicBasic earnings per share (“EPS”) and diluted EPS on the face of all 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 to EPS that could occur if securities or other contracts, which, for the Company, consists of restricted stock grants and options to purchase shares of the Company’s common stock, are exercised as calculated using the treasury stock method.

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

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to American Vanguard

 

$

20,274

 

 

$

12,788

 

 

$

6,591

 

 

$

15,242

 

 

$

13,601

 

 

$

24,195

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding—basic

 

 

29,100

 

 

 

28,859

 

 

 

28,673

 

 

 

29,450

 

 

 

29,030

 

 

 

29,326

 

Dilutive effect of stock options and grants

 

 

603

 

 

 

535

 

 

 

564

 

 

 

543

 

 

 

626

 

 

 

722

 

 

 

29,703

 

 

 

29,394

 

 

 

29,237

 

Weighted average shares outstanding—diluted

 

 

29,993

 

 

 

29,656

 

 

 

30,048

 

 

For the years ended December 31, 2017, 2016,2020, 2019, and 2015 no2018, 0 options or grants were excluded from the computation.

AccountingUse of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities revenues,(including those related to litigation), and expensesrevenues, at the date that the consolidated financial statements are prepared. Significant estimates relate to the allowance for doubtful accounts, inventory reserves, impairment of long-lived assets, assets acquired, and liabilities assumed in connections with business combinations and asset acquisitions, accrued program costs, and stock based compensation.stock-based compensation and income taxes. Actual results could materially differ from those estimates.

Total comprehensive income—income (loss)—In addition to net income, total comprehensive income (loss) includes changes in equity that are excluded from the consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the consolidated balance sheets. For the years ended December 31, 2017, 2016,2020, 2019, and 20152018, total comprehensive income (loss) consisted of net income attributable to American VanguardAVD and foreign currency translation adjustments.

Stock-Based Compensation—The Company accounts for stock-based awards to employees and directors pursuant to ASC 718. When applying the provisions of ASC 718, the Company also applies the provisions of Staff Accounting Bulletin (“SAB”) No. 107 and SAB No. 110.

ASC 718 requires companies to estimateestimates the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of Operations.


Stock-based compensation expense recognized during the period is based on the fair value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized is reduced for estimated forfeitures pursuant to ASC 718.forfeitures. Estimated forfeitures recognized in the Company’s Consolidated Statementsconsolidated statements of Operationsoperations reduced compensation expense by $177, $118,$222, $191, and $144$358 for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. The Company estimates that 15.1%16.8% of all restricted stock grants 15.1%and 16.8% of the performance basedperformance-based restricted shares and 4.5% of all stock option grants that are currently subject to vesting will be forfeited. These estimates are reviewed quarterly and revised as necessary.


The below tables illustrate the Company’s stock based compensation, unamortized stock-based compensation, and remaining weighted average period for the years ended December 31, 2017, 2016 and 2015. This projected expense will change if any stock options and restricted stock are granted or cancelled prior to the respective reporting periods, or if there are any changes required to be made for estimated forfeitures.

 

 

Stock-Based

Compensation

 

 

Unamortized

Stock-Based

Compensation

 

 

Remaining

Weighted

Average

Period (years)

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Stock Options

 

$

345

 

 

$

 

 

 

 

Performance Based Options

 

 

416

 

 

 

 

 

 

 

Restricted Stock

 

 

2,705

 

 

 

3,788

 

 

 

1.0

 

Performance Based Restricted Stock

 

 

1,248

 

 

 

1,642

 

 

 

1.8

 

Total

 

$

4,714

 

 

$

5,430

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Stock Options

 

$

354

 

 

$

397

 

 

 

1.0

 

Performance Based Options

 

 

188

 

 

 

178

 

 

 

1.0

 

Restricted Stock

 

 

1,630

 

 

 

2,153

 

 

 

1.6

 

Performance Based Restricted Stock

 

 

995

 

 

 

796

 

 

 

1.7

 

Total

 

$

3,167

 

 

$

3,524

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Stock Options

 

$

431

 

 

$

887

 

 

 

2.0

 

Performance Based Options

 

 

149

 

 

 

331

 

 

 

2.0

 

Restricted Stock

 

 

2,972

 

 

 

2,153

 

 

 

1.3

 

Performance Based Restricted Stock

 

 

329

 

 

 

583

 

 

 

1.5

 

Total

 

$

3,881

 

 

$

3,954

 

 

 

 

 

 

The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) to value option grants using the following weighted average assumptions (i.e. risk freerisk-free interest rate, dividend yield, volatility and average lives). There were no option shares0 stock options granted during 2017, 20162020, 2019 or 2015.2018. 

 

The expected volatility and expected life assumptions are highly complex and use subjective variables. The variables take into consideration, among other things, actual and projected employee stock option exercise behavior. The Company estimates the expected term or vesting period using the “safe harbor” provisions of SABStaff Accounting Bulletin (“SAB”) 107 and SAB 110. The Company used historical volatility as a proxy for estimating expected volatility.

The Company values restricted stock grants using the Company’s traded stock price on the date of grant. The weighted average grant-date fair values of restricted stock grants during 2017, 2016,2020, 2019, and 20152018 were $16.24, $15.22,$14.39, $16.84, and $12.68,$20.21, respectively.

Recently Issued Accounting Guidance—Guidance:

Recent Accounting Standards Adopted:

In FebruaryJune 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model, which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. The Company adopted ASU 2016-13 effective January 1, 2020. The adoption of this standard did not result in any material adjustments to the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements on fair value measurements, including the consideration of costs and benefits. The Company adopted ASU 2018-13 effective January 1, 2020. The adoption of this standard did not result in any material adjustments to the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”.  ASU 2018-15 requires that issuers follow the internal-use software guidance in Accounting Standards BoardCodification (ASC) 350-40 to determine which costs to capitalize as assets or expense as incurred. The ASC 350-40 guidance requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred. The Company adopted ASU 2018-15 effective January 1, 2020. The adoption of this standard did not result in any material adjustments to the Company’s Consolidated Financial Statements.

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU No. 2020-04”), 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 our borrowing instruments, which use LIBOR as a reference rate, and is effective immediately, but is only available through December 31, 2022. The adoption of ASU 2020-04 in March 2020 did not result in any adjustments to the Company’s Consolidated Financial Statements.


Accounting standards not yet adopted:

In December 2019, the FASB issued ASU no. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220).  On December 22, 2017, the U.S federal government signed into law the Tax Cuts and Jobs Act, (the “Tax Reform Act”ASU No. 2019-12”). The current generally acceptedamendment removes certain exceptions to the general income tax accounting principles (“GAAP”) requiresmethodology including an exception for the recognition of a deferred tax liabilitiesliability when a foreign subsidiary becomes an equity method investment and assets to be adjustedan exception for interim periods showing operating losses in excess of anticipated operating losses for the year. The amendment also reduces the complexity surrounding franchise tax recognition; the step up in the tax basis of goodwill in conjunction with business combinations; and the accounting for the effect of a changechanges in tax laws or rates withenacted during interim periods. The amendments in this update are effective for the effect included in income from continuing operations in the reporting period that includes the enactment date.  That guidance is applicable even in situations where the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (rather than in income from continuing operations).  The standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Reform Act, eliminating the stranded tax effects.  The update does not affect the requirement on the effect of a change in tax laws or rates be included in income from continuing operations.  The update is effectiveCompany for fiscal years beginning after December 15, 2018.  The Company will evaluate the impact of this update for its adoption.  

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350).  The FASB eliminated the Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Under this update, an entity should perform its goodwill impairment test by comparing the fair value of a


reporting unit with its carrying amount.  An entity should recognize an impairment charge for the amount the carrying amount exceeds the reporting unit’s fair value.  This update is effective for fiscal2020, including interim periods within those years beginning after December 15, 2019 with early adoption permitted after January 1, 2017.  The Company will evaluate the impact of this update and expects to adopt ASU 2017-04 in its financial statements for fiscal year 2018.

In January 2017, the FASB issued ASU 2017-01, Business Combination (Topic 805).  The FASB issued this update to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses.  The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.  The Company adopted this update and has evaluated its current year acquisitions under this standard.  

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (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 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 and will adopt the standard for the 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 addressedwill adopt ASU 2019-12 as of January 1, 2021, and does not believe thatexpect the adoption of ASU 2016-15 will have a material impact on its statement of cash flows and will adopt the revised standard for the year beginning January 1, 2018.Consolidated Financial Statements.

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 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 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.

The Company will adopt the new revenue standard as of January 1, 2018 using the modified retrospective method.  The Company has substantially completed its analysis of the effect of the adoption of Topic 606 on its revenue streams, which included a detailed contract review to evaluate whether the adoption will result in a change in the timing or amount of revenue recognition.  As a result of the analysis performed thus far, the Company determined that for certain products that are deemed to have no alternative use accompanied by an enforceable right to payment for performance completed to date, recognition will change from point in time, to over time.  These sales were previously recognized upon delivery, and will now be recognized over time utilizing an output method.  In addition, the Company earns royalties on certain licenses granted for the use of its intellectual property, which was previously recognized over time.  For certain licenses that are considered functional intellectual property, the Company will change to a point in time recognition. The Company currently estimates that gross revenues of approximately $3,000, that would have otherwise been reflected in the consolidated statement of operations in future years, will be recorded in equity as part of a cumulative effect adjustment, and will increase retained earnings by approximately $2,370, net of taxes, when we adopt Topic 606 as of January 1, 2018.  The new standard also requires enhanced disclosures related to the disaggregation of revenue, information about contract balances, and other disclosures about contracts with customers, including revenue recognition policies to identify performance obligations and significant judgments in measurement and recognition. The estimated impact of adopting Topic 606 is based on the Company’s best estimates at the time of the preparation of this Annual Report Form 10-K. The actual impact is subject to change and completion of the analysis prior to the first quarter 2018 Form 10-Q filing.

(1) Property, Plant and Equipment

Property, plant and equipment at December 31, 20172020 and 20162019 consist of the following:

 

 

2017

 

 

2016

 

 

Estimated

useful lives

 

2020

 

 

2019

 

 

Estimated

useful lives

Land

 

$

2,458

 

 

$

2,458

 

 

 

 

$

2,756

 

 

$

2,706

 

 

 

Buildings and improvements

 

 

16,678

 

 

 

15,515

 

 

10 to 30 years

 

 

19,786

 

 

 

18,640

 

 

10 to 30 years

Machinery and equipment

 

 

107,722

 

 

 

102,146

 

 

3 to 15 years

 

 

124,199

 

 

 

116,757

 

 

3 to 15 years

Office furniture, fixtures and equipment

 

 

4,925

 

 

 

5,016

 

 

3 to 10 years

 

 

7,403

 

 

 

6,228

 

 

3 to 10 years

Automotive equipment

 

 

735

 

 

 

387

 

 

3 to 6 years

 

 

1,747

 

 

 

1,762

��

 

3 to 6 years

Construction in progress

 

 

1,917

 

 

 

8,047

 

 

 

 

 

10,392

 

 

 

5,263

 

 

 

Total gross value

 

 

134,435

 

 

 

133,569

 

 

 

 

 

166,283

 

 

 

151,356

 

 

 

Less accumulated depreciation

 

 

(85,114

)

 

 

(83,274

)

 

 

 

 

(100,901

)

 

 

(94,835

)

 

 

Total net value

 

$

49,321

 

 

$

50,295

 

 

 

 

$

65,382

 

 

$

56,521

 

 

 

 

For the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, the Company’s aggregate depreciation expense related to property, plant and equipment was $8,154, $8,307,$7,466, $6,504, and $8,953,$8,142, respectively. For the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, the Company eliminated from assets and accumulated depreciation $6,317, $16,652$1,400, $868 and $549$4,057 of fully depreciated assets, respectively.

(2) Long-Term Debt

Long-term debt of the Company at December 31, 20172020 and 20162019 is summarized as follows:

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Revolving line of credit(a)

 

$

78,425

 

 

$

41,400

 

 

$

107,900

 

 

$

149,300

 

Less debt issuance costs

 

 

(939

)

 

 

(449

)

 

 

(458

)

 

 

(534

)

 

$

77,486

 

 

$

40,951

 

 

$

107,442

 

 

$

148,766

 

 

Principal payments on long-term debt at December 31, 20172020 of $78,425$107,900 are due in June 2022.

The Company’s main bank is Bank of the West, a wholly owned subsidiary of the French bank, BNP Paribas. Bank of the West has been the Company’s bank for more than 30 years and is the syndication manager for the Company’s loans.


The revolving line of credit agreement (the “Credit Agreement”) is a senior secured lending facility among AMVAC, the Company’s principal operating subsidiary, as borrower, and affiliates (including the Company, AMVAC CV and AMVAC BV), as guarantors and/or borrowers, on the one hand, and a group of commercial lenders led by Bank of the West as agent, swing line lender and Letter of Credit issuer on the other hand, consisting of a line of credit of up to $250,000, an accordion feature of up to $100,000 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 as defined in the Credit Agreement, for the trailing twelve-month period. Under the Credit Agreement, revolving loans bear interest at a variable rate based, at borrower’s election with proper notice, on either (i) LIBOR plus the “Applicable Rate” which is based upon the Consolidated Funded Debt Ratio (“Eurocurrency Rate 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 Rate (“Alternate Base Rate Loan”). Interest payments for Eurocurrency Rate Loans are payable on the last day of each interest period (either one, two, three or six months, as selected by the borrower) and the maturity date, while interest payments for Alternate Base Rate Loans are payable on the last business day of each month and the maturity date. The interest rate on December 31, 2020 was 2.75%.  

As of April 22, 2020, AMVAC, as borrower, and certain affiliates amended the Credit Agreement. The Credit Agreement, as amended, has the same term and loan commitments, however, the maximum permitted consolidated funded debt ratio (the “CFD Ratio”) has been increased from 3.25-to-1 to the following schedule: 4.00-to-1 through September 30, 2020, stepping down to 3.75-to-1 through December 31, 2020, 3.5-to-1 through March 31, 2021 and 3.25-to-1 thereafter. In addition, to the extent that it completes acquisitions totaling $15 million or more in any 90-day period, AMVAC may step-up the CFD Ratio by 0.5-to-1, not to exceed 4.25-to-1, for the next three full consecutive quarters. Finally, to the extent that a proposed acquisition is at least $30 million but less than $50 million, the consent of the Lead Agent is required. Larger acquisitions continue to require the consent of a majority of the Lenders.

a)

As of June 30, 2017, AMVAC, the Company’s principal operating subsidiary, as borrower, and affiliates (including 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”) 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 $250,000, an accordion feature of up to $100,000 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) 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 Rate (“Alternate Base Rate Loan”). Interest payments for Eurocurrency Rate Loans are payable on the last day of each interest period (either one, two, three or six months, as selected by the borrower) and the maturity date, while interest payments for Alternate Base Rate Loans are payable on the last business day of each month and the maturity date.

At December 31, 2017,2020, according to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenantscovenant listed above, the Company had the capacity to increase its borrowings by up to $139,241.$86,736. This compares to an available borrowing capacity of $104,853$26,977 as of December 31, 2016.2019. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for trailing twelve monthtwelve-month period, which has improved, (2) the inclusion of proforma EBITDA related to acquisitions completed during 2017the preceding twelve months and (3) the leverage covenant (being the number of times EBITDA the Company may borrow under its credit facility agreement). The Company was in compliance with all the debt covenants as of December 31, 2020.

Substantially all of the Company’s assets are pledged as collateral under the Credit Agreement.  The Company was in compliance with all its debt covenantsAgreement, as of December 31, 2017.amended.  

The Company has various loans in place that together constitute the loan balances shown in the consolidated balance sheets at December 31, 2017 and December 31, 2016.  The average amount outstanding on the senior secured revolving line of credit during the years ended December 31, 2017 and 2016 was $51,103 and $59,897, respectively. The weighted average interest rate on the revolving credit line during the years ended December 31, 2017, 2016, and 2015 was 3.0%,  2.3%, and 2.1% respectively.


(3) Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law.  The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rate, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.  The Tax Reform Act reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. A company may select between one of three scenarios to determine a reasonable estimate arising from the Tax Reform Act. Those scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable estimate leaving the measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. The Company was able to provide a reasonable estimate for the revaluation of deferred taxes and the effects of the repatriation undistributed foreign subsidiary earnings and profits. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its net deferred tax liabilities at December 31, 2017, resulting in a $4,683 benefit included in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided for a one-time deemed mandatory repatriation of Post-1986 E&P through the year ended December 31, 2017.  As a result, the Company recognized a provisional $1,250 charge in the provision for income taxes for the year ended December 31, 2017 related to the deemed mandatory repatriation. The Company continues to evaluate the various provisions of Tax Reform Act, including, the global intangible low-taxed income (“GILTI”) and the foreign derived intangible income (“FDII”) provisions. The ultimate impact of the Tax Reform Act may differ from these amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and any related actions the Company may take. The measurement period begins in the reporting period that includes the enactment date and ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740.

The provisions for income taxes are:

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

2,124

 

 

$

5,136

 

 

$

573

 

 

$

(1,197

)

 

$

(235

)

 

$

5,641

 

State

 

 

1,347

 

 

 

(122

)

 

 

417

 

 

 

(3

)

 

 

(151

)

 

 

1,777

 

Foreign

 

 

570

 

 

 

655

 

 

 

991

 

 

 

2,831

 

 

 

2,956

 

 

 

2,121

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

160

 

 

 

(1,345

)

 

 

(319

)

 

 

2,177

 

 

 

2,867

 

 

 

650

 

State

 

 

242

 

 

 

1,216

 

 

 

347

 

 

 

403

 

 

 

1,548

 

 

 

(365

)

Foreign

 

 

(1,131

)

 

 

(1,783

)

 

 

(679

)

 

$

4,443

 

 

$

5,540

 

 

$

2,009

 

 

$

3,080

 

 

$

5,202

 

 

$

9,145

 

 


Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35.0%21.0% to income before income tax expense, as a result of the following:

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Computed tax expense at statutory federal rates

 

$

8,651

 

 

$

6,415

 

 

$

3,010

 

 

$

3,874

 

 

$

3,993

 

 

$

7,054

 

Increase (decrease) in taxes resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State taxes, net of federal income tax benefit

 

 

988

 

 

 

820

 

 

 

639

 

 

 

559

 

 

 

1,131

 

 

 

1,627

 

Domestic production deduction

 

 

(150

)

 

 

(1,272

)

 

 

(179

)

Unrecognized tax benefits

 

 

(2,092

)

 

 

263

 

 

 

171

 

Bargain purchase gain on business acquisition

 

 

(978

)

 

 

 

 

 

 

Impact of the enactment of the Tax Cuts and Jobs Act (net)

 

 

(3,433

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,089

 

Income tax credits

 

 

(431

)

 

 

(335

)

 

 

(662

)

 

 

(812

)

 

 

(819

)

 

 

(689

)

Foreign tax rate differential

 

 

(1,503

)

 

 

(1,587

)

 

 

(1,590

)

 

 

2,145

 

 

 

341

 

 

 

(37

)

Subpart F income

 

 

3

 

 

 

14

 

 

 

9

 

 

 

 

 

 

 

 

 

14

 

Loss on equity investment

 

 

62

 

 

 

123

 

 

 

223

 

(Gain) on equity investments

 

 

 

 

 

 

 

 

(61

)

Stock based compensation

 

 

262

 

 

 

208

 

 

 

244

 

 

 

377

 

 

 

366

 

 

 

277

 

Tax interest

 

 

(22

)

 

 

920

 

 

 

 

Global intangible low-taxed income

 

 

 

 

 

249

 

 

 

 

Other

 

 

16

 

 

 

234

 

 

 

315

 

 

 

7

 

 

 

(322

)

 

 

(300

)

 

$

4,443

 

 

$

5,540

 

 

$

2,009

 

 

$

3,080

 

 

$

5,202

 

 

$

9,145

 

 


Income before provision for income taxes and losses on equity investmentinvestments are:

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Domestic

 

$

18,931

 

 

$

12,513

 

 

$

1,589

 

 

$

11,858

 

 

$

15,465

 

 

$

26,124

 

Foreign

 

 

5,922

 

 

 

6,404

 

 

 

7,373

 

 

 

6,589

 

 

 

3,547

 

 

 

7,472

 

 

$

24,853

 

 

$

18,917

 

 

$

8,962

 

 

$

18,447

 

 

$

19,012

 

 

$

33,596

 

 

Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability at December 31, 20172020 and 20162019 relate to the following:

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Deferred tax asset

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

 

$

3,213

 

 

$

5,359

 

 

$

1,416

 

 

$

2,912

 

State income taxes

 

 

330

 

 

 

213

 

 

 

 

 

 

328

 

Program accrual

 

 

7,381

 

 

 

12,318

 

 

 

7,306

 

 

 

7,529

 

Vacation pay accrual

 

 

600

 

 

 

818

 

 

 

815

 

 

 

756

 

Accrued bonuses

 

 

1,073

 

 

 

2,072

 

 

 

589

 

 

 

599

 

Bad debt expense

 

 

12

 

 

 

6

 

 

 

952

 

 

 

627

 

Stock compensation

 

 

822

 

 

 

1,614

 

 

 

2,079

 

 

 

2,755

 

NOL carryforward

 

 

54

 

 

 

351

 

 

 

2,142

 

 

 

1,141

 

Tax credit

 

 

778

 

 

 

14

 

Tax credits

 

 

931

 

 

 

824

 

Lease liability

 

 

3,378

 

 

 

3,308

 

Accrued expenses

 

 

347

 

 

 

334

 

Other

 

 

381

 

 

 

2,707

 

 

 

967

 

 

 

(125

)

Deferred tax asset

 

$

14,644

 

 

$

25,472

 

 

$

20,922

 

 

$

20,988

 

Deferred tax liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plant and equipment, principally due to differences in

depreciation and capitalized interest

 

$

29,986

 

 

$

30,636

 

 

$

36,878

 

 

$

35,545

 

Lease asset

 

 

3,332

 

 

 

3,265

 

Prepaid expenses

 

 

942

 

 

 

1,542

 

 

 

1,508

 

 

 

1,323

 

Deferred tax liability

 

 

30,928

 

 

 

32,178

 

 

$

41,718

 

 

$

40,133

 

 

 

 

 

 

 

 

 

Total net deferred tax liability

 

$

16,284

 

 

$

6,706

 

 

$

20,796

 

 

$

19,145

 

 


The following is a roll-forward of the Company’s total gross unrecognized tax liabilities,benefits, not including interest and penalties, for the years ended December 31, 20172020 and 2016:2019 included in other liabilities, excluding current installments on the Company’s consolidated balance sheets:

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Balance at beginning of year

 

$

1,893

 

 

$

2,007

 

 

$

4,395

 

 

$

2,170

 

Additions for tax positions related to the current year

 

 

77

 

 

 

65

 

 

 

159

 

 

 

155

 

Additions for tax positions related to the prior year

 

 

 

 

 

86

 

Additions for tax positions related to new acquired businesses

 

 

1,766

 

 

 

 

Reduction for tax positions related to the prior year

 

 

(1,618

)

 

 

(265

)

Additions for tax positions related to the prior years

 

 

16

 

 

 

27

 

Additions for tax positions related to acquired businesses

 

 

 

 

 

2,458

 

Reduction for tax positions related to the prior years

 

 

(841

)

 

 

(213

)

Effect of exchange rate changes

 

 

(507

)

 

 

(202

)

Balance at end of year

 

$

2,118

 

 

$

1,893

 

 

$

3,222

 

 

$

4,395

 

 

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Company’s consolidated financial statements. For the years ended December 31, 2017, 2016,2020, 2019, and 20152018 the Company had recognized approximately $2,257, $408,$4,195, $6,528, and $335$2,368 respectively in interest and penalties related to unrecognized tax benefits accrued.benefits.

It is expected that the amount of unrecognized tax benefits will change and $2,032 of unrecognized tax benefits is expected to be released within the next 12 months; however we do not expect the changetwelve months due to have a significant impact on our consolidated financial statements. At this time, an estimateexpiration of the rangestatute of the reasonable possible outcomes cannot be made.limitations.

The Company believes it is more likely than not that the deferred tax assets detailed in the table above will be realized in the normal course of business. It is the intent of the Company that undistributed earnings of foreign subsidiaries are permanently reinvested and, accordingly, no deferred liability for federal and state income taxes has been recorded.reinvested. The amount of undistributed earnings was $35,084$9,937 as of December 31, 2017.2020. Upon distribution of earnings in the form of dividends or otherwise, the Company may still be subject to state income taxes and withholding taxes payable to the various foreign countries. Determination of the unrecognized deferred tax liability is not practical due to the complexities of a hypothetical calculation.


The Company is subject to U.S. federal income tax as well as to income tax in multiple state jurisdictions. Federal income tax returns of the Company are subject to IRS examination for the 2017 through 2019 tax years.  State income tax returns are subject to examination for the 2016 through 2019 tax years. The Company has effectively settledother foreign income tax returns subject to examination.

The Florida Department of Revenue has completed its examination withaudit of the Internal Revenue Service (“IRS”)Company’s state income tax returns for the tax years ended December 31, 2012 through 2014.December 31, 2013 and December 31, 2015 through December 31, 2018. No adjustments have been proposed for these periods. The Company has also been notified by the Mississippi Department of Revenue of its intent to examine the Company’s 2015 and 2016 federalstate income tax returns are stillfor the years ended December 31, 2016 through December 31, 2018. The result of Mississippi’s audit is not determinable since the audit is at its preliminary stage.

On November 9, 2018, the Company completed the purchase of all of the outstanding shares of TyraTech, Inc., a loss corporation. The Company obtained approximately $3,971 of usable federal net operating losses through the acquisition. The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of NOLs in the event of an “ownership change” of a corporation. During 2019, the Company completed the Section 382 analysis and determined that the utilization of the losses is subject to IRS examination.  The Company has other state and foreign income tax returns that are subject to examination.an annual limitation of $162, with an additional $890 of net operating losses available over the first five years after the ownership change.

(4) Litigation and Environmental

A. DBCP Cases

Over the course of the past 30 years, AMVAC and/or the Company have been named or otherwise implicated in a number of lawsuits concerning injuries allegedly arising from either contamination of water supplies or personal exposure to 1, 2-dibromo-3-chloropropane (“DBCP®”). DBCP was manufactured by several chemical companies, including Dow Chemical Company, Shell Oil Company and AMVAC, and was approved by the USEPA to control nematodes. DBCP was also applied on banana farms in Latin America. The USEPA suspended registrations of DBCP in October 1979, except for use on pineapples in Hawaii. That suspension was partially based on 1977 studies by other manufacturers that indicated a possible link between male fertility and exposure to DBCP among their factory production workers involved with producing the product.


At present, there are three4 domestic lawsuits and approximately 85 Nicaraguan lawsuits filed by former banana workers in which AMVAC has been named as a party. Only two2 of the Nicaraguan actions have actually been served on AMVAC. With respect to Nicaraguan matters, there was no change in status during 2017.2020. As described more fully below, activity in domestic cases during 20172020 is as follows.  The one casetwo cases remaining in Delaware includes 57include 287 plaintiffs who have appealed a lower court finding that the matter was barred by the statute of limitations; this matter has been stayed pendingremanded to the trial court, following a ruling by the Delaware Supreme Court on recognizing the questiondoctrine of when or if the statute of limitations has run out.cross-jurisdictional tolling. In Hawaii, in the matter of Patrickson, et. al. v. Dole Food Company, following the appellate court’s remandparties have stipulated that the Company shall be dismissed, insofar as it was not a party to the trial court for adjudicationclass action case that tolled the statute of limitations. In Adams (also in 2016, there has been no activity; while in Adams,Hawai’i), there has been no activity since 2014, when the court granted dismissal of co-defendant Dole on the basis of a worker’s compensation bar and gave plaintiffs leave to amend their complaint in light of that ruling. Finally, plaintiffs in Chaverri, which had been dismissed by the Superior Court of the State of Delaware in 2012 for failure to meet the applicable statute of limitations, have brought a motion to vacate the dismissal on the ground that the matter should be subject to trial on the merits under the principle of cross-jurisdictional tolling. That motion was denied, was appealed before the Supreme Court of Delaware and was subsequently dismissed by that court.

Nicaraguan Matters

A review of court filings in Chinandega, Nicaragua, has found 85 suits alleging personal injury allegedly due to exposure to DBCP and involving approximately 3,592 plaintiffs have been filed against AMVAC and other parties. Of these cases, only two – Flavio Apolinar Castillo et al. v. AMVAC et al., No. 535/04 and Luis Cristobal Martinez Suazo et al. v. AMVAC et al., No. 679/04 (which were filed in 2004 and involve 15 banana workers) – have been served on AMVAC. All but one of the suits in Nicaragua have been filed pursuant to Special Law 364, an October 2000 Nicaraguan statute that contains substantive and procedural provisions that Nicaragua’s Attorney General previously expressed as unconstitutional. Each of the Nicaraguan plaintiffs’ claims $1 million in compensatory damages and $5 million in punitive damages. In all of these cases, AMVAC is a joint defendant with Dow Chemical Company and Dole Food Company, Inc. AMVAC contends that the Nicaragua courts do not have jurisdiction over it and that Public Law 364 violates international due process of law. AMVAC has objected to personal jurisdiction and demanded under Law 364 that the claims be litigated in the United States.U.S.. In 2007, the court denied these objections, and AMVAC appealed the denial. It is not presently known as to how many of these plaintiffs actually claim exposure to DBCP at the time AMVAC’s product was allegedly used nor is there any verification of the claimed injuries. Further, to date, plaintiffs have not had success in enforcing Nicaraguan judgments against domestic companies before U.S. courts. With respect to these Nicaraguan matters, AMVAC intends to defend any claim vigorously. Furthermore, the Company does not believe that a loss is either probable or reasonably estimable and has not recorded a loss contingency for these matters. There were no changes in connection with these matters in 2020.

Delaware DBCP Cases

Abad Castillo and Marquinez.Chavez.  On or about May 31, 2012, twoHendlerLaw, P.C. filed several actions involving claims for personal injury allegedly arising from exposure to DBCP on behalf of 230 banana workers from Costa Rica, Ecuador and Panama. Defendant Dole subsequently brought a motion to dismiss these matters under the “first-to-file” theory of jurisdiction, specifically in light of the fact that they involved identical claims and claimants as matters that had been brought by the same law firm in Louisiana. These Delaware matters were consolidated into one matter (“Chavez”). On August 21, 2012, the U.S. District Court granted defendants’ motion to dismiss the actions with prejudice, finding that the same claimants and claims had been pending in the Hendler-Louisiana cases where they had been first filed.  However, plaintiffs appealed the dismissal, and on September 2, 2016, the Third Circuit Court reversed the District Court decision, finding that it was not proper for the trial court to have dismissed these cases with prejudice even though the Louisiana courts had dismissed the same claims for expiration of the statute of limitations. In reaching its decision, the Third Circuit reasoned that no court had yet addressed the merits of the matter, that Delaware’s statute of limitations may differ from that of Louisiana, and that it would have been proper for the Delaware trial court to have dismissed the matter without prejudice (that is, with the right to amend and refile). Accordingly, Chavez was remanded to the U.S. District Court in Delaware on September 2, 2016, where it remained until it was stayed in June 2017 (as indicated in “Marquinez” below) and subsequently reactivated in March 2018.  

Abad Castillo and Marquinez.  On or about May 31, 2012, 2 cases (captioned Abad Castillo and Marquinez) were filed with the United StatesU.S. District Court for the District of Delaware (USDC DE No. 1:12-CV-00695-LPS) involving claims for physical injury arising from alleged exposure to DBCP over the course of the late 1960’s through the mid-1980’s on behalf of 2,700 banana plantation workers from Costa Rica, Ecuador, Guatemala, and Panama.  Defendant Dole brought a motion to dismiss 22 plaintiffs from Abad Castillo on the ground that they were parties in cases that had been filed by HendlerLaw P.C. in Louisiana.  On September 19, 2013, the appeals court granted, in part, and denied, in part, the motion to dismiss, holding that 14 of the 22 plaintiffs should be dismissed. On May 27, 2014, the district court granted Dole’s motion to dismiss the matter without prejudice on the ground that the applicable statute of limitations had expired in 1995. Then, on August 5, 2014, the parties stipulated to summary judgment in favor of defendants (on the same ground as the earlier motion) and the court entered judgment in the matter. Plaintiffs were given an opportunity to appeal; however, only 57 of the 2,700 actually entered an appeal. Thus, at this stage, only 57 plaintiffs remain in the action.  Marquinez.  


On or about June 18, 2017, the Third Circuit Court submitted a certified question of law to the Delaware Supreme Court on the question of when the tolling period ended. At that time, as mentioned above, the Chavez case was stayed, pending the ruling of the state’s highest court. The Delaware Supreme Court heard oral argument on January 17, 2018 and, on March 15, 2018 ruled on the matter, finding that federal court dismissal in 1995 on the grounds of forum non conveniens did not end class action tolling, and that such tolling ended when class action certification was denied in Texas state court in June 2010. Thus, both Marquinez and Chavez are now pending at the district court, following the appeals court’s ruling. Discovery has commenced, and the court is expected


considering proposed schedules for completing discovery over the next 12-24 months. At this stage, defendants have identified multiple claimants whose medical examinations disqualify them from discovery. Plaintiffs seek to issuecomplete a ruling within 90 days. Duringlimited number of medical examinations in each country in order to enable a representative subgroup of claimants to proceed with the pendency oflitigation, while defendants seek to complete all medical examinations before proceeding. At this question, these matters will be effectively stayed.  At any rate,stage in the proceedings, the Company believesdoes not believe that a loss is neither probable noror reasonably estimable in these mattersfor either Chavez or Marquinez and has not recorded a loss contingency.  contingency for these matters.  

Chaverri.  This matter, which involves 258 plantation workers from Costa Rica, Ecuador and Panama alleging physical injury from DBCP in the late 1970’s, was originally filed in the state of Texas in 1993, then underwent a tortuous series of law and motion developments, until it was ultimately refiled in May 2012 by HendlerLaw P.C. in the Superior Court of the State of Delaware as Chaverri et al. v. Dole Food Company, Inc. et al. (including AMVAC) (N12C-06-017 ALR), where it was subsequently dismissed with prejudice in August 2012 under the statute of limitations. In light of the Delaware Supreme Court’s adoption of cross-jurisdictional tolling, however, in January 2019, plaintiffs filed a motion to vacate the dismissal, arguing that the matter had been dismissed on a basis which the Delaware Supreme Court no longer recognizes without ever having been adjudicated as to the merits. The court heard oral argument by the parties and, on November 8, 2019, denied plaintiff’s motion to vacate on the ground that the motion was untimely, and plaintiffs had presented no extraordinary circumstances to support this unusual remedy. Plaintiffs appealed the court’s order to the Supreme Court of Delaware, which issued a ruling on January 12, 2021 denying plaintiffs’ appeal on the dual ground that plaintiffs failed to show extraordinary circumstances for vacating the lower court’s dismissal order and, at any rate, were unreasonably delayed in the filing of their appeal. In short, the dismissal with prejudice has been affirmed, and this case is concluded.

Hawaiian DBCP Matters

Patrickson, et. al. v. Dole Food Company, et al.al. In October 1997, AMVAC was served with two complaints in which it was named as a defendant, filed in the Circuit Court, First Circuit, State of Hawai’i and in the Circuit Court of the Second Circuit, State of Hawai’i (two identical suits) entitled Patrickson, et. al. v. Dole Food Company, et. al (“Patrickson Case”) alleging damages sustained from injuries (including sterility) to banana workers caused by plaintiffs’ exposure to DBCP while applying the product in their native countries. Other named defendants include: Dole Food Company, Shell Oil Company and Dow Chemical Company. After several years of law and motion activity, the court granted judgment in favor of the defendants based upon the statute of limitations on July 28, 2010. On August 24, 2010, the plaintiffs filed a notice of appeal. On April 8, 2011, counsel for plaintiffs filed a pleading to withdraw and to substitute new counsel. On October 21, 2015, the Hawai’i Supreme Court granted the appeal and overturned the lower court decision, ruling that the State of Hawai’i now recognizes cross-jurisdictional tolling, that plaintiffs filed their complaint within the applicable statute of limitations and that the matter is to be remanded to the lower court for further adjudication. No discovery has taken placeHowever, in this matter, and, at this stageNovember 2018, the parties stipulated that, because it was not named as a defendant in the proceedings,Carcamo matter (class action matter that gave rise to the tolling of the statute of limitations), AMVAC should be dismissed from this matter. Thus, we expect that the Company does not believe that a loss is either probable or reasonably estimablewill be dismissed with prejudice from this action as soon as the court issues an order, and, accordingly hashave not recorded a loss contingency forin connection therewith. There were no changes in this matter.matter during 2020.

Adams v. Dole Food Company et al.al. On approximately November 23, 2007, AMVAC was served with a suit filed by two former Hawaiian pineapple workers (and their spouses), alleging that they had testicular cancer due to DBCP exposure; the action is captioned Adams v. Dole Food Company et al in the First Circuit for the State of Hawaii. Plaintiff alleges that they were exposed to DBCP between 1971 and 1975. AMVAC denies that any of its product could have been used at the times and locations alleged by these plaintiffs. Following the dismissal of Dole Food Company on the basis of the exclusive remedy of worker’s compensation benefits, plaintiffs appealed the dismissal. The court of appeals subsequently remanded the matter to the lower court in February 2014, effectively permitting plaintiffs to amend their complaint to circumvent the workers’ compensation bar. There has been no activity in the case since that time. The Company does not believe that a loss is either probable or reasonably estimable and has not recorded a loss contingency for this matter. There were no changes in connection with this matter in 2020.

B. Other Matters

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 CourtAttorney’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 defending the Company’s interests. AMVAC is cooperating in the investigation.


Since April 2018, the Department of Justice (“DoJ”DOJ”) sought productionhas conducted several interviews of documents relating toAMVAC employees and issued supplemental document requests in connection with the Company’s reimportation of depleted Thimet containers from Canadainvestigation. In November 2020, DOJ issued a second grand jury subpoena seeking records and Australia.  The Company has retained defense counsel and has substantially completed the production during the course of which it incurred approximately $2,350 in legal costs and fees responding to this subpoena.  During the third quarter of 2017, 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 second quarter of 2018. At this stage, DoJ has not made clear its intentionsrelated communications with regard to eithera submission made by the Company to the USEPA in connection with a request to amend a pesticide’s registration. Soon thereafter, DOJ also identified the Company and one of its theorynon-executive employees as targets of the case or potential criminal or civil enforcement.  Thus,government’s investigation. In January 2021, DOJ and EPA informed the Company that it is too early to tell whether a loss is probable or reasonably estimable. Accordingly,investigating violations of two environmental statutes, FIFRA and the Resource Conservation and Recovery Act (“RCRA”), as well as obstruction of an agency proceeding and false statement statutes. DOJ also identified for the Company hasevidence that it contends supports such violations. The Company is evaluating the legal and factual issues raised by the government and is engaged in discussions with DOJ regarding possible resolution.

The governmental agencies involved in this investigation have a range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of FIFRA, RCRA and other federal statutes including, but not recordedlimited to, injunctive relief, fines, penalties and modifications to business practices and compliance programs, including the appointment of a loss contingencymonitor. If violations are established, the amount of any fines or monetary penalties which could be assessed and the scope of possible non-monetary relief would depend on, this matter.

Walker v. AMVAC.  On or about April 10, 2017,among other factors, findings regarding the amount, timing, nature and scope of the violations, and the level of cooperation provided to the governmental authorities during the investigation. As a result, the Company was served withcannot yet anticipate the timing or predict the ultimate resolution of this investigation, financial or otherwise, which could have a summonsmaterial adverse effect on our business prospects, operations, financial condition and complaint that had been filed with the United State District Court for the Eastern District of Tennessee under the caption Larry L. Walker v. AMVAC (as No. 4:17-cv-00017).  Plaintiff seeks contract damages, correction of inventorship, accounting and injunctive relief arising from for the Company’s alleged misuse of his confidential information to support a patent application (which was subsequently issued) for a post-harvest corn herbicide that the Company has not commercialized.  Plaintiff claims further that he, not the Company, should be identified as the inventor in such application.  The Company believes that these claims are without merit and intends to defend vigorously.  On May 24, 2017, the Company filed a motion to dismiss this action, or in the alternative, for transfer of venue, on the ground that (i) the complaint fails to state claim upon which relief can be granted, (ii) the contracts cited by plaintiff in his complaint include a forum selection clause requiring that disputes are to be adjudicated in the U.S. District Court for the Central District of California, and (iii) the doctrine of forum non conveniens applies.  The District Court in Tennessee has yet to rule on the motion. At this stage in the proceedings, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company has not recorded a loss contingency.  cash flow.

Harold Reed v. AMVAC et al.al.  During January 2017, the Company was served with two2 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, amongFour other things, that AMVAC was negligentrelated matters were subsequently consolidated into this case (alleging loss of potatoes, damage to equipment, damage to Quonset huts and failed to warn themloss of business income). The parties have exchanged written discovery, and depositions of persons most knowledgeable took place during the first quarter of 2019. Citing the length of the riskscases’ pendency and the expense, in December 2019, plaintiff Reed voluntarily dismissed two actions (160600211 and 160600237) for no consideration. Over the course of such application.  Reed seeks damages of $250 for pain2020, discovery was completed, and suffering, while Jem Holdings seeks $60 in lost equipment; both plaintiffs also seek unspecified damages as well.  Also during


January 2017, the Company received notice that four related actions relating toparties held a  mediation on March 11,2021; however, no settlement was reached. Thus, pre-trial discovery will likely take place within 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 loss of potatoes); (ii) James Houweling et al. v. Harold Reed et al. (No. 160104421)(in which equipment owner seeks damages for lost equipment); (iii) Chin Coulee Farms, etc. v. Harold Reed et al. (No. 150600545)(in which owner of potatoes and truck seeks $530 for loss thereof); and (iv) Houweling Farms v. Harold Reed et al. (No. 15060881)(in which owner ofnext several Quonset huts seeks damages for 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 of 2017, 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.weeks. 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 whethernot primarily at risk but that a loss is probable and reasonably estimable and, to that end, has recorded a loss contingency in an amount that is not material to its financial performance or reasonably estimable; accordingly,operations.

Environmental

L.A. Facility Site. In 1995, the California Department of Toxic Substances Control (“DTSC”) conducted a Resource Conservation and Recovery Act (“RCRA”) Facility Assessment (“RFA”) of those facilities having hazardous waste storage permits. In March 1997, the RFA culminated in DTSC accepting the Facility into its Expedited Remedial Action Program. Under this program, the Facility was required to conduct an environmental investigation and health risk assessment. This activity then took two paths: first, the RCRA permit closure and second, the larger site characterization. With respect to the RCRA permit closure, in 1998, AMVAC began the formal process to close its hazardous waste permit at the Facility (which had allowed AMVAC to store hazardous waste longer than 90 days) as required by federal regulations. Formal regulatory closure actions began in 2005 and were completed in 2008, as evidenced by DTSC’s October 1, 2008 acknowledgement of AMVAC’s Closure Certification Report.  

With respect to the larger site characterization, soil and groundwater characterization activities began in December 2002 in accordance with the Site Investigation Plan that was approved by DTSC. Extensive characterization activities (involving testing and mapping of soil, soil gas, water and air) were conducted from 2003 to 2014, with oversight provided by DTSC. In 2014, the Company submitted a remedial action plan (“RAP”) to DTSC, under the provisions of which the Company proposed not to disturb sub-surface contaminants, but to continue to maintain the cover above affected soil, to perform limited monitoring of select wells and to enter into restrictive covenants regarding the potential use of the property in the future. Under the RAP, the Company will, in effect, preserve the status quo with respect to subsurface conditions. Accordingly, it will continue to maintain and repair floors and parking lots (as it has been doing over the past few decades on a routine basis) as well as monitoring subsurface wells and/or closing such wells as needed.

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 is preparing an operation and maintenance plan and to record covenants on certain affected parcels and otherwise follow through on its obligations thereunder. The level of work required to maintain the site over the next 20 years should be far less than that in which the Company had been engaged prior to the RAP, when significant testing of air, soil, soil gas and water was being conducted to characterize the site. We will be expensing maintenance and monitoring costs over the course of the next 20 years and expect that those costs, while varying from year to year, will be immaterial. At this stage, then, Company does not believe that there will be any incremental costs to be incurred in connection with


the RAP, as we are essentially continuing routine maintenance of the premises and a reduced plan of well monitoring. Thus, the Company has not recorded a loss contingency.contingency for these activities. There were no material changes in this matter during 2020.

Galvan v. AMVAC InRisk Management Plan – Axis, Alabama. On July 30, 2018, inspectors from USEPA  conducted a Risk Management Plan (“RMP”) audit of the Company’s facility in Axis, Alabama and, in January, 2019, offered the Company an action entitled Graciela Galvan v. AMVAC filedopportunity to show cause (“OSC”) why the Company should not be cited for nine potential infractions of the Clean Air Act, including alleged failure to conduct inspection and testing on April 7, 2014 withcertain process equipment, inadequate training and documentation of such inspections and inadequate management of changes for process chemicals, equipment and the Superior Court for the State of California for the County of Orange (No. 00716103CXC), plaintiff, a former employee, alleges violations of wages and hours requirements under the California Labor Code.like. The Company completedsought a meeting to contest the depositionalleged violations and, on March 26, 2019, provided Region 4 of putative class representative and participated in mediation on the matter. In February 2016, the court granted plaintiff’s motion for class certificationUSEPA with respect to only onea summary of the seven original claims (namely,company’s relevant past compliance efforts and future plan for further effecting compliance. The Company met with USEPA officials in early January, 2021, and outlined progress to date (including, among other things, that allegedly discretionary bonus payments madeit had maintained, attained, or furthered compliance in eight of the nine areas alleged) and its plans regarding further mechanical integrity inspection efforts. After evaluating the matter, USEPA proposed to class members duringdrop a number of violations and recommended a settlement in an immaterial amount. At this stage, the subject period should have been taken into account when calculating overtime).  The Company believes that such bonus payments were discretionarya loss in this matter is probable and as such, were properly excluded from overtime calculations.  Nevertheless, in the interest of saving defense costs, the Company engaged in settlement discussions with plaintiff’s counsel over the course of several months.  During the third quarter of 2016, the Companyreasonably estimable and has recorded a loss contingency to cover the estimatedin an amount of settlement.  During December 2016, the parties reached agreement on terms of settlement, and, on February 9, 2018, the court gave its final approval to the terms of the class settlement. The settlement wasthat is not material to the Company’s consolidatedits financial statements and the Company is to provide the court with a report of administration of the settlement proceeds to the class in August 2018, after which the Company expects that the matter will be dismissed with prejudice.performance or operations.

(5) Employee Deferred Compensation Plan and Employee Stock Purchase Plan

The Company maintains a deferred compensation plan (“the Plan”) for all eligible employees. The Plan calls for each eligible employee, at the employee’s election, to participate in an income deferral arrangement under Internal Revenue Code Section 401(k). The plan allows eligible employees to make contributions, which cannot exceed 100% of compensation, or the annual dollar limit set by the Internal Revenue Code. The Company matches the first 5% of employee contributions. The Company’s contributions to the Plan amounted to $1,550, $1,258$2,172, $1,997 and $1,261$1,914 in 2017, 20162020, 2019 and 2015,2018, respectively.

During 2001, the Company’s Board of Directors adopted the AVD Employee Stock Purchase Plan (the “ESPP Plan”). The Plan allows eligible employees to purchase shares of common stock through payroll deductions at a discounted price. An original aggregate number of approximately 1,000,000 shares of the Company’s Common Stock, par value $0.10 per share (subject to adjustment for any stock dividend, stock split or other relevant changes in the Company’s capitalization) were allowed to be sold pursuant to the Plan, which is intended to qualify under Section 423 of the Internal Revenue Code. The Plan allows for purchases in a series of offering periods, each six months in duration, with new offering periods (other than the initial offering period) commencing on January 1 and July 1 of each year. The initial offering period commenced on July 1, 2001. Pursuant to action taken by the Company’s Board of Directors inon December 10, 2010, the expiration of the Plan was extended to December 31, 2013. The Plan was amended and restated on June 30, 2011 following stockholders’ ratification of the extended expiration date. In December 2013, the BoardThe Plan was amended as of Directors resolvedJune 6, 2018 following stockholders’ ratification of a ten-year extension to extend the expiration date of the Plan five years, that is, until(which now stands at December 31, 2018.2028). Under the Plan, as amended as of June 30, 2011,6, 2018, 995,000 shares of the Company’s common stock were authorized. As of December 31, 2017, 2016,2020, 2019, and 2015, 726,809, 760,825,2018, 593,962, 643,630, and 803,555690,859 shares, respectively, remained available under the plan. The expense recognized under the Plan was immaterial during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.

Shares of common stock purchased through the Plan in 2017, 20162020, 2019 and 20152018 were 34,016, 42,73049,668, 47,229 and 50,452,35,950, respectively.

(6) Major Customers and International Sales

In 2017,2020, there were three companiescustomers that accounted for 13%17%, 10%12% and 10%, respectively, of the Company’s consolidated sales. In 2016,2019, there were three companiescustomers that accounted for 15%18%, 11%14%, and 7% of the Company’s consolidated sales. In 2018, there were three customers that accounted for 12%, 9% and 8% of the Company’s consolidated sales. In 2015, there were three companies that accounted for 14%, 11% and 10% of the Company’s consolidated sales.

The Company primarily sells its products to large distributors, buying cooperatives, other co-operative groups and, groupsin certain territories, end users, and extends credit based on an evaluation of the customer’s financial condition. The Company had three significant customers who each accounted for approximately


10%8%, 9%4% and 8%3% of the Company’s receivables as of December 31, 2017.2020. The Company had three significant customers who each accounted for approximately 15%13%, 11%12% and 8%6% of the Company’s receivables as of December 31, 2016.2019. The Company has long-standing relationships with its customers and the Company considers its overall credit risk for accounts receivables to be low.moderate.


International sales for 2017, 20162020, 2019 and 20152018 were as follows:

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

2018

 

Asia

 

$

28,880

 

 

$

17,138

 

 

$

13,847

 

South and Central America

 

 

25,748

 

 

 

16,234

 

 

 

15,970

 

 

$

102,281

 

 

$

111,106

 

 

$

86,172

 

Mexico

 

 

16,030

 

 

 

16,690

 

 

 

17,096

 

 

 

33,517

 

 

 

28,835

 

 

 

24,578

 

Asia

 

 

19,290

 

 

 

15,554

 

 

 

14,828

 

Canada

 

 

10,572

 

 

 

11,637

 

 

 

3,403

 

Australia

 

 

9,902

 

 

 

2,798

 

 

 

2,635

 

Africa

 

 

6,072

 

 

 

6,750

 

 

 

8,027

 

Middle East

 

 

3,054

 

 

 

2,392

 

 

 

3,256

 

Europe

 

 

10,700

 

 

 

14,519

 

 

 

12,350

 

 

 

2,292

 

 

 

6,889

 

 

 

11,059

 

Africa

 

 

7,893

 

 

 

7,111

 

 

 

8,622

 

Australia

 

 

4,334

 

 

 

3,735

 

 

 

4,158

 

Canada

 

 

4,083

 

 

 

3,690

 

 

 

1,585

 

Middle East

 

 

1,237

 

 

 

4,041

 

 

 

3,230

 

Other

 

 

 

 

 

101

 

 

 

437

 

 

$

98,905

 

 

$

83,259

 

 

$

77,295

 

 

$

186,980

 

 

$

185,961

 

 

$

153,958

 

 

(7) RoyaltiesRoyalty expenses

The Company has two2 licensing agreements that require minimum annual royalty payments. Those agreements related to the acquisition of certain products. The Company also has two2 other licensing arrangements in which royaltyroyalties are paid based on percentage of annual sales. Certain royalty agreements contain confidentiality covenants. Royalty expenses were $81, $83$106, $137 and $111$86 for 2017, 20162020, 2019 and 2015,2018, respectively.

(8) BusinessProduct and ProductBusiness Acquisitions

During 2017,the year ended December 31, 2020, the Company completed 2 acquisitions within exchange for a total combined purchasecash consideration at closing of $19,342, which was net of cash acquired of $92,888 including cash paid at closing$1,970, and contingent consideration of $2,007, and the settlement of a net asset adjustment of $623. In addition, the Company assumed liabilities of $10,288 and recognized a bargain purchase gain in the amount of $81,896$4,657. The total asset value of $36,917 was preliminarily allocated as follows: product rights $6,645, trade names $1,195, customer relationships $632, goodwill $8,672, working capital and deferredfixed assets $19,773.

The purchase price allocation for both acquisitions is preliminary with respect to the valuation of contingent consideration, intangibles, property, plant and equipment, income taxes and certain other working capital items as the Company is still in the process of $10,992.gathering additional information and the determination of the respective fair values.

On October 2, 2020, the Company completed the acquisition of all outstanding stock of the Agrinos Group Companies (Agrinos), except for Agrinos AS. Agrinos has operating entities in the U.S., Mexico, India, Brazil, China, Ukraine, and Spain. Agrinos is a fully integrated biological input supplier with proprietary technology, internal manufacturing, and global distribution capabilities. At closing, the Company recorded $12,814paid cash consideration of $3,125, which was net of cash acquired of $1,813, and liabilities assumed of $4,963, including liabilities of $595 related to income tax matters associated with the acquisitions.matters. The acquisition was accounted for as a business combination and resulted in a preliminary bargain purchase price has beengain of $4,657. The total asset value of $12,745 was preliminarily allocated as follows: working capital $7,491, including trade receivables of $2,358, property, plant and equipment $5,004, and intangible assets $250. Agrinos was acquired out of bankruptcy. This provided the Company with an opportunity to acquire Agrinos at an advantageous purchase price which was below the preliminary fair value of Agrinos’ net assets acquired resulting in the above-mentioned bargain purchase gain. The operating results of Agrinos, which has been included in our consolidated statements of operations from the date of acquisition, were not material.


On October 8, 2020, the Company completed the acquisition of all outstanding stock of AgNova Technologies Pty Ltd (“AgNova”). AgNova is an Australian entity that sources, develops, and distributes specialty crop protection and production solutions for agricultural and horticultural producers, and for selected non-crop users. At closing, the Company paid cash consideration of $16,217, which was net of cash acquired of $157, contingent consideration dependent on certain financial results of $2,007, the settlement of a net asset adjustment of $623, and liabilities assumed of $5,325, including liabilities of $2,529 related to income tax matters. The fair value of the contingent consideration of $2,007 was estimated using an income approach and the maximum potential undiscounted payout is $2,811. The acquisition was accounted for as a business combination and the total asset value of $24,172 was preliminarily allocated as follows: product registrations and product rights $55,127,$6,395, trade names and trademarks $9,500,$1,195, customer relationships and customer lists $3,700,$632, goodwill $22,184,$8,672, which is non-deductible for tax purposes, working capital $14,679 and property, plant$7,206, including trade receivables of $1,508, and equipment $512.  Included$73. The allocation of the excess purchase price over the preliminary estimated fair value of the net assets acquired was provisional, pending completion of a valuation analysis.  The provisional allocation to intangibles and goodwill was based on the proportional allocation of excess purchase price to intangible assets and goodwill for a comparable acquisition transaction completed by the Company in a prior year for which the purchase accounting had been finalized.  The final determination during the measurement period of the allocation of excess purchase price to the intangible assets and goodwill could differ significantly from the provisional estimates. The goodwill represents the synergies expected to be achieved from the combined operations of the acquired company. The operating results of Agnova are included in our consolidated statements of operations from the date of acquisition, including revenue of $3,141 and net income of $477.

During the year ended December 31, 2019, the Company completed 3 acquisitions in exchange for a total cash consideration at closing of $37,972, net of cash acquired of $981 and contingent consideration of $3,051. In addition, the Company assumed liabilities of $19,867 and capitalized costs of $14 incurred in the detail above,asset acquisition process. The total asset value of $60,904 was allocated as follows: product rights $13,279, trade names $5,452, customer relationships $5,705, goodwill $22,652, working capital and fixed assets $10,432, and indemnification assets $3,384.

On January 10, 2019, the amounts allocatedCompany completed the acquisition of all outstanding shares of stock of 2 affiliated businesses, Defensive and Agrovant, which are located in Jaboticabal in the state of Sao Paul, Brazil. At closing the Company paid cash consideration of $20,679, which was net of cash acquired of $981, deferred consideration of $3,051 including contingent consideration dependent on certain financial results for 2019, and liabilities assumed of $18,160, including liabilities of $9,111 related to income tax matters. These companies were founded in 2000 and are suppliers of crop protection products and micronutrients with focus on the productsfruit and vegetable market segments. The acquisition was accounted for as a business combination and the total asset value of $41,890 was allocated as follows: trade name $1,010, customer relationships $5,705, goodwill $22,652, working capital and fixed assets $9,139 and indemnification assets $3,384. The operating results of the acquired businesses are included in our consolidated statement of operations from The Andersons, Adama and Syngenta are completed as at December 31, 2017. During 2017, the Company incurred approximately $937date of professional fees in connection with these transactions, which were expensed. Cash paid at closing was funded through our revolving line of credit.

The assessment of purchase price allocation related to OHP and AgriCenter are preliminary as at December 31, 2017 and will be completed during 2018. The purchase price allocations are based on information available to management at the time the consolidated financial statements were prepared and reflect the best estimate of fair value. The fair value allocations are subject to change, which may be significant.acquisition. The goodwill consists largely of acquired workforce, tax related matters and expected synergies arising from the acquisition. With regard to goodwill, $5,088recognized is expected to be deductible for income tax purposes, subject to merging AMVAC do Brasil with Defensive and Agrovant.

The 2 other acquisitions completed in 2019 related to product lines which were purchased for a total cash consideration at closing of $17,307, including transaction costs of $14. In addition, the balanceCompany assumed liabilities in the amount of $1,707. These acquisitions were accounted for as asset acquisitions because the Company did not acquire any substantive processes. The acquired assets consist of product rights $13,279, trade names $4,442, and inventory $1,293.

During the year ended December 31, 2018, the Company completed 4 acquisitions in exchange for a total cash consideration at closing of $19,851, net of cash acquired $1,600, cash consideration paid in January 2019 $3,530 and the fair value of the Company’s pre-existing ownership position $2,044. In addition, the Company assumed liabilities of $1,750 and capitalized costs of $108 incurred in the asset acquisition process. The total value of $27,283 was allocated as follows: product registrations and product rights $12,720, trade names, trademarks and patents $2,678, customer lists $739, goodwill $3,927, inventory $5,461, other working capital $121 and property, plant and equipment $27, and deferred tax assets $1,610.

The acquisition of TyraTech Inc. (“TyraTech”) was accounted for as a business combination. The Company acquired 65.62% of TyraTech’s issued and outstanding shares on November 8, 2018 in exchange for cash consideration of $2,154 at closing, net of cash acquired of $1,600, and liabilities assumed of $1,750. Together with the Company’s pre-existing ownership of 34.38% with a fair value of $2,044, TyraTech became a wholly owned subsidiary of the Company and was delisted from the AIM market of the London Stock Exchange. TyraTech is a life sciences company focused on nature-derived insect and parasite control products. Their patented technology platform leverages synergistic essential oil combination to target invertebrate pest receptors that are not active in humans and other mammals. The assessment of the purchase price allocation related to the business combination was completed in 2019. The purchase price allocation is as follows: working capital of $115, intangible assets of $180 and goodwill of $3,927, property, plant and equipment of $27, other assets of $89, and deferred tax assets of $1,610. Goodwill is not expected to be deductible for income tax purposes.

The Company considers that the acquisitions completed during 2017 are immaterial to the accompanying consolidated financial statements individuallygoodwill consists largely of acquired workforce and material in aggregate.

On January 13, 2017,tax related matters. As a result of this acquisition, the Company acquired from The Andersons, Inc. certain assets relatingwas required to proprietary formulations containing PCNB, chlorothalonilstep up the value of its ownership and propiconazole which are marketed under the name FFII and FFIII. The acquired assets included end use registrations. The acquired products were included in the Company’s consolidated statementrecorded a gain of operations from the date of acquisition.    

On June 6, 2017, Amvac 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 been allocated to intangible assets and inventory.  The acquired products were included in the Company’s consolidated statement of operations from the date of acquisition.

On August 22, 2017, AMVAC 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 been allocated to intangible assets and inventory.  The acquired products were included in the Company’s consolidated statement of operations from the date of acquisition.

On October 2, 2017, the Company acquired substantially all of the assets of OHP, resulting in OHP becoming a wholly owned subsidiary of the Company whereby the Company gained greater access to distribution in the U.S. ornamental market. OHP is a leading provider of technology based pesticide solutions for greenhouse and nursery production applications throughout the United States and Puerto Rico. The consideration for the acquired assets was paid in cash and has been preliminarily allocated to working capital, property, plant and equipment, intangible assets, inventory and goodwill.$1,463. The acquired business was included in the Company’s consolidated statement of operationsfinancial statements from the date of acquisition.


On October 27, 2017, AMVAC BV acquired 100% ownershipNaN of the 2018 acquisitions mentioned previously related to product lines were purchased for total cash consideration at closing of $21,335, including transaction costs of $108, and $3,530 paid in AgriCenter wherebyJanuary 2019. These acquisitions were accounted for as asset acquisitions because the Company gained significant accessdid not acquire any substantive processes. Of this amount, $5,378 was recorded to inventory and distributionthe remaining to intangibles. One of the Central American market. AgriCenter is centralizedasset acquisitions includes contingent consideration in Costa Rica with officesthe form of potential milestone payments that could amount to a maximum additional payment of $12,500. These milestone payments will be recorded as additional acquisition costs upon the point in six other Central Americantime the milestone criteria are met, if applicable. No such milestones were achieved in 2018, 2019, and Caribbean countries. AgriCenter is an agrochemical distribution company providing a range of services including bringing generic produced product2020. The purchase price allocation was completed as well as its own branded products to growers. The consideration forat December 31, 2018 and the acquired assets was paid in cash and has been preliminarily allocated to working capital, property, plant and equipment, intangible assets, inventory and goodwill. The acquired business wasproduct lines were included in the Company’s consolidated statement of operationsfinancial statements from the date of acquisition.

The following unaudited pro forma information presents a summary of the Company’s combined results of operationsCash paid at closing for the years ended December 31, 2017asset acquisitions and 2016, as if the business acquisitions had occurred on January 1, 2016. The following pro formacombinations was funded through our revolving line of credit. Pro-forma financial information is not necessarily indicativeincluded herein as the pro-forma impact of the results of operations as they would have been had the transaction been effected on the assumed date, noracquisitions is it necessarily an indication of trends in future results for a number of reasons. Consequently, actual results will differ from the unaudited pro forma financial information.not material.

 

 

 

Year ended December 31

 

 

 

2017

 

 

2016

 

Pro forma net sales

 

$

458,793

 

 

$

433,756

 

Pro forma net income

 

 

24,540

 

 

 

17,614

 

Pro forma earnings per common share – basic

 

 

0.84

 

 

 

0.61

 

Pro forma earnings per common share – assuming dilution

 

 

0.83

 

 

 

0.60

 


 

(9) Intangible Assets and Goodwill

The following schedule represents intangible assets recognized in connection with product acquisitions (See description of Business, Basis of Consolidation and Significant Accounting Policies for the Company’s accounting policy regarding intangible assets):

 

 

 

Amount

 

Intangible assets at December 31, 2014

 

$

100,211

 

Additions during fiscal 2015

 

 

36,667

 

Write offs during fiscal 2015

 

 

(33

)

Impact of movement in exchange rates

 

 

(197

)

Amortization expense

 

 

(7,488

)

Intangible assets at December 31, 2015

 

 

129,160

 

Additions during fiscal 2016

 

 

224

 

Write offs during fiscal 2016

 

 

(78

)

Impact of movement in exchange rates

 

 

69

 

Amortization expense

 

 

(7,942

)

Intangible assets at December 31, 2016

 

 

121,433

 

Additions during fiscal 2017

 

 

68,327

 

Impact of movement in exchange rates

 

 

(6

)

Amortization expense

 

 

(8,804

)

Intangible assets at December 31, 2017

 

$

180,950

 

 

 

 

 

 

Goodwill at December 31, 2016

 

 

 

Additions during fiscal 2017

 

 

22,184

 

Goodwill at December 31, 2017

 

$

22,184

 

 

 

 

 

 

Intangible assets and goodwill at December 31, 2017

 

$

203,134

 

 

 

Amount

 

Intangible assets at December 31, 2017

 

$

180,834

 

Additions during fiscal 2018

 

 

16,429

 

Impact of movement in exchange rates

 

 

(45

)

Amortization expense

 

 

(10,751

)

Intangible assets at December 31, 2018

 

 

186,467

 

Additions during fiscal 2019

 

 

25,368

 

Write offs

 

 

(264

)

Impact of movement in exchange rates

 

 

(1,158

)

Amortization expense

 

 

(12,152

)

Intangible assets at December 31, 2019

 

 

198,261

 

Additions during fiscal 2020

 

 

12,675

 

Write offs

 

 

(41

)

Impact of movement in exchange rates

 

 

(637

)

Amortization expense

 

 

(12,744

)

Intangible assets at December 31, 2020

 

$

197,514

 

 

 

 

 

 

Goodwill at December 31, 2017

 

$

22,300

 

Additions during fiscal 2018

 

 

3,606

 

Goodwill at December 31, 2018

 

 

25,906

 

Additions during fiscal 2019

 

 

22,652

 

Impact of movement in exchange rates

 

 

(1,885

)

Goodwill at December 31, 2019

 

 

46,673

 

Additions during fiscal 2020

 

 

8,830

 

Other

 

 

617

 

Impact of movement in exchange rates

 

 

(4,012

)

Goodwill at December 31, 2020

 

$

52,108

 

 

 

 

 

 

Intangible assets and goodwill at December 31, 2020

 

$

249,622

 

 


The following schedule represents the gross carrying amount and accumulated amortization of intangible assets and goodwill. Product rights and trademarks are amortized over their expected useful lives of 25 years. Customer lists are amortized over their expected useful lives of nine to ten years.

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

$000’s

 

Gross

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Product Rights

 

$

223,022

 

 

$

70,701

 

 

$

152,321

 

 

$

167,906

 

 

$

63,141

 

 

$

104,765

 

 

$

260,393

 

 

$

99,228

 

 

$

161,165

 

 

$

249,428

 

 

$

89,204

 

 

$

160,224

 

Trademarks

 

 

27,541

 

 

 

4,233

 

 

 

23,308

 

 

 

18,041

 

 

 

3,411

 

 

 

14,630

 

 

 

37,335

 

 

 

8,111

 

 

 

29,224

 

 

 

36,037

 

 

 

6,633

 

 

 

29,404

 

Customer Lists

 

 

6,791

 

 

 

1,470

 

 

 

5,321

 

 

 

3,091

 

 

 

1,053

 

 

 

2,038

 

 

 

11,539

 

 

 

4,414

 

 

 

7,125

 

 

 

12,028

 

 

 

3,395

 

 

 

8,633

 

Total intangibles assets

 

 

309,267

 

 

 

111,753

 

 

 

197,514

 

 

 

297,493

 

 

 

99,232

 

 

 

198,261

 

Goodwill

 

 

22,184

 

 

 

 

 

 

22,184

 

 

 

 

 

 

 

 

 

 

 

 

52,108

 

 

 

 

 

 

52,108

 

 

 

46,673

 

 

 

 

 

 

46,673

 

Total intangibles and goodwill

 

$

279,538

 

 

$

76,404

 

 

$

203,134

 

 

$

189,038

 

 

$

67,605

 

 

$

121,433

 

 

$

361,375

 

 

$

111,753

 

 

$

249,622

 

 

$

344,166

 

 

$

99,232

 

 

$

244,934

 

 

The following schedule represents future amortization charges related to intangible assets:

 

Year ending December 31,

 

 

 

 

 

Amount

 

2018

 

$

10,732

 

2019

 

 

10,732

 

2020

 

 

10,784

 

2021

 

 

10,675

 

 

$

12,838

 

2022

 

 

10,554

 

 

 

12,717

 

2023

 

 

12,207

 

2024

 

 

11,909

 

2025

 

 

11,727

 

Thereafter

 

 

127,473

 

 

 

136,116

 

 

$

180,950

 

 

$

197,514

 

 


The following schedule represents the Company’s obligationscontingent consideration liability under acquisitions and licensing agreements:

 

 

 

Amount

 

Obligations under acquisition agreements at December 31, 2014

 

$

2,492

 

Additional obligations acquired

 

 

1,367

 

Adjustment to deferred liabilities

 

 

65

 

Amortization of discounted liabilities

 

 

135

 

Payments on existing obligations

 

 

(2,524

)

Obligations under acquisition agreements at December 31, 2015

 

 

1,535

 

Additional obligations acquired

 

 

224

 

Adjustment to deferred liabilities

 

 

(22

)

Amortization of discounted liabilities

 

 

38

 

Payments on existing obligations

 

 

(960

)

Obligations under acquisition agreements at December 31, 2016

 

 

815

 

Additional obligations acquired

 

 

10,992

 

Adjustment to deferred liabilities

 

 

(223

)

Amortization of discounted liabilities

 

 

109

 

Payments on existing obligations

 

 

(26

)

Obligations under acquisition agreements at December 31, 2017

 

$

11,667

 

 

 

Amount

 

Obligations under acquisition agreements at December 31, 2017

 

$

11,334

 

Adjustment to contingent consideration within the measurement period

 

 

(1,697

)

Reassessment of contingent consideration

 

 

(6,050

)

Accretion of discounted liabilities

 

 

345

 

Payments on existing obligations

 

 

(66

)

Obligations under acquisition agreements at December 31, 2018

 

 

3,866

 

Additional obligations acquired

 

 

1,312

 

Reassessment of contingent consideration

 

 

(3,866

)

Accretion of discounted liabilities

 

 

28

 

Foreign exchange effect

 

 

(96

)

Obligations under acquisition agreements at December 31, 2019

 

 

1,244

 

Additional obligations acquired

 

 

2,044

 

Reassessment of contingent consideration

 

 

250

 

Accretion of discounted liabilities

 

 

16

 

Payments on existing obligations

 

 

(1,227

)

Foreign exchange effect

 

 

141

 

Obligations under acquisition agreements at December 31, 2020

 

$

2,468

 

 

AsAmounts of December 31, 2017,deferred consideration recognized in the $11,667 in remaining obligations under product acquisitions and licensing agreements is included in other liabilities.consolidated balance sheets.

 

December 31,

2020

 

 

December 31,

2019

 

Short-term

$

1,004

 

 

$

1,244

 

Long-term

 

1,464

 

 

 

 

Total contingent consideration

$

2,468

 

 

$

1,244

 

 


(10) Commitments

The Company hasWe enter into various lease agreementsobligations in the ordinary course of business, generally of a short-term nature. Those that are binding primarily relate to purchase commitments for officesinventory and orders submitted for equipment for our production plants as well as long-term ground leases for its facilities at Axis, AL, Hannibal, MO and Marsing, ID. The office leases contain provisions to pass through to the Company its pro-rata share of certain of the building’s operating expenses. The long-term ground lease at Axis, AL is for twenty years (commencing May 2001) with up to five automatic renewals of three years each for a total of thirty-five years. The long-term ground lease at Hannibal, MO is for a period of 20 years (commencing December 2007) with automatic one year extensions thereafter, subject to termination with a twelve-month notice. At its Marsing facility, the Company owns 15 acres and holds a long-term ground lease on two acres for a period of 25 years (commencing in March 2008). Rent expense for the years ended December 31, 2017, 2016 and 2015 was $1,102, $946 and $947. In addition, the Company has various vehicle lease agreements for its sales force. Vehicle lease expense for the years ended December 31, 2017, 2016 and 2015 was $529, $555, and $435 respectively.

Future minimum lease payments under the terms of the leases are as follows:

Year ending December 31,

 

 

 

 

2018

 

$

2,250

 

2019

 

 

1,938

 

2020

 

 

1,660

 

2021

 

 

1,103

 

2022

 

 

521

 

Thereafter

 

 

650

 

 

 

$

8,122

 

service agreements.

(11) Research and Development

Research and development expenses which are included in operating expenses were $8,455, $6,998$8,757, $8,906 and $6,337$9,164 for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.


(12) Equity Plan Awards

Under the Company’s Equity Incentive Plan of 1993, as amended (“the Plan”), all employees are eligible to receive non-assignable and non-transferable restricted stock, options to purchase common stock, and other forms of equity. As of December 31, 2017,2020, the number of securities remaining available for future issuance under the Plan is 2,000,579.1,104,637.

IncentiveThe below tables illustrate the Company’s stock-based compensation, unamortized stock-based compensation, and remaining weighted average period for the years ended December 31, 2020, 2019 and 2018. This projected expense will change if any stock options and restricted stock are granted or cancelled prior to the respective reporting periods, or if there are any changes required to be made for estimated forfeitures.

 

 

Stock-Based

Compensation

 

 

Unamortized

Stock-Based

Compensation

 

 

Remaining

Weighted

Average

Period (years)

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock

 

$

3,166

 

 

$

6,954

 

 

 

2.0

 

Unrestricted Stock

 

 

461

 

 

 

183

 

 

 

0.4

 

Performance-Based Restricted Stock

 

 

2,934

 

 

 

3,352

 

 

 

2.0

 

Total

 

$

6,561

 

 

$

10,489

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock

 

$

3,655

 

 

$

5,512

 

 

 

1.9

 

Unrestricted Stock

 

 

411

 

 

 

205

 

 

 

0.4

 

Performance-Based Restricted Stock

 

 

3,094

 

 

 

2,835

 

 

 

1.9

 

Total

 

$

7,160

 

 

$

8,552

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock

 

$

3,272

 

 

$

5,006

 

 

 

1.3

 

Unrestricted Stock

 

 

385

 

 

 

160

 

 

 

0.4

 

Performance-Based Restricted Stock

 

 

2,148

 

 

 

2,565

 

 

 

1.9

 

Total

 

$

5,805

 

 

$

7,731

 

 

 

 

 

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 years ended December 31, 2020, 2019 and 2018.


Restricted and Unrestricted Stock Option Plans

A summary of nonvested restricted and unrestricted stock is presented below:

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

Nonvested shares at January 1st

 

 

719,845

 

 

$

17.67

 

 

 

587,210

 

 

$

17.59

 

Granted

 

 

393,180

 

 

 

14.39

 

 

 

341,653

 

 

 

16.84

 

Vested

 

 

(255,835

)

 

 

15.86

 

 

 

(148,240

)

 

 

14.99

 

Forfeited

 

 

(36,566

)

 

 

18.34

 

 

 

(60,778

)

 

 

18.12

 

Nonvested shares at December 31st

 

 

820,624

 

 

$

16.64

 

 

 

719,845

 

 

$

17.67

 

 

Performance-Based Restricted Stock

A summary of nonvested performance-based stock is presented below:

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

Nonvested shares at January 1st

 

 

345,432

 

 

$

16.92

 

 

 

287,077

 

 

$

16.87

 

Granted

 

 

160,706

 

 

 

14.29

 

 

 

137,557

 

 

 

16.96

 

Additional granted based on performance achievement

 

 

76,445

 

 

 

16.56

 

 

 

42,368

 

 

 

12.97

 

Vested

 

 

(184,785

)

 

 

15.87

 

 

 

(92,572

)

 

 

14.78

 

Forfeited

 

 

(6,027

)

 

 

17.52

 

 

 

(28,998

)

 

 

17.70

 

Nonvested shares at December 31st

 

 

391,771

 

 

$

16.26

 

 

 

345,432

 

 

$

16.92

 

Performance Based Restricted Stock Granted in 2020During the year ended December 31, 2020, the Company issued a total of 160,706 performance-based shares to employees. The shares granted during 2020 have an average fair value of $14.29. The fair value was determined by using the publicly traded share price as of the market close on the date of grant and Monte Carlo valuation method. 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 May 13, 2023 with a measurement period commencing October 1, 2020 and ending March 31, 2023. NaN percent of these performance-based shares are based upon the financial performance of the Company, specifically, an earnings before interest and tax (“ISOP”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 2020 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.


Performance Based Restricted Stock Granted in 2019During the year ended December 31, 2019, the Company issued a total of 137,557 performance-based shares to employees. The shares granted during 2019 have an average fair value of $16.96. The fair value was determined by using the publicly traded share price as of the market close on the date of grant and Monte Carlo Valuation method. 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 March 28, 2022 with a measurement period commencing January 1, 2019 and ending December 31, 2021. NaN 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 2018 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.  

Performance Based Restricted Stock Granted in 2018— During the year ended December 31, 2018, the Company issued a total of 130,332 performance-based shares to employees. The shares granted during 2018 have an average fair value of $18.74. The fair value was determined by using the publicly traded share price as of the market close on the date of grant. The Company is recognizing as expense the value of the performance-based shares over the required service period from grant date. The shares cliff vested on March 9, 2021 with a measurement period commencing January 1, 2018 and ending December 31, 2020. NaN 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 2017 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.  

In 2020, the Company assessed the likelihood of achieving the performance measures based on peer group information currently available for the performance-based shares granted in 2018. 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 recorded the related additional expense in 2020. The performance shares based on market price are expected to be met at 38% of targeted performance. The effect of market conditions for performance shares based on market are included in the grant date fair value valuation and 0 additional expenses were recognized in 2020.

During 2020, the Company concluded that the performance measure based on EBIT and net sales for the performance-based shares granted in 2017, when compared to the peer group, was both met at 200% of targeted performance and all related additional expenses were recorded as of December 31, 2020. The 2017 performance shares based on market price was met at 50%, however, the market condition is reflected in the grant date fair value valuation and 0 additional expenses were recognized. As a result, 76,445 additional shares were earned since the Company achieved performance targets when compared to the peer group.

Stock Options

Under the terms of the Company’s ISOP, under which options to purchase common stock can be issued, all employees are eligible to receive non-assignable and non-transferable options to purchase shares. The exercise price of any option may not be less than the fair market value of the shares on the date of grant; provided, however, that the exercise price of any option granted to an eligible employee owning more than 10% of the outstanding common stock may not be less than 110% of the fair market value of the shares underlying such option on the date of grant. No options granted may be exercisable more than ten years after the date of grant.

In 2017, 20162020, 2019 and 2015, no2018, 0 options were granted.


Incentive Stock Option activity within each plan is as follows:Plans

Activity of the incentive stock option plans:

 

 

Incentive

Stock Option

Plans

 

 

Weighted

Average

Price Per

Share

 

 

Exercisable

Weighted

Average

Price

Per Share

 

Balance outstanding, December 31, 2014

 

 

724,904

 

 

$

9.22

 

 

$

7.82

 

Options exercised,

 

 

(63,950

)

 

$

7.50

 

 

 

 

 

Options forfeited,

 

 

(34,109

)

 

 

12.00

 

 

 

 

 

Balance outstanding, December 31, 2015

 

 

626,845

 

 

$

9.25

 

 

$

7.73

 

Options exercised,

 

 

(58,900

)

 

$

7.50

 

 

 

 

 

Options forfeited,

 

 

(26,040

)

 

 

11.49

 

 

 

 

 

Balance outstanding, December 31, 2016

 

 

541,905

 

 

$

9.33

 

 

$

7.97

 

Options exercised,

 

 

(55,979

)

 

$

8.37

 

 

 

 

 

Options forfeited,

 

 

(13,143

)

 

 

11.49

 

 

 

 

 

Balance outstanding, December 31, 2017

 

 

472,783

 

 

$

9.38

 

 

$

9.38

 

 

 

Number of

Shares

 

 

Weighted

Average

Price Per

Share

 

 

Balance outstanding, December 31, 2017

 

 

472,783

 

 

$

9.38

 

 

Options exercised

 

 

(88,719

)

 

 

10.62

 

 

Balance outstanding, December 31, 2018

 

 

384,064

 

 

$

9.10

 

 

Options exercised

 

 

(51,241

)

 

 

8.87

 

 

Balance outstanding, December 31, 2019

 

 

332,823

 

 

$

9.14

 

 

Options exercised

 

 

(196,736

)

 

 

7.79

 

 

Options forfeited

 

 

(13,000

)

 

 

7.50

 

 

Balance outstanding, December 31, 2020

 

 

123,087

 

 

$

11.48

 

 

 

Information relating to stock options

Outstanding at December 31, 20172020 summarized by exercise price is as follows:price:

 

 

 

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

 

 

249,050

 

 

 

35

 

 

$

7.50

 

 

 

249,050

 

 

$

7.50

 

$11.32-$14.75

 

 

223,733

 

 

 

82

 

 

$

11.48

 

 

 

223,733

 

 

$

11.48

 

 

 

 

472,783

 

 

 

57

 

 

$

9.38

 

 

 

472,783

 

 

$

9.38

 

 

 

Outstanding Weighted Average

 

Exercise Price Per Share

 

Number of

Shares

 

 

Remaining

Life

(Months)

 

 

Exercise

Price

 

$11.32

 

 

7,200

 

 

 

5

 

 

$

11.32

 

$11.49

 

 

115,887

 

 

 

48

 

 

$

11.49

 

 

 

 

123,087

 

 

 

 

 

 

$

11.48

 

 

During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to incentive stock options of $345, $354, and $431, respectively.


The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of December 31, 2017 and 2016 was as follows:

 

 

Number

of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

(Months)

 

 

Intrinsic

Value

(thousands)

 

As of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Stock Option Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

472,783

 

 

$

9.38

 

 

 

57

 

 

$

4,853

 

Vested

 

 

472,783

 

 

$

9.38

 

 

 

57

 

 

$

4,853

 

Exercisable

 

 

472,783

 

 

$

9.38

 

 

 

57

 

 

$

4,853

 

As of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive Stock Option Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

541,905

 

 

$

9.33

 

 

 

67

 

 

$

5,321

 

Expected to Vest

 

 

536,531

 

 

$

9.31

 

 

 

67

 

 

$

5,280

 

Exercisable

 

 

332,684

 

 

$

7.97

 

 

 

49

 

 

$

3,719

 

 

The total intrinsic value of options exercised during 2017, 20162020, 2019, and 20152018 was $545, $493,$1,393, $393, and $361,$955, respectively. Cash received from stock options exercised during 2020, 2019, and 2017 2016,was $1,533, $454, and 2015 was $468, $442, and $480,$951, respectively.

Nonstatutory Stock Options (“NSSO”)

The Company did not grant any non-statutory stock options during the three years ended December 31, 2017.  There are 16,333 shares of options outstanding for year ended December 31, 2017.

Common Stock Grants

During 2017, the Company issued a total of 290,977 shares of common stock to certain employees and non-executive board members. Of these, 26,820 shares vest immediately, 1,300 shares will vest one-half each year on the anniversaries of the employee’s employment date, 1,782 shares will vest two years from the employee’s employment date, and the balance will cliff vest after three years of service. The fair values of the grants range from $14.92 to $19.90 per share based on the publicly traded share prices at the date of grants. The total fair value of $4,726 is being recognized over the vesting period, which is representative of the related service periods. During 2017, 20,815 shares of common stock granted to employees were forfeited.

During 2016, the Company issued a total of 150,009 shares of common stock to certain employees and non-executive board members. Of these, 21,139 shares vest immediately, 2,600 shares will vest one-half each year on the anniversaries of the employee’s employment date, 3,000 shares will vest two years from the employee’s employment date, and the balance will cliff vest after three years of service. The fair values of the grants range from $15.08 to $17.35 per share based on the publicly traded share prices at the date of grants. The total fair value of $2,283 is being recognized over the vesting period, which is representative of the related service periods. During 2016, 35,615 shares of common stock granted to employees were forfeited.

A status summary of non-vested shares as of December 31, 2017 and 2016, are presented below:

 

 

December 31, 2017

 

 

December 31, 2016

 

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

Nonvested shares at January 1st

 

 

324,756

 

 

$

14.75

 

 

 

362,841

 

 

$

20.43

 

Granted

 

 

290,977

 

 

 

16.24

 

 

 

150,009

 

 

 

15.22

 

Vested

 

 

(203,165

)

 

 

15.14

 

 

 

(152,479

)

 

 

15.19

 

Forfeited

 

 

(20,815

)

 

 

15.29

 

 

 

(35,615

)

 

 

18.89

 

Nonvested shares at December 31st

 

 

391,753

 

 

$

15.63

 

 

 

324,756

 

 

$

14.75

 


During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to restricted shares of $2,705, $1,630, and $2,972, respectively.

 

Performance Based Stock Grants

During the year ended December 31, 2017, the Company issued a total of 128,594 performance based shares to employees.  The shares granted during 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.  

On January 6, 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 through December 31, 2018, provided that the participating employees are continuously employed by the Company during the vesting period. Eighty percent of these performance based shares are based upon financial performance of the Company, specifically, an earnings before income tax (“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 meeting less than the targeted performance and to increase to a maximum of 200% for meeting in excess of the targeted performance.

During 2015, the Company granted a total of 10,696 performance based shares. Of these, 7,500 shares will cliff vest on January 5, 2018 with a measurement period commencing January 1, 2015 and ending December 31, 2017 and 3,196 shares will cliff vest on August 1, 2018 with a measurement period commencing July 1, 2015 and ending June 30, 2018, provided that the participating employees are continuously employed by the Company during the vesting period. Eighty percent of these performance based shares are based upon financial performance of the Company, specifically, an earnings before income tax (“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 meeting less than the targeted performance and to increase to a maximum of 200% for meeting in excess of the targeted performance.

As of December 31, 2017, the 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.

As of December 31, 2016, the performance based shares related to EBIT and net sales have an average fair value of $15.08 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 $11.63 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.  


As of December 31, 2015, performance based shares related to EBIT and net sales have an average fair value of $11.86 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 $9.48 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 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to performance based shares of $1,248, $995, and $329, respectively. In 2017, the Company assessed the likelihood of achieving the performance measures based on peer group information currently available for the performance based shares granted in 2015 and 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 recorded the related additional expense in 2016.  The performance shares based on market price, however, are not expected to meet targeted performance and in that event, will be forfeited.  Any forfeiture related to market condition shares are included in the grant date fair value valuation and no forfeitures were recognized in 2017.

As of December 31, 2017, the Company had approximately $1,642 of unamortized stock-based compensation expenses related to unvested performance based shares. This amount will be recognized over the weighted-average period of 1.8 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.

A summary of non-vested shares as of December 31, 2017 and 2016, is presented below:

 

 

December 31, 2017

 

 

December 31, 2016

 

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

 

Number

of Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

Nonvested shares at January 1st

 

 

119,022

 

 

$

14.18

 

 

 

104,403

 

 

$

17.05

 

Granted

 

 

128,594

 

 

 

15.43

 

 

 

52,170

 

 

 

14.39

 

Vested

 

 

(48,046

)

 

 

14.92

 

 

 

 

 

 

 

Forfeited

 

 

(13,513

)

 

 

13.08

 

 

 

(37,551

)

 

 

22.45

 

Nonvested shares at December 31st

 

 

186,057

 

 

$

14.93

 

 

 

119,022

 

 

$

14.18

 

Performance Incentive Stock Option Plan

ForActivity of the three years ended December 31, 2017, the Company did not grant any employees performance incentive stock options to acquire shares of common stock.

Performance option activity is as follows:plan:

 

 

 

Incentive

Stock Option

Plans

 

 

Weighted

Average

Price Per

Share

 

 

Exercisable

Weighted

Average

Price

Per Share

 

Balance outstanding, December 31, 2015

 

 

98,410

 

 

$

11.49

 

 

$

 

Options forfeited

 

 

(16,076

)

 

 

11.49

 

 

 

 

 

Balance outstanding, December 31, 2016

 

 

82,334

 

 

$

11.49

 

 

$

 

Options forfeited

 

 

(668

)

 

 

11.49

 

 

 

 

 

Balance outstanding, December 31, 2017

 

 

81,666

 

 

$

11.49

 

 

$

 


Information relating to performance stock options at December 31, 2017 is 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$11.49

 

 

81,666

 

 

 

 

(1)

$

11.49

 

 

 

 

 

$

 

 

 

 

81,666

 

 

 

 

 

$

11.49

 

 

 

 

 

$

 

(1)

The Incentive Stock Option awards have been totally vested on 12/31/2017.  The remaining contractual term is 7 years for these awards.

 

 

Number of

Shares

 

 

Weighted

Average

Price Per

Share

 

 

Balance outstanding, December 31, 2018

 

 

140,411

 

 

$

11.49

 

 

Options exercised

 

 

(19,629

)

 

 

11.49

 

 

Balance outstanding, December 31, 2019

 

 

120,782

 

 

$

11.49

 

 

Options exercised

 

 

(6,124

)

 

 

11.49

 

 

Balance outstanding, December 31, 2020

 

 

114,658

 

 

$

11.49

 

 

 

The weighted average exercise price forAll the performance options granted and exercisable and the weighted average remaining contractual life for performanceincentive stock options outstanding as of December 31, 20172020 have an exercise price per share of $11.49 and 2016 was as follows:a remaining life of 48 months.

 

 

 

Number

of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

(Months)

 

 

Intrinsic

Value

(thousands)

 

As of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Incentive Stock Option Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

81,666

 

 

$

11.49

 

 

 

 

 

$

666

 

Expected to Vest

 

 

81,666

 

 

$

11.49

 

 

 

 

 

$

666

 

Exercisable

 

 

 

 

$

 

 

 

 

 

$

 

As of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Incentive Stock Option Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

82,334

 

 

$

11.49

 

 

 

12

 

 

$

631

 

Expected to Vest

 

 

75,312

 

 

$

11.49

 

 

 

12

 

 

$

577

 

Exercisable

 

 

 

 

$

 

 

 

 

 

$

 


During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to performance incentive stock options of $416, $188, and $149, respectively. In 2017, the Company assessed the likelihood of achieving the performance measures based on peer group information currently available for the performance incentive stock options awarded in 2014. The Company has concluded that the performance measure based on EBIT will be met at 200% of targeted performance and net sales will be met at 200% of targeted performance and have recorded the related additional expense in 2017.  While the performance incentive stock options based on market price is likely to be met at 200% targeted performance, no additional expenses were recognized in 2017 as the grant date valuation of these awards reflects market conditions.

(13) Accumulated Other Comprehensive Loss

The following table lists the beginning balance, annual activity and ending balance of eachforeign currency translation adjustment included as a component of accumulated other comprehensive loss:

 

 

 

 

FX

Translation

 

Balance, December 31, 2014

 

$

(1,970

)

Other comprehensive loss before reclassifications

 

 

(1,571

)

Balance, December 31, 2015

 

 

(3,541

)

Other comprehensive loss before reclassifications

 

 

(1,310

)

Balance, December 31, 2016

 

 

(4,851

)

Other comprehensive loss before reclassifications

 

 

344

 

Balance, December 31, 2017

 

$

(4,507

)

Balance, December 31, 2017

 

$

(4,507

)

Foreign currency translation adjustment

 

 

-

 

Balance, December 31, 2018

 

 

(4,507

)

Foreign currency translation adjustment

 

 

(1,191

)

Balance, December 31, 2019

 

 

(5,698

)

Foreign currency translation adjustment

 

 

(3,624

)

Balance, December 31, 2020

 

$

(9,322

)

 


(14) Equity Method Investments

The Company utilizesutilized the equity method of accounting with respect to its investment in TyraTech, Inc. (“TyraTech”), a Delaware corporation that specializesspecialized in developing, marketing and selling pesticide products containing essential oils and other natural ingredients.ingredients, until the Company acquired all of TyraTech’s remaining outstanding shares as of November 8, 2018 (see Note 8). For the years ended December 31, 2017, 2016 and 2015,period from January 1, 2018 to November 8, 2018, the Company recognized lossesa loss of $177, $353, and $636, respectively$1,424 on its equity method investment. In November 2015, TyraTech issued 105,333,333 shares and raised approximately £3,200 ($4,800, based on the exchange rate at the time). Due to the share issuance,addition, the Company recognized a lossgain in the amount of $7 (for 2015) from$1,463 in connection with the dilutionre-measurement of its pre-existing equity interest of 15.11% in TyraTech at fair value as of the Company’s ownership position, as required by ASC 323. As of December 31, 2017 and 2016, the Company’s ownership position in TyraTech was approximately 15.11%. As a resultacquisition date of the reduced equity share, the Company re-assessed its choice of equity method accounting for the investment and determined that it retains significant influence by retaining one out of five board seats and accordingly, this method of accounting continues to be appropriate. At December 31, 2017, the carrying value of the Company’s investment in TyraTech was $2,006 and the quoted market value based on TyraTech’s share price (Level 1 input) was $1,970.

At December 31, 2017, the Company performed an impairment review of its investment in TyraTech and concluded that the current condition was temporary and consequently determined that no impairment charge was appropriate. TyraTech’s shares trade on the AIM market of the London Stock Exchange under the trading symbol ‘TYR’. The Company’s equity investment is included in other assets on the consolidated balance sheets.

At a special meeting conducted on December 27, 2017, TyraTech shareholders approved the sale of its Vamouse product line to Alliance Pharmaceuticals, Ltd and the use of some of the proceeds from such sale for a tender offer for TyraTechremaining outstanding shares.  That tender offer was concluded in January 2018.  AMVAC elected not to exercise its right to sell into such tender offer and, as a result, the Company’s ownership interest in TyraTech increased to approximately 35% at the conclusion of that transaction.  

On August 2, 2016, AMVAC BV entered into a joint venture with Huifeng.Huifeng (Hong Kong) Ltd, which is a wholly owned subsidiary of the Huifeng Group. The newresulting entity, Hong Kong JV, is intended to focus on activities such as market access and technology transfer between the two members. AMVAC BV is a 50% owner of the new entity. No material contributions were made subsequent to this joint venture in 2016.the initial investment.

On June 27, 2017, both AMVAC BV and Huifeng (Hong Kong) Ltd. made individual capital contributions of $950 to the Hong Kong JV. As of December 31, 2017,2020, 2019 and 2018, the Company’s ownership position in the Hong Kong JV was 50%. The Company utilizes the equity method of accounting with respect to this investment.

On July 7, 2017, the Hong Kong JV 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(via its wholly owned subsidiary Huifeng (Hong Kong) Ltd.Ltd). For the yearyears ended December 31, 2017,2020, 2019 and 2018, the Company recognized incomelosses of $128$125, $209 and $356, respectively, as a result of the Company’s ownership position in the Hong Kong JV. There were no losses recognizedAt December 31, 2020, 2019 and 2018, the carrying value of the Company’s investment in the prior year.

Hong Kong JV was $388, $513 and $722, respectively.    

(15) Cost MethodEquity Investment

In February 2016, AMVAC BV made an equity investment of $3,283 in Biological Products for Agriculture (“Bi-PA”). Bi-PA develops biological plant protection products that can be used for the control of pests and disease of agricultural crops. As of December 31, 2017,2020, 2019 and 2018, the Company’s ownership position in Bi-PA was 15%. Since this investment does not have readily determinable fair value, the Company has elected to measure the investment at cost less impairment, if any, and also record an increase or decrease for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Bi-PA. The Company utilizes the cost method of accounting with respect to this investment and will periodically reviewreviews the investment for possible impairment. There was no0 impairment or observable price changes on the investment as ofduring the years ended December 31, 2017.2020, 2019 and 2018. The investment is not material and is recorded within other assets on the consolidated balance sheets.

On April 1, 2020, AMVAC purchased 6.25 million shares, an ownership of approximately 8%, of common stock of Clean Seed Capital Group Ltd. (TSX Venture Exchange: “CSX”) for $1,190. The shares are publicly traded, have a readily determinable fair value, and are considered a Level 1 investment. The fair value of the stock amounted to $1,907 as of December 31, 2020, and the Company recorded a gain in the amount of $717 for the year ended December 31, 2020.


(16) Share Repurchase Program

On November 5, 2018, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of shares with a total purchase price not to exceed $20,000 of its common stock, par value $0.10 per share, in the open market, depending upon market conditions over the short to mid-term. The Shares Repurchase Program expired on March 8, 2019. During 2019 and 2018, the Company purchased 158,048 and 452,358 shares for a total of $2,604 and $7,287 at an average price of $16.48 and $16.11 per share, respectively.

The table below summarizes the number of shares of our common stock that were repurchased during the years ended December 31, 2019 and 2018. The shares and respective amount are recorded as treasury shares on the Company’s consolidated balance sheets.  

 


Month ended

 

Total number of

shares purchased

 

 

Average price paid

per share

 

 

Total amount paid

 

January 31, 2019

 

 

158,048

 

 

$

16.48

 

 

$

2,604

 

Total number of shares repurchased

 

 

158,048

 

 

$

16.48

 

 

$

2,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2018

 

 

196,858

 

 

$

17.10

 

 

$

3,366

 

December 31, 2018

 

 

255,500

 

 

 

15.35

 

 

 

3,921

 

Total number of shares repurchased

 

 

452,358

 

 

$

16.11

 

 

$

7,287

 

(16)

(17) Quarterly Data—Unaudited

The following tables contain selected unaudited statement of operations information for each quarter of 2020 and 2019. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Quarterly Data—2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly Data—2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

70,673

 

 

$

77,905

 

 

$

89,975

 

 

$

116,494

 

 

$

95,962

 

 

$

104,555

 

 

$

117,439

 

 

$

140,747

 

Gross profit

 

 

30,084

 

 

 

34,335

 

 

 

38,032

 

 

 

44,941

 

 

 

38,381

 

 

 

40,306

 

 

 

43,265

 

 

 

50,638

 

Net income attributable to American Vanguard

 

 

3,452

 

 

 

4,304

 

 

 

4,089

 

 

 

8,429

 

 

 

520

 

 

 

3,887

 

 

 

2,927

 

 

 

7,908

 

Basic net income per share

 

 

0.12

 

 

 

0.15

 

 

 

0.14

 

 

 

0.29

 

 

 

0.02

 

 

 

0.13

 

 

 

0.10

 

 

 

0.27

 

Diluted net income per share

 

 

0.12

 

 

 

0.15

 

 

 

0.14

 

 

 

0.28

 

 

 

0.02

 

 

 

0.13

 

 

 

0.10

 

 

 

0.26

 

Quarterly Data—2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly Data—2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

69,474

 

 

$

72,724

 

 

$

82,447

 

 

$

87,468

 

 

$

99,676

 

 

$

113,104

 

 

$

124,884

 

 

$

130,521

 

Gross profit

 

 

27,503

 

 

 

31,395

 

 

 

32,986

 

 

 

36,404

 

 

 

41,702

 

 

 

41,653

 

 

 

47,463

 

 

 

46,536

 

Net income attributable to American Vanguard

 

 

2,794

 

 

 

3,246

 

 

 

2,877

 

 

 

3,871

 

 

 

3,906

 

 

 

3,106

 

 

 

3,153

 

 

 

3,436

 

Basic net income per share

 

 

0.10

 

 

 

0.11

 

 

 

0.10

 

 

 

0.13

 

 

 

0.13

 

 

 

0.11

 

 

 

0.11

 

 

 

0.12

 

Diluted net income per share

 

 

0.10

 

 

 

0.11

 

 

 

0.10

 

 

 

0.13

 

 

 

0.13

 

 

 

0.11

 

 

 

0.11

 

 

 

0.12

 

 

Note: Totals may not agree with full year amounts due to rounding and separate calculations each quarter.

 

(18) Forward Cover Contract

(17)As of October 26, 2018, the Company entered into a foreign exchange forward cover contract in connection with the anticipated acquisition of the Defensive and Agrovant businesses in Brazil. The forward cover contract’s settlement amount was determined based on the BRL/USD exchange rate on December 27, 2018 and the Company was required to make a payment (and record a loss) under the terms of the contract in the amount of $1,401. Under the accounting rules for derivative financial instruments, a gain or loss related to a contract, which is entered into in connection with an anticipated business combination, is recorded in the consolidated statements of operations. There were 0 similar losses or gains recorded in either 2020 or 2019.

(19) Subsequent Event

There is no reportable subsequent event forAgrinos had an existing Paycheck Protection Program (PPP) loan in the year ended December 31, 2017,amount of $705 as of the filing date it was acquired by the Company. This PPP loan was granted on April 27, 2020, $667 in principal and $5 in interest of this Annual Report FormPPP loan was forgiven by the Small Business Administration on 10-K that requires recognition or disclosureJanuary 7, 2021 and Agrinos repaid the remaining outstanding balance. As a result, the PPP loan was extinguished on January 7, 2021 and the total amount forgiven of $672 will be recorded as other income in ourthe Company’s consolidated financial statements.statements of operations in the first quarter of 2021.

 

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