hi
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022MARCH 31, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|
FOR THE TRANSITION PERIOD FROM TO TO
Commission file number 001-13795
AMERICAN VANGUARD CORPORATION
Delaware | 95-2588080 |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification Number) |
4695 MacArthur Court, Newport Beach, California | 92660 |
(Address of principal executive offices) | (Zip Code) |
(949) (949) 260-1200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, | AVD | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☒ | |
Non-Accelerated Filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $.10$0.10 Par Value—30,869,52029,415,136 shares as of August 2, 2022.April 27, 2023.
AMERICAN VANGUARD CORPORATION
INDEX
Page Number | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |||
| ||||
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2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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|
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
| For the three months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net sales |
| $ | 124,885 |
|
| $ | 149,593 |
|
Cost of sales |
|
| (86,348 | ) |
|
| (98,198 | ) |
Gross profit |
|
| 38,537 |
|
|
| 51,395 |
|
Operating expenses |
|
| (35,272 | ) |
|
| (36,646 | ) |
Operating income |
|
| 3,265 |
|
|
| 14,749 |
|
Change in fair value of an equity investment |
|
| (22 | ) |
|
| 83 |
|
Interest expense, net |
|
| (1,686 | ) |
|
| (398 | ) |
Income before provision for income taxes |
|
| 1,557 |
|
|
| 14,434 |
|
Income tax benefit (expense) |
|
| 361 |
|
|
| (4,499 | ) |
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
Earnings per common share—basic |
| $ | 0.07 |
|
| $ | 0.33 |
|
Earnings per common share—assuming dilution |
| $ | 0.07 |
|
| $ | 0.33 |
|
Weighted average shares outstanding—basic |
|
| 28,367 |
|
|
| 29,677 |
|
Weighted average shares outstanding—assuming dilution |
|
| 29,073 |
|
|
| 30,349 |
|
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net sales |
| $ | 148,084 |
|
| $ | 134,610 |
|
| $ | 297,519 |
|
| $ | 250,765 |
|
Cost of sales |
|
| (88,305 | ) |
|
| (82,471 | ) |
|
| (176,547 | ) |
|
| (153,495 | ) |
Gross profit |
|
| 59,779 |
|
|
| 52,139 |
|
|
| 120,972 |
|
|
| 97,270 |
|
Operating expenses |
|
| (48,966 | ) |
|
| (43,080 | ) |
|
| (95,410 | ) |
|
| (84,524 | ) |
Adjustment to bargain purchase gain on business acquisition |
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (121 | ) |
Operating income |
|
| 10,813 |
|
|
| 8,971 |
|
|
| 25,562 |
|
|
| 12,625 |
|
Change in fair value of an equity investment |
|
| (486 | ) |
|
| (295 | ) |
|
| (403 | ) |
|
| 771 |
|
Other income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 672 |
|
Interest expense, net |
|
| (772 | ) |
|
| (1,013 | ) |
|
| (1,170 | ) |
|
| (1,959 | ) |
Income before provision for income taxes and loss on equity method investment |
|
| 9,555 |
|
|
| 7,663 |
|
|
| 23,989 |
|
|
| 12,109 |
|
Income tax expense |
|
| (2,725 | ) |
|
| (2,445 | ) |
|
| (7,224 | ) |
|
| (3,807 | ) |
Income before loss on equity method investment |
|
| 6,830 |
|
|
| 5,218 |
|
|
| 16,765 |
|
|
| 8,302 |
|
Loss on equity method investment |
|
| — |
|
|
| (74 | ) |
|
| — |
|
|
| (87 | ) |
Net income |
| $ | 6,830 |
|
| $ | 5,144 |
|
| $ | 16,765 |
|
| $ | 8,215 |
|
Earnings per common share—basic |
| $ | .23 |
|
| $ | .17 |
|
| $ | .57 |
|
| $ | .28 |
|
Earnings per common share—assuming dilution |
| $ | .23 |
|
| $ | .17 |
|
| $ | .55 |
|
| $ | .27 |
|
Weighted average shares outstanding—basic |
|
| 29,602 |
|
|
| 29,930 |
|
|
| 29,639 |
|
|
| 29,834 |
|
Weighted average shares outstanding—assuming dilution |
|
| 30,225 |
|
|
| 30,499 |
|
|
| 30,289 |
|
|
| 30,511 |
|
See notes to the condensed consolidated financial statements.
3
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
| For the three months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
Other comprehensive income: |
|
|
|
|
|
| ||
Foreign currency translation adjustment, net of tax effects |
|
| 2,546 |
|
|
| 7,080 |
|
Comprehensive income |
| $ | 4,464 |
|
| $ | 17,015 |
|
See notes to the condensed consolidated financial statements.
4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
|
| March 31, |
|
| December 31, |
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 19,568 |
|
| $ | 20,328 |
|
Receivables: |
|
|
|
|
|
| ||
Trade, net of allowance for doubtful accounts of $5,692 and $5,136, respectively |
|
| 166,120 |
|
|
| 156,492 |
|
Other |
|
| 9,999 |
|
|
| 9,816 |
|
Total receivables, net |
|
| 176,119 |
|
|
| 166,308 |
|
Inventories |
|
| 219,080 |
|
|
| 184,190 |
|
Prepaid expenses |
|
| 15,324 |
|
|
| 15,850 |
|
Income taxes receivable |
|
| 4,879 |
|
|
| 1,891 |
|
Total current assets |
|
| 434,970 |
|
|
| 388,567 |
|
Property, plant and equipment, net |
|
| 71,538 |
|
|
| 70,912 |
|
Operating lease right-of-use assets |
|
| 24,460 |
|
|
| 24,250 |
|
Intangible assets, net |
|
| 181,909 |
|
|
| 184,664 |
|
Goodwill |
|
| 47,366 |
|
|
| 47,010 |
|
Other assets |
|
| 10,610 |
|
|
| 10,769 |
|
Deferred income tax assets, net |
|
| 220 |
|
|
| 141 |
|
Total assets |
| $ | 771,073 |
|
| $ | 726,313 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |||||||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 74,887 |
|
| $ | 69,000 |
|
Customer prepayments |
|
| 70,338 |
|
|
| 110,597 |
|
Accrued program costs |
|
| 71,379 |
|
|
| 60,743 |
|
Accrued expenses and other payables |
|
| 38,038 |
|
|
| 20,982 |
|
Operating lease liabilities, current |
|
| 5,367 |
|
|
| 5,279 |
|
Total current liabilities |
|
| 260,009 |
|
|
| 266,601 |
|
Long-term debt, net |
|
| 97,000 |
|
|
| 51,477 |
|
Operating lease liabilities, long term |
|
| 19,614 |
|
|
| 19,492 |
|
Other liabilities, net of current installments |
|
| 4,648 |
|
|
| 4,167 |
|
Deferred income tax liabilities, net |
|
| 14,808 |
|
|
| 14,597 |
|
Total liabilities |
|
| 396,079 |
|
|
| 356,334 |
|
Commitments and contingent liabilities (Notes 15 and 17) |
|
|
|
|
|
| ||
Stockholders' equity: |
|
|
|
|
|
| ||
Preferred stock, $0.10 par value per share; authorized 400,000 shares; none issued |
|
| — |
|
|
| — |
|
Common stock, $0.10 par value per share; authorized 40,000,000 shares; issued |
|
| 3,446 |
|
|
| 3,444 |
|
Additional paid-in capital |
|
| 107,591 |
|
|
| 105,634 |
|
Accumulated other comprehensive loss |
|
| (9,636 | ) |
|
| (12,182 | ) |
Retained earnings |
|
| 329,812 |
|
|
| 328,745 |
|
Less treasury stock at cost, 5,057,727 shares at March 31, 2023 and 5,029,892 shares at December 31, 2022 |
|
| (56,219 | ) |
|
| (55,662 | ) |
Total stockholders’ equity |
|
| 374,994 |
|
|
| 369,979 |
|
Total liabilities and stockholders’ equity |
| $ | 771,073 |
|
| $ | 726,313 |
|
See notes to the condensed consolidated financial statements.
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three Months Ended March 31, 2023 and March 31, 2022
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
|
| Accumulated Other |
|
|
|
|
| Treasury Stock |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||
Balance, December 31, 2022 |
|
| 34,446,194 |
|
| $ | 3,444 |
|
| $ | 105,634 |
|
| $ | (12,182 | ) |
| $ | 328,745 |
|
|
| 5,029,892 |
|
| $ | (55,662 | ) |
| $ | 369,979 |
|
Stocks issued under ESPP |
|
| 22,101 |
|
|
| 2 |
|
|
| 478 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 480 |
|
Cash dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (851 | ) |
|
| — |
|
|
| — |
|
|
| (851 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,546 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,474 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,474 |
|
Stock options exercised; grants, |
|
| (4,466 | ) |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,835 |
|
|
| (557 | ) |
|
| (557 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
|
| — |
|
|
| — |
|
|
| 1,918 |
|
Balance, March 31, 2023 |
|
| 34,463,829 |
|
| $ | 3,446 |
|
| $ | 107,591 |
|
| $ | (9,636 | ) |
| $ | 329,812 |
|
|
| 5,057,727 |
|
| $ | (56,219 | ) |
| $ | 374,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2021 |
|
| 34,248,218 |
|
| $ | 3,426 |
|
| $ | 101,450 |
|
| $ | (13,784 | ) |
| $ | 304,385 |
|
|
| 3,361,040 |
|
| $ | (22,739 | ) |
| $ | 372,738 |
|
Stocks issued under ESPP |
|
| 26,751 |
|
|
| 2 |
|
|
| 434 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 436 |
|
Cash dividends on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (736 | ) |
|
| — |
|
|
| — |
|
|
| (736 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,563 |
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,563 |
| |
Stock options exercised; grants, |
|
| (183,093 | ) |
|
| (18 | ) |
|
| (2,156 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,174 | ) |
Shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 332,404 |
|
|
| (6,219 | ) |
|
| (6,219 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
Balance, March 31, 2022 |
|
| 34,091,876 |
|
| $ | 3,410 |
|
| $ | 101,291 |
|
| $ | (6,704 | ) |
| $ | 313,584 |
|
|
| 3,693,444 |
|
| $ | (28,958 | ) |
| $ | 382,623 |
|
See notes to the condensed consolidated financial statements.
6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the three months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
Adjustments to reconcile net income to net cash used in operating |
|
|
|
|
|
| ||
Depreciation and amortization of property, plant and equipment and intangible assets |
|
| 5,539 |
|
|
| 5,230 |
|
Amortization of other long-term assets |
|
| 714 |
|
|
| 1,173 |
|
Provision for bad debts |
|
| 581 |
|
|
| 494 |
|
Fair value adjustment of contingent consideration |
|
| — |
|
|
| 599 |
|
Stock-based compensation |
|
| 1,474 |
|
|
| 1,563 |
|
Change in deferred income taxes |
|
| 122 |
|
|
| 207 |
|
Change in liabilities for uncertain tax positions or unrecognized tax benefits |
|
| 371 |
|
|
| — |
|
Other |
|
| 94 |
|
|
| 2 |
|
Foreign currency transaction gains |
|
| (446 | ) |
|
| (261 | ) |
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
| ||
Increase in net receivables |
|
| (8,779 | ) |
|
| (33,660 | ) |
Increase in inventories |
|
| (33,731 | ) |
|
| (11,738 | ) |
Decrease (increase) in prepaid expenses and other assets |
|
| 600 |
|
|
| (800 | ) |
Change in income tax receivable/payable, net |
|
| (2,965 | ) |
|
| 3,046 |
|
Increase in accounts payable |
|
| 5,655 |
|
|
| 9,677 |
|
Decrease in customer prepayments |
|
| (22,759 | ) |
|
| (44,528 | ) |
Increase in accrued program costs |
|
| 10,660 |
|
|
| 24,601 |
|
(Decrease) increase in other payables and accrued expenses |
|
| (500 | ) |
|
| 2,145 |
|
Net cash used in operating activities |
|
| (41,452 | ) |
|
| (32,315 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (2,590 | ) |
|
| (3,294 | ) |
Proceeds from disposal of property, plant and equipment |
|
| — |
|
|
| 54 |
|
Acquisition of a product line |
|
| (703 | ) |
|
| — |
|
Intangible assets |
|
| (15 | ) |
|
| (1,010 | ) |
Net cash used in investing activities |
|
| (3,308 | ) |
|
| (4,250 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments under line of credit agreement |
|
| (27,300 | ) |
|
| (12,000 | ) |
Borrowings under line of credit agreement |
|
| 72,000 |
|
|
| 58,000 |
|
Net receipt from the issuance of common stock under ESPP |
|
| 480 |
|
|
| 436 |
|
Net receipt from the exercise of stock options |
|
| 18 |
|
|
| — |
|
Receipt payment for tax withholding on stock-based compensation awards |
|
| (13 | ) |
|
| (2,174 | ) |
Repurchase of common stock |
|
| (557 | ) |
|
| (6,219 | ) |
Payment of cash dividends |
|
| (851 | ) |
|
| (594 | ) |
Net cash provided by financing activities |
|
| 43,777 |
|
|
| 37,449 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (983 | ) |
|
| 884 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 223 |
|
|
| 672 |
|
Cash and cash equivalents at beginning of period |
|
| 20,328 |
|
|
| 16,285 |
|
Cash and cash equivalents at end of period |
| $ | 19,568 |
|
| $ | 17,841 |
|
|
|
|
|
|
|
|
See notes to the condensed consolidated financial statements.
7
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements.Statements
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income |
| $ | 6,830 |
|
| $ | 5,144 |
|
| $ | 16,765 |
|
| $ | 8,215 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax effects |
|
| (6,064 | ) |
|
| 2,914 |
|
|
| 1,016 |
|
|
| 411 |
|
Comprehensive income |
| $ | 766 |
|
| $ | 8,058 |
|
| $ | 17,781 |
|
| $ | 8,626 |
|
See notes to the Condensed Consolidated Financial Statements.
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 22,057 |
|
| $ | 16,285 |
|
Receivables: |
|
|
|
|
|
|
|
|
Trade, net of allowance for doubtful accounts of $4,411 and $3,938, respectively |
|
| 165,711 |
|
|
| 149,326 |
|
Other |
|
| 13,208 |
|
|
| 9,595 |
|
Total receivables, net |
|
| 178,919 |
|
|
| 158,921 |
|
Inventories |
|
| 182,203 |
|
|
| 154,306 |
|
Prepaid expenses |
|
| 16,368 |
|
|
| 12,488 |
|
Income taxes receivable |
|
| 523 |
|
|
| — |
|
Total current assets |
|
| 400,070 |
|
|
| 342,000 |
|
Property, plant and equipment, net |
|
| 67,453 |
|
|
| 66,111 |
|
Operating lease right-of-use assets |
|
| 24,449 |
|
|
| 25,386 |
|
Intangible assets, net |
|
| 191,560 |
|
|
| 197,841 |
|
Goodwill |
|
| 46,997 |
|
|
| 46,260 |
|
Other assets |
|
| 13,099 |
|
|
| 16,292 |
|
Deferred income tax assets, net |
|
| 16 |
|
|
| 270 |
|
Total assets |
| $ | 743,644 |
|
| $ | 694,160 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |||||||
Current liabilities: |
|
|
|
|
|
|
|
|
Current installments of other liabilities |
| $ | 1,367 |
|
| $ | 802 |
|
Accounts payable |
|
| 86,944 |
|
|
| 67,140 |
|
Customer prepayments |
|
| 272 |
|
|
| 63,064 |
|
Accrued program costs |
|
| 99,152 |
|
|
| 63,245 |
|
Accrued expenses and other payables |
|
| 20,180 |
|
|
| 20,745 |
|
Income taxes payable |
|
| — |
|
|
| 3,006 |
|
Current operating lease liabilities |
|
| 5,029 |
|
|
| 5,059 |
|
Total current liabilities |
|
| 212,944 |
|
|
| 223,061 |
|
Long-term debt, net |
|
| 100,779 |
|
|
| 52,240 |
|
Long-term operating lease liabilities |
|
| 19,852 |
|
|
| 20,780 |
|
Other liabilities, net of current installments |
|
| 5,584 |
|
|
| 5,335 |
|
Deferred income tax liabilities, net |
|
| 19,651 |
|
|
| 20,006 |
|
Total liabilities |
|
| 358,810 |
|
|
| 321,422 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
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 34,443,234 shares at June 30, 2022 and 34,248,218 shares at December 31, 2021 |
|
| 3,445 |
|
|
| 3,426 |
|
Additional paid-in capital |
|
| 103,456 |
|
|
| 101,450 |
|
Accumulated other comprehensive loss |
|
| (12,768 | ) |
|
| (13,784 | ) |
Retained earnings |
|
| 319,672 |
|
|
| 304,385 |
|
Less treasury stock at cost, 3,694,050 shares at June 30, 2022 and 3,361,040 shares at December 31, 2021 |
|
| (28,971 | ) |
|
| (22,739 | ) |
Total stockholders’ equity |
|
| 384,834 |
|
|
| 372,738 |
|
Total liabilities and stockholders' equity |
| $ | 743,644 |
|
| $ | 694,160 |
|
See notes to the Condensed Consolidated Financial Statements.
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three and Six Months Ended June 30, 2022
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
|
| Accumulated Other |
|
|
|
|
|
| Treasury Stock |
|
|
|
|
| ||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Comprehensive Loss |
|
| Retained Earnings |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||
Balance, December 31, 2021 |
|
| 34,248,218 |
|
| $ | 3,426 |
|
| $ | 101,450 |
|
| $ | (13,784 | ) |
| $ | 304,385 |
|
|
| 3,361,040 |
|
| $ | (22,739 | ) |
| $ | 372,738 |
|
Common stock issued under ESPP |
|
| 26,751 |
|
|
| 2 |
|
|
| 434 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 436 |
|
Cash dividends on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (736 | ) |
|
| — |
|
|
| — |
|
|
| (736 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,080 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,563 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,563 |
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
| (183,093 | ) |
|
| (18 | ) |
|
| (2,156 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,174 | ) |
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 332,404 |
|
|
| (6,219 | ) |
|
| (6,219 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
|
| — |
|
|
| — |
|
|
| 9,935 |
|
Balance, March 31, 2022 |
|
| 34,091,876 |
|
|
| 3,410 |
|
|
| 101,291 |
|
|
| (6,704 | ) |
|
| 313,584 |
|
|
| 3,693,444 |
|
|
| (28,958 | ) |
|
| 382,623 |
|
Cash dividends on common stock ($0.025 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (742 | ) |
|
| — |
|
|
| — |
|
|
| (742 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,064 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,064 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,273 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,273 |
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
| 351,358 |
|
|
| 35 |
|
|
| 892 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 927 |
|
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 606 |
|
|
| (13 | ) |
|
| (13 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,830 |
|
|
| — |
|
|
| — |
|
|
| 6,830 |
|
Balance, June 30, 2022 |
|
| 34,443,234 |
|
| $ | 3,445 |
|
| $ | 103,456 |
|
| $ | (12,768 | ) |
| $ | 319,672 |
|
|
| 3,694,050 |
|
| $ | (28,971 | ) |
| $ | 384,834 |
|
See notes to the Condensed Consolidated Financial Statements.
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three and Six Months Ended June 30, 2021
(In thousands, except share data)
(Unaudited)
|
| Common Stock |
|
| Additional |
|
| Accumulated Other |
|
|
|
|
|
| Treasury Stock |
|
|
|
|
| ||||||||||||
|
| Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Comprehensive Loss |
|
| Retained Earnings |
|
| Shares |
|
| Amount |
|
| AVD Total |
| ||||||||
Balance, December 31, 2020 |
|
| 33,922,433 |
|
| $ | 3,394 |
|
| $ | 96,642 |
|
| $ | (9,322 | ) |
| $ | 288,182 |
|
|
| 3,061,040 |
|
| $ | (18,160 | ) |
| $ | 360,736 |
|
Common stock issued under ESPP |
|
| 25,120 |
|
|
| 2 |
|
|
| 338 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 340 |
|
Cash dividends on common stock ($0.02 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (596 | ) |
|
| — |
|
|
| — |
|
|
| (596 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,503 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,503 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,792 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,792 |
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
| (73,231 | ) |
|
| (7 | ) |
|
| (2,787 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,794 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,071 |
|
|
| — |
|
|
| — |
|
|
| 3,071 |
|
Balance, March 31, 2021 |
|
| 33,874,322 |
|
|
| 3,389 |
|
|
| 95,985 |
|
|
| (11,825 | ) |
|
| 290,657 |
|
|
| 3,061,040 |
|
|
| (18,160 | ) |
|
| 360,046 |
|
Cash dividends on common stock ($0.02 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (600 | ) |
|
| — |
|
|
| — |
|
|
| (600 | ) |
Foreign currency translation adjustment, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,914 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,914 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,806 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,806 |
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
| 387,329 |
|
|
| 39 |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,144 |
|
|
| — |
|
|
| — |
|
|
| 5,144 |
|
Balance, June 30, 2021 |
|
| 34,261,651 |
|
| $ | 3,428 |
|
| $ | 97,813 |
|
| $ | (8,911 | ) |
| $ | 295,201 |
|
|
| 3,061,040 |
|
| $ | (18,160 | ) |
| $ | 369,371 |
|
See notes to the Condensed Consolidated Financial Statements.
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 16,765 |
|
| $ | 8,215 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment and intangible assets |
|
| 11,004 |
|
|
| 10,697 |
|
Amortization of other long-term assets |
|
| 1,739 |
|
|
| 2,044 |
|
Loss on disposal of property, plant and equipment |
|
| 256 |
|
|
| — |
|
Accretion of discounted liabilities |
|
| 17 |
|
|
| (11 | ) |
Amortization of deferred loan fees |
|
| 139 |
|
|
| 162 |
|
Provision for bad debts |
|
| 470 |
|
|
| 945 |
|
Loan principal and interest forgiveness |
|
| — |
|
|
| (672 | ) |
Fair value adjustment to contingent consideration |
|
| 635 |
|
|
| 1,013 |
|
Stock-based compensation |
|
| 2,836 |
|
|
| 3,598 |
|
Change in deferred income taxes |
|
| 109 |
|
|
| (353 | ) |
Change in fair value of an equity investment |
|
| 403 |
|
|
| (771 | ) |
Loss on equity method investment |
|
| — |
|
|
| 87 |
|
Adjustment to bargain purchase gain on business acquisition |
|
| — |
|
|
| 121 |
|
Net foreign currency adjustments |
|
| (20 | ) |
|
| (145 | ) |
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
|
|
|
Increase in net receivables |
|
| (18,645 | ) |
|
| (25,317 | ) |
Increase in inventories |
|
| (27,774 | ) |
|
| (11,464 | ) |
Increase in prepaid expenses and other assets |
|
| (3,652 | ) |
|
| (3,696 | ) |
(Increase) decrease in income tax receivable/payable, net |
|
| (3,526 | ) |
|
| 1,374 |
|
(Decrease) in net operating lease liability |
|
| (21 | ) |
|
| (120 | ) |
Increase in accounts payable |
|
| 19,439 |
|
|
| 6,190 |
|
Decrease in customer prepayments |
|
| (62,789 | ) |
|
| (30,407 | ) |
Increase in accrued program costs |
|
| 35,987 |
|
|
| 19,098 |
|
(Decrease) increase in other payables and accrued expenses |
|
| (602 | ) |
|
| 507 |
|
Net cash used in operating activities |
|
| (27,230 | ) |
|
| (18,905 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (5,654 | ) |
|
| (5,075 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 27 |
|
|
| — |
|
Acquisition of product line |
|
| — |
|
|
| (10,000 | ) |
Intangible assets |
|
| (1,044 | ) |
|
| (241 | ) |
Investments |
|
| — |
|
|
| (184 | ) |
Net cash used in investing activities |
|
| (6,671 | ) |
|
| (15,500 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Payments under line of credit agreement |
|
| (56,600 | ) |
|
| (24,226 | ) |
Borrowings under line of credit agreement |
|
| 105,000 |
|
|
| 66,000 |
|
Payment of contingent consideration |
|
| — |
|
|
| (250 | ) |
Net receipt from the issuance of common stock under ESPP |
|
| 436 |
|
|
| 340 |
|
Net receipt from the exercise of stock options |
|
| 765 |
|
|
| 167 |
|
Payment for tax withholding on stock-based compensation awards |
|
| (2,012 | ) |
|
| (2,900 | ) |
Repurchase of common stock |
|
| (6,232 | ) |
|
| — |
|
Payment of cash dividends |
|
| (1,330 | ) |
|
| (1,188 | ) |
Net cash provided by financing activities |
|
| 40,027 |
|
|
| 37,943 |
|
Net increase in cash and cash equivalents |
|
| 6,126 |
|
|
| 3,538 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (354 | ) |
|
| 98 |
|
Cash and cash equivalents at beginning of period |
|
| 16,285 |
|
|
| 15,923 |
|
Cash and cash equivalents at end of period |
| $ | 22,057 |
|
| $ | 19,559 |
|
See notes to the Condensed Consolidated Financial Statements.
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except share data)
(Unaudited)
1. Summary of Significant Accounting Policies —The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD” or “the Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of consolidating adjustments, eliminations and normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and six-month periodsthree months ended June 30, 2022March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. The financial statements and related notes do not include all information and footnotes required by US GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.
The Company is closely monitoring the impact of the novel coronavirus (COVID-19) pandemic on all aspects of its business, including how the pandemic will impact its customers, business partners, and employees. The Company is considered an essential business by most governments2022. Certain operating cash flow items have been reclassified in the jurisdictions and territories in whichprior period condensed consolidated financial statements to conform with the Company operates and, as a result, did not incur significant disruptions from the COVID-19 pandemic during the three- and six-month periods ended June 30, 2022 and 2021. During the three- and six-month periods ended June 30, 2022, the Company experienced strong demand for its domestic crop and international products, and generally more normal business activities including face-to-face meetings with customers and suppliers etc. The Company established a pandemic working group at the start of the COVID-19 pandemic.March 31, 2023 presentation.
Looking forward, the Company is unable to predict the impact that the pandemic may have on its future financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its customers in the near term will depend on future developments, which are highly uncertain and, beyond extrapolating our experience since the start of the pandemic, cannot be predicted with confidence. The Company continues to monitor its business for adverse impacts of the pandemic, including some continuing volatility in foreign exchange markets, supply-chain disruptions in certain markets, and increased costs of employee safety, among others.
2. Leases — The Company has operating leases for warehouses, manufacturing facilities, offices, cars, railcars and certain equipment. The lease term includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend (or not terminate) that the Company is reasonably certain to exercise. The Company has leases with a lease term ranging from 1one year to 20 years.
Finance leases are immaterial to the accompanying Condensed Consolidated Financial Statements.condensed consolidated financial statements. There were no lease transactions with related parties as of and for the three- and six-monththree-month periods presented in the table below.
The operating lease expense for the three-month periodthree months ended June 30,March 31, 2023 and 2022 was $1,637and 2021, was $1,619 and $1,442, respectively, and $3,223 and $2,896 for the six-month period ended June 30, 2022 and 2021,$1,604, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. AdditionalOther information related to operating leases are as follows:
|
| Three months |
|
| Three months |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 1,644 |
|
| $ | 1,674 |
|
Right-of-use assets obtained in exchange for new liabilities |
| $ | 1,884 |
|
| $ | 926 |
|
|
| Three months ended June 30, 2022 |
|
| Three months ended June 30, 2021 |
|
| Six months ended June 30, 2022 |
|
| Six months ended June 30, 2021 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 1,559 |
|
| $ | 1,546 |
|
| $ | 3,233 |
|
| $ | 3,011 |
|
ROU assets obtained in exchange for new liabilities |
| $ | 898 |
|
| $ | 11,691 |
|
| $ | 1,825 |
|
| $ | 12,067 |
|
The weighted-average remaining lease term and discount rate related to the operating leases as of June 30, 2022March 31, 2023 were as follows:
Weighted-average remaining lease term (in years) |
| 5.68 | ||||||
Weighted-average discount rate |
| 4.12 | % |
Future minimum lease payments under non-cancellable operating leases as of June 30, 2022March 31, 2023 were as follows:
2023 (excluding three months ended March 31, 2023) |
| $ | 4,625 |
|
2024 |
|
| 5,657 |
|
2025 |
|
| 5,143 |
|
2026 |
|
| 3,926 |
|
2027 |
|
| 2,662 |
|
Thereafter |
|
| 6,200 |
|
Total lease payments |
| $ | 28,213 |
|
Less: imputed interest |
|
| (3,232 | ) |
Total |
| $ | 24,981 |
|
|
|
|
| |
Amounts recognized in the condensed consolidated balance sheet: |
|
|
| |
Operating lease liabilities, current |
| $ | 5,367 |
|
Operating lease liabilities, long term |
| $ | 19,614 |
|
8
2022 (excluding six months ended June 30, 2022) |
| $ | 3,041 |
|
2023 |
|
| 5,378 |
|
2024 |
|
| 4,578 |
|
2025 |
|
| 4,067 |
|
2026 |
|
| 3,050 |
|
Thereafter |
|
| 8,290 |
|
Total lease payments |
|
| 28,404 |
|
Less: imputed interest |
|
| 3,523 |
|
Total |
| $ | 24,881 |
|
Amounts recognized in the Condensed Consolidated Balance Sheets: |
|
|
|
|
Operating lease liabilities, current |
| $ | 5,029 |
|
Operating lease liabilities, long-term |
| $ | 19,852 |
|
3. Revenue Recognition —The Company recognizes revenue from the sale of its products, which include crop and non-crop products. The Company sells its products to customers, which include distributors, retailers, and growers. In addition, the Company recognizes royalty income from licensing agreements. Based on similar economic and operational characteristics, the Company’s business is aggregated into 1The Company has one reportable segment. Selective enterprise information of sales disaggregated by category and geographic region is as follows:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 63,195 |
|
| $ | 62,575 |
|
| $ | 151,388 |
|
| $ | 117,330 |
|
U.S. non-crop |
|
| 21,316 |
|
|
| 21,488 |
|
|
| 34,712 |
|
|
| 38,941 |
|
Total U.S. |
|
| 84,511 |
|
|
| 84,063 |
|
|
| 186,100 |
|
|
| 156,271 |
|
International |
|
| 63,573 |
|
|
| 50,547 |
|
|
| 111,419 |
|
|
| 94,494 |
|
Total net sales: |
| $ | 148,084 |
|
| $ | 134,610 |
|
| $ | 297,519 |
|
| $ | 250,765 |
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services transferred at a point in time |
| $ | 148,047 |
|
| $ | 134,493 |
|
| $ | 297,376 |
|
| $ | 250,464 |
|
Goods and services transferred over time |
|
| 37 |
|
|
| 117 |
|
|
| 143 |
|
|
| 301 |
|
Total net sales: |
| $ | 148,084 |
|
| $ | 134,610 |
|
| $ | 297,519 |
|
| $ | 250,765 |
|
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net sales: |
|
|
|
|
|
| ||
U.S. crop |
| $ | 61,876 |
|
| $ | 88,193 |
|
U.S. non-crop |
|
| 13,899 |
|
|
| 13,396 |
|
Total U.S. |
|
| 75,775 |
|
|
| 101,589 |
|
International |
|
| 49,110 |
|
|
| 48,004 |
|
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
Timing of revenue recognition: |
|
|
|
|
|
| ||
Goods and services transferred at a point in time |
| $ | 124,842 |
|
| $ | 149,487 |
|
Goods and services transferred over time |
|
| 43 |
|
|
| 106 |
|
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
Contract assets relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property and amounted to $3,000 and $3,900$3,100 at June 30, 2022March 31, 2023 and December 31, 2021, respectively.2022. The short-term and long-term contract assets of $1,850$2,295 and $1,150$805 are included in other receivables and other assets, respectively, on the condensed consolidated balance sheets as of June 30, 2022. TheMarch 31, 2023. As of December 31, 2022, the short-term and long-term assets of $1,825amounted to $2,098 and $2,075 are included in other receivables and other assets, respectively, on the condensed consolidated balance sheets as of December 31, 2021.$1,002, respectively.
The Company sometimes receives payments from its customers in advance of goods and services being provided in return for early cash incentive programs. These payments are included in Customercustomer prepayments on the condensed consolidated balance sheets. Revenue recognized for the three- and six-month periodsthree months ended June 30, 2022,March 31, 2023, that was included in customer prepayments at the beginning of 2022,2023, was $18,264$22,759 and $62,792, respectively. $17,500 was reclassified to accrued expenses and other payables. The Company expects to recognize all its remaining customer prepayments as revenue in fiscal 2022.2023.
4. Property, Plant and Equipment — Property, plant and equipment at June 30, 2022March 31, 2023 and December 31, 20212022 consists of the following:
|
| March 31, |
|
| December 31, |
| ||
Land |
| $ | 2,761 |
|
| $ | 2,757 |
|
Buildings and improvements |
|
| 20,918 |
|
|
| 20,794 |
|
Machinery and equipment |
|
| 146,047 |
|
|
| 142,980 |
|
Office furniture, fixtures and equipment |
|
| 11,266 |
|
|
| 13,231 |
|
Automotive equipment |
|
| 1,490 |
|
|
| 1,584 |
|
Construction in progress |
|
| 4,622 |
|
|
| 5,897 |
|
Total |
|
| 187,104 |
|
|
| 187,243 |
|
Less accumulated depreciation |
|
| (115,566 | ) |
|
| (116,331 | ) |
Property, plant and equipment, net |
| $ | 71,538 |
|
| $ | 70,912 |
|
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Land |
| $ | 2,756 |
|
| $ | 2,756 |
|
Buildings and improvements |
|
| 19,814 |
|
|
| 19,844 |
|
Machinery and equipment |
|
| 138,689 |
|
|
| 132,159 |
|
Office furniture, fixtures and equipment |
|
| 10,444 |
|
|
| 10,094 |
|
Automotive equipment |
|
| 1,625 |
|
|
| 1,832 |
|
Construction in progress |
|
| 6,778 |
|
|
| 8,199 |
|
Total gross value |
|
| 180,106 |
|
|
| 174,884 |
|
Less accumulated depreciation |
|
| (112,653 | ) |
|
| (108,773 | ) |
Total net value |
| $ | 67,453 |
|
| $ | 66,111 |
|
The Company recognized depreciation expense related to property and equipment of $1,974$2,179 and $1,673$2,103 for the three-month periodthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The Company recognized depreciation expense related to property and equipment of $4,077 and $3,844 for the six-month period ended June 30, 2022 and 2021, respectively.
Substantially all of the Company’s assets are pledged as collateral towith its lender banks.
9
5. Inventories — Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) or average cost method. The components of inventories consist of the following:
|
| March 31, |
|
| December 31, |
| ||
Finished products |
| $ | 185,992 |
|
| $ | 155,128 |
|
Raw materials |
|
| 33,088 |
|
|
| 29,062 |
|
Inventories |
| $ | 219,080 |
|
| $ | 184,190 |
|
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Finished products |
| $ | 154,742 |
|
| $ | 138,159 |
|
Raw materials |
|
| 27,461 |
|
|
| 16,147 |
|
|
| $ | 182,203 |
|
| $ | 154,306 |
|
6. Segment Reporting — Based on similar economic and operational characteristics, the Company’s business is aggregated into 1one reportable segment. Selective enterprise information is as follows:
|
| For the three months ended June 30, |
|
|
|
|
|
|
| �� |
|
| For the three months ended |
|
|
|
|
|
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 63,195 |
|
| $ | 62,575 |
|
| $ | 620 |
|
|
| 1 | % |
| $ | 61,876 |
|
| $ | 88,193 |
|
| $ | (26,317 | ) |
|
| -30 | % |
U.S. non-crop |
|
| 21,316 |
|
|
| 21,488 |
|
|
| (172 | ) |
|
| -1 | % |
|
| 13,899 |
|
|
| 13,396 |
|
|
| 503 |
|
|
| 4 | % |
U.S. total |
|
| 84,511 |
|
|
| 84,063 |
|
|
| 448 |
|
|
| 1 | % | ||||||||||||||||
Total U.S. |
|
| 75,775 |
|
|
| 101,589 |
|
|
| (25,814 | ) |
|
| -25 | % | ||||||||||||||||
International |
|
| 63,573 |
|
|
| 50,547 |
|
|
| 13,026 |
|
|
| 26 | % |
|
| 49,110 |
|
|
| 48,004 |
|
|
| 1,106 |
|
|
| 2 | % |
Net sales: |
| $ | 148,084 |
|
| $ | 134,610 |
|
| $ | 13,474 |
|
|
| 10 | % | ||||||||||||||||
Total net sales: |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | (24,708 | ) |
|
| -17 | % | ||||||||||||||||
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
U.S. crop |
| $ | 41,254 |
|
| $ | 54,200 |
|
| $ | (12,946 | ) |
|
| -24 | % | ||||||||||||||||
U.S. non-crop |
|
| 8,453 |
|
|
| 7,629 |
|
|
| 824 |
|
|
| 11 | % | ||||||||||||||||
Total U.S. |
|
| 49,707 |
|
|
| 61,829 |
|
|
| (12,122 | ) |
|
| -20 | % | ||||||||||||||||
International |
|
| 36,641 |
|
|
| 36,369 |
|
|
| 272 |
|
|
| 1 | % | ||||||||||||||||
Total cost of sales: |
| $ | 86,348 |
|
| $ | 98,198 |
|
| $ | (11,850 | ) |
|
| -12 | % | ||||||||||||||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 29,753 |
|
| $ | 26,805 |
|
| $ | 2,948 |
|
|
| 11 | % |
| $ | 20,622 |
|
| $ | 33,993 |
|
| $ | (13,371 | ) |
|
| -39 | % |
U.S. non-crop |
|
| 10,049 |
|
|
| 9,782 |
|
|
| 267 |
|
|
| 3 | % |
|
| 5,446 |
|
|
| 5,767 |
|
|
| (321 | ) |
|
| -6 | % |
U.S. total |
|
| 39,802 |
|
|
| 36,587 |
|
|
| 3,215 |
|
|
| 9 | % | ||||||||||||||||
Total U.S. |
|
| 26,068 |
|
|
| 39,760 |
|
|
| (13,692 | ) |
|
| -34 | % | ||||||||||||||||
International |
|
| 19,977 |
|
|
| 15,552 |
|
|
| 4,425 |
|
|
| 28 | % |
|
| 12,469 |
|
|
| 11,635 |
|
|
| 834 |
|
|
| 7 | % |
Total gross profit: |
| $ | 59,779 |
|
| $ | 52,139 |
|
| $ | 7,640 |
|
|
| 15 | % |
| $ | 38,537 |
|
| $ | 51,395 |
|
| $ | (12,858 | ) |
|
| -25 | % |
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
U.S. crop |
|
| 33 | % |
|
| 39 | % |
|
|
|
|
|
| ||||||||||||||||||
U.S. non-crop |
|
| 39 | % |
|
| 43 | % |
|
|
|
|
|
| ||||||||||||||||||
Total U.S. |
|
| 34 | % |
|
| 39 | % |
|
|
|
|
|
| ||||||||||||||||||
International |
|
| 25 | % |
|
| 24 | % |
|
|
|
|
|
| ||||||||||||||||||
Gross margin: |
|
| 31 | % |
|
| 34 | % |
|
|
|
|
|
|
|
| For the six months ended June 30, |
|
|
|
|
|
|
|
|
| |||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 151,388 |
|
| $ | 117,330 |
|
| $ | 34,058 |
|
|
| 29 | % |
U.S. non-crop |
|
| 34,712 |
|
|
| 38,941 |
|
|
| (4,229 | ) |
|
| -11 | % |
U.S. total |
|
| 186,100 |
|
|
| 156,271 |
|
|
| 29,829 |
|
|
| 19 | % |
International |
|
| 111,419 |
|
|
| 94,494 |
|
|
| 16,925 |
|
|
| 18 | % |
Net sales: |
| $ | 297,519 |
|
| $ | 250,765 |
|
| $ | 46,754 |
|
|
| 19 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 70,098 |
|
| $ | 48,076 |
|
| $ | 22,022 |
|
|
| 46 | % |
U.S. non-crop |
|
| 16,014 |
|
|
| 19,165 |
|
|
| (3,151 | ) |
|
| -16 | % |
U.S. total |
|
| 86,112 |
|
|
| 67,241 |
|
|
| 18,871 |
|
|
| 28 | % |
International |
|
| 34,860 |
|
|
| 30,029 |
|
|
| 4,831 |
|
|
| 16 | % |
Total gross profit: |
| $ | 120,972 |
|
| $ | 97,270 |
|
| $ | 23,702 |
|
|
| 24 | % |
7. Accrued Program Costs — The Company offers various discounts to customers based on the volume purchased within a defined time period, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments, which are usually made at the end of a growing season, to distributors, retailers or growers. The Company describes these payments as “Programs”.“Programs.” Programs are a critical part of doing business in both the U.S. crop and non-crop chemicals marketplaces. These discount Programs represent variable consideration. Revenues from sales are recorded at the net sales price, which is the transaction price net of the impact of Programs and includes estimates of variable consideration. Variable consideration includes amounts that are expected to be paid to its customers estimated using the expected value method. Each quarter management reviewscompares individual sale transactions with Programs to determine what, if any, estimated program liabilities have been incurred. Once this initial calculation is made for the specific quarter, sales and marketing management, along with support fromexecutive and financial analysts, reviewsmanagement, review the accumulated Program balance and, for volume drivenvolume-driven payments, make assessments of whether or not customers are tracking in a manner that indicates that they will meet the requirements set out in agreed upon terms and conditions attached to each Program. Following this assessment, management makes adjustments to the accumulated accrual to properly reflect the Company’s best estimate of the liability at the balance sheet date. Programs are then reviewed with executive management for final approval. Programs are paid out predominantly on an annual basis, usually in the final quarter of the financial year or the first quarter of the following year. No significant changes in estimates were made during the three-three months ended March 31, 2023 and six-month periods ended June 30, 2022 and 2021. .
10
8. Cash Dividends on Common Stock —The Company has declared and paid the following cash dividends in the periods covered by this Form 10-Q:
Declaration Date |
| Record Date |
| Distribution Date |
| Dividend Per Share |
|
| Total Paid |
| ||
March 13, 2023 |
| March 24, 2023 |
| April 14, 2023 |
| $ | 0.030 |
|
| $ | 851 |
|
December 12, 2022 |
| December 28, 2022 |
| January 11, 2023 |
| $ | 0.030 |
|
| $ | 851 |
|
March 14, 2022 |
| March 25, 2022 |
| April 15, 2022 |
| $ | 0.025 |
|
| $ | 736 |
|
December 13,2021 |
| December 27, 2021 |
| January 10, 2022 |
| $ | 0.020 |
|
| $ | 594 |
|
Declaration Date |
| Record Date |
| Distribution Date |
| Dividend Per Share |
|
| Total Paid |
| ||
June 6, 2022 |
| June 24, 2022 |
| July 8, 2022 |
| $ | 0.025 |
|
| $ | 742 |
|
March 14, 2022 |
| March 25, 2022 |
| April 15, 2022 |
| $ | 0.025 |
|
| $ | 736 |
|
December 13, 2021 |
| December 27, 2021 |
| January 10, 2022 |
| $ | 0.020 |
|
| $ | 594 |
|
June 8, 2021 |
| June 24, 2021 |
| July 8, 2021 |
| $ | 0.020 |
|
| $ | 600 |
|
March 10, 2021 |
| March 15, 2021 |
| April 15, 2021 |
| $ | 0.020 |
|
| $ | 596 |
|
December 7, 2020 |
| December 23, 2022 |
| January 6, 2021 |
| $ | 0.020 |
|
| $ | 592 |
|
9. Earnings Per Share —The components of basic and diluted earnings per share were as follows:
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net income |
| $ | 1,918 |
|
| $ | 9,935 |
|
Denominator: |
|
|
|
|
|
| ||
Weighted average shares outstanding-basic |
|
| 28,367 |
|
|
| 29,677 |
|
Dilutive effect of stock options and grants |
|
| 706 |
|
|
| 672 |
|
Weighted average shares outstanding-diluted |
|
| 29,073 |
|
|
| 30,349 |
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to AVD |
| $ | 6,830 |
|
| $ | 5,144 |
|
| $ | 16,765 |
|
| $ | 8,215 |
|
Denominator: (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic |
|
| 29,602 |
|
|
| 29,930 |
|
|
| 29,639 |
|
|
| 29,834 |
|
Dilutive effect of stock options and grants |
|
| 623 |
|
|
| 569 |
|
|
| 650 |
|
|
| 677 |
|
|
|
| 30,225 |
|
|
| 30,499 |
|
|
| 30,289 |
|
|
| 30,511 |
|
For the three-three months ended March 31, 2023 and six-month periods ended June 30, 2022, and 2021, respectively, 0no stock options or restricted stock awards were excluded from the computation of diluted earnings per share.
10. Debt — The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at June 30, 2022March 31, 2023 and December 31, 2021.2022. The Company has 0no short-term debt as of June 30, 2022March 31, 2023 and December 31, 2021. 2022. The debt is summarized in the following table:
Long-term indebtedness ($000's) |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Revolving line of credit |
| $ | 97,000 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (761 | ) |
|
| (823 | ) |
Total indebtedness, net of deferred loan fees |
| $ | 96,239 |
|
| $ | 51,477 |
|
The deferred loan fees as of March 31, 2023 are included in other assets on the condensed consolidated balance sheets.
Long-term indebtedness ($000's) |
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Revolving line of credit |
| $ | 101,700 |
|
| $ | 53,300 |
|
Deferred loan fees |
|
| (921 | ) |
|
| (1,060 | ) |
Net long-term debt |
| $ | 100,779 |
|
| $ | 52,240 |
|
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 40 years and is the syndication manager for the Company’s loans.
The Company and certain of its affiliates are parties to a revolving line of credit agreement entitled the “Third Amended and Restated Loan and Security Agreement” dated as of August 5, 2021 (the “Credit Agreement”), which is a senior secured lending facility among AMVAC, the Company’s principal operating subsidiary, as Borrower Agent and (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by Bank of the West as administrative agent, documentation agent, syndication agent, collateral agent and sole lead arranger, and book runner, on the other hand. The Credit Agreement consists of a line of credit of up to $275,000,$275,000, an accordion feature of up to $150,000,$150,000, a letter of credit and swingline sub-facility (each having limits of $25,000)$25,000) and has a maturity date of August 5, 2026.2026. The Credit Agreement amendsamended and restatesrestated the previous credit facility, which had a maturity date of June 30, 2022. With respect to key financial covenants, the Credit Agreement contains two;two: namely, borrowers are required to maintain a Total Leverage (“TL”) Ratio of no more than 3.5-to-1,3.5-to-1, during the first three years, stepping down to 3.25-to-13.25-to-1 as of September 30, 2024, and a Fixed Charge Coverage Ratio ("FCCR") of at least 1.25-to-1.1.25-to-1. In addition, to the extent that it completes acquisitions totaling $15$15 million or more in any 90-day period, AMVAC may step-up the TL Ratio by 0.5-to-1,0.5-to-1, not to exceed 4.00-to-1,4.00-to-1, for the next three full consecutive quarters. Acquisitions below $50$50 million do not require Agent consent. Distributions to the Company’s shareholders are limited to net income for the four fiscal quarter period ending on the fiscal quarter immediately prior to the fiscal quarter in which the current distribution was declared.
11
The Company’s borrowing capacity varies with its financial performance, measured in terms of Consolidated EBITDA as defined in the Credit Agreement, for the trailing twelve-month period. Under the Credit Agreement, revolving loans bear interest at a variable rate based, at borrower’s election with proper notice, on either (i) LIBOR plus the “Applicable Margin” which is based upon the Total Leverage (“TL”) Ratio (“LIBOR Revolver Loan”) or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%0.5%, and (z) the Daily One-Month LIBOR Rate plus 1.00%1.00%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). The Company and the Lenders entered into an amendment to the Credit Agreement, effective March 9, 2023, whereby LIBOR was replaced by SOFR with a credit spread adjustment of 10.0 bps for all SOFR periods. The revolving loans now bear interest at a variable rate based at our election with proper notice, on either (i) SOFR plus 0.1% per annum and the “Applicable Margin” or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month SOFR Rate plus 1.10%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). Interest payments for LIBORSOFR Revolver Loans are payable on the last day of each interest period (either one, two, threeone-, three- or sixsix- months, as selected by the borrower)Company) and the maturity date, while interest payments for Adjusted Base Rate Revolver Loans are payable on the last business day of each calendar quarter month and the maturity date. The interest rate ason March 31, 2023, was 6.53%.
As of June 30, 2022 was 2.99%.
At June 30, 2022,March 31, 2023, the Company was compliantin compliance with all covenantsthe TL Ratio but noncompliant with respect to its current credit agreement. Also, atthe FCCR. The noncompliance was driven to the lesser extent by a reduction in the Consolidated EBITDA (in the numerator of the FCCR calculation) during the twelve months ended March 31, 2023, and to a greater extent by higher-than-normal distributions (in the denominator of the FCCR calculation) arising from share repurchases made by the Company during the same period. On May 8, 2023, the Company obtained a waiver of the FCCR for the twelve months ended March 31, 2023, and an adjustment to the FCCR terms for the period ending June 30, 2022,2023. The impact of most of the Company’s total Funded Debt amounted to $101,700. At that dateshare repurchases will disappear from the Company’s rolling four quarter Consolidated EBITDA (as defineddenominator in the Credit Agreement) amountedFCCR calculation in the third quarter of 2023.
At March 31, 2023, according to $75,512, which results in a leverage ratiothe terms of 1.35, as compared to a maximum leverage ratio permitted under the Credit Agreement, of 3.5. At June 30, 2022,as amended, and based on our performance against the most restrictive covenant listed above, the Company hashad the capacity to increase its borrowings by up to $162,592, according to the terms thereof.$111,922. This compares to an available borrowing capacity of $56,906$200,372 as of June 30, 2021. At December 31, 2021,2022.
11. Classification Corrections — A correction to the Company had borrowing capacity of $178,705. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for both the trailing twelve-month period and proforma basis arising from acquisitions, (2) net borrowings, and (3) the leverage covenant (the TL Ratio).
As of the date it was acquired by the Company in October 2020, Agrinos had an existing Paycheck Protection Program (PPP) loan in the amount of $705. This PPP loan was granted on April 27, 2020. On January 7, 2021, the Small Business Administration forgave $667 in principal and $5 in interest of this PPP loan. As a result, the PPP loan was extinguished on January 7, 2021 and the total amount forgiven of $672 was recorded as other income in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2022 was made in connection with the Company’s operations in Australia, where the Company sells its products to distribution companies as well as directly to growers via third-party agents. The Company identified errors related to the classification of third-party agent’s commission amounts. The Company evaluated these errors and representsthe impact to previously issued financial statements and concluded that the impact of this classification error is not material to any previously issued quarterly or annual financial statements. However, management has recorded a non-cash financing activitycorrection adjustment to previously reported financial statement line items and related disclosures. The third-party agents’ commission in the amount of $158 was reclassified from net sales to operating expenses. The impact was an increase in net sales and gross profit in the amount of $158 and an offsetting increase in operating expenses in the same amount. This correction did not have any impact on operating income, net income, and earnings per common share.
12. Change in Accounting Principle — Historically, the Company included warehousing, handling and outbound freight costs in operating expenses on its Consolidated Statements of Operations. Effective January 1, 2023, the Company elected to include these costs in cost of sales instead of operating expenses on its condensed consolidated statementstatements of cash flowsoperations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The following table compares the Company’s historical classification with the classification after the adoption of the change in accounting for the sixthree months ended June 30, 2021.March 31, 2023 and 2022:
|
| Classification after adoption of accounting change |
|
| Historical classification |
| ||||||||||
|
| For the three months ended March 31 |
|
| For the three months ended March 31 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | 124,885 |
|
|
| 149,593 |
|
Cost of sales |
|
| (86,348 | ) |
|
| (98,198 | ) |
|
| (77,093 | ) |
|
| (88,242 | ) |
Gross profit |
|
| 38,537 |
|
|
| 51,395 |
|
|
| 47,792 |
|
|
| 61,351 |
|
Operating expenses |
|
| (35,272 | ) |
|
| (36,646 | ) |
|
| (44,527 | ) |
|
| (46,602 | ) |
Operating income |
| $ | 3,265 |
|
| $ | 14,749 |
|
| $ | 3,265 |
|
| $ | 14,749 |
|
12
11. Reclassifications — Certain items mayThe change in accounting principle did not have been reclassified in the prior period condensed consolidated financial statements to conform with the June 30, 2022, presentation.any impact on operating income, net income and earnings per share.
12. 13. Comprehensive Income —Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the condensedcondensed consolidated statementstatements of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three- and six-monththree-month periods ended June 30,March 31, 2023 and 2022, and 2021, total comprehensive income consisted of net income attributable to American Vanguard and foreign currency translation adjustments.
13. 14. Stock-Based Compensation — The following tables illustrate the Company’s stock-based compensation, unamortized stock-based compensation, and remaining weighted average amortization period.
|
| Stock-Based |
|
| Unamortized |
|
| Remaining |
| |||
March 31, 2023 |
|
|
|
|
|
|
|
|
| |||
Time-Based Restricted Stock |
| $ | 1,198 |
|
| $ | 5,304 |
|
|
| 1.7 |
|
Unrestricted Stock |
|
| 130 |
|
|
| 87 |
|
|
| 0.2 |
|
Performance-Based Restricted Stock |
|
| 146 |
|
|
| 1,978 |
|
|
| 1.7 |
|
Total |
| $ | 1,474 |
|
| $ | 7,369 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |||
March 31, 2022 |
|
|
|
|
|
|
|
|
| |||
Time-Based Restricted Stock |
| $ | 993 |
|
| $ | 5,411 |
|
|
| 1.7 |
|
Unrestricted Stock |
|
| 117 |
|
|
| 78 |
|
|
| 0.2 |
|
Performance-Based Restricted Stock |
|
| 453 |
|
|
| 2,319 |
|
|
| 1.7 |
|
Total |
| $ | 1,563 |
|
| $ | 7,808 |
|
|
|
|
|
| Stock-Based Compensation for the Three months ended |
|
| Stock-Based Compensation for the Six months ended |
|
| Unamortized Stock-Based Compensation |
|
| Remaining Weighted Average Period (years) |
| ||||
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock |
| $ | 1,079 |
|
| $ | 2,072 |
|
| $ | 9,277 |
|
|
| 2.2 |
|
Unrestricted Stock |
|
| 122 |
|
|
| 239 |
|
|
| 476 |
|
|
| 0.9 |
|
Performance-Based Restricted Stock |
|
| 72 |
|
|
| 525 |
|
|
| 3,781 |
|
|
| 2.1 |
|
Total |
| $ | 1,273 |
|
| $ | 2,836 |
|
| $ | 13,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock |
| $ | 1,167 |
|
| $ | 2,223 |
|
| $ | 9,734 |
|
|
| 2.2 |
|
Unrestricted Stock |
|
| 107 |
|
|
| 217 |
|
|
| 367 |
|
|
| 0.9 |
|
Performance-Based Restricted Stock |
|
| 532 |
|
|
| 1,158 |
|
|
| 4,186 |
|
|
| 2.1 |
|
Total |
| $ | 1,806 |
|
| $ | 3,598 |
|
| $ | 14,287 |
|
|
|
|
|
The Company also granted stock options in past periods. All outstanding stock options are fully vested and exercisable and no expense was recorded during the three-three months ended March 31, 2023 and six-month periods ended June 30, 2022, and 2021.2022.
Time-based Restricted and Unrestricted Stock — A summary of non-vested shares as of,nonvested time based restricted and for, the three- and six-month periods ended June 30, 2022, and 2021unrestricted stock is presented below:
|
| Three and Six Months Ended June 30, 2022 |
|
| Three and Six Months Ended June 30, 2021 |
| ||||||||||
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||||
Nonvested shares at December 31st |
|
| 817,290 |
|
| $ | 17.04 |
|
|
| 820,624 |
|
| $ | 16.64 |
|
Vested |
|
| (230,080 | ) |
|
| 17.31 |
|
|
| (197,615 | ) |
|
| 19.91 |
|
Forfeited |
|
| (24,109 | ) |
|
| 17.10 |
|
|
| (11,580 | ) |
|
| 16.95 |
|
Nonvested shares at March 31st |
|
| 563,101 |
|
|
| 16.93 |
|
|
| 611,429 |
|
|
| 15.57 |
|
Granted |
|
| 242,067 |
|
|
| 23.79 |
|
|
| 289,757 |
|
|
| 20.10 |
|
Vested |
|
| (27,482 | ) |
|
| 22.35 |
|
|
| (30,112 | ) |
|
| 16.72 |
|
Forfeited |
|
| (14,070 | ) |
|
| 18.53 |
|
|
| (11,231 | ) |
|
| 16.60 |
|
Nonvested shares at June 30th |
|
| 763,616 |
|
| $ | 18.88 |
|
|
| 859,843 |
|
| $ | 17.04 |
|
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||
Nonvested shares at December 31st |
|
| 742,050 |
|
| $ | 18.86 |
|
|
| 817,290 |
|
| $ | 17.04 |
|
Vested |
|
| (2,017 | ) |
|
| 15.71 |
|
|
| (230,080 | ) |
|
| 17.31 |
|
Forfeited |
|
| (5,479 | ) |
|
| 19.87 |
|
|
| (24,109 | ) |
|
| 17.10 |
|
Nonvested shares at March 31st |
|
| 734,554 |
|
| $ | 18.86 |
|
|
| 563,101 |
|
| $ | 16.93 |
|
Performance-Based Restricted Stock — A summary of non-vestednonvested performance-based shares as of, and for, the three- and six-month periods ended June 30, 2022, and 2021, respectivelystock is presented below:
|
| Three and Six Months Ended June 30, 2022 |
|
| Three and Six Months Ended June 30, 2021 |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number |
|
| Weighted |
|
| Number |
|
| Weighted |
| ||||||||
Nonvested shares at December 31st |
|
| 379,061 |
|
| $ | 16.43 |
|
|
| 391,771 |
|
| $ | 16.26 |
|
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 379,061 |
|
| $ | 16.43 |
|
Additional granted (forfeited) based on performance achievement |
|
| (41,088 | ) |
|
| 16.56 |
|
|
| 71,180 |
|
|
| 20.53 |
|
|
| — |
|
|
| — |
|
|
| (41,088 | ) |
|
| 16.56 |
|
Vested |
|
| (78,704 | ) |
|
| 17.18 |
|
|
| (175,087 | ) |
|
| 19.78 |
|
|
| — |
|
|
| — |
|
|
| (78,704 | ) |
|
| 17.18 |
|
Forfeited |
|
| (7,074 | ) |
|
| 16.77 |
|
|
| (505 | ) |
|
| 19.26 |
|
|
| — |
|
|
| — |
|
|
| (7,074 | ) |
|
| 16.77 |
|
Nonvested shares at March 31st |
|
| 252,195 |
|
|
| 16.17 |
|
|
| 287,359 |
|
|
| 15.16 |
|
|
| 318,699 |
|
| $ | 18.05 |
|
|
| 252,195 |
|
| $ | 16.17 |
|
Granted |
|
| 83,190 |
|
|
| 23.63 |
|
|
| 102,043 |
|
|
| 20.03 |
| ||||||||||||||||
Forfeited |
|
| (7,829 | ) |
|
| 17.50 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Nonvested shares at June 30th |
|
| 327,556 |
|
| $ | 16.58 |
|
|
| 389,402 |
|
| $ | 16.44 |
|
13
Stock Options — The Company hasA summary of stock options outstanding under its incentive stock option plans and performance incentive stock option plan. All outstanding stock options are vested and exercisable. The following tables present details for each type of plan:is presented below:
Time-based Incentive Stock Option Plans
Activity of the incentive stock option plans for the three-three months ended March 31, 2023:
|
| Number of |
|
| Weighted |
| ||
Balance outstanding, December 31, 2022 |
|
| 68,896 |
|
| $ | 11.49 |
|
Options exercised |
|
| (1,537 | ) |
|
| 11.49 |
|
Balance outstanding, March 31, 2023 |
|
| 67,359 |
|
| $ | 11.49 |
|
All outstanding stock options as of March 31, 2023 have an exercise price of $11.49 and six-month periodsa remaining life of 21 months.
There was no activity during the three months ended June 30, 2022:
|
| Number of Shares |
|
| Weighted Average Price Per Share |
| ||
Balance outstanding, December 31, 2021 and March 31, 2022 |
|
| 108,036 |
|
|
| 11.49 |
|
Options exercised |
|
| (33,745 | ) |
|
| 11.49 |
|
Balance outstanding, June 30, 2022 |
|
| 74,291 |
|
| $ | 11.49 |
|
All theMarch 31, 2022. There were 108,036 incentive stock options outstanding as of June 30,March 31, 2022 havewith an exercise price per share of $11.49$11.49 and a remaining life of 30 33 months.
Activity for the three- and six-month periods ended June 30, 2021:
|
| Number of Shares |
|
| Weighted Average Price Per Share |
| ||
Balance outstanding, December 31, 2020 |
|
| 123,087 |
|
| $ | 11.48 |
|
Options exercised |
|
| (5,838 | ) |
|
| 11.49 |
|
Balance outstanding, March 31, 2021 |
|
| 117,249 |
|
|
| 11.48 |
|
Options exercised |
|
| (8,826 | ) |
|
| 11.35 |
|
Balance outstanding, June 30, 2021 |
|
| 108,423 |
|
| $ | 11.49 |
|
PerformancePerformance-based Incentive Stock Option Plan
ActivityThere was no activity for the three-three months ended March 31, 2023 and six-month periods ended June 30, 2022:
|
| Number of Shares |
|
| Weighted Average Price Per Share |
| ||
Balance outstanding, December 31, 2021 and March 31, 2022 |
|
| 114,658 |
|
| $ | 11.49 |
|
Options exercised |
|
| (32,850 | ) |
|
| 11.49 |
|
Balance outstanding, June 30, 2022 |
|
| 81,808 |
|
| $ | 11.49 |
|
Activity for the three-2022. There were 81,808 and six-month periods ended June 30, 2021:
|
| Number of Shares |
|
| Weighted Average Price Per Share |
| ||
Balance outstanding, December 31, 2020 |
|
| 114,658 |
|
| $ | 11.49 |
|
Options exercised |
|
| — |
|
|
| — |
|
Balance outstanding, March 31, 2021 and June 30, 2021 |
|
| 114,658 |
|
| $ | 11.49 |
|
All the114,658 of performance incentive stock options outstanding as of June 30,March 31, 2023 and 2022, havewith an exercise price per share of $11.49$11.49 and a remaining life of 30 months.21 and 33 months, respectively.
14.
15. Legal Proceedings — — During the reporting period, there have been no material developments in legal proceedings that were reported in the Company’s Form 10-K for the year ended December 31, 2021,2022, except as described below.
EPA FIFRA/RCRA Matter.Department of Justice and Environmental Protection Agency Investigation. On November 10, 2016, the CompanyAMVAC was served with a grand jury subpoena from the United States Attorney’s Office for the Southern District of Alabama, seeking documents regarding the importation, transportation, and management of a specific pesticide. The Company retained defense counsel to assist in responding to the subpoena and otherwise in defending the Company’s interests. AMVAC is cooperating in the investigation.
Since April 2018, After interviewing multiple witnesses (including three employees before a grand jury in February 2022) and making multiple document requests, the Department of Justice (“DOJ”DoJ”) has conducted several interviews of AMVAC employees and issued supplemental document requests in connection with the investigation. In November 2020, DOJ issued a second grand jury subpoena seeking records and related communications with regard to a submission made by the Company to the Environmental Protection Agency (“EPA”) in connection with a request to amend a pesticide’s registration. Soon thereafter, DOJ also identified the Company and one of its non-executive employeesa manager-level employee as targets of the government’s investigation. In January 2021, DOJ and EPA informed the Company that it is investigatingDoJ’s investigation focused on potential violations of two environmental statutes, the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) and the Resource Conservation and Recovery Act (“RCRA”), as well as obstruction of an agency proceeding and false statement statutes. DOJ also identified evidence that it contends supports alleged violations with respect to both the Company and the individual target. As part of discussions regarding possible resolution, in October 2021, the Company presented its evaluation of the legal and factual issues raised by the government (which do not include any allegations of harm to human health or the environment) to both DOJ and USEPA. Further, three corporate witnesses were interviewed by the grand jury in Mobile, Alabama in February 2022. Following that interview,In March 2022, the individual target entered into a plea agreement relating to provision of false information in a government proceeding. In July 2022, the DoJ sent correspondence to the Company’s counsel to the effect that it was focusing on potential RCRA violations relating to the reimportation of Australian containers in 2015. Our defense counsel spoke with DoJ on the subject in early October 2022, at which was entered bytime DoJ expressed an interest in resolving the court having jurisdiction in this matter in May 2022. Theand stated that it would get back to the Company expects that talks regarding potential resolution will resume in the near future.with its position.
The governmental agencies involved in this investigation have a range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of FIFRA, RCRA and other federal statutes including, but not limited to, injunctive relief, fines, penalties and modifications to business practices and compliance programs, including the appointment of a monitor. If violations are established, the amount of any fines or monetary penalties which could be assessed and the scope of possible non-monetary relief would depend on, among other factors, findings regarding the amount, timing, nature and scope of the violations, and the level of cooperation provided to the governmental authorities during the investigation. As a result, the Company cannot yet anticipate the timing or predict the ultimate resolution of this investigation, financial or otherwise, which could have a material adverse effect on our business prospects, operations, financial condition and cash flow.flows. Accordingly, we havethe Company has not recorded a loss contingency for this matter.
Harold ReedPitre etc. v. AMVACAgrocentre Ladauniere et al. During January 2017, On February 11, 2022, a strawberry grower named Les Enterprises Pitre, Inc. filed a complaint in the Company was served with two StatementsSuperior Court, District of Claim that had been filed on March 29, 2016 withLabelle, Province of Quebec, Canada, entitled Pitre, etc. v. Agrocentre Ladauniere, Inc. etal, including Amvac Chemical Corporation, seeking damages in the Courtamount of Queen’s Bench of Alberta, Canada (as case numbers 160600211 and 160600237) in which plaintiffs, Harold Reed (an applicator) and 819596 Alberta Ltd. dba Jem Holdings (an application equipment rental company), allege physical injury and damage to equipment, respectively,approximately $5 million arising from stunted growth of, and reduced yield from, its strawberry crop allegedly from the application of AMVAC’s soil fumigant, Vapam, in spring of
14
2021. Examinations of plaintiff were held in mid-August 2022, during which plaintiff in effect confirmed that he had planted his seedlings before expiration of the full-time interval following product application (as per the product label), that he had failed to follow the practice of planting a firefew test seedlings before planting an entire farm, and that occurred during anhe had placed his blind trust in his application adviser on all manner of timing and rate. An examination of the Company’s potato sprout inhibitor, SmartBlock, at a potato storage facility in Coaldale, Alberta on April 2, 2014. Four other related matters were subsequently consolidated into this case (alleging loss of potatoes, damage to equipment, damage to Quonset huts and loss of business income). The parties have exchanged written discovery, and depositions of persons most knowledgeable tookwitness is scheduled to take place during the first quarter of 2019. Citing the length of the cases’ pendency and the expense, in December 2019, plaintiff Reed voluntarily dismissed two actions (160600211 and 160600237) for no consideration. Over the course of 2020, discovery was completed, and the parties held a mediation on March 11, 2021; however, no settlement was reached. The parties have set a second mediation to occur in August 2022.June 2023. The Company continuesbelieves that the claims have no merit and intends to believe that itdefend the matter. At this stage in the proceedings, there is not primarily at risk but thatsufficient information to form a loss is probable and reasonably estimable and,judgment as to that end,either the probability or amount of loss; thus, the Company has not recorded a loss contingency in an amount that is not material to its financial performance or operations cash flows.for this matter.
Catalano v. AMVAC Chemical Corp. On June 6, 2022, AMVAC was served with a summons and complaint for a matter entitled Andrew Catalano and Ruth Catalano v. AMVAC in the Superior Court of the State of California, County of Orange (30-2022-01263987-CU-PL-CXC) in which plaintiff, who worked as a professional applicator of pesticides, including Orthene (for which AMVAC is registrant) seeks damages for an injury (specifically, cardiomyopathy) allegedly arising from his exposure to this product. AMVAC is unaware of any link between cardiovascular disease and Orthene (which has been commercially available for over 30 years) and believes that this case has no merit and intends to defend it vigorously. The Company retained counsel and filed an answer in early July, 2022, including multiple affirmative defenses. Further, the parties continue to engage in discovery, and plaintiffs have been unable to supply any data establishing a causal link between use of this product and the heart condition that plaintiff alleges. At this stage, there is not sufficient information to form a judgment as to either the probability or amount of any loss; thus, the Company has not set asiderecorded a reserveloss contingency for this matter.
Notice of Intention to Suspend DCPA. On April 28, 2022, the USEPA published a notice of intent to suspend (“NOITS”) DCPA, the active ingredient of an herbicide marketed by the Company under the name Dacthal. The agency cited as the basis for the suspension that the Company did not take appropriate steps to provide data studies requested in connection withsupport of the registration review. In fact, over the course of several years, the Company cooperated in performing the vast majority of the nearly 90 studies requested by USEPA and had been working in good faith to meet the agency’s schedule. After an appeals court (the Environmental Appeals Board) clarified the proper standard for use at the hearing (namely, whether registrant took appropriate steps to respond to the data call-in), a hearing was held in January 2023 before the ALJ, by which time USEPA had narrowed the scope of its claim to nine outstanding studies, all of which have been started by the Company and none of which are necessary for USEPA to commence its risk assessment. The parties have filed their post-hearing briefs, and the Company expects that the ALJ will render a decision in the near future. During the course of these proceedings, AMVAC has been free to make, sell and distribute both the technical grade material and end-use product and may continue to do so unless and until there is an adverse ruling at both the trial and appellate level (if any). The Company believes that a loss is neither probable nor estimable and, consequently, has not recorded a loss contingency for this matter.
15.16. Recent Issued Accounting Guidance —
Accounting Standards Adopted
In November 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2021-10, “Disclosures by Business Entities about Government Assistance.” This ASU codifies new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions associated with such transactions. The guidance is effective for annual periods beginning after December 15, 2021. Effective January 1, 2022, the Company adopted ASU No. 2021-10 on a prospective basis. The adoption of this standard was not material to the Company’s condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
In October 2021,March 2020, the FASB issued ASU 2021-08, “Business Combinations2020-04 Reference Rate Reform (Topic 805)848): AccountingFacilitation of the Effects of Reference Rate Reform on Financial Reporting,as amended and supplemented by subsequent ASUs (collectively, “ASU 2020-04” and “ASU 2022-06”), which provides practical expedients for Contract Assetscontract modifications and Liabilitiescertain hedging relationships associated with the transition from Contracts with Customers.”reference rates that are expected to be discontinued. This ASU requires an acquiring entity to recognizeguidance is applicable for borrowing instruments, which use LIBOR as a reference rate, and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. The ASU is effective for fiscal years and interim periods beginning afteravailable through December 15, 2022, with early adoption permitted.31, 2024. The Company is evaluating thehas evaluated this ASU and does not expect its adoption to have a material impact of adopting this ASU.on its condensed consolidated financial statements.
The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its condensed consolidated financial statements.
16. 17. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires certainexpanded 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. 15 |
|
|
|
|
|
|
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, long-term investments, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which are considered Level 2 liabilities, approximates fair value based uponas they bear interest at a variable rate at current rates and terms available to the Company for similar debt.market rates.
The Company measures its contingent earn-out liabilities in connection with business acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The Company may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring.
The Company did not have any contingent earn-out liabilities at March 31, 2023 and December 31, 2022. The following table illustrates the Company’s contingent consideration movements related to its business acquisitions:
|
| Three months ended June 30, 2022 |
|
| Three months ended June 30, 2021 |
| ||
Balance, March 31 |
| $ | 1,437 |
|
| $ | 2,205 |
|
Purchase price adjustment |
|
| — |
|
|
| (955 | ) |
Fair value adjustment |
|
| 36 |
|
|
| 1,013 |
|
Accretion of discounted liabilities |
|
| 11 |
|
|
| (27 | ) |
Foreign exchange effect |
|
| (117 | ) |
|
| (120 | ) |
Balance, June 30 |
| $ | 1,367 |
|
| $ | 2,116 |
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2022 |
|
| Six months ended June 30, 2021 |
| ||
Balance, December 31 |
| $ | 786 |
|
| $ | 2,468 |
|
Purchase price adjustment |
|
| — |
|
|
| (955 | ) |
Fair value adjustment |
|
| 635 |
|
|
| 1,013 |
|
Payments on existing obligations |
|
| — |
|
|
| (250 | ) |
Accretion of discounted liabilities |
|
| 17 |
|
|
| (11 | ) |
Foreign exchange effect |
|
| (71 | ) |
|
| (149 | ) |
Balance, June 30 |
| $ | 1,367 |
|
| $ | 2,116 |
|
The current portion of the contingent consideration in the amount of $1,367 and $1,501 is included in current installments of other liabilities and the long-term portion in the amount of $0 and $615 is included in other liabilities on the condensed consolidated balance sheetsacquisitions as of June 30, 2022 and 2021, respectively.for the three months ended March 31, 2022:
17.
|
| Three months ended |
| |
Balance, December 31, 2021 |
| $ | 786 |
|
Fair value adjustment |
|
| 599 |
|
Accretion of discounted liabilities |
|
| 6 |
|
Foreign exchange effect |
|
| 46 |
|
Balance, March 31, 2022 |
| $ | 1,437 |
|
18. Accumulated Other Comprehensive Loss (“AOCL”)—The following table lists the beginning balance, annualquarterly activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency (FX) translation adjustments:
|
| Total |
| |
Balance, December 31, 2021 |
| $ | (13,784 | ) |
Foreign currency translation adjustment, net of tax effects of ($48) |
|
| 7,080 |
|
Balance, March 31, 2022 |
|
| (6,704 | ) |
Foreign currency translation adjustment, net of tax effects of $109 |
|
| (6,064 | ) |
Balance, June 30, 2022 |
| $ | (12,768 | ) |
|
|
|
|
|
Balance, December 31, 2020 |
| $ | (9,322 | ) |
Foreign currency translation adjustment, net of tax effects of $1,179 |
|
| (2,503 | ) |
Balance, March 31, 2021 |
|
| (11,825 | ) |
Foreign currency translation adjustment, net of tax effects of ($1,731) |
|
| 2,914 |
|
Balance, June 30, 2021 |
| $ | (8,911 | ) |
Total | ||||
Balance, December 31, 2022 | $ | (12,182 | ) | |
Foreign currency translation adjustment, net of tax effects of ($89) | 2,546 | |||
Balance, March 31, 2023 | $ | (9,636 | ) | |
Balance, December 31, 2021 | $ | (13,784 | ) | |
Foreign currency translation adjustment, net of tax effects of ($48) | 7,080 | |||
Balance, March 31, 2022 | $ | (6,704 | ) |
18. 19. Equity Investments — In February 2016, AMVAC Netherlands BV made an investment in Biological Products for Agriculture (“Bi-PA”). Bi-PA develops biological plant protection products that can be used for the control of pests and disease of agricultural crops. As of June 30,March 31, 2023 and 2022, and 2021, the Company’s ownership position in Bi-PA was 15%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 records an increase or decrease for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Bi-PA. The Company periodically reviews the investment for possible impairment. There was 0no impairment or observable price changes on the investment during the three-three months ended March 31, 2023 and six-month periods ended June 30, 2022 and 2021.2022. The investment is recorded within other assets on the condensed consolidated balance sheets and amounted to $2,884$2,869 as of June 30, 2022March 31, 2023 and December 31, 2021.2022.
On April 1, 2020, AMVAC purchased 6.25 million shares, an ownership of approximately 8%8%, of common stock of Clean Seed Capital Group Ltd. (TSX Venture Exchange: “CSX”) for $1,190.$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 $1,113$762 and $1,516$784 as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The Company recorded a loss of $486 and $295 for the three-month period ended June 30, 2022 and 2021, respectively. The Company recorded a loss of $403$22 and a gain of $771$83 for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively respectively.The investment is recorded within other assets on the condensed consolidated balance sheets.
19. Product and Business Acquisitions20. Income Taxes — Income tax benefit was $ The Company did not complete any acquisitions during the three- and six-month periods ended June 30, 2022, and 2021. However, the Company made a payment in the amount of $10,000 in June 2021361 for the acquisition of a product line. The Company obtained control over the product line on July 1, 2021 and the acquisition was accounted forthree months ended March 31, 2023, as an asset acquisition in Q3 2021.
20. Income Taxes —Incomecompared to income tax expense was $2,725 and $2,445of $4,499 for the three-month periodthree-months ended June 30, 2022, and 2021, respectively.March 31, 2022. The effective income tax rate for the three months ended March 31, 2023 was computed based on the estimated effective tax rate for the quarter was 28.5%full year, adjusted for a benefit from the remeasurement of certain U.S. federal and 31.9%state deferred taxes, partially offset by an expense attributed to establishing liabilities for uncertain tax positions in the three-month period ended June 30, 2022U.S. and 2021, respectively. Income tax expense was $7,224 and $3,807 for the six months ended June 30, 2022, and 2021, respectively. TheIndia. This calculation resulted in an effective tax rate of minus 23.2% for the six-month periodthree months ended June 30, 2022 and 2021, was 30.1% and 31.4%, respectively. For the three- and six-month periods ended June 30, 2022, the rate decreasedMarch 31, 2023, as compared to 31.2% for the same periodsthree months ended March 31, 2022.
It is expected that $1,550 of 2021 reflectingunrecognized tax benefits will be released within the mix of income in different jurisdictions and an increase in tax benefit from the vesting of certain stock grants. For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act (“TCJA”) of 2017 amends Internal Revenue Code Section 174 Costs wherein research and development expenditures will no longer be deducted in the tax year that such costs are incurred but must now be capitalized and amortized over either a five- or fifteen-year period, depending on the locationnext twelve months due to expiration of the activities performedstatute of limitations..
16
The effective tax rate is based on the projected income for the full year and is subject to ongoing review and adjustment by management.
21. Stock Re-purchase Program— On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to 1,000,000 shares of its common stock under a 10b5-1 plan, par value $0.10$0.10 per share, in the open market over the succeeding one year, at a price not to exceed $20 per share, subject to limitations and restrictions under applicable securities laws. During 2022 and 2023, the Company purchased 761,985 shares of its common stock for a total of $14,558 at an average price of $19.11 per share. The 10b5-1 plan terminated on March 8, 2023.
The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three-three months ended March 31, 2023 and six-month periods ended June 30, 2022. There were no such purchases during the three- and six-month periods ended June 30, 2021.
Three months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
|
| Maximum number of shares that may yet be purchased under the plan |
| ||||
March 31, 2023 |
|
| 27,835 |
|
| $ | 19.96 |
|
| $ | 557 |
|
|
| — |
|
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
Month ended |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total amount paid |
|
| Maximum number of shares that may yet be purchased under the plan |
| ||||
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
April 30, 2022 |
|
| 100 |
|
| $ | 19.99 |
|
| $ | 2 |
|
|
| 667,496 |
|
May 31, 2022 |
|
| 506 |
|
| $ | 19.99 |
|
| $ | 11 |
|
|
| 666,990 |
|
Total number of shares repurchased |
|
| 333,010 |
|
| $ | 18.71 |
|
| $ | 6,232 |
|
|
| 666,990 |
|
22. Supplemental Cash Flow Information
|
| For the Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
| $ | 1,100 |
|
| $ | 1,873 |
|
Income taxes, net |
| $ | 10,749 |
|
| $ | 2,757 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
ROU assets exchanged for lease liabilities |
| $ | 1,825 |
|
| $ | 12,067 |
|
Cash dividends declared and included in accrued expenses |
| $ | 742 |
|
| $ | 600 |
|
|
| For the three months |
| |||||
Cash paid during the period: |
| 2023 |
|
| 2022 |
| ||
Interest |
| $ | 1,316 |
|
| $ | 387 |
|
Income taxes, net |
| $ | 2,104 |
|
| $ | 1,454 |
|
Non-cash transactions: |
|
|
|
|
|
| ||
Deferred consideration in connection with business acquisitions: |
|
| — |
|
| $ | 599 |
|
Cash dividends declared and included in accrued expenses |
| $ | 851 |
|
| $ | 736 |
|
17
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Numbers in thousands)
|
|
FORWARD-LOOKING STATEMENTS/RISK FACTORS:
The Company, from time-to-time, may discuss forward-looking statements including assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire Annual Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. Securities and Exchange Commission (the “SEC”). It is not possible to foresee or identify all such factors. For more detailed information, refer to Item 3., Quantitative and Qualitative Disclosures about Market Risk, and Part II, Item 1A., Risk Factors, in this Quarterly Report on Form 10-Q.
MANAGEMENT OVERVIEWEffective January 11, 2023, the Company includes warehousing, handling and outbound freight costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The change in accounting principle did not have any impact on operating income, net income and earnings per share. Please refer to note 12 to the condensed consolidated financial statements for further details.
Overview of the Company’s Performance
DuringDomestic crop sales, and therefore, the secondCompany’s financial performance for the first quarter of 2022,2023 declined in most material respects as compared to the agriculture industry proceeded further into the second year of an upcycle, following a multi-year downcycle.comparable period in 2022. While subject to intra-day fluctuations, commodity prices for row crops, which are largely driven by global conditions, were consistently strong. Consequently, the domestic farm economy showed continued resiliency. Geopolitical conditions, particularlyremains strong, supply disruptions and delays in raws and intermediates compounds used to manufacture the prolonged invasion of Ukraine, provided further price supportCompany’s leading corn soil insecticide, coupled with shifts in procurement timing for corn (and, consequently, soybeans), wheatits herbicides, yielded significantly lower sales in its domestic crop business, as compared to this time last year. By contrast, both the domestic non-crop and sunflower oil, as well as fertilizers.international businesses recorded slightly higher sales for the period. With improved supply chain conditions and a stronger U.S. dollar, domestic companies experienced enhanced buying power. Despite the adventlower sales of the BA5 variant, in the face of higher vaccination rates, the COVID-19 pandemic has shifted into an endemic in most regions. Amidst these factors and following on the heels of an extremely strong first quarter,margin domestic crop business, the Company’s overall sales and profit performance were adversely affected. While operating resultsexpenses declined, factory costs rose primarily as a result of not having the raw materials available to manufacture the corn soil insecticides products and as a result gross profit declined. Further, higher interest expenses (partially offset by lower tax expenses) yielded lower net income for the second quarter, of 2022 improved in most respects, as compared with those of the same period of 2021. Led by the strong sales growth of our international business, consolidated net sales increased by 10% (to end at $148,084 as compared to $134,610) and net income increased by 33% (to $6,830 from $5,144).last year.
On a consolidated basis, domestic sales declined 25% while international rose 1% and international sales increased 26%by 2%, resulting in an overall net sales improvementdecline of 10%17%. In comparison,Further, overall cost of sales, increasedwhich has been subject to a change in definition to now incorporate the cost of outbound logistics and freight expenses, decreased by 7% or $5,834. This lower comparative increase was a result of higher selling prices and a favorable mix of higher-margin products in the second quarter of 2022, as compared to the same period of the prior year.12%. Cost of sales were 60%69% of sales in the second quarter of 2022,2023, as compared to 61%66% for the same period of 2021.2022. These factors, taken together with higher manufacturing costs (both labor and service-related), yielded a 15% increase25% decrease in gross profit (to $59,779$38,537 in 2023 from $52,139$51,395 in the comparable quarter of 2021)2022), while overall gross margin percent improveddeclined to 40%31% from 39%34% quarter-over-quarter.
Operating expenses increaseddeclined to 33%$35,272 in Q1 2023 from $36,646; however, operating expenses as a percent of net sales (or $48,966), as comparedrose to 32% (or $43,080)28% in the samefirst quarter of 2023 from 24% in the comparable period of the prior year primarily due to legal and other expenses amounting to $1,785 relating to proxy defense activity in the reporting period. Absent those expenses, our operating expenses would have been at 32%, in line with the same period of the prior year.2022.
Operating income for the period increased by 21% (to $10,813decreased to $3,265 from $8,971),$14,749, driven by the overallreduced sales, increase,decreased gross margin percentage and proportionately higher selling prices and improved factory utilization. Interestoperating expenses. The Company recorded higher interest expense was 24% lower thandue to federal interest rate increases during the same period of 2021, driven by lower average levels of debt, which was aided by a second consecutive year of strong customer participation in early pay programs.intervening year. These factors yielded net income for the period of $6,830, a 33% increase over$1,918, as compared to $5,144$9,935 in the secondfirst quarter of 2021.2022. Details on our financial performance are set forth below.
18
RESULTS OF OPERATIONS
Quarter Ended June 30, 2022 and 2021:March 31:
|
| For the three months ended |
|
|
|
|
|
| ||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 63,195 |
|
| $ | 62,575 |
|
| $ | 620 |
|
|
| 1 | % |
| $ | 61,876 |
|
| $ | 88,193 |
|
| $ | (26,317 | ) |
|
| -30 | % |
U.S. non-crop |
|
| 21,316 |
|
|
| 21,488 |
|
|
| (172 | ) |
|
| -1 | % |
|
| 13,899 |
|
|
| 13,396 |
|
|
| 503 |
|
|
| 4 | % |
Total U.S. |
|
| 84,511 |
|
|
| 84,063 |
|
|
| 448 |
|
|
| 1 | % |
|
| 75,775 |
|
|
| 101,589 |
|
|
| (25,814 | ) |
|
| -25 | % |
International |
|
| 63,573 |
|
|
| 50,547 |
|
|
| 13,026 |
|
|
| 26 | % |
|
| 49,110 |
|
|
| 48,004 |
|
|
| 1,106 |
|
|
| 2 | % |
Total net sales: |
| $ | 148,084 |
|
| $ | 134,610 |
|
| $ | 13,474 |
|
|
| 10 | % |
| $ | 124,885 |
|
| $ | 149,593 |
|
| $ | (24,708 | ) |
|
| -17 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 33,442 |
|
| $ | 35,770 |
|
| $ | (2,328 | ) |
|
| -7 | % |
| $ | 41,254 |
|
| $ | 54,200 |
|
| $ | (12,946 | ) |
|
| -24 | % |
U.S. non-crop |
|
| 11,267 |
|
|
| 11,706 |
|
|
| (439 | ) |
|
| -4 | % |
|
| 8,453 |
|
|
| 7,629 |
|
|
| 824 |
|
|
| 11 | % |
Total U.S. |
|
| 44,709 |
|
|
| 47,476 |
|
|
| (2,767 | ) |
|
| -6 | % |
|
| 49,707 |
|
|
| 61,829 |
|
|
| (12,122 | ) |
|
| -20 | % |
International |
|
| 43,596 |
|
|
| 34,995 |
|
|
| 8,601 |
|
|
| 25 | % |
|
| 36,641 |
|
|
| 36,369 |
|
|
| 272 |
|
|
| 1 | % |
Total cost of sales: |
| $ | 88,305 |
|
| $ | 82,471 |
|
| $ | 5,834 |
|
|
| 7 | % |
| $ | 86,348 |
|
| $ | 98,198 |
|
| $ | (11,850 | ) |
|
| -12 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
| $ | 29,753 |
|
| $ | 26,805 |
|
| $ | 2,948 |
|
|
| 11 | % |
| $ | 20,622 |
|
| $ | 33,993 |
|
| $ | (13,371 | ) |
|
| -39 | % |
U.S. non-crop |
|
| 10,049 |
|
|
| 9,782 |
|
|
| 267 |
|
|
| 3 | % |
|
| 5,446 |
|
|
| 5,767 |
|
|
| (321 | ) |
|
| -6 | % |
Total U.S. |
|
| 39,802 |
|
|
| 36,587 |
|
|
| 3,215 |
|
|
| 9 | % |
|
| 26,068 |
|
|
| 39,760 |
|
|
| (13,692 | ) |
|
| -34 | % |
International |
|
| 19,977 |
|
|
| 15,552 |
|
|
| 4,425 |
|
|
| 28 | % |
|
| 12,469 |
|
|
| 11,635 |
|
|
| 834 |
|
|
| 7 | % |
Total gross profit |
| $ | 59,779 |
|
| $ | 52,139 |
|
| $ | 7,640 |
|
|
| 15 | % | ||||||||||||||||
Total gross profit: |
| $ | 38,537 |
|
| $ | 51,395 |
|
| $ | (12,858 | ) |
|
| -25 | % | ||||||||||||||||
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. crop |
|
| 47 | % |
|
| 43 | % |
|
|
|
|
|
|
|
|
|
| 33 | % |
|
| 39 | % |
|
|
|
|
|
| ||
U.S. non-crop |
|
| 47 | % |
|
| 46 | % |
|
|
|
|
|
|
|
|
|
| 39 | % |
|
| 43 | % |
|
|
|
|
|
| ||
Total U.S. |
|
| 47 | % |
|
| 44 | % |
|
|
|
|
|
|
|
|
|
| 34 | % |
|
| 39 | % |
|
|
|
|
|
| ||
International |
|
| 31 | % |
|
| 31 | % |
|
|
|
|
|
|
|
|
|
| 25 | % |
|
| 24 | % |
|
|
|
|
|
| ||
Total gross margin |
|
| 40 | % |
|
| 39 | % |
|
|
|
|
|
|
|
| ||||||||||||||||
Gross margin: |
|
| 31 | % |
|
| 34 | % |
|
|
|
|
|
|
Our domestic crop business recorded net sales during the first quarter of 2023 that were 1% higher30% lower than those of the secondfirst quarter of 20212022 ($63,195,61,876 as compared to $62,575)$88,193). Led by Dacthal, Impact, Assure IIDespite having taken extraordinary measures in the prior year to position suppliers in both the US and Envoke, offsetChina, the Company experienced significant delays in obtaining critical intermediate compounds necessary to a degree by lowerformulate our leading granular soil insecticide Aztec®. Ultimately, the Company was able to manufacture and sell only about one-third of the volume of Aztec as it had forecasted. Having already recorded strong sales of Counter® in fourth quarter of 2022, we worked with customers to place other alternative products during the first quarter of 2023 (i.e., Smartchoice®, Index® and Force®) and sold out of those products. Nevertheless, overall net sales of our Classic and Python brands. The herbicide brands showedcorn soil insecticides were down about 45% compared to the first quarter of the prior year. In addition, sales of our Impact post-emergent corn herbicides, which (as they related to the wholesale distribution channel) were strong growth across all markets, as weed management planning has become instrumental in controlling resistant weeds in cotton, sugarcane, soybeans, corn and high value crops. Our lead brands in cotton generated positive growth during the quarter due, in the case of Bidrin, to increased early season pest pressure, and, in the case of Folex, to an anticipated early harvest season as hot dry weather pushes cotton maturity ahead of seasonal norms. Partially offsetting these gains, sales of Thimet, Aztec and Counter were down in theprior quarter, following unusually high demanddecreased in the first quarter.quarter due largely to higher-than-normal inventory levels of glyphosate and glufosinate (neither of which the Company sells) in the distribution channel. Further, lingering drought conditionsprocurement activity for Dacthal, a specialty crop herbicide, had shifted earlier (into the fourth quarter of 2022) than had been the case in the first quarter of 2022. This resulted in a nearly 40% decline in quarterly sales of our Western and Southwestern markets adversely impactedportfolio of herbicide products. By contrast, partially offsetting these declines, we saw a 30% increase in sales of our soil fumigant sales, asfumigants versus the prior year due in part to the gradual elimination of agricultural water allocations have limited annual crop productionallocation restrictions in those regions. Drier conditions also suppressed sales of Dibrom during the period. California following abundant rainfall and record snowpack accumulation.
Cost of sales within the domestic crop business decreased by 7%24% (from $35,770$54,200 in 20212022 to $33,442$41,254 in 2022) primarily2023) as a result of selling more, higher-margin products. Asdecreased volumes, as compared to the resultfirst quarter of better pricing and2022. In-bound freight costs rose due, in part, to our efforts to expedite shipment of intermediate compounds for Aztec production. Less favorable factory performance domestic crop generated an 11% increase(arising from increased labor costs, higher service charges (at our Axis plant) and increased waste disposal charges (at our Los Angeles facility), coupled with lower factory absorption rates due to raw material supply delays that resulted in lower than expected output, led to a 35% decrease in gross profit for domestic crop (from $26,805$33,993 in 2022 to $20,622 in 2023).
Our domestic non-crop business posted a 4% increase in net sales in the first quarter of 2021 to $29,753 this year) on a 1% increase in sales.
Our domestic non-crop business posted nearly flat net sales in the second quarter of 2022,2023, as compared to the same period in the prior year (down 1% to $21,316 from $21,488($13,899 in 2021)2023 v. $13,396 in 2022). In this category, our Dibrom® mosquito adulticide generated steady sales compared to the same quarter relief from pandemic restrictions – primarily return to in-person schoolof the prior year, as hurricane and work – has had a two-pronged effect ontropical storm activity season were consistent with the prior year. Further, royalty and license fees for our non-crop business. OnEnvance proprietary solutions were higher than the one hand, thefirst quarter of last year. By contrast, we experienced lighter than normal demand for nursery, ornamental and consumerour commercial pest control products, for the home declined, as people spent less time in their homes. On the other hand, we saw an uptick in demand for goods that we supply to professional applicators and landscapers, as homeowners shifted from do-it-yourself to using professional services.including pest strips. In addition, we enjoyed higherrecorded slightly lower net sales from our OHP nursery and ornamental business and the pharmaceutical products of our pharmaceutical products from GemChem while seeing an offsetting softness in the turf supply market, as golfing activity declined.business.
19
Cost of sales within the domestic non-crop business declinedrose by 4%about 11% in the secondfirst quarter of 2022,2023, as compared to the same period in the prior year (from $11,706$7,629 to $8,453). This was driven by a different mix of products including some lower margin products. With higher costs of sales on a concomitantly lower increase in 2021 to $11,267 in 2022), primarily resulting from improved factory performance and associated overhead cost recovery. Grossnet sales, gross profit for domestic non-crop increaseddecreased by 3%6% (from $9,782$5,767 in 20212022 to $10,049$5,446 in 2022)2023).
Net sales of our international businesses rose by 26%about 2% during the period ($63,57349,110 in 20222023 vs. $50,547$48,004 in 2021)2022). This group of businesses experienced increases in herbicides, fungicides, and constituted 43% of our consolidated sales. These businesses benefited fromplant growth regulators, partially offset by minor sales increasesdecreases in soil fumigants, foliar insecticides, and soil insecticides and fungicides across many regions. Ourinsecticides. We posted sales increases in the Central American market through our AgriCenter group (up 11%) and enjoyed improved demand for our Assure II herbicide in Canada. Our Australian business enjoyed increased demanddelivered higher sales and gross profits versus the prior year, as they focused on a more profitable product mix. Our performance in the pineapple, banana and citrus markets, including strongerMexico remained solid, despite temporary product importation impediments. By contrast, net sales of our Greenplants micronutrient solutions. In Mexico, despite drought conditionsbusiness in Brazil declined due to general market inventories. Further, the international business of Agrinos, a key part of our Green Solutions platform, declined slightly in the north, our Mexico business experienced good performance from at-plant fumigants and herbicides on high-value crops. Our Brazilian business benefited from increased sales of Counter on corn, while our Australian operations posted strongerquarter with lower sales in light of increased rainfall, heavy demand for molluscicides as well as insecticide products for use on canola, winter wheatIndia and pulse.China, partially offset by a modest increase in Ukraine.
Cost of sales in our international business increased by 25%1% (from $34,995$36,369 in 20212022 to $43,596$36,641 in 2022)2023), on sales that increased by 26% and was impacted by cost increases (including logistics and freight) ofwhich is consistent with the third-party products that we distribute.relative increase in net sales. Gross profit for the international businesses increased by 28%about 7% (to $19,977$12,469 in 20222023 from $15,552$11,635 in 2021).2022), which was above the corresponding increase in net sales; the disparity was due largely to the shortage of high-value products produced by the Company domestically.
On a consolidated basis, gross profit for the secondfirst quarter of 2023 decreased by 25% (from $51,395 in 2022 increased by 15% (from $52,139to $38,537 in 2021 to $59,779 in 2022)2023). Decreased sales volume, unavailability of high-margin crop products and higher factory costs all factored into yielding reduced profitability. Overall gross margin percentage ended at 40%31% in the secondfirst quarter of 2022,2023, as compared to 39%34% in the secondfirst quarter of the prior year. The primary driver for this increase was higher selling prices coupled with improved factory performance, partially offset by inflation on raw materials and logistics and, for our international businesses, higher purchases costs related to increases in the US Dollar.
Operating expenses increaseddecreased by $5,886$1,374 or 4% to $48,966$35,272 for the three-month periodthree months ended June 30, 2022,March 31, 2023, as compared to the same period in 2021.2022. The differences in operating expenses by department are as follows:
|
| 2023 |
|
| 2022 |
|
| Change |
|
| % Change |
| ||||
Selling |
| $ | 13,371 |
|
| $ | 11,243 |
|
| $ | 2,128 |
|
|
| 19 | % |
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other |
|
| 9,130 |
|
|
| 14,994 |
|
|
| (5,864 | ) |
|
| -39 | % |
Proxy activities |
|
| 541 |
|
|
| — |
|
|
| 541 |
|
|
| 100 | % |
Amortization |
|
| 3,360 |
|
|
| 3,439 |
|
|
| (79 | ) |
|
| -2 | % |
Research, product development and regulatory |
|
| 8,870 |
|
|
| 6,970 |
|
|
| 1,900 |
|
|
| 27 | % |
|
| $ | 35,272 |
|
| $ | 36,646 |
|
| $ | (1,374 | ) |
|
| -4 | % |
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
| ||||
Selling |
| $ | 12,598 |
|
| $ | 11,611 |
|
| $ | 987 |
|
|
| 9 | % |
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
| 16,258 |
|
|
| 15,264 |
|
|
| 994 |
|
|
| 7 | % |
Proxy contest activities |
|
| 1,785 |
|
|
| — |
|
|
| 1,785 |
|
|
| 100 | % |
Research, product development and regulatory |
|
| 7,758 |
|
|
| 6,929 |
|
|
| 829 |
|
|
| 12 | % |
Freight, delivery and warehousing |
|
| 10,567 |
|
|
| 9,276 |
|
|
| 1,291 |
|
|
| 14 | % |
Subtotal |
|
| 48,966 |
|
|
| 43,080 |
|
|
| 5,886 |
|
|
| 14 | % |
20
• The Company spent $541 in fees associated with its proxy activities. • Research, product development costs and regulatory expenses increased by $1,900 for the three months ended March 31, 2023, as compared to the same period of 2022. The main drivers were increased costs associated with the commercialization of our SIMPAS delivery system and costs associated with product defense and product development activities.
|
|
|
|
|
|
|
|
|
|
On April 1, 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. The Company recorded a negative fair value adjustmentsadjustment in the amount of $486 and $296 for$22 during the three months ended June 30, 2022March 31, 2023, and 2021, respectively.a positive adjustment in the amount of $83 during the comparative three months of the prior year.
Interest costs net of capitalized interest were $772$1,686 in the three-month period ended June 30, 2022,first three months of 2023, as compared to $1,013$398 in the same period of 2021.2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Three months ended June 30, 2022 |
|
| Three months ended June 30, 2021 |
|
| Q1 2023 |
|
| Q1 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
|
| Average |
|
| Interest |
|
| Interest |
|
| Average |
|
| Interest |
|
| Interest |
| ||||||||||||
Revolving line of credit (average) |
| $ | 124,184 |
|
| $ | 745 |
|
|
| 2.4 | % |
| $ | 163,140 |
|
| $ | 984 |
|
|
| 2.4 | % |
| $ | 90,486 |
|
| $ | 1,542 |
|
|
| 6.8 | % |
| $ | 85,756 |
|
| $ | 401 |
|
|
| 1.9 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| 80 |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
Amortization of other deferred liabilities |
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
Other interest expense |
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| 17,500 |
|
|
| 128 |
|
|
| 2.9 | % |
|
| — |
|
|
| 9 |
|
|
| — |
|
Subtotal |
|
| 124,184 |
|
|
| 837 |
|
|
| 2.7 | % |
|
| 163,140 |
|
|
| 1,078 |
|
|
| 2.6 | % |
| $ | 107,986 |
|
| $ | 1,733 |
|
|
| 6.4 | % |
| $ | 85,756 |
|
| $ | 485 |
|
|
| 2.3 | % |
Capitalized interest |
|
| — |
|
|
| (65 | ) |
|
| — |
|
|
| — |
|
|
| (65 | ) |
|
| — |
|
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| — |
|
|
| (87 | ) |
|
| — |
|
Total |
| $ | 124,184 |
|
| $ | 772 |
|
|
| 2.5 | % |
| $ | 163,140 |
|
| $ | 1,013 |
|
|
| 2.5 | % |
| $ | 107,986 |
|
| $ | 1,686 |
|
|
| 6.2 | % |
| $ | 85,756 |
|
| $ | 398 |
|
|
| 1.9 | % |
The Company’s average overall debt for the three-month periodthree months ended June 30, 2022March 31, 2023 was $124,184,$90,486, as compared to $163,140$85,756 for the three-month periodthree months ended June 30, 2021.March 31, 2022. Our borrowings in the three-month period ended June 30, 2022, were lower mainly due to cash generated over the last 12 months used to pay down debt, partially offset by the acquisition activity over the same period and growth in working capital in support of business growth. As can be seen from the table above, the effective bank interest rate on our revolving line of credit was 2.4% at each of the three-month period ended June 30, 2022 and 2021.
Income tax expense increased by $280 to $2,725 for the three-month period ended June 30, 2022, as compared to $2,445 for the comparable period in 2021. The effective tax rates for the three-month period ended June 30, 2022, and 2021, were 28.5% and 31.9%, respectively. The effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management. The decrease in effective tax rate was primarily driven by the mix of our domestic and international income and benefit from the tax impact of the vesting of certain stock grants.
Our net income for the three-month period ended June 30, 2022, was $6,830 or $0.23 per basic and diluted share, as compared to $5,144 or $0.17 per basic and diluted share in the same quarter of 2021.
Six Months Ended June 30, 2022 and 2021:
Overview of the Company’s Performance
Within the global agricultural industry, the first six months of 2022 were a prolongation of the upcycle that began in 2021. Commodity prices remained high, driven in part by the Russian invasion of Ukraine, which has served to reduce exports from both Russia and Ukraine, of corn, wheat, sunflower oil and fertilizer inputs into the global market, and a stronger farm economy in the U.S. Following extraordinary activity in the first quarter, domestic distribution within our industry slowed procurement modestly during the second quarter. Our international businesses, for the most part, enjoyed strong market conditions in nearly all regions during the first half of the year. All told, the Company’s overall operating results for the first six months of 2022 improved considerably over those of the same period of 2021.
On a consolidated basis, with domestic sales up 19% and international sales up by 18%, overall net sales increased by 19% (to $297,519 from $250,765). Cost of sales were up 15% on an absolute basis but decreased as a percent of net sales to 59% from 61%. Factory performance improved during the first half of 2022, as compared to that of 2021. These factors, taken together, yielded an increase in gross profit, which was up $23,702 or 24% (to $120,972 from $97,270) and improved to 41% of net sales, up from 39% during the first half of 2021. In the first half of 2022, while operating expenses rose on an absolute basis by 13%, these costs declined as a percent of net sales to 32% from 34% for the same period of the prior year.
Interest expense declined by 40%, while income tax expense increased primarily as a result of stronger financial performance partially offset by a decrease in effective tax rate compared to the first half of the prior year (at 30.1% in 2022 and 31.4% in the prior year). Overall, the Company’s net income for the period increased by a factor of two, ending at $16,765, as compared to $8,215 during the first half of the prior year. Details on our financial performance are set forth below.
RESULTS OF OPERATIONS
Sixthree months ended June 30, 2022, and 2021
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 151,388 |
|
| $ | 117,330 |
|
| $ | 34,058 |
|
|
| 29 | % |
U.S. non-crop |
|
| 34,712 |
|
|
| 38,941 |
|
|
| (4,229 | ) |
|
| -11 | % |
Total U.S. |
|
| 186,100 |
|
|
| 156,271 |
|
|
| 29,829 |
|
|
| 19 | % |
International |
|
| 111,419 |
|
|
| 94,494 |
|
|
| 16,925 |
|
|
| 18 | % |
Total net sales: |
| $ | 297,519 |
|
| $ | 250,765 |
|
| $ | 46,754 |
|
|
| 19 | % |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 81,290 |
|
| $ | 69,254 |
|
| $ | 12,036 |
|
|
| 17 | % |
U.S. non-crop |
|
| 18,698 |
|
|
| 19,776 |
|
|
| (1,078 | ) |
|
| -5 | % |
Total U.S. |
|
| 99,988 |
|
|
| 89,030 |
|
|
| 10,958 |
|
|
| 12 | % |
International |
|
| 76,559 |
|
|
| 64,465 |
|
|
| 12,094 |
|
|
| 19 | % |
Total cost of sales: |
| $ | 176,547 |
|
| $ | 153,495 |
|
| $ | 23,052 |
|
|
| 15 | % |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 70,098 |
|
| $ | 48,076 |
|
| $ | 22,022 |
|
|
| 46 | % |
U.S. non-crop |
|
| 16,014 |
|
|
| 19,165 |
|
|
| (3,151 | ) |
|
| -16 | % |
Total U.S. |
|
| 86,112 |
|
|
| 67,241 |
|
|
| 18,871 |
|
|
| 28 | % |
International |
|
| 34,860 |
|
|
| 30,029 |
|
|
| 4,831 |
|
|
| 16 | % |
Total gross profit |
| $ | 120,972 |
|
| $ | 97,270 |
|
| $ | 23,702 |
|
|
| 24 | % |
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
| 46 | % |
|
| 41 | % |
|
|
|
|
|
|
|
|
U.S. non-crop |
|
| 46 | % |
|
| 49 | % |
|
|
|
|
|
|
|
|
Total U.S. |
|
| 46 | % |
|
| 43 | % |
|
|
|
|
|
|
|
|
International |
|
| 31 | % |
|
| 32 | % |
|
|
|
|
|
|
|
|
Total gross margin |
|
| 41 | % |
|
| 39 | % |
|
|
|
|
|
|
|
|
Our domestic crop business recorded net sales thatMarch 31, 2023 were 29% above those of first half of 2021 (to $151,388 from $117,330) Assisted by consistently high commodity prices and a strong domestic farm economy, the Company experienced strong demand across all product categories. Further, with our domestic production capacity, we were able to meet demand in spite of international supply constraints. Our herbicide portfolio for use on corn, soybeans, cotton and sugar cane, and our granular soil insecticides both grew by approximately 60%. Foliar insecticides grew by 20% in the first half versus 2021. The only area of reduced demand was for soil fumigants, which experienced lower sales due to drought conditions in Western and Southwestern states where water allocation has been implemented. During the first half of 2022, customer procurement activity was exceptionally high in the first quarter and then stepped down to a more normalized level in the second quarter.
Cost of sales within the domestic crop business increased 17%, ashigher when compared to the first six months of 2021, driven by sales that increased by 29% including increased sales of higher margin products (many of which we manufacture in our domestic facilities) and benefitting from improved factory performance. Gross profit rose by 46% to $70,212 from $48,076.
Our domestic non-crop business recorded an 11% decrease in net sales for the first half of the year (to $34,712 from $38,941). This decrease was largely due to a one-time license fee from P&G relating to Envance technology that had been received in the first half of 2021 and was recorded as revenue. Under the terms of that license, depending upon the achievement of commercialization milestones by the licensee, the Company will receive royalties in future reporting periods. Furthermore, in this category, sales of our Dibrom® mosquito adulticide remained flat as did demand for commercial pest control products (pest strips, bifenthrin). Sales of our OHP nursery and ornamental business were comparable to the same period of the prior year, with reduced demand for homeowner garden and landscape products resulting from continually reducing pandemic restrictions, offset by increased demand from professional landscape service providers.
Cost of sales within the domestic non-crop business decreased by 5%, (to $18,698 in 2022 from $19,776 in 2021). Gross profit for domestic non-crop decreased by 16% to $16,014 in 2022 from $19,165 in 2021, due largely to the non-recurrence of a one-time, upfront license fee as described above.
Net sales of our international businesses increased by 18% during the first half of 2022 (to $111,419 in 2022 from $94,494 in 2021). Central America experienced double-digit growth in all but one of its six countries. Mexico generated strong results with continuing demand for soil fumigants (on high-value crops), herbicides and granular insecticides. Similarly, Australia enjoyed improved sales driven by improved rainfall and the extended footprint arising from the integration of the AgNova business. Brazil is now on an upward trend, due to a rebound in the agricultural sector and further market penetration of our granular insecticides.
Cost of sales in our international business increased by 19% (to $76,559 in 2022 from $64,465 in 2021) primarily driven by volume growth and impacted by increased prices from the strengthening US Dollar, and general inflation on materials and associated logistics costs. Gross profit for the international businesses increased by 16% to $34,860 in 2022 from $30,029 in 2021.
On a consolidated basis, gross profit for the six months of 2022 increased by 24% (to $120,972 in 2022 from $97,270 in 2021). This is the same rate of growth that we had seen last year, when we compared the first half of 2021 with that of 2020. Our gross profit in the first six months of 2022 increased in partmainly as a result of improved sales volumes and pricing in part due to improved factory performance. Gross margin performance, when expressed as a percentage of sales, rose to 41% from 39% year-over-year.
Operating expenses increased by $10,886 to $95,410 for the six-month period ended June 30, 2022, as compared to the same period in 2021. The differences in operating expenses by department are as follows:
|
| 2022 |
|
| 2021 |
|
| Change |
|
| % Change |
| ||||
Selling |
| $ | 23,683 |
|
| $ | 22,765 |
|
| $ | 918 |
|
|
| 4 | % |
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
| 34,691 |
|
|
| 31,091 |
|
|
| 3,600 |
|
|
| 12 | % |
Proxy contest activities |
|
| 1,785 |
|
|
| — |
|
|
| 1,785 |
|
|
| 100 | % |
Research, product development and regulatory |
|
| 14,728 |
|
|
| 13,545 |
|
|
| 1,183 |
|
|
| 9 | % |
Freight, delivery and warehousing |
|
| 20,523 |
|
|
| 17,123 |
|
|
| 3,400 |
|
|
| 20 | % |
|
| $ | 95,410 |
|
| $ | 84,524 |
|
|
| 10,886 |
|
|
| 13 | % |
|
|
|
|
|
|
|
|
|
|
During the six-month period ended June 30, 2022, the Company recorded a decrease in the fair value of our equity investment in Clean Seed in the amount of $403 and recorded an increase in the amount of $771 during the six months ended June 30, 2021. These changes in fair value of our investment directly reflect changes in the stock’s quoted market price.
During the six-month period ended June 30, 2021, a Paycheck Protection Program loan assumed on the acquisition of Agrinos in the fourth quarter of 2020 was fully extinguished with the majority of the balance forgiven and recorded as other income in the Company’s condensed consolidated statements of operations in the amount of $672.
Interest costs net of capitalized interest were $1,170 in the first six-month period of 2022, as compared to $1,959 in the same period of 2021. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
| Six months ended June 30, 2022 |
|
| Six months ended June 30, 2021 |
| ||||||||||||||||||
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
|
| Average Debt |
|
| Interest Expense |
|
| Interest Rate |
| ||||||
Revolving line of credit (average) |
| $ | 105,076 |
|
| $ | 1,146 |
|
|
| 2.2 | % |
| $ | 144,324 |
|
| $ | 1,843 |
|
|
| 2.6 | % |
Amortization of deferred loan fees |
|
| — |
|
|
| 138 |
|
|
| — |
|
|
| — |
|
|
| 161 |
|
|
| — |
|
Amortization of other deferred liabilities |
|
| — |
|
|
| 17 |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| — |
|
Other interest (income) expense |
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| — |
|
|
| 89 |
|
|
| — |
|
Subtotal |
|
| 105,076 |
|
|
| 1,322 |
|
|
| 2.5 | % |
|
| 144,324 |
|
|
| 2,084 |
|
|
| 2.9 | % |
Capitalized interest |
|
| — |
|
|
| (152 | ) |
|
| — |
|
|
| — |
|
|
| (125 | ) |
|
| — |
|
Total |
| $ | 105,076 |
|
| $ | 1,170 |
|
|
| 2.2 | % |
| $ | 144,324 |
|
| $ | 1,959 |
|
|
| 2.7 | % |
The Company’s average overall debt for the six-month period ended June 30, 2022, was $105,076, as compared to $144,324 for the six months ended June 30, 2021. During the period, we continued to focus on our use of revolving debt, while funding working capital foras the growing business.business worked through the logistics challenges related to Aztec. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 2.2%6.8% for the sixthree months ended June 30, 2022,March 31, 2023, as compared to 2.6%1.9% in 2021.2022.
Income tax expense increased by $3,417 to end at $7,224benefit was $361 for the six-month periodthree months ended June 30, 2022,March 31, 2023, as compared to an income tax expense of $3,807$4,499 for the comparable period in 2021.three-months ended March 31, 2022. The effective income tax rate for the three months ended March 31, 2023 was computed based on the estimated effective tax rate for the sixfull year, adjusted for a benefit from the remeasurement of certain U.S. federal and state deferred taxes, partially offset by an expense attributed to establishing liabilities for uncertain tax positions in the U.S. and India. This calculation resulted in an effective tax rate of minus 23.2% for the three months ended June 30, 2022, was 30.1%March 31, 2023, as compared to 31.4%31.2% for same period last year. The rate has decreased comparedthe three months ended March 31, 2022.
It is expected that $1,550 of unrecognized tax benefits will be released within the next twelve months due to prior year reflecting a mix of income in different jurisdictions and an increased benefit from the vesting of certain stock grants. For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act (“TCJA”) of 2017 amends Internal Revenue Code Section 174 costs wherein research and development expenditures will no longer be deducted in the tax year that such costs are incurred but must now be capitalized and amortized over either a five- or fifteen-year period, depending on the locationexpiration of the activities performedstatute of limitations..The effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management.
Our overall net income for the six-month period ended June 30, 2022first three months of 2023 was $16,765$1,918 or $0.57$0.07 per basic and $0.55 per diluted share, as compared to $8,215$9,935 or $0.28$0.33 per basic and $0.27 per diluted share in the same periodfirst quarter of 2021.2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company’sCompany used cash of $41,447 in operating activities utilized net cash of $27,230 during the six-month periodthree months ended June 30, 2022,March 31, 2023, as compared to $18,905$32,315 during the sixthree months ended June 30, 2021.March 31, 2022. Included in the $27,230$41,447 are net income of $16,765,$1,918, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $12,760, loss on disposal of property, plant and equipment of $256, amortization of deferred loan fees of $139 and$6,253, provision for bad debts in the amount of $470.$581 and other in the amount of $94. Also included are stock-based compensation of $2,836, adjustment to contingent consideration in the amount of $635, increase$1,474, decrease in deferred income taxes of $109,$122, change in fair valueliabilities for uncertain tax positions or unrecognized tax benefits of an equity investment of $403,$371, and net change in foreign currency adjustmentsadjustment of $20.$446. These together provided net cash inflows of $34,353,$10,367, as compared to $24,930$18,942 for the same period of 2021.2022.
21
During the six-month periodfirst three months of 2022,2023, the Company increased net working capital by $68,187,$52,995, as compared to an increase of $43,715$55,031 during the same period of the prior year. Included in this change: inventories increased by $27,774,$33,731, as compared to $11,464$11,738 for the same periodfirst quarter of 2021. While increases in inventory are normal for the Company’s annual cycle, this year, the Company has made decisions to bring in raw materials earlier than in prior seasons in order to secure our needs of key materials for the balance of the year and the start of the next growing season.
2022. Customer prepayments decreased by $62,789,$22,759, as compared to $30,407$44,528 in the same period of 2021,2022, driven by customer decisions regarding demand, payment timing and our cash incentive programs. Our accounts payable balances increased by $19,439,$5,655, as compared to an increase of $6,190$9,677 in the same period of 2021, driven by increased factory activity levels.2022. Accounts receivablesreceivable increased by $18,645,$8,779, as compared to an increase of $25,317$33,660 in the same period of 2021. This is primarily driven by increased group sales and strong international growth.2022. Prepaid expenses increaseddecreased by $3,652,$600, as compared to $3,696$800 in the same period of 2021.2022. Income tax receivable increased by $3,526,$2,965, as compared to a decrease of $1,374$3,046 in the prior year. Accrued programs increased by $35,987,$10,660, as compared to $19,098$24,601 in the prior year, which is normal at this pointas a result of both higher sales and the mix of those sales including products with higher program elements incorporated in the growing season.pricing. Finally, other payables and accrued expenses decreased by $602,$500, as compared to an increase of $507$2,145 in the prior year.
With regard to our program accrual, the increase (as noted above) primarily reflects our volumelevel and mix of sales (certain products are marketed with higher levels of program accruals), and customers in the first six monthsquarter of 2022,2023, as compared to the prior year. The Company accrues programs in line with the growing season upon which specific products are targeted. Typically crop products have a growing season that ends on September 30th of each year. During the first six monthsquarter of 2022, the Company made accruals for programs in the amount of $67,274$23,669 and made payments in the amount of $31,367.$13,033. During the first six monthsquarter of the prior year, the Company made accruals in the amount of $39,235$40,469 and made payments in the amount of $20,142. The increase in accruals for programs in the first six months of 2022, compared to the same period in 2021, is a direct result of an increase in sales of qualifying products.$15,752.
Cash used for investing activities was $3,308 for the six-month periodthree months ended June 30, 2022, and 2021 was $6,671 and $15,500, respectively.March 31, 2023, as compared to $4,250 for the three months ended March 31, 2022. The $15,500 in 2021 includes a product acquisition in the amount of $10,000. No such acquisition took place in the current year. In 2022, the Company spent $5,654$2,590 on purchases of fixed assets acquisitions primarily focused on continuing to invest in manufacturing infrastructure. In addition, the Company made a payment of $1,000 to Clean Seed to amend$703 for a license agreement under which royalty-bearing license rights were converted to fully paid-up, royalty-free, perpetual license rights,product acquisition and spent $44$15 on patents for the Envance technology business.
During the six-month periodthree months ended June 30, 2022,March 31, 2023, financing activities provided $40,027,$43,777, as compared to $37,943$37,449 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $48,400 during$44,700 in the six-month period ended June 30, 2022,first quarter of 2023, as compared to $41,774$46,000 in the same period of the prior year. The Company paid dividends to stockholders amounting to $1,330$851 during the sixthree months ended June 30, 2022,March 31, 2023, as compared to $1,188$594 in the same period of 2021.2022. The Company paid $6,232$557 for the repurchase of 333,01027,835 shares of its common stock during the six-monththree months ended March 31, 2023, as compared to $6,219 to purchase 332,404 shares in the same period ended June 30, 2022. There were no such purchases duringof the six-month period ended June 30, 2021.prior year. The Company received $18 from the exercise of stock options. Lastly, in exchange for shares of common stock returned by employees, the Companywe paid $2,012$13 and $2,900$2,174 for tax withholding on stock-based compensation awards during the sixthree months ended JuneMarch 31, 2023 and 2022, respectively.
The Company’s main bank is Bank of the West, a wholly owned subsidiary of BMO Financial Group. Bank of the West has been the Company’s bank for more than 30 2022years and 2021, respectively.
The Company has ais the syndication manager for the Company’s revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at June 30, 2022March 31, 2023 and December 31, 2021. These are2022. The debt is summarized in the following table:
Long-term indebtedness ($000's) |
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
Long-term indebtedness |
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||
Revolving line of credit |
| $ | 101,700 |
|
| $ | 53,300 |
|
| $ | 97,000 |
|
| $ | 52,300 |
|
Deferred loan fees |
|
| (921 | ) |
|
| (1,060 | ) |
|
| (761 | ) |
|
| (823 | ) |
Net long-term debt |
| $ | 100,779 |
|
| $ | 52,240 |
| ||||||||
Total indebtedness |
| $ | 96,239 |
|
| $ | 51,477 |
|
At June 30, 2022,
As of March 31, 2023, the Company was compliantin compliance with all covenantsthe Consolidated Funded Debt Ratio but noncompliant with respect to its credit agreement. Also, atthe Fixed Charge Covenant ratio (“FCCR”). The noncompliance was driven by a reduction in the Consolidated EBITDA (in the numerator of the FCCR calculation) during the twelve months ended March 31, 2023, coupled with higher-than-normal distributions (in the denominator of the FCCR calculation) arising from share repurchases made by the Company during the same period. On May 8, 2023, the Company obtained a waiver of the FCCR for the twelve months ended March 31, 2023, and an adjustment to the FCCR terms for the period ending June 30, 2022,2023. The impact of most of the Company’s total Funded Debt amountedshare repurchases will be eliminated from the denominator in the FCCR calculation in the third quarter of 2023.
At March 31, 2023, according to $101,700. At that date the Company’s rolling four quarter Consolidated EBITDA (as defined interms of the Credit Agreement, see Note 10) amounted to $75,512, which results in a leverage ratio of 1.35, as compared to a maximum leverage ratio permitted underamended, and based on our performance against the Credit Agreement of 3.5. At June 30, 2022,most restrictive covenant listed above, the Company hashad the capacity to increase its borrowings by up to $162,592, according to the terms thereof.$111,922. This compares to an available borrowing capacity of $56,906$200,372 as of June 30, 2021. At December 31, 2021, the Company had borrowing capacity of $178,705. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for both the trailing twelve-month period and proforma basis arising from acquisitions, (2) net borrowings, and (3) the leverage covenant (the TL Ratio).2022.
We believe that anticipated cash flow from operations, existing cash balances and available borrowings under our amended senior credit facility will be sufficient to provide us with liquidity necessary to fund our working capital and cash requirements for the next twelve months.
22
RECENTLY ISSUED ACCOUNTING GUIDANCE
Please refer to Note 1516 in the accompanying Notes to the condensed consolidated financial statementsCondensed Consolidated Financial Statements for recently issued and adopted accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company continually re-assesses the critical accounting policies used in preparing its financial statements. In the Company’s Form 10-K filed with the SEC for the year ended December 31, 2021,2022, the Company provided a comprehensive statement of critical accounting policies. These policies have been reviewed in detail as part of the preparation work for this Form 10-Q. After our review of these matters, we have determined that, during the subject reporting period, there has been no material change to the critical accounting policies that are listed in the Company’s Form 10-K for the year ended December 31, 2021.2022.
Certain of the Company’s policies require the application of judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on historical experience, terms of existing contracts, commonly accepted industry practices and other assumptions that the Company believes are reasonable under the circumstances. These estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements in the period that revisions are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions. Our estimates did not change materially during the three- and six-months ended June 30, 2022.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The Company’s indebtedness to its primary lender is evidenced by a line of credit with a variable rate of interest, which fluctuates with changes in the lender’s reference rate. For more information, please refer to the applicable disclosures in the Company’s Form 10-K filed with the SEC for the year ended December 31, 2021 and note 10 to the condensed consolidated financial statements.2022.
The Company faces market risk to the extent that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency as to foreign subsidiaries’ revenues, expenses, assets and liabilities. The Company currently does not engage in hedging activities with respect to such exchange rate risks.
Assets and liabilities outside the U.S. are located in regions where the Company has subsidiaries or joint ventures: Central America, South America, North America, Europe, Asia, and Australia. The Company’s investments in foreign subsidiaries and joint ventures with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company does not hedge these net investments.
Item 4. CONTROLS AND PROCEDURES
|
|
As of June 30, 2022,March 31, 2023, the Company has a comprehensive set of disclosure controls and procedures designed to ensure that all information required to be disclosed in our filings under the Securities Exchange Act (1934) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of June 30, 2022,March 31, 2023, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, hashad concluded, based on their evaluation, that the Company’s disclosure controls and procedures are effective to provide reasonable assurance of the achievement of the objectives described above.
There were no changes in the Company’s internal controls over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
23
PART II. OTHER INFORMATION
The Company was not required to report any matters or changes for any items of Part II except as disclosed below.
Item 1. Legal Proceedings
|
|
Please refer to Note 14 in the accompanying Notes to the condensed consolidated financial statementsCondensed Consolidated Financial Statements for legal updates.
Item 1A. Risk Factors
|
|
The Company continually re-assesses the business risks, and as part of that process detailed a range of risk factors in the disclosures in American Vanguard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, filed on March 14, 2022.16, 2023. The following disclosure amends and supplements those risk factors and, except to the extent restated below, there are no material changes to the risk factors as so stated.
An NGO petitionDisruption in the global supply chain is creating delays, unavailability and adverse conditions for our industry—Despite improvement in container availability and freight costs, the global supply chain continues to revoke tolerances a family of chemistries (namely, organophosphate) could jeopardize several ofpresent risk. Industry consolidation, coupled with longer-term production commitments, has materially affected the Company’s products. On November 18, 2021, a groupsupply of non-governmental organizations led by Pesticide Action Network North America filed a petition with the USEPA to revoke the food tolerances for eight of the Company’s registered active ingredients, all of which areraws and intermediates in the family of organophosphates. In July 2022, USEPA published in the Federal Register an invitation for public comment on the petition, giving commenters 30 days’ within which to submit their comments. In light of the large number of active ingredients implicated by the petition, the Company and multiple other stakeholders (including grower groups and trade organizations) are seeking an extension of time for submitting such comments. While the Company does not believe that there is a valid basis for revoking tolerances under applicable law (as the petition is largely based upon unsound studies solely involving chlorypyrifos), therepast. There is no guarantee that USEPAthe supply chain condition will grant an extensionmaterially improve any time soon or for that matter,the Company will deny the remedy being sought by the petition. It is possible that USEPA could find a basis upon whichcontinue to revoke tolerances and therefore cancel one or all active ingredients which, in turn,avoid material disruption. Such disruption could have a material adverse effect upon the Company’s financial performance. Further, this matter is unprecedented insofar as it, in effect, targets an entire class of chemistry (as opposed to one active ingredient); thus, it is possible that, if granted, this petition will establish an adverse precedent by which NGOs can seek to cancel other families of chemistries within the broader industry.
USEPA’s notice of intention to suspend the DCPA registration could have a broader impact on the Company’s portfoliooperations, financial condition or cash flows.
The Company is dependent upon sole source or a limited number of suppliers for certain of its raw materials and the industry in general. active ingredientsIn May 2022, the USEPA issued—There are a noticelimited number of intention to suspend DCPA, the active ingredientsuppliers of an herbicidal product marketedcertain important raw materials used by the Company under the name Dacthal on the basis that the Company acted allegedly inappropriately in providing data studies that had been requested by the agency.a number of its products. Certain of these raw materials are available solely from single or very few sources either domestically or overseas. In fact, the agency had requested 89 data studiesconnection with supply chain disruptions in 2022, phosphorus and over the course of several years, the Company had supplied 69 such studies and had been working constructively on mutually acceptable timetables eitherrelated compounds were increasingly difficult to complete, or to obtain waiverssource for the balance of the studies. The Company petitioned an administrative law judge (“ALJ”) to appeal the NOITS. In response to USEPA’s motion, the ALJ granted an accelerated decision to uphold the NOITS. The Company, in turn, has appealed the ALJ’s decision to the Environmental Appeals Board, on the ground that the basis was erroneous,our entire industry; ensuring a continuous supply required extraordinary efforts both with respect to statutory constructionsourcing and factual inferences being improperly made in the agency’s favor. While the Company believes that there is no merit to the agency’s position,production planning. That said, there is no guarantee that any of our suppliers will be willing or able to supply products to the Company will prevail in defending againstreliably, continuously and at the attempted suspension. Further, if this suspensionlevels anticipated by the Company or required by the market. If these sources prove to be unreliable and the Company is granted,not able to supplant or otherwise second source these products, it is possible that the agencyCompany will seek to invalidate registrations summarily, including both the Company’s and those ofnot achieve its peers. This,projected sales which, in turn, could haveadversely affect the Company's consolidated financial statements.
The Company benefits from customer early pay in meeting its working capital needs. As is the case with other companies in this industry, the Company receives cash from certain major customers at year-end in exchange for granting discounts on the Company’s products during the first half of the following year. The Company typically uses this cash to pay down secured debt and for other working capital needs. This flow of cash obviates the need for additional borrowing, which, in turn, preserves borrowing capacity used in part for paying customer programs in the middle of the calendar year and, consequently, reduces interest expense. There is no guarantee that the Company’s customers will continue to support the early pay program at current levels. Further a material change in this program could have an adverse effect upon the Company’s financial performance.liquidity and its ability to meet working capital demands.
The Catalano product liability case could set an adverse precedent for the active ingredient acephate, as well as for organophosphates more generally. As more fully described in Part 14, Item II herein, plaintiffs in Catalano seek damages for cardiovascular injury allegedly arising from making applications of Orthene, a systemic insecticide marketed by the Company, having acephate as its active ingredient. While the Company believes that the claim has not merit and that there have been no data studies linking acephate to cardiovascular disease, it is possible that a court could reach a judgment that is adverse to the Company and, in so doing, set an adverse precedent with respect not only to commercial acephate products, but also to consumer acephate products and organophosphate products more generally. Such adverse judgment and/or precedent could have a materially adverse effect upon the Company’s financial performance.
Item 2. Purchases of Equity Securities by the Issuer
On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to 1,000,000 shares of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, at a price not to exceed $20 per share, subject to limitations and restrictions under applicable securities laws. During 2022 and 2023, the Company purchased 761,985 shares of its common stock for a total of $14,558 at an average price of $19.11 per share.
The table below summarizes the number of shares of our common stock that were repurchased during the three-three months ended March 31, 2023 and six-month periodsthe three months ended June 30,March 31, 2022. There were no such purchases during the three- and six-month periods ended June 30, 2021. The shares and respective amount are recorded as treasury shares on the Company’s condensed consolidated balance sheet.sheets.
Month ended |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total amount paid |
|
| Maximum number of shares that may yet be purchased under the plan |
| ||||
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
April 30, 2022 |
|
| 100 |
|
| $ | 19.99 |
|
| $ | 2 |
|
|
| 667,496 |
|
May 31, 2022 |
|
| 506 |
|
| $ | 19.99 |
|
| $ | 11 |
|
|
| 666,990 |
|
Total number of shares repurchased |
|
| 333,010 |
|
| $ | 18.71 |
|
| $ | 6,232 |
|
|
| 666,990 |
|
Three months ended |
| Total number of |
|
| Average price paid |
|
| Total amount paid |
|
| Maximum number of shares that may yet be purchased under the plan |
| ||||
March 31, 2023 |
|
| 27,835 |
|
| $ | 19.96 |
|
| $ | 557 |
|
|
| — |
|
March 31, 2022 |
|
| 332,404 |
|
| $ | 18.71 |
|
| $ | 6,219 |
|
|
| 667,596 |
|
24
Item 6. Exhibits
|
|
Exhibits required to be filed by Item 601 of Regulation S-K:
Exhibit No. | Description | |
| ||
18.1 | ||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
32.1 | Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. | |
101 | The following materials from American Vanguard Corp’s Quarterly Report on Form 10-Q for the quarter ended | |
|
|
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
american vanguard corporation | ||
Dated: | By: | /s/ ericg. wintemute |
Eric G. Wintemute | ||
Chief Executive Officer and Chairman of the Board | ||
Dated: | By: | /s/ davidt. johnson |
David T. Johnson | ||
Chief Financial Officer & Principal Accounting Officer |
26
32