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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
FOR THE TRANSITION PERIOD FROM TO
Commission file number
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(State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification Number) |
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(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Large Accelerated Filer |
☐ |
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☒ |
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Non-Accelerated Filer |
☐ |
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Smaller reporting company |
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Emerging growth company |
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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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $0.10 Par Value—
AMERICAN VANGUARD CORPORATION
INDEX
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Page Number |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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18 |
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23 |
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23 |
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24 |
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24 |
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24 |
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25 |
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26 |
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2
PART I. FINANCI AL INFORMATION
Item 1. FINANC IAL STATEMENTS
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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For the three months
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2023 |
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2022 |
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Net sales |
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$ |
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$ |
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Cost of sales |
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(
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(
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Gross profit |
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Operating expenses |
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(
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(
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Operating income |
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Change in fair value of an equity investment |
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(
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Interest expense, net |
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(
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) |
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(
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Income before provision for income taxes |
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Income tax benefit (expense) |
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(
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Net income |
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$ |
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$ |
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Earnings per common share—basic |
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$ |
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$ |
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Earnings per common share—assuming dilution |
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$ |
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$ |
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Weighted average shares outstanding—basic |
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Weighted average shares outstanding—assuming dilution |
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See notes to the condensed consolidated financial statements.
3
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED ST ATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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For the three months
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2023 |
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2022 |
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Net income |
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$ |
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$ |
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Other comprehensive income: |
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Foreign currency translation adjustment, net of tax effects |
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Comprehensive income |
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$ |
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$ |
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See notes to the condensed consolidated financial statements.
4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDAT ED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
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March 31,
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December 31,
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables: |
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Trade, net of allowance for doubtful accounts of $
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Other |
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Total receivables, net |
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Inventories |
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Prepaid expenses |
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Income taxes receivable |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Deferred income tax assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Customer prepayments |
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Accrued program costs |
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Accrued expenses and other payables |
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Operating lease liabilities, current |
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Total current liabilities |
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Long-term debt, net |
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Operating lease liabilities, long term |
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Other liabilities, net of current installments |
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Deferred income tax liabilities, net |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, $
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Common stock, $
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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(
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) |
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(
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Retained earnings |
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Less treasury stock at cost,
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(
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(
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See notes to the condensed consolidated financial statements.
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEM ENTS OF STOCKHOLDERS’ EQUITY
For The Three Months Ended March 31, 2023 and March 31, 2022
(In thousands, except share data)
(Unaudited)
|
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Common Stock |
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Additional |
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Accumulated Other |
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Treasury Stock |
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Shares |
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Amount |
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Paid-in
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Comprehensive
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Retained
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Shares |
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Amount |
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Total |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
(
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) |
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$ |
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$ |
(
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) |
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$ |
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Stocks issued under ESPP |
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— |
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— |
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— |
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— |
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Cash dividends on common stock
|
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— |
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— |
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— |
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— |
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(
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) |
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— |
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— |
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(
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) |
|
Foreign currency translation adjustment, net |
|
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock options exercised; grants,
|
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(
|
) |
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— |
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— |
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— |
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— |
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— |
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Shares repurchased |
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— |
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— |
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— |
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— |
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— |
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(
|
) |
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(
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) |
|
Net income |
|
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— |
|
|
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— |
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|
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— |
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— |
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— |
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— |
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|
|
|
Balance, March 31, 2023 |
|
|
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|
|
$ |
|
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|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
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||||||||
|
Balance, December 31, 2021 |
|
|
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|
|
$ |
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|
$ |
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|
$ |
(
|
) |
|
$ |
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|
|
|
|
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|
$ |
(
|
) |
|
$ |
|
|
|
Stocks issued under ESPP |
|
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— |
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— |
|
|
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— |
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|
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— |
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|
|
|
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|
Cash dividends on common stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
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— |
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|
|
|
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|
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— |
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|
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— |
|
|
|
— |
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|
|
|
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|
Stock-based compensation |
|
|
— |
|
|
|
— |
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|
|
|
|
|
|
|
|
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— |
|
|
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— |
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|
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— |
|
|
|
|
|
|
|
Stock options exercised; grants,
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
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— |
|
|
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— |
|
|
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— |
|
|
|
|
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|
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— |
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— |
|
|
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|
|
|
Balance, March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
See notes to the condensed consolidated financial statements.
6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
For the three months
|
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|||||
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2023 |
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2022 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
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|
||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash used in operating
|
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||
|
Depreciation and amortization of property, plant and equipment and intangible assets |
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Amortization of other long-term assets |
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Provision for bad debts |
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Fair value adjustment of contingent consideration |
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Stock-based compensation |
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Change in deferred income taxes |
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Change in liabilities for uncertain tax positions or unrecognized tax benefits |
|
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Other |
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|
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|
|
|
|
Foreign currency transaction gains |
|
|
(
|
) |
|
|
(
|
) |
|
Changes in assets and liabilities associated with operations: |
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|
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|
|
|
||
|
Increase in net receivables |
|
|
(
|
) |
|
|
(
|
) |
|
Increase in inventories |
|
|
(
|
) |
|
|
(
|
) |
|
Decrease (increase) in prepaid expenses and other assets |
|
|
|
|
|
|
(
|
) |
|
Change in income tax receivable/payable, net |
|
|
(
|
) |
|
|
|
|
|
Increase in accounts payable |
|
|
|
|
|
|
|
|
|
Decrease in customer prepayments |
|
|
(
|
) |
|
|
(
|
) |
|
Increase in accrued program costs |
|
|
|
|
|
|
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|
|
(Decrease) increase in other payables and accrued expenses |
|
|
(
|
) |
|
|
|
|
|
Net cash used in operating activities |
|
|
(
|
) |
|
|
(
|
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
|
Capital expenditures |
|
|
(
|
) |
|
|
(
|
) |
|
Proceeds from disposal of property, plant and equipment |
|
|
|
|
|
|
|
|
|
Acquisition of a product line |
|
|
(
|
) |
|
|
|
|
|
Intangible assets |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash used in investing activities |
|
|
(
|
) |
|
|
(
|
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
|
Payments under line of credit agreement |
|
|
(
|
) |
|
|
(
|
) |
|
Borrowings under line of credit agreement |
|
|
|
|
|
|
|
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|
Net receipt from the issuance of common stock under ESPP |
|
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|
Net receipt from the exercise of stock options |
|
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|
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|
|
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|
Receipt payment for tax withholding on stock-based compensation awards |
|
|
(
|
) |
|
|
(
|
) |
|
Repurchase of common stock |
|
|
(
|
) |
|
|
(
|
) |
|
Payment of cash dividends |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(
|
) |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||
See notes to the condensed consolidated financial statements.
7
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consol idated 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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The financial statements and related notes do not include all information and footnotes required by US GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2022. Certain operating cash flow items have been reclassified in the prior period condensed consolidated financial statements to conform with the March 31, 2023 presentation.
2.
Leases
— The Company has operating leases for warehouses, manufacturing facilities, offices, cars, railcars and certain equipment. The lease term includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend (or not terminate) that the Company is reasonably certain to exercise. The Company has leases with a lease term ranging from
Finance leases are immaterial to the accompanying condensed consolidated financial statements. There were no lease transactions with related parties as of and for the three-month periods presented in the table below.
The operating lease expense for the three months ended March 31, 2023 and 2022 was $
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Three months
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Three months
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Cash paid for amounts included in the measurement of lease liabilities |
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$ |
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$ |
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Right-of-use assets obtained in exchange for new liabilities |
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$ |
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$ |
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Weighted-average remaining lease term (in years) |
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Weighted-average discount rate |
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% |
Future minimum lease payments under non-cancellable operating leases as of March 31, 2023 were as follows:
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2023 (excluding three months ended March 31, 2023) |
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$ |
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2024 |
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2025 |
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2026 |
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2027 |
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Thereafter |
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Total lease payments |
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$ |
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Less: imputed interest |
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(
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) |
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Total |
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$ |
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Amounts recognized in the condensed consolidated balance sheet: |
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Operating lease liabilities, current |
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$ |
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Operating lease liabilities, long term |
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$ |
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8
3.
Revenue Recognition
—The Company recognizes revenue from the sale of its products, which include crop and non-crop products. The Company sells its products to customers, which include distributors, retailers, and growers. In addition, the Company recognizes royalty income from licensing agreements. The Company has one reportable segment.
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Three Months Ended
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2023 |
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2022 |
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Net sales: |
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U.S. crop |
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$ |
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$ |
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U.S. non-crop |
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Total U.S. |
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International |
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Total net sales: |
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$ |
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$ |
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|
Timing of revenue recognition: |
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Goods and services transferred at a point in time |
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$ |
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$ |
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Goods and services transferred over time |
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Total net sales: |
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$ |
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$ |
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|
Contract assets relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property and amounted to $
The Company sometimes receives payments from its customers in advance of goods and services being provided in return for early cash incentive programs. These payments are included in customer prepayments on the condensed consolidated balance sheets. Revenue recognized for the three months ended March 31, 2023, that was included in customer prepayments at the beginning of 2023, was $
4. Property, Plant and Equipment — Property, plant and equipment at March 31, 2023 and December 31, 2022 consists of the following:
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March 31,
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December 31,
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Land |
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$ |
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$ |
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Buildings and improvements |
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Machinery and equipment |
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Office furniture, fixtures and equipment |
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Automotive equipment |
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Construction in progress |
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Total |
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Less accumulated depreciation |
|
|
(
|
) |
|
|
(
|
) |
|
Property, plant and equipment, net |
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$ |
|
|
|
$ |
|
|
The Company recognized depreciation expense related to property and equipment of $
Substantially all of the Company’s assets are pledged as collateral with 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.
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March 31,
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December 31,
|
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||
|
Finished products |
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$ |
|
|
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$ |
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Raw materials |
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Inventories |
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$ |
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$ |
|
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6.
Segment Reporting
—
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For the three months ended
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2023 |
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2022 |
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Change |
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% Change |
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Net sales: |
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||||
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U.S. crop |
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
|
-
|
% |
|
U.S. non-crop |
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% |
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Total U.S. |
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(
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) |
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-
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% |
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International |
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|
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% |
|
Total net sales: |
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$ |
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$ |
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$ |
(
|
) |
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|
-
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% |
|
Cost of sales: |
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||||
|
U.S. crop |
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$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
|
-
|
% |
|
U.S. non-crop |
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|
|
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|
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|
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% |
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Total U.S. |
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(
|
) |
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-
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% |
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International |
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|
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% |
|
Total cost of sales: |
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$ |
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|
$ |
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|
$ |
(
|
) |
|
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-
|
% |
|
Gross profit: |
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|
|
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|
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||||
|
U.S. crop |
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
|
-
|
% |
|
U.S. non-crop |
|
|
|
|
|
|
|
|
|
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(
|
) |
|
|
-
|
% |
|
Total U.S. |
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|
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|
|
|
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(
|
) |
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|
-
|
% |
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International |
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|
|
|
|
|
|
|
|
|
|
|
|
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% |
|
Total gross profit: |
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$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
|
-
|
% |
|
Gross margin: |
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|
|
|
|
|
|
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||||
|
U.S. crop |
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% |
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|
% |
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|
|
|
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||
|
U.S. non-crop |
|
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|
% |
|
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|
% |
|
|
|
|
|
|
||
|
Total U.S. |
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% |
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% |
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||
|
International |
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% |
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% |
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||
|
Gross margin: |
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% |
|
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% |
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||
10
8.
|
Declaration Date |
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Record Date |
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Distribution Date |
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Dividend Per Share |
|
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Total Paid |
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||
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$ |
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$ |
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$ |
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$ |
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|
|
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|
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$ |
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|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
9.
Earnings Per Share
—
|
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|
Three Months Ended
|
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|||||
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2023 |
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2022 |
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||
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Numerator: |
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|
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||
|
Net income |
|
$ |
|
|
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$ |
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Denominator: |
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|
Weighted average shares outstanding-basic |
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Dilutive effect of stock options and grants |
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Weighted average shares outstanding-diluted |
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For the three months ended March 31, 2023 and 2022,
10.
Debt
— The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at March 31, 2023 and December 31, 2022. The Company has no short-term debt as of March 31, 2023 and December 31, 2022.
|
Long-term indebtedness ($000's) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Revolving line of credit |
|
$ |
|
|
|
$ |
|
|
|
Deferred loan fees |
|
|
(
|
) |
|
|
(
|
) |
|
Total indebtedness, net of deferred loan fees |
|
$ |
|
|
|
$ |
|
|
The deferred loan fees as of March 31, 2023 are included in other assets on the condensed consolidated balance sheets.
The Company and certain of its affiliates are parties to a revolving line of credit agreement entitled the “Third Amended and Restated Loan and Security Agreement” dated as of August 5, 2021 (the “Credit Agreement”), which is a senior secured lending facility among AMVAC, the Company’s principal operating subsidiary, as Borrower Agent (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by Bank of the West as administrative agent, documentation agent, syndication agent, collateral agent and sole lead arranger, on the other hand. The Credit Agreement consists of a line of credit of up to $
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.
As of March 31, 2023, the Company was in compliance with the TL Ratio but noncompliant with respect to the FCCR. The noncompliance was driven to the lesser extent by a reduction in the Consolidated EBITDA (in the numerator of the FCCR calculation) during the twelve months ended March 31, 2023, and to a greater extent by higher-than-normal distributions (in the denominator of the FCCR calculation) arising from share repurchases made by the Company during the same period. On May 8, 2023, the Company obtained a waiver of the FCCR for the twelve months ended March 31, 2023, and an adjustment to the FCCR terms for the period ending June 30, 2023. The impact of most of the share repurchases will disappear from the denominator in the FCCR calculation in the third quarter of 2023.
At March 31, 2023, according to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to
$
11.
Classification Corrections —
A correction to the condensed consolidated statements of operations for the three months ended March 31, 2022 was made in connection with the Company’s operations in Australia, where the Company sells its products to distribution companies as well as directly to growers via third-party agents. The Company identified errors related to the classification of third-party agent’s commission amounts. The Company evaluated these errors and the impact to previously issued financial statements and concluded that the impact of this classification error is not material to any previously issued quarterly or annual financial statements. However, management has recorded a correction adjustment to previously reported financial statement line items and related disclosures. The third-party agents’ commission in the amount of $
12.
Change in Accounting Principle —
Historically, the Company included warehousing, handling and outbound freight costs in operating expenses on its Consolidated Statements of Operations. Effective January 1, 2023, the Company elected to include these costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by 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.
|
|
|
Classification after adoption of accounting change |
|
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Historical classification |
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For the three months ended March 31 |
|
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For the three months ended March 31 |
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||||||||||
|
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2023 |
|
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2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Cost of sales |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Operating income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12
The change in accounting principle did not have any impact on operating income, net income and earnings per share.
13. Comprehensive Income — Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the condensed consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three-month periods ended March 31, 2023 and 2022, total comprehensive income consisted of net income attributable to American Vanguard and foreign currency translation adjustments.
14.
Stock-Based Compensation —
|
|
|
Stock-Based
|
|
|
Unamortized
|
|
|
Remaining
|
|
|||
|
March 31, 2023 |
|
|
|
|
|
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|
|
|
|||
|
Time-Based Restricted Stock |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Unrestricted Stock |
|
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|
|
|
|
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|
|
|
|
|
Performance-Based Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|||
|
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|||
|
Time-Based Restricted Stock |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Unrestricted Stock |
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|
|
|
|
|
|
|
|
|
|
|
Performance-Based Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
The Company also granted stock options in past periods. All outstanding stock options are fully vested and exercisable and no expense was recorded during the three months ended March 31, 2023 and 2022.
Time-based
|
|
|
Three Months Ended
|
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|
Three Months Ended
|
|
||||||||||
|
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Number
|
|
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Weighted
|
|
|
Number
|
|
|
Weighted
|
|
||||
|
Nonvested shares at December 31 st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at March 31 st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Performance-Based Restricted Stock — A summary of nonvested performance-based stock is presented below:
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
||||||||||
|
|
|
Number
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
||||
|
Nonvested shares at December 31 st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Additional granted (forfeited) based on performance achievement |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
Vested |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at March 31 st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
13
Stock Options — A summary of stock options is presented below:
Time-based Incentive Stock Option Plans
Activity of the incentive stock option plans for the three months ended March 31, 2023:
|
|
|
Number of
|
|
|
Weighted
|
|
||
|
Balance outstanding, December 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
(
|
) |
|
|
|
|
|
Balance outstanding, March 31, 2023 |
|
|
|
|
|
$ |
|
|
All outstanding stock options as of March 31, 2023 have an exercise price of $
There was no activity during the three months ended March 31, 2022. There were
Performance-based Incentive Stock Option Plan
There was no activity for the three months ended March 31, 2023 and 2022. There were
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, 2022, except as described below.
Department of Justice and Environmental Protection Agency Investigation . On November 10, 2016, AMVAC was served with a grand jury subpoena from the United States Attorney’s Office for the Southern District of Alabama, seeking documents regarding the importation, transportation, and management of a specific pesticide. The Company retained defense counsel to assist in responding to the subpoena and otherwise in defending the Company’s interests. AMVAC is cooperating in the investigation. After interviewing multiple witnesses (including three employees before a grand jury in February 2022) and making multiple document requests, the Department of Justice (“DoJ”) identified the Company and a manager-level employee as targets of the government’s investigation. DoJ’s investigation focused on potential violations of two environmental statutes, the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) and the Resource Conservation and Recovery Act (“RCRA”), as well as obstruction of an agency proceeding and false statement statutes. In March 2022, the individual target entered into a plea agreement relating to provision of false information in a government proceeding. In July 2022, the DoJ sent correspondence to the Company’s counsel to the effect that it was focusing on potential RCRA violations relating to the reimportation of Australian containers in 2015. Our defense counsel spoke with DoJ on the subject in early October 2022, at which time DoJ expressed an interest in resolving the matter and stated that it would get back to the Company 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 flows. Accordingly, the Company has not recorded a loss contingency for this matter.
Pitre etc. v. Agrocentre Ladauniere et al
.
On February 11, 2022, a strawberry grower named Les Enterprises Pitre, Inc. filed a complaint in the Superior Court, District of Labelle, Province of Quebec, Canada, entitled
Pitre, etc. v. Agrocentre Ladauniere, Inc. etal, including Amvac Chemical Corporation
, seeking damages in the amount of approximately $
14
2021. Examinations of plaintiff were held in mid-August 2022, during which plaintiff in effect confirmed that he had planted his seedlings before expiration of the full-time interval following product application (as per the product label), that he had failed to follow the practice of planting a few test seedlings before planting an entire farm, and that he had placed his blind trust in his application adviser on all manner of timing and rate. An examination of the Company’s most knowledgeable witness is scheduled to take place in June 2023. The Company believes that the claims have no merit and intends to defend the matter. At this stage in the proceedings, there is not sufficient information to form a judgment as to either the probability or amount of loss; thus, the Company has not recorded a loss contingency for this matter.
Catalano v. AMVAC Chemical Corp . On June 6, 2022, AMVAC was served with a summons and complaint for a matter entitled Andrew Catalano and Ruth Catalano v. AMVAC in the Superior Court of the State of California, County of Orange (30-2022-01263987-CU-PL-CXC) in which plaintiff, who worked as a professional applicator of pesticides, including Orthene (for which AMVAC is registrant) seeks damages for an injury (specifically, cardiomyopathy) allegedly arising from his exposure to this product. AMVAC is unaware of any link between cardiovascular disease and Orthene (which has been commercially available for over 30 years) and believes that this case has no merit and intends to defend it vigorously. The Company filed an answer in early July, including multiple affirmative defenses. Further, the parties continue to engage in discovery, and plaintiffs have been unable to supply any data establishing a causal link between use of this product and the heart condition that plaintiff alleges. At this stage, there is not sufficient information to form a judgment as to either the probability or amount of any loss; thus, the Company has not recorded a loss contingency for this matter.
Notice of Intention to Suspend DCPA . On April 28, 2022, the USEPA published a notice of intent to suspend (“NOITS”) DCPA, the active ingredient of an herbicide marketed by the Company under the name Dacthal. The agency cited as the basis for the suspension that the Company did not take appropriate steps to provide data studies requested in support of the registration review. In fact, over the course of several years, the Company cooperated in performing the vast majority of the nearly 90 studies requested by USEPA and had been working in good faith to meet the agency’s schedule. After an appeals court (the Environmental Appeals Board) clarified the proper standard for use at the hearing (namely, whether registrant took appropriate steps to respond to the data call-in), a hearing was held in January 2023 before the ALJ, by which time USEPA had narrowed the scope of its claim to nine outstanding studies, all of which have been started by the Company and none of which are necessary for USEPA to commence its risk assessment. The parties have filed their post-hearing briefs, and the Company expects that the ALJ will render a decision in the near future. During the course of these 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.
16. Recent Issued Accounting Guidance — In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended and supplemented by subsequent ASUs (collectively, “ASU 2020-04” and “ASU 2022-06”), which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for borrowing instruments, which use LIBOR as a reference rate, and is available through December 31, 2024. The Company has evaluated this ASU and does not expect its adoption to have a material impact on its condensed consolidated financial statements.
The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its condensed consolidated financial statements.
17. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard established a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:
15
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s borrowings, which are considered Level 2 liabilities, approximates fair value as they bear interest at a variable rate at current market rates.
The Company measures its contingent earn-out liabilities in connection with business acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the 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
|
|
|
Three months ended
|
|
|
|
Balance, December 31, 2021 |
|
$ |
|
|
|
Fair value adjustment |
|
|
|
|
|
Accretion of discounted liabilities |
|
|
|
|
|
Foreign exchange effect |
|
|
|
|
|
Balance, March 31, 2022 |
|
$ |
|
|
18.
Accumulated Other Comprehensive Loss
—
|
|
|
Total |
|
|
|
Balance, December 31, 2022 |
|
$ |
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of ($
|
|
|
|
|
|
Balance, March 31, 2023 |
|
$ |
(
|
) |
|
|
|
|
|
|
|
Balance, December 31, 2021 |
|
$ |
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of ($
|
|
|
|
|
|
Balance, March 31, 2022 |
|
$ |
(
|
) |
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 March 31, 2023 and 2022, the Company’s ownership position in Bi-PA was
On April 1, 2020, AMVAC purchased
20.
Income Taxes
— Income tax benefit was $
It is expected that $
16
21.
Stock Re-purchase Program
—
On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to
The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three months ended March 31, 2023 and 2022.
|
Three months ended |
|
Total number of
|
|
|
Average price paid
|
|
|
Total amount paid |
|
|
Maximum number of shares that may yet be purchased under the plan |
|
||||
|
March 31, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
22. Supplemental Cash Flow Information
|
|
|
For the three months
|
|
|||||
|
Cash paid during the period: |
|
2023 |
|
|
2022 |
|
||
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
Income taxes, net |
|
$ |
|
|
|
$ |
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
||
|
Deferred consideration in connection with business acquisitions: |
|
|
|
|
|
$ |
|
|
|
Cash dividends declared and included in accrued expenses |
|
$ |
|
|
|
$ |
|
|
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.
Effective January 11, 2023, the Company includes warehousing, handling and outbound freight costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The change in accounting principle did not have any impact on operating income, net income and earnings per share. Please refer to note 12 to the condensed consolidated financial statements for further details.
Overview of the Company’s Performance
Domestic crop sales, and therefore, the Company’s financial performance for the first quarter of 2023 declined in most material respects as compared to the comparable period in 2022. While the domestic farm economy remains strong, supply disruptions and delays in raws and intermediates compounds used to manufacture the Company’s leading corn soil insecticide, coupled with shifts in procurement timing for its herbicides, yielded significantly lower sales in its domestic crop business, as compared to this time last year. By contrast, both the domestic non-crop and international businesses recorded slightly higher sales for the period. With lower sales of the higher margin domestic crop business, the Company’s overall sales and profit performance were adversely affected. While operating expenses declined, factory costs 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 quarter, as compared to last year.
On a consolidated basis, domestic sales declined 25% while international rose by 2%, resulting in an overall net sales decline of 17%. Further, overall cost of sales, which has been subject to a change in definition to now incorporate the cost of outbound logistics and freight expenses, decreased by 12%. Cost of sales were 69% of sales in 2023, as compared to 66% for the same period of 2022. These factors, taken together with higher manufacturing costs (both labor and service-related), yielded a 25% decrease in gross profit (to $38,537 in 2023 from $51,395 in the comparable quarter of 2022), while overall gross margin percent declined to 31% from 34% quarter-over-quarter.
Operating expenses declined to $35,272 in Q1 2023 from $36,646; however, operating expenses as a percent of net sales rose to 28% in the first quarter of 2023 from 24% in the comparable period of 2022.
Operating income for the period decreased to $3,265 from $14,749, driven by the reduced sales, decreased gross margin percentage and proportionately higher operating expenses. The Company recorded higher interest expense due to federal interest rate increases during the intervening year. These factors yielded net income for the period of $1,918, as compared to $9,935 in the first quarter of 2022. Details on our financial performance are set forth below.
18
RESULTS OF OPERATIONS
Quarter Ended March 31:
|
|
|
For the three months ended
|
|
|
|
|
|
|
|
|||||||
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. crop |
|
$ |
61,876 |
|
|
$ |
88,193 |
|
|
$ |
(26,317 |
) |
|
|
-30 |
% |
|
U.S. non-crop |
|
|
13,899 |
|
|
|
13,396 |
|
|
|
503 |
|
|
|
4 |
% |
|
Total U.S. |
|
|
75,775 |
|
|
|
101,589 |
|
|
|
(25,814 |
) |
|
|
-25 |
% |
|
International |
|
|
49,110 |
|
|
|
48,004 |
|
|
|
1,106 |
|
|
|
2 |
% |
|
Total net sales: |
|
$ |
124,885 |
|
|
$ |
149,593 |
|
|
$ |
(24,708 |
) |
|
|
-17 |
% |
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. crop |
|
$ |
41,254 |
|
|
$ |
54,200 |
|
|
$ |
(12,946 |
) |
|
|
-24 |
% |
|
U.S. non-crop |
|
|
8,453 |
|
|
|
7,629 |
|
|
|
824 |
|
|
|
11 |
% |
|
Total U.S. |
|
|
49,707 |
|
|
|
61,829 |
|
|
|
(12,122 |
) |
|
|
-20 |
% |
|
International |
|
|
36,641 |
|
|
|
36,369 |
|
|
|
272 |
|
|
|
1 |
% |
|
Total cost of sales: |
|
$ |
86,348 |
|
|
$ |
98,198 |
|
|
$ |
(11,850 |
) |
|
|
-12 |
% |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. crop |
|
$ |
20,622 |
|
|
$ |
33,993 |
|
|
$ |
(13,371 |
) |
|
|
-39 |
% |
|
U.S. non-crop |
|
|
5,446 |
|
|
|
5,767 |
|
|
|
(321 |
) |
|
|
-6 |
% |
|
Total U.S. |
|
|
26,068 |
|
|
|
39,760 |
|
|
|
(13,692 |
) |
|
|
-34 |
% |
|
International |
|
|
12,469 |
|
|
|
11,635 |
|
|
|
834 |
|
|
|
7 |
% |
|
Total gross profit: |
|
$ |
38,537 |
|
|
$ |
51,395 |
|
|
$ |
(12,858 |
) |
|
|
-25 |
% |
|
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. crop |
|
|
33 |
% |
|
|
39 |
% |
|
|
|
|
|
|
||
|
U.S. non-crop |
|
|
39 |
% |
|
|
43 |
% |
|
|
|
|
|
|
||
|
Total U.S. |
|
|
34 |
% |
|
|
39 |
% |
|
|
|
|
|
|
||
|
International |
|
|
25 |
% |
|
|
24 |
% |
|
|
|
|
|
|
||
|
Gross margin: |
|
|
31 |
% |
|
|
34 |
% |
|
|
|
|
|
|
||
Our domestic crop business recorded net sales during the first quarter of 2023 that were 30% lower than those of the first quarter of 2022 ($61,876 as compared to $88,193). Despite having taken extraordinary measures in the prior year to position suppliers in both the US and China, the Company experienced significant delays in obtaining critical intermediate compounds necessary to formulate our leading granular soil insecticide Aztec®. Ultimately, the Company was able to manufacture and sell only about one-third of the volume of Aztec as it had forecasted. Having already recorded strong sales of Counter® in fourth quarter of 2022, we worked with customers to place other alternative products during the first quarter of 2023 (i.e., Smartchoice®, Index® and Force®) and sold out of those products. Nevertheless, overall net sales of our corn soil insecticides were down about 45% compared to the first quarter of the prior year. In addition, sales of our Impact post-emergent corn herbicides, which (as they related to the wholesale distribution channel) were strong in the prior quarter, decreased in the first quarter due largely to higher-than-normal inventory levels of glyphosate and glufosinate (neither of which the Company sells) in the distribution channel. Further, procurement activity for Dacthal, a specialty crop herbicide, had shifted earlier (into the 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 portfolio of herbicide products. By contrast, partially offsetting these declines, we saw a 30% increase in sales of our soil fumigants versus the prior year due in part to the gradual elimination of agricultural water allocation restrictions in California following abundant rainfall and record snowpack accumulation.
Cost of sales within the domestic crop business decreased by 24% (from $54,200 in 2022 to $41,254 in 2023) as a result of decreased volumes, as compared to the first quarter of 2022. In-bound freight costs rose due, in part, to our efforts to expedite shipment of intermediate compounds for Aztec production. Less favorable factory performance (arising from increased labor costs, higher service charges (at our Axis plant) and increased waste disposal charges (at our Los Angeles facility), coupled with lower factory absorption rates due to raw material supply delays that resulted in lower than expected output, led to a 35% decrease in gross profit for domestic crop (from $33,993 in 2022 to $20,622 in 2023).
Our domestic non-crop business posted a 4% increase in net sales in the first quarter 2023, as compared to the same period in the prior year ($13,899 in 2023 v. $13,396 in 2022). In this category, our Dibrom® mosquito adulticide generated steady sales compared to the same quarter of the prior year, as hurricane and tropical storm activity season were consistent with the prior year. Further, royalty and license fees for our Envance proprietary solutions were higher than the first quarter of last year. By contrast, we experienced lighter than normal demand for our commercial pest control products, including pest strips. In addition, we recorded slightly lower net sales from our OHP nursery and ornamental business and the pharmaceutical products of our GemChem business.
19
Cost of sales within the domestic non-crop business rose by about 11% in the first quarter 2023, as compared to the same period in the prior year (from $7,629 to $8,453). This was driven by a different mix of products including some lower margin products. With higher costs of sales on a concomitantly lower increase in net sales, gross profit for domestic non-crop decreased by 6% (from $5,767 in 2022 to $5,446 in 2023).
Net sales of our international businesses rose by about 2% during the period ($49,110 in 2023 vs. $48,004 in 2022). This group of businesses experienced increases in herbicides, fungicides, and plant growth regulators, partially offset by minor sales decreases in soil fumigants, foliar insecticides, and soil insecticides. We posted sales increases in the Central American market through our AgriCenter group (up 11%) and enjoyed improved demand for our Assure II herbicide in Canada. Our Australian business delivered higher sales and gross profits versus the prior year, as they focused on a more profitable product mix. Our performance in Mexico remained solid, despite temporary product importation impediments. By contrast, net sales of our business in Brazil declined due to general market inventories. Further, the international business of Agrinos, a key part of our Green Solutions platform, declined slightly in the quarter with lower sales in India and China, partially offset by a modest increase in Ukraine.
Cost of sales in our international business increased by 1% (from $36,369 in 2022 to $36,641 in 2023), which is consistent with the relative increase in net sales. Gross profit for the international businesses increased by about 7% (to $12,469 in 2023 from $11,635 in 2022), which was above the corresponding increase in net sales; the disparity was due largely to the shortage of high-value products produced by the Company domestically.
On a consolidated basis, gross profit for the first quarter of 2023 decreased by 25% (from $51,395 in 2022 to $38,537 in 2023). Decreased sales volume, unavailability of high-margin crop products and higher factory costs all factored into yielding reduced profitability. Overall gross margin percentage ended at 31% in the first quarter of 2023, as compared to 34% in the first quarter of the prior year.
Operating expenses decreased by $1,374 or 4% to $35,272 for the three months ended March 31, 2023, as compared to the same period in 2022. The 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 |
% |
20
On April 1, 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. The Company recorded a negative fair value adjustment in the amount of $22 during the three months ended March 31, 2023, and a positive adjustment in the amount of $83 during the comparative three months of the prior year.
Interest costs net of capitalized interest were $1,686 in the first three months of 2023, as compared to $398 in the same period of 2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
|
|
Q1 2023 |
|
|
Q1 2022 |
|
||||||||||||||||||
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
||||||
|
Revolving line of credit (average) |
|
$ |
90,486 |
|
|
$ |
1,542 |
|
|
|
6.8 |
% |
|
$ |
85,756 |
|
|
$ |
401 |
|
|
|
1.9 |
% |
|
Amortization of deferred loan fees |
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
— |
|
|
|
69 |
|
|
|
— |
|
|
Amortization of other deferred liabilities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
Other interest expense |
|
|
17,500 |
|
|
|
128 |
|
|
|
2.9 |
% |
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
Subtotal |
|
$ |
107,986 |
|
|
$ |
1,733 |
|
|
|
6.4 |
% |
|
$ |
85,756 |
|
|
$ |
485 |
|
|
|
2.3 |
% |
|
Capitalized interest |
|
|
— |
|
|
|
(47 |
) |
|
|
— |
|
|
|
— |
|
|
|
(87 |
) |
|
|
— |
|
|
Total |
|
$ |
107,986 |
|
|
$ |
1,686 |
|
|
|
6.2 |
% |
|
$ |
85,756 |
|
|
$ |
398 |
|
|
|
1.9 |
% |
The Company’s average overall debt for the three months ended March 31, 2023 was $90,486, as compared to $85,756 for the three months ended March 31, 2022. Our borrowings in the three months ended March 31, 2023 were higher when compared to the same period of the prior year, mainly as a result of increased working capital as the 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 6.8% for the three months ended March 31, 2023, as compared to 1.9% in 2022.
Income tax benefit was $361 for the three months ended March 31, 2023, as compared to an income tax expense of $4,499 for the 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 full year, adjusted for a benefit from the remeasurement of certain U.S. federal and state deferred taxes, partially offset by an expense attributed to establishing liabilities for uncertain tax positions in the U.S. and India. This calculation resulted in an effective tax rate of minus 23.2% for the three months ended March 31, 2023, as compared to 31.2% for the three months ended March 31, 2022.
It is expected that $1,550 of unrecognized tax benefits will be released within the next twelve months due to expiration of the statute of limitations.
Our overall net income for the first three months of 2023 was $1,918 or $0.07 per basic and diluted share, as compared to $9,935 or $0.33 per basic and diluted share in the first quarter of 2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash of $41,447 in operating activities during the three months ended March 31, 2023, as compared to $32,315 during the three months ended March 31, 2022. Included in the $41,447 are net income of $1,918, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $6,253, provision for bad debts in the amount of $581 and other in the amount of $94. Also included are stock-based compensation of $1,474, decrease in deferred income taxes of $122, change in liabilities for uncertain tax positions or unrecognized tax benefits of $371, and net change in foreign currency adjustment of $446. These together provided net cash inflows of $10,367, as compared to $18,942 for the same period of 2022.
21
During the first three months of 2023, the Company increased net working capital by $52,995, as compared to $55,031 during the same period of the prior year. Included in this change: inventories increased by $33,731, as compared to $11,738 for the first quarter of 2022. Customer prepayments decreased by $22,759, as compared to $44,528 in the same period of 2022, driven by customer decisions regarding demand, payment timing and our cash incentive programs. Our accounts payable balances increased by $5,655, as compared to $9,677 in the same period of 2022. Accounts receivable increased by $8,779, as compared to $33,660 in the same period of 2022. Prepaid expenses decreased by $600, as compared to $800 in the same period of 2022. Income tax receivable increased by $2,965, as compared to a decrease of $3,046 in the prior year. Accrued programs increased by $10,660, as compared to $24,601 in the prior year, as a result of both higher sales and the mix of those sales including products with higher program elements incorporated in pricing. Finally, other payables and accrued expenses decreased by $500, as compared to an increase of $2,145 in the prior year.
With regard to our program accrual, the increase (as noted above) primarily reflects our level and mix of sales and customers in the first quarter of 2023, as compared to the prior year. The Company accrues programs in line with the growing season upon which specific products are targeted. Typically crop products have a growing season that ends on September 30 th of each year. During the first quarter of 2022, the Company made accruals for programs in the amount of $23,669 and made payments in the amount of $13,033. During the first quarter of the prior year, the Company made accruals in the amount of $40,469 and made payments in the amount of $15,752.
Cash used for investing activities was $3,308 for the three months ended March 31, 2023, as compared to $4,250 for the three months ended March 31, 2022. The Company spent $2,590 on fixed assets acquisitions primarily focused on continuing to invest in manufacturing infrastructure. In addition, the Company made a payment of $703 for a product acquisition and spent $15 on patents for the Envance technology business.
During the three months ended March 31, 2023, financing activities provided $43,777, as compared to $37,449 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $44,700 in the first quarter of 2023, as compared to $46,000 in the same period of the prior year. The Company paid dividends to stockholders amounting to $851 during the three months ended March 31, 2023, as compared to $594 in the same period of 2022. The Company paid $557 for the repurchase of 27,835 shares of its common stock during the three months ended March 31, 2023, as compared to $6,219 to purchase 332,404 shares in the same period of the prior year. The Company received $18 from the exercise of stock options. Lastly, in exchange for shares of common stock returned by employees, we paid $13 and $2,174 for tax withholding on stock-based compensation awards during the three months ended March 31, 2023 and 2022, respectively.
The Company’s main bank is Bank of the West, a wholly owned subsidiary of BMO Financial Group. Bank of the West has been the Company’s bank for more than 30 years and is the syndication manager for the Company’s revolving line of credit shown as long-term debt in the condensed consolidated balance sheets at March 31, 2023 and December 31, 2022. The debt is summarized in the following table:
|
Long-term indebtedness |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Revolving line of credit |
|
$ |
97,000 |
|
|
$ |
52,300 |
|
|
Deferred loan fees |
|
|
(761 |
) |
|
|
(823 |
) |
|
Total indebtedness |
|
$ |
96,239 |
|
|
$ |
51,477 |
|
As of March 31, 2023, the Company was in compliance with the Consolidated Funded Debt Ratio but noncompliant with respect to the Fixed Charge Covenant ratio (“FCCR”). The noncompliance was driven by a reduction in the Consolidated EBITDA (in the numerator of the FCCR calculation) during the twelve months ended March 31, 2023, coupled with higher-than-normal distributions (in the denominator of the FCCR calculation) arising from share repurchases made by the Company during the same period. On May 8, 2023, the Company obtained a waiver of the FCCR for the twelve months ended March 31, 2023, and an adjustment to the FCCR terms for the period ending June 30, 2023. The impact of most of the share repurchases will be eliminated from the denominator in the FCCR calculation in the third quarter of 2023.
At March 31, 2023, according to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $111,922. This compares to an available borrowing capacity of $200,372 as of December 31, 2022.
We believe that anticipated cash flow from operations, existing cash balances and available borrowings under our amended senior credit facility will be sufficient to provide us with liquidity necessary to fund our working capital and cash requirements for the next twelve months.
22
RECENTLY ISSUED ACCOUNTING GUIDANCE
Please refer to Note 16 in the accompanying Notes to the Condensed Consolidated Financial Statements for recently issued and adopted accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company continually re-assesses the critical accounting policies used in preparing its financial statements. In the Company’s Form 10-K filed with the SEC for the year ended December 31, 2022, the Company provided a comprehensive statement of critical accounting policies. These policies have been reviewed in detail as part of the preparation work for this Form 10-Q. After our review of these matters, we have determined that, during the subject reporting period, there has been no material change to the critical accounting policies that are listed in the Company’s Form 10-K for the year ended December 31, 2022.
Certain of the Company’s policies require the application of judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on historical experience, terms of existing contracts, commonly accepted industry practices and other assumptions that the Company believes are reasonable under the circumstances. These estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements in the period that revisions are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions.
Item 3. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The Company’s indebtedness to its primary lender is evidenced by a line of credit with a variable rate of interest, which fluctuates with changes in the lender’s reference rate. For more information, please refer to the applicable disclosures in the Company’s Form 10-K filed with the SEC for the year ended December 31, 2022.
The Company faces market risk to the extent that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency as to foreign subsidiaries’ revenues, expenses, assets and liabilities. The Company currently does not engage in hedging activities with respect to such exchange rate risks.
Assets and liabilities outside the U.S. are located in regions where the Company has subsidiaries or joint ventures: Central America, South America, North America, Europe, Asia, and Australia. The Company’s investments in foreign subsidiaries and joint ventures with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company does not hedge these net investments.
Item 4. CONTROLS AND PROCEDURES
As of March 31, 2023, the Company has a comprehensive set of disclosure controls and procedures designed to ensure that all information required to be disclosed in our filings under the Securities Exchange Act (1934) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of March 31, 2023, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, had 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 Statements for legal updates.
Item 1A. Ri sk Factors
The Company continually re-assesses the business risks, and as part of that process detailed a range of risk factors in the disclosures in American Vanguard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 16, 2023. The following disclosure amends and supplements those risk factors and, except to the extent restated below, there are no material changes to the risk factors as so stated.
Disruption in the global supply chain is creating delays, unavailability and adverse conditions for our industry —Despite improvement in container availability and freight costs, the global supply chain continues to present risk. Industry consolidation, coupled with longer-term production commitments, has materially affected the Company’s supply of raws and intermediates in the past. There is no guarantee that the supply chain condition will materially improve any time soon or that the Company will continue to avoid material disruption. Such disruption could have a material adverse effect on the Company’s operations, financial condition or cash flows.
The Company is dependent upon sole source or a limited number of suppliers for certain of its raw materials and active ingredients —There are a limited number of suppliers of certain important raw materials used by the Company in a number of its products. Certain of these raw materials are available solely from single or very few sources either domestically or overseas. In connection with supply chain disruptions in 2022, phosphorus and related compounds were increasingly difficult to source for our entire industry; ensuring a continuous supply required extraordinary efforts both with respect to sourcing and production planning. That said, there is no guarantee that any of our suppliers will be willing or able to supply products to the Company reliably, continuously and at the levels anticipated by the Company or required by the market. If these sources prove to be unreliable and the Company is not able to supplant or otherwise second source these products, it is possible that the Company will not achieve its projected sales which, in turn, could adversely affect the Company's consolidated financial statements.
The Company benefits from customer early pay in meeting its working capital needs. As is the case with other companies in this industry, the Company receives cash from certain major customers at year-end in exchange for granting discounts on the Company’s products during the first half of the following year. The Company typically uses this cash to pay down secured debt and for other working capital needs. This flow of cash obviates the need for additional borrowing, which, in turn, preserves borrowing capacity used in part for paying customer programs in the middle of the calendar year and, consequently, reduces interest expense. There is no guarantee that the Company’s customers will continue to support the early pay program at current levels. Further a material change in this program could have an adverse effect upon the Company’s liquidity and its ability to meet working capital demands.
Item 2. Purchases of Eq uity Securities by the Issuer
On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to 1,000,000 shares of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws. During 2022 and 2023, the Company purchased 761,985 shares of its common stock for a total of $14,558 at an average price of $19.11 per share.
The table below summarizes the number of shares of our common stock that were repurchased during the three months ended March 31, 2023 and the three months ended March 31, 2022. The shares and respective amount are recorded as treasury shares on the Company’s condensed consolidated balance sheets.
|
Three months ended |
|
Total number of
|
|
|
Average price paid
|
|
|
Total amount paid |
|
|
Maximum number of shares that may yet be purchased under the plan |
|
||||
|
March 31, 2023 |
|
|
27,835 |
|
|
$ |
19.96 |
|
|
$ |
557 |
|
|
|
— |
|
|
March 31, 2022 |
|
|
332,404 |
|
|
$ |
18.71 |
|
|
$ |
6,219 |
|
|
|
667,596 |
|
24
Item 6. Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K:
|
Exhibit No. |
|
Description |
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
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 March 31, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statement of Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
25
SIGNA TURES
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.
|
|
a merican v anguard c orporation |
|
|
|
|
|
|
Dated: May 9, 2023 |
By: |
/s/ e ric g . w intemute |
|
|
|
Eric G. Wintemute |
|
|
|
Chief Executive Officer and Chairman of the Board |
|
|
|
|
|
Dated: May 9, 2023 |
By: |
/s/ d avid t . j ohnson |
|
|
|
David T. Johnson |
|
|
|
Chief Financial Officer & Principal Accounting Officer |
26