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-months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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 Condensed Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.
Since the start of the coronavirus pandemic early in 2020, the Company has made sustained efforts to ensure the health and safety of the workforce while ensuring continuity of the business, which, under applicable federal guidelines (https://ww.cisa.gov) is part of the nation’s critical infrastructure (as part of the “Food and Agriculture,” “Chemical” and “Public Works and Infrastructure Support Services” sectors). In the workplace, the Company has designed and implemented protocols for social distancing, made provisions for the workforce to work remotely where possible, and established quarantine policies for those who present COVID-like symptoms or may have been in contact with those who have. Further, the Company keeps current with local, state, federal and international laws and restrictions that could affect the business and provide real-time information to the workforce. The Company has also prepared contingency plans to permit the continued operation of its factories, in the event that there are critical staffing issues due to attrition. Further, the Company continuously monitors supply chain, transport, logistics and border closures and has reached out to third parties to make clear that the Company is continuing to operate, and that it has its own policies relating to health and is committed to compliance with COVID-19 policies of its business partners.
As has been the case with many other employers, since the start of 2021, the Company has encouraged its workforce to receive vaccinations against COVID-19 through various means, including incentive programs. However, new variants, particularly the Delta variant, have engendered a resurgence of the virus in many regions particularly among the unvaccinated. In the midst of changing conditions, the Company has nevertheless been able to manage its business with minimal impact during the three- and six-month periods ended June 30, 2021, and 2020.
Looking forward, the Company is unable to predict the ultimate 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 volatility in the foreign exchange markets, demand, 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 1 year to 20 years.
Finance leases are immaterial to the accompanying Condensed Consolidated Financial Statements. There were no lease transactions with related parties as of and for the three- and six-month periods presented in the table below.
The operating lease expense for the three months ended June 30, 2021, and 2020, was $1,442 and $1,396, respectively, and $2,896 and $2,791 for the six months ended June 30, 2021 and 2020, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. Additional information related to operating leases are as follows:
|
|
Three months
ended
June 30, 2021
|
|
|
Three months
ended
June 30, 2020
|
|
|
Six months
ended
June 30, 2021
|
|
|
Six months
ended
June 30, 2020
|
|
Cash paid for amounts included in the
measurement of lease liabilities
|
|
$
|
1,546
|
|
|
$
|
1,382
|
|
|
$
|
3,011
|
|
|
$
|
2,778
|
|
ROU assets obtained in exchange for new
liabilities
|
|
$
|
11,691
|
|
|
$
|
677
|
|
|
$
|
12,067
|
|
|
$
|
1,502
|
|
9
The weighted-average remaining lease term and discount rate related to the operating leases as of June 30, 2021 were as follows:
Weighted-average remaining lease term (in years)
|
|
|
7.58
|
|
Weighted-average discount rate
|
|
|
4.08
|
%
|
Future minimum lease payments under non-cancellable operating leases as of June 30, 2021 were as follows:
2021 (excluding six months ended June 30, 2021)
|
|
$
|
2,345
|
|
2022
|
|
|
4,374
|
|
2023
|
|
|
3,421
|
|
2024
|
|
|
2,627
|
|
2025
|
|
|
2,332
|
|
Thereafter
|
|
|
10,350
|
|
Total lease payments
|
|
|
25,449
|
|
Less: imputed interest
|
|
|
3,801
|
|
Total
|
|
$
|
21,648
|
|
Amounts recognized in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
Operating lease liabilities, current
|
|
$
|
3,993
|
|
Operating lease liabilities, long-term
|
|
$
|
17,655
|
|
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 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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop
|
|
$
|
62,575
|
|
|
$
|
44,670
|
|
|
$
|
117,330
|
|
|
$
|
95,032
|
|
U.S. non-crop
|
|
|
21,488
|
|
|
|
13,872
|
|
|
|
38,941
|
|
|
|
24,865
|
|
Total U.S.
|
|
|
84,063
|
|
|
|
58,542
|
|
|
|
156,271
|
|
|
|
119,897
|
|
International
|
|
|
50,547
|
|
|
|
46,013
|
|
|
|
94,494
|
|
|
|
80,620
|
|
Total net sales:
|
|
$
|
134,610
|
|
|
$
|
104,555
|
|
|
$
|
250,765
|
|
|
$
|
200,517
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services transferred at a point
in time
|
|
$
|
134,493
|
|
|
$
|
103,846
|
|
|
$
|
250,464
|
|
|
$
|
199,622
|
|
Goods and services transferred over time
|
|
|
117
|
|
|
|
709
|
|
|
|
301
|
|
|
|
895
|
|
Total net sales:
|
|
$
|
134,610
|
|
|
$
|
104,555
|
|
|
$
|
250,765
|
|
|
$
|
200,517
|
|
10
Performance Obligations — A performance obligation is a promise in a contract or sales order to transfer a distinct good or service to the customer. A transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s sales orders have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the sales orders. For sales orders with multiple performance obligations, the Company allocates the sales order’s transaction price to each performance obligation based on its relative stand-alone selling price. The stand-alone selling prices are determined based on the prices at which the Company separately sells these products. The Company’s performance obligations are satisfied either at a point in time or over time as work progresses.
Contract Assets and Deferred Revenue —The contract assets are included in other receivables on the Condensed Consolidated Balance Sheets and relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property. The timing of revenue recognition, billings and cash collections may result in deferred revenue. The Company sometimes receives payments from its customers in advance of goods and services being provided in return for early cash incentive programs, resulting in deferred revenues.
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Contract assets
|
|
|
4,600
|
|
|
|
3,200
|
|
Deferred revenue
|
|
|
13,205
|
|
|
|
43,611
|
|
Revenue recognized for the three- and six-months ended June 30, 2021, that was included in deferred revenue at the beginning of 2021 were $19,111 and $30,406, respectively.
4. Property, Plant and Equipment — Property, plant and equipment at June 30, 2021 and December 31, 2020 consists of the following:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Land
|
|
$
|
2,756
|
|
|
$
|
2,756
|
|
Buildings and improvements
|
|
|
20,057
|
|
|
|
19,786
|
|
Machinery and equipment
|
|
|
127,605
|
|
|
|
124,199
|
|
Office furniture, fixtures and equipment
|
|
|
10,002
|
|
|
|
7,403
|
|
Automotive equipment
|
|
|
1,979
|
|
|
|
1,747
|
|
Construction in progress
|
|
|
8,568
|
|
|
|
10,392
|
|
Total gross value
|
|
|
170,967
|
|
|
|
166,283
|
|
Less accumulated depreciation
|
|
|
(104,434
|
)
|
|
|
(100,901
|
)
|
Total net value
|
|
$
|
66,533
|
|
|
$
|
65,382
|
|
The Company recognized depreciation expense related to property, plant and equipment of $1,673 and $1,839 for the three months ended June 30, 2021, and 2020, respectively. During the three months ended June 30, 2021, the Company eliminated $249 from such assets and accumulated depreciation of fully depreciated assets. During the three months ended June 30, 2020, the Company eliminated $283 from such assets and accumulated depreciation of fully depreciated assets.
The Company recognized depreciation expense related to property, plant and equipment of $3,844 and $3,356 for the six months ended June 30, 2021 and 2020, respectively. During the six months ended June 30, 2021, and 2020, the Company eliminated from such assets and accumulated depreciation $311 and $396, respectively, of fully depreciated assets.
Substantially all of the Company’s assets are pledged as collateral to its banks.
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:
|
|
June 30,
2021
|
|
|
December 31, 2020
|
|
Finished products
|
|
$
|
156,170
|
|
|
$
|
149,415
|
|
Raw materials
|
|
|
18,981
|
|
|
|
14,369
|
|
|
|
$
|
175,151
|
|
|
$
|
163,784
|
|
11
6. Segment Reporting — Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Selective enterprise information is as follows:
|
|
For the three months
ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop
|
|
$
|
62,575
|
|
|
$
|
44,670
|
|
|
$
|
17,905
|
|
|
|
40
|
%
|
U.S. non-crop
|
|
|
21,488
|
|
|
|
13,872
|
|
|
|
7,616
|
|
|
|
55
|
%
|
U.S. total
|
|
|
84,063
|
|
|
|
58,542
|
|
|
|
25,521
|
|
|
|
44
|
%
|
International
|
|
|
50,547
|
|
|
|
46,013
|
|
|
|
4,534
|
|
|
|
10
|
%
|
Net sales:
|
|
$
|
134,610
|
|
|
$
|
104,555
|
|
|
$
|
30,055
|
|
|
|
29
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop
|
|
$
|
26,805
|
|
|
$
|
21,758
|
|
|
$
|
5,047
|
|
|
|
23
|
%
|
U.S. non-crop
|
|
|
9,782
|
|
|
|
7,029
|
|
|
|
2,753
|
|
|
|
39
|
%
|
U.S. total
|
|
|
36,587
|
|
|
|
28,787
|
|
|
|
7,800
|
|
|
|
27
|
%
|
International
|
|
|
15,552
|
|
|
|
11,519
|
|
|
|
4,033
|
|
|
|
35
|
%
|
Total gross profit:
|
|
$
|
52,139
|
|
|
$
|
40,306
|
|
|
$
|
11,833
|
|
|
|
29
|
%
|
|
|
For the six months
ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop
|
|
$
|
117,330
|
|
|
$
|
95,032
|
|
|
$
|
22,298
|
|
|
|
23
|
%
|
U.S. non-crop
|
|
|
38,941
|
|
|
|
24,865
|
|
|
|
14,076
|
|
|
|
57
|
%
|
U.S. total
|
|
|
156,271
|
|
|
|
119,897
|
|
|
|
36,374
|
|
|
|
30
|
%
|
International
|
|
|
94,494
|
|
|
|
80,620
|
|
|
|
13,874
|
|
|
|
17
|
%
|
Net sales:
|
|
$
|
250,765
|
|
|
$
|
200,517
|
|
|
$
|
50,248
|
|
|
|
25
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop
|
|
$
|
48,076
|
|
|
$
|
46,003
|
|
|
$
|
2,073
|
|
|
|
5
|
%
|
U.S. non-crop
|
|
|
19,165
|
|
|
|
11,748
|
|
|
|
7,417
|
|
|
|
63
|
%
|
U.S. total
|
|
|
67,241
|
|
|
|
57,751
|
|
|
|
9,490
|
|
|
|
16
|
%
|
International
|
|
|
30,029
|
|
|
|
20,936
|
|
|
|
9,093
|
|
|
|
43
|
%
|
Total gross profit:
|
|
$
|
97,270
|
|
|
$
|
78,687
|
|
|
$
|
18,583
|
|
|
|
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 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 expected to be paid to its customers estimated using the expected value method. Each quarter management reviews 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 from financial analysts, reviews the accumulated Program balance and, for volume driven payments, make assessments of whether or not customers are tracking in a manner that indicates that they will meet the requirements set out in 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- and six-months ended June 30, 2021, and 2020, respectively.
12
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
|
|
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, 2020
|
|
January 6, 2021
|
|
$
|
0.020
|
|
|
$
|
593
|
|
March 9, 2020
|
|
March 26, 2020
|
|
April 16, 2020
|
|
$
|
0.020
|
|
|
$
|
586
|
|
December 9, 2019
|
|
December 26, 2019
|
|
January 9, 2020
|
|
$
|
0.020
|
|
|
$
|
582
|
|
9. Earnings Per Share — The components of basic and diluted earnings per share were as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to AVD
|
|
$
|
5,144
|
|
|
$
|
3,887
|
|
|
$
|
8,215
|
|
|
$
|
4,407
|
|
Denominator: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic
|
|
|
29,930
|
|
|
|
29,413
|
|
|
|
29,834
|
|
|
|
29,350
|
|
Dilutive effect of stock options and grants
|
|
|
569
|
|
|
|
441
|
|
|
|
677
|
|
|
|
554
|
|
|
|
|
30,499
|
|
|
|
29,854
|
|
|
|
30,511
|
|
|
|
29,904
|
|
For the three- and six-months ended June 30, 2021, and 2020, respectively, no stock options 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, 2021 and December 31, 2020. The Company has no short-term debt as of June 30, 2021 and December 31, 2020. The debt is summarized in the following table:
Long-term indebtedness ($000's)
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Revolving line of credit
|
|
$
|
149,700
|
|
|
$
|
107,900
|
|
Deferred loan fees
|
|
|
(322
|
)
|
|
|
(458
|
)
|
Net long-term debt
|
|
$
|
149,378
|
|
|
$
|
107,442
|
|
The Company’s main bank is Bank of the West, a wholly-owned subsidiary of the French bank, BNP Paribas. Bank of the West has been the Company’s bank for more than 30 years and is the syndication manager for the Company’s loans.
The 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, sole lead arranger and book runner, on the other hand. The Credit Agreement, consists of a line of credit of up to $275,000, an accordion feature of up to $150,000, a letter of credit and swingline sub-facility (each having limits of $25,000) and a maturity date of August 5, 2026. The Credit Agreement amends and restates the previous credit facility, which had a maturity date of June 30, 2022. With respect to key financial covenants, the Credit Agreement contains two; namely, borrowers are required to maintain a Total Leverage (“TL”) Ratio of no more than 3.5-to-1, during the first three years, stepping down to 3.25-to-1 as of September 30, 2024, and a Fixed Charge Coverage Ratio of at least 1.25-to-1. In addition, to the extent that it completes acquisitions totaling $15 million or more in any 90-day period, AMVAC may step-up the TL Ratio by 0.5-to-1, not to exceed 4.00-to-1, for the next three full consecutive quarters. Acquisitions below $50 million no longer require Agent consent. In light of the maturity date of the Credit Agreement, the Company classifies its revolving line of credit as a non-current liability on the Condensed Consolidated Balance Sheets as of June 30, 2021.
13
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%, and (z) the Daily One-Month LIBOR Rate plus 1.00%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). Interest payments for LIBOR Revolver Loans are payable on the last day of each interest period (either one, two, three or six months, as selected by the borrower) and the maturity date, while interest payments for Adjusted Base Rate Revolver Loans are payable on the last business day of each calendar quarter and the maturity date. The interest rate on June 30, 2021 was 2.50%.
At June 30, 2021, the Company was compliant with all covenants to its then current credit agreement. Also, at June 30, 2021, the Company’s total Funded Debt amounted to $149,700. At that date the Company’s rolling four quarter Consolidated EBITDA (as defined in the Credit Agreement) amounted to $59,030, which results in a leverage ratio of 2.54, as compared to a maximum leverage ratio permitted under the Credit Agreement of 3.5. At June 30, 2021, the Company has the capacity to increase its borrowings by up to $56,906, according to the terms thereof. This compares to an available borrowing capacity of $49,420 as of June 30, 2020. At December 31, 2020, the Company had borrowing capacity of $86,736. 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).
One of our recent acquisitions, Agrinos, had an existing Paycheck Protection Program (PPP) loan in the amount of $705 as of the date it was acquired (October 2, 2020), of which $667 in principal and $5 in interest was forgiven by the Small Business Administration on January 7, 2021. Agrinos repaid the remaining outstanding balance on the same day. 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 Statement of Operations and represents a non-cash financing activity on the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2021.
11. Reclassifications — Certain items may have been reclassified in the prior period Condensed Consolidated Financial Statements to conform with the June 30, 2021, presentation.
12. Comprehensive Income (Loss) — Total comprehensive income (loss) includes, in addition to net income, changes in equity that are excluded from the Condensed Consolidated Statement of Operations and are recorded directly into a separate section of stockholders’ equity on the Condensed Consolidated Balance Sheets. For the three- and six-month periods ended June 30, 2021, and 2020, total comprehensive income (loss) consisted of net income attributable to American Vanguard and foreign currency translation adjustments.
13. 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
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
$
|
702
|
|
|
$
|
1,478
|
|
|
$
|
3,861
|
|
|
|
1.5
|
|
Unrestricted Stock
|
|
|
118
|
|
|
|
241
|
|
|
|
403
|
|
|
|
0.9
|
|
Performance-Based Restricted Stock
|
|
|
368
|
|
|
|
826
|
|
|
|
1,873
|
|
|
|
1.5
|
|
Total
|
|
$
|
1,188
|
|
|
$
|
2,545
|
|
|
$
|
6,137
|
|
|
|
|
|
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- and six-months ended June 30, 2021, and 2020.
14
Restricted and Unrestricted Stock — A summary of non-vested shares as of, and for, the three- and six-months ended June 30, 2021, and 2020 is presented below:
|
|
Six Months Ended
June 30, 2021
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Nonvested shares at December 31st
|
|
|
820,624
|
|
|
$
|
16.64
|
|
|
|
719,845
|
|
|
$
|
17.67
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
4,185
|
|
|
|
18.63
|
|
Vested
|
|
|
(197,615
|
)
|
|
|
19.91
|
|
|
|
(213,781
|
)
|
|
|
16.18
|
|
Forfeited
|
|
|
(11,580
|
)
|
|
|
16.95
|
|
|
|
(14,715
|
)
|
|
|
18.08
|
|
Nonvested shares at March 31st
|
|
|
611,429
|
|
|
|
15.57
|
|
|
|
495,534
|
|
|
|
18.31
|
|
Granted
|
|
|
289,757
|
|
|
|
20.10
|
|
|
|
43,168
|
|
|
|
13.45
|
|
Vested
|
|
|
(30,112
|
)
|
|
|
16.72
|
|
|
|
(37,958
|
)
|
|
|
13.88
|
|
Forfeited
|
|
|
(11,231
|
)
|
|
|
16.60
|
|
|
|
(8,221
|
)
|
|
|
18.64
|
|
Nonvested shares at June 30th
|
|
|
859,843
|
|
|
$
|
17.04
|
|
|
|
492,523
|
|
|
$
|
18.22
|
|
Performance-Based Restricted Stock — A summary of non-vested performance-based shares as of, and for, the three- and six-months ended June 30, 2021, and 2020, respectively is presented below:
|
|
Six Months Ended
June 30, 2021
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Nonvested shares at December 31st
|
|
|
391,771
|
|
|
$
|
16.26
|
|
|
|
345,432
|
|
|
$
|
16.92
|
|
Additional granted based on performance achievement
|
|
|
71,180
|
|
|
|
20.53
|
|
|
|
76,445
|
|
|
|
16.56
|
|
Vested
|
|
|
(175,087
|
)
|
|
|
19.78
|
|
|
|
(184,785
|
)
|
|
|
15.87
|
|
Forfeited
|
|
|
(505
|
)
|
|
|
19.26
|
|
|
|
(3,759
|
)
|
|
|
17.23
|
|
Nonvested shares at March 31st
|
|
|
287,359
|
|
|
|
15.16
|
|
|
|
233,333
|
|
|
|
17.63
|
|
Granted
|
|
|
102,043
|
|
|
|
20.03
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,268
|
)
|
|
|
18.00
|
|
Nonvested shares at June 30th
|
|
|
389,402
|
|
|
$
|
16.44
|
|
|
|
231,065
|
|
|
$
|
17.63
|
|
Stock Options — The Company has 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:
Incentive Stock Option Plans
Activity for the three- and six-months 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
|
|
All the incentive stock options outstanding as of June 30, 2021, have an exercise price per share of $11.49 and a remaining life of 42 months.
15
Activity for the three- and six-months ended June 30, 2020:
|
|
Number of
Shares
|
|
|
Weighted
Average Price
Per Share
|
|
Balance outstanding, December 31, 2019
|
|
|
332,823
|
|
|
$
|
9.14
|
|
Options exercised
|
|
|
(15,836
|
)
|
|
|
8.83
|
|
Balance outstanding, March 31, 2020
|
|
|
316,987
|
|
|
|
9.16
|
|
Options exercised
|
|
|
(9,291
|
)
|
|
|
8.27
|
|
Balance outstanding, June 30, 2020
|
|
|
307,696
|
|
|
$
|
9.18
|
|
Performance Incentive Stock Option Plan
Activity for the three- and six-months 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
|
|
Activity for the three- and six-months ended June 30, 2020:
|
|
Number of
Shares
|
|
|
Weighted
Average Price
Per Share
|
|
Balance outstanding, December 31, 2019
|
|
|
120,782
|
|
|
$
|
11.49
|
|
Options exercised
|
|
|
(3,035
|
)
|
|
|
11.49
|
|
Balance outstanding, March 31, 2020 and June 30, 2020
|
|
|
117,747
|
|
|
$
|
11.49
|
|
All the performance incentive stock options outstanding as of June 30, 2021, have an exercise price per share of $11.49 and a remaining life of 42 months.
14. Legal Proceedings — During the reporting period, there have been no material developments in legal proceedings that were reported in the Company’s Form 10-K for the year ended December 31, 2020, except as described below.
EPA FIFRA/RCRA Matter. On November 10, 2016, the Company 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 in substantially empty, closed containers. The Company retained defense counsel to assist in responding to the subpoena and otherwise defending the Company’s interests. AMVAC is cooperating in the investigation.
Since April 2018, the Department of Justice (“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 employees as targets of the government’s investigation. In January 2021, DOJ and EPA informed the Company that it is investigating 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 for the Company as well as for the individual target, evidence that it contends supports alleged violations with respect to both the Company and the individual target. The Company is evaluating the legal and factual issues raised by the government (which do not include any allegations of harm to human health or the environment) and is engaged in discussions with DOJ regarding possible resolution.
16
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. Accordingly, we have not recorded a loss contingency for this matter.
15. Recent Accounting Standards Adopted — In December 2019, the FASB issued ASU no. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (“ASU No. 2019-12”). The amendment removes certain exceptions to the general income tax accounting methodology including an exception for the recognition of a deferred tax liability when a foreign subsidiary becomes an equity method investment and an exception for interim periods showing operating losses in excess of anticipated operating losses for the year. The amendment also reduces the complexity surrounding franchise tax recognition; the step up in the tax basis of goodwill in conjunction with business combinations; and the accounting for the effect of changes in tax laws enacted during interim periods. The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those years with early adoption permitted. The Company adopted ASU No. 2019-12 effective January 1, 2021.The adoption of this standard did not result in any material adjustments to the Company’s Condensed Consolidated Financial Statements.
16. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires certain disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard established a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:
|
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
•
|
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
|
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, long-term investments, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt.
17
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 following table illustrates the Company’s contingent consideration movements related to its business acquisitions:
|
|
Six months ended
June 30, 2021
|
|
|
Six months ended
June 30, 2020
|
|
Balance, December 31
|
|
$
|
2,468
|
|
|
$
|
1,243
|
|
Purchase price adjustment
|
|
|
(955
|
)
|
|
|
—
|
|
Fair value adjustment
|
|
|
1,014
|
|
|
|
—
|
|
Payments on existing obligations
|
|
|
(250
|
)
|
|
|
(1,227
|
)
|
Accretion of discounted liabilities
|
|
|
(11
|
)
|
|
|
—
|
|
Foreign exchange effect
|
|
|
(150
|
)
|
|
|
(16
|
)
|
Balance, June 30
|
|
$
|
2,116
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2021
|
|
|
Six months ended
June 30, 2020
|
|
Balance, March 31
|
|
$
|
2,205
|
|
|
$
|
—
|
|
Purchase price adjustment
|
|
|
(955
|
)
|
|
|
—
|
|
Fair value adjustment
|
|
|
1,014
|
|
|
|
—
|
|
Accretion of discounted liabilities
|
|
|
(27
|
)
|
|
|
—
|
|
Foreign exchange effect
|
|
|
(121
|
)
|
|
|
—
|
|
Balance, June 30
|
|
$
|
2,116
|
|
|
$
|
—
|
|
The purchase price adjustment is the result of a measurement-period adjustment and represents a non-cash investing activity in the Condensed Consolidated Statements of Operations. The fair value adjustment is included in operating expenses and the accretion of discounted liabilities is included in interest expense, net, on the Condensed Consolidated Statements of Operations. The foreign exchange effect is included in foreign currency translation adjustment on the Condensed Consolidated Statements of Comprehensive Income (Loss).
17. Accumulated Other Comprehensive Loss (“AOCL”)—The following table lists the beginning balance, annual activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency (FX) translation adjustments:
|
|
Total
|
|
Balance, December 31, 2020
|
|
$
|
(9,322
|
)
|
FX translation
|
|
|
(2,503
|
)
|
Balance, March 31, 2021
|
|
|
(11,825
|
)
|
FX translation
|
|
|
2,914
|
|
Balance, June 30, 2021
|
|
$
|
(8,911
|
)
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
(5,698
|
)
|
FX translation
|
|
|
(9,063
|
)
|
Balance, March 31, 2020
|
|
|
(14,761
|
)
|
FX translation
|
|
|
324
|
|
Balance, June 30, 2020
|
|
$
|
(14,437
|
)
|
18
18. Equity Method Investment — On August 2, 2016, AMVAC BV entered into a joint venture with Huifeng (Hong Kong) Ltd, which is a wholly owned subsidiary of the Huifeng Group. The resulting entity, Hong Kong JV, focused on activities such as market access and technology transfer between the two members. AMVAC BV is a 50% owner of the entity. No material contributions were made subsequent to the initial investment. On June 27, 2017, both AMVAC BV and Huifeng (Hong Kong) Ltd. made individual capital contributions of $950 to the Hong Kong JV. The Company utilizes the equity method of accounting with respect to this investment. On July 7, 2017, the Hong Kong JV purchased the shares of Profeng Australia, Pty Ltd. (“Profeng”), for a total consideration of $1,900. The purchase consists of Profeng Australia, Pty Ltd Trustee and Profeng Australia Unit Trust. Both Trust and Trustee were previously owned by Huifeng (via its wholly owned subsidiary Huifeng (Hong Kong) Ltd).
For the three- and six-months ended June 30, 2021, the Company recognized losses of $74 and $87, respectively, as a result of the Company’s ownership position in the Hong Kong Joint Venture. For the three- and six-months ended June 30, 2020, the Company recognized losses of $25 and $38, respectively. The Company’s investment in this joint venture amounted to $301 and $475, respectively at June 30, 2021, and 2020, and is included in other assets on the Condensed Consolidated Balance Sheets.
19. Equity Investments — In February 2016, AMVAC Netherlands BV made an investment in Biological Products for Agriculture (“Bi-PA”) in the amount of $3,283. 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, 2021, the Company’s ownership position in Bi-PA was 15%. Since this investment does not have readily determinable fair value, the Company has elected to measure the investment at cost less impairment, if any, and also records an increase or decrease for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Bi-PA. The Company periodically reviews the investment for possible impairment. There was no impairment or observable price changes on the investment during the three- and six-months ended June 30, 2021, and 2020.
On April 1, 2020, AMVAC purchased 6.25 million shares, an ownership of approximately 8%, of common stock of Clean Seed Capital Group Ltd. (TSX Venture Exchange: “CSX”) for $1,190. The shares are publicly traded, have a readily determinable fair value, and are considered a Level 1 investment. The fair value of the stock amounted to $2,678 as of June 30, 2021. The Company recorded a loss in the amount of $295 for the three months ended June 30, 2021, and recorded a gain of $771 for the six months ended June 30, 2021. The Company recorded a gain in the amount of $24 for the three- and six-months ended June 30, 2020.
20. Income Taxes —Income tax expense was $2,445 and $1,565 for the three months ended June 30, 2021, and 2020, respectively. The effective tax rate for the quarter was 31.9% and 28.6% for the three months ended June 30, 2021 and 2020, respectively. Income tax expense was $3,807 and $1,360 for the six months ended June 30, 2021, and 2020, respectively. The effective tax rate for the six months ended June 30, 2021, and 2020 was 31.4% and 23.4%, respectively. The rate has increased compared to prior years reflecting mix of income in different jurisdictions. The effective tax rate is based on the projected income for the full year and is subject to ongoing review and adjustment by management.
For the three- and six-months ended June 30, 2021 and 2020, the Company benefited from the tax impact of the vesting of certain stock grants. Additionally, for the same period in 2020, the Company benefited from a discrete income tax benefit as the Company assessed its income tax positions to account for the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) which was signed into law on March 27, 2020. A provision of the act modified the amount of interest deduction allowed and therefore reduced the Company’s 2019 Global Intangible Low Tax Income (“GILTI”) inclusion.
The Florida Department of Revenue has completed its audit of the Company’s state income tax returns for the years ended December 31, 2012 through December 31, 2013 and December 31, 2015 through December 31, 2018. No adjustments have been proposed for these periods. The Company has also been notified by the Mississippi Department of Revenue of its intent to examine the Company’s state income tax returns for the years ended December 31, 2016 through December 31, 2018. The result of Mississippi’s audit is not determinable since the audit is at its preliminary stage.
21. Product and Business Acquisitions — The Company did not complete any acquisitions during the three- and six-months ended June 30, 2021, and 2020. However, the Company made a payment in the amount of $10,000 in June 2021 for the acquisition of a product line. The Company obtained control over the product line on July 1, 2021 and the acquisition will be accounted for as an asset acquisition in Q3 2021. The $10,000 is included in other assets on the Condensed Consolidated Balance Sheets.
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During the year ended December 31, 2020, the Company completed two acquisitions in exchange for a total cash consideration at closing of $19,342, which was net of cash acquired of $1,970, and contingent consideration of $1,052, and the settlement of a net asset adjustment of $623. In addition, the Company assumed liabilities of $11,616 and recognized a bargain purchase gain in the amount of $4,536. The total asset value of $37,169 was preliminarily allocated as follows: product rights $8,577, trade names $351, distribution agreements $3,584, customer relationships $386, goodwill $4,618, working capital and fixed assets $19,653. During the six months ended June 30, 2021, the Company recorded an adjustment to reduce the bargain purchase gain by the amount of $121 with a corresponding adjustment to working capital. Further, the Company recorded the following adjustments included in the preliminary allocation during the six months ended June 30, 2021: decrease in contingent consideration $955, increase in product registrations and product rights $1,932, increase in distribution agreements $3,584, decrease in trade name and trademarks $843, decrease in customer relationships and customer lists $246, decrease in goodwill $4,054, and an increase in income tax liabilities $1,328.
The purchase price allocation for both acquisitions is preliminary with respect to the valuation of contingent consideration, intangibles, property, plant and equipment, income taxes and certain other working capital items, as the Company is still in the process of gathering additional information and the determination of the respective fair values.
On October 2, 2020, the Company completed the acquisition of all outstanding stock of the Agrinos Group Companies (Agrinos), except for Agrinos AS. Agrinos has operating entities in the U.S., Mexico, India, Brazil, China, Ukraine, and Spain. Agrinos is a fully integrated biological input supplier with proprietary technology, internal manufacturing, and global distribution capabilities. At closing, the Company paid cash consideration of $3,125, which was net of cash acquired of $1,813, and liabilities assumed of $4,963, including liabilities of $595 related to income tax matters. The acquisition was accounted for as a business combination and resulted in a preliminary bargain purchase gain of $4,536 (including a reduction of $121 recorded during the six months ended June 30, 2021). The total asset value of $12,624 has been preliminarily allocated as follows: working capital $7,370 (including trade receivables of $2,262), property, plant and equipment of $5,004, and intangible assets of $250. Agrinos was acquired out of bankruptcy. This provided the Company with an opportunity to acquire Agrinos at an advantageous purchase price which was below the preliminary fair value of Agrinos’ net assets acquired resulting in the above-mentioned bargain purchase gain.
On October 8, 2020, the Company completed the acquisition of all outstanding stock of AgNova Technologies Pty Ltd (“AgNova”). AgNova is an Australian entity that sources, develops, and distributes specialty crop protection and production solutions for agricultural and horticultural producers, and for selected non-crop users. At closing, the Company paid cash consideration of $16,217, which was net of cash acquired of $157, contingent consideration dependent on certain financial results of $1,052, the settlement of a net asset adjustment of $623, and liabilities assumed of $6,653, including liabilities of $3,857 related to income tax matters. The fair value of the contingent consideration of $1,052 was estimated using a Monte Carlo Simulation. The acquisition was accounted for as a business combination and the total asset value of $24,545 has been preliminarily allocated as follows: product registrations and product rights $8,327, distribution agreements $3,584, trade names and trademarks $351, customer relationships and customer lists $386, goodwill $4,618, which is non-deductible for tax purposes, working capital $7,206, including trade receivables of $1,508, and equipment $73. The preliminary allocation includes the following adjustments recorded during the six months ended June 30, 2021, that were made based on a preliminary valuation report: decrease in contingent consideration $955, increase in product registrations and product rights $1,932, increase in distribution agreements $3,584, decrease in trade name and trademarks $843, decrease in customer relationships and customer lists $246, decrease in goodwill $4,054, and an increase in income tax liabilities $1,328.
22. Foreign Currency — The Company recorded net foreign currency transaction gains in the amount of $738 and losses of $291 during the three months ended June 30, 2021, and 2020, respectively, included in operating expenses on the Condensed Consolidated Financial Statements. The Company incurred net foreign currency transaction losses in the amount of $465 and $1,128 during the six months ended June 30, 2021, and 2020, respectively, included in operating expenses on the Condensed Consolidated Financial Statements.
23. Subsequent Events — The Company made a payment in the amount of $10,000 in June 2021 for the acquisition of a product line and obtained control over the related assets on July 1, 2021. Please refer to Note 21 for further details.
The Company executed an amendment related to its Credit Agreement on August 5, 2021. Please refer to Note 10 for the terms of the Credit Agreement.
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