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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

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

FOR THE TRANSITION PERIOD FROM                      TO                      

Commission file number 001-13795

 

AMERICAN VANGUARD CORPORATION

 

 

Delaware

95-2588080

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

4695 MacArthur Court, Newport Beach, California

92660

(Address of principal executive offices)

(Zip Code)

(949) 260-1200

(Registrant’s telephone number, including area code)

 

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

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.10 par value

 

AVD

 

New York Stock Exchange

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $0.10 Par Value—30,813,295 shares as of April 27, 2022.

 

 

 

 


 

AMERICAN VANGUARD CORPORATION

INDEX

 

 

 

 

Page Number

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

3

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

 

4

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

5

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

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

 

18

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

23

 

 

 

 

Item 4.

Controls and Procedures

 

23

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

24

 

 

 

 

Item 1A.

Risks Factors

 

24

 

 

 

 

Item 2.

Purchases of Equity Securities by the Issuer

 

30

 

 

 

 

Item 6.

Exhibits

 

31

 

 

 

 

SIGNATURES

 

32

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

For the three months

ended March 31

 

 

 

2022

 

 

2021

 

Net sales

 

$

149,435

 

 

$

116,155

 

Cost of sales

 

 

(88,242

)

 

 

(71,024

)

Gross profit

 

 

61,193

 

 

 

45,131

 

Operating expenses

 

 

(46,444

)

 

 

(41,444

)

Adjustment to bargain purchase gain on business acquisition

 

 

 

 

 

(33

)

Operating income

 

 

14,749

 

 

 

3,654

 

Change in fair value of an equity investment

 

 

83

 

 

 

1,066

 

Other income

 

 

 

 

 

672

 

Interest expense, net

 

 

(398

)

 

 

(946

)

Income before provision for income taxes and loss on equity method investment

 

 

14,434

 

 

 

4,446

 

Income tax expense

 

 

(4,499

)

 

 

(1,362

)

Income before loss from equity method investment

 

 

9,935

 

 

 

3,084

 

Loss from equity method investment

 

 

 

 

 

(13

)

Net income

 

$

9,935

 

 

$

3,071

 

Earnings per common share—basic

 

$

0.33

 

 

$

0.10

 

Earnings per common share—assuming dilution

 

$

0.33

 

 

$

0.10

 

Weighted average shares outstanding—basic

 

 

29,677

 

 

 

29,737

 

Weighted average shares outstanding—assuming dilution

 

 

30,349

 

 

 

30,523

 

 

 

See notes to the condensed consolidated financial statements.

 

3


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the three months

ended March 31

 

 

 

2022

 

 

2021

 

Net income

 

$

9,935

 

 

$

3,071

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax effects

 

 

7,080

 

 

 

(2,503

)

Comprehensive income

 

$

17,015

 

 

$

568

 

 

See notes to the condensed consolidated financial statements.

4


AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

ASSETS

 

 

March 31,

2022

 

 

December 31,

2021

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,841

 

 

$

16,285

 

Receivables:

 

 

 

 

 

 

 

 

Trade, net of allowance for doubtful accounts of $4,446 and $3,938, respectively

 

 

183,505

 

 

 

149,326

 

Other

 

 

11,073

 

 

 

9,595

 

Total receivables, net

 

 

194,578

 

 

 

158,921

 

Inventories

 

 

168,049

 

 

 

154,306

 

Prepaid expenses

 

 

13,644

 

 

 

12,488

 

Total current assets

 

 

394,112

 

 

 

342,000

 

Property, plant and equipment, net

 

 

67,440

 

 

 

66,111

 

Operating lease right-of-use assets

 

 

24,950

 

 

 

25,386

 

Intangible assets, net of applicable amortization

 

 

196,365

 

 

 

197,841

 

Goodwill

 

 

49,077

 

 

 

46,260

 

Other assets

 

 

15,500

 

 

 

16,292

 

Deferred income tax assets, net

 

 

17

 

 

 

270

 

Total assets

 

$

747,461

 

 

$

694,160

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Current installments of other liabilities

 

$

1,437

 

 

$

802

 

Accounts payable

 

 

77,704

 

 

 

67,140

 

Customer prepayments

 

 

18,542

 

 

 

63,064

 

Accrued program costs

 

 

87,962

 

 

 

63,245

 

Accrued expenses and other payables

 

 

23,412

 

 

 

20,745

 

Income taxes payable

 

 

6,050

 

 

 

3,006

 

Operating lease liabilities, current

 

 

5,035

 

 

 

5,059

 

Total current liabilities

 

 

220,142

 

 

 

223,061

 

Long-term debt, net

 

 

98,309

 

 

 

52,240

 

Operating lease liabilities, long term

 

 

20,301

 

 

 

20,780

 

Other liabilities, net of current installments

 

 

6,011

 

 

 

5,335

 

Deferred income tax liabilities, net

 

 

20,075

 

 

 

20,006

 

Total liabilities

 

 

364,838

 

 

 

321,422

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.10 par value per share; authorized 400,000 shares; none issued

 

 

 

 

 

 

Common stock, $0.10 par value per share; authorized 40,000,000 shares; issued 34,091,876 shares at March 31, 2022 and 34,248,218 shares at December 31, 2021

 

 

3,410

 

 

 

3,426

 

Additional paid-in capital

 

 

101,291

 

 

 

101,450

 

Accumulated other comprehensive loss

 

 

(6,704

)

 

 

(13,784

)

Retained earnings

 

 

313,584

 

 

 

304,385

 

Less treasury stock at cost, 3,693,444 shares at March 31, 2022 and 3,361,040 shares at December 31, 2021

 

 

(28,958

)

 

 

(22,739

)

Total stockholders’ equity

 

 

382,623

 

 

 

372,738

 

Total liabilities and stockholders' equity

 

$

747,461

 

 

$

694,160

 

 

See notes to the condensed consolidated financial statements.

5


 

 

 

 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For The Three Months Ended March 31, 2022 and March 31, 2021

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Retained

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, December 31, 2021

 

 

34,248,218

 

 

$

3,426

 

 

$

101,450

 

 

$

(13,784

)

 

$

304,385

 

 

 

3,361,040

 

 

$

(22,739

)

 

$

372,738

 

Stocks issued under ESPP

 

 

26,751

 

 

 

2

 

 

 

434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

436

 

Cash dividends on common stock

   ($0.025 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(736

)

 

 

 

 

 

 

 

 

(736

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

7,080

 

 

 

 

 

 

 

 

 

 

 

 

7,080

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,563

 

Stock options exercised; grants, termination

   and vesting of restricted stock units

   (net of shares in lieu of taxes)

 

 

(183,093

)

 

 

(18

)

 

 

(2,156

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,174

)

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

332,404

 

 

 

(6,219

)

 

 

(6,219

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,935

 

 

 

 

 

 

 

 

 

9,935

 

Balance, March 31, 2022

 

 

34,091,876

 

 

$

3,410

 

 

$

101,291

 

 

$

(6,704

)

 

$

313,584

 

 

 

3,693,444

 

 

$

(28,958

)

 

$

382,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

33,922,433

 

 

$

3,394

 

 

$

96,642

 

 

$

(9,322

)

 

$

288,182

 

 

 

3,061,040

 

 

$

(18,160

)

 

$

360,736

 

Stocks issued under ESPP

 

 

25,120

 

 

 

2

 

 

 

338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

340

 

Cash dividends on common stock

   ($0.02 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(596

)

 

 

 

 

 

 

 

 

(596

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

(2,503

)

 

 

 

 

 

 

 

 

 

 

 

(2,503

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,792

 

Stock options exercised; grants, termination

   and vesting of restricted stock units

   (net of shares in lieu of taxes)

 

 

(73,231

)

 

 

(7

)

 

 

(2,787

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,794

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,071

 

 

 

 

 

 

 

 

 

3,071

 

Balance, March 31, 2021

 

 

33,874,322

 

 

$

3,389

 

 

$

95,985

 

 

$

(11,825

)

 

$

290,657

 

 

 

3,061,040

 

 

$

(18,160

)

 

$

360,046

 

 

See notes to the condensed consolidated financial statements.

 

6


 

 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

For the three months

ended March 31

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

9,935

 

 

$

3,071

 

Adjustments to reconcile net income to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of fixed and intangible assets

 

 

5,230

 

 

 

5,403

 

Amortization of other long-term assets

 

 

1,173

 

 

 

1,200

 

Loss on disposal of property, plant and equipment

 

 

77

 

 

 

 

Accretion of discounted liabilities and deferred loan fees

 

 

75

 

 

 

99

 

Provision for bad debts

 

 

494

 

 

 

682

 

Loan principal and interest forgiveness

 

 

 

 

 

(672

)

Fair value adjustment of contingent consideration

 

 

599

 

 

 

 

Stock-based compensation

 

 

1,563

 

 

 

1,792

 

Decrease in deferred income taxes

 

 

207

 

 

 

(269

)

Change in fair value of an equity investment

 

 

(83

)

 

 

(1,066

)

Other

 

 

 

 

 

46

 

Net foreign currency adjustment

 

 

(261

)

 

 

194

 

Changes in assets and liabilities associated with operations:

 

 

 

 

 

 

 

 

Increase in net receivables

 

 

(33,660

)

 

 

(30,482

)

Increase in inventories

 

 

(11,738

)

 

 

(9,615

)

Increase in prepaid expenses and other assets

 

 

(800

)

 

 

(1,052

)

Decrease in income tax receivable/payable, net

 

 

3,046

 

 

 

638

 

Decrease in net operating lease liability

 

 

(67

)

 

 

(18

)

Increase in accounts payable

 

 

9,677

 

 

 

2,223

 

Decrease in customer prepayments

 

 

(44,528

)

 

 

(11,293

)

Increase in accrued program costs

 

 

24,601

 

 

 

7,770

 

Increase (decrease) in other payables and accrued expenses

 

 

2,145

 

 

 

(1,187

)

Net cash used in operating activities

 

 

(32,315

)

 

 

(32,536

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3,294

)

 

 

(2,904

)

Proceeds from disposal of property, plant and equipment

 

 

54

 

 

 

 

Intangible assets

 

 

(1,010

)

 

 

(41

)

Net cash used in investing activities

 

 

(4,250

)

 

 

(2,945

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net borrowings under line of credit agreement

 

 

46,000

 

 

 

35,900

 

Net receipt from the issuance of common stock under ESPP

 

 

436

 

 

 

340

 

Net receipt from the exercise of stock options

 

 

 

 

 

67

 

Payment for tax withholding on stock-based compensation awards

 

 

(2,174

)

 

 

(2,861

)

Repurchase of common stock

 

 

(6,219

)

 

 

 

Payment of cash dividends

 

 

(594

)

 

 

(592

)

Net cash provided by financing activities

 

 

37,449

 

 

 

32,854

 

Net increase (decrease) in cash and cash equivalents

 

 

884

 

 

 

(2,627

)

Effect of exchange rate changes on cash and cash equivalents

 

 

672

 

 

 

469

 

Cash and cash equivalents at beginning of period

 

 

16,285

 

 

 

15,923

 

Cash and cash equivalents at end of period

 

$

17,841

 

 

$

13,765

 

 

 

 

 

 

 

 

 

 

See notes to the condensed consolidated financial statements.

7


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(In thousands, except share data)

(Unaudited)

 

1. Summary of Significant Accounting Policies The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD” or “the Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The financial statements and related notes do not include all information and footnotes required by US GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.

The Company is closely monitoring the impact of the novel coronavirus (COVID-19) pandemic on all aspects of its business, including how the pandemic will impact its customers, business partners, and employees. The Company is considered an essential business by most governments in the jurisdictions and territories in which the Company operates and, as a result, did not incur significant disruptions from the COVID-19 pandemic during the three-months ended March 31, 2022 and 2021. During the three-month period ended March 31, 2022, the Company experienced strong demand for its domestic crop and international products, significant favorable movements on foreign exchange rates and, generally more normal business activities including face-to-face meetings with customers and suppliers etc. The Company established a pandemic working group at the start of the COVID-19 pandemic.

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

 

2. Leases — The Company has operating leases for warehouses, manufacturing facilities, offices, cars, railcars and certain equipment. The lease term includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend (or not terminate) that the Company is reasonably certain to exercise. The Company has leases with a lease term ranging from one year to 20 years.

Finance leases are immaterial to the accompanying condensed consolidated financial statements. There were no lease transactions with related parties as of and for the three-month periods presented in the table below.

 

The operating lease expense for the three months ended March 31, 2022 and 2021 was $1,604 and $1,454, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. Other information related to operating leases follows:

 

 

 

Three months

ended

March 31, 2022

 

 

Three months

ended

March 31, 2021

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

1,674

 

 

$

1,465

 

ROU assets obtained in exchange for new liabilities

 

$

926

 

 

$

376

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (in years)

 

 

6.52

 

 

 

4.53

 

Weighted-average discount rate

 

 

4.01

%

 

 

3.83

%

 

8


 

 

Future minimum lease payments under non-cancellable operating leases as of March 31, 2022 were as follows:

 

2022 (excluding three months ended March 31, 2022)

 

$

4,455

 

2023

 

 

5,113

 

2024

 

 

4,340

 

2025

 

 

3,877

 

2026

 

 

2,972

 

Thereafter

 

 

8,291

 

Total lease payments

 

$

29,048

 

Less: imputed interest

 

 

3,712

 

Total

 

$

25,336

 

 

 

 

 

 

Amounts recognized in the condensed consolidated balance sheet:

 

 

 

 

Operating lease liabilities, current

 

$

5,035

 

Operating lease liabilities, long term

 

$

20,301

 

 

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

March 31,

 

 

 

2022

 

 

2021

 

Net sales:

 

 

 

 

 

 

 

 

U.S. crop

 

$

88,193

 

 

$

54,755

 

U.S. non-crop

 

 

13,396

 

 

 

17,453

 

Total U.S.

 

 

101,589

 

 

 

72,208

 

International

 

 

47,846

 

 

 

43,947

 

Total net sales:

 

$

149,435

 

 

$

116,155

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

Goods and services transferred at a point in time

 

$

149,329

 

 

$

115,971

 

Goods and services transferred over time

 

 

106

 

 

 

184

 

Total net sales:

 

$

149,435

 

 

$

116,155

 

 

Contract assets amounted to $3,450 and $3,900 at March 31, 2022 and December 31, 2021, respectively, and 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 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, 2022, that was included in customer prepayments at the beginning of 2022, was $44,528. The Company expects to recognize all its remaining customer prepayments as revenue in fiscal 2022.

9


 

 

4. Property, Plant and EquipmentProperty, plant and equipment at March 31, 2022 and December 31, 2021 consists of the following: 

 

 

 

March 31,

2022

 

 

December 31,

2021

 

Land

 

$

2,756

 

 

$

2,756

 

Buildings and improvements

 

 

19,814

 

 

 

19,844

 

Machinery and equipment

 

 

132,440

 

 

 

132,159

 

Office furniture, fixtures and equipment

 

 

10,189

 

 

 

10,094

 

Automotive equipment

 

 

1,713

 

 

 

1,832

 

Construction in progress

 

 

11,231

 

 

 

8,199

 

Total