Edgar Filing: AMERICAN VANGUARD CORP

avd-10q_20160930.htm

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 September 30, 2016

☐	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)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	☐		Accelerated Filer	☒
Non-Accelerated Filer	☐		Smaller reporting company	☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.10 Par Value—29,360,039 shares as of October 25, 2016.

AMERICAN VANGUARD CORPORATION

INDEX

		Page Number
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2016 and 2015	3

	Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	4

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2016, June 30, 2016, and September 30, 2016	5

	Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2016 and 2015	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II—OTHER INFORMATION		30

Item 1.	Legal Proceedings	30

Item 6.	Exhibits	31

SIGNATURES		32

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 September 30						For the nine months ended September 30
	2016			2015			2016			2015
Net sales	$	82,447		$	72,486		$	224,645		$	205,574
Cost of sales		49,461			41,053			132,761			124,370
Gross profit		32,986			31,433			91,884			81,204
Operating expenses		28,255			26,059			77,429			74,325
Operating income		4,731			5,374			14,455			6,879
Interest expense		301			638			1,304			1,941
Income before provision for income taxes and loss on equity investment		4,430			4,736			13,151			4,938
Income tax expense		1,409			1,643			3,672			958
Income before loss on equity investment		3,021			3,093			9,479			3,980
Net loss from equity investment		(180	)		(389	)		(309	)		(580	)
Net income		2,841			2,704			9,170			3,400
Add back net loss (income) attributable to non-controlling interest		36			68			(253	)		204
Net income attributable to American Vanguard	$	2,877		$	2,772		$	8,917		$	3,604
Earnings per common share—basic	$	0.10		$	0.10		$	0.31		$	0.13
Earnings per common share—assuming dilution	$	0.10		$	0.09		$	0.30		$	0.12
Weighted average shares outstanding—basic		28,957			28,753			28,886			28,653
Weighted average shares outstanding—assuming dilution		29,496			29,289			29,385			29,208

See notes to the condensed consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

ASSETS

	Sept. 30, 2016			Dec. 31, 2015
Current assets:
Cash and cash equivalents	$	6,594		$	5,524
Receivables:
Trade, net of allowance for doubtful accounts of $159 and $423, respectively		91,091			72,835
Other		3,500			2,554
Total receivables		94,591			75,389
Inventories		141,678			136,477
Prepaid expenses		12,270			11,172
Income taxes receivable		—			168
Deferred income tax assets		8,101			8,101
Total current assets		263,234			236,831
Property, plant and equipment, net		47,760			47,972
Intangible assets, net of applicable amortization		123,420			129,160
Other assets		28,695			29,576
Total assets	$	463,109		$	443,539

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of other notes payable	$	-		$	55
Current installments of other liabilities		74			514
Accounts payable		23,268			15,343
Deferred revenue		41			8,888
Accrued program costs		74,907			44,371
Accrued expenses and other payables		10,209			7,111
Income taxes payable		1,269			—
Total current liabilities		109,768			76,282
Long-term debt and other notes payable, excluding current installments		44,488			68,321
Other liabilities, excluding current installments		3,036			3,054
Deferred income tax liabilities		27,556			27,556
Total liabilities		184,848			175,213
Commitments and contingent liabilities
Stockholders' Equity:
Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued		—			—
Common stock, $.10 par value per share; authorized 40,000,000 shares; issued 31,807,223 shares at September 30, 2016 and 31,638,225 shares at December 31, 2015		3,182			3,164
Additional paid-in capital		70,458			68,534
Accumulated other comprehensive loss		(4,429	)		(3,541	)
Retained earnings		217,135			208,507
		286,346			276,664
Less treasury stock, at cost, 2,450,634 shares at September 30, 2016 and December 31, 2015		(8,269	)		(8,269	)
American Vanguard Corporation stockholders’ equity		278,077			268,395
Non-controlling interest		184			(69	)
Total stockholders’ equity		278,261			268,326
Total liabilities and stockholders' equity	$	463,109		$	443,539

See notes to the condensed consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

For The Three Months Ended March 31, 2016, June 30, 2016, and September 30, 2016

(Unaudited)

	Common Stock															Treasury Stock
	Shares			Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Shares		Amount			AVD Total			Non- Controlling Interest			Total
Balance, December 31, 2015		31,638,225		$	3,164		$	68,534		$	(3,541	)	$	208,507			2,450,634	$	(8,269	)	$	268,395		$	(69	)	$	268,326
Stocks issued under ESPP		19,627			2			269			—			—			—		—			271			—			271
Foreign currency translation adjustment, net		—			—			—			85			—			—		—			85			—			85
Stock based compensation		—			—			456			—			—			—		—			456			—			456
Stock options exercised and grants, vesting and forfeited restricted stock units		(61,550	)		(6	)		(580	)		—			—			—		—			(586	)		—			(586	)
Excess tax benefits from share based payment arrangements		—			—			35			—			—			—		—			35			—			35
Net income		—			—			—			—			2,794			—		—			2,794			153			2,947
Balance, March 31, 2016		31,596,302		$	3,160		$	68,714		$	(3,456	)	$	211,301			2,450,634	$	(8,269	)	$	271,450		$	84		$	271,534
Cash dividends on common stock ($0.01 per share)		—			—			—			—			(289	)		—		—			(289	)		—			(289	)
Foreign currency translation adjustment, net		—			—			—			(537	)		—			—		—			(537	)		—			(537	)
Stock based compensation		—			—			612			—			—			—		—			612			—			612
Stock options exercised and grants, vesting and forfeited restricted stock units		192,342			20			100			—			—			—		—			120			—			120
Excess tax benefits from share based payment arrangements		—			—			12			—			—			—		—			12			—			12
Net income		—			—			—			—			3,246			—		—			3,246			136			3,382
Balance, June 30, 2016		31,788,644		$	3,180		$	69,438		$	(3,993	)	$	214,258			2,450,634	$	(8,269	)	$	274,614		$	220		$	274,834
Stocks issued under ESPP		23,103			2			289			—			—			—		—			291			—			291
Foreign currency translation adjustment, net		—			—			—			(436	)		—			—		—			(436	)		—			(436	)
Stock based compensation		—			—			588			—			—			—		—			588			—			588
Stock options exercised and grants, vesting and forfeited restricted stock units		(4,524	)		—			108			—			—			—		—			108			—			108
Excess tax benefits from share based payment arrangements		—			—			35			—			—			—		—			35			—			35
Net income (loss)		—			—			—			—			2,877			—		—			2,877			(36	)		2,841
Balance, September 30, 2016		31,807,223		$	3,182		$	70,458		$	(4,429	)	$	217,135			2,450,634	$	(8,269	)	$	278,077		$	184		$	278,261

See notes to the condensed consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	For the three months ended September 30						For the nine months ended September 30
	2016			2015			2016			2015
Net income attributable to American Vanguard	$	2,877		$	2,772		$	8,917		$	3,604
Foreign currency translation adjustment		(436	)		(897	)		(888	)		(1,468	)
Comprehensive income	$	2,441		$	1,875		$	8,029		$	2,136

See notes to the condensed consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For The Nine Months Ended September 30, 2016 and 2015

(Unaudited)

Increase (decrease) in cash	2016			2015
Cash flows from operating activities:
Net income	$	9,170		$	3,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed and intangible assets		12,367			12,190
Amortization of other long term assets		3,935			3,992
Amortization of discounted liabilities		28			118
Stock-based compensation		1,656			2,943
Tax benefit from exercise of stock options		(82	)		(8	)
Operating loss from equity method investment		309			580
Changes in assets and liabilities associated with operations:
Increase in net receivables		(19,202	)		(6,172	)
(Increase) decrease in inventories		(5,201	)		4,135
(Increase) decrease in prepaid expenses and other assets		(1,011	)		1,143
Decrease in income tax receivable/payable, net		1,519			4,739
Increase in accounts payable		7,925			3,010
Decrease in deferred revenue		(8,847	)		(860	)
Increase in program payables		30,536			20,982
Increase in other payables and accrued expenses		3,098			1,615
Net cash provided by operating activities		36,200			51,807
Cash flows from investing activities:
Capital expenditures		(6,122	)		(5,196	)
Investments		(3,283	)		(125	)
Acquisitions of product lines and other intangible assets		(224	)		(36,435	)
Net cash used in investing activities		(9,629	)		(41,756	)
Cash flows from financing activities:
Net payments under line of credit agreement		(24,000	)		(16,120	)
Increase in other notes payable		—			10,000
Payments on other long-term liabilities		(541	)		(1,252	)
Tax benefit from exercise of stock options		82			8
Payment of cash dividends		(289	)		(1,141	)
Net proceeds from the issuance of common stock (sale of stock under ESPP and exercise of stock options)		204			254
Net cash used in financing activities		(24,544	)		(8,251	)
Net increase in cash and cash equivalents		2,027			1,800
Cash and cash equivalents at beginning of period		5,524			4,885
Effect of exchange rate changes on cash and cash equivalents		(957	)		(1,256	)
Cash and cash equivalents at end of period	$	6,594		$	5,429

See notes to the condensed consolidated financial statements.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except share data)

(Unaudited)

1. The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD” or “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

2. Property, plant and equipment at September 30, 2016 and December 31, 2015 consists of the following:

	September 30, 2016			December 31, 2015
Land	$	2,458		$	2,458
Buildings and improvements		15,067			14,726
Machinery and equipment		117,140			113,506
Office furniture, fixtures and equipment		4,857			4,997
Automotive equipment		383			491
Construction in progress		5,398			3,413
		145,303			139,591
Less accumulated depreciation		(97,543	)		(91,619	)
	$	47,760		$	47,972

For the three months and nine months periods ended September 30, 2016, the Company recognized depreciation expense related to property, plant and equipment of $2,021 and $6,334, respectively. During the nine months ended September 30, 2016 and 2015, the Company eliminated from assets and accumulated depreciation $410 and $388 of fully depreciated assets, respectively. The Company recognized depreciation expense related to property, plant and equipment of $2,231 and $6,762 for the three months and nine months periods ended September 30, 2015, respectively.

Substantially all of the Company’s assets are pledged as collateral with its banks.

3. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The components of inventories consist of the following:

	September 30, 2016		December 31, 2015
Finished products	$	123,311	$	120,456
Raw materials		18,367		16,021
	$	141,678	$	136,477

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

	Three Months Ended September 30				Nine Months Ended September 30
	2016		2015		2016		2015
Net sales:
Insecticides	$	25,478	$	23,539	$	89,496	$	85,484
Herbicides/soil fumigants/fungicides		34,242		32,682		80,009		71,973
Other, including plant growth regulators		13,328		7,420		23,148		23,497
Crop		73,048		63,641		192,653		180,954
Non-crop		9,399		8,845		31,992		24,620
Total net sales	$	82,447	$	72,486	$	224,645	$	205,574
Net sales:
US	$	60,033	$	53,167	$	161,661	$	146,231
International		22,414		19,319		62,984		59,343
Total net sales	$	82,447	$	72,486	$	224,645	$	205,574

5. Accrued Program Costs—In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, the Company classifies certain payments to its customers as a reduction of sales revenues. The Company describes these payments as “Programs.” Programs are a critical part of doing business in the US agricultural chemicals business market place. For accounting purposes, Programs are recorded as a reduction in gross sales and include market pricing adjustments, volume take up or other key performance indicator driven payments, made to distributors, retailers or growers at the end of a growing season. Each quarter management compares individual sale transactions with published programs to determine what program liability has been incurred. Once this initial calculation is made for the specific quarter, sales and marketing management, along with executive and financial management, review the accumulated program balance and make assessments of whether or not customers are tracking in a manner that indicates that they will meet the requirements set out in the terms and conditions attached to each Program. If management believes that customers are falling short of or exceeding their annual goals, then periodic adjustments will be made to the accumulated accrual to properly reflect the Company’s best estimate of the liability at the balance sheet date. The majority of adjustments are made at the end of the crop season, at which time customer performance can be fully assessed. Programs are paid out predominantly on an annual basis, usually in the final quarter of the financial year or the first quarter of the following year. During the three and nine months ended September 30, 2016 and 2015, no significant change in estimates was recorded.

6. The Company has declared and paid the following cash dividends in the period covered by this Form 10-Q:

Declaration Date

Record Date

Distribution Date

Dividend

Per Share

Total

Paid

June 13, 2016

June 30, 2016

July 12, 2016

0.01