UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For The Year Ended December 31, 2017
OR
☐ 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
(State or other jurisdiction of
Incorporation or organization)
4695 MacArthur Court, Newport Beach, California
(Address of principal executive offices)
95-2588080
(I.R.S. Employer
Identification Number)
92660
(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:
Common Stock, $.10 par value
Name of each exchange on which registered:
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the
Act. Yes ☐ No ☒
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☒
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
Non-accelerated filer (Do not check if a smaller reporting company)
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 Act). Yes ☐ No ☒
The aggregate market value of the voting stock of the registrant held by non-affiliates is $513.4 million. This figure is estimated as of June 30,
2017 at which date the closing price of the registrant’s Common Stock on the New York Stock Exchange was $17.25 per share. For purposes of this
calculation, shares owned by executive officers, directors, and 5% stockholders known to the registrant have been deemed to be owned by affiliates.
The number of shares of $.10 par value Common Stock outstanding as of June 30, 2017, was 29,761,490. The number of shares of $.10 par value
Common Stock outstanding as of February 16, 2018 was 29,848,921.
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
December 31, 2017
PART I
Page No.
Item 1.
Business ................................................................................................................................................................
Item 1A. Risk Factors ..........................................................................................................................................................
Item 1B. Unresolved Staff Comments .................................................................................................................................
Item 2.
Properties ..............................................................................................................................................................
Item 3.
Legal Proceedings .................................................................................................................................................
Item 4.
Mine Safety Disclosures .......................................................................................................................................
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .........................................................................................................................................................
Item 6.
Selected Financial Data ........................................................................................................................................
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...............................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..............................................................................
Item 8.
Financial Statements and Supplementary Data .....................................................................................................
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............................
Item 9A. Controls and Procedures .......................................................................................................................................
Item 9B. Other Information .................................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ....................................................................................
Item 11. Executive Compensation ......................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .............
Item 13. Certain Relationships and Related Transactions, and Director Independence ......................................................
Item 14. Principal Accountant Fees and Services ...............................................................................................................
PART IV
Item 15. Exhibits and Financial Statement Schedules ........................................................................................................
Item 16. Form 10-K Summary ............................................................................................................................................
SIGNATURES AND CERTIFICATIONS ...............................................................................................................................
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
PART I
Unless otherwise indicated or the context otherwise requires, the terms “Company,” “we,” “us,” and “our” refer to American
Vanguard Corporation and its consolidated subsidiaries (“AVD”).
Forward-looking statements in this report, including without limitation, statements relating to the Company’s plans, strategies,
objectives, expectations, intentions, and adequacy of resources, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and
uncertainties. (Refer to Part I, Item 1A, Risk Factors and Part II, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operation, included in this Annual Report.)
ITEM 1
BUSINESS
American Vanguard Corporation (“AVD”) was incorporated under the laws of the State of Delaware in January 1969 and
operates as a holding company. Unless the context otherwise requires, references to the “Company” or the “Registrant,” in this Annual
Report refer to AVD. The Company conducts its business through its subsidiaries, AMVAC Chemical Corporation (“AMVAC”),
GemChem, Inc. (“GemChem”), 2110 Davie Corporation (“DAVIE”), Quimica Amvac de Mexico S.A. de C.V. (“AMVAC M”),
AMVAC Mexico Sociedad de Responsabilidad Limitada (“AMVAC M Srl”), AMVAC de Costa Rica Sociedad de Responsabilidad
Limitada (“AMVAC CR Srl”), AMVAC Switzerland GmbH (“AMVAC S”), AMVAC do Brasil Representácoes Ltda (“AMVAC
B”), AMVAC C.V. (“AMVAC CV”), AMVAC Netherlands BV (“AMVAC BV”), Envance Technologies, LLC (“Envance”) and
AMVAC Singapore Pte, Ltd (“AMVAC Sgpr”) and Huifeng AMVAC Innovation Co. Limited (“Hong Kong JV”), OHP Inc. (“OHP”)
and Grupo AgriCenter (including the parent AgriCenter S.A. and its subsidiaries (“AgriCenter”)).
Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment.
Refer to Part II, Item 7 for selective enterprise information.
AMVAC
AMVAC is a California corporation that traces its history from 1945 and is a specialty chemical manufacturer that develops and
markets products for agricultural, commercial and consumer uses. It manufactures and formulates chemicals for crops, turf and
ornamental plants, and human and animal health protection. These chemicals, which include insecticides, fungicides, herbicides,
molluscicides, growth regulators, and soil fumigants, are marketed in liquid, powder, and granular forms. In prior years, AMVAC
considered itself a distributor-formulator, but now AMVAC primarily synthesizes, formulates, and distributes its own proprietary
products or custom manufactures or formulates for others. In addition, the Company has carved out a leadership position in closed
delivery systems, currently offers certain of its products in SmartBox, Lock ‘n Load and EZ Load systems, and is developing a
precision application technology known as SIMPAS (see “Intellectual Property” below) which will permit the delivery of multiple
products (from AMVAC and/or other companies) at variable rates in a single pass. AMVAC has historically expanded its business
through both the acquisition of established chemistries (which it has revived in the marketplace) and the development and
commercialization of new compounds through licensing arrangements. Below is a description of the Company’s acquisition/licensing
activity over the past five years.
On October 27, 2017, the Company’s Netherlands-based subsidiary, AMVAC BV, completed the purchase of AgriCenter S.A.,
a distribution company based in Costa Rica. AgriCenter markets and distributes end-use chemical and biological products throughout
Central America, primarily for crop applications. The acquired assets included product registration, trade names and trademarks,
customer lists, personnel, fixed assets, goodwill and working capital.
On October 2, 2017, AMVAC acquired substantially all of the assets of OHP, a US-based distribution company specializing in
the greenhouse and nursery production markets. The acquired assets included existing product rights, trade names, customer
relationships, personnel, goodwill, fixed assets and working capital.
On August 22, 2017, AMVAC BV, completed the acquisition of certain selective herbicides and contact fungicides including
chlorothanonil, ametryn, and isopyrazam, sold in the Mexican agricultural market. The assets were purchased from Syngenta AG and
used on various crops such as sugarcane, tomatoes, potatoes and hot peppers. The acquired assets included product registrations,
trademarks and trade names, customer lists, and associated inventory.
1
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
On June 6, 2017, the Company’s principal operating subsidiary, AMVAC, completed an acquisition of certain herbicides,
fungicides and insecticides assets relating to the abamectin, chlorothalonil and paraquat product lines from a group of companies,
including Adama Agricultural Solutions, Ltd. These products are used on a wide range of crops such as citrus, cotton, nuts, fruits and
vegetables. The acquired assets included product registrations, trademarks and trade names, customer lists, and associated inventory.
On January 13, 2017, the Company acquired from The Andersons, Inc. certain assets relating to proprietary formulations
containing PCNB, chlorothalonil and propiconazole which are marketed under the name FFII and FFIII. The acquired assets included
end use registrations.
On June 27, 2017, both AMVAC BV and Huifeng made individual capital contributions of $950 to the Hong Kong JV. On July
7, 2017, the Hong Kong JV purchased 100% of the shares of Profeng Australia, Pty Ltd. (“Profeng”), for a total consideration of
$1,900.
On February 29, 2016, AMVAC BV purchased shares constituting a 15% interest in BiPA NV/SA, a Belgian company
specializing in the development and early commercialization of biological products for use in agriculture. Through this investment,
AMVAC BV obtained possible future access to a pipeline of new biological products for potential commercialization either
individually in certain territories or in combination with the Company’s existing product portfolio.
On October 26, 2015, AMVAC entered into a license and supply agreement with Badische Anilin-und Soda Fabrik (“BASF”)
under which BASF sold and AMVAC acquired certain assets (principally inventory) relating to the imazaquin product line. Imazaquin
is an herbicide that is used on soybeans and for certain non-crop applications.
On April 29, 2015, the registrant’s international subsidiary, AMVAC CV, completed the acquisition of certain assets related to
the bromacil herbicide product line from DuPont Crop Protection. The assets acquired included the Hyvar® and Krovar® trademarks,
product registrations, trade names, customer lists and associated inventory. The territory included all markets outside North America.
On April 6, 2015, the registrant’s international subsidiary, AMVAC CV, completed the acquisition of certain assets related to
the Nemacur® insecticide/nematicide product line from Adama Agricultural Solutions Ltd (“Adama”). The assets acquired include
product registrations, trademarks, customer lists, manufacturing know-how and associated inventory. The territories include European
countries.
On March 25, 2013, AVD made an equity investment in TyraTech Inc. (“TyraTech”), a Delaware corporation that specializes in
developing, marketing and selling pesticide products containing natural oils and other natural ingredients. As of December 31, 2017,
the Company’s ownership position in TyraTech was approximately 15.11%. At a special meeting conducted on December 27, 2017,
TyraTech shareholders approved the sale of its Vamouse product line to Alliance Pharmaceuticals, Ltd and the use of some of the
proceeds from such sale for a tender offer for TyraTech shares. That tender offer was concluded in January 2018. AMVAC elected
not to exercise its right to sell into such tender offer and, as a result, the Company’s ownership interest in TyraTech increased to
approximately 35% at the conclusion of that transaction.
Seasonality
The agricultural chemical industry, in general, is cyclical in nature. The demand for AMVAC’s products tends to be seasonal.
Seasonal usage, however, does not necessarily follow calendar dates, but more closely follows varying growing seasonal patterns,
weather conditions, geography, weather related pressure from pests and customer marketing programs.
Backlog
AMVAC does not believe that backlog is a significant factor in its business. AMVAC primarily sells its products on the basis of
purchase orders, although from time to time it has entered into requirements contracts with certain customers.
Customers
The Company’s largest three customers accounted for 13%, 10% and 10% of the Company’s sales in 2017; 15%, 11% and 8%
in 2016; and 14%, 11% and 10% in 2015.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Distribution
AMVAC predominantly distributes its products domestically through national distribution companies and buying groups or co-
operatives, which purchase AMVAC’s goods on a purchase order basis and, in turn, sell them to retailers/growers/end-users. The
Company manages its international sales through AMVAC BV, which has sales offices in Mexico and Costa Rica and sales force
executives or sales agents in other territories. The Company’s domestic and international distributors, agents and customers typically
have long-established relationships with retailers/end-users, far-reaching logistics, transportation capabilities and/or customer service
expertise. The markets for AMVAC products vary by region, target crop, use and type of distribution channel. AMVAC’s customers
are experts at addressing these various markets.
As more fully described above, during 2017, the Company acquired two distribution companies: the first, OHP, a domestic
company operating in the turf and ornamental market, and the second, AgriCenter, which operates in several countries within Central
America. Both of these businesses primarily market and distribute the formulated end-use product of third parties under either the
brand of the third party or as a private label product. Prior to being acquired by the Company, both OHP and AgriCenter distributed
small quantities of the Company’s products.
Competition
In its many marketplaces, AMVAC faces competition from both domestic and foreign manufacturers. Many of our competitors
are larger and have substantially greater financial and technical resources than AMVAC. AMVAC’s capacity to compete depends on
its ability to develop additional applications for its current products and/or expand its product lines and customer base. AMVAC
competes principally on the basis of the quality and efficacy of its products, price and the technical service and support given to its
customers.
Generally, the treatment against pests of any kind is broad in scope, there being more than one way, or one product, for
treatment, eradication, or suppression. In some cases, AMVAC has positioned itself in smaller niche markets which are no longer
addressed by larger companies. In other cases, for example in the Midwestern corn market, the Company competes directly with larger
competitors.
Manufacturing
Through its four domestic manufacturing facilities (see Item 2, Properties), AMVAC synthesizes many of the technical grade
active ingredients that are in its end-use products. Further, AMVAC formulates and packages its end use products at its own facilities
or at the facilities of third-party formulators.
Raw Materials
AMVAC utilizes numerous companies to supply the various raw materials and components used in manufacturing its products.
Many of these materials are readily available from domestic sources. In those instances where there is a single source of supply or
where the source is not domestic, AMVAC seeks to secure its supply by either long-term (multi-year) arrangements or purchasing on
long lead times from its suppliers.
Intellectual Property
AMVAC’s proprietary product formulations are protected, to the extent possible, as trade secrets and, to a lesser extent, by
patents. Certain of the Company’s closed delivery systems are patented and AMVAC has made applications for related inventions to
expand its equipment portfolio, particularly with respect to its Smart Integrated Multi-Product Precision Application System,
(“SIMPAS”) technology. Further, AMVAC’s trademarks bring value to its products in both domestic and foreign markets. AMVAC
considers that, in the aggregate, its trademarks, licenses, and patents constitute a valuable asset. While it does not regard its business as
being materially dependent upon any single trademark, license, or patent, it believes that its developmental equipment technology may
bring significant value in future years.
EPA Registrations
In the United States, AMVAC’s products also receive protection afforded by the terms of the Federal Insecticide, Fungicide and
Rodenticide Act (“FIFRA”) legislation. The legislation makes it unlawful to sell any pesticide in the United States, unless such
3
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
pesticide has first been registered by the United States Environmental Protection Agency (“USEPA”). Substantially all of AMVAC’s
products, sold in United States, are subject to USEPA registration and periodic re-registration requirements and are registered in
accordance with FIFRA. This registration by USEPA is based, among other things, on data demonstrating that the product will not
cause unreasonable adverse effects on human health or the environment, when used according to approved label directions. In
addition, each state requires a specific registration before any of AMVAC’s products can be marketed or used in that state. State
registrations are predominantly renewed annually with a smaller number of registrations that are renewed on a multiple year basis.
Foreign jurisdictions typically have similar registration requirements by statute. The USEPA, state, and foreign agencies have
required, and may require in the future, that certain scientific data requirements be performed on registered products sold by AMVAC.
AMVAC, on its own behalf and in joint efforts with other registrants, has furnished, and is currently furnishing, required data relative
to specific products.
Under FIFRA, the federal government requires registrants to submit a wide range of scientific data to support U.S. registrations.
This requirement results in operating expenses in such areas as regulatory compliance, with USEPA and other such bodies in the
markets in which the Company sells its products. In addition, the Company is required to generate new formulations of existing
products or to produce new products in order to remain compliant. AMVAC expensed $14,232, $11,544, and $9,831 during 2017,
2016 and 2015 respectively, on these activities.
Registration
Product development
Environmental
2017
2016
2015
$
$
9,450 $
4,782
14,232 $
7,750 $
3,794
11,544 $
6,375
3,456
9,831
During 2017, AMVAC continued activities to address environmental issues associated with its facility in Commerce, CA. (the
“Facility”). An outline of the history of those activities follows.
In 1995, the California Department of Toxic Substances Control (“DTSC”) conducted a Resource Conservation and Recovery
Act (“RCRA”) Facility Assessment (“RFA”) of those facilities having hazardous waste storage permits. In March 1997, the RFA
culminated in DTSC accepting the Facility into its Expedited Remedial Action Program. Under this program, the Facility was required
to conduct an environmental investigation and health risk assessment. This activity then took two paths: first, the RCRA permit
closure and second, the larger site characterization.
With respect to the RCRA permit closure, in 1998, AMVAC began the formal process to close its hazardous waste permit at the
Facility (which had allowed AMVAC to store hazardous waste longer than 90 days) as required by federal regulations. Formal
regulatory closure actions began in 2005 and were completed in 2008, as evidenced by DTSC’s October 1, 2008 acknowledgement of
AMVAC’s Closure Certification Report.
With respect to the larger site characterization, soil and groundwater characterization activities began in December 2002 in
accordance with the Site Investigation Plan that was approved by DTSC. Additional activities were conducted from 2003 to 2014,
with oversight provided by DTSC. In 2014, the Company submitted a remedial action plan (“RAP”) to DTSC, under the provisions of
which, the Company proposed not to disturb sub-surface contaminants, but to continue monitoring, maintain the cover above affected
soil, enter into restrictive covenants regarding the potential use of the property in the future, and provide financial assurances relating
to the requirements of the RAP. In January 2017, the RAP was circulated for public comment. DTSC responded to those comments
and, on September 29, 2017, approved the RAP as submitted by the Company. The Company intends to prepare an operation and
maintenance plan, to record covenants on certain affected parcels and to obtain further clarification on financial assurance obligations
relating to the RAP. At this stage, the Company does not believe that costs to be incurred in connection with the RAP will be material
and has not recorded a loss contingency for these activities.
AMVAC is subject to numerous federal and state laws and governmental regulations concerning environmental matters and
employee health and safety at its four manufacturing facilities. The Company continually adapts its manufacturing process to the
environmental control standards of the various regulatory agencies. The USEPA and other federal and state agencies have the
authority to promulgate regulations that could have an impact on the Company’s operations.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
AMVAC expends substantial funds to minimize the risk of discharge of materials in the environment and to comply with the
governmental regulations relating to protection of the environment. Wherever feasible, AMVAC recovers and recycles raw materials
and increases product yield in order to partially offset increasing pollution abatement costs.
The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into
the environment, as well as to the remediation of identified existing environmental concerns.
Employees
As of December 31, 2017, the Company employed 605 employees. This includes 130 employees that joined the Company
following the acquisitions completed during the final quarter of 2017. The Company employed 395 employees as of December 31,
2016 and 369 employees as of December 31, 2015. From time to time, due to the seasonality of its business, AMVAC uses temporary
contract personnel to perform certain duties primarily related to packaging of its products. None of the Company’s employees are
subject to a collective bargaining agreement. The Company believes it maintains positive relations with its employees.
Domestic operations
AMVAC is a California corporation that was incorporated under the name of Durham Chemical in August 1945. The name of
the corporation was subsequently changed to AMVAC in January 1973. As the Company’s main operating subsidiary, AMVAC owns
and/or operates the Company’s domestic manufacturing facilities and is also the parent company (owns 99%) of AMVAC CV.
AMVAC manufactures, formulates, packages and sells its products in the USA and is a wholly owned subsidiary of AVD.
GemChem is a California corporation that was incorporated in 1991 and was subsequently purchased by the Company in 1994.
GemChem sells into the pharmaceutical, cosmetic and nutritional markets, in addition to purchasing key raw materials for the
Company. GemChem is a wholly owned subsidiary of AVD.
DAVIE owns real estate for corporate use only. See also Part I, Item 2 of this Annual Report on Form 10-K. DAVIE is a wholly
owned subsidiary of AVD.
Envance is a Delaware Limited Liability Company and is a majority owned subsidiary of the Company. It was formed in 2012
with joint venture partner, TyraTech. AMVAC’s initial shareholding was 60% and its shareholding increased to 87% in 2015.
Envance has the rights to develop and commercialize pesticide products and technologies made from natural oils in global consumer,
commercial, professional, crop protection and seed treatment markets and has begun bringing products to market.
On October 2, 2017, AMVAC, through a wholly-owned acquisition subsidiary, subsequently renamed OHP, purchased
substantially all of the assets of OHP, a domestic distribution company specializing in products for the turf and ornamental market.
OHP markets and sells end use products for third parties, either under the third party brand or else as own label products.
International operations
In July 2012, the Company formed AMVAC CV, which is incorporated in the Netherlands, for the purpose of managing foreign
sales on behalf of the Company. AMVAC CV is owned jointly by AMVAC as the general partner, and AVD International, LLC (also
formed in July 2012 as a wholly owned subsidiary of AMVAC), as the limited partner, and is therefore a wholly owned subsidiary of
AMVAC.
AMVAC BV is a registered Dutch private limited liability company that was formed in July 2012. AMVAC BV is located in the
Netherlands and is wholly owned by AMVAC CV. During 2017, the international business sold the Company’s products in 63
countries, as compared to 59 countries in 2016.
AMVAC M Srl is a wholly owned subsidiary of AMVAC BV and was formed in 1998 (originally formed as AMVAC M and
changed to AMVAC Mexico Srl in 2013) to conduct the Company’s business in Mexico.
AMVAC Sgpr is a wholly owned subsidiary of AMVAC BV and was formed on April 12, 2016. This new entity was formed to
conduct the Company’s business in the Asia Pacific and China region.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Hong Kong JV is a 50% owned joint venture with Huifeng (Hong Kong) Limited, a wholly owned subsidiary of Huifeng
Agrochemical Company, Ltd, (“Huifeng”) a China based basic chemical manufacturer. The Hong Kong JV was formed on August 2,
2016. The purpose of the joint venture is to be a technology transfer platform between the co-owners, including the development of
proprietary agrochemical formulations and precision application systems for crop protection. Furthermore, it is intended to be used to
develop both partners’ business in the region. This included, in 2017, the acquisition of 100% of the shares of Profeng.
On October 27, 2017, AMVAC BV purchased the stock of AgriCenter, located in Costa Rica, which owned shares in
subsidiaries located in Costa Rica, Panama, Nicaragua, Honduras, the Dominican Republic, Mexico, Guatemala, and El Salvador.
These affiliated entities, collectively known as AgriCenter, market, sell and distribute end-use chemical and biological products
throughout Central America primarily for crop applications.
The Company classifies as international sales all products bearing foreign labeling shipped to a foreign destination.
International sales
Percentage of net sales
Risk Management
2017
2016
2015
$
98,905 $
27.9%
83,259 $
26.7 %
77,295
26.7%
The Company regularly monitors matters, whether insurable or not, that could pose material risk to its operations, the safety of
its employees and neighbors, and its financial performance. The Risk Committee of the Board of Directors (“Board”) was formed in
2010, consists of three members of the Board and meets regularly. All members of the Board are invited to and typically attend Risk
Committee meetings. Working with senior management, the committee continuously evaluates the Company’s risk profile, identifies
mitigation measures and ensures that the Company is prudently managing these risks. In support of the Risk Committee, senior
management has appointed a risk manager and designated several senior executives to lead teams focused on addressing each of the
most material risks facing the Company; these groups perform analysis with the benefit of operational knowledge. The top risks
identified by management and being addressed by risk teams (in no particular order) include: adverse political and regulatory climate;
managing inventory and optimizing manufacturing efficiency; succession planning and bench strength; maintaining a competitive
edge in the marketplace; the possibility of an environmental event; undervaluation of the Company; availability of acquisition and
licensing targets and cyber-terrorism. Over the course of 2017, the Company continued to implement its enterprise risk management
program, which extends to all areas of potential risk and is a permanent feature in the Company’s operation. In addition, the Company
continually evaluates insurance levels for product liability, property damage and other potential areas of risk. Management believes its
facilities and equipment are adequately insured against loss from usual business risks including cyber-terrorism.
Available Information
The Company makes available free of charge (through its website, www.american-vanguard.com), its Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). All reports filed with the
SEC are available free of charge on the SEC website, www.sec.gov. Also available free of charge on the Company’s website are the
Company’s Audit Committee, Compensation Committee, Finance Committee and Nominating and Corporate Governance Committee
Charters, the Company’s Corporate Governance Guidelines, the Company’s Code of Conduct and Ethics, the Company’s Employee
Complaint Procedures for Accounting and Auditing Matters and the Company’s policy on Stockholder Nomination and
Communication. The Company’s Internet website and the information contained therein or incorporated therein are not intended to be
incorporated into this Annual Report on Form 10-K.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
ITEM 1A. RISK FACTORS
The regulatory climate remains challenging to the Company’s interests both domestically and internationally—Various
agencies within the U.S. (both federal and state) and foreign governments continue to exercise increased scrutiny in permitting
continued uses (or the expansion of such uses) of older chemistries, including many of the Company’s products and, in some cases,
have initiated or entertained challenges to these uses. The challenge of the regulatory climate is even more pronounced in certain other
geographical regions where the Company faces resistance to the continued use of certain of its products. For example, the EU employs
a hazard-based analysis when considering whether product registrations can be maintained; under this approach, EU regulatory
authorities typically do not weigh benefit against risk in their assessments and routinely cancel products for which a safer alternative is
available, notwithstanding the benefit of the cancelled product. There is no guarantee that this regulatory climate will change in the
near term or that the Company will be able to maintain or expand the uses of many of its products in the face of these regulatory
challenges.
USEPA has proposed further limitations on the continued registration of organophosphates—On September 25, 2015 the
USEPA published in the Federal Register draft human health risk assessments for four of the Company’s organophosphate (“OP”)
compounds (marketed under the names Bidrin®, Counter®, Folex® and Mocap®) in which it recommends the application of a 10X
safety factor under the FQPA (Food Quality Protection Act) in light of the alleged possibility of neurodevelopmental harm to women
and children based on epidemiological data. Since that time, in the face of objection from industry, the agency has applied this safety
factor to all registered OPs, as they have come up for review or renewal. The Company, like many in our industry, believes that the
basis for applying this safety factor is not based upon sound science and that the limited studies upon which the agency is relying (for
which raw data is not available even to the agency) do not establish a causal link between the perceived harm and the use of its
products. Accordingly, the Company intends to take all action necessary to defend its registrations. We have been joined in this effort
by other companies that are similarly concerned about the potential impact of USEPA’s action. Nevertheless, there is no guarantee
that the Company’s actions will alter the course that USEPA has proposed and, if the agency’s position becomes final, some uses of
the company’s OP products could be limited or cancelled. Such action could have a material adverse effect upon the Company’s
financial performance in future reporting periods.
Use of the Company’s products is subject to continuing challenges from activist groups—Use of agrochemical products,
including the Company’s products is regularly challenged by activist groups in many jurisdictions under a multitude of federal, state
and foreign statutes, including FIFRA, the Food Quality Protection Act, Endangered Species Act (“ESA”) and the Clean Water Act, to
name a few. These challenges typically take the form of lawsuits or administrative proceedings against the USEPA and/or other
federal, state or foreign agencies, the filing of amicus briefs in pending actions, the introduction of legislation that is inimical to the
Company’s interests, and/or adverse comments made in response to public comment invited by regulatory agencies in the course of
registration, re-registration or label expansion. The most prominent of these actions include a line of cases under which environmental
groups have sought to suspend, cancel or otherwise restrict the use of pesticides that have been approved by USEPA on the ground
that that agency failed to confer with the National Marine Fishery Service and/or the Fish and Wildlife Service under the ESA with
respect to biological opinions relating to the use of such products. While industry has been active in defending registrations and
proposing administrative and legislative approaches to address serious resource issues at the affected agencies, these cases continue to
be brought. It is possible that one or more of these challenges could succeed, resulting in a material adverse effect upon one or more
of the Company’s products.
The distribution and sale of the Company’s products are subject to prior governmental approvals and thereafter ongoing
governmental regulation—The Company’s products are subject to laws administered by federal, state and foreign governments,
including regulations requiring registration, approval and labeling of its products. The labeling requirements restrict the use of, and
type of, application for our products. More stringent restrictions could make our products less available, which would adversely affect
our revenues and profitability. Substantially all of the Company’s products are subject to the USEPA (and/or similar agencies in the
various territories or jurisdictions in which we do business) registration and re-registration requirements, and are registered in
accordance with FIFRA or similar laws. Such registration requirements are based, among other things, on data demonstrating that the
product will not cause unreasonable adverse effects on human health or the environment when used according to approved label
directions. All states, where any of the Company’s products are used, also require registration before products, such as the Company
sells, can be marketed or used in that state. Governmental regulatory authorities have required, and may require in the future, that
certain scientific data requirements be performed on the Company’s products. The Company, on its behalf and also in joint efforts
with other registrants, has and is currently furnishing certain required data relative to its products. There can be no assurance,
however, that the USEPA or similar agencies will not request that certain tests or studies be repeated or that more stringent legislation
or requirements will not be imposed in the future. The Company can provide no assurance that any testing approvals or registrations
will be granted on a timely basis, if at all, or that its resources will be adequate to meet the costs of regulatory compliance.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
The manufacturing of the Company’s products is subject to governmental regulations—The Company currently owns and
operates three manufacturing facilities which are located in Los Angeles, California; Axis, Alabama; and Marsing, Idaho and owns
and has manufacturing services provided in a fourth facility in Hannibal, Missouri (the “Facilities”). The Facilities operate under the
laws and regulations imposed by state and local authorities. The manufacturing of key ingredients for certain of the Company’s
products occurs at the Facilities. An inability to renew or maintain a license or permit, or a significant increase in the fees for such
licenses or permits, could impede the Company’s manufacture of one or more of its products and/or increase the cost of production;
this, in turn, would materially and adversely affect the Company’s ability to provide customers with its products in a timely and
affordable manner.
The Company may be subject to environmental liabilities—While the Company expends substantial funds to minimize the risk
of discharge of materials into the environment and to comply with governmental regulations relating to protection of the environment
and its workforce, federal and state authorities may nevertheless seek fines and penalties for any violation of the various laws and
governmental regulations. In addition, while the Company continually adapts its manufacturing processes to the environmental control
standards of regulatory authorities, it cannot completely eliminate the risk of accidental contamination or injury from hazardous or
regulated materials. Further, these various governmental agencies could, among other things, impose potential civil and criminal
liability arising under RCRA for the Company’s importation (transportation, handling, and storage) of depleted Thimet containers
(see, “Legal Proceedings” below). In short, the Company may be held liable for significant damages or fines relating to any
environmental contamination, injury, or compliance violation which could have a material adverse effect on the Company’s
consolidated financial condition, statements of operations and cash flows.
Newly acquired businesses may not generate forecasted results. While the Company conducts due diligence on acquisitions
and employs rigorous investment criteria before making acquisitions, there is no guarantee that a business or product line acquired by
the Company will generate results that meet or exceed results that were forecasted by the Company in evaluating the acquisition.
There are many factors that could affect the performance of a newly acquired business or product line. While the Company uses
conservative assumptions in valuing a business prior to concluding an acquisition, actual results generated post-closing could vary
widely from the Company’s forecast and, as such, could have a material effect upon the Company’s overall financial performance.
The Company’s investment in foreign businesses may pose additional risks. With the expansion of its footprint internationally
and, in particular, with the business acquired in Central America in 2017, the Company now carries on business at a material level in
some jurisdictions that have a history of political instability, including civil unrest, government takings without reimbursement, and
the imposition of penalties without due process of law. While such instability may not be present at the current time, there is no
guarantee that conditions will not change in one or more jurisdictions quickly and without notice, nor is there any guarantee that the
Company would be able to recoup its investment in such territories in light of such changes. Adverse changes of this nature could
have a material effect upon the Company’s overall financial performance.
The Company’s investment in technology may not generate forecasted returns. The Company has had a history of investing
in technological innovation primarily focused on product delivery systems as one of its core strategies. We have focused on
technology in closed delivery systems, fumigant application and precision application, to name a few. These investments are based
upon the premise that new technology will allow for safer handling of the Company’s products, appeal to regulatory agencies and the
market we serve, gain commercial acceptance and command a return that is sufficiently in excess of the investment. However, there is
no guarantee that a new technology will be successfully commercialized, generate a material return or maintain market appeal for a
substantial period of time. Further, many types of development costs must be expensed in the period in which they are incurred. This,
in turn, tends to put downward pressure on period profitability. There can be no assurance that these expenses will be recovered
through successful commercialization of a new technology.
The Company’s business may be adversely affected by cyclical and seasonal effects—Demand for the Company’s products
tends to be seasonal. Seasonal usage follows varying agricultural seasonal patterns, weather conditions and weather related pressure
from pests. Weather patterns can have an impact on the Company’s operations. For example, the end user of its products may, because
of weather patterns, delay or intermittently disrupt field work during the planting season, which may result in a reduction of the use of
some products and therefore may, at some point, reduce the Company’s revenues and profitability. In light of the possibility of
adverse seasonal effects, there can be no assurance that the Company will maintain sales performance at historical levels in any
particular region.
The Company is dependent upon certain sole source 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 many of its products. Certain of these
raw materials are available solely from single sources either domestically or overseas. Starting January 1, 2017, the Chinese
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
government has placed significant restrictions on chemical manufacturing in the People's Republic of China. This, in turn, has led to
closure of multiple manufacturing plants and scarcity of supply for certain products that are imported by the Company. In conjunction
with the purchase and/or licensing of certain product lines, the Company has entered into multi-year supply arrangements under which
such counterparties are the sole source of either active ingredients and/or formulated end-use product and, in some cases, the
manufacturer has entered the market as a competitor. The Company is actively pursuing new supply agreements to mitigate the risk of
product supply from the People’s Republic of China, by either approving new suppliers outside of China, or conversely by pursuing
new Chinese suppliers who have a stronger in situ backward integration position. There is no guarantee that any of our suppliers will
be willing or able to supply these 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 suppliers, it is possible that the Company will not realize its projected sales which, in turn, could adversely affect the Company's
consolidated financial statements.
To the extent that capacity utilization is not fully realized at its manufacturing facilities, the Company may experience lower
profitability—While the Company endeavors continuously to maximize utilization of it manufacturing facilities, our success in these
endeavors is dependent upon many factors, including fluctuating market conditions, product life cycles, weather conditions,
availability of raw materials, equipment failures, and regulatory constraints, among other things. There can be no assurance that the
Company will be able to maximize the utilization of capacity at its manufacturing facilities.
The Company’s continued success depends, in part, upon a limited number of key employees—Within certain functions, the
Company relies heavily on a small number of key employees to manage ongoing operations and to perform strategic planning. In
some cases, there are no internal candidates who are qualified to succeed these key personnel in the short term. In the event that the
Company were to lose one or more key employees, there is no guarantee that Company could replace them with people having
comparable skills. Further, the loss of key personnel could adversely affect the operation of our business.
The Company faces competition in certain markets from new technologies and demand for organically produced food—The
Company faces competition from larger companies that market new chemistries, genetically modified (“GMO”) seeds and other
similar technologies (e.g., RNA interference) in certain of the crop protection sectors in which the Company competes, particularly
that of corn. In fact, many growers that have chosen to use GMO seeds have reduced their use of the types of pesticides sold by the
Company. At the same time, the demand for organically-produced food, which, generally speaking, is made without the use of
synthetic chemicals (which constitute most of the Company’s products) continues to increase. There is no guarantee that the
Company will maintain its market share or pricing levels in sectors that are subject to competition from companies that market new
technologies. Further, it is possible that increased demand for organic crops may, over time, reduce the demand for the Company’s
products.
The Company faces competition from generic competitors that source product from countries having lower cost structures—
The Company continues to face competition from competitors around the globe that may enter the market through either offers to pay
data compensation, or similar means in foreign jurisdictions, and then subsequently source material from countries having lower cost
structures (typically India and China). These competitors typically tend to operate at thinner gross margins and, with low costs of
goods, tend to drive pricing and profitability of subject product lines downward. There is no guarantee that the Company will maintain
market share and pricing over generic competitors or that such competitors will not offer generic versions of the Company’s products
in the future.
The Company’s key customers typically carry competing product lines and may be influenced by the Company’s larger
competitors—A significant portion of the Company’s products are sold to national distributors in the United States, which also carry
product lines of competitors that are much larger than the Company. Typically, revenues from the sales of these competing product
lines and related program incentives constitute a greater part of our distributors’ income than do revenues from sales and program
incentives arising from the Company’s product lines. With the recent consolidation among domestic distribution companies, these
considerations have become more pronounced. In light of these facts, there is no assurance that such customers will continue to market
our products aggressively or successfully or that the Company will be able to influence such customers to continue to purchase our
products instead of those of our competitors.
Industry consolidation may threaten the Company’s position in various markets—The global agricultural chemical industry
continues to undergo significant consolidation. Many of the Company’s competitors have grown or are expected to grow through
mergers and acquisitions. As a result, these competitors will tend to be in position to realize greater economies of scale, offer more
diverse portfolios and thereby exert greater influence throughout the distribution channels. Consequently, the Company may find it
more difficult to compete in various markets. While such merger activity may generate acquisition opportunities for the Company,
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
there is no guarantee that the Company will benefit from such opportunities. Further, there is a risk that the Company’s future
performance may be hindered by the growth of its competitors through consolidation.
The Company is dependent on a limited number of customers, which makes it vulnerable to the continued relationship with
and financial health of those customers—In 2017 and 2016, three customers accounted for 33% and 34%, respectively, of the
Company’s sales. The Company’s future prospects may depend on the continued business of such customers and on our continued
status as a qualified supplier to such customers. The Company cannot guarantee that these key customers will continue to buy
products from us at current levels. The loss of a key customer could have a material adverse effect on the Company’s consolidated
financial statements.
The carrying value of certain assets on the Company’s consolidated balance sheets may be subject to impairment depending
upon market trends and other factors—The Company regularly reviews the carrying value of certain assets, including long-lived
assets, inventory, fixed assets and intangibles. Depending upon the class of assets in question, the Company takes into account various
factors including, among others, sales, trends, market conditions, cash flows, profit margins and the like. Based upon this analysis,
where circumstances warrant the Company may leave such carrying values unchanged or adjust them as appropriate. There is no
guarantee that these carrying values can be maintained indefinitely, and it is possible that one or more such assets could be subject to
impairment which, in turn, could have an adverse impact upon the Company’s consolidated financial statements.
The Company’s computing systems are subject to cyber security risks – In the course of its operations the Company relies on
its computing systems, including access to the internet, the use of third party applications and the storage and transmission of data
through such systems. While the Company has implemented security measures to protect these systems, there is no guarantee that a
third party may penetrate these defenses and either compromise, corrupt or shut down these systems. Further, in the event of such
incursion it is possible that confidential business information and private personal data could be confiscated. Such an event could
adversely affect both the Company’s ability to operate and its overall financial performance
Reduced financial performance may limit the Company’s ability to borrow under its credit facility—The Company has
historically grown net sales through both expansion of current product lines, the acquisition of product lines from third parties and,
during 2017, the acquisition of both domestic and international distributors with strong niche market positions. In order to finance
such acquisitions, the Company has drawn upon its senior credit facility. However, the Company’s borrowing capacity under the
senior credit facility depends, in part, upon its satisfaction of a negative covenant that sets a maximum ratio of borrowed debt to
earnings (as measured over the trailing 12 month period). There is no guarantee that the Company will continue to generate earnings
necessary to ensure that it has sufficient borrowing capacity to support future acquisitions or that, when necessary, the lender group
will amend the senior credit facility to provide for such borrowing capacity. Further, despite the Company’s long-standing relationship
with its lenders, in light of the uncertainties in global financial markets there is no guarantee that the Company’s lenders will be either
willing or able to continue lending to the Company at such rates and in such amounts as may be necessary to meet the Company’s
working capital needs.
The Company’s growth has been fueled in part by acquisition—Over the past few decades, the Company’s growth has been
driven by acquisition and licensing of both established and developmental products from third parties. There is no guarantee that
acquisition targets or licensing opportunities meeting the Company’s investment criteria will remain available or will be affordable. If
such opportunities do not present themselves, then the Company may be unable to record consistent growth in future years.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2
PROPERTIES
AMVAC owns in fee the Facility constituting approximately 152,000 square feet of improved land in Commerce, California
(“Commerce”) on which its West Coast manufacturing, some of its warehouse facilities and some of its manufacturing administrative
offices are located.
DAVIE owns in fee approximately 72,000 square feet of warehouse, office and laboratory space on approximately 118,000
square feet of land in Commerce, California, which is leased to AMVAC. In 2013, the Company made a significant investment in the
Glenn A. Wintemute Research Center, which houses the Company’s primary research laboratory supporting synthesis, formulation
and other new product endeavors.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
On December 28, 2007, AMVAC purchased certain manufacturing assets relating to the production of Thimet and Counter and
located at BASF’s multi-plant facility situated in Hannibal, Missouri (the “Hannibal Site”). Subject to the terms and conditions of the
Agreement, AMVAC purchased certain buildings, manufacturing equipment, office equipment, fixtures, supplies, records, raw
materials, intermediates and packaging constituting the “T/C Unit” of the Hannibal Site. The parties entered into a ground lease and a
manufacturing and shared services agreement, under which BASF continues to supply various shared services to AMVAC for the
Hannibal Site.
On March 7, 2008, AMVAC acquired from Bayer CropScience Limited Partnership, (“BCS LP”), a U.S. business of Bayer
CropScience GmbH, a facility (the “Marsing Facility”) located in Marsing, ID, which consists of approximately 17 acres of improved
real property, 15 of which are owned by AMVAC and two of which AMVAC leases from the City of Marsing for a term of 25 years.
The Marsing Facility is engaged in the blending of liquid and powder raw materials and the packaging of some of the Company’s
finished goods inventory in liquid, powder and pelletized formulations which are sold both in the US and internationally. With this
acquisition, AMVAC acquired the ability to formulate flowable materials. In connection with the acquisition, AMVAC and BCS LP
agreed to enter into a master processor agreement under which AMVAC provides certain third party manufacturing services to BCS
LP on an ongoing basis that continued into 2015. Following the termination of the master supply agreement, AMVAC and BCS LP
have continued to trade on a normal commercial basis.
In 2001, AMVAC completed the acquisition of a manufacturing facility (the “Axis Facility”) from E.I. DuPont de Nemours and
Company (“DuPont”). The Axis Facility is one of three such units located on DuPont’s 510 acre complex in Axis, Alabama. The
acquisition consisted of a long-term ground lease of 25 acres and the purchase of all improvements thereon. The facility is a multi-
purpose plant designed for synthesis of active ingredients and formulation and packaging of finished products.
AMVAC regularly adds chemical processing equipment to enhance or expand its production capabilities. AMVAC believes its
facilities are in good operating condition, are suitable and adequate for current needs, have flexibility to change products, and can
produce at greater rates as required. Facilities and equipment are insured against losses from fire as well as other usual business risks.
The Company knows of no material defects in title to, or encumbrances on, any of its properties except that substantially all of the
Company’s assets are pledged as collateral under the Company’s credit facility agreements with its primary lender group. For further
information, refer to note 2 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form
10-K.
AMVAC owns approximately 42 acres of unimproved land in Texas for possible future expansion.
The Company leases approximately 19,953 square feet of office space located at 4695 MacArthur Court in Newport Beach,
California. In September 2015 the lease was amended and was extended to expire on June 30, 2021. The premises have served as the
Company’s corporate headquarters since 1994.
AMVAC BV’s, GemChem’s, AMVAC M’s, AMVAC M Srl’s, AMVAC CR Srl’s, AMVAC Sgpr’s, OHP’s and AgriCenter’s
facilities consist of administration and/or sales offices which are leased.
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AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
ITEM 3
LEGAL PROCEEDINGS
A. DBCP Cases
Over the course of the past 30 years, AMVAC and/or the Company have been named or otherwise implicated in a number of
lawsuits concerning injuries allegedly arising from either contamination of water supplies or personal exposure to 1, 2-dibromo-3-
chloropropane (“DBCP®”). DBCP was manufactured by several chemical companies, including Dow Chemical Company, Shell Oil
Company and AMVAC, and was approved by the USEPA to control nematodes. DBCP was also applied on banana farms in Latin
America. The USEPA suspended registrations of DBCP in October 1979, except for use on pineapples in Hawaii. That suspension
was partially based on 1977 studies by other manufacturers that indicated a possible link between male fertility and exposure to DBCP
among their factory production workers involved with producing the product.
At present, there are three domestic lawsuits and approximately 85 Nicaraguan lawsuits filed by former banana workers in
which AMVAC has been named as a party. Only two of the Nicaraguan actions have actually been served on AMVAC. With respect
to Nicaraguan matters, there was no change in status during 2017. As described more fully below, activity in domestic cases during
2017 is as follows. The one case remaining in Delaware includes 57 plaintiffs who have appealed a lower court finding that the matter
was barred by the statute of limitations; this matter has been stayed pending a ruling by the Delaware Supreme Court on the question
of when or if the statute of limitations has run out. In Hawaii, in the matter of Patrickson, et. al. v. Dole Food Company, following the
appellate court’s remand to the trial court for adjudication in 2016, there has been no activity; while in Adams, there has been no
activity since 2014, when the court granted dismissal of co-defendant Dole on the basis of a worker’s compensation bar and gave
plaintiffs leave to amend their complaint in light of that ruling.
Nicaraguan Matters
A review of court filings in Chinandega, Nicaragua, has found 85 suits alleging personal injury allegedly due to exposure to
DBCP and involving approximately 3,592 plaintiffs have been filed against AMVAC and other parties. Of these cases, only two –
Flavio Apolinar Castillo et al. v. AMVAC et al., No. 535/04 and Luis Cristobal Martinez Suazo et al. v. AMVAC et al., No. 679/04
(which were filed in 2004 and involve 15 banana workers) – have been served on AMVAC. All but one of the suits in Nicaragua have
been filed pursuant to Special Law 364, an October 2000 Nicaraguan statute that contains substantive and procedural provisions that
Nicaragua’s Attorney General previously expressed as unconstitutional. Each of the Nicaraguan plaintiffs’ claims $1 million in
compensatory damages and $5 million in punitive damages. In all of these cases, AMVAC is a joint defendant with Dow Chemical
Company and Dole Food Company, Inc. AMVAC contends that the Nicaragua courts do not have jurisdiction over it and that Public
Law 364 violates international due process of law. AMVAC has objected to personal jurisdiction and demanded under Law 364 that
the claims be litigated in the United States. In 2007, the court denied these objections, and AMVAC appealed the denial. It is not
presently known as to how many of these plaintiffs actually claim exposure to DBCP at the time AMVAC’s product was allegedly
used nor is there any verification of the claimed injuries. Further, to date, plaintiffs have not had success in enforcing Nicaraguan
judgments against domestic companies before U.S. courts. With respect to these Nicaraguan matters, AMVAC intends to defend any
claim vigorously. Furthermore, the Company does not believe that a loss is either probable or reasonably estimable and has not
recorded a loss contingency for these matters.
Delaware DBCP Cases
Abad Castillo and Marquinez. On or about May 31, 2012, two cases (captioned Abad Castillo and Marquinez) were filed with
the United States District Court for the District of Delaware (USDC DE No. 1:12-CV-00695-LPS) involving claims for physical
injury arising from alleged exposure to DBCP over the course of the late 1960’s through the mid-1980’s on behalf of 2,700 banana
plantation workers from Costa Rica, Ecuador, Guatemala, and Panama. Defendant Dole brought a motion to dismiss 22 plaintiffs
from Abad Castillo on the ground that they were parties in cases that had been filed by HendlerLaw, P.C. in Louisiana. On September
19, 2013, the appeals court granted, in part, and denied, in part, the motion to dismiss, holding that 14 of the 22 plaintiffs should be
dismissed. On May 27, 2014, the district court granted Dole’s motion to dismiss the matter without prejudice on the ground that the
applicable statute of limitations had expired in 1995. Then, on August 5, 2014, the parties stipulated to summary judgment in favor of
defendants (on the same ground as the earlier motion) and the court entered judgment in the matter. Plaintiffs were given an
opportunity to appeal; however, only 57 of the 2,700 actually entered an appeal. Thus, at this stage, only 57 plaintiffs remain in the
action. On or about June 18, 2017, the Third Circuit Court submitted a certified question of law to the Delaware Supreme Court on
the question of when the tolling period ended. The Delaware Supreme Court heard oral argument on January 17, 2018 and is expected
to issue a ruling within 90 days. During the pendency of this question, these matters will be effectively stayed. At any rate, the
Company believes that a loss is neither probable nor reasonably estimable in these matters and has not recorded a loss contingency.
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AMERICAN VANGUARD CORPORATION
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Hawaiian DBCP Matters
Patrickson, et. al. v. Dole Food Company, et al. In October 1997, AMVAC was served with two complaints in which it was
named as a defendant, filed in the Circuit Court, First Circuit, State of Hawai’i and in the Circuit Court of the Second Circuit, State of
Hawai’i (two identical suits) entitled Patrickson, et. al. v. Dole Food Company, et. al (“Patrickson Case”) alleging damages sustained
from injuries (including sterility) to banana workers caused by plaintiffs’ exposure to DBCP while applying the product in their native
countries. Other named defendants include: Dole Food Company, Shell Oil Company and Dow Chemical Company. After several
years of law and motion activity, the court granted judgment in favor of the defendants based upon the statute of limitations on July
28, 2010. On August 24, 2010, the plaintiffs filed a notice of appeal. On October 21, 2015, the Hawai’i Supreme Court granted the
appeal and overturned the lower court decision, ruling that the State of Hawai’i now recognizes cross-jurisdictional tolling, that
plaintiffs filed their complaint within the applicable statute of limitations and that the matter is to be remanded to the lower court for
further adjudication. No discovery has taken place in this matter, and, at this stage in the proceedings, the Company does not believe
that a loss is either probable or reasonably estimable and, accordingly, has not recorded a loss contingency for this matter.
Adams v. Dole Food Company et al. On approximately November 23, 2007, AMVAC was served with a suit filed by two
former Hawaiian pineapple workers (and their spouses), alleging that they had testicular cancer due to DBCP exposure; the action is
captioned Adams v. Dole Food Company et al in the First Circuit for the State of Hawaii. Plaintiff alleges that they were exposed to
DBCP between 1971 and 1975. AMVAC denies that any of its product could have been used at the times and locations alleged by
these plaintiffs. Following the dismissal of Dole Food Company on the basis of the exclusive remedy of worker’s compensation
benefits, plaintiffs appealed the dismissal. The court of appeals subsequently remanded the matter to the lower court in February 2014,
effectively permitting plaintiffs to amend their complaint to circumvent the workers’ compensation bar. There has been no activity in
the case since that time. The Company does not believe that a loss is either probable or reasonably estimable and has not recorded a
loss contingency for this matter.
B. Other Matters
EPA FIFRA/RCRA Matter. On November 10, 2016, the Company was served with a grand jury subpoena out of the U.S.
District Court for the Southern District of Alabama in which the U.S. Department of Justice (“DoJ”) sought production of documents
relating to the Company’s reimportation of depleted Thimet containers from Canada and Australia. The Company has retained
defense counsel and has substantially completed the production during the course of which it incurred approximately $2,350 in legal
costs and fees responding to this subpoena. During the third quarter of 2017, the Company received a request from DoJ to interview
several individuals who may be knowledgeable of the matter. Those interviews are likely to take place during the second quarter of
2018. At this stage, DoJ has not made clear its intentions with regard to either its theory of the case or potential criminal or civil
enforcement. Thus, it is too early to tell whether a loss is probable or reasonably estimable. Accordingly, the Company has not
recorded a loss contingency on this matter.
Walker v. AMVAC. On or about April 10, 2017, the Company was served with a summons and complaint that had been filed
with the United State District Court for the Eastern District of Tennessee under the caption Larry L. Walker v. AMVAC (as No. 4:17-
cv-00017). Plaintiff seeks contract damages, correction of inventorship, accounting and injunctive relief arising from for the
Company’s alleged misuse of his confidential information to support a patent application (which was subsequently issued) for a post-
harvest corn herbicide that the Company has not commercialized. Plaintiff claims further that he, not the Company, should be
identified as the inventor in such application. The Company believes that these claims are without merit and intends to defend
vigorously. On May 24, 2017, the Company filed a motion to dismiss this action, or in the alternative, for transfer of venue, on the
ground that (i) the complaint fails to state claim upon which relief can be granted, (ii) the contracts cited by plaintiff in his complaint
include a forum selection clause requiring that disputes are to be adjudicated in the U.S. District Court for the Central District of
California, and (iii) the doctrine of forum non conveniens applies. The District Court in Tennessee has yet to rule on the motion. At
this stage in the proceedings, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company
has not recorded a loss contingency.
Harold Reed v. AMVAC et al. During January 2017, the Company was served with two Statements of Claim that had been
filed on March 29, 2016 with the Court of Queen’s Bench of Alberta, Canada (as case numbers 160600211 and 160600237) in which
plaintiffs Harold Reed (an applicator) and 819596 Alberta Ltd. dba Jem Holdings (an application equipment rental company) allege
physical injury and damage to equipment, respectively, arising from a fire that occurred during an application of the Company’s
potato sprout inhibitor, SmartBlock, at a potato storage facility in Coaldale, Alberta on April 2, 2014. Plaintiffs allege, among other
things, that AMVAC was negligent and failed to warn them of the risks of such application. Reed seeks damages of $250 for pain and
suffering, while Jem Holdings seeks $60 in lost equipment; both plaintiffs also seek unspecified damages as well. Also during
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AMERICAN VANGUARD CORPORATION
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(Dollars in thousands, except per share data)
January 2017, the Company received notice that four related actions relating to the same incident were filed with the same court: (i)
Van Giessen Growers, Inc. v Harold Reed et al (No. 160303906)(in which grower seeks $400 for loss of potatoes); (ii) James
Houweling et al. v. Harold Reed et al. (No. 160104421)(in which equipment owner seeks damages for lost equipment); (iii) Chin
Coulee Farms, etc. v. Harold Reed et al. (No. 150600545)(in which owner of potatoes and truck seeks $530 for loss thereof); and (iv)
Houweling Farms v. Harold Reed et al. (No. 15060881)(in which owner of several Quonset huts seeks damages for lost
improvements, equipment and business income equal to $4,300). The Company was subsequently named as cross-defendant in those
actions by Reed. During the third quarter of 2017, counsel for the Company filed a Statement of Defence (the Canadian equivalent of
an answer), alleging that Reed was negligent in his application of the product and that the other cross-defendants were negligent for
using highly flammable insulation and failing to maintain sparking electrical fixtures in the storage units affected by the fire. The
Company believes that the claims against it in these matters are without merit and intends to defend them vigorously. At this stage in
the proceedings, however, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company
has not recorded a loss contingency.
Galvan v. AMVAC In an action entitled Graciela Galvan v. AMVAC filed on April 7, 2014 with the Superior Court for the
State of California for the County of Orange (No. 00716103CXC), plaintiff, a former employee, alleges violations of wages and hours
requirements under the California Labor Code. The Company completed the deposition of putative class representative and
participated in mediation on the matter. In February 2016, the court granted plaintiff’s motion for class certification with respect to
only one of the seven original claims (namely, that allegedly discretionary bonus payments made to class members during the subject
period should have been taken into account when calculating overtime). The Company believes that such bonus payments were
discretionary and, as such, were properly excluded from overtime calculations. Nevertheless, in the interest of saving defense costs,
the Company engaged in settlement discussions with plaintiff’s counsel over the course of several months. During the third quarter of
2016, the Company recorded a loss contingency to cover the estimated amount of settlement. During December 2016, the parties
reached agreement on terms of settlement, and, on February 9, 2018, the court gave its final approval to the terms of the class
settlement. The settlement was not material to the Company’s consolidated financial statements and the Company is to provide the
court with a report of administration of the settlement proceeds to the class in August 2018, after which the Company expects that the
matter will be dismissed with prejudice.
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable
14
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Effective March 7, 2006, the Company listed its $0.10 par value common stock (“Common Stock”) on the New York Stock
Exchange under the ticker symbol AVD. From January 1998 through March 6, 2006, the Common Stock was listed on the American
Stock Exchange under the ticker symbol AVD. The Company’s Common Stock traded on The NASDAQ Stock Market under the
symbol AMGD from March 1987 through January 1998.
The following table sets forth the range of high and low sales prices as reported for the Company’s Common Stock for the
calendar quarters indicated.
Calendar 2017
First quarter
Second quarter
Third quarter
Fourth quarter
Calendar 2016
First quarter
Second quarter
Third quarter
Fourth quarter
$
$
High
Low
19.35 $
18.80
23.35
24.00
17.07 $
17.41
17.92
20.00
14.65
15.20
17.10
18.01
9.63
12.60
14.45
14.20
Holders
As of February 16, 2018, the number of stockholders of the Company’s Common Stock was approximately 4,744, which
includes beneficial owners with shares held in brokerage accounts under street name and nominees.
Dividends
The Company has issued a cash dividend in each of the last twenty-two years dating back to 1996. Cash dividends declared
during the past three years are summarized in the table below.
Declaration Date
December 12, 2017
September 18, 2017
June 15, 2017
March 16, 2017
Total 2017
December 8, 2016
October 11, 2016
June 13, 2016
Total 2016
March 16, 2015
Total 2015
Dividend
Per Share
Total
Paid
0.015 $
0.015
0.015
0.015
0.060 $
0.010 $
0.010
0.010
0.030 $
0.020 $
0.020 $
438
439
437
435
1,749
289
289
289
867
572
572
Distribution Date
January 10, 2018
October 19, 2017
July 14, 2017
April 15, 2017
Record Date
December 27, 2017 $
October 5, 2017
June 30, 2017
March 31,2017
$
January 6, 2017
November 11, 2016 October 28, 2016
July 12, 2016
June 30, 2016
December 23, 2016 $
April 17, 2015
April 3, 2015
$
$
$
15
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Purchases of Equity Securities by the Issuer
None
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category
Equity compensation plans approved
by security holders
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants, rights
Number of securities
remaining available for
future issuance
under equity
compensation plans
554,449 $
554,449 $
9.60
9.60
2,000,579
2,000,579
16
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Stock Performance Graph
The following graph presents a comparison of the cumulative, five-year total return for the Company, the S&P 500 Stock Index,
and a peer group (Specialty Chemical Industry). The graph assumes that the beginning values of the investments in the Company, the
S&P 500 Stock Index, and the peer group of companies each was $100 on December 31, 2012. All calculations assume reinvestment
of dividends. Returns over the indicated period should not be considered indicative of future returns.
17
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
ITEM 6
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to each of the calendar years in the five-year period ended
December 31, 2017, have been derived from the Company’s consolidated financial statements and are qualified in their entirety by
reference to the more detailed consolidated financial statements and the independent registered public accounting firm’s reports
thereon, which are included elsewhere in this Report on Form 10-K as of December 31, 2017 and 2016 and for each of the three years
in the period ended December 31, 2017. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Net sales
Gross profit
Operating income
Income before provision for income taxes and loss on
equity investments
Net income attributable to American Vanguard
Earnings per common share
Earnings per common share—assuming dilution
Total assets (1)
Working capital (1)
Long-term debt, excluding current installments
Stockholders’ equity
Weighted average shares outstanding—basic
Weighted average shares outstanding—assuming dilution
Dividends per share of common stock
$
$
$
$
$
$
$
$
$
$
$
$
2017
355,047 $
147,392 $
26,794 $
2016
312,113 $
128,288 $
20,540 $
24,853 $
20,274 $
0.70 $
0.68 $
535,592 $
128,681 $
77,486 $
305,314 $
29,100
29,703
0.06 $
18,917 $
12,788 $
0.44 $
0.44 $
429,956 $
130,001 $
40,951 $
282,357 $
28,859
29,394
0.03 $
2014
2015
289,382 $ 298,634 $
111,902 $ 114,496 $
6,710 $
11,524 $
8,962 $
6,591 $
0.23 $
0.23 $
3,644 $
4,841 $
0.17 $
0.17 $
435,270 $ 463,590 $
139,850 $ 197,073 $
98,605 $
268,326 $ 261,003 $
28,436
28,912
0.17 $
28,673
29,237
0.02 $
68,321 $
2013
381,021
171,347
55,735
53,834
34,449
1.22
1.19
439,917
132,486
50,671
257,795
28,301
28,899
0.22
(1) The Company’s consolidated balance sheets as of December 31, 2015, 2014, and 2013 reflects certain reclassifications for
deferred income taxes and income taxes payables.
18
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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. Generally, “may,” “could,” “will,” “would,” “expect,” “believe,” “estimate,” “anticipate,”
“intend,” “continue” and similar words identify forward-looking statements. Forward-looking statements appearing in this Report are
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are
based on our current expectations and are subject to risks and uncertainties that can cause 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 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. SEC. It is not possible to foresee or identify all such factors. We urge you to consider these factors carefully in
evaluating the forward-looking statements contained in this Report.
MANAGEMENT OVERVIEW
The Company’s operating results in 2017 were improved over those of 2016, with net sales up 14% ($355,047 compared to
$312,113, year over year), net income attributable to American Vanguard up 58% ($20,274 v. $12,788), gross profit up about 15%
($147,392 v. $128,288), gross margin slightly up to 42% of net sales and operating expenses up about 12% ($120,598 v. $107,748),
but down as a percentage of sales to 34% in 2017 as compared to 35% in 2016.
Top line sales performance was driven in part by growth of certain existing product lines, particularly domestic cotton products
(in light of increase cotton acreage and pest pressure) and vector control products (following heightened hurricane activity), and the
addition of new sales from the four acquisitions that the Company completed largely in the second half of 2017. Gross profit increased
as a result of continued improvement in factory performance, organic growth in the Company’s sales and the addition of products and
businesses acquired during 2017. Operating expenses rose on an absolute basis, as the Company continued to invest in the
maintenance of registrations of several important products, professional fees related to acquisitions, continued development of our
SIMPAS precision application technology and litigation related to the DoJ proceedings against us, but dropped as a percentage of
sales. Due to our acquisition activities, our borrowings increased in 2017 as compared to 2016. As a result, net interest expense was
$1,941 in 2017, as compared to $1,623 in 2016. Our provision for income taxes included a one-time benefit of $3,433 in connection
with the enactment of the Tax Cuts and Jobs Act (“Tax Reform Act”) on December 22, 2017. Our effective tax rate decreased to 18%
in 2017, as compared to 30% in 2016. Net income increased to $0.68 per diluted share ($0.70 per basic share), as compared to $0.44
per diluted (and basic) share in 2016.
When considering the consolidated balance sheet, long-term debt increased by $36,535 to $77,486 at December 31, 2017, as
compared to $40,951 this time last year. The increased level of debt was driven by four acquisitions completed during the financial
year and particularly in the final quarter of the year. Notwithstanding the increase in long term debt, the Company’s borrowing
capacity increased to $139,241 as of December 31, 2017 as compared to $104,853 at the same time in 2016, and inventory, including
goods purchased with our acquisitions, increased only slightly ($123,124 v. $120,576) at year-end.
19
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Results of Operations
2017 Compared with 2016:
Net sales:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators
Total crop
Non-crop
Total net sales
Cost of sales:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators
Total crop
Non-crop
Total cost of sales
Gross profit:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators
Gross profit crop
Gross profit non-crop
Total gross profit
Gross margin crop
Gross margin non-crop
Total gross margin
Net sales:
U.S
International
Total net sales
2017
2016
$ Change
%
Change
132,137
121,581
47,691
301,409
53,638
355,047
84,008
67,558
31,951
183,517
24,138
207,655
48,129
54,023
15,740
117,892
29,500
147,392
39%
55%
42%
256,142
98,905
355,047
$
$
$
$
$
$
$
$
119,226
123,540
29,438
272,204
39,909
312,113
$ 12,911
(1,959)
18,253
29,205
13,729
$ 42,934
78,945
66,299
19,139
164,383
19,442
183,825
$
5,063
1,259
12,812
19,134
4,696
$ 23,830
40,281
57,241
10,299
107,821
20,467
128,288
$
7,848
(3,218)
5,441
10,071
9,033
$ 19,104
40 %
51 %
41 %
11%
-2%
62%
11%
34%
14%
6%
2%
67%
12%
24%
13%
19%
-6%
53%
9%
44%
15%
228,854
83,259
312,113
$ 27,288
15,646
$ 42,934
12%
19%
14%
$
$
$
$
$
$
$
$
Following is a more detailed discussion of our sales performance by category. Domestic sales finished the year at $256,142, as
compared to $228,854 in 2016, an increase of 12%. Sales were positively impacted by strong growth in our US cotton products
Bidrin® and Folex®; a stable Midwest corn soil insecticide market where procurement in the distribution channel appears to have
normalized; hurricane-driven demand for our superior mosquito adulticide, Dibrom®; and $21,978 in incremental sales of newly
acquired products and businesses primarily in the second half of the year. Offsetting these increases, we experienced significant
competitive pricing pressure in the US post-emergent corn herbicide market for our product Impact®, and slightly lower annual sales
from our soil fumigant products mainly driven by wet weather in the early part of the year in the western states.
International sales increased 19% year-over year ($98,905 in 2017 as compared to $83,259 in 2016), driven by increased sales
associated with the key AgriCenter acquisition, made in October 2017, strong tolling revenues, and increased sales of Counter and
Aztec. These gains were offset by slower sales of our Mocap® and Nemacur® insecticides.
The relative sales performance of our crop and non-crop businesses is as follows: Net sales of our crop business in 2017 were
$301,409, which constitutes an increase of 11% as compared to net sales of $272,204 in 2016. Net sales of our non-crop products in
2017 were $53,638, which is an increase of approximately 34% as compared to $39,909 in 2016. A more detailed discussion of
product groups and products having an effect on net sales for each of the crop and non-crop businesses appears below.
In our crop business, net sales of insecticides in 2017 ended at $132,137, which was an 11% increase as compared to sales of
$119,226 in 2016. For the same period, annual net sales of our granular soil insecticides were up 8% above 2016. We saw increased
20
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
year-over-year sales from our Thimet® used in peanuts, sugar cane and potatoes, along with increased domestic sales of our cotton
foliar insecticide, Bidrin®. We saw modest sales increases in our domestic corn soil insecticides Aztec®, SmartChoice® and
Counter® offset by some modest sales declines in our international sales of Mocap® and Nemacur®. We also benefitted from the
mid-year acquisition of abamectin which added net sales of approximately $2,000 to our results. In general, our overall agricultural
insecticide business showed a solid performance in 2017.
Within the product group of herbicides/soil fumigants/fungicides, our crop net sales in 2017 ended at $121,581, as compared to
$123,540 in 2016. Our fumigant product line continued to perform well despite a slight year-over-year decline in revenue caused by
wet weather in both the Western and Southeastern regions of the US which inhibited some on-ground application of this liquid
product. In the midwest, we experienced an intensely competitive environment during the year in the post-emergent corn herbicide
market and sales of our Impact® herbicide declined when compared to the prior year. This performance was substantially offset by
strong performances of both our newly acquired paraquat herbicide and our chlorothalonil fungicide. These products were acquired in
mid-year and contributed over $14,000 to this category.
Within our other product group (which includes plant growth regulators, molluscicides and third party manufacturing activity)
we experienced an increase of 62% in net sales, ending at $47,691 in 2017, as compared to $29,438 in 2016. The main drivers of this
performance were stronger year-over-year sales of our cotton defoliant Folex® due to the 20% increase in U.S. cotton acreage in 2017
as compared to the prior year, an increase in toll manufacturing activity, and the inclusion of sales in Latin America by our newly
acquired AgriCenter business.
Within our non-crop business, 2017 net sales increased by 34% to $53,638 as compared to $39,909 in 2016. The sales increase
resulted from sales in the last three months of the year following the acquisition of OHP, our new niche horticultural distribution
business. In addition, our core non crop product portfolio had a very solid year led by naled sales (our Dibrom® brand mosquito
adulticide) which rose 69% in 2017, as a result of the intense hurricane season, headlined by the persistent torrential rains of Harvey
over the eastern Texas coastal region. In response to the emergency, AMVAC ramped up production significantly, FEMA utilized all
available Dibrom inventories (both from the Company and in the market) and the resulting mosquito control operation was successful.
We also recorded a 92% increase in our PCNB product sales as we continue to build our market position, an 18% increase in our Pest
Strip® products, and modest increases in several of our other commercial pest control products. This performance was offset by the
short-term decline in our pharmaceutical products arising from customers having ordered additional product in 2016 in light of
uncertain supply conditions.
Our cost of sales for 2017 was $207,655 or 58% of sales. This compared to $183,825 or 58% of sales for 2016. The Company
aggregates a number of key variable, semi-variable and fixed cost components within reported cost of sales. The raw materials
element of our cost of sales remained approximately flat as compared to last year. During the year, our Impact product line endured
increased competition resulting in some weakening of market price and accordingly, increased cost of sales when compared to sales
revenue as a result. Furthermore, the distribution businesses acquired in the final quarter performed well and added to net sales, as
indicated above. In general terms the cost of sales related to distribution activities tends to be higher than those of our core business
portfolio because those businesses are selling fully marked up third party products while the Company’s core portfolio benefits from
the upstream manufacturing activity. Our manufacturing performance for the year was strong and in-line with our targets; specifically,
our factory underabsorption costs dropped to $12,865 or 3.6% of net sales in 2017 as compared to $17,739 or 5.7% of net sales in
2016.
Gross profit for 2017 improved by $19,104 or 15% to end at $147,392 for the year ended December 31, 2017, as compared to
$128,288 for the prior year. Gross margin as a percent of net sales, however, was 42% for 2017 as compared to 41% in 2016. While
the Company experienced continuous improvement in factory performance and factory cost recovery and strong performance on raw
material purchasing, these benefits were offset by competitive pricing pressure in the Midwest herbicide market and a larger volume
of lower-margin sales through newly acquired distribution businesses.
21
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Operating expenses in 2017 increased by $12,850 to $120,598 or 34% of sales as compared to $107,748 or 35% in 2016. The
differences in operating expenses by department are as follows:
Selling
General and administrative
Research, product development and regulatory
Freight, delivery and warehousing
Change
$
2017
29,112 $
37,660
26,076
27,750
2016
27,442 $
32,128
21,298
26,880
$ 120,598 $ 107,748 $
% Change
6%
17%
22%
3%
12%
1,670
5,532
4,778
870
12,850
Selling expenses increased by $1,670 to $29,112 for the year ended December 31, 2017, as compared to $27,442 in 2016.
The main drivers for the increased expenses are expanded activities in both international and domestic sales operations
resulting from acquisitions. However, selling expenses as a percent of net sales actually decreased from 8.8% in 2016 to
8.2% in 2017.
General and administrative expenses increased by $5,532 to $37,660 for the year ended December 31, 2017, as compared
to $32,128 in 2016. The main drivers for the increase are driven by an increase in legal expenses related to the DoJ
proceedings against the Company of approximately $1,200, expenses of $1,821 incurred in professional fees in connection
with the product and business acquisitions completed in 2017 including; the expense of the acquisition process, increased
amortization expenses as a result of the valuation of the acquisitions, and the administrative operating expenses of such
acquisitions from the closing date of the respective acquisitions.
Research, product development and regulatory expenses increased by $4,778 to $26,076 for the year ended December 31,
2017, as compared to $21,298 in 2016. The increase is driven by additional regulatory activity defending our expanded
portfolio of products, product development studies, driven by our expanded portfolio and continued progress on the
development of our SIMPAS technology.
Freight, delivery and warehousing costs for the year ended December 31, 2017 increased by $870 to $27,750, as
compared to $26,880 in 2016. When expressed as a percentage of sales, freight costs decreased slightly year over year to
7.8% in 2017, as compared to 8.6% in 2016. This is mainly due to product mix and locations of customers.
Net interest expense was $1,941 in 2017, as compared to $1,623 in 2016. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
Working capital revolver
Notes payable
Interest income
Amortization of debt issuance costs
Amortization of other deferred liabilities
Other interest expense
Subtotal
Capitalized interest
Total
Average
Debt
$ 51,103 $
—
—
—
—
—
51,103
—
$ 51,103 $
2017
Interest
Expense
Interest
Rate
Average
Debt
2016
Interest
Expense
Interest
Rate
1,547
—
(41)
293
82
143
2,024
(83)
1,941
3.0% $ 59,897 $
20
—
—
—
—
—
—
—
—
—
59,917
4.0%
—
—
3.8% $ 59,917 $
1,382
1
(7)
250
37
44
1,707
(84)
1,623
2.3%
5.0%
—
—
—
—
2.8%
—
2.7%
The Company’s average overall debt for the year ended December 31, 2017 was $51,103 as compared to $59,917 for the year
ended December 31, 2016. On a gross basis, our effective interest rate increased on our working capital revolver to 3.0%, as compared
to 2.3% in 2016. This increase was driven by increases in the LIBOR rate. After adjustments related to capitalized interest and
including expenses related to the amortization of deferred liabilities, the overall effective rate was 3.8% for 2017 as compared to 2.7%
in 2016.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The legislation significantly
changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing
a tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act reduces the U.S. corporate income tax rate from a
maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, we
22
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
revalued our ending net deferred tax assets and liabilities at December 31, 2017, provisionally resulting in a deferred tax benefit of
$4,683 that is included in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided
for a one-time deemed mandatory repatriation of Post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the
year ended December 31, 2017. We have performed a review of our foreign entities and have estimated that the amount of deemed
repatriated income amounts to $30,085, on which the Company has estimated that there will be a tax expense of $1,250. That amount
is also included in the provision for income taxes for the year ended December 31, 2017. The net tax benefits from the Tax Reform
Act are reflected in our financial results in accordance with Staff Accounting Bulletin No. 118 (SAB 118), which was issued to
address the application of US GAAP in situations when the registrant does not have the necessary information available, prepared or
analyzed (including computation) in reasonable detail to complete the accounting for uncertain income tax effects of the Tax Reform
Act. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities and of the impact of the deemed
repatriation. Any subsequent adjustment to these amounts will be recorded to income tax expense in the quarter of 2018 when the
analysis is complete.
Our provision for income taxes for 2017 was $4,443, as compared to $5,540 for 2016. The effective tax rate for 2017 was 18%,
as compared to 30% in 2016. The decrease in the effective tax rate was primarily driven by the inclusion of the one-time net tax
benefit associated with the Tax Reform Act enacted on December 22, 2017, in the amount of $3,433. The decrease is partially offset
by lower percentage of earnings in jurisdictions with lower income tax rate.
The Company has effectively settled its examination with the Internal Revenue Service (“IRS”) for the tax years ended
December 31, 2012 through 2014. The Company’s 2015 and 2016 federal income tax returns are still subject to IRS examination.
The Company has other state and foreign income tax returns subject to examination.
For the year ended December 31, 2017, the Company recorded losses on its equity investment of $49. For the same period of
2016, the Company recorded losses on its equity investment of $353. In 2017, our net income was reduced by $87, as compared to
$236 in 2016, representing the share of net income of our majority owned subsidiary that was charged to the non-controlling interest.
Net income attributable to American Vanguard ended at $20,274 or $0.68 per diluted share in 2017 as compared to $12,788 or
$0.44 per diluted share in 2016.
Liquidity and Capital Resources
The Company generated $59,001 of cash from operating activities provided during the year ended December 31, 2017, as
compared to $46,406 in the prior year. Included in the $59,001 are net income of $20,361, plus non-cash depreciation, amortization of
intangibles and other assets and discounted future liabilities, in the amount of $22,290. Stock based compensation of $4,714, loss
from equity method investment of $49 and change in value of deferred income taxes of $398, provided net cash inflows of $47,812, as
compared to $37,843 for the same period of 2016.
During 2017 the Company generated $11,189 from reducing working capital, as compared to generating $8,563 during 2016.
This change excluded increases in working capital related to the products and businesses acquired during 2017. Included in this
change; inventories reduced by $16,183 as a result of consistent efforts from our sales, inventory and operations planning team to
balance manufacturing cost recovery, plant capacity and customer needs. Deferred revenue as of December 31, 2017 increased by
$10,726, as compared to December 31, 2016 primarily as a result of customer decisions to make early payments in return for early
cash incentive programs. Our accounts payable balances increased by $3,322 driven by increased manufacturing activity and capital
spending in the final quarter of the year. In addition accounts receivables and prepaid expenses reduced by $754 and $647
respectively. Offsetting these positive changes, the Company made payments to the IRS following the concluding of the 2012 to 2014
audit in the amount of $12,073 and accrued programs reduced year-on-year by $4,529. Finally other payables decreased by $3,841.
With regard to program accrual, these reduced as noted above, primarily reflecting our mix of sales and customers in 2017 as
compared to the prior year. The Company accrues programs in line with the growing season upon which specific products are
targeted. Typically crop products have a growing season that ends on September 30th of each year. During 2017, the Company made
accruals for programs in the amount of $59,806 and made payments in the amount of $63,682. During the prior year, the Company
made accruals in the amount of $70,448 and made payments in the amount of $71,889.
In 2016, inventory reduced by $15,901, accounts payables increased by $9,015, other payables increased by $4,631 and income
tax receivable reduced by $1,186. Offsetting these positive changes, accounts receivables increased by $11,817, prepaid expenses
increased by $3,872, deferred revenues decreased by $5,040 and program costs by $1,441.
23
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Cash used for investing activities was $89,512 for the year ended December 31, 2017 as compared to $14,137 in 2016. The
Company spent $81,896 in business acquisitions including intangible assets, goodwill, working capital and fixed assets. In addition,
$6,666 was spent on fixed assets primarily focused on continuing to invest in manufacturing infrastructure and $950 on an investment.
During the year ended December 31, 2017 financing activities provided $33,935, principally from the borrowings on the
Company’s senior credit facility, as compared to utilizing $28,545 for the year ended December 31, 2016. This included a net
borrowing of $37,025 from our credit facility in 2017, as compared to a net repayment of $27,600 in 2016. We paid $751 in debt
issuance costs related to the amendment of our credit facility. In 2017, we paid dividends to stockholders amounting to $1,600, as
compared to $578 in 2016.
The Company has various loans in place that together constitute the long-term loan balances shown in the consolidated balance
sheets as at December 31, 2017 and 2016. These are summarized in the following table:
Indebtedness
$000’s
Revolving line of credit
Debt issuance costs
Total indebtedness
2017
Long-term
2016
Long-term
$
$
78,425 $
(939 )
77,486 $
41,400
(449)
40,951
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.
As of June 30, 2017, AMVAC Chemical Corporation (“AMVAC”), the Company’s principal operating subsidiary, as borrower,
and affiliates (including the Company, AMVAC CV and AMVAC BV), as guarantors and/or borrowers, entered into a Third
Amendment to Second Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of commercial lenders led by
Bank of the West as agent, swing line lender and Letter of Credit (“L/C”) issuer. The Credit Agreement is a senior secured lending
facility, consisting of a line of credit of up to $250,000, an accordion feature of up to $100,000 and a maturity date of June 30, 2022.
The Credit Agreement contains two key financial covenants; namely, borrowers are required to maintain a Consolidated Funded Debt
Ratio of no more than 3.25-to-1 and a Consolidated Fixed Charge Covenant Ratio of at least 1.25-to-1. The Company’s borrowing
capacity varies with its financial performance, measured in terms of 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 Rate” which is based upon the Consolidated Funded Debt Ratio
(“Eurocurrency Rate 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 Rate (“Alternate Base Rate Loan”). Interest
payments for Eurocurrency Rate 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 Alternate Base Rate Loans are payable on the last
business day of each month and the maturity date.
At December 31, 2017, according to the terms of the Credit Agreement and based on our performance against the most
restrictive covenants listed above, the Company had the capacity to increase its borrowings by up to $139,241. This compares to an
available borrowing capacity of $104,853 as of December 31, 2016. The level of borrowing capacity is driven by three factors: (1) our
financial performance, as measured in EBITDA for trailing twelve month period, which has improved, (2) the inclusion of proforma
EBITDA related to acquisitions completed during 2017 and (3) the leverage covenant (being the number of times EBITDA the
Company may borrow under its credit facility agreement). The Company was in compliance with all the debt covenants as of
December 31, 2017.
Contractual Obligations and Off-Balance Sheet Arrangements
We believe that the combination of our cash flows from operations, current cash on hand and the availability under the
Company’s credit facility will be sufficient to meet our working capital and capital expenditure requirements and will provide us with
adequate liquidity to meet our anticipated operating needs for at least the next 12 months. Although operating activities are expected
to provide cash, to the extent of growth in the future, our operating and investing activities will use cash and, consequently, this
growth may require us to access some or all of the availability under the credit facility. It is also possible that additional sources of
finance may be necessary to support additional growth.
24
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
The following summarizes our contractual obligations at December 31, 2017, and the effects such obligations are expected to
have on cash flows in future periods:
Long-term debt
Estimated interest liability (1)
Licensing obligations
Deferred earn outs on business acquisitions
Employment agreements
Operating leases—rental properties
Operating leases—vehicles
Transition taxes (2)
Total
78,425 $
8,118
589
10,741
2,427
6,762
1,361
1,250
109,673 $
$
$
Less than
1 Year
Payments Due by Period
1—3
Years
4—5
Years
After
5 Years
— $
1,804
127
5,263
896
1,520
730
100
10,440 $
— $
3,608
240
5,478
1,531
2,984
615
200
14,656 $
78,425 $
2,706
222
—
—
1,608
16
200
83,177 $
—
—
—
—
—
650
—
750
1,400
(1) Estimated interest liability has been calculated using the current effective rate for each category of debt over the remaining term
of the debt and taking into account scheduled repayments. The revolving line has been assumed to be constant (i.e. $78,425)
throughout the remaining term. All of our debt is linked to LIBOR rates.
There were no other off-balance sheet arrangements as of December 31, 2017.
Under the terms of the credit facility, all debt outstanding is due when the agreement expires on June 30, 2022.
In addition to the above contractual obligations, $2,118 of unrecognized tax benefits and $2,257 of accrued penalties and
interest have been recorded as long term liabilities as of December 31, 2017. We are uncertain as to if or when such amounts
may be settled or any tax benefits may be realized.
(2) The Company elected to pay the transition tax in an eight-year period.
25
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Results of Operations
2016 Compared with 2015:
2016
2015
$ Change % Change
Net sales:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators
Total crop
Non-crop
Total net sales
Cost of sales:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators
Total crop
Non-crop
Total cost of sales
Gross profit:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators
Gross profit crop
Gross profit non-crop
Total gross profit
Gross margin crop
Gross margin non-crop
Total gross margin
Net sales:
U.S
International
Total net sales
$ 119,226 $ 117,180 $
123,540 111,897
29,013
272,204 258,090
31,292
29,438
39,909
$ 312,113 $ 289,382 $
$
78,945 $
66,299
19,139
77,288 $
65,507
18,097
164,383 160,892
16,588
19,442
$ 183,825 $ 177,480 $
$
40,281 $
57,241
10,299
107,821
20,467
39,892 $
46,390
10,916
97,198
14,704
$ 128,288 $ 111,902 $
38%
46%
39%
40%
51%
41%
2,046
11,643
425
14,114
8,617
22,731
1,657
792
1,042
3,491
2,854
6,345
389
10,851
(617 )
10,623
5,763
16,386
2%
10%
1%
5%
28%
8%
2%
1%
6%
2%
17%
4%
1%
23%
-6%
11%
39%
15%
$ 228,854 $ 212,087 $
83,259
77,295
$ 312,113 $ 289,382 $
16,767
5,964
22,731
8%
8%
8%
Net sales in 2016 increased by approximately 8%, as compared to the prior year. This is largely attributable to lower sales of our
cotton insecticide caused by fewer planted acres in several key selling geographies and lighter foliar pest pressure. We experienced
another year of solid performance from our soil fumigant products, which are used in the potato and various vegetable/fruit markets.
Sales also benefited from the introduction of several new High Concentration (HC) soil insecticides, and from increased international
sales of our insecticides Mocap® and Nemacur® along with first year sales of our recently acquired bromacil herbicide products.
Our international business continued to perform well during the twelve months ended December 31, 2016 with net sales of
$83,259 which was a 8% improvement over the prior year. Sales benefited from our April, 2015 acquisition of two product lines –
European Nemacur® purchased from Adama and the Hyvar/Krovar (bromacil) products purchased from DuPont. In 2015, the
Company recorded stronger sales in Mexico and the Asian market, somewhat lower sales in Europe and Canada, and relatively flat
sales in other geographic regions.
In the Midwest corn market, distributors and retailers continued to work down inventories of many crop protection products and
growers remained cautious regarding input purchases due to the low corn commodity price. During the year, we have seen excess
inventories decline significantly and corn commodity price stabilize, both of which should provide a basis for more normal buying
patterns to resume. Despite conservative procurement described above and continued reduced insect pressure as a result of two years
of harsh winter weather, the Company’s 2015 sales of insecticide and herbicide products for corn remained essentially flat with the
prior year.
26
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
The Company’s total net sales for the year ended December 31, 2016 were up 8% to $312,113, as compared to $289,382 for the
year ended December 31, 2015. Net sales of our crop business in 2016 were $272,204, which constitutes an increase of nearly 5% as
compared to net sales of $258,090 for that business in 2015. Net sales of our non-crop products in 2016 were $39,909, which is an
increase of approximately 28% as compared to $31,292 in 2015. A more detailed discussion of product groups and products having a
material effect on net sales for each of the crop and non-crop businesses appears below.
In our Crop business, net sales of insecticides in 2016 ended at $119,226, which was a 2% increase as compared to $117,180 in
2015. For the same period, annual net sales of our granular soil insecticides were up 4% from 2015, primarily driven by reduced
equipment sales, while sales of our corn soil insecticides remained relatively flat. We had increased year-over-year performance from
our Nemacur® and Mocap® products in international markets offset by a decline in domestic Thimet® sales due to seasonally delayed
purchasing which are likely to shift to later in the 2016-2017 season. Among our non-granular insecticide products for crop
applications, net sales of our cotton foliar insecticide Bidrin® were down due to fewer planted acres in several prime/high usage areas
of the Southeast region and lighter pest pressure.
Within the product group of herbicides/soil fumigants/fungicides, our crop net sales in 2016 were up 10% to $123,540 as
compared to $111,897 in 2015. Our fumigant product line continued to perform well. Midwest restocking demand for our post-
emergent corn herbicide Impact resulted in increased sales and the addition of newly acquired bromacil products Hyvar® and Krovar®
contributed to an overall increase in our herbicide category. Within this group, fungicides were essentially flat with the prior year.
Within our other products group (which includes plant growth regulators, molluscicides and third party manufacturing activity),
we experienced an increase of approximately 1% in net sales, ending at $29,438 in 2016, as compared to $29,013 in 2015. The major
drivers of this performance were flat year-over-year sales of our cotton defoliant Folex®; a decline in our specialty fruit product NAA®
and toll manufacturing; offset by an increase in sales of our potato sprout inhibitor SmartBlock® and our molluscicide Metaldehyde.
Within our non-crop business, 2016 net sales increased by 28% to $39,909 as compared to $31,292 recorded in 2015. Naled
sales (our Dibrom® brand mosquito adulticide) rose 8% in 2016, and we saw slight increases in several of our products that have faced
generic competition. Offsetting those gains, we posted either flat or lower year-over-year sales in our consumer bug/insect sprays, pest
strips and pharmaceutical product lines.
Our cost of sales for 2016 was $183,825 or 59% of net sales. This compared to $177,480 or 61% of net sales for 2015. The
decrease in cost of sales as a percentage of net sales in 2016 was driven primarily as a result of reduced factory costs, which reduced
cost of sales by approximately 2.4%. This was partially offset by inflation in raw material prices, which on average amounted to an
increase in cost of sales approximately ¾ of one percent. Together these factors resulted in the reduction in cost of sales by 1%.
Gross profit for 2016 increased by $16,386 to end at $128,288 for the year ended December 31, 2016, as compared to $111,902
for the prior year. Gross margin percentage for 2016 improved by 2% and ended at 41%, as compared to 39% for 2015. The
improvement was driven by improved factory cost recovery.
Operating expenses in 2016 increased by $7,370 to $107,748 or 34.5% of sales as compared to $100,378 or 34% in 2015. The
differences in operating expenses by department are as follows:
Selling
General and administrative
Research, product development and regulatory
Freight, delivery and warehousing
$
2016
27,442 $
32,128
21,298
26,880
2015
27,052 $
28,516
19,116
25,694
$ 107,748 $ 100,378 $
Change
Change
390
3,612
2,182
1,186
7,370
1%
13%
11%
5%
7%
Selling expenses increased by $390 to end at $27,442 for the year ended December 31, 2016, as compared to $27,052 in
2015. The main drivers for the decrease are cost reduction actions in our advertising and marketing efforts and reductions
in costs associated with both international and domestic field sales operations.
General and administrative expenses increased by $3,612 to $32,128 for the year ended December 31, 2016, as compared
to $28,516 in 2015. The main drivers for the increase are primarily due to increase in legal expense, amortization expense
from the product line acquisitions completed during the early part of 2016 and incentive compensation costs.
27
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Research, product development and regulatory expenses increased by $2,182 to $21,298 for the year ended December 31,
2016, as compared to $19,116 in 2015. This was driven by timing of product defense studies and from the benefits of the
consolidation of two industry wide task force groups.
Freight, delivery and warehousing costs for the year ended December 31, 2016 increased by $1,186 to $26,880, as
compared to $25,694 in 2015. As a percentage of sales, freight costs reduced slightly year over year, at 8.6% in 2016, as
compared to 8.9% in 2015.
Net interest expense was $1,623 in 2016, as compared to $2,562 in 2015. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
Working capital revolver
Notes payable
Interest Income
Amortization of debt issuance costs
Amortization of other deferred liabilities
Other interest expense
Subtotal
Capitalized interest
Total
Average
Debt
$ 59,897 $
20
—
—
—
—
$ 59,917 $
—
$ 59,917 $
2016
Interest
Expense
Interest
Rate
Average
Debt
2015
Interest
Expense
Interest
Rate
1,382
1
(7)
250
37
44
1,707
(84)
1,623
2.3% $ 94,765 $
6,809
5.0%
—
—
—
—
—
—
—
—
2.8% $ 101,574 $
—
—
2.7% $ 101,574 $
2,027
266
—
291
135
53
2,772
(210)
2,562
2.1%
3.9%
—
—
—
—
2.7%
—
2.5%
The Company’s average overall debt for the year ended December 31, 2016 was $59,917 as compared to $101,574 for the
comparable period of the previous year. As can be seen from the above table, on a gross basis, the effective interest rate on our
working capital revolver decreased to 2.3%, as compared to 2.1% in 2015, due to lower interest rates on our new senior credit facility
agreement and the absence of a fixed rate swap. After adjustments related to capitalized interest and including expenses related to the
amortization of deferred liabilities, the overall effective rate was 2.7% for 2016 as compared to 2.5% in 2015. Reduction in deferred
liabilities related to product line acquisitions contributed to the reduction in our effective interest rate in 2016.
Income tax expense for 2016 was $5,540, as compared to a tax expense of $2,009 for 2015. The effective tax rate for 2016 was
30%, as compared to 23% in 2015. The increase in the effective tax rate was driven by additional income generated in the U.S. as
compared to the previous year. The ratio of domestic to foreign income has a material impact on the Company’s overall effective tax
rate.
For the year ended December 31, 2016, the Company recorded losses on its equity investment of $353. For the same period of
2015, the Company recorded losses on its equity investment of $629 and a loss on dilution in the amount of $7, for a total loss of $636
on its equity method investment. In 2016, our net income was reduced by $236, representing the share of net income of our majority
owned subsidiary that was allocated to the non-controlling interest. In 2015, a net loss of $274 was allocated to the non-controlling
interest share.
Net income attributable to American Vanguard ended at $12,788 or $0.44 per diluted share in 2016 as compared to $6,591 or
$.23 per diluted share in 2015.
Recently Issued Accounting Guidance
Please refer to Notes of Consolidated Financial Statements – Description of Business, Basis of Consolidation, Basis of
Presentation and Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements for recently
issued and adopted accounting standards.
Foreign Exchange
Management does not believe that the fluctuation in the value of the dollar in relation to the currencies of its customers in the
last two fiscal years has adversely affected the Company’s ability to sell products at agreed upon prices denominated in U.S. dollars,
where applicable. No assurance can be given, however, that adverse currency exchange rate fluctuations will not occur in the future.
28
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Should adverse currency exchange rate fluctuations occur in geographies where the Company sells/exports its products, management
is not certain such fluctuations will or will not materially impact the Company’s operating results.
Inflation
Management believes inflation has not had a significant impact on the Company's operations during the past two years. The
Company is working diligently with its critical raw material suppliers to control inflationary pressures, conducting contract
negotiations with focus on two key market shifts: first, the relatively stable price of oil and natural gas, combined with higher global
prices for basic feedstocks like phosphorus, caustic soda, methanol and sulfur have prompted some suppliers to announce price
increases to the Company, and second, the Company monitors our international suppliers' for possible currency gains versus the U.S.
dollar, and where appropriate uses this knowledge to forestall inflation in raw materials that are purchased in dollar terms. The
Company recognizes there is long-term pressure on demand for raw materials in the developing world and is utilizing its expertise to
minimize inflationary pressure. The Company has been able to push back on many of the proposed price increases for intermediates
that are shipped to our US factories, to either avoid, minimize or forestall them.
CRITICAL ACCOUNTING POLICIES
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 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.
The Company’s critical accounting policies and estimates include:
Principles of Consolidation—The Company’s Consolidated Financial Statements include the accounts of the Company and its
subsidiaries. Less than wholly owned subsidiaries, including joint ventures, are consolidated when it is determined that the Company
has a controlling financial interest, which is generally determined when the Company holds a majority voting interest. When
protective rights, substantive rights or other factors exist, further analysis is performed in order to determine whether or not there is a
controlling financial interest. The Consolidated Financial Statements reflect the assets, liabilities, revenues and expenses of
consolidated subsidiaries and the non-controlling parties’ ownership share is presented as a non-controlling interest. All significant
intercompany accounts and transactions are eliminated.
Revenue Recognition and Allowance for Doubtful Accounts—Revenue from sales are recognized at the time title and the risks
of ownership pass. This is when the customer has made the fixed commitment to purchase the goods, the products are shipped per the
customer’s instructions, the sales price is fixed and determinable, and collection is reasonably assured. The Company has in place
procedures to ensure that revenue is recognized when earned. The procedures are subject to management’s review and from time to
time certain sales are excluded until it is clear that the title has passed and there is no further recourse to the Company. From time to
time, the Company may offer a program to eligible customers, in good standing, that provides extended payment terms on a portion of
the sales on selected products. The Company analyzes these extended payment programs in connection with its revenue recognition
policy to ensure all revenue recognition criteria are satisfied at the time of sale. Allowance for doubtful accounts is established based
on estimates of losses related to customer receivable balances. Estimates are developed using either standard quantitative measures
based on historical losses, adjusted for current economic conditions, or by evaluating specific customer accounts for risk of loss.
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 U.S. 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 predominantly at the end
of a growing season. Each quarter management compares each sale transaction with program guidelines 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 previously anticipated 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
29
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
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. The Company recorded accrued programs of $39,054 at December 31, 2017, as compared to $42,930 at
December 31, 2016.
Inventories — The Company values its inventories at lower of cost or net realizable value. Cost is determined by the first-in,
first-out (“FIFO”) method, including, as appropriate, material, labor, factory overhead and subcontracting services. The Company
writes down and makes adjustments to its inventory net realizable value following assessments of slow moving and obsolete inventory
and other annual adjustments to ensure that our standard costs continue to closely reflect manufacturing cost. The Company recorded
an inventory reserve allowance of $3,137 at December 31, 2017, as compared to $3,594 at December 31, 2016.
Long-lived Assets— Long-lived assets primarily consist of the costs of intangible assets and of proprietary returnable packaging
assets including Smartbox and Lock and Load containers. The carrying value of long-lived assets is reviewed for impairment
quarterly and/or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
The Company evaluates recoverability of an asset group by comparing the carrying value to the future undiscounted cash flows that it
expects to generate from the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable,
measurement of the impairment loss is based on the fair value of the asset. There were no circumstances that would indicate any
impairment of the carrying value of these long-lived assets and no material impairment losses were recorded in 2017 or 2016.
Property, Plant and Equipment and Depreciation— Property, plant and equipment includes the cost of land, buildings,
machinery and equipment, office furniture and fixtures, automobiles, construction projects and significant improvements to existing
plant and equipment. Interest costs related to significant construction projects are capitalized at the Company’s current weighted
average effective interest rate. Expenditures for minor repairs and maintenance are expensed as incurred. When property or equipment
is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain
or loss realized on disposition is reflected in earnings. All plant and equipment is depreciated using the straight-line method, utilizing
the estimated useful property lives. Once placed into service, building lives range from 10 to 30 years; machinery and equipment lives
range from 3 to 15 years. During the years ended December 31, 2017, 2016 and 2015 the Company eliminated from assets and
accumulated depreciation $6,317, $16,652, and $549, respectively, of fully depreciated assets.
Foreign Currency Translation— Assets and liabilities of foreign subsidiaries, where the local currency is the functional
currency, have been translated at period end exchange rates, and profit and loss accounts have been translated using weighted average
yearly exchange rates. Adjustments resulting from translation have been recorded in the equity section of the balance sheet as
cumulative translation adjustments in other comprehensive income (loss). The effects of foreign currency exchange gains and losses
on transactions that are denominated in currencies other than the Company’s functional currency, including transactions denominated
in the local currencies of the Company’s international subsidiaries where the functional currency is the U.S. dollar, are remeasured to
the functional currency using the end of the period exchange rates. The effects of remeasurement related to foreign currency
transactions are included in the consolidated statements of operations.
Goodwill and Other Intangible Assets—The primary identifiable intangible assets of the Company relate to assets associated
with its product and business acquisitions. The Company adopted the provisions of ASC 350, under which identifiable intangibles
with finite lives are amortized and those with indefinite lives are not amortized. The estimated useful life of an identifiable intangible
asset to the Company is based upon a number of factors including the effects of demand, competition, and expected changes in the
marketability of the Company’s products. The Company re-evaluates whether these intangible assets are impaired on both a quarterly
and an annual basis and anytime when there is a specific indicator for impairment, relying on a number of factors including operating
results, business plans and future cash flows. Identifiable intangible assets that are subject to amortization are evaluated for
impairment using a process similar to that used to evaluate long-lived assets. The impairment test for identifiable intangible assets not
subject to amortization consists of either a qualitative assessment or a comparison of the fair value of the intangible asset with its
carrying amount. An impairment loss, if any, is recognized for the amount by which the carrying value exceeds the fair value of the
asset. Fair value is typically estimated using a discounted cash flow analysis. When determining future cash flow estimates, the
Company considers historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows
requires significant judgment by the Company, in such areas as: future economic conditions, industry-specific conditions, product
pricing and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different
impairment amounts (or none at all) for long-lived assets, goodwill and identifiable intangible assets. The Company performed
impairment reviews for the years ended December 31, 2017 and 2016 and recorded immaterial impairment losses.
30
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
The Company reviews goodwill for impairment utilizing either a qualitative assessment or a two-step process. If the Company
decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than
not exceeds its carrying value, no further evaluation is necessary. If the Company performs the two-step process, the first step of the
goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying
amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, the second step is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to
a determination of the implied value of the goodwill. If the carrying amount of goodwill is greater than the implied value, an
impairment charge is recognized for the difference. The Company annually tests goodwill for impairment in beginning of the fourth
quarter.
Income taxes—Income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect
management’s best estimate of current and future taxes to be paid. The Company is subject to income taxes in the United States and
numerous foreign jurisdictions. The Company assessed the realizability of deferred tax assets and determined that based on the
available evidence, including a history of taxable income and estimates of future taxable income, it is more likely than not that the
deferred tax assets will be realized. Significant management judgment is required in determining the provision for income taxes and
deferred tax assets and liabilities. In the event that actual results differ from these estimates, we will adjust these estimates in future
periods, which may result in a change in the effective tax rate in a future period. Accounting for income taxes involves uncertainty
and judgment on how to interpret and apply tax laws and regulations within the Company’s annual tax filings. Such uncertainties from
time to time may result in a tax position that may be challenged and overturned by a tax authority in the future which could result in
additional tax liability, interest charges and possibly penalties. The Company classifies interest and penalties as a component of
income tax expense.
31
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The
Company’s indebtedness to its primary lender is evidenced by a line of credit with a variable rate of interest, which fluctuates with
changes in the lender’s reference rate (LIBOR). The Company may use derivative financial instruments for trading purposes to protect
trading performance from exchange rate fluctuations on material contracts, though there are no such instruments in place during any
periods presented in this Annual Report.
The Company conducts business in various foreign currencies, primarily when doing business in Europe, Mexico, Central and
South America. Therefore changes in the value of the currencies of such countries or regions affect the Company’s financial position
and cash flows when translated into U.S. Dollars. The Company has mitigated, and will continue to mitigate, a portion of its currency
exchange exposure through natural hedges based on the operation of decentralized foreign operating companies in which the majority
of all costs are local-currency based. A 10% change in the value of all foreign currencies would have an immaterial effect on the
Company’s financial position and cash flows. As part of an on-going process of assessing business risk, management has identified
risk factors which are disclosed in Item 1A. Risk Factors of this Report on Form 10-K.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required by this item are listed at Part IV, Item 15, Exhibits, Financial
Statement Schedules.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, periodically
evaluate the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)). Based upon this evaluation, as of December 31, 2017, the Chief Executive Officer and the Chief
Financial Officer have concluded that these disclosure controls and procedures are effective in ensuring that the information required
to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported on a
timely basis, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934 for AVD and its subsidiaries (“the Company”).
The Company’s internal control system over financial reporting is designed to provide reasonable assurance to management and the
Board of Directors as to the fair, reliable and timely preparation and presentation of consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America filed with the SEC.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore,
even processes determined to be effective can provide only reasonable assurance with respect to the financial statement preparation
and presentation.
Management conducted an evaluation of the Company’s internal controls over financial reporting based on a framework set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework
(2013). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of
the effectiveness of controls and a conclusion on the evaluation. Based on this evaluation, management believes that as of
December 31, 2017, the Company’s internal control over financial reporting is effective.
32
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(Dollars in thousands, except per share data)
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31,
2017 excluded OHP and Agricenter which were acquired by the Company in the fourth quarter of 2017. Total assets constituted
approximately 14% of consolidated total assets and total sales of these acquisitions constituted approximately 4% of consolidated
sales and were included in the Company’s consolidated total assets and the Company’s consolidated sales, respectively, as of and for
the year ended December 31, 2017. Companies are allowed to exclude acquisitions from their assessment of internal control over
financial reporting during the first year of an acquisition while integrating the acquired company under guidelines established by the
SEC.
BDO USA, LLP, the independent registered public accounting firm that audited the consolidated financial statements included
in the Annual Report on Form 10-K, was engaged to attest to and report on the effectiveness of AVD’s internal control over financial
reporting as of December 31, 2017. Its reports are included herein.
Changes in Internal Controls over Financial Reporting
There were no changes in internal controls over financial reporting during the quarter ended December 31, 2017 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
33
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
American Vanguard Corporation
Newport Beach, California
Opinion on Internal Control over Financial Reporting
We have audited American Vanguard Corporation’s (the “Company’s”) internal control over financial reporting as of December
31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2017 and 2016, the related
consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2017, and the related notes and schedule and our report dated March 14, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
As indicated in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of
OHP, Inc. and Agricenter S.A. (collectively referred to as the “Acquisitions”), which were acquired on October 2, 2017 and October
27, 2017, respectively, and which are included in the consolidated balance sheet of the Company and subsidiaries as of December 31,
2017, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year
then ended. The Acquisitions combined constituted approximately 14% of total assets as of December 31, 2017, and approximately
4% of revenues for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of the
Acquisitions because of the timing of the Acquisitions. Our audit of internal control over financial reporting of the Company also did
not include an evaluation of the internal control over financial reporting of the Acquisitions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Costa Mesa, California
March 14, 2018
34
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
ITEM 9B OTHER INFORMATION
None.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth under the captions “Executive Officers of the Company,” “Election of Directors,” “Information about
the Board of Directors and Committees of the Board” and “Transactions with Management and Others—Section 16(a) Beneficial
Ownership Reporting Compliance” in our definitive proxy statement for our Annual Meeting of Stockholders to be held in 2018 (the
“Proxy Statement”), which will be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2017, is
incorporated herein by reference.
ITEM 11
EXECUTIVE COMPENSATION
Except as specifically provided, the information set forth under the captions “Compensation of Executive Officers” and
“Information about the Board of Directors and Committees of the Board—Compensation of Directors” in the Proxy Statement is
incorporated herein by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The disclosure contained in Part II, Item 5 under “Equity Compensation Plan Information” is incorporated herein by reference.
Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the
information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under the captions “Transactions with Management and Others” and “Information about the Board of
Directors and Committees of the Board” in the Proxy Statement is incorporated herein by reference.
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services is incorporated herein by reference to the information set forth
under the caption “Ratification of the Selection of Independent Registered Public Accounting Firm—Relationship of the Company
with Independent Registered Public Accounting Firm” in the Proxy Statement.
35
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
PART IV
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
Index to Consolidated Financial Statements and Supplementary Data:
Description
Financial Statements:
Report of Independent Registered Public Accounting Firm ............................................................................................
Consolidated Balance Sheets as of December 31, 2017 and 2016 ..................................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015 ...............................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015 ..........
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015 ................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015 ..............................
Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements ....................................
(b) Exhibits Index
Page No
41
42
43
44
45
46
47
36
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
ITEM 15
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
3.1
Amended and Restated Certificate of Incorporation of American Vanguard Corporation (filed as Exhibit 3.1 to the
Company’s Form 10-K for the year ended December 31, 2003, which was filed on March 30, 2004 with the Securities
Exchange Commission and incorporated herein by reference).
3.2
Certificate of Amendment of Amended and Restated Certificate of Incorporation of American Vanguard Corporation
(filed as Exhibit 3.2 to the Company’s Form 10-Q/A for the period ended June 30, 2004, which was filed with the
Securities Exchange Commission on February 23, 2005 and incorporated herein by reference).
3.3
Amended and Restated Bylaws of American Vanguard Corporation dated as of June 5, 2014 (filed as Exhibit 99.1 to the
Company’s Form 8-K, which was filed with the Securities Exchange Commission on June 7, 2014 and incorporated
herein by reference.)
4
Form of Indenture (filed as Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (File No. 333-122981) and
incorporated herein by reference).
10.1
American Vanguard Corporation Employee Stock Purchase Plan (filed as Appendix B to the Company’s Proxy
Statement filed with the Securities and Exchange Commission on May 31, 2001 and incorporated herein by reference).
10.2
10.3
American Vanguard Corporation Amended and Restated Stock Incentive Plan as of June 8, 2016 (filed as Appendix A to
the Company’s Proxy Statement filed with the Securities and Exchange Commission on April 25, 2016 and incorporated
herein by reference).
Form of Incentive Stock Option Agreement under the American Vanguard Corporation Fourth Amended and Restated
Stock Incentive Plan , (filed as Exhibit 10.3 with the Company’s Annual Report on Form 10-K for the period ended
December 31, 2004, which was filed with the Securities and Exchange Commission on March 16, 2005 and incorporated
herein by reference).
10.4
Form of Non-Qualified Stock Option Agreement under the American Vanguard Corporation Fourth Amended and
Restated Stock Incentive Plan , (filed as Exhibit 10.4 with the Company’s Annual Report on Form 10-K for the period
ended December 31, 2004, which was filed with the Securities and Exchange Commission on March 16, 2005 and
incorporated herein by reference).
10.5
Employment Agreement between American Vanguard Corporation and Eric G. Wintemute dated January 15, 2008 (filed
as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, which was filed
with the Securities Exchange Commission on March 17, 2008 and incorporated herein by reference).
10.8
Form of Change of Control Severance Agreement, dated effective as of January 1, 2004, between American Vanguard
Corporation and its executive and senior officers (filed as Exhibit 10.2 to the Company’s Form 10-Q for the period ended
March 31, 2004, which was filed with the Securities Exchange Commission on May 17, 2004 and incorporated herein by
reference.)
10.9
Form of Amendment of Change of Control Severance Agreement, dated effective as of July 11, 2008, between American
Vanguard Corporation and named executive officers and senior officers (filed as Exhibit 99.1 to the Company’s Form 8-
K, which was filed on July 11, 2008 with the Securities and Exchange Commission and incorporated herein by
reference).
10.10
Form of Indemnification Agreement between American Vanguard Corporation and its Directors (as filed as Exhibit 10.7
to the Company’s Annual Report on Form 10-K for the period ended December 31, 2004, which was filed with the
Securities and Exchange Commission on March 16, 2005 and incorporated herein by reference).
10.11
Description of Compensatory Arrangements Applicable to Non-Employee Directors for 2005 (filed as Exhibit 10.1 to the
Company’s Form 8-K, which was filed with the Securities and Exchange Commission on June 15, 2005 and
incorporated herein by reference).
10.12
American Vanguard Corporation Employee Stock Purchase Plan amended and restated as of June 30, 2011 (filed as
Exhibit A to the Company’s Proxy Statement which was filed with the Securities Exchange Commission on April 2011
37
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
Exhibit
Number
10.13
Description of Exhibit
and is incorporated herein by reference).
Form of Restricted Stock Agreement between American Vanguard Corporation and named executive officers (filed as
Exhibit 99.1 to the Company’s Form 8-K, which was filed with the Securities Exchange Commission on July 24, 2008
and incorporated herein by reference).
10.14
Form of Amended and Restated Change of Control Severance Agreement effective as of January 1, 2014 (filed as
Exhibit 10.14 to the Company’s 10-K, which was filed with the Securities Exchange Commission on February 28, 2014
and incorporated herein by reference).
10.15
Form of American Vanguard Corporation Amended and Restated Stock Incentive Plan TSR-Based Restricted Stock
Units Award Agreement dated June 6, 2013 (filed as Exhibit 10.15 to the Company’s 10-K, which was filed with the
Securities Exchange Commission on February 28, 2014 and incorporated herein by reference).
10.16
Form of American Vanguard Corporation Amended and Restated Stock Incentive Plan Performance-Based Restricted
Stock Units Award Agreement dated June 6, 2013 (filed as Exhibit 10.16 to the Company’s 10-K, which was filed with
the Securities Exchange Commission on February 28, 2014 and incorporated herein by reference).
10.17
Third Amendment to Second Amended and Restated Credit Agreement dated as of June 30, 2017 among AMVAC and
certain affiliates on the other hand, and a group of commercial lenders led by Bank of the West as agent, swing line
lender, and letter of credit issuer, on the other hand (filed as Exhibit 10.1 to the Company’s Form 8-K, which was filed
with the Securities Exchange Commission on July 6, 2017 and is incorporated herein by reference).
10.18
Employment Agreement dated as of December 31, 2014 by and between AMVAC Chemical Corporation and Ulrich
Trogele (filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016
and incorporated herein by reference).
21
23
31.1
31.2
32.1
List of Subsidiaries of the Company.*
Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
Certifications Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
101
The following materials from American Vanguard Corp’s Annual Report on Form 10-K for the year ended December
31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii)
Consolidated Statements of Operations; (iii) Consolidated Statements of Stockholders’ Equity; (iv) Consolidated
Statements of Comprehensive Income; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated
Financial Statements, tagged as blocks of text.*
*
Filed herewith.
(c) Valuation and Qualifying Accounts:
Schedule II-A—Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Receivable (in thousands)
Fiscal Year Ended
December 31, 2017
December 31, 2016
December 31, 2015
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Deductions
Balance at
End of
Period
42 $
423 $
166 $
31 $
3 $
332 $
(27) $
(384) $
(75) $
46
42
423
$
$
$
38
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
Inventory Reserve (in thousands)
Fiscal Year Ended
December 31, 2017
December 31, 2016
December 31, 2015
Balance at
Beginning of
Period
Additions
Deductions
Balance at
End of
Period
$
$
$
3,594
4,020
2,995 $
— $
— $
1,025
(457) $
(426) $
— $
3,137
3,594
4,020
See accompanying report of independent registered public accounting firm on page 41 of this annual report.
ITEM 16
None
FORM 10-K SUMMARY
39
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, American Vanguard Corporation
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN VANGUARD CORPORATION
(Registrant)
By:
/s/ ERIC G. WINTEMUTE
Eric G. Wintemute
Chief Executive Officer
and Chairman of the Board
By:
/s/ DAVID T. JOHNSON
David T. Johnson
Chief Financial Officer
and Principal Accounting Officer
March 14, 2018
March 14, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated.
By:
/s/ ERIC G. WINTEMUTE
Eric G. Wintemute
Principal Executive Officer
and Chairman of the Board
By:
/s/ DAVID T. JOHNSON
David T. Johnson
Principal Financial Officer
and Principal Accounting Officer
March 14, 2018
March 14, 2018
By:
/s/ DEBRA EDWARDS
Debra Edwards
Director
By:
/s/ JOHN L. KILLMER
John L. Killmer
Director
March 14, 2018
March 14, 2018
By:
/s/ LAWRENCE S. CLARK
Lawrence S. Clark
Director
By:
/s/ SCOTT D. BASKIN
Scott D. Baskin
Director
March 14, 2018
March 14, 2018
By:
/s/ MORTON D. ERLICH
Morton D. Erlich
Director
By:
/s/ ALFRED INGULLI
Alfred Ingulli
Director
March 14, 2018
March 14, 2018
By:
/s/ ESMAIL ZIRAKPARVAR
Esmail Zirakparvar
Director
March 14, 2018
40
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
American Vanguard Corporation
Newport Beach, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of American Vanguard Corporation (the “Company”) and
subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and
financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and
subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) and our report dated March 14, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 1991.
Costa Mesa, California
March 14, 2018
41
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
(In thousands, except share data)
Current assets:
Cash and cash equivalents
Receivables:
Assets
Trade, net of allowance for doubtful accounts of $46 and $42, respectively
Other
Inventories
Prepaid expenses
Total current assets
Property, plant and equipment, net
Intangible assets, net of applicable amortization
Goodwill
Other assets
Total assets
Current liabilities:
Liabilities and Stockholders’ Equity
Current installments of other liabilities
Accounts payable
Deferred revenue
Accrued program costs
Accrued expenses and other payables
Income taxes payable
Total current liabilities
Long-term debt, excluding current installments
Other liabilities, excluding current installments
Deferred income tax liabilities, net
Total liabilities
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
32,241,866 shares in 2017 and 31,819,695 shares in 2016
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock at cost, 2,450,634 shares in 2017 and in 2016
American Vanguard Corporation stockholders’ equity
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
2017
2016
$
11,337 $
7,869
102,534
7,071
109,605
123,124
10,817
254,883
49,321
180,950
22,184
28,254
535,592 $
5,395 $
53,748
14,574
39,054
12,061
1,370
126,202
77,486
10,306
16,284
230,278
83,777
3,429
87,206
120,576
11,424
227,075
50,295
121,433
—
31,153
429,956
26
24,358
3,848
42,930
12,072
13,840
97,074
40,951
2,868
6,706
147,599
—
—
3,225
75,658
(4,507 )
238,953
313,329
(8,269 )
305,060
254
305,314
535,592 $
3,183
71,699
(4,851)
220,428
290,459
(8,269)
282,190
167
282,357
429,956
$
$
$
See summary of significant accounting policies and notes to consolidated financial statements.
42
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2017, 2016 and 2015
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses
Operating income
Interest expense, net
$
Income before provision for income taxes and loss on equity investments
Provision for income taxes
Income before loss on equity investments
Less net loss from equity method investments
Net income
Net (income) loss attributable to non-controlling interest
Net income attributable to American Vanguard
Earnings per common share—basic
Earnings per common share—assuming dilution
Weighted average shares outstanding—basic
Weighted average shares outstanding—assuming dilution
$
$
$
2017
2016
2015
355,047 $
207,655
147,392
120,598
26,794
1,941
24,853
4,443
20,410
(49)
20,361
(87)
20,274 $
0.70 $
0.68 $
29,100
29,703
312,113 $
183,825
128,288
107,748
20,540
1,623
18,917
5,540
13,377
(353)
13,024
(236)
12,788 $
0.44 $
0.44 $
28,859
29,394
289,382
177,480
111,902
100,378
11,524
2,562
8,962
2,009
6,953
(636)
6,317
274
6,591
0.23
0.23
28,673
29,237
See summary of significant accounting policies and notes to consolidated financial statements.
43
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2017, 2016 and 2015
(In thousands)
Net income
Other comprehensive income
Foreign currency translation adjustment
Comprehensive income
Less: Comprehensive income (loss) attributable to non-controlling interest
$
Comprehensive income attributable to American Vanguard
2017
2016
2015
$
20,361 $
13,024 $
6,317
344
20,705
87
20,618 $
(1,310)
11,714
236
11,478 $
(1,571)
4,746
(274)
5,020
See summary of significant accounting policies and notes to consolidated financial statements
44
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2017, 2016 and 2015
(In thousands, except share data)
Additional
Accumulated
Other
Balance, December 31, 2014
Stocks issued under ESPP
Cash dividends on common stock ($0.02
per share)
Foreign currency translation adjustment, net
Stock based compensation
Stock options exercised; grants, termination,
and vesting of restricted stock units (net of
shares in lieu of taxes)
Tax effect from share based compensation
Adjustment and purchase of non-controlling
interest
Net income (loss)
Balance, December 31, 2015
Stocks issued under ESPP
Cash dividends on common stock ($0.03
per share)
Foreign currency translation adjustment, net
Stock based compensation
Stock options exercised; grants, termination,
and vesting of restricted stock units (net of
shares in lieu of taxes)
Tax effect from share based compensation
Net income
Balance, December 31, 2016
Stocks issued under ESPP
Cash dividends on common stock ($0.06
per share)
Foreign currency translation adjustment, net
Stock based compensation
Stock options exercised; grants, termination,
and vesting of restricted stock units (net of
shares in lieu of taxes)
Net income
Balance, December 31, 2017
Common Stock
Paid-in
Amount Capital
Shares
31,550,477 $ 3,156 $
5
50,452
Comprehensive Retained
Income/(loss) Earnings Shares
Treasury Stock
AVD
Amount Total
Non-
Controlling
Interest
Total
66,232 $
568
(1,970) $ 202,488 2,450,634 $ (8,269 ) $ 261,637 $
573
—
—
—
—
(634) $ 261,003
573
—
—
—
—
—
—
—
—
—
3,881
—
(1,571)
—
(572)
—
—
—
—
—
—
—
—
(572)
(1,571)
3,881
—
—
—
(572 )
(1,571 )
3,881
37,296
—
3
—
(259)
(924)
—
—
—
—
—
—
—
—
(256)
(924)
—
—
(256 )
(924 )
—
—
—
—
31,638,225 3,164
4
42,730
(964)
—
68,534
558
—
—
—
6,591
(964)
6,591
(3,541) 208,507 2,450,634 (8,269 ) 268,395
562
—
—
—
—
—
—
—
—
(125 )
839
(274)
6,317
(69) 268,326
562
—
—
—
—
—
—
—
—
—
3,167
—
(1,310)
—
(867)
—
—
—
—
—
—
—
—
(867)
(1,310)
3,167
—
—
—
(867 )
(1,310 )
3,167
15
138,740
—
—
—
—
31,819,695 3,183
4
34,016
(336)
(224)
-
71,699
551
—
—
—
—
— 12,788
(321)
—
—
(224)
— 12,788
(4,851) 220,428 2,450,634 (8,269 ) 282,190
555
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,714
—
344
—
(1,749)
—
—
—
—
—
—
—
—
(1,749)
344
4,714
38
388,155
—
—
32,241,866 $ 3,225 $
(1,306)
—
75,658 $
—
—
— 20,274
—
(1,268)
— 20,274
(4,507) $ 238,953 2,450,634 $ (8,269 ) $ 305,060 $
—
—
(321 )
—
—
(224 )
236 13,024
167 282,357
555
—
—
—
—
(1,749 )
344
4,714
—
(1,268 )
87 20,361
254 $ 305,314
See summary of significant accounting policies and notes to consolidated financial statements
45
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2017, 2016 and 2015
(In thousands)
2017
2016
2015
$
20,361 $
13,024 $
6,317
Increase cash
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization of fixed and intangible assets
Amortization of other long term assets and debt issuance costs
Amortization of discounted liabilities
Stock-based compensation
Excess tax benefit from share based compensation
Increase (decrease) in deferred income taxes
Operating loss from equity method investment
Loss from dilution of equity method investment
Changes in assets and liabilities associated with operations, net of business
combinations:
Decrease (increase) in net receivables
Decrease in inventories
(Increase) decrease in income tax receivable/payable, net
Decrease (increase) in prepaid expenses and other assets
Increase (decrease) in accounts payable
Increase (decrease) in deferred revenue
Decrease in accrued program costs
(Decrease) increase in other payables
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Investment
Acquisitions of businesses and 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
Debt issuance cost
Payment on other long-term liabilities
Excess tax benefit from share based compensation
Net payment from the issuance of common stock (sale of stock under ESPP,
exercise of stock options and shares purchased for tax withholding)
Payment of cash dividends
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid (received) during the year for:
Interest
Income taxes, net
$
$
$
16,959
5,221
110
4,714
—
398
49
—
754
16,183
(12,073)
647
3,322
10,726
(4,529)
(3,841)
59,001
(6,666)
(950)
(81,896)
(89,512)
(103,975)
141,000
(751)
(26)
—
(713)
(1,600)
33,935
3,424
44
7,869
11,337 $
16,327
5,203
16
3,167
(96)
(151)
353
—
(11,817)
15,901
1,186
(3,872)
9,015
(5,040)
(1,441)
4,631
46,406
(10,630)
(3,283)
(224)
(14,137)
(107,600)
80,000
—
(704)
96
241
(578)
(28,545)
3,724
(1,379)
5,524
7,869 $
16,474
5,275
140
3,881
(23)
27
629
7
13,034
29,154
4,872
2,082
(5,068)
7,990
(8,175)
1,952
78,568
(6,899)
(125)
(36,667)
(43,691)
(121,400)
90,880
—
(1,543)
23
317
(1,141)
(32,864)
2,013
(1,374)
4,885
5,524
1,500 $
17,841 $
1,748 $
4,947 $
2,750
(3,697)
See summary of significant accounting policies and notes to the consolidated financial statements
46
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2017, 2016 and 2015
(Dollars in thousands, except per share data)
Description of Business, Basis of Consolidation, Basis of Presentation and Significant Accounting Policies
American Vanguard Corporation (the “Company”) is primarily a specialty chemical manufacturer that develops and markets
safe and effective products for agricultural, commercial and consumer uses. The Company manufactures and formulates chemicals for
crops, human and animal protection. The consolidated financial statements include the accounts of the Company, its wholly-owned
subsidiaries and Envance, its majority owned subsidiary. All significant intercompany accounts and transactions have been eliminated
in consolidation. The Company operates within a single operating category.
Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable category.
Selective enterprise information is as follows:
Net sales:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators
Total crop
Non-crop
Gross profit:
Crop
Non-crop
2017
2016
2015
132,137 $
121,581
47,691
301,409
53,638
355,047 $
119,226 $
123,540
29,438
272,204
39,909
312,113 $
117,180
111,897
29,013
258,090
31,292
289,382
117,892 $
29,500
147,392 $
107,821 $
20,467
128,288 $
97,198
14,704
111,902
$
$
$
$
Due to elements inherent to the Company’s business, such as differing and unpredictable weather patterns, crop growing cycles,
changes in product mix of sales and ordering patterns that may vary in timing, measuring the Company’s performance on a quarterly
basis (for example, gross profit margins on a quarterly basis may vary significantly) even when such comparisons are favorable, is not
as good an indicator as full-year comparisons.
Reclassifications — Certain prior years’ amounts have been reclassified to conform to the current year’s presentation.
Cost of Sales—In addition to normal cost centers (i.e., direct labor, raw materials), the Company also includes such cost centers
as Health and Safety, Environmental, Maintenance and Quality Control in cost of sales.
Operating Expenses—Operating expenses include cost centers for Selling, General and Administrative, Research, Product
Development, and Regulatory, and Freight, Delivery and Warehousing.
Selling
General and administrative
Research, product development and regulatory
Freight, delivery and warehousing
2017
2016
$
$
29,112 $
37,660
26,076
27,750
120,598 $
27,442 $
32,128
21,298
26,880
107,748 $
2015
27,052
28,516
19,116
25,694
100,378
Advertising Expense—The Company expenses advertising costs in the period incurred. Advertising expenses, which include
promotional costs, are recognized in operating costs (specifically in selling expenses) in the consolidated statements of operations and
were $3,020 in 2017, $2,271 in 2016 and $3,535 in 2015.
47
Cash and cash equivalents—The Company’s cash and cash equivalents consist primarily of certificates of deposit with an
initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be cash equivalents.
Inventories — The Company values its inventories at lower of cost or net realizable value. Cost is determined by the first-in,
first-out (“FIFO”) method, including material, labor, factory overhead and subcontracting services. The Company writes down and
makes adjustments to its inventory carrying values as a result of net realizable value assessments of slow moving and obsolete
inventory and other annual adjustments to ensure that our standard costs continue to closely reflect manufacturing cost. The Company
recorded an inventory reserve allowance of $3,137 at December 31, 2017, as compared to $3,594 at December 31, 2016.
The components of inventories consist of the following:
Finished products
Raw materials
2017
107,595 $
15,529
123,124 $
2016
103,832
16,744
120,576
$
$
Revenue Recognition and Allowance for Doubtful Accounts—Revenue from sales is recognized at the time title and the risks
of ownership pass. This is when the customer has made the fixed commitment to purchase the goods, the products are shipped per the
customer’s instructions, the sales price is fixed and determinable, and collection is reasonably assured. The Company has in place
procedures to ensure that revenue is recognized when earned. The procedures are subject to management’s review and from time to
time certain sales are excluded until it is clear that the title has passed and there is no further recourse to the Company. From time to
time, the Company may offer a program to eligible customers, in good standing, that provides extended payment terms on a portion of
the sales on selected products. The Company analyzes these extended payment programs in connection with its revenue recognition
policy to ensure all revenue recognition criteria are satisfied at the time of sale. Allowance for doubtful accounts is established based
on estimates of losses related to customer receivable balances. Estimates are developed using either standard quantitative measures
based on historical losses, adjusted for current economic conditions or by evaluating specific customer accounts for risk of loss.
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 U.S. 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 predominantly at the end
of a growing season. Each quarter management compares each sale transaction with program guidelines 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 previously anticipated 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. The Company recorded accrued program costs of $39,054 at December 31, 2017, as compared to $42,930 at
December 31, 2016.
Long-lived Assets— Long-lived assets primarily consist of the costs of intangible assets and of proprietary returnable packaging
assets including Smartbox and Lock and Load containers. The carrying value of long-lived assets is reviewed for impairment
quarterly and/or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
The Company evaluates recoverability of an asset group by comparing the carrying value to the future undiscounted cash flows that it
expects to generate from the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable,
measurement of the impairment loss is based on the fair value of the asset. There were no circumstances that would indicate any
impairment of the carrying value of these long-lived assets and no material impairment losses were recorded in 2017 or 2016.
48
Property, Plant and Equipment and Depreciation— Property, plant and equipment includes the cost of land, buildings,
machinery and equipment, office furniture and fixtures, automobiles, construction projects and significant improvements to existing
plant and equipment. Interest costs related to significant construction projects are capitalized at the Company’s current weighted
average effective interest rate. Expenditures for minor repairs and maintenance are expensed as incurred. When property or equipment
is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain
or loss realized on disposition is reflected in earnings. All plant and equipment is depreciated using the straight-line method, utilizing
the estimated useful property lives. See note 1 for useful lives.
Foreign Currency Translation— Assets and liabilities of foreign subsidiaries, where the local currency is the functional
currency, have been translated at period end exchange rates, and profit and loss accounts have been translated using weighted average
yearly exchange rates. Adjustments resulting from translation have been recorded in the equity section of the balance sheet as
cumulative translation adjustments in other comprehensive income (loss). The effects of foreign currency exchange gains and losses
on transactions that are denominated in currencies other than the Company’s functional currency, including transactions denominated
in the local currencies of the Company’s international subsidiaries where the functional currency is the U.S. dollar, are remeasured to
the functional currency using the end of the period exchange rates. The effects of remeasurement related to foreign currency
transactions are included in the consolidated statements of operations.
Goodwill and Other Intangible Assets— The primary identifiable intangible assets of the Company relate to assets associated
with its product and business acquisitions. The Company adopted the provisions of ASC 350, under which identifiable intangibles
with finite lives are amortized and those with indefinite lives are not amortized. The estimated useful life of an identifiable intangible
asset to the Company is based upon a number of factors including the effects of demand, competition, and expected changes in the
marketability of the Company’s products. The Company re-evaluates whether these intangible assets are impaired on both a quarterly
and an annual basis and anytime when there is a specific indicator for impairment, relying on a number of factors including operating
results, business plans and future cash flows. Identifiable intangible assets that are subject to amortization are evaluated for
impairment using a process similar to that used to evaluate long-lived assets. The impairment test for identifiable intangible assets not
subject to amortization consists of either a qualitative assessment or a comparison of the fair value of the intangible asset with its
carrying amount. An impairment loss, if any, is recognized for the amount by which the carrying value exceeds the fair value of the
asset. Fair value is typically estimated using a discounted cash flow analysis. When determining future cash flow estimates, the
Company considers historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows
requires significant judgment by the Company, in such areas as: future economic conditions, industry-specific conditions, product
pricing and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different
impairment amounts (or none at all) for long-lived assets, goodwill and identifiable intangible assets. The Company performed
impairment reviews for the years ended December 31, 2017 and 2016 and recorded immaterial impairment losses.
The Company reviews goodwill for impairment utilizing either a qualitative assessment or a two-step process. If the Company
decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than
not exceeds its carrying value, no further evaluation is necessary. If the Company performs the two-step process, the first step of the
goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying
amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, the second step is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to
a determination of the implied value of the goodwill. If the carrying amount of goodwill is greater than the implied value, an
impairment charge is recognized for the difference. The Company annually tests goodwill for impairment in beginning of the fourth
quarter.
Income Taxes—The Company utilizes the liability method of accounting for income taxes as set forth in ASC 740. Under the
liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of
assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation
allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In determining the need
for valuation allowances, the Company considers projected future taxable income and the availability of tax planning strategies. If in
the future the Company determines that it would not be able to realize its recorded deferred tax assets, an increase in the valuation
allowance would be recorded, decreasing earnings in the period in which such determination is made.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the
Company’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there
is greater than 50% likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that
may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For
those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been
49
recognized in the consolidated financial statements. At December 31, 2017 and 2016, the Company recorded unrecognized tax
benefits of $2,118 and $1,893, respectively.
Per Share Information—FASB ASC 260 requires dual presentation of basic earnings per share (“EPS”) and diluted EPS on the
face of all consolidated statements of operations. Basic EPS is computed as net income divided by the weighted average number of
shares of common stock outstanding during the period. Diluted EPS reflects potential dilution to EPS that could occur if securities or
other contracts, which, for the Company, consists of restricted stock grants and options to purchase shares of the Company’s common
stock, are exercised as calculated using the treasury stock method.
The components of basic and diluted earnings per share were as follows:
Numerator:
Net income attributable to American Vanguard
$
20,274 $
12,788 $
6,591
2017
2016
2015
Denominator:
Weighted average shares outstanding—basic
Dilutive effect of stock options and grants
29,100
603
29,703
28,859
535
29,394
28,673
564
29,237
For the years ended December 31, 2017, 2016, and 2015 no options were excluded from the computation.
Accounting Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses at the date that the consolidated financial statements are prepared.
Significant estimates relate to the allowance for doubtful accounts, inventory reserves, impairment of long-lived assets, accrued
program costs, and stock based compensation. Actual results could materially differ from those estimates.
Total comprehensive income—In addition to net income, total comprehensive income includes changes in equity that are
excluded from the consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on
the consolidated balance sheets. For the years ended December 31, 2017, 2016, and 2015 total comprehensive income consisted of net
income attributable to American Vanguard and foreign currency translation adjustments.
Stock-Based Compensation—The Company accounts for stock-based awards to employees and directors pursuant to ASC 718.
When applying the provisions of ASC 718, the Company also applies the provisions of Staff Accounting Bulletin (“SAB”) No. 107
and SAB No. 110.
ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the
portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s
Consolidated Statements of Operations.
Stock-based compensation expense recognized during the period is based on the fair value of the portion of share-based
payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized is reduced for
estimated forfeitures pursuant to ASC 718. Estimated forfeitures recognized in the Company’s Consolidated Statements of Operations
reduced compensation expense by $177, $118, and $144 for the years ended December 31, 2017, 2016, and 2015, respectively. The
Company estimates that 15.1% of all restricted stock grants, 15.1% of the performance based restricted shares and 4.5% of all stock
option grants that are currently vesting will be forfeited. These estimates are reviewed quarterly and revised as necessary.
50
The below tables illustrate the Company’s stock based compensation, unamortized stock-based compensation, and remaining
weighted average period for the years ended December 31, 2017, 2016 and 2015. This projected expense will change if any stock
options and restricted stock are granted or cancelled prior to the respective reporting periods, or if there are any changes required to be
made for estimated forfeitures.
December 31, 2017
Incentive Stock Options
Performance Based Options
Restricted Stock
Performance Based Restricted Stock
Total
December 31, 2016
Incentive Stock Options
Performance Based Options
Restricted Stock
Performance Based Restricted Stock
Total
December 31, 2015
Incentive Stock Options
Performance Based Options
Restricted Stock
Performance Based Restricted Stock
Total
Stock-Based
Compensation
Unamortized
Stock-Based
Compensation
Remaining
Weighted
Average
Period (years)
$
$
$
$
$
$
345 $
416
2,705
1,248
4,714 $
354 $
188
1,630
995
3,167 $
431 $
149
2,972
329
3,881 $
—
—
3,788
1,642
5,430
397
178
2,153
796
3,524
887
331
2,153
583
3,954
—
—
1.0
1.8
1.0
1.0
1.6
1.7
2.0
2.0
1.3
1.5
The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) to value option grants using the following
weighted average assumptions (i.e. risk free interest rate, dividend yield, volatility and average lives). There were no option shares
granted during 2017, 2016 or 2015.
The expected volatility and expected life assumptions are highly complex and use subjective variables. The variables take into
consideration, among other things, actual and projected employee stock option exercise behavior. The Company estimates the
expected term or vesting period using the “safe harbor” provisions of SAB 107 and SAB 110. The Company used historical volatility
as a proxy for estimating expected volatility.
The Company values restricted stock grants using the Company’s traded stock price on the date of grant. The weighted average
grant-date fair values of restricted stock grants during 2017, 2016, and 2015 were $16.24, $15.22, and $12.68, respectively.
Recently Issued Accounting Guidance— In February 2018, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). On December 22,
2017, the U.S federal government signed into law the Tax Cuts and Jobs Act, (the “Tax Reform Act”). The current generally accepted
accounting principles (“GAAP”) requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates
with the effect included in income from continuing operations in the reporting period that includes the enactment date. That guidance
is applicable even in situations where the related income tax effects of items in accumulated other comprehensive income were
originally recognized in other comprehensive income (rather than in income from continuing operations). The standard allows a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax
Reform Act, eliminating the stranded tax effects. The update does not affect the requirement on the effect of a change in tax laws or
rates be included in income from continuing operations. The update is effective for fiscal years beginning after December 15, 2018.
The Company will evaluate the impact of this update for its adoption.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). The FASB eliminated the Step
2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform
procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and
liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a
business combination. Under this update, an entity should perform its goodwill impairment test by comparing the fair value of a
51
reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount the carrying amount exceeds
the reporting unit’s fair value. This update is effective for fiscal years beginning after December 15, 2019 with early adoption
permitted after January 1, 2017. The Company will evaluate the impact of this update and expects to adopt ASU 2017-04 in its
financial statements for fiscal year 2018.
In January 2017, the FASB issued ASU 2017-01, Business Combination (Topic 805). The FASB issued this update to clarify
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be
accounted for as acquisition (or disposals) of assets or businesses. The definition of a business affects many areas of accounting
including acquisitions, disposals, goodwill, and consolidation. The Company adopted this update and has evaluated its current year
acquisitions under this standard.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230). The new standard requires that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. Based on the
composition of the Company’s cash and cash equivalent, adoption of the new standard is not expected to have a material impact on
our consolidated cash flows statements and will adopt the standard for the year beginning January 1, 2018.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The new standard addresses eight specific
classification issues within the current practice regarding the manner in which certain cash receipts and cash payments are presented.
The new standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company has
reviewed the eight specific issues addressed and does not believe that the adoption of ASU 2016-15 will have a material impact on its
statement of cash flows and will adopt the revised standard for the year beginning January 1, 2018.
In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740). Current US GAAP prohibits the recognition of
current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new
standard, an entity is to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the
transfer occurs. The new standard does not include new disclosure requirements; however, existing disclosure requirements might be
applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The
new standard is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those
annual periods. The Company has considered its activities with regard to such intra-entity transfers, does not expect the adoption of
ASU 2016-16 to have a material impact on our consolidated financial statements and will adopt the standard for the year beginning
January 1, 2018.
In February 2016, FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a
lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be
classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The
new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A
modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients
available. We will evaluate our operating lease arrangements to determine the impact of this amendment on the consolidated financial
statements. The evaluation will include an extensive review of our leases, which are primarily related to our manufacturing sites,
regional sales offices, lease vehicles, and office equipment. The ultimate impact will depend on the Company’s lease portfolio at the
time the new standard is adopted. The Company expects to adopt ASU 2016-02 for the year beginning on January 1, 2019.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a new,
single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most
current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step
analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for
those goods or services. In March 2016, FASB issued an amendment to the standard, ASU 2016-08, to clarify the implementation
guidance on principal versus agent considerations. Under the amendment, an entity is required to determine whether the nature of its
promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be
provided by the other party (that is, the entity is an agent). In April 2016, FASB issued another amendment to the standard, ASU
2016-10, to clarify identifying performance obligations and the licensing implementation guidance, which retaining the related
principles for those areas. The standard and the amendments are effective for annual periods beginning after December 15, 2017, and
interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of
the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the
52
cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote
disclosures). These amendments will be effective upon adoption of Topic 606. This standard also requires enhanced disclosures
regarding the nature, amount, timing, and uncertainty of revenue and cash flows.
The Company will adopt the new revenue standard as of January 1, 2018 using the modified retrospective method. The
Company has substantially completed its analysis of the effect of the adoption of Topic 606 on its revenue streams, which included a
detailed contract review to evaluate whether the adoption will result in a change in the timing or amount of revenue recognition. As a
result of the analysis performed thus far, the Company determined that for certain products that are deemed to have no alternative use
accompanied by an enforceable right to payment for performance completed to date, recognition will change from point in time, to
over time. These sales were previously recognized upon delivery, and will now be recognized over time utilizing an output method.
In addition, the Company earns royalties on certain licenses granted for the use of its intellectual property, which was previously
recognized over time. For certain licenses that are considered functional intellectual property, the Company will change to a point in
time recognition. The Company currently estimates that gross revenues of approximately $3,000, that would have otherwise been
reflected in the consolidated statement of operations in future years, will be recorded in equity as part of a cumulative effect
adjustment, and will increase retained earnings by approximately $2,370, net of taxes, when we adopt Topic 606 as of January 1,
2018. The new standard also requires enhanced disclosures related to the disaggregation of revenue, information about contract
balances, and other disclosures about contracts with customers, including revenue recognition policies to identify performance
obligations and significant judgments in measurement and recognition. The estimated impact of adopting Topic 606 is based on the
Company’s best estimates at the time of the preparation of this Annual Report Form 10-K. The actual impact is subject to change and
completion of the analysis prior to the first quarter 2018 Form 10-Q filing.
(1) Property, Plant and Equipment
Property, plant and equipment at December 31, 2017 and 2016 consist of the following:
Land
Buildings and improvements
Machinery and equipment
Office furniture, fixtures and equipment
Automotive equipment
Construction in progress
Total gross value
Less accumulated depreciation
Total net value
2017
2016
Estimated
useful lives
$
$
2,458 $
16,678
107,722
4,925
735
1,917
134,435
(85,114)
49,321 $
2,458
15,515 10 to 30 years
102,146 3 to 15 years
5,016 3 to 10 years
387 3 to 6 years
8,047
133,569
(83,274 )
50,295
For the years ended December 31, 2017, 2016, and 2015, the Company’s aggregate depreciation expense related to property and
equipment was $8,154, $8,307, and $8,953, respectively. For the years ended December 31, 2017, 2016, and 2015, the Company
eliminated from assets and accumulated depreciation $6,317, $16,652 and $549 of fully depreciated assets, respectively.
(2) Long-Term Debt
Long-term debt of the Company at December 31, 2017 and 2016 is summarized as follows:
Revolving line of credit(a)
Less debt issuance costs
2017
2016
78,425 $
(939)
77,486 $
41,400
(449 )
40,951
$
$
Principal payments on long-term debt at December 31, 2017 of $78,425 are due in 2022.
a) As of June 30, 2017, AMVAC, the Company’s principal operating subsidiary, as borrower, and affiliates (including the
Company, AMVAC CV and AMVAC BV), as guarantors and/or borrowers, entered into a Third Amendment to Second
Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of commercial lenders led by Bank of the
West (AMVAC’s primary bank) as agent, swing line lender and Letter of Credit (“L/C”) issuer. The Credit Agreement is a
senior secured lending facility, consisting of a line of credit of up to $250,000, an accordion feature of up to $100,000 and a
53
maturity date of June 30, 2022. The Credit Agreement contains two key financial covenants; namely, borrowers are required to
maintain a Consolidated Funded Debt Ratio of no more than 3.25-to-1 and a Consolidated Fixed Charge Covenant Ratio of at
least 1.25-to-1. The Company’s borrowing capacity varies with its financial performance, measured in terms of EBITDA, 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 Rate” which is based upon the Consolidated
Funded Debt Ratio (“Eurocurrency Rate 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 Rate (“Alternate Base
Rate Loan”). Interest payments for Eurocurrency Rate 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 Alternate Base Rate Loans
are payable on the last business day of each month and the maturity date.
At December 31, 2017, according to the terms of the Credit Agreement and based on our performance against the most
restrictive covenants listed above, the Company had the capacity to increase its borrowings by up to $139,241. This compares to
an available borrowing capacity of $104,853 as of December 31, 2016. The level of borrowing capacity is driven by three
factors: (1) our financial performance, as measured in EBITDA for trailing twelve month period, which has improved, (2) the
inclusion of proforma EBITDA related to acquisitions completed during 2017 and (3) the leverage covenant (being the number
of times EBITDA the Company may borrow under its credit facility agreement).
Substantially all of the Company’s assets are pledged as collateral under the Credit Agreement. The Company was in
compliance with all its debt covenants as of December 31, 2017.
The Company has various loans in place that together constitute the loan balances shown in the consolidated balance sheets
at December 31, 2017 and December 31, 2016. The average amount outstanding on the senior secured revolving line of credit during
the years ended December 31, 2017 and 2016 was $51,103 and $59,897, respectively. The weighted average interest rate on the
revolving credit line during the years ended December 31, 2017, 2016, and 2015 was 3.0%, 2.3%, and 2.1% respectively.
54
(3) Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The legislation significantly
changes U.S. tax law by, among other things, lowering corporate income tax rate, implementing a territorial tax system and imposing
a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act reduces the U.S. corporate income tax
rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118
(“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information
available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax
effects of the Tax Reform Act. A company may select between one of three scenarios to determine a reasonable estimate arising from
the Tax Reform Act. Those scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable
estimate leaving the measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. The
Company was able to provide a reasonable estimate for the revaluation of deferred taxes and the effects of the repatriation
undistributed foreign subsidiary earnings and profits. As a result of the reduction in the U.S. corporate income tax rate from 35% to
21% under the Tax Reform Act, the Company revalued its net deferred tax liabilities at December 31, 2017, resulting in a $4,683
benefit included in the provision for income taxes for the year ended December 31, 2017. The Tax Reform Act also provided for a
one-time deemed mandatory repatriation of Post-1986 E&P through the year ended December 31, 2017. As a result, the Company
recognized a provisional $1,250 charge in the provision for income taxes for the year ended December 31, 2017 related to the deemed
mandatory repatriation. The Company continues to evaluate the various provisions of Tax Reform Act, including, the global intangible
low-taxed income (“GILTI”) and the foreign derived intangible income (“FDII”) provisions. The ultimate impact of the Tax Reform
Act may differ from these amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and
assumptions the Company has made, additional regulatory guidance that may be issued, and any related actions the Company may
take. The measurement period begins in the reporting period that includes the enactment date and ends when an entity has obtained,
prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740.
The provisions for income taxes are:
Current:
Federal
State
Foreign
Deferred:
Federal
State
2017
2016
2015
$
$
2,124 $
1,347
570
160
242
4,443 $
5,136 $
(122 )
655
(1,345 )
1,216
5,540 $
573
417
991
(319)
347
2,009
Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35.0% to income
before income tax expense as a result of the following:
Computed tax expense at statutory federal rates
Increase (decrease) in taxes resulting from:
State taxes, net of federal income tax benefit
Domestic production deduction
Impact of the enactment of the Tax Cuts and Jobs Act
(net)
Income tax credits
Foreign tax rate differential
Subpart F income
Loss on equity investment
Stock based compensation
Tax interest
Other
2017
2016
2015
$
8,651 $
6,415 $
3,010
988
(150)
820
(1,272 )
(3,433)
(431)
(1,503)
3
62
262
(22)
16
4,443 $
—
(335 )
(1,587 )
14
123
208
920
234
5,540 $
639
(179)
—
(662)
(1,590)
9
223
244
—
315
2,009
$
55
Income before provision for income taxes and losses on equity investment are:
Domestic
Foreign
2017
2016
2015
$
$
18,931 $
5,922
24,853 $
12,513 $
6,404
18,917 $
1,589
7,373
8,962
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to
significant portions of the net deferred tax liability at December 31, 2017 and 2016 relate to the following:
Deferred tax asset
Inventories
State income taxes
Program accrual
Vacation pay accrual
Accrued bonuses
Bad debt expense
Stock compensation
NOL carryforward
Tax credit
Other
Deferred tax asset
Deferred tax liability
Plant and equipment, principally due to differences in
depreciation and capitalized interest
Prepaid expenses
Deferred tax liability
Total net deferred tax liability
2017
2016
3,213 $
330
7,381
600
1,073
12
822
54
778
381
14,644 $
29,986 $
942
30,928
16,284 $
5,359
213
12,318
818
2,072
6
1,614
351
14
2,707
25,472
30,636
1,542
32,178
6,706
$
$
$
$
The following is a roll-forward of the Company’s total gross unrecognized tax liabilities, not including interest and penalties, for
the years ended December 31, 2017 and 2016:
Balance at beginning of year
Additions for tax positions related to the current year
Additions for tax positions related to the prior year
Additions for tax positions related to new acquired businesses
Reduction for tax positions related to the prior year
Balance at end of year
$
$
2017
2016
1,893 $
77
—
1,766
(1,618)
2,118 $
2,007
65
86
—
(265 )
1,893
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in
the Company’s consolidated financial statements. For the years ended December 31, 2017, 2016, and 2015 the Company had
recognized approximately $2,257, $408, and $335 respectively in interest and penalties related to unrecognized tax benefits accrued.
It is expected that the amount of unrecognized tax benefits will change within the next 12 months; however we do not expect the
change to have a significant impact on our consolidated financial statements. At this time, an estimate of the range of the reasonable
possible outcomes cannot be made.
The Company believes it is more likely than not that the deferred tax assets detailed in the table above will be realized in the
normal course of business. It is the intent of the Company that undistributed earnings of foreign subsidiaries are permanently
reinvested and, accordingly, no deferred liability for federal and state income taxes has been recorded. The amount of undistributed
earnings was $35,084 as of December 31, 2017. Upon distribution of earnings in the form of dividends or otherwise, the Company
may still be subject to state income taxes and withholding taxes payable to the various foreign countries. Determination of the
unrecognized deferred tax liability is not practical due to the complexities of a hypothetical calculation.
56
The Company has effectively settled its examination with the Internal Revenue Service (“IRS”) for the tax years ended
December 31, 2012 through 2014. The Company’s 2015 and 2016 federal income tax returns are still subject to IRS examination.
The Company has other state and foreign income tax returns that are subject to examination.
(4) Litigation and Environmental
A. DBCP Cases
Over the course of the past 30 years, AMVAC and/or the Company have been named or otherwise implicated in a number of
lawsuits concerning injuries allegedly arising from either contamination of water supplies or personal exposure to 1, 2-dibromo-3-
chloropropane (“DBCP®”). DBCP was manufactured by several chemical companies, including Dow Chemical Company, Shell Oil
Company and AMVAC and was approved by the USEPA to control nematodes. DBCP was also applied on banana farms in Latin
America. The USEPA suspended registrations of DBCP in October 1979, except for use on pineapples in Hawaii. That suspension
was partially based on 1977 studies by other manufacturers that indicated a possible link between male fertility and exposure to DBCP
among their factory production workers involved with producing the product.
At present, there are three domestic lawsuits and approximately 85 Nicaraguan lawsuits filed by former banana workers in
which AMVAC has been named as a party. Only two of the Nicaraguan actions have actually been served on AMVAC. With respect
to Nicaraguan matters, there was no change in status during 2017. As described more fully below, activity in domestic cases during
2017 is as follows. The one case remaining in Delaware includes 57 plaintiffs who have appealed a lower court finding that the matter
was barred by the statute of limitations; this matter has been stayed pending a ruling by the Delaware Supreme Court on the question
of when or if the statute of limitations has run out. In Hawaii, in the matter of Patrickson, et. al. v. Dole Food Company, following the
appellate court’s remand to the trial court for adjudication in 2016, there has been no activity; while in Adams, there has been no
activity since 2014, when the court granted dismissal of co-defendant Dole on the basis of a worker’s compensation bar and gave
plaintiffs leave to amend their complaint in light of that ruling.
Nicaraguan Matters
A review of court filings in Chinandega, Nicaragua, has found 85 suits alleging personal injury allegedly due to exposure to
DBCP and involving approximately 3,592 plaintiffs have been filed against AMVAC and other parties. Of these cases, only two –
Flavio Apolinar Castillo et al. v. AMVAC et al., No. 535/04 and Luis Cristobal Martinez Suazo et al. v. AMVAC et al., No. 679/04
(which were filed in 2004 and involve 15 banana workers) – have been served on AMVAC. All but one of the suits in Nicaragua have
been filed pursuant to Special Law 364, an October 2000 Nicaraguan statute that contains substantive and procedural provisions that
Nicaragua’s Attorney General previously expressed as unconstitutional. Each of the Nicaraguan plaintiffs’ claims $1 million in
compensatory damages and $5 million in punitive damages. In all of these cases, AMVAC is a joint defendant with Dow Chemical
Company and Dole Food Company, Inc. AMVAC contends that the Nicaragua courts do not have jurisdiction over it and that Public
Law 364 violates international due process of law. AMVAC has objected to personal jurisdiction and demanded under Law 364 that
the claims be litigated in the United States. In 2007, the court denied these objections, and AMVAC appealed the denial. It is not
presently known as to how many of these plaintiffs actually claim exposure to DBCP at the time AMVAC’s product was allegedly
used nor is there any verification of the claimed injuries. Further, to date, plaintiffs have not had success in enforcing Nicaraguan
judgments against domestic companies before U.S. courts. With respect to these Nicaraguan matters, AMVAC intends to defend any
claim vigorously. Furthermore, the Company does not believe that a loss is either probable or reasonably estimable and has not
recorded a loss contingency for these matters.
Delaware DBCP Cases
Abad Castillo and Marquinez. On or about May 31, 2012, two cases (captioned Abad Castillo and Marquinez) were filed with
the United States District Court for the District of Delaware (USDC DE No. 1:12-CV-00695-LPS) involving claims for physical
injury arising from alleged exposure to DBCP over the course of the late 1960’s through the mid-1980’s on behalf of 2,700 banana
plantation workers from Costa Rica, Ecuador, Guatemala, and Panama. Defendant Dole brought a motion to dismiss 22 plaintiffs
from Abad Castillo on the ground that they were parties in cases that had been filed by HendlerLaw, P.C. in Louisiana. On September
19, 2013, the appeals court granted, in part, and denied, in part, the motion to dismiss, holding that 14 of the 22 plaintiffs should be
dismissed. On May 27, 2014, the district court granted Dole’s motion to dismiss the matter without prejudice on the ground that the
applicable statute of limitations had expired in 1995. Then, on August 5, 2014, the parties stipulated to summary judgment in favor of
defendants (on the same ground as the earlier motion) and the court entered judgment in the matter. Plaintiffs were given an
opportunity to appeal; however, only 57 of the 2,700 actually entered an appeal. Thus, at this stage, only 57 plaintiffs remain in the
action. On or about June 18, 2017, the Third Circuit Court submitted a certified question of law to the Delaware Supreme Court on
the question of when the tolling period ended. The Delaware Supreme Court heard oral argument on January 17, 2018 and is expected
57
to issue a ruling within 90 days. During the pendency of this question, these matters will be effectively stayed. At any rate, the
Company believes that a loss is neither probable nor reasonably estimable in these matters and has not recorded a loss contingency.
Hawaiian DBCP Matters
Patrickson, et. al. v. Dole Food Company, et al. In October 1997, AMVAC was served with two complaints in which it was
named as a defendant, filed in the Circuit Court, First Circuit, State of Hawai’i and in the Circuit Court of the Second Circuit, State of
Hawai’i (two identical suits) entitled Patrickson, et. al. v. Dole Food Company, et. al (“Patrickson Case”) alleging damages sustained
from injuries (including sterility) to banana workers caused by plaintiffs’ exposure to DBCP while applying the product in their native
countries. Other named defendants include: Dole Food Company, Shell Oil Company and Dow Chemical Company. After several
years of law and motion activity, the court granted judgment in favor of the defendants based upon the statute of limitations on July
28, 2010. On August 24, 2010, the plaintiffs filed a notice of appeal. On October 21, 2015, the Hawai’i Supreme Court granted the
appeal and overturned the lower court decision, ruling that the State of Hawai’i now recognizes cross-jurisdictional tolling, that
plaintiffs filed their complaint within the applicable statute of limitations and that the matter is to be remanded to the lower court for
further adjudication. No discovery has taken place in this matter, and, at this stage in the proceedings, the Company does not believe
that a loss is either probable or reasonably estimable and, accordingly, has not recorded a loss contingency for this matter.
Adams v. Dole Food Company et al. On approximately November 23, 2007, AMVAC was served with a suit filed by two
former Hawaiian pineapple workers (and their spouses), alleging that they had testicular cancer due to DBCP exposure; the action is
captioned Adams v. Dole Food Company et al in the First Circuit for the State of Hawaii. Plaintiff alleges that they were exposed to
DBCP between 1971 and 1975. AMVAC denies that any of its product could have been used at the times and locations alleged by
these plaintiffs. Following the dismissal of Dole Food Company on the basis of the exclusive remedy of worker’s compensation
benefits, plaintiffs appealed the dismissal. The court of appeals subsequently remanded the matter to the lower court in February 2014,
effectively permitting plaintiffs to amend their complaint to circumvent the workers’ compensation bar. There has been no activity in
the case since that time. The Company does not believe that a loss is either probable or reasonably estimable and has not recorded a
loss contingency for this matter.
B. Other Matters
EPA FIFRA/RCRA Matter. On November 10, 2016, the Company was served with a grand jury subpoena out of the U.S.
District Court for the Southern District of Alabama in which the U.S. Department of Justice (“DoJ”) sought production of documents
relating to the Company’s reimportation of depleted Thimet containers from Canada and Australia. The Company has retained
defense counsel and has substantially completed the production during the course of which it incurred approximately $2,350 in legal
costs and fees responding to this subpoena. During the third quarter of 2017, the Company received a request from DoJ to interview
several individuals who may be knowledgeable of the matter. Those interviews are likely to take place during the second quarter of
2018. At this stage, DoJ has not made clear its intentions with regard to either its theory of the case or potential criminal or civil
enforcement. Thus, it is too early to tell whether a loss is probable or reasonably estimable. Accordingly, the Company has not
recorded a loss contingency on this matter.
Walker v. AMVAC. On or about April 10, 2017, the Company was served with a summons and complaint that had been filed
with the United State District Court for the Eastern District of Tennessee under the caption Larry L. Walker v. AMVAC (as No. 4:17-
cv-00017). Plaintiff seeks contract damages, correction of inventorship, accounting and injunctive relief arising from for the
Company’s alleged misuse of his confidential information to support a patent application (which was subsequently issued) for a post-
harvest corn herbicide that the Company has not commercialized. Plaintiff claims further that he, not the Company, should be
identified as the inventor in such application. The Company believes that these claims are without merit and intends to defend
vigorously. On May 24, 2017, the Company filed a motion to dismiss this action, or in the alternative, for transfer of venue, on the
ground that (i) the complaint fails to state claim upon which relief can be granted, (ii) the contracts cited by plaintiff in his complaint
include a forum selection clause requiring that disputes are to be adjudicated in the U.S. District Court for the Central District of
California, and (iii) the doctrine of forum non conveniens applies. The District Court in Tennessee has yet to rule on the motion. At
this stage in the proceedings, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company
has not recorded a loss contingency.
Harold Reed v. AMVAC et al. During January 2017, the Company was served with two Statements of Claim that had been
filed on March 29, 2016 with the Court of Queen’s Bench of Alberta, Canada (as case numbers 160600211 and 160600237) in which
plaintiffs Harold Reed (an applicator) and 819596 Alberta Ltd. dba Jem Holdings (an application equipment rental company) allege
physical injury and damage to equipment, respectively, arising from a fire that occurred during an application of the Company’s
potato sprout inhibitor, SmartBlock, at a potato storage facility in Coaldale, Alberta on April 2, 2014. Plaintiffs allege, among other
things, that AMVAC was negligent and failed to warn them of the risks of such application. Reed seeks damages of $250 for pain and
suffering, while Jem Holdings seeks $60 in lost equipment; both plaintiffs also seek unspecified damages as well. Also during
58
January 2017, the Company received notice that four related actions relating to the same incident were filed with the same court: (i)
Van Giessen Growers, Inc. v Harold Reed et al (No. 160303906)(in which grower seeks $400 for loss of potatoes); (ii) James
Houweling et al. v. Harold Reed et al. (No. 160104421)(in which equipment owner seeks damages for lost equipment); (iii) Chin
Coulee Farms, etc. v. Harold Reed et al. (No. 150600545)(in which owner of potatoes and truck seeks $530 for loss thereof); and (iv)
Houweling Farms v. Harold Reed et al. (No. 15060881)(in which owner of several Quonset huts seeks damages for lost
improvements, equipment and business income equal to $4,300). The Company was subsequently named as cross-defendant in those
actions by Reed. During the third quarter of 2017, counsel for the Company filed a Statement of Defence (the Canadian equivalent of
an answer), alleging that Reed was negligent in his application of the product and that the other cross-defendants were negligent for
using highly flammable insulation and failing to maintain sparking electrical fixtures in the storage units affected by the fire. The
Company believes that the claims against it in these matters are without merit and intends to defend them vigorously. At this stage in
the proceedings, however, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company
has not recorded a loss contingency.
Galvan v. AMVAC In an action entitled Graciela Galvan v. AMVAC filed on April 7, 2014 with the Superior Court for the
State of California for the County of Orange (No. 00716103CXC), plaintiff, a former employee, alleges violations of wages and hours
requirements under the California Labor Code. The Company completed the deposition of putative class representative and
participated in mediation on the matter. In February 2016, the court granted plaintiff’s motion for class certification with respect to
only one of the seven original claims (namely, that allegedly discretionary bonus payments made to class members during the subject
period should have been taken into account when calculating overtime). The Company believes that such bonus payments were
discretionary and, as such, were properly excluded from overtime calculations. Nevertheless, in the interest of saving defense costs,
the Company engaged in settlement discussions with plaintiff’s counsel over the course of several months. During the third quarter of
2016, the Company recorded a loss contingency to cover the estimated amount of settlement. During December 2016, the parties
reached agreement on terms of settlement, and, on February 9, 2018, the court gave its final approval to the terms of the class
settlement. The settlement was not material to the Company’s consolidated financial statements and the Company is to provide the
court with a report of administration of the settlement proceeds to the class in August 2018, after which the Company expects that the
matter will be dismissed with prejudice.
(5) Employee Deferred Compensation Plan and Employee Stock Purchase Plan
The Company maintains a deferred compensation plan (“the Plan”) for all eligible employees. The Plan calls for each eligible
employee, at the employee’s election, to participate in an income deferral arrangement under Internal Revenue Code Section 401(k).
The plan allows eligible employees to make contributions which cannot exceed 100% of compensation, or the annual dollar limit set
by the Internal Revenue Code. The Company matches the first 5% of employee contributions. The Company’s contributions to the
Plan amounted to $1,550, $1,258 and $1,261 in 2017, 2016 and 2015, respectively.
During 2001, the Company’s Board of Directors adopted the AVD Employee Stock Purchase Plan (the “ESPP Plan”). The Plan
allows eligible employees to purchase shares of common stock through payroll deductions at a discounted price. An original aggregate
number of approximately 1,000,000 shares of the Company’s Common Stock, par value $0.10 per share (subject to adjustment for any
stock dividend, stock split or other relevant changes in the Company’s capitalization) were allowed to be sold pursuant to the Plan,
which is intended to qualify under Section 423 of the Internal Revenue Code. The Plan allows for purchases in a series of offering
periods, each six months in duration, with new offering periods (other than the initial offering period) commencing on January 1 and
July 1 of each year. The initial offering period commenced on July 1, 2001. Pursuant to action taken by the Company’s Board of
Directors in December 10, 2010, the expiration of the Plan was extended to December 31, 2013. The Plan was amended and restated
on June 30, 2011 following stockholders’ ratification of the extended expiration date. In December 2013, the Board of Directors
resolved to extend the expiration date of the Plan five years, that is, until December 31, 2018. Under the Plan, as amended as of
June 30, 2011, 995,000 shares of the Company’s common stock were authorized. As of December 31, 2017, 2016, and 2015, 726,809,
760,825, and 803,555 shares, respectively, remained available under the plan. The expense recognized under the Plan was immaterial
during the years ended December 31, 2017, 2016 and 2015, respectively.
Shares of common stock purchased through the Plan in 2017, 2016 and 2015 were 34,016, 42,730 and 50,452, respectively.
(6) Major Customers and International Sales
In 2017, there were three companies that accounted for 13%, 10% and 10% of the Company’s consolidated sales. In 2016, there
were three companies that accounted for 15%, 11%, and 8% of the Company’s consolidated sales. In 2015, there were three
companies that accounted for 14%, 11% and 10% of the Company’s consolidated sales.
The Company primarily sells its products to large distributors, buying cooperatives and groups and extends credit based on an
evaluation of the customer’s financial condition. The Company had three significant customers who each accounted for approximately
59
10%, 9% and 8% of the Company’s receivables as of December 31, 2017. The Company had three significant customers who each
accounted for approximately 15%, 11% and 8% of the Company’s receivables as of December 31, 2016. The Company has long-
standing relationships with its customers and the Company considers its overall credit risk for accounts receivables to be low.
International sales for 2017, 2016 and 2015 were as follows:
Asia
South and Central America
Mexico
Europe
Africa
Australia
Canada
Middle East
Other
2017
2016
2015
28,880 $
25,748
16,030
10,700
7,893
4,334
4,083
1,237
—
98,905 $
17,138 $
16,234
16,690
14,519
7,111
3,735
3,690
4,041
101
83,259 $
13,847
15,970
17,096
12,350
8,622
4,158
1,585
3,230
437
77,295
$
$
(7) Royalties
The Company has two licensing agreements that require minimum annual royalty payments. Those agreements related to the
acquisition of certain products. The Company also has two other licensing arrangements in which royalty are paid based on
percentage of annual sales. Certain royalty agreements contain confidentiality covenants. Royalty expenses were $81, $83 and $111
for 2017, 2016 and 2015, respectively.
(8) Business and Product Acquisitions
During 2017, the Company completed acquisitions with a total combined purchase consideration, net of cash acquired of
$92,888 including cash paid at closing in the amount of $81,896 and deferred consideration of $10,992. At closing the Company
recorded $12,814 related to tax matters associated with the acquisitions. The purchase price has been allocated as follows: product
registrations and product rights $55,127, trade names and trademarks $9,500, customer relationships and customer lists $3,700,
goodwill $22,184, working capital $14,679 and property, plant and equipment $512. Included in the detail above, the amounts
allocated related to the products acquired from The Andersons, Adama and Syngenta are completed as at December 31, 2017. During
2017, the Company incurred approximately $937 of professional fees in connection with these transactions, which were expensed.
Cash paid at closing was funded through our revolving line of credit.
The assessment of purchase price allocation related to OHP and AgriCenter are preliminary as at December 31, 2017 and will be
completed during 2018. The purchase price allocations are based on information available to management at the time the consolidated
financial statements were prepared and reflect the best estimate of fair value. The fair value allocations are subject to change, which
may be significant. The goodwill consists largely of acquired workforce, tax related matters and expected synergies arising from the
acquisition. With regard to goodwill, $5,088 is expected to be deductible for income tax purposes, the balance is not expected to be
deductible for income tax purposes.
The Company considers that the acquisitions completed during 2017 are immaterial to the accompanying consolidated financial
statements individually and material in aggregate.
On January 13, 2017, the Company acquired from The Andersons, Inc. certain assets relating to proprietary formulations
containing PCNB, chlorothalonil and propiconazole which are marketed under the name FFII and FFIII. The acquired assets included
end use registrations. The acquired products were included in the Company’s consolidated statement of operations from the date of
acquisition.
On June 6, 2017, Amvac completed an acquisition of certain assets relating to the abamectin, chlorothalonil and paraquat
product lines from a group of companies, including Adama Agricultural Solutions, Ltd. The consideration for the acquired assets was
paid in cash and has been allocated to intangible assets and inventory. The acquired products were included in the Company’s
consolidated statement of operations from the date of acquisition.
On August 22, 2017, AMVAC BV, completed the acquisition of certain selective herbicides and contact fungicides including
chlorothanonil, ametryn, and isopyrazam, sold in the Mexican agricultural market. The assets were purchased from Syngenta AG.
60
The consideration for the acquired assets was paid in cash and has been allocated to intangible assets and inventory. The acquired
products were included in the Company’s consolidated statement of operations from the date of acquisition.
On October 2, 2017, the Company acquired substantially all of the assets of OHP, resulting in OHP becoming a wholly owned
subsidiary of the Company whereby the Company gained greater access to distribution in the U.S. ornamental market. OHP is a
leading provider of technology based pesticide solutions for greenhouse and nursery production applications throughout the United
States and Puerto Rico. The consideration for the acquired assets was paid in cash and has been preliminarily allocated to working
capital, property, plant and equipment, intangible assets, inventory and goodwill. The acquired business was included in the
Company’s consolidated statement of operations from the date of acquisition.
On October 27, 2017, AMVAC BV acquired 100% ownership in AgriCenter whereby the Company gained significant access
and distribution to the Central American market. AgriCenter is centralized in Costa Rica with offices in six other Central American
and Caribbean countries. AgriCenter is an agrochemical distribution company providing a range of services including bringing generic
produced product as well as its own branded products to growers. The consideration for the acquired assets was paid in cash and has
been preliminarily allocated to working capital, property, plant and equipment, intangible assets, inventory and goodwill. The acquired
business was included in the Company’s consolidated statement of operations from the date of acquisition.
The following unaudited pro forma information presents a summary of the Company’s combined results of operations for the
years ended December 31, 2017 and 2016, as if the business acquisitions had occurred on January 1, 2016. The following pro forma
financial information is not necessarily indicative of the results of operations as they would have been had the transaction been
effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons. Consequently,
actual results will differ from the unaudited pro forma financial information.
Pro forma net sales
Pro forma net income
Pro forma earnings per common share – basic
Pro forma earnings per common share – assuming
dilution
$
Year ended December 31
2017
2016
458,793 $
24,540
0.84
0.83
433,756
17,614
0.61
0.60
61
(9) Intangible Assets and Goodwill
The following schedule represents intangible assets recognized in connection with product acquisitions (See description of
Business, Basis of Consolidation and Significant Accounting Policies for the Company’s accounting policy regarding intangible
assets):
Intangible assets at December 31, 2014
Additions during fiscal 2015
Write offs during fiscal 2015
Impact of movement in exchange rates
Amortization expense
Intangible assets at December 31, 2015
Additions during fiscal 2016
Write offs during fiscal 2016
Impact of movement in exchange rates
Amortization expense
Intangible assets at December 31, 2016
Additions during fiscal 2017
Impact of movement in exchange rates
Amortization expense
Intangible assets at December 31, 2017
Goodwill at December 31, 2016
Additions during fiscal 2017
Goodwill at December 31, 2017
Intangible assets and goodwill at December 31, 2017
Amount
100,211
36,667
(33 )
(197 )
(7,488 )
129,160
224
(78 )
69
(7,942 )
121,433
68,327
(6 )
(8,804 )
180,950
—
22,184
22,184
203,134
$
$
$
$
The following schedule represents the gross carrying amount and accumulated amortization of intangible assets and goodwill.
Product rights and trademarks are amortized over their expected useful lives of 25 years. Customer lists are amortized over their
expected useful lives of ten years.
$000’s
Product Rights
Trademarks
Customer Lists
Goodwill
Total intangibles and goodwill
2017
Accumulated
Amortization
Net Book
Value
Gross
2016
Accumulated
Amortization
Net Book
Value
70,701 $ 152,321 $ 167,906 $
18,041
23,308
4,233
3,091
5,321
1,470
—
22,184
—
76,404 $ 203,134 $ 189,038 $
63,141 $ 104,765
14,630
3,411
2,038
1,053
—
—
67,605 $ 121,433
Gross
$ 223,022 $
27,541
6,791
22,184
$ 279,538 $
The following schedule represents future amortization charges related to intangible assets:
Year ending December 31,
2018
2019
2020
2021
2022
Thereafter
62
$
$
10,732
10,732
10,784
10,675
10,554
127,473
180,950
The following schedule represents the Company’s obligations under acquisitions and licensing agreements:
Obligations under acquisition agreements at December 31, 2014 $
Additional obligations acquired
Adjustment to deferred liabilities
Amortization of discounted liabilities
Payments on existing obligations
Obligations under acquisition agreements at December 31, 2015
Additional obligations acquired
Adjustment to deferred liabilities
Amortization of discounted liabilities
Payments on existing obligations
Obligations under acquisition agreements at December 31, 2016
Additional obligations acquired
Adjustment to deferred liabilities
Amortization of discounted liabilities
Payments on existing obligations
Obligations under acquisition agreements at December 31, 2017 $
Amount
2,492
1,367
65
135
(2,524 )
1,535
224
(22 )
38
(960 )
815
10,992
(223 )
109
(26 )
11,667
As of December 31, 2017, the $11,667 in remaining obligations under product acquisitions and licensing agreements is included
in other liabilities.
(10) Commitments
The Company has various lease agreements for offices as well as long-term ground leases for its facilities at Axis, AL,
Hannibal, MO and Marsing, ID. The office leases contain provisions to pass through to the Company its pro-rata share of certain of
the building’s operating expenses. The long-term ground lease at Axis, AL is for twenty years (commencing May 2001) with up to
five automatic renewals of three years each for a total of thirty-five years. The long-term ground lease at Hannibal, MO is for a period
of 20 years (commencing December 2007) with automatic one year extensions thereafter, subject to termination with a twelve-month
notice. At its Marsing facility, the Company owns 15 acres and holds a long-term ground lease on two acres for a period of 25 years
(commencing in March 2008). Rent expense for the years ended December 31, 2017, 2016 and 2015 was $1,102, $946 and $947. In
addition, the Company has various vehicle lease agreements for its sales force. Vehicle lease expense for the years ended December
31, 2017, 2016 and 2015 was $529, $555, and $435 respectively.
Future minimum lease payments under the terms of the leases are as follows:
Year ending December 31,
2018
2019
2020
2021
2022
Thereafter
$
$
2,250
1,938
1,660
1,103
521
650
8,122
(11) Research and Development
Research and development expenses which are included in operating expenses were $8,455, $6,998 and $6,337 for the years
ended December 31, 2017, 2016 and 2015, respectively.
63
(12) Equity Plan Awards
Under the Company’s Equity Incentive Plan of 1993, as amended (“the Plan”), all employees are eligible to receive non-
assignable and non-transferable restricted stock, options to purchase common stock, and other forms of equity. As of December 31,
2017, the number of securities remaining available for future issuance under the Plan is 2,000,579.
Incentive Stock Option Plans (“ISOP”)
Under the terms of the Company’s ISOP, under which options to purchase common stock can be issued, all employees are
eligible to receive non-assignable and non-transferable options to purchase shares. The exercise price of any option may not be less
than the fair market value of the shares on the date of grant; provided, however, that the exercise price of any option granted to an
eligible employee owning more than 10% of the outstanding common stock may not be less than 110% of the fair market value of the
shares underlying such option on the date of grant. No options granted may be exercisable more than ten years after the date of grant.
In 2017, 2016 and 2015, no options were granted.
Option activity within each plan is as follows:
Balance outstanding, December 31, 2014
Options exercised,
Options forfeited,
Balance outstanding, December 31, 2015
Options exercised,
Options forfeited,
Balance outstanding, December 31, 2016
Options exercised,
Options forfeited,
Balance outstanding, December 31, 2017
Incentive
Stock Option
Plans
724,904 $
(63,950) $
(34,109)
626,845 $
(58,900) $
(26,040)
541,905 $
(55,979) $
(13,143)
472,783 $
Weighted
Average
Price Per
Share
Exercisable
Weighted
Average
Price
Per Share
9.22 $
7.50
12.00
9.25 $
7.50
11.49
9.33 $
8.37
11.49
9.38 $
7.82
7.73
7.97
9.38
Information relating to stock options at December 31, 2017 summarized by exercise price is as follows:
Exercise Price Per Share
Incentive Stock Option Plan:
$7.50
$11.32-$14.75
Outstanding Weighted Average
Remaining
Life
(Months)
Exercise
Price
Shares
Exercisable Weighted Average
Shares
Exercise
Price
249,050
223,733
472,783
35 $
82 $
57 $
7.50
11.48
9.38
249,050 $
223,733 $
472,783 $
7.50
11.48
9.38
During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to incentive stock options of
$345, $354, and $431, respectively.
64
The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life
for options outstanding as of December 31, 2017 and 2016 was as follows:
As of December 31, 2017:
Incentive Stock Option Plans:
Outstanding
Vested
Exercisable
As of December 31, 2016:
Incentive Stock Option Plans:
Outstanding
Expected to Vest
Exercisable
Number
of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(Months)
Intrinsic
Value
(thousands)
472,783 $
472,783 $
472,783 $
541,905 $
536,531 $
332,684 $
9.38
9.38
9.38
9.33
9.31
7.97
57 $
57 $
57 $
67 $
67 $
49 $
4,853
4,853
4,853
5,321
5,280
3,719
The total intrinsic value of options exercised during 2017, 2016 and 2015 was $545, $493, and $361, respectively. Cash
received from stock options exercised during 2017, 2016, and 2015 was $468, $442, and $480, respectively.
Nonstatutory Stock Options (“NSSO”)
The Company did not grant any non-statutory stock options during the three years ended December 31, 2017. There are 16,333
shares of options outstanding for year ended December 31, 2017.
Common Stock Grants
During 2017, the Company issued a total of 290,977 shares of common stock to certain employees and non-executive board
members. Of these, 26,820 shares vest immediately, 1,300 shares will vest one-half each year on the anniversaries of the employee’s
employment date, 1,782 shares will vest two years from the employee’s employment date, and the balance will cliff vest after three
years of service. The fair values of the grants range from $14.92 to $19.90 per share based on the publicly traded share prices at the
date of grants. The total fair value of $4,726 is being recognized over the vesting period, which is representative of the related service
periods. During 2017, 20,815 shares of common stock granted to employees were forfeited.
During 2016, the Company issued a total of 150,009 shares of common stock to certain employees and non-executive board
members. Of these, 21,139 shares vest immediately, 2,600 shares will vest one-half each year on the anniversaries of the employee’s
employment date, 3,000 shares will vest two years from the employee’s employment date, and the balance will cliff vest after three
years of service. The fair values of the grants range from $15.08 to $17.35 per share based on the publicly traded share prices at the
date of grants. The total fair value of $2,283 is being recognized over the vesting period, which is representative of the related service
periods. During 2016, 35,615 shares of common stock granted to employees were forfeited.
A status summary of non-vested shares as of December 31, 2017 and 2016, are presented below:
Nonvested shares at January 1st
Granted
Vested
Forfeited
Nonvested shares at December 31st
December 31, 2017
December 31, 2016
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Number
of Shares
14.75
16.24
15.14
15.29
15.63
362,841 $
150,009
(152,479 )
(35,615 )
324,756 $
20.43
15.22
15.19
18.89
14.75
Number
of Shares
324,756 $
290,977
(203,165)
(20,815)
391,753 $
65
During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to restricted shares of $2,705,
$1,630, and $2,972, respectively.
Performance Based Stock Grants
During the year ended December 31, 2017, the Company issued a total of 128,594 performance based shares to employees. The
shares granted during 2017 have an average fair value of $15.43. The fair value was determined by using the publicly traded share
price as of the date of grant. The Company will recognize as expense the value of the performance based shares over the required
service period from grant date. The shares will cliff vest on February 8, 2020 with a measurement period commencing January 1,
2017 and ending December 31, 2019. Eighty percent of these performance based shares are based upon the financial performance of
the Company, specifically, an earnings before income taxes (“EBIT”) goal weighted at 50% and a net sales goal weighted at 30% .
The remaining 20% of performance based shares are based upon AVD stock price appreciation over the same performance
measurement period. The EBIT and net sales goals measure the relative growth of the Company’s EBIT and net sales for the
performance measurement period, as compared to the median growth of EBIT and net sales for an identified peer group. The
stockholder return goal measures the relative growth of the fair market value of the Company’s stock price over the performance
measurement period, as compared to that of the Russell 2000 Index and the median fair market value of the common stock of the
comparator companies, identified in the Company’s 2016 Proxy Statement. All parts of these awards vest in three years, but are
subject to reduction to a minimum (or even zero) for recording less than the targeted performance and to increase to a maximum of
200% for achieving in excess of the targeted performance.
On January 6, 2016, the Company granted a total of 52,170 performance based shares that will cliff vest on January 6, 2019 with
a measurement period commencing January 1, 2016 through December 31, 2018, provided that the participating employees are
continuously employed by the Company during the vesting period. Eighty percent of these performance based shares are based upon
financial performance of the Company, specifically, an earnings before income tax (“EBIT”) goal weighted at 50% and a net sales
goal weighted at 30%. The remaining 20% of performance based shares are based upon AVD stock price appreciation over the same
performance measurement period. The EBIT and net sales goals measure the relative growth of the Company’s EBIT and net sales for
the performance measurement period, as compared to the median growth of EBIT and net sales for an identified peer group. The
stockholder return goal measures the relative growth of the fair market value of the Company’s stock price over the performance
measurement period, as compared to that of the Russell 2000 Index and the median fair market value of the common stock of the
comparator companies, identified in the Company’s 2016 Proxy Statement. All parts of these awards vest in three years, but are
subject to reduction to a minimum (or even zero) for meeting less than the targeted performance and to increase to a maximum of
200% for meeting in excess of the targeted performance.
During 2015, the Company granted a total of 10,696 performance based shares. Of these, 7,500 shares will cliff vest on
January 5, 2018 with a measurement period commencing January 1, 2015 and ending December 31, 2017 and 3,196 shares will cliff
vest on August 1, 2018 with a measurement period commencing July 1, 2015 and ending June 30, 2018, provided that the
participating employees are continuously employed by the Company during the vesting period. Eighty percent of these performance
based shares are based upon financial performance of the Company, specifically, an earnings before income tax (“EBIT”) goal
weighted at 50% and a net sales goal weighted at 30%. The remaining 20% of performance based shares are based upon AVD stock
price appreciation over the same performance measurement period. The EBIT and net sales goals measure the relative growth of the
Company’s EBIT and net sales for the performance measurement period, as compared to the median growth of EBIT and net sales for
an identified peer group. The stockholder return goal measures the relative growth of the fair market value of the Company’s stock
price over the performance measurement period, as compared to that of the Russell 2000 Index and the median fair market value of
the common stock of the comparator companies, identified in the Company’s 2015 Proxy Statement. All parts of these awards vest in
three years, but are subject to reduction to a minimum (or even zero) for meeting less than the targeted performance and to increase to
a maximum of 200% for meeting in excess of the targeted performance.
As of December 31, 2017, the performance based shares related to EBIT and net sales have an average fair value of $16.10 per
share. The fair value was determined by using the publicly traded share price as of the date of grant. The performance based shares
related to the Company’s stock price have an average fair value of $12.60 per share. The fair value was determined by using the
Monte Carlo valuation method. For awards with performance conditions, the Company recognizes share-based compensation cost on
a straight-line basis for each performance criteria over the implied service period.
As of December 31, 2016, the performance based shares related to EBIT and net sales have an average fair value of $15.08 per
share. The fair value was determined by using the publicly traded share price as of the date of grant. The performance based shares
related to the Company’s stock price have an average fair value of $11.63 per share. The fair value was determined by using the
Monte Carlo valuation method. For awards with performance conditions, the Company recognizes share-based compensation cost on
a straight-line basis for each performance criteria over the implied service period.
66
As of December 31, 2015, performance based shares related to EBIT and net sales have an average fair value of $11.86 per
share. The fair value was determined by using the publicly traded share price as of the date of grant. The performance based shares
related to the Company’s stock price have an average fair value of $9.48 per share. The fair value was determined by using the Monte
Carlo valuation method. For awards with performance conditions, the Company recognizes share-based compensation cost on a
straight-line basis for each performance criteria over the implied service period.
During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to performance based shares
of $1,248, $995, and $329, respectively. In 2017, the Company assessed the likelihood of achieving the performance measures based
on peer group information currently available for the performance based shares granted in 2015 and 2014. Based on the performance
thus far, the Company has concluded that it is likely that the performance measure based on EBIT and net sales will be met at 200% of
targeted performance and have recorded the related additional expense in 2016. The performance shares based on market price,
however, are not expected to meet targeted performance and in that event, will be forfeited. Any forfeiture related to market condition
shares are included in the grant date fair value valuation and no forfeitures were recognized in 2017.
As of December 31, 2017, the Company had approximately $1,642 of unamortized stock-based compensation expenses related
to unvested performance based shares. This amount will be recognized over the weighted-average period of 1.8 years. This projected
expense will change if any performance based shares are granted or cancelled prior to the respective reporting periods or if there are
any changes required to be made for estimated forfeitures.
A summary of non-vested shares as of December 31, 2017 and 2016, is presented below:
Nonvested shares at January 1st
Granted
Vested
Forfeited
Nonvested shares at December 31st
Performance Incentive Stock Option Plan
December 31, 2017
December 31, 2016
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Number
of Shares
14.18
15.43
14.92
13.08
14.93
104,403 $
52,170
—
(37,551 )
119,022 $
17.05
14.39
—
22.45
14.18
Number
of Shares
119,022 $
128,594
(48,046)
(13,513)
186,057 $
For the three years ended December 31, 2017, the Company did not grant any employees performance incentive stock options to
acquire shares of common stock.
Performance option activity is as follows:
Balance outstanding, December 31, 2015
Options forfeited
Balance outstanding, December 31, 2016
Options forfeited
Balance outstanding, December 31, 2017
Incentive
Stock Option
Plans
Weighted
Average
Price Per
Share
Exercisable
Weighted
Average
Price
Per Share
98,410 $
(16,076)
82,334 $
(668)
81,666 $
11.49 $
11.49
11.49 $
11.49
11.49 $
—
—
—
67
Information relating to performance stock options at December 31, 2017 is summarized by exercise price is as follows:
Exercise Price Per Share
Performance Incentive Stock Option Plan:
$11.49
Outstanding Weighted Average
Remaining
Life
(Months)
Exercise
Price
Shares
Exercisable Weighted Average
Shares
Exercise
Price
81,666
81,666
— (1)$
— $
11.49
11.49
— $
— $
—
—
(1) The Incentive Stock Option awards have been totally vested on 12/31/2017. The remaining contractual term is 7 years for
these awards.
The weighted average exercise price for performance options granted and exercisable and the weighted average remaining
contractual life for performance options outstanding as of December 31, 2017 and 2016 was as follows:
As of December 31, 2017:
Performance Incentive Stock Option Plans:
Outstanding
Expected to Vest
Exercisable
As of December 31, 2016:
Performance Incentive Stock Option Plans:
Outstanding
Expected to Vest
Exercisable
Number
of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(Months)
Intrinsic
Value
(thousands)
81,666 $
81,666 $
— $
11.49
11.49
—
82,334 $
75,312 $
— $
11.49
11.49
—
— $
— $
— $
12 $
12 $
— $
666
666
—
631
577
—
During 2017, 2016 and 2015, the Company recognized stock-based compensation expense related to performance incentive
stock options of $416, $188, and $149, respectively. In 2017, the Company assessed the likelihood of achieving the performance
measures based on peer group information currently available for the performance incentive stock options awarded in 2014. The
Company has concluded that the performance measure based on EBIT will be met at 200% of targeted performance and net sales will
be met at 200% of targeted performance and have recorded the related additional expense in 2017. While the performance incentive
stock options based on market price is likely to be met at 200% targeted performance, no additional expenses were recognized in 2017
as the grant date valuation of these awards reflects market conditions.
(13) Accumulated Other Comprehensive Loss
The following table lists the beginning balance, annual activity and ending balance of each component of accumulated other
comprehensive loss:
Balance, December 31, 2014
Other comprehensive loss before reclassifications
Balance, December 31, 2015
Other comprehensive loss before reclassifications
Balance, December 31, 2016
Other comprehensive loss before reclassifications
Balance, December 31, 2017
68
FX
Translation
(1,970)
(1,571)
(3,541)
(1,310)
(4,851)
344
(4,507)
$
$
(14) Equity Method Investments
The Company utilizes the equity method of accounting with respect to its investment in TyraTech Inc. (“TyraTech”), a
Delaware corporation that specializes in developing, marketing and selling pesticide products containing essential oils and other
natural ingredients. For the years ended December 31, 2017, 2016 and 2015, the Company recognized losses of $177, $353, and $636,
respectively on its equity method investment. In November 2015, TyraTech issued 105,333,333 shares and raised approximately
£3,200 ($4,800, based on the exchange rate at the time). Due to the share issuance, the Company recognized a loss of $7 (for 2015)
from the dilution of the Company’s ownership position, as required by ASC 323. As of December 31, 2017 and 2016, the Company’s
ownership position in TyraTech was approximately 15.11%. As a result of the reduced equity share, the Company re-assessed its
choice of equity method accounting for the investment and determined that it retains significant influence by retaining one out of five
board seats and accordingly, this method of accounting continues to be appropriate. At December 31, 2017, the carrying value of the
Company’s investment in TyraTech was $2,006 and the quoted market value based on TyraTech’s share price (Level 1 input) was
$1,970.
At December 31, 2017, the Company performed an impairment review of its investment in TyraTech and concluded that the
current condition was temporary and consequently determined that no impairment charge was appropriate. TyraTech’s shares trade on
the AIM market of the London Stock Exchange under the trading symbol ‘TYR’. The Company’s equity investment is included in
other assets on the consolidated balance sheets.
At a special meeting conducted on December 27, 2017, TyraTech shareholders approved the sale of its Vamouse product line to
Alliance Pharmaceuticals, Ltd and the use of some of the proceeds from such sale for a tender offer for TyraTech shares. That tender
offer was concluded in January 2018. AMVAC elected not to exercise its right to sell into such tender offer and, as a result, the
Company’s ownership interest in TyraTech increased to approximately 35% at the conclusion of that transaction.
On August 2, 2016, AMVAC BV entered into a joint venture with Huifeng. The new entity, Hong Kong JV, is intended to focus
on activities such as market access and technology transfer between the two members. AMVAC BV is a 50% owner of the new entity.
No material contributions were made to this joint venture in 2016.
On June 27, 2017, both AMVAC BV and Huifeng (Hong Kong) Ltd. made individual capital contributions of $950 to the Hong
Kong JV. As of December 31, 2017, the Company’s ownership position in the Hong Kong JV was 50%. 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 year ended December 31, 2017, the Company recognized income of $128 as a result of the Company’s
ownership position in the Hong Kong JV. There were no losses recognized in the prior year.
(15) Cost Method Investment
In February 2016, AMVAC BV made an equity 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 December 31,
2017, the Company’s ownership position in Bi-PA was 15%. The Company utilizes the cost method of accounting with respect to this
investment and will periodically review the investment for possible impairment. There was no impairment on the investment as of
December 31, 2017. The investment is not material and is recorded within other assets on the consolidated balance sheets.
69
(16) Quarterly Data—Unaudited
Quarterly Data—2017
Net sales
Gross profit
Net income attributable to American Vanguard
Basic net income per share
Diluted net income per share
Quarterly Data—2016
Net sales
Gross profit
Net income attributable to American Vanguard
Basic net income per share
Diluted net income per share
March 31
June 30
September 30 December 31
$
$
70,673 $
30,084
3,452
0.12
0.12
69,474 $
27,503
2,794
0.10
0.10
77,905 $
34,335
4,304
0.15
0.15
72,724 $
31,395
3,246
0.11
0.11
89,975 $
38,032
4,089
0.14
0.14
82,447 $
32,986
2,877
0.10
0.10
116,494
44,941
8,429
0.29
0.28
87,468
36,404
3,871
0.13
0.13
Note: Totals may not agree with full year amounts due to rounding and separate calculations each quarter.
(17) Subsequent Event
There is no reportable subsequent event for the year ended December 31, 2017, as of the filing date of this Annual Report Form
on 10-K that requires recognition or disclosure in our consolidated financial statements.
70
BR030371-0418-10K