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, 2018
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 every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark 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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock of the registrant held by non-affiliates is $672.9 million. This figure is estimated as of June 30,
2018 at which date the closing price of the registrant’s Common Stock on the New York Stock Exchange was $22.95 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, 2018, was 30,294,615. The number of shares of $.10 par value
Common Stock outstanding as of February 22, 2019 was 29,690,417.
☒
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
December 31, 2018
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 ................................................................................................................
Item 15.
Exhibits and Financial Statement Schedules .........................................................................................................
Item 16.
Form 10-K Summary .............................................................................................................................................
SIGNATURES AND CERTIFICATIONS................................................................................................................................
PART IV
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i
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”), AMVAC Mexico Sociedad de Responsabilidad Limitada (“AMVAC M”), AMVAC de Costa Rica
Sociedad de Responsabilidad Limitada (“AMVAC CR Srl”), AMVAC do Brasil Representácoes Ltda (“AMVAC B”), AMVAC C.V.
(“AMVAC CV”), AMVAC Netherlands BV (“AMVAC BV”), Envance Technologies, LLC (“Envance”), TyraTech Inc.
(“TyraTech”), AMVAC Singapore Pte, Ltd (“AMVAC Sgpr”), 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.
AVD operates its business through its principle operating subsidiaries including AMVAC for its domestic business and
AMVAC BV for its international business.
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, formulates or distributes 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), the development and
commercialization of new formulations or compounds through licensing arrangements and by expanding our distribution network to
gain market access.
AMVAC BV is a Netherlands Corporation that was established in 2012 and is based in Houton, near Amsterdam in the
Netherlands. AMVAC BV sells product through sales based subsidiaries in various international territories.
Below is a description of the Company’s acquisition/licensing activity over the past five years.
On December 28, 2018, the Company’s international subsidiary AMVAC BV completed the purchase of certain assets related to
the quizalofop product family from E.I. du Pont de Nemours and Company. Quizalofop is an herbicide marketed under the name
Assure II for use on canola, soybeans and pulse (among other things) in Canada and the United States. This transaction includes
acquisition of registrations, registration data, trademarks, inventory, commercial sales information, and the transfer of existing product
supply arrangements.
2
On December 14, 2018, AMVAC completed the purchase of certain assets related to the trichlorfon product family from Bayer
AG and Bayer CropScience AG (“Bayer”). Trichlorfon is an insecticide marketed under the name Dylox in turf, ornamental and other
markets. This transaction includes registrations, trademarks and manufacturing know-how. AMVAC will manufacture and supply
formulated end use products to Bayer for the latter’s distribution.
On November 9, 2018, AMVAC completed the purchase of all of the outstanding shares of TyraTech, Inc. and, in the process,
delisted TyraTech from the AIM market of the London Stock Exchange. TyraTech develops non-toxic insecticides and green solutions
for pest control. Their patented technology platform leverages synergistic essential oil combinations to target invertebrate pest
receptors that are not active in humans and other mammals.
On June 20, 2018, AMVAC completed the purchase of certain intangible assets related to the Bromacil product family and
included end use registrations in the United States. The assets were purchased from Bayer AG. From June 20, 2018 until October 25,
2018, Bayer continued to act as the Company’s agent in the market place. Bromacil is a broad spectrum residual herbicide used for
non-agricultural industrial vegetation control and on many crops such as pineapples, citrus, agave and asparagus. Marketed under the
Hyvar® and Krovar® brands, Bromacil herbicides are valued and long established weed control tools. AMVAC previously purchased
these brands from DuPont Crop Protection in 2015 for markets outside of US and Canada including Japan, Thailand, Mexico, Cost
Rica and Brazil.
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.
On June 6, 2017, 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, AMVAC 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.
Seasonality
The agricultural chemical industry, in general, is cyclical in nature. The demand for AVD’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
AVD does not believe that backlog is a significant factor in its business. The Company primarily sells its products on the basis
of purchase orders, although from time to time it has entered into requirements contracts with certain customers.
3
Customers
The Company’s largest three customers accounted for 12%, 9% and 8% of the Company’s sales in 2018; 13%, 10% and 10% in
2017; and 15%, 11% and 8% in 2016.
Distribution
AVD manages its US business through its principal operating subsidiary, AMVAC. 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. AVD manages its international sales through AMVAC
BV, which has sales offices in Mexico, Costa Rica and several other countries in Central America, and sales force executives, sales
agents or wholly owned distributors 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 AVD products vary by region, target crop, use and type of distribution channel. AVD’s customers
are experts at addressing these various markets.
Competition
In its many marketplaces, AVD faces competition from both domestic and foreign manufacturers. Many of our competitors are
larger and have substantially greater financial and technical resources than AVD. AVD’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. AVD 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, AVD has positioned itself in smaller niche markets, which are no longer
addressed by larger companies. In other cases, for example in the Midwest corn market, the Company competes directly with larger
competitors.
Manufacturing
Through its four domestic manufacturing facilities (see Item 2, Properties), AVD synthesizes many of the technical grade active
ingredients that are in its end-use products. Further, the Company formulates and packages its end use products at its own facilities or
at the facilities of third-party formulators.
Raw Materials
AVD 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, AVD seeks to secure its supply by either long-term (multi-year) arrangements or purchasing on long
lead times from its suppliers.
Intellectual Property
AVD’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 the Company 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, AVD’s trademarks bring value to its products in both domestic and foreign markets. AVD considers
that, in the aggregate, its trademarks, licenses, and patents constitute a valuable asset. While it does not regard its current business as
being materially dependent upon any single trademark, license, or patent, it believes that patents will play an increasingly important
role in its developmental equipment technology in future years.
4
EPA Registrations
In the United States, AVD’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
pesticide has first been registered by the United States Environmental Protection Agency (“USEPA”). Substantially all of the
Company’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 AVD’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 AVD. AVD, 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. The Company
expensed $16,047, $14,232 and $11,544, during 2018, 2017 and 2016, respectively, on these activities.
Registration
Product development
Environmental
2018
2017
2016
$
$
10,749 $
5,298
16,047 $
9,450 $
4,782
14,232 $
7,750
3,794
11,544
During 2018, 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.
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.
5
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, 2018, the Company employed 624 employees. The Company employed 605 employees as of
December 31, 2017 and 395 employees as of December 31, 2016. From time to time, due to the seasonality of its business, AVD 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 1971. 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. On
November 8, 2018, the Company acquired TyraTech which was previously the minority shareholder in Envance. As of November 9,
2018, the Company owned 100% of Envance. 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.
As noted above, on November 8, 2018, the Company acquired the remaining 65.62% of the shares of TyraTech Inc. and, as a
result, TyraTech became a wholly owned subsidiary of the Company from November 9, 2018.
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 2018, the international business sold the Company’s products in 54
countries, as compared to 63 countries in 2017.
6
AMVAC M is a wholly owned subsidiary of AMVAC BV and was originally formed in 1998 (as Quimica Amvac de Mexico
S.A. de C.V and subsequently changed to AMVAC Mexico Sociedad de Responsabilidad Limitada “AMVAC M”) 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.
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 100% of 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
$
2018
153,958
$
33.9%
2017
98,905
$
27.9%
2016
83,259
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. 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.
7
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 may 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 more pronounced in certain
geographical regions (outside the United States) 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 such regulatory challenges.
USEPA has proposed further limitations on the continued registration of organophosphates— In September 2015, the
USEPA published in the Federal Register a memorandum entitled, “Literature Review on Neurodevelopmental Effects & FQPA
Safety Factor Determination for the Organophosphate Pesticides,” in which it adopted a position recommending 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, including those owned by the Company, as they have come up for review or renewal. The
Company, like many in our industry, believes that 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.
8
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 relevant 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 is fully committed toward minimizing the risk
of discharge of materials into the environment and to complying with governmental regulations relating to protection of the
environment, its neighbors and its workforce. Nevertheless, federal and state authorities may 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 entirely 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.
Tariff Activity—Over the course of the past several months, the U.S. and China have imposed a series of retaliatory tariffs
against one another in respect of various products, ranging from metals to grains to chemicals. To date, the Company has not been
materially adversely affected by these tariffs. However, it is not always possible to predict which products could be targeted by either
nation, nor is it possible to predict the size or duration of any given tariff. It is possible that either the U.S. or China could place tariffs
on one or more products that would cause either a disruption in the markets of the Company’s customers or an increase in the
Company’s cost of goods which, either individually or in the aggregate, could have a material adverse effect upon the Company’s
operations or financial performance.
The Company is dependent upon 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 a number of its products. Certain of these raw
materials are available solely from single sources either domestically or overseas. Starting January 1, 2017, the Chinese government
began placing 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.
Newly acquired businesses or product lines 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 or product line 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.
9
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 and Brazil in 2018, the Company now carries
on business at a material level in some jurisdictions that have a history of political or economic instability. 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.
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. 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 when facing such generic competitors, or that such competitors will not offer generic versions of the
Company’s products in the future.
10
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,
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 2018, 2017 and 2016, three customers accounted for 29%, 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 will not 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 taken. Such an event could adversely
affect both the Company’s ability to operate, its reputation with key stakeholders 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 and net income through both expansion of current product lines, the acquisition of product lines from third
parties and 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 acquisitions—Over the past few decades, the Company’s growth has been
driven by acquisitions 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.
11
The Company is subject to taxation related risks in multiple jurisdictions—The Company is a U.S. based multinational
company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global
provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we believe
our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these
positions may be contested or overturned by jurisdictional tax authorities, which may have a significant impact on our global provision
for income taxes. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or
applied. The U.S. recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. In addition,
governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the European Union, as
well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are
actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business.
If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial
condition or results of operations may be adversely impacted.
The Company is subject to adverse impact from the United Kingdom’s decision to end its membership in the European
Union—In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union (“EU”) in a national
referendum (“BREXIT”). The results of the United Kingdom’s BREXIT has caused, and may continue to cause, volatility in global
stock markets, currency exchange rate fluctuations and global economic uncertainty. Although it is unknown what the terms of the
United Kingdom’s future relationship with the EU will be, it is possible that there will be higher tariffs or greater restrictions on
imports and exports between the United Kingdom and the EU and increased regulatory complexities. The effects of BREXIT could
potentially impact the Company’s operations primarily in mainland Europe, including financial, legal, tax, and trade.
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.
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. 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.
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. In 2018, FMC
Corporation acquired from DuPont a business unit which held, among other things, the Axis Facility. At present, AMVAC is
negotiating new terms and conditions for the lease.
12
AVD regularly adds chemical processing equipment to enhance or expand its production capabilities. The Company 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.
AVD 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 CR Srl’s, AMVAC Sgpr’s, OHP’s and AgriCenter’s facilities consist of
administration and/or sales offices which are leased.
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 AVD 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 it.
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 2018. As described more fully below, activity in domestic cases during
2018 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 remanded to the trial court, following a ruling by the Delaware Supreme
Court on recognizing the doctrine of cross-jurisdictional tolling. In Hawaii, in the matter of Patrickson, et. al. v. Dole Food Company,
the parties have stipulated that the Company shall be dismissed, insofar as it was not a party to the class action case that tolled the
statute of limitations. In Adams (also in Hawai’i), 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.
Finally, plaintiffs in Chaverri, which had been dismissed by the Superior Court of the State of Delaware in 2012 for failure to meet the
applicable statute of limitations, have brought a motion to vacate the dismissal on the ground that the matter should be subject to trial
on the merits under the principle of cross-jurisdictional tolling.
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 $1,000 in
compensatory damages and $5,000 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.
13
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, 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, on March 15, 2018 ruled
on the matter, finding that federal court dismissal in 1995 on the grounds of forum non conveniens did not end class action tolling, and
that such tolling ended when class action certification was denied in Texas state court in June 2010. This matter is now at the district
court, following the appeals court’s receipt of the ruling. Discovery has commenced. The Company believes that a loss is neither
probable nor reasonably estimable in this matter and has not recorded a loss contingency.
Chaverri. This matter involves 258 plantation workers from Costa Rica, Ecuador and Panama alleging physical injury from
DBCP in the late 1970’s, was originally filed in the state of Texas in 1993, then underwent a tortuous series of law and motion
developments until it was ultimately refiled in May 2012 by the Hendler firm in the Superior Court of the State of Delaware as
Chaverri et al. v. Dole Food Company, Inc. et al. (including AMVAC) (N12C-06-017 ALR), where it was subsequently dismissed
with prejudice in August 2012 under the statute of limitations. In light of the Delaware Supreme Court’s adoption of cross-
jurisdictional tolling, however, in January 2019, plaintiffs filed a motion to vacate the dismissal, arguing that the matter had been
dismissed on a basis which the Delaware Supreme Court no longer recognizes without ever having been adjudicated as to the merits.
Defendants are filing briefs in opposition to this motion. The Company believes that a loss is neither probable nor reasonably
estimable 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 April 8, 2011, counsel for plaintiffs filed a pleading to
withdraw and to substitute new counsel. 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 is, the principle under which the
courts of one state recognize another state’s common law on the tolling of statutes of limitation), 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. However,
in November 2018, the parties stipulated that, because it was not named as a defendant in the Carcamo matter (class action matter that
gave rise to the tolling of the statute of limitations), AMVAC should be dismissed from this matter. Thus, we expect that the Company
will be dismissed with prejudice from this action as soon as the court issues an order.
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, and the Company does not believe that a loss is either probable or reasonably estimable and has not recorded
a loss contingency for this matter.
14
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 retained defense
counsel and completed production of documents. During the fourth quarter of 2018, government attorneys interviewed four
individuals who may be knowledgeable of the matter. At this stage, DoJ has not made clear its intentions with regard to either its
theory of the case or potential criminal 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.
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
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.
Takings Case. On June 14, 2016, the Company filed a lawsuit against the USEPA in the U.S. Court of Federal Claims, entitled
“American Vanguard Corporation v. USEPA” (Case No. 16-694C) under which the Company claimed damages from USEPA on the
ground that that agency’s issuance of a Stop Sale, Use and Removal Order against the PCNB product line in August 2010 amounts to
a taking without just compensation under the Tucker Act. The court in this matter denied the government’s motion to dismiss for lack
of jurisdiction and failure to state a claim, which was brought in September 2016. Fact and expert discovery was completed, and both
parties filed motions for summary judgment on the merits. In January 2019, the court denied the Company’s motion for summary
judgment, while granting that of the government, finding that the Company’s PCNB business did not amount to a cognizable property
interest in the context of the Tucker Act. The Company will be filing a motion for reconsideration on the ground that the court’s
decision was based upon an erroneous understanding of the facts. Since any recovery in this matter is contingent upon judgment, and
there is no assurance of receiving a favorable judgment, the Company has not recorded any amount in its consolidated financial
statements.
ITEM 4
MINE SAFETY DISCLOSURES
Not Applicable
15
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.
Holders
As of February 15, 2019, the number of stockholders of the Company’s Common Stock was approximately 4,522, 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-three years dating back to 1996. Cash dividends declared
during the past three years are summarized in the table below.
Declaration Date
December 10, 2018
September 18, 2018
June 11, 2018
March 8, 2018
Total 2018
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
Distribution Date
January 10, 2019
October 17, 2018
July 12, 2018
April 13, 2018
January 10, 2018
October 19, 2017
July 14, 2017
April 15, 2017
Record Date
December 27, 2018 $
October 3, 2018
June 28, 2018
March 30, 2018
$
December 27, 2017 $
October 5, 2017
June 30, 2017
March 31,2017
$
December 23, 2016 $
January 6, 2017
November 11, 2016 October 28, 2016
July 12, 2016
June 30, 2016
$
Dividend
Per Share
Total
Paid
0.020 $
0.020
0.020
0.020
0.080 $
0.015 $
0.015
0.015
0.015
0.060 $
0.010 $
0.010
0.010
0.030 $
581
588
587
586
2,342
438
439
437
435
1,749
289
289
289
867
Share Repurchase Program
On November 5, 2018, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an
aggregate amount of shares with a total purchase price not to exceed $20,000 of its common stock, par value $0.10 per share, in the
open market, depending upon market conditions over the short to mid-term. The Shares Repurchase Program expires on March 8,
2019. Share repurchases may be executed through various means, including, without limitation, open market transactions, privately
negotiated transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and
Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements and other relevant factors. The Shares
Repurchase Program does not obligate the Company to acquire any particular amount of shares of common stock and the program
may be suspended or discontinued at any time.
16
Purchases of Equity Securities by the Issuer
The table below summarizes the number of shares of our common stock that were repurchased during the three months ended
December 31, 2018 under the share repurchase program. The shares and respective amount are recorded as treasury shares on the
Company’s consolidated balance sheet.
Month ended
November 30, 2018
December 31, 2018
Total number of
shares purchased
Average price paid
per share
Total amount paid
Maximum dollar
value of shares
that may yet be
purchased under
the program
196,858 $
255,500
452,358 $
17.10 $
15.35
16.11 $
3,366
3,921
7,287 $
12,713
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
524,475 $
524,475 $
9.74
9.74
1,568,888
1,568,888
17
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, 2013. All calculations assume reinvestment
of dividends. Returns over the indicated period should not be considered indicative of future returns.
18
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, 2018, 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, 2018 and 2017 and for each of the three years
in the period ended December 31, 2018. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Net sales (1)
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 (2)
Working capital (2)
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
$
$
$
$
$
$
$
$
$
$
$
$
2018
454,272 $
182,631 $
39,021 $
2017
355,047 $
147,392 $
26,794 $
2016
312,113 $
128,288 $
20,540 $
2015
289,382 $
111,902 $
11,524 $
2014
298,634
114,496
6,710
33,596 $
24,195 $
$
0.83
$
0.81
593,587 $
164,660 $
96,671 $
329,230 $
29,326
30,048
0.08 $
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 $
8,962 $
6,591 $
0.23 $
0.23 $
435,270 $
139,850 $
68,321 $
268,326 $
28,673
29,237
0.02 $
3,644
4,841
0.17
0.17
463,590
197,073
98,605
261,003
28,436
28,912
0.17
(1)
(2)
The results for reporting periods beginning after January 1, 2018 are presented under ASC 606. Prior period results are not
adjusted and continue to be reported in accordance with historic revenue recognition, ASC 605.
The Company’s consolidated balance sheets as of December 31, 2015 and 2014, reflect certain reclassifications for deferred
income taxes and income taxes payables.
19
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 2018 were generally improved over those of 2017 with net sales up 28% ($454,272 as
compared to $355,047), net income up 19% ($24,195 as compared to $20,274) and gross profit up 24% ($182,631 as compared to
$147,392).
Top line sales performance was driven by the addition of new sales from the four acquisitions that the Company completed in
the second half of 2017, which had a full year impact in 2018. Gross profit as a percentage of sales declined from 42% in 2017 to 40%
in 2018. There were two factors driving that change. First, sales from our newly-acquired businesses generally carry lower margins
when compared to the pre-existing business. Second, this reduction in gross margin on the additional sales was offset by a further
improvement in our factory performance in 2018, which resulted in greater recovery of factory costs. Operating expenses rose on an
absolute basis, as the Company recorded a full year of expenses related to the businesses acquired during 2017 and continued to invest
in the maintenance of registrations of several important products and the development and commercialization of our SIMPAS
precision application technology. When compared to net sales, operating costs improved from 34% of net sales in 2017 to 32% of net
sales in 2018. Approximately 1% of this improvement relates to a $6,050 change in estimate relating to deferred consideration for
acquisition made in 2017.
Due to our acquisition activities principally in the second half of 2017, our average borrowings increased in 2018, as compared
to 2017. Average borrowings were also increased by the acquisitions completed in 2018. As a result, net interest expense was $4,024
in 2018, as compared to $1,941 in 2017. In addition, in 2018, we incurred $1,401 as a one-time acquisition expense as the result of the
change in fair value of a derivative instrument, which related to the acquisition of the Brazilian business we acquired at the start of
2019.
Our income tax expense for 2018 ended at $9,145, as compared to $4,443 in 2017. In 2018, we incurred a one-time charge of
$1,089, as a result of completing all final calculations related to the impact of the implementation of the Tax Cuts and Jobs Act (“Tax
Reform Act”). In 2017, we had previously estimated that the enactment of the Tax Reform Act conferred upon the Company a one-
time benefit of $3,433. During 2018, our effective tax rate (including the one-time expense just mentioned) increased to 27%, as
compared to 18% in 2017. Net income increased to $0.81 per diluted share ($0.83 per basic share), as compared to $0.68 per diluted
share ($0.70 per basic share) in 2017, which, as mentioned above, was aided by a one-time benefit under the Tax Reform Act.
When considering the consolidated balance sheet, long-term debt increased by $19,185 to $96,671 at December 31, 2018, as
compared to $77,486 this time last year. The increased level of debt was driven by the four acquisitions completed in 2018 and
particularly in the final quarter of the year. The Company’s borrowing capacity decreased to $112,150 as of December 31, 2018, as
compared to $139,241 at the same time in 2017. Furthermore, inventory increased by $36,771 ($159,895, as compared to $123,124) at
year-end. This was driven by inventory associated with acquisitions and expedited procurement of certain goods from China to
minimize increased tariffs.
20
Results of Operations
2018 Compared with 2017:
2018
2017
$ 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
$
$
$
$
$
$ 150,595
183,350
58,360
392,305
61,967
$ 454,272
$ 134,377
124,529
42,503
301,409
53,638
$ 355,047
$
94,340
111,298
35,681
241,319
30,322
$ 271,641
$
85,768
69,866
27,883
183,517
24,138
$ 207,655
$
56,255
72,052
22,679
150,986
31,645
$ 182,631
$
48,609
54,663
14,620
117,892
29,500
$ 147,392
38%
51%
40%
$
39%
55%
42%
16,218
58,821
15,857
90,896
8,329
99,225
8,572
41,432
7,798
57,802
6,184
63,986
7,646
17,389
8,059
33,094
2,145
35,239
12%
47%
37%
30%
16%
28%
10%
59%
28%
31%
26%
31%
16%
32%
55%
28%
7%
24%
$ 300,314
153,958
$ 454,272
$ 256,142
98,905
$ 355,047
$
$
44,172
55,053
99,225
17%
56%
28%
Following is a more detailed discussion of our sales performance by category. Domestic sales finished the year at $300,314, as
compared to $256,142 in 2017, an increase of 17%. Sales gains resulted from strong growth in our US cotton defoliant Folex®,
increased sales of our soil fumigant products in light of more favorable weather conditions, as compared to the prior year and full-year
sales of products (paraquat, abamectin and chlorothalonil) and businesses (OHP) acquired in 2017. These gains were offset by softness
in the procurement of our corn soil insecticides (as growers shifted significant acreage to soybeans in 2018), a decrease in sales of our
Thimet® granular soil insecticide (due to a 20% reduction in peanut acres in 2018), a decline in sales of our mosquito adulticide
Dibrom (from the exceptional hurricane-driven demand of 2017), and a reduction in our toll manufacturing business, which will be
shifted into 2019.
International sales increased 56% year-over year ($153,958 in 2018 as compared to $98,905 in 2017), driven by the full year
impact of the Central American distribution business acquired in October 2017. We experienced relatively stable sales performance
from our other main international products Mocap, Nemacur, Counter and Aztec.
The relative sales performance of our crop and non-crop businesses is as follows: Net sales of our crop business in 2018 were
$392,305, which constitutes an increase of 30% as compared to net sales of $301,409 in 2017. Net sales of our non-crop products in
2018 were $61,967, which is an increase of approximately 16% as compared to $53,638 in 2017. 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.
21
In our crop business, net sales of insecticides in 2018 ended at $150,595, which was a 12% increase, as compared to sales of
$134,377 in 2017. The increase in sales was driven primarily by the full year effect of sales of our Central American distribution
business acquired in the final quarter of 2017. This performance was somewhat offset by a reduction of 7% in net sales of our granular
soil insecticides, as compared to net sales in 2017. Furthermore, we recorded reduced year-over-year sales for our Aztec and
SmartChoice CSI products for corn and for our Thimet® used in peanuts, sugar cane and potatoes, primarily due to lower planted
acres in the United States for both corn and peanuts in 2018. We had relatively flat year-over-year sales for our nematicide Counter®
in the domestic corn and sugar beet segments along with slight increases in the combined international sales of Mocap® and
Nemacur®. In our foliar insecticide category, we had relatively lower in-season infestation pressure, which reduced our year-over-
year Bidrin® sales somewhat, but was more than offset by sales from our abamectin product line acquired in 2017.
Within the product group of herbicides/soil fumigants/fungicides, our crop net sales grew over 47% in 2018, ending at
$183,350, as compared to $124,529 in 2017. Our sales growth was primarily driven by the full year effect of sales of our Central
American distribution business acquired in the final quarter of 2017. In addition, our fumigant product line continued to perform well,
increasing 8% above 2017, benefiting from more favorable weather conditions at the time of application in the Pacific Northwest and
the Southeast United States. In the herbicide portion of this group, we had stronger performance from our traditional products
Impact® and Dacthal®, and the strong performance of our newly acquired paraquat herbicide, which nearly doubled its prior year
performance, in part due to the full year effect and in part related to an improved supply position. In the fungicide portions of the
group, chlorothalonil, one of our newly acquired products in 2017 contributed an incremental $15,000 to the 2018 performance of this
group. Finally on fungicides, chlorothalonil and PCNB, both performed well, and grew sales strongly in 2018 as compared to 2017.
Within our other product group (which includes plant growth regulators, molluscicides and third party manufacturing activity),
we experienced an increase of 37% in net sales, ending at $58,360 in 2018, as compared to $42,503 in 2017. The main drivers of this
performance were the inclusion of a full year AgriCenter business (acquired in November of 2017) into this grouping (adding
approximately $20,000 to year-over-year net sales), in addition to a very strong year for our Folex® cotton harvest defoliant which
grew approximately 26%, as compared to the prior year. These increases were partially offset by a 2018 decline in toll manufacturing
activity, which will catch up in 2019.
Within our non-crop business, 2018 net sales increased by 16% to $61,967, as compared to $53,638 in 2017. This improved
performance benefited from full-year sales of OHP, our new niche horticultural distribution business acquired in November of 2017.
Additionally, our pre-existing non-crop product portfolio had a very solid year including Naled (our Dibrom® brand mosquito
adulticide) which performed well in 2018, albeit lower than our record sales performance of 2017, which was boosted by the intense
hurricane season, headlined by the persistent torrential rains of Harvey over the eastern Texas coastal region.
Our cost of sales for 2018 was $271,641 or 60% of sales. This compared to $207,655 or 58% of sales for 2017. 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 increased slightly (up 0.6%), as compared to last year. The overall increased cost of sales was expected
and relates to the change in sales mix driven by the products and businesses acquired in 2017 that recorded a full year in 2018, as
compared to a partial year in 2017. In general terms the cost of sales related to the products and business acquired in 2017 tends to be
higher than those of our pre-existing 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 under absorption costs dropped to 0.4% of net sales in 2018, as compared to 3.6%
of net sales in 2017.
Gross profit for 2018 improved by $35,239 or 24% to end at $182,631 for the year ended December 31, 2018, as compared to
$147,392 for the prior year. Gross margin as a percent of net sales, however, was 40% for 2018, as compared to 42% in 2017. While
the Company experienced continuous improvement in factory performance and factory cost recovery and strong performance in 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.
22
Operating expenses in 2018 increased by $23,012 to $143,610 or 32% of sales as compared to $120,598 or 34% in 2017. The
differences in operating expenses by department are as follows:
Selling
General and administrative
Research, product development and regulatory
Freight, delivery and warehousing
Change
% Change
$
2018
39,585 $
42,981
26,428
34,616
2017
29,112 $
37,660
26,076
27,750
$ 143,610 $ 120,598 $
10,473
5,321
352
6,866
23,012
36%
14%
1%
25%
19%
•
•
•
•
Selling expenses increased by 36% to $39,585 for the year ended December 31, 2018, as compared to $29,112 in 2017.
The increased expenses were driven by expanded activities in both international and domestic sales operations resulting
from acquisitions. In addition, we have continued to build our sales force both domestically and internationally to support
business growth. Selling expenses as a percent of net sales remained approximately flat at 8.9% in 2018 and 2017.
General and administrative expenses increased by 14% to $42,981 for the year ended December 31, 2018, as compared to
$37,660 in 2017. The main drivers are the expanded activities (including amortization expenses) in both international and
domestic businesses completed in 2017 in the amount of $6,200, increased long-term and short-term incentive
compensation driven by financial performance, legal expenses associated with the Company’s Takings case, and an
increase in the reserves for doubtful accounts receivable in our AgriCenter business in the amount of $1,030. These
increased costs were somewhat offset by the change in the estimates related to deferred consideration for the two
businesses acquired in 2017 in the amount of $6,050.
Research, product development and regulatory expenses increased by 1% to $26,428 for the year ended December 31,
2018, as compared to $26,076 in 2017. The increase is driven by activities and associated expenses of businesses acquired
in 2017 and 2018 in the amount of $1,560, offset by the capitalization of certain costs ($650) in connection with the
commercialization phase of our SIMPAS high technology packaging system and slightly reduced year over year expenses
for regulatory affairs and business development.
Freight, delivery and warehousing costs for the year ended December 31, 2018 increased by 25% to $34,616, as compared
to $27,750 in 2017. When expressed as a percentage of sales, freight costs decreased slightly year over year to 7.6% in
2018, as compared to 7.8% in 2017. This is mainly due to product mix and locations of customers.
Net interest expense was $4,024 in 2018, as compared to $1,941 in 2017. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
Working capital revolver
Interest income
Amortization of deferred loan fees
Amortization of other deferred liabilities
Other interest expense
Subtotal
Capitalized interest
Total
Average
Debt
2018
Interest
Expense
$ 93,346 $ 3,327
Interest
Rate
—
—
—
—
(174) —
235 —
395 —
326 —
93,346 4,109
$ 93,346 $ 4,024
Average
Debt
2017
Interest
Expense
3.6% $ 51,103 $ 1,547
—
—
—
—
4.4% 51,103 2,024
—
4.3% $ 51,103 $ 1,941
Interest
Rate
3.0%
(41) —
293 —
82 —
143 —
4.0%
3.8%
—
(85) —
(83) —
The Company’s average overall debt for the year ended December 31, 2018 was $93,346, as compared to $51,103 for the year
ended December 31, 2017. On a gross basis, our effective interest rate increased on our working capital revolver to 3.6%, as compared
to 3.0% in 2017. 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 4.3% for 2018, as compared to 3.8%
in 2017.
23
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The legislation significantly
changed 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 reduced 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
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. During 2017, we had performed an initial review of our foreign entities and estimated that the
amount of deemed repatriated income amounts to $30,085, on which the Company included a tax expense of $1,250. During 2018, the
Company obtained additional information and, as a result, adjusted its estimate. Accordingly, the amount of deemed repatriated
income increased to $32,305, and the associated tax increased to $2,339 resulting in a one-time adjustment to tax expense in the
amount of $1,089 related to the transition tax element of the Tax Reform Act.
Our provision for income taxes for 2018 was $9,145, as compared to $4,443 for 2017. The effective tax rate for 2018 was
27.2%, as compared to 17.9% in 2017. The increase in our effective tax rate was primarily driven by the inclusion of the one-time
adjustment of $1,089 related to the transition tax element of the Tax Cuts and Jobs Act. If this transition tax adjustment were to be
excluded, the effective tax rate would have been 24.0%.
The SEC staff issued Staff Accounting Bulletin 118, (“SAB 118”) which provides guidance on accounting for the tax effects of
the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for
companies to complete the accounting under Accounting Standards Codification 740 (“ASC 740”). The Company completed its
assessment under SAB 118 within the one year time period as required under the guidance.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state jurisdictions. Federal income tax
returns of the Company are subject to International Revenue (“IRS”) examination for the 2015 through 2017 tax years. State income
tax returns are subject to examination for the 2014 through 2017 tax years. The Company has other foreign income tax returns subject
to examination.
For the year ended December 31, 2018, the Company recorded net losses on its equity investments of $389. For 2017, the
Company recorded losses on its equity investments of $49.
In 2018, our net income benefited by $133, as compared to being reduced by $87 in 2017, representing the share of net income
or loss of our majority owned subsidiary that was charged to the non-controlling interest.
Net income attributable to American Vanguard ended at 24,195 or $0.81 per diluted share in 2018 as compared to $20,274 or
$0.68 per diluted share in 2017.
Liquidity and Capital Resources
The Company generated $11,346 of cash from operating activities provided during the year ended December 31, 2018, as
compared to $59,001 in the prior year. Included in the $11,346 are net income of $24,062, plus non-cash depreciation, amortization of
intangibles and other assets and discounted future liabilities, in the amount of $24,134. In addition, stock based compensation of
$5,805, loss from equity method investments of $389 and change in value of deferred income taxes of $561, provided net cash inflows
of $53,829, as compared to $47,812 for the same period of 2017.
During 2018, the Company used $42,483 as a result of increasing working capital, as compared to generating $11,189 during
2017. This change excluded increases in working capital related to the products and businesses acquired during 2018. Included in this
change: inventories increased by $31,440 primarily resulting from products and businesses acquired in 2017, inventories purchased
ahead of potential tariff changes and some changes in customer usage in the final quarter of the year. Deferred revenue as of
December 31, 2018 increased by $5,468, as compared to December 31, 2017, as a result of customer decisions to make early
payments in return for early cash incentive programs. Our accounts payable balances increased by $9,097 driven by increased
manufacturing activity and capital spending in the final quarter of the year and accounts receivables increased by $21,320 primarily
driven by the significantly higher sales in the final three months of 2018, as compared to the same period of the prior year. In addition,
prepaid expenses were reduced by $186, program accruals were reduced by $1,705 and other payables and accrued expenses were
increased by $5,424.
24
With regard to the program accrual, these changes as noted above, primarily reflect our mix of sales and customers in 2018 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 2018, the Company made
accruals for programs in the amount of $61,114 and made payments in the amount of $62,819. During the prior year, the Company
made accruals in the amount of $59,840 and made payments in the amount of $63,716.
In 2017, inventory reduced by $16,183, accounts payables increased by $3,322, other payables increased by $3,841, accounts
receivables decreased by $754, prepaid expenses reduced by $647 and deferred revenues increased by $10,726. Offsetting these
positive changes, income tax payable decreased by $12,073, and accrued programs decreased by $4,529.
Cash used for investing activities was $27,697 for the year ended December 31, 2018, as compared to $89,512 in 2017. The
Company spent $19,647 in business and product acquisitions including intangible assets, goodwill, working capital and fixed assets.
In addition, $8,050 was spent on fixed assets primarily focused on continuing to invest in manufacturing infrastructure.
During the year ended December 31, 2018, financing activities provided $11,133, principally from the borrowings on the
Company’s senior credit facility, as compared to utilizing $33,935 for the year ended December 31, 2017. This included a net
borrowing of $18,975 from our credit facility in 2018, as compared to a net repayment of $37,025 in 2017. During the final quarter of
the year, we paid $73 to buy out the non-controlling interest in a consolidated subsidiary. Finally, during the year, we paid dividends
to stockholders amounting to $2,199 ($1,600 in 2017), and purchased the Company’s common stock at market for $7,287.
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, 2018 and 2017. These are summarized in the following table:
Indebtedness
$000’s
Revolving line of credit
Debt issuance costs
Total indebtedness
2018
Long-term
2017
Long-term
$
$
97,400 $
(729)
96,671 $
78,425
(939)
77,486
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, 2018, according to the terms of the Credit Agreement and based on our performance against the most
restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $112,150. This compares to an
available borrowing capacity of $139,241 as of December 31, 2017. The level of borrowing capacity is driven by three factors: (1) our
financial performance, as measured in EBITDA for trailing twelve-month period, (2) the inclusion of proforma EBITDA related to
acquisitions completed during the preceding twelve months 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, 2018.
25
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 from the issuance of the Annual Report.
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.
The following summarizes our contractual obligations at December 31, 2018, and the effects such obligations are expected to
have on cash flows in future periods:
Long-term debt
Estimated interest liability (1)
Deferred earn outs on business acquisitions
Employment agreements
Operating leases—rental properties and equipment
Operating leases—vehicles
Transition taxes (2)
Total
97,400 $
14,025
3,866
2,314
14,803
2,727
2,152
137,287 $
$
$
Less than
1 Year
Payments Due by Period
1—3
Years
4—5
Years
After
5 Years
— $
3,506
1,609
928
4,811
1,297
187
12,338 $
97,400 $
10,519
2,257
1,386
7,176
1,342
374
120,454 $
— $
—
—
—
1,481
88
538
2,107 $
—
—
—
—
1,335
—
1,053
2,388
(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. $97,400)
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, 2018.
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, $2,170 of unrecognized tax benefits and $2,368 of accrued penalties and
interest have been recorded as long term liabilities as of December 31, 2018. 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 related to the Tax Reform Act over an eight-year period.
26
Results of Operations
2017 Compared with 2016:
2017
2016
$ 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
$
$
$
$
$
$ 134,377
124,529
42,503
301,409
53,638
$ 355,047
$ 119,226
123,540
29,438
272,204
39,909
$ 312,113
$
85,768
69,866
27,883
183,517
24,138
$ 207,655
$
78,945
66,299
19,139
164,383
19,442
$ 183,825
$
48,609
54,663
14,620
117,892
29,500
$ 147,392
$
40,281
57,241
10,299
107,821
20,467
$ 128,288
39%
55%
42%
$
40%
51%
41%
15,151
989
13,065
29,205
13,729
42,934
6,823
3,567
8,744
19,134
4,696
23,830
8,328
(2,578)
4,321
10,071
9,033
19,104
13%
1%
44%
11%
34%
14%
9%
5%
46%
12%
24%
13%
21%
-5%
42%
9%
44%
15%
$ 256,142
98,905
$ 355,047
$ 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.
27
In our crop business, net sales of insecticides in 2017 ended at $134,377, which was a 13% 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
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. Finally, we recorded initial sales of our Central American distribution
business which we acquired at the end of October 2017.
Within the product group of herbicides/soil fumigants/fungicides, our crop net sales in 2017 ended at $124,529, as compared to
$123,540 in 2016. We recorded sales from the initial trading period of our Central American distribution business and 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 44% in net sales, ending at $42,503 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, as 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 under absorption 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.
28
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
Change
$
2017
29,112 $
37,660
26,076
27,750
2016
27,442 $
32,128
21,298
26,880
$ 120,598 $ 107,748 $
1,670
5,532
4,778
870
12,850
6%
17%
22%
3%
12%
•
•
•
•
Selling expenses increased by 6% 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 17% 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 22% 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 $850 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
0.0%
—
—
—
—
—
—
—
—
4.0% $ 59,917 $
—
—
2.7% $ 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.
29
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
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.
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.
Should adverse currency exchange rate fluctuations occur in geographies where the Company sells/exports its products, management
is not certain whether 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 feed stocks 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.
30
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—Prior to January 1, 2018, revenues from sales were recognized
at the time title and the risks of ownership passed. This was when the customer had made the fixed commitment to purchase the
goods, the products were shipped per the customer’s instructions, the sales price was fixed and determinable, and collection was
reasonably assured. Starting January 1, 2018, revenues from sales are recognized at the time control is transferred to the customer.
This is typically the case when the customer has made the fixed commitment to purchase the goods, the products are shipped per the
customer’s instructions, the sales price can be identified, and collection is probable. The Company has adopted procedures to ensure
that revenues are recognized when earned. The procedures are subject to management’s review and from time to time certain revenues
are excluded until it is clear that the title has passed and there is no further recourse to the Company. We also have some arrangements
whereby revenues are recognized over time for certain products that are deemed to have no alternative use accompanied by an
enforceable right to payment for performance completed to date. 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— The Company offers various discounts to customers based on the volume purchased within a defined
time period, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments made to
distributors, retailers or growers, at the end of a growing season. The Company describes these payments as “Programs.” Programs are
a critical part of doing business in both the US crop and non-crop chemicals market places. These discount Programs represent
variable consideration. In accordance with ASC 606, revenues from sales are recorded at the net sales price, which is the transaction
price, and includes estimates of variable consideration. Variable consideration includes amounts expected to be paid to its customers
using the expected value method. Each quarter management compares individual sale transactions with Programs to determine what, if
any, estimated program liabilities have been incurred. Once this initial calculation is made for the specific quarter, sales and marketing
management, along with executive and financial management, review the accumulated Program balance and, for volume driven
payments, make assessments of whether or not customers are tracking in a manner that indicates that they will meet the requirements
set out in agreed upon terms and conditions attached to each Program. Following this assessment, management will make adjustments
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, or close to, the end of the crop season, at which time customer performance can be more 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 $37,349 at December 31, 2018, as compared to $39,054 at December 31,
2017.
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 $1,989 at December 31, 2018, as compared to $3,137 at December 31, 2017.
31
Long-lived Assets— Long-lived assets primarily consist of the costs of proprietary returnable packaging assets including
SmartBox and Lock and Load containers. The carrying values of long-lived assets are 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 2018 or 2017.
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, 2018, 2017 and 2016 the Company eliminated from assets and
accumulated depreciation $4,057, $6,317, and $16,652, 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 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, effective in January 1, 2018, 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, 2018, 2017 and 2016 and no material impairment
losses were recorded.
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. The Company did not record any impairment losses.
32
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.
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, and 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, 2018, 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.
33
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 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, 2018, the Company’s internal control over financial reporting is effective.
Management assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31,
2018, excluded TyraTech, which was acquired by the Company in the fourth quarter of 2018. Total assets and total sales each
constituted less than 1% of the consolidated total assets and total sales and were included in the Company’s consolidated total assets
and the Company’s consolidated sales, as of and for the year ended December 31, 2018. 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. The Company has elected to exclude this acquisition from its
assessment of internal controls over financial reporting.
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, 2018. Its report is 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, 2018 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
34
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes and schedule and our report dated March 12, 2019 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
TyraTech, Inc. (“TyraTech”), which was acquired on November 8, 2018, and which is included in the consolidated balance sheet of
the Company and subsidiaries as of December 31, 2018, and the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for the year then ended. TyraTech constituted less than 1% of total assets and total sales as of and
for the year ended December 31, 2018. Management did not assess the effectiveness of internal control over financial reporting of the
TyraTech because of the timing of the acquisition. 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 TyraTech.
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 12, 2019
35
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 on June 5,
2019 (the “Proxy Statement”), which will be filed with the SEC within 120 days of the end of our fiscal year ended December 31,
2018, 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.
36
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, 2018 and 2017 ...................................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017, and 2016 ...............................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017, and 2016 ...........
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016 ................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016 ..............................
Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements .....................................
(b)
Exhibits Index
Page No
42
43
44
45
46
47
48
37
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
ITEM 15
Exhibit
Number
3.1
3.2
3.3
4
10.1
10.2
10.3
10.4
10.5
10.8
10.9
10.10
10.11
Description of Exhibit
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).
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).
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.)
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).
American Vanguard Corporation Employee Stock Purchase Plan (filed as Appendix A to the Company’s Proxy
Statement filed with the Securities and Exchange Commission on April 23, 2018 and incorporated herein by reference).
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).
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).
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).
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.)
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).
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).
Description of Compensatory Arrangements Applicable to Non-Employee Directors (as set forth on page 32 of the
Company’s Proxy Statement which was filed with the Securities and Exchange Commission on April 23, 2018 and
incorporated herein by reference).
38
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
Exhibit
Number
10.13
10.14
10.15
10.16
10.17
21
23
31.1
31.2
32.1
101
Description of Exhibit
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).
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).
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).
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).
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).
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.*
The following materials from American Vanguard Corp’s Annual Report on Form 10-K for the year ended December
31, 2018, 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.
39
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
(c) Valuation and Qualifying Accounts:
Schedule II-A—Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Receivable (in thousands)
Fiscal Year Ended
December 31, 2018
December 31, 2017
December 31, 2016
Fiscal Year Ended
December 31, 2018
December 31, 2017
December 31, 2016
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Deductions
Balance at
End of
Period
$
$
$
46 $
42 $
423 $
1,217 $
31 $
3 $
— $
(27) $
(384) $
1,263
46
42
Inventory Reserve (in thousands)
Balance at
Beginning of
Period
$
$
$
3,137
3,594
4,020
Additions
Deductions
Balance at
End of
Period
476 $
— $
— $
(1,624) $
(457) $
(426) $
1,989
3,137
3,594
See accompanying report of independent registered public accounting firm on page 41 of this annual report.
ITEM 16
FORM 10-K SUMMARY
None
40
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 12, 2019
March 12, 2019
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 12, 2019
March 12, 2019
By:
/s/ DEBRA EDWARDS
Debra Edwards
Director
By:
/s/ JOHN L. KILLMER
John L. Killmer
Director
March 12, 2019
March 12, 2019
By:
/s/ LAWRENCE S. CLARK
Lawrence S. Clark
Director
By:
/s/ SCOTT D. BASKIN
Scott D. Baskin
Director
March 12, 2019
March 12, 2019
By:
/s/ MORTON D. ERLICH
Morton D. Erlich
Director
By:
/s/ ALFRED INGULLI
Alfred Ingulli
Director
March 12, 2019
March 12, 2019
By:
/s/ ESMAIL ZIRAKPARVAR
Esmail Zirakparvar
Director
March 12, 2019
41
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2018, 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, 2018, 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 12, 2019 expressed an unqualified opinion thereon.
Change in Accounting Method Related to Revenue Recognition
As discussed in notes to the consolidated financial statements, the Company has changed its method of accounting for
recognition of revenues and related disclosures in 2018 due to the adoption of Accounting Standards Codification 606, Revenue from
Contracts with Customers.
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 12, 2019
42
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2018 and 2017
(In thousands, except share data)
Current assets:
Cash and cash equivalents
Receivables:
Assets
Trade, net of allowance for doubtful accounts of $1,263 and $46, respectively
Other
Inventories, net
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
Other liabilities, excluding current installments
Deferred income tax liabilities, net
Total liabilities
Commitments and contingent liabilities
Stockholders’ equity:
2018
2017
$
6,168 $
11,337
$
$
123,320
10,709
134,029
159,895
10,096
310,188
49,252
186,583
25,790
21,774
593,587 $
1,609 $
66,535
20,043
37,349
15,962
4,030
145,528
96,671
6,795
15,363
264,357
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
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
32,752,827 shares in 2018 and 32,241,866 shares in 2017
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock at cost, 2,902,992 shares in 2018 and 2,450,634 shares in 2017
American Vanguard Corporation stockholders’ equity
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
—
—
3,276
83,177
(4,507)
262,840
344,786
(15,556)
329,230
—
329,230
593,587 $
3,225
75,658
(4,507)
238,953
313,329
(8,269)
305,060
254
305,314
535,592
See summary of significant accounting policies and notes to consolidated financial statements.
43
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2018, 2017 and 2016
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses
Operating income
$
Change in fair value of derivative instrument
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 loss (income) 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
$
$
$
2018
2017
2016
454,272 $
271,641
182,631
143,610
39,021
1,401
4,024
33,596
9,145
24,451
389
24,062
133
24,195 $
0.83 $
0.81 $
29,326
30,048
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
See summary of significant accounting policies and notes to consolidated financial statements.
44
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2018, 2017 and 2016
(In thousands)
Net income
Other comprehensive income
Foreign currency translation adjustment income (loss)
Comprehensive income
Less: Comprehensive (income) loss attributable to non-controlling interest
Comprehensive income attributable to American Vanguard
$
2018
2017
2016
$
24,062 $
20,361 $
13,024
—
24,062
(133)
24,195 $
344
20,705
87
20,618 $
(1,310)
11,714
236
11,478
See summary of significant accounting policies and notes to consolidated financial statements
45
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2018, 2017 and 2016
(In thousands, except share data)
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
Adjustment to recognize new revenue
recognition standard, net of tax
Adjustment to recognize new standard on
taxes on foreign asset transfers
Stocks issued under ESPP
Cash dividends on common stock ($0.08
per share)
Stock based compensation
Stock options exercised; grants, termination,
and vesting of restricted stock units (net of
shares in lieu of taxes)
Non-controlling interest
Shares repurchased
Net income
Balance, December 31, 2018
Common Stock
Amount Capital
Shares
31,638,225 $ 3,164 $
4
42,730
Accumulated
Other
Additional
Paid-in Comprehensive Retained Treasury Stock
Income/(loss) Earnings Shares
Non-
AVD Controlling
Amount Total
Interest
68,534 $
558
(3,541 ) $ 208,507 2,450,634 $ (8,269 ) $ 268,395 $
562
—
—
—
—
Total
(69 ) $ 268,326
562
—
—
—
—
—
—
—
—
—
3,167
—
(1,310 )
—
(867 )
—
—
—
—
—
—
—
—
(867 )
(1,310 )
3,167
—
—
—
(867 )
(1,310 )
3,167
138,740
—
—
31,819,695
34,016
15
—
—
3,183
4
—
—
—
—
—
—
(336 )
(224 )
—
71,699
551
—
—
4,714
—
—
—
—
— 12,788
—
—
—
(4,851 ) 220,428 2,450,634
—
—
—
(321 )
—
—
(224 )
— 12,788
(8,269 ) 282,190
555
—
—
344
—
(1,749 )
—
—
—
—
—
—
—
—
(1,749 )
344
4,714
(321 )
—
—
(224 )
236 13,024
167 282,357
555
—
—
—
—
(1,749 )
344
4,714
388,155
—
32,241,866
38
—
3,225
(1,306 )
—
75,658
—
—
— 20,274
—
—
(4,507 ) 238,953 2,450,634
(1,268 )
—
— 20,274
(8,269 ) 305,060
(1,268 )
—
87 20,361
254 305,314
—
—
—
—
2,214
—
—
2,214
—
2,214
—
35,950
—
—
—
2
—
—
—
668
—
5,805
—
—
(180 )
—
—
—
(2,342 )
—
—
—
—
—
—
—
(180 )
670
—
—
(180 )
670
—
—
(2,342 )
5,805
—
—
(2,342 )
5,805
475,011
49
—
—
—
—
32,752,827 $ 3,276 $
998
48
—
—
83,177 $
—
—
—
1,047
48
(7,287 )
— 24,195
(4,507 ) $ 262,840 2,902,992 $ (15,556 ) $ 329,230 $
— 452,358
—
—
— 24,195
(7,287 )
—
—
(121 )
1,047
(73 )
(7,287 )
(133 ) 24,062
— $ 329,230
See summary of significant accounting policies and notes to consolidated financial statements
46
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2018, 2017 and 2016
(In thousands)
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
(Decrease) increase in deferred income taxes
Operating loss from equity method investments
Changes in assets and liabilities associated with operations, net of business
combinations:
(Increase) decrease in net receivables
(Increase) decrease in inventories
Decrease (increase) decrease in income tax receivable/payable, net
Decrease (increase) in prepaid expenses and other assets
Increase 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
Investments
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
Cash paid to acquire non-controlling interest
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)
Treasury shares
Payment of cash dividends
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid during the year for:
Interest
Income taxes, net
Non-cash investing activities:
Consideration paid in January 2019 in connection with an asset acquisition
completed in 2018
2018
2017
2016
$
24,062 $
20,361 $
13,024
18,891
4,884
359
5,805
—
(561)
389
(21,320)
(31,440)
2,655
186
9,097
5,468
(1,705)
(5,424)
11,346
(8,050)
—
(19,647)
(27,697)
(117,325)
136,300
—
(73)
—
—
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)
—
1,717
(7,287)
(2,199)
11,133
(5,218)
49
11,337
6,168 $
(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
3,319 $
8,449 $
1,500 $
17,841 $
1,748
4,947
3,530 $
— $
—
$
$
$
$
See summary of significant accounting policies and notes to the consolidated financial statements
47
AMERICAN VANGUARD CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2018, 2017 and 2016
(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” or “AVD”) 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 and its
wholly-owned subsidiaries. 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
2018
2017
2016
150,595 $
183,350
58,360
392,305
61,967
454,272 $
134,377 $
124,529
42,503
301,409
53,638
355,047 $
119,226
123,540
29,438
272,204
39,909
312,113
150,986 $
31,645
182,631 $
117,892 $
29,500
147,392 $
107,821
20,467
128,288
$
$
$
$
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
2018
2017
39,585 $
42,981
26,428
34,616
143,610 $
29,112 $
37,660
26,076
27,750
120,598 $
2016
27,442
32,128
21,298
26,880
107,748
$
$
Advertising Expense—The Company expenses advertising costs in the period incurred. Advertising expenses, which include
promotional costs, are recognized in operating expenses (specifically in selling expenses) in the consolidated statements of operations
and were $4,865, $3,020 and $2,271 in 2018, 2017 and 2016, respectively.
48
Cash and cash equivalents—The Company’s 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 $1,989 at December 31, 2018, as compared to $3,137 at December 31, 2017.
The components of inventories, net of reserve allowance, consist of the following:
Finished products
Raw materials
2018
147,297 $
12,598
159,895 $
2017
107,595
15,529
123,124
$
$
Revenue Recognition—The Company recognizes revenue from the sale of its products, which include insecticides, herbicides,
soil fumigants, and fungicides. The Company sells its products to customers, which include distributors and retailers. In addition, the
Company recognizes royalty income from the sale of intellectual property. Based on similar economic and operational characteristics,
the Company’s business is aggregated into one reportable segment. Selective enterprise information of sales disaggregated by
category and geographic region is as follows:
Net sales:
Crop:
Insecticides
Herbicides/soil fumigants/fungicides
Other, including plant growth regulators and distribution
Non-crop, including distribution
Total net sales:
Net sales:
US
International
Total net sales:
Timing of revenue recognition:
Goods transferred at a point in time
Goods and services transferred over time
Total net sales:
2018
As reported
Without adoption
of ASC 606
$
$
$
$
$
$
150,595 $
183,350
58,360
392,305
61,967
454,272 $
300,314 $
153,958
454,272 $
453,449 $
823
454,272 $
150,638
183,350
58,360
392,348
60,467
452,815
298,857
153,958
452,815
452,815
—
452,815
In May 2014, Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Accounting Standards Codification “ASC” 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 requires 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 cumulative effect of
initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). These
amendments are effective upon adoption of ASC 606. This standard also requires enhanced disclosures regarding the nature, amount,
timing, and uncertainty of revenue and cash flows.
49
Effective January 1, 2018, the Company adopted ASC 606 using the modified retrospective method, therefore, the comparative
information has not been adjusted and continues to be reported under ASC 605. 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 are now
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 were previously recognized over time. For certain licenses that are considered functional intellectual
property, revenue recognition is now at a point in time.
As part of the Company's adoption of ASC 606, the Company elected to use the following practical expedients (i) not to adjust
the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract
inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays
for that product or service will be one year or less (ii) allowing entities the option to treat shipping and handling activities that occur
after control of the good transfers to the customer as fulfillment activities.
For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the
customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment for product sales, but also
occurs over time for certain products that are deemed to have no alternative use accompanied by an enforceable right to payment for
performance completed to date. For revenue recognized over time, the Company uses an output measure, units produced, to measure
progress. 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.
Performance Obligations—A performance obligation is a promise in a contract or sales order to transfer a distinct good or
service to the customer, and is the unit of account in ASC 606. A transaction price is allocated to each distinct performance obligation
and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s sales orders have multiple
performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the
sales orders. For sales orders with multiple performance obligations, the Company allocates the sales order’s transaction price to each
performance obligation based on its relative stand-alone selling price. The stand-alone selling prices are determined based on the
prices at which the Company separately sells these products. The Company’s performance obligations are satisfied either at a point in
time or over time as work progresses.
At December 31, 2018, the Company had $23,793 of remaining performance obligations, which are comprised of deferred
revenue and services not yet delivered. The Company expects to recognize approximately all of its remaining performance obligations
as revenue in fiscal 2019.
Contract Balances—The timing of revenue recognition, billings and cash collections may result in deferred revenue in the
consolidated balance sheets. The Company sometimes receives payments from its customers in advance of goods and services being
provided in return for early cash incentive programs, resulting in deferred revenues. These liabilities are reported on the consolidated
balance sheet at the end of each reporting period. The contract assets in the table below are related to royalties earned on certain
licenses granted for the use of the Company’s intellectual property, which are recognized at a point in time and remain outstanding as
of December 31, 2018.
Total receivables, net
Contract assets
Deferred revenue
$
December 31,
2018
134,029
3,750
20,043
$
December 31,
2017
109,605
—
14,574
Revenue recognized for the year ended December 31, 2018, that was included in the deferred revenue balance at the beginning
of 2018 was $14,063.
50
The following table presents the effect of the adoption of ASC 606 on our consolidated balance sheet as of December 31, 2017:
As previously
reported
As of December 31, 2017
Adjustment due to
adoption of ASC 606
Total assets
Deferred income tax liabilities, net
Retained earnings
$
$
535,592
16,284
238,953
3,000 $
786
2,214
As adjusted
538,592
17,070
241,167
In accordance with ASC 606, the disclosure of the impact of adoption to our consolidated statements of operations for the period
ended December 31, 2018 was $43, reductions in net sales. This revenue will move from being recognized at a point in time to be
recognized over time.
In accordance with ASC 606, the disclosure of the impact of adoption to our consolidated balance sheets was as follows:
Assets:
Contract assets
Current liabilities:
Deferred revenue
Income taxes payable
Stockholders' equity:
Retained earnings
As reported
As of December 31, 2018
Balances without
adoption of ASC 606
Impact
$
3,750 $
— $
20,043
1,168
20,000
—
262,840
259,551
3,750
43
1,168
3,289
Revenue Recognition for 2017 and 2016 under ASC 605—Revenues 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 revenues are recognized when earned. The procedures are subject to management’s review and from time to
time certain revenues 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—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— The Company offers various discounts to customers based on the volume purchased within a defined
time period, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments made to
distributors, retailers or growers, at the end of a growing season. The Company describes these payments as “Programs.” Programs are
a critical part of doing business in both the US crop and non-crop chemicals market places. These discount Programs represent
variable consideration. In accordance with ASC 606, revenues from sales are recorded at the net sales price, which is the transaction
price net of the impact of Programs, and includes estimates of variable consideration. Variable consideration includes amounts
expected to be paid to its customers estimated using the expected value method. Each quarter management compares individual sale
transactions with Programs to determine what, if any, estimated program liabilities have been incurred. Once this initial calculation is
made for the specific quarter, sales and marketing management, along with executive and financial management, review the
accumulated Program balance and, for volume driven payments, make assessments of whether or not customers are tracking in a
manner that indicates that they will meet the requirements set out in agreed upon terms and conditions attached to each Program.
Following this assessment, management will make adjustments 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, or close to, the end of the crop season, at
which time customer performance can be more 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 $37,349
at December 31, 2018, as compared to $39,054 at December 31, 2017.
51
Long-lived Assets— Long-lived assets primarily consist of the costs of proprietary returnable packaging assets including
SmartBox and Lock and Load containers. The carrying values of long-lived assets are 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 2018 or 2017.
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 operations. 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 operations.
Goodwill and Other Intangible Assets— The primary identifiable intangible assets of the Company relate to assets associated
with its product and business acquisitions. 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, 2018, 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. The Company did not record any impairment losses in 2018 or 2017.
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.
52
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
recognized in the consolidated financial statements. At December 31, 2018 and 2017, the Company recorded unrecognized tax
benefits of $2,170 and $2,118, 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
$
24,195 $
20,274 $
12,788
2018
2017
2016
Denominator:
Weighted average shares outstanding—basic
Dilutive effect of stock options and grants
29,326
722
30,048
29,100
603
29,703
28,859
535
29,394
For the years ended December 31, 2018, 2017, and 2016 no options or grants 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 (including those related to litigation), and revenues, 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, 2018, 2017, and 2016 total comprehensive income consisted of net
income attributable to AVD 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 $358, $177, and $118 for the years ended December 31, 2018, 2017, and 2016, respectively. The
Company estimates that 16.2% of all restricted stock grants, 16.1% of the performance based restricted shares and 8.0% of all stock
option grants that are currently subject to vesting will be forfeited. These estimates are reviewed quarterly and revised as necessary.
53
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, 2018, 2017 and 2016. 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, 2018
Restricted Stock
Performance Based Restricted Stock
Total
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
Stock-Based
Compensation
Unamortized
Stock-Based
Compensation
Remaining
Weighted
Average
Period (years)
$
$
$
$
$
$
3,657 $
2,148
5,805 $
345 $
416
2,705
1,248
4,714 $
354 $
188
1,630
995
3,167 $
5,166
2,565
7,731
—
—
3,788
1,642
5,430
397
178
2,153
796
3,524
1.3
1.9
—
—
1.0
1.8
1.0
1.0
1.6
1.7
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 stock options
granted during 2018, 2017 or 2016.
The expected volatility and expected life assumptions are 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 2018, 2017, and 2016 were $20.21, $16.24, and $15.22, 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 (ASC 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income: The standard permits a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-02 is
effective for the Company’s annual and interim reporting periods beginning December 15, 2018, with early adoption permitted. The
Company is currently evaluating the impact of ASU 2018-02; however, at the current time the Company does not expect the adoption
of this ASU will have a material impact on its consolidated financial statements.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”)
provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions imposed a tax on foreign income in excess of a deemed
return on tangible assets of foreign corporations. The Company has considered options regarding the accounting treatment for any
potential GILTI inclusions and has elected to treat such inclusions as period costs.
54
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (ASC 350). The FASB eliminated 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 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 impact of the new standard will be dependent on the facts and circumstances of future individual impairments, if
any.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (ASC 805) that provided guidance on narrowing the
definition of a business. The new guidance requires an entity to evaluate if substantially all of the fair value of the gross assets
acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and
activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition
of outputs. The Company adopted this new accounting standard on January 1, 2018. Based on the updated definition of a business, the
Company concluded that three acquisitions completed in 2018 did not meet the criteria of a business and were therefore accounted for
as asset acquisitions rather than business combinations. These three acquisitions would have previously been accounted for as
business combinations (see Note 8).
In October 2016, FASB issued ASU 2016-16, Income Taxes (ASC 740). At the time the ASU was issued, US GAAP prohibited
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 adopted ASU 2016-16 as of January 1, 2018 and recorded a reduction of $180 to
retained earnings.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (ASC 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
adopted the standard for the year beginning January 1, 2018. There was no material impact on the Company’s consolidated statements
of cash flows for the year ended December 31, 2018 and the Company does not expect any material impact going forward.
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02,
which requires lessees to recognize leases with terms longer than 12 months on the balance sheet and disclose key information about
leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. The classification criteria for distinguishing between operating and finance (previously capital)
leases are substantially similar to the previous lease guidance, but with no explicit bright lines.
The Company adopted the standard as of January 1, 2019, electing the transition method that allows us to apply the standard as
of the adoption date and record a cumulative adjustment in retained earnings, if applicable. We elected to apply all relevant practical
expedients permitted under the transition guidance within the new lease standard with the exception of the practical expedient
allowing the use of hindsight in determining the lease term and in assessing impairment. The new standard also provides practical
expedients for an entity’s ongoing accounting. We have elected an accounting policy election to keep leases with an initial term of 12
months or less off the balance sheet and recognize those lease payments in the consolidated statements of income on a straight-line
basis over the lease term. We have also elected the practical expedient to not separate lease and non-lease components for all of our
leases as the non-lease components are not significant to the overall lease costs.
The Company has nearly completed evaluating the impact that the adoption of this standard will have on its consolidated
financial statements and anticipates that the adoption of this standard will result in the recognition of net lease assets and lease
liabilities of approximately 2.5 % of its total assets on the consolidated balance sheets as of January 1, 2019. The Company does not
expect that the adoption of this standard will have a material impact on the consolidated statement of operations and comprehensive
income and loss or in the statement of cash flows.
55
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities." The amendment requires (i) equity investments (except those accounted
for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income, (ii) public business entities to use the exit price notion when measuring the fair value
of financial instruments for disclosure purposes and (iii) separate presentation of financial assets and financial liabilities by
measurement category and form of financial asset (i.e., securities or loans and receivables). This amendment eliminates the
requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is
required to be disclosed for financial instruments measured at amortized cost. The Company adopted the provisions of ASU 2016-01
on January 1, 2018 and has elected to measure its cost method investment without a readily determinable fair value at its cost minus
impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar
investment of the same issuer. There were no observable price changes during the year ended December 31, 2018. The adoption of
this standard did not have a material impact on the Company’s consolidated financial statements.
(1) Property, Plant and Equipment
Property, plant and equipment at December 31, 2018 and 2017 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
2018
2017
Estimated
useful lives
$
$
2,548 $
17,555
109,064
5,655
1,116
2,513
138,451
(89,199)
49,252 $
2,458
16,678 10 to 30 years
107,722 3 to 15 years
4,925 3 to 10 years
735 3 to 6 years
1,917
134,435
(85,114)
49,321
For the years ended December 31, 2018, 2017, and 2016, the Company’s aggregate depreciation expense related to property and
equipment was $8,142, $8,154, and $8,307, respectively. For the years ended December 31, 2018, 2017, and 2016, the Company
eliminated from assets and accumulated depreciation $4,057, $6,317 and $16,652 of fully depreciated assets, respectively.
(2) Long-Term Debt
Long-term debt of the Company at December 31, 2018 and 2017 is summarized as follows:
Revolving line of credit
Less debt issuance costs
2018
2017
97,400 $
(729)
96,671 $
78,425
(939)
77,486
$
$
Principal payments on long-term debt at December 31, 2018 of $97,400 are due in 2022.
56
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 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, 2018, 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 $112,150. This compares to an
available borrowing capacity of $139,241 as of December 31, 2017. The level of borrowing capacity is driven by three factors: (1) our
financial performance, as measured in EBITDA for trailing twelve-month period (2) the inclusion of proforma EBITDA related to
acquisitions completed during the preceding twelve months 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, 2018.
The Company has various loans in place that together constitute the loan balances shown in the consolidated balance sheets
at December 31, 2018 and December 31, 2017. The average amount outstanding on the senior secured revolving line of credit during
the years ended December 31, 2018 and 2017 was $93,346 and $51,103, respectively. The weighted average interest rate on the
revolving credit line during the years ended December 31, 2018, 2017, and 2016 was 3.6%, 3.0%, and 2.3% respectively.
(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 made 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. During 2018, additional work including a more detailed analysis of the Company’s deferred tax assets and liabilities and
its historical foreign earnings as well as potential correlative adjustments were completed. In this regard, the Company recorded a
one-time $1,089 charge in the provision for income taxes for the year ended December 31, 2018.
57
The provisions for income taxes are:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2018
2017
2016
$
$
5,641 $
1,777
2,121
650
(365)
(679)
9,145 $
2,124 $
1,347
570
160
242
—
4,443 $
5,136
(122)
655
(1,345)
1,216
—
5,540
Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 21.0% 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:
2018
2017
2016
$
7,054 $
8,651 $
6,415
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
(Gain) loss on equity investments
Stock based compensation
Tax interest
Other
$
1,627
—
1,089
(689)
(37)
14
(61)
277
—
(129)
9,145 $
988
(150)
(3,433)
(431)
(1,503)
3
62
262
(22)
16
4,443 $
820
(1,272)
—
(335)
(1,587)
14
123
208
920
234
5,540
Income before provision for income taxes and losses on equity investments are:
Domestic
Foreign
2018
2017
2016
$
$
26,124 $
7,472
33,596 $
18,931 $
5,922
24,853 $
12,513
6,404
18,917
58
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, 2018 and 2017 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 credits
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
2018
2017
$
$
$
$
3,299 $
53
7,088
685
1,246
294
1,723
580
779
266
16,013 $
30,269 $
1,107
31,376
15,363 $
3,213
330
7,381
600
1,073
12
822
54
778
381
14,644
29,986
942
30,928
16,284
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, 2018 and 2017:
Balance at beginning of year
Additions for tax positions related to the current year
Additions for tax positions related to the prior years
Additions for tax positions related to acquired businesses
Reduction for tax positions related to the prior years
Balance at end of year
2018
2017
2,118 $
128
24
—
(100)
2,170 $
1,893
77
—
1,766
(1,618)
2,118
$
$
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, 2018, 2017, and 2016 the Company had
recognized approximately $2,368, $2,257, and $408 respectively in interest and penalties related to unrecognized tax benefits.
It is expected that the amount of unrecognized tax benefits will change within the next twelve 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. The amount of undistributed earnings was $4,297 as of December 31, 2018. 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.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state jurisdictions. Federal income tax
returns of the Company are subject to International Revenue (“IRS”) examination for the 2015 through 2017 tax years. State income
tax returns are subject to examination for the 2014 through 2017 tax years. The Company has other foreign income tax returns subject
to examination.
59
(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 AVD 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 it.
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 2018. As described more fully below, activity in domestic cases during
2018 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 remanded to the trial court, following a ruling by the Delaware Supreme
Court on recognizing the doctrine of cross-jurisdictional tolling. In Hawaii, in the matter of Patrickson, et. al. v. Dole Food Company,
the parties have stipulated that the Company shall be dismissed, insofar as it was not a party to the class action case that tolled the
statute of limitations. In Adams (also in Hawai’i), 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.
Finally, plaintiffs in Chaverri, which had been dismissed by the Superior Court of the State of Delaware in 2012 for failure to meet the
applicable statute of limitations, have brought a motion to vacate the dismissal on the ground that the matter should be subject to trial
on the merits under the principle of cross-jurisdictional tolling.
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 $1,000 in
compensatory damages and $5,000 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.
60
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, 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, on March 15, 2018 ruled
on the matter, finding that federal court dismissal in 1995 on the grounds of forum non conveniens did not end class action tolling, and
that such tolling ended when class action certification was denied in Texas state court in June 2010. This matter is now at the district
court, following the appeals court’s receipt of the ruling. Discovery has commenced. The Company believes that a loss is neither
probable nor reasonably estimable in this matter and has not recorded a loss contingency.
Chaverri. This matter involves 258 plantation workers from Costa Rica, Ecuador and Panama alleging physical injury from
DBCP in the late 1970’s, was originally filed in the state of Texas in 1993, then underwent a tortuous series of law and motion
developments until it was ultimately refiled in May 2012 by the Hendler firm in the Superior Court of the State of Delaware as
Chaverri et al. v. Dole Food Company, Inc. et al. (including AMVAC) (N12C-06-017 ALR), where it was subsequently dismissed
with prejudice in August 2012 under the statute of limitations. In light of the Delaware Supreme Court’s adoption of cross-
jurisdictional tolling, however, in January 2019, plaintiffs filed a motion to vacate the dismissal, arguing that the matter had been
dismissed on a basis, which the Delaware Supreme Court no longer recognizes without ever having been adjudicated as to the merits.
Defendants are filing briefs in opposition to this motion. The Company believes that a loss is neither probable nor reasonably
estimable 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 April 8, 2011, counsel for plaintiffs filed a pleading to
withdraw and to substitute new counsel. 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 is, the principle under which the
courts of one state recognize another state’s common law on the tolling of statutes of limitation), 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. However,
in November 2018, the parties stipulated that, because it was not named as a defendant in the Carcamo matter (class action matter that
gave rise to the tolling of the statute of limitations), AMVAC should be dismissed from this matter. Thus, we expect that the Company
will be dismissed with prejudice from this action as soon as the court issues an order.
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, and the Company does not believe that a loss is either probable or reasonably estimable and has not recorded
a loss contingency for this matter.
61
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 retained defense
counsel and completed production of documents. During the fourth quarter of 2018, government attorneys interviewed four
individuals who may be knowledgeable of the matter. At this stage, DoJ has not made clear its intentions with regard to either its
theory of the case or potential criminal 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.
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 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.
Takings Case. On June 14, 2016, the Company filed a lawsuit against the USEPA in the U.S. Court of Federal Claims, entitled
“American Vanguard Corporation v. USEPA” (Case No. 16-694C) under which the Company claimed damages from USEPA on the
ground that that agency’s issuance of a Stop Sale, Use and Removal Order against the PCNB product line in August 2010 amounts to
a taking without just compensation under the Tucker Act. The court in this matter denied the government’s motion to dismiss for lack
of jurisdiction and failure to state a claim, which was brought in September 2016. Fact and expert discovery was completed, and both
parties filed motions for summary judgment on the merits. In January 2019, the court denied the Company’s motion for summary
judgment, while granting that of the government, finding that the Company’s PCNB business did not amount to a cognizable property
interest in the context of the Tucker Act. The Company will be filing a motion for reconsideration on the ground that the court’s
decision was based upon an erroneous understanding of the facts. Since any recovery in this matter is contingent upon judgment, and
there is no assurance of receiving a favorable judgment, the Company has not recorded any amount in its consolidated financial
statements.
(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 $1,914, $1,550 and $1,258 in 2018, 2017 and 2016, respectively.
62
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. The Plan was amended as of June 6, 2018
following stockholders’ ratification of a ten year extension to the expiration date (which now stands at December 31, 2028). Under the
Plan, as amended as of June 6, 2018, 995,000 shares of the Company’s common stock were authorized. As of December 31, 2018,
2017, and 2016, 690,859, 726,809, and 760,825 shares, respectively, remained available under the plan. The expense recognized under
the Plan was immaterial during the years ended December 31, 2018, 2017 and 2016, respectively.
Shares of common stock purchased through the Plan in 2018, 2017 and 2016 were 35,950, 34,016 and 42,730, respectively.
(6) Major Customers and International Sales
In 2018, there were three companies that accounted for 12%, 9% and 8%, respectively, of the Company’s consolidated 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.
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
8%, 7% and 5% of the Company’s receivables as of December 31, 2018. The Company had three significant customers who each
accounted for approximately 10%, 9% and 8% of the Company’s receivables as of December 31, 2017. 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 2018, 2017 and 2016 were as follows:
Asia
South and Central America
Mexico
Europe
Africa
Australia
Canada
Middle East
Other
2018
2017
2016
$
$
14,828 $
86,172
24,578
11,059
8,027
2,635
3,403
3,256
—
153,958 $
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
(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 $86, $81 and $83 for 2018, 2017
and 2016, respectively.
(8) Product and Business Acquisitions
During the year ended December 31, 2018, the Company completed four acquisitions in exchange for a total cash consideration
at closing of $19,851, net of cash acquired ($1,600), cash consideration paid in January 2019 ($3,530) and the fair value of the
Company’s pre-existing ownership position ($2,044). In addition, the Company assumed liabilities of $1,750 and capitalized costs of
$108 incurred in the asset acquisition process. The total value of $27,283 has been preliminarily allocated as follows: product
registrations and product rights $12,720, trade names, trademarks and patents $2,934, customer lists $739, goodwill $3,954, inventory
$5,461, other working capital $122 and property, plant and equipment $27, and deferred tax assets $1,326.
63
The acquisition of TyraTech Inc. (TyraTech) was accounted for as a business combination. The Company acquired 65.62% of
TyraTech’s issued and outstanding shares on November 8, 2018 in exchange for cash consideration of $2,154 at closing and liabilities
assumed of $1,750. Together with the Company’s pre-existing ownership of 34.38% with a fair value of $2,044, TyraTech became a
wholly-owned subsidiary of the Company and was delisted from the AIM market of the London Stock Exchange. TyraTech is a life
sciences company focused on nature-derived insect and parasite control products. Their patented technology platform leverages
synergistic essential oil combination to target invertebrate pest receptors that are not active in humans and other mammals. The
assessment of the purchase price allocation related to the business combination is preliminary as at December 31, 2018 and will be
completed during 2019. The preliminary purchase price allocation is based on information available to management and is as follows:
working capital of $205, intangible assets of $436 and goodwill of $3,954, property, plant and equipment of $27, and deferred tax
assets of $1,326. Goodwill is not expected to be deductible for income tax purposes. The preliminary fair value allocation is subject to
change, which may be significant. The goodwill consists largely of acquired workforce and tax related matters. As a result of this
acquisition, the Company was required to step up the value of its ownership and recorded a gain of $1,463. The acquired business was
included in the Company’s consolidated financial statements from the date of acquisition.
Three of the acquisitions mentioned previously related to product lines, acquired from E.I DuPont et Nemours and Company
(one) and Bayer CropScience (two), were purchased for total cash consideration at closing of $21,335, including transaction costs of
$108, and $3,530 paid in January 2019. These acquisitions were accounted for as asset acquisitions because the Company did not
acquire any substantive processes. Of this amount, $5,378 was recorded to inventory and the remaining to intangibles. One of the asset
acquisitions includes contingent consideration in the form of potential milestone payments that could amount to a maximum additional
payment of $12,500. These milestone payments will be recorded as additional acquisition costs upon the point in time the milestone
criteria are met, if applicable. The purchase price allocation was completed as at December 31, 2018 and the acquired product lines
were included in the Company’s consolidated financial statements from the date of acquisition.
Cash paid at closing for the asset acquisitions and business combination was funded through our revolving line of credit. The
Company considers that the acquisitions completed during 2018 are immaterial individually and in the aggregate to the accompanying
consolidated financial statements, and accordingly pro-forma financial information is not included.
During the year ended December 31, 2017, the Company completed acquisitions with a total combined purchase consideration,
net of cash acquired, of $92,555 including cash paid at closing in the amount of $81,896 and deferred consideration of $10,659. At
closing the Company recorded $12,814 related to tax matters associated with the acquisitions. At December 31, 2017 the purchase
price was provisionally 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.
The purchase price allocation was finalized during 2018, which resulted in a reduction in goodwill of $348.
The following unaudited pro forma information presents a summary of the Company’s combined results of operations for the
years ended December 31, 2017, as if the 2017 business acquisitions had occurred on January 1, 2017. 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
458,793
24,540
0.84
$
0.83
64
(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, 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
Additions during fiscal 2018
Impact of movement in exchange rates
Amortization expense
Intangible assets at December 31, 2018
Goodwill at December 31, 2017
Net additions during fiscal 2018
Goodwill at December 31, 2018
Intangible assets and goodwill at December 31, 2018
$
$
$
$
Amount
129,160
224
(78)
69
(7,942)
121,433
68,327
(6)
(8,804)
180,950
16,429
(45)
(10,751)
186,583
22,184
3,606
25,790
212,373
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
Total intangibles assets
Goodwill
Total intangibles and goodwill
2018
Accumulated
Amortization
Net Book
Value
Gross
2017
Accumulated
Amortization
Net Book
Value
Gross
$ 235,684 $
30,483
7,529
273,696
25,790
$ 299,486 $
5,337
2,149
79,627 $ 156,057 $ 223,022 $
27,541
25,146
6,791
5,380
87,113 186,583 257,354
22,184
25,790
87,113 $ 212,373 $ 279,538 $
—
4,233
1,470
70,701 $ 152,321
23,308
5,321
76,404 180,950
22,184
76,404 $ 203,134
—
The following schedule represents future amortization charges related to intangible assets:
Year ending December 31,
2019
2020
2021
2022
2023
Thereafter
$
$
12,822
12,822
12,713
12,592
11,972
123,662
186,583
65
The following schedule represents the Company’s obligations under acquisitions and licensing agreements:
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
Adjustment to deferred liabilities
Amortization of discounted liabilities
Payments on existing obligations
Obligations under acquisition agreements at December 31, 2018 $
Amount
1,535
224
(22)
38
(960)
815
10,659
(223)
109
(26)
11,334
(7,747)
345
(66)
3,866
As of December 31, 2018, the $3,866 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. Rent expense for the years ended December 31, 2018, 2017 and 2016 was $1,706, $1,102 and $946. In addition, the Company
has various vehicle lease agreements for its sales force. Vehicle lease expense for the years ended December 31, 2018, 2017 and 2016
was $779, $529, and $555 respectively.
Future minimum lease payments under the terms of the leases are as follows:
Year ending December 31,
2019
2020
2021
2022
2023
Thereafter
$
$
6,108
5,133
3,385
1,074
495
1,335
17,530
(11) Research and Development
Research and development expenses which are included in operating expenses were $9,164, $8,455 and $6,998 for the years
ended December 31, 2018, 2017 and 2016, respectively.
(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,
2018, the number of securities remaining available for future issuance under the Plan is 1,568,888.
66
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 2018, 2017 and 2016, no options were granted.
Option activity within each plan is as follows:
Balance outstanding, December 31, 2015
Options exercised,
Options forfeited,
Balance outstanding, December 31, 2016
Options exercised,
Options forfeited,
Balance outstanding, December 31, 2017
Options exercised,
Options forfeited,
Balance outstanding, December 31, 2018
Incentive
Stock Option
Plans
626,845 $
(58,900) $
(26,040)
541,905 $
(55,979) $
(13,143)
472,783 $
(88,719) $
—
384,064 $
Weighted
Average
Price Per
Share
Exercisable
Weighted
Average
Price
Per Share
9.25 $
7.50
11.49
9.33 $
8.37
11.49
9.38 $
10.62
—
9.10 $
7.73
7.97
9.38
9.10
Information relating to stock options at December 31, 2018 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
229,545
154,519
384,064
23 $
70 $
42 $
7.50
11.48
9.10
229,545 $
154,519 $
384,064 $
7.50
11.48
9.10
During 2017 and 2016, the Company recognized stock-based compensation expense related to incentive stock options of $345,
and $354, respectively. During 2018, the Company did not recognized stock-based compensation expense related to incentive stock
options.
67
The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life
for options outstanding as of December 31, 2018 and 2017 was as follows:
As of December 31, 2018:
Incentive Stock Option Plans:
Outstanding
Vested
Exercisable
As of December 31, 2017:
Incentive Stock Option Plans:
Outstanding
Vested
Exercisable
Number
of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(Months)
Intrinsic
Value
(thousands)
384,064 $
384,064 $
384,064 $
472,783 $
472,783 $
472,783 $
9.10
9.10
9.10
9.38
9.38
9.38
42 $
42 $
42 $
57 $
57 $
57 $
2,338
2,338
2,338
4,853
4,853
4,853
The total intrinsic value of options exercised during 2018, 2017 and 2016 was $955, $545, and $493, respectively. Cash
received from stock options exercised during 2018, 2017, and 2016 was $951, $468, and $442, respectively.
Nonstatutory Stock Options (“NSSO”)
The Company did not grant any non-statutory stock options during the three years ended December 31, 2018.
Common Stock Grants
During 2018, the Company issued a total of 282,030 shares of common stock to certain employees and non-executive board
members. Of these, 25,312 shares vest immediately, 1,017 shares will vest 6 months from the employee’s employment date, 1,017
shares will vest eighteen months from the employee’s employment date, 5,250 shares will vest two years from the employee’s
employment date, and majority of the balance will cliff vest after three years of service. The fair values of the grants range from
$16.85 to $23.60 per share based on the publicly traded share prices as of the market close on the date of grants. The total fair value of
$5,651 is being recognized over the vesting period, which is representative of the related service periods. During 2018, 33,269 shares
of common stock granted to employees were forfeited.
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 as of the
market close on 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.
A status summary of non-vested shares as of December 31, 2018 and 2017, are presented below:
Nonvested shares at January 1st
Granted
Vested
Forfeited
Nonvested shares at December 31st
December 31, 2018
December 31, 2017
Weighted
Average
Grant
Date Fair
Value
Number
of Shares
Weighted
Average
Grant
Date Fair
Value
15.61
20.21
17.06
17.29
17.59
324,756 $
290,977
(203,165)
(20,815)
391,753 $
14.75
16.24
15.14
15.29
15.61
Number
of Shares
391,753 $
282,030
(53,304)
(33,269)
587,210 $
68
During 2018, 2017 and 2016, the Company recognized stock-based compensation expense related to restricted shares of $3,657,
$2,705, and $1,630, respectively.
Performance Based Stock Grants
During the year ended December 31, 2018, the Company issued a total of 130,332 performance based shares to employees. The
shares granted during 2018 have an average fair value of $18.74. The fair value was determined by using the publicly traded share
price as of the market close on 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 March 9, 2021 with a measurement period commencing
January 1, 2018 and ending December 31, 2020. 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 2017 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.
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 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, 2018, the performance based shares related to EBIT and net sales have an average fair value of $18.27 per
share. The fair value was determined by using the publicly traded share price as of the market close on the date of grant. The
performance based shares related to the Company’s stock price have an average fair value of $15.43 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, 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.
69
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.
During 2018, 2017 and 2016, the Company recognized stock-based compensation expense related to performance based shares
of $2,148, $1,248, and $995, respectively. In 2018, the Company assessed the likelihood of achieving the performance measures based
on peer group information currently available for the performance based shares granted in 2016. 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 2018. The performance shares based on market price are expected to
be met at 125% of targeted performance. The effect of market conditions for performance shares based on market are included in the
grant date fair value valuation and no additional expenses were recognized in 2018.
As of December 31, 2018, the Company had approximately $2,565 of unamortized stock-based compensation expenses related
to unvested performance based shares. This amount will be recognized over the weighted-average period of 1.9 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, 2018 and 2017, is presented below:
Nonvested shares at January 1st
Granted
Vested
Forfeited
Nonvested shares at December 31st
Performance Incentive Stock Option Plan
December 31, 2018
December 31, 2017
Weighted
Average
Grant
Date Fair
Value
Number
of Shares
Weighted
Average
Grant
Date Fair
Value
14.93
18.74
11.90
16.22
16.87
119,022 $
128,594
(48,046)
(13,513)
186,057 $
14.18
15.43
14.92
13.08
14.93
Number
of Shares
186,057 $
130,332
(22,857)
(6,455)
287,077 $
For the three years ended December 31, 2018, 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, 2016
Options forfeited
Balance outstanding, December 31, 2017
Additional vesting based on performance
Options exercised
Balance outstanding, December 31, 2018
Incentive
Stock Option
Plans
Weighted
Average
Price Per
Share
Exercisable
Weighted
Average
Price
Per Share
82,334 $
(668)
81,666 $
77,598
(18,853)
140,411 $
11.49 $
11.49
11.49 $
11.49
11.49
11.49 $
—
—
11.49
11.49
11.49
11.49
Information relating to performance stock options at December 31, 2018 is summarized by exercise price is as follows:
Exercise Price Per Share
Performance Incentive Stock Option Plan:
Outstanding Weighted Average
Remaining
Life
(Months)
Exercise
Price
Shares
140,411
72 $
11.49
Exercisable Weighted Average
Shares
140,411 $
Exercise
Price
11.49
70
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, 2018 and 2017 was as follows:
As of December 31, 2018:
Performance Incentive Stock Option Plans:
Outstanding
Expected to Vest
Exercisable
As of December 31, 2017:
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)
140,411 $
140,411 $
140,411 $
11.49
11.49
11.49
81,666 $
81,666 $
81,666 $
11.49
11.49
11.49
72 $
72 $
72 $
84 $
84 $
84 $
520
520
520
666
666
666
During 2017 and 2016, the Company recognized stock-based compensation expense related to performance incentive stock
options of $416 and $188, respectively. During 2018, the Company did not recognize stock-based compensation expense related to
performance incentive stock options.
(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, 2015
Other comprehensive loss before reclassifications
Balance, December 31, 2016
Other comprehensive loss before reclassifications
Balance, December 31, 2017
Other comprehensive loss before reclassifications
Balance, December 31, 2018
FX
Translation
(3,541)
(1,310)
(4,851)
344
(4,507)
—
(4,507)
$
$
(14) Equity Method Investments
The Company utilized 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, until the Company acquired all of TyraTech’s remaining outstanding shares as of November 8, 2018 (see Note 8).
For the period from January 1, 2018 to November 8, 2018, and the years ended December 31, 2017 and 2016, the Company
recognized losses of $1,424, $177, and $353, respectively on its equity method investment. In addition, the Company recognized a
gain in the amount of $1,463 in connection with the re-measurement of its pre-existing equity interest in TyraTech at fair value as of
the acquisition date of the remaining outstanding shares. As of December 31, 2017 and 2016, the Company’s ownership position in
TyraTech was approximately 15.11%.
On August 2, 2016, AMVAC BV entered into a joint venture with Huifeng. The 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 entity. No
material contributions were made to this joint venture in 2016.
71
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, 2018 and 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 years ended December 31, 2018 and 2017, the Company recognized a loss and an income of
($427) and $128, respectively, as a result of the Company’s ownership position in the Hong Kong JV. There was no loss or income
recognized in 2016. At December 31, 2018 and 2017, the carrying value of the Company’s investment in the Hong Kong JV was $722
and $1,078, respectively.
(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,
2018 and 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 periodically reviews the investment for possible impairment. There was no impairment on the
investment as of December 31, 2018 and 2017. The investment is not material and is recorded within other assets on the consolidated
balance sheets.
(16) Share Repurchase Program
On November 5, 2018, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an
aggregate number of shares with a total purchase price not to exceed $20,000 of its common stock, par value $0.10 per share, in the
open market, depending upon market conditions over the short to mid-term. The Shares Repurchase Program expires on March 8,
2019. Share repurchases may be executed through various means, including, without limitation, open market transactions, privately
negotiated transaction or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and
Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements and other relevant factors. The Shares
Repurchase Program does not obligate the Company to acquire any particular amount of shares of common stock and the program
may be suspended or discontinued at any time.
The table below summarizes the number of shares of our common stock that were repurchased during the three months ended
December 31, 2018. The shares and respective amount are recorded as treasury shares on the Company’s consolidated balance sheet.
Total number of
shares purchased
Average price paid
per share
Total amount paid
Maximum dollar
value of shares
that may yet be
purchased under
the program
196,858 $
255,500
452,358 $
17.10 $
15.35
16.11 $
3,366
3,921
7,287 $
12,713
Month ended
November 30, 2018
December 31, 2018
(17) Quarterly Data—Unaudited
Quarterly Data—2018
Net sales
Gross profit
Net income attributable to American Vanguard
Basic net income per share
Diluted net income per share
Quarterly Data—2017
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
104,108 $
41,051
4,655
0.16
0.16
107,046 $
43,297
5,599
0.19
0.19
111,780 $
45,300
6,525
0.22
0.22
70,673 $
30,084
3,452
0.12
0.12
77,905 $
34,335
4,304
0.15
0.15
89,975 $
38,032
4,089
0.14
0.14
131,338
52,983
7,416
0.25
0.25
116,494
44,941
8,429
0.29
0.28
$
$
72
(1)
Fourth quarter 2017 net income includes a provisional one-time tax benefit of $3,433 recorded for our initial analysis of the
impact of the Tax Act.
Note: Totals may not agree with full year amounts due to rounding and separate calculations each quarter.
(18) Forward Cover Contract
As of October 26, 2018, the Company entered into a foreign exchange forward cover contract in connection with the anticipated
acquisition of the Agrovant and Defensive businesses in Brazil (see note (19) below). The forward cover contract’s settlement amount
was determined based on the BRL/USD exchange rate on December 27, 2018 and the Company was required to make a payment (and
record a loss) under the terms of the contract in the amount of $1,401. Under the accounting rules for derivative financial instruments,
a gain or loss related to a contract, which is entered into in connection with an anticipated business combination, is recorded in the
statements of operations. There were no similar losses or gains recorded in either 2017 or 2016.
(19) Subsequent Events
On January 10, 2019, the Company completed the acquisition of all of the outstanding shares of stock of two affiliated
businesses, Agrovant and Defensive, which are located in Jabocitabal in the state of Sao Paulo, Brazil, in exchange for the equivalent
of $22,099, plus potential future earn-out consideration. These companies were founded in 2000 and are suppliers of crop protection
products and micronutrients with focus on the fruit and vegetable market segments. The acquisition will be accounted for as a business
combination.
During January 2019, the Company paid $2,605 to purchase 158,048 shares of the Company’s common stock at an average
share price of $16.48 per share. There were no other purchases from the start of February 2019 until the date of filing this Form 10-K.
73
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
LISTING OF SUBSIDIARIES
Exhibit 21
Subsidiaries of the Company and the jurisdiction in which each company was incorporated are listed below. Unless
otherwise indicated parenthetically, 100% of the voting securities of each subsidiary are owned by the Company. All
companies indicated with an asterisk (*) are subsidiaries of AMVAC. All of the following subsidiaries are included in the
Company’s consolidated financial statements:
AMVAC Chemical Corporation
GemChem, Inc.
2110 Davie Corporation (formerly ABSCO Distributing)
AMVAC Chemical UK Ltd*
AMVAC do Brasil Representácoes Ltda*
Agroservicios Amvac, SA de CV*
Quimica Amvac de Mexico SA de CV*
AMVAC de Costa Rica Srl
AVD International LLC*
AMVAC CV
AMVAC Netherlands BV*
Envance Technologies, LLC*
OHP Inc.*
Amvac Colombia SAS
AgriCenter S.A
Tyratech, Inc.
American Vanguard Australia PTY Ltd
California
California
California
England
Brazil
Mexico
Mexico
Costa Rica
Delaware
Netherlands
Netherlands
Delaware
California
Columbia
Costa Rica
Delaware
Australia
74
Consent of Independent Registered Public Accounting Firm
Exhibit 23
American Vanguard Corporation
Newport Beach, CA
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-125813, 333-102381, 333-
76218 and 333-64220) of American Vanguard Corporation of our reports dated March 12, 2019, relating to the consolidated financial
statements and financial statement schedule, and the effectiveness of American Vanguard Corporation’s internal control over financial
reporting, which appear in this Form 10-K.
/s/ BDO USA, LLP
Costa Mesa, CA
March 12, 2019
75
AMERICAN VANGUARD CORPORATION
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Eric G. Wintemute, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of American Vanguard Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
evaluated the effectiveness of the Company’s disclosure controls and procedures, and presented in this report our
conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the
Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an Annual Report) that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;
and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors:
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial
information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
Company’s internal control over financial reporting.
Date: March 12, 2019
/s/ Eric G. Wintemute
Eric G. Wintemute
Chief Executive Officer and Chairman of the
Board
76
AMERICAN VANGUARD CORPORATION
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, David T. Johnson, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of American Vanguard Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the consolidated financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report;
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
evaluated the effectiveness of the Company’s disclosure controls and procedures, and presented in this report our
conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the
Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an Annual Report) that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;
and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors:
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial
information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
Company’s internal control over financial reporting.
Date: March 12, 2019
/s/ David T. Johnson
David T. Johnson
Chief Financial Officer and Principal
Accounting Officer
77
AMERICAN VANGUARD CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of American Vanguard Corporation (the “Company”) on Form 10-K for the period ending
December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief
Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906
of the Sarbanes-Oxley Act of 2002 that based on their knowledge (1) the Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/ ERIC G. WINTEMUTE
Eric G. Wintemute,
Chief Executive Officer and Chairman of the Board
/s/ DAVID T. JOHNSON
David T. Johnson
Chief Financial Officer and Principal Accounting Officer
March 12, 2019
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to American Vanguard Corporation and will be retained by American Vanguard Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K and
shall not be considered filed as part of the Form 10-K.
78