Notes to Condensed Consolidated Financial Statements
(In thousands, except share data)
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
2. 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:
|
|
Three Months Ended
June 30, 2018
|
|
|
Six Months Ended
June 30, 2018
|
|
|
|
As reported
|
|
|
Without adoption
of ASC 606
|
|
|
As reported
|
|
|
Without adoption
of ASC 606
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crop:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides
|
|
$
|
32,665
|
|
|
$
|
32,671
|
|
|
$
|
73,958
|
|
|
$
|
73,988
|
|
Herbicides/soil fumigants/fungicides
|
|
|
31,401
|
|
|
|
31,401
|
|
|
|
63,586
|
|
|
|
63,586
|
|
Other, including plant growth regulators and
distribution
|
|
|
30,377
|
|
|
|
30,377
|
|
|
|
48,217
|
|
|
|
48,217
|
|
|
|
|
94,443
|
|
|
|
94,449
|
|
|
|
185,761
|
|
|
|
185,791
|
|
Non-crop, including distribution
|
|
|
12,603
|
|
|
|
12,603
|
|
|
|
25,393
|
|
|
|
25,393
|
|
Total net sales:
|
|
$
|
107,046
|
|
|
$
|
107,052
|
|
|
$
|
211,154
|
|
|
$
|
211,184
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
$
|
64,363
|
|
|
$
|
64,369
|
|
|
$
|
134,178
|
|
|
$
|
134,208
|
|
International
|
|
|
42,683
|
|
|
|
42,683
|
|
|
|
76,976
|
|
|
|
76,976
|
|
Total net sales:
|
|
$
|
107,046
|
|
|
$
|
107,052
|
|
|
$
|
211,154
|
|
|
$
|
211,184
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods transferred at a point in time
|
|
$
|
106,886
|
|
|
$
|
107,052
|
|
|
$
|
210,591
|
|
|
$
|
211,184
|
|
Goods and services transferred over time
|
|
|
160
|
|
|
|
—
|
|
|
|
563
|
|
|
|
—
|
|
Total net sales:
|
|
$
|
107,046
|
|
|
$
|
107,052
|
|
|
$
|
211,154
|
|
|
$
|
211,184
|
|
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
8
initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Th
ese 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.
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 June 30, 2018, the Company had $34,616 of remaining performance obligations, which is 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 2018.
Contract Balances
—
The timing of revenue recognition, billings and cash collections results in deferred revenue in the condensed 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 condensed consolidated balance sheet at the end of each reporting period.
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Total receivables, net
|
|
$
|
106,944
|
|
|
$
|
109,605
|
|
Contract assets
|
|
|
3,000
|
|
|
|
—
|
|
Deferred revenue
|
|
|
7,320
|
|
|
|
14,574
|
|
Revenue recognized for the three and six months ended June 30, 2018, that was included in the deferred revenue balance at the beginning of 2018 were $12,740 and $4,514, respectively.
9
The following table presents the effect of the adoption of ASC
606 on our condensed consolidated balance sheet (unaudited) as of December 31, 2017:
|
|
As of December 31, 2017
|
|
|
|
As previously reported
|
|
|
Adjustment due to
adoption of ASC 606
|
|
|
As adjusted
|
|
Total assets
|
|
$
|
535,592
|
|
|
$
|
3,000
|
|
|
$
|
538,592
|
|
Deferred income tax liabilities, net
|
|
|
16,284
|
|
|
|
786
|
|
|
|
17,070
|
|
Retained earnings
|
|
|
238,953
|
|
|
|
2,214
|
|
|
|
241,167
|
|
In accordance with ASC 606, the disclosure of the impact of adoption to our consolidated statements of operations for the three and six months ended June 30, 2018 were $33 and $57, respectively, reductions in net sales. This revenue will move from being recognized at point in time to be recognized over time. As such, the net sales will be reported as sales in later quarters.
In accordance with ASC 606, the disclosure of the impact of adoption to our condensed consolidated balance sheets was as follows:
|
|
As of June 30, 2018
|
|
|
|
As reported
|
|
|
Balances without
adoption of ASC
606
|
|
|
Impact
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets
|
|
$
|
3,000
|
|
|
$
|
—
|
|
|
$
|
3,000
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
7,320
|
|
|
|
7,263
|
|
|
|
57
|
|
Deferred income tax liabilities
|
|
|
786
|
|
|
|
—
|
|
|
|
786
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
250,068
|
|
|
|
247,854
|
|
|
|
2,214
|
|
3. Property, plant and equipment at June 30, 2018 and December 31, 2017 consists of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Land
|
|
$
|
2,458
|
|
|
$
|
2,458
|
|
Buildings and improvements
|
|
|
16,787
|
|
|
|
16,678
|
|
Machinery and equipment
|
|
|
106,104
|
|
|
|
107,722
|
|
Office furniture, fixtures and equipment
|
|
|
4,936
|
|
|
|
4,925
|
|
Automotive equipment
|
|
|
1,115
|
|
|
|
735
|
|
Construction in progress
|
|
|
2,912
|
|
|
|
1,917
|
|
Total gross value
|
|
|
134,312
|
|
|
|
134,435
|
|
Less accumulated depreciation
|
|
|
(85,913
|
)
|
|
|
(85,114
|
)
|
Total net value
|
|
$
|
48,399
|
|
|
$
|
49,321
|
|
The Company recognized depreciation expense related to property, plant and equipment of $2,055 and $2,129 for the three months ended June 30, 2018 and 2017, respectively. During the three months ended June 30, 2018 and 2017, the Company eliminated from assets and accumulated depreciation $3,219 and $3,584, respectively, of fully depreciated assets.
The Company recognized depreciation expense related to property, plant and equipment of $4,146 and $4,313 for the six months ended June 30, 2018 and 2017, respectively. During the six months ended June 30, 2018 and 2017, the Company eliminated from assets and accumulated depreciation $3,347 and $4,759, respectively, of fully depreciated assets.
Substantially all of the Company’s assets are pledged as collateral with its banks.
10
4. Inventories are stated at the lower of cost or net realizable value. Cost is
determined using the first-in, first-out method. The components of inventories consist of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Finished products
|
|
$
|
144,486
|
|
|
$
|
107,595
|
|
Raw materials
|
|
|
18,694
|
|
|
|
15,529
|
|
|
|
$
|
163,180
|
|
|
$
|
123,124
|
|
As of June 30, 2018, we believe our inventories are valued at lower of cost or net realizable value.
In July 2015, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASU”) 2015-11, Inventory (Topic 330). Topic 330 currently requires an entity to measure inventory at the lower of cost or market, where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This ASU limits the scope to inventory that is measured using first-in, first-out (FIFO) or average cost and requires inventory be measured at the lower of costs or net realizable value. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this new standard effective January 1, 2017. There was no impact on this adoption.
5. Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Selective enterprise information is as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crop:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insecticides
|
|
$
|
32,665
|
|
|
$
|
39,442
|
|
|
$
|
73,958
|
|
|
$
|
77,384
|
|
Herbicides/soil fumigants/fungicides
|
|
|
31,401
|
|
|
|
16,045
|
|
|
|
63,586
|
|
|
|
36,066
|
|
Other, including plant growth regulators
|
|
|
30,377
|
|
|
|
10,096
|
|
|
|
48,217
|
|
|
|
13,488
|
|
Total crop:
|
|
|
94,443
|
|
|
|
65,583
|
|
|
|
185,761
|
|
|
|
126,938
|
|
Non-crop
|
|
|
12,603
|
|
|
|
12,322
|
|
|
|
25,393
|
|
|
|
21,640
|
|
Total net sales:
|
|
$
|
107,046
|
|
|
$
|
77,905
|
|
|
$
|
211,154
|
|
|
$
|
148,578
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
$
|
64,363
|
|
|
$
|
55,760
|
|
|
$
|
134,178
|
|
|
$
|
108,004
|
|
International
|
|
|
42,683
|
|
|
|
22,145
|
|
|
|
76,976
|
|
|
|
40,574
|
|
Total net sales:
|
|
$
|
107,046
|
|
|
$
|
77,905
|
|
|
$
|
211,154
|
|
|
$
|
148,578
|
|
6.
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, revenue from sales is 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 estimated using the expected value method. Each quarter management compares individual sale transactions with Programs to determine what, if any, estimated Program liability has been incurred. Once this initial calculation is made for the specific quarter, sales and marketing management, along with executive and financial management, review the accumulated Program balance and, 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. No significant changes in estimates were made during the three and six months ended June 30, 2018 and 2017, respectively.
11
7. The Company has declared and paid the following cash dividends in the periods covered by
this Form 10-Q:
Declaration Date
|
|
Record Date
|
|
Distribution Date
|
|
Dividend
Per Share
|
|
|
Total
Paid
|
|
June 11, 2018
|
|
June 28, 2018
|
|
July 12, 2018
|
|
$
|
0.020
|
|
|
$
|
587
|
|
March 8, 2018
|
|
March 30, 2018
|
|
April 13, 2018
|
|
$
|
0.020
|
|
|
$
|
586
|
|
December 12, 2017
|
|
December 27, 2017
|
|
January 10, 2018
|
|
$
|
0.015
|
|
|
$
|
438
|
|
8. FASB ASC 260
Earnings Per Share (“EPS”)
requires dual presentation of basic EPS and diluted EPS on the face of the condensed 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 that could occur if securities or other contracts, which, for the Company, consists of options to purchase shares of the Company’s common stock, are exercised.
The components of basic and diluted earnings per share were as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to AVD
|
|
$
|
5,599
|
|
|
$
|
4,304
|
|
|
$
|
10,254
|
|
|
$
|
7,756
|
|
Denominator: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic
|
|
|
29,330
|
|
|
|
29,050
|
|
|
|
29,309
|
|
|
|
28,999
|
|
Dilutive effect of stock options and grants
|
|
|
860
|
|
|
|
555
|
|
|
|
804
|
|
|
|
562
|
|
|
|
|
30,190
|
|
|
|
29,605
|
|
|
|
30,113
|
|
|
|
29,561
|
|
For the three and six months ended June 30, 2018 and 2017, respectively, no stock options were excluded from the computation of diluted earnings per share.
9. The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at June 30, 2018 and December 31, 2017. The Company has no short-term debt as of June 30, 2018 and December 31, 2017. Debt is summarized in the following table:
Long-term indebtedness ($000's)
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Revolving line of credit
|
|
$
|
75,100
|
|
|
$
|
78,425
|
|
Deferred loan fees
|
|
|
(842
|
)
|
|
|
(939
|
)
|
Net long-term debt
|
|
$
|
74,258
|
|
|
$
|
77,486
|
|
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 (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 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.
12
At
June 30
, 2018, according to the terms of the Credit Agreement and based on its performance against the most restrictive covenants listed above, the Company had the capacity to increase its borrowings by up to
$137,047. This compares to an available borrowing capacity of $143,182, as of
June 30
, 2017. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA including both the trailing twelve-month period and proforma basis arising from acquisitions, which have improved, (2) net borrowings,
which
have increased
and (3) the leverage covenant (being the number of times EBITDA the Company may borrow under its credit facility agreement).
As of June 30, 2018, the Company was in compliance with all of its debt covenants.
10. Reclassification—Certain items may have been reclassified in the prior period condensed consolidated financial statements to conform with the June 30, 2018 presentation.
11. Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the condensed consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three and six month periods ended June 30, 2018 and 2017, total comprehensive income consisted of net income attributable to American Vanguard and foreign currency translation adjustments.
12. Stock Based Compensation—The Company accounts for stock-based awards to employees and directors in accordance with FASB ASC 718, “
Share-Based Payment,
” which requires the measurement and recognition of compensation for all share-based payment awards made to employees and directors including shares of common stock granted for services, employee stock options, and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values.
The following tables illustrate the Company’s stock based compensation, unamortized stock-based compensation, and remaining weighted average period for the three and six months ended June 30, 2018 and 2017.
|
|
Stock-Based
Compensation
for the Three
months ended
|
|
|
Stock-Based
Compensation
for the Six
months ended
|
|
|
Unamortized
Stock-Based
Compensation
|
|
|
Remaining
Weighted
Average
Period (years)
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
$
|
988
|
|
|
$
|
1,750
|
|
|
$
|
7,424
|
|
|
|
2.2
|
|
Performance Based Restricted Stock
|
|
|
481
|
|
|
|
1,028
|
|
|
|
3,336
|
|
|
|
2.2
|
|
Total
|
|
$
|
1,469
|
|
|
$
|
2,778
|
|
|
$
|
10,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Stock Options
|
|
$
|
86
|
|
|
$
|
170
|
|
|
$
|
193
|
|
|
|
0.5
|
|
Restricted Stock
|
|
|
777
|
|
|
|
1,433
|
|
|
|
5,198
|
|
|
|
1.4
|
|
Performance Based Restricted Stock
|
|
|
321
|
|
|
|
621
|
|
|
|
2,157
|
|
|
|
2.3
|
|
Performance Based Options
|
|
|
58
|
|
|
|
98
|
|
|
|
117
|
|
|
|
0.5
|
|
Total
|
|
$
|
1,242
|
|
|
$
|
2,322
|
|
|
$
|
7,665
|
|
|
|
|
|
Stock Options—During the three and six months ended June 30, 2018, the Company did not grant any employees options to acquire shares of common stock.
Option activity within each plan is as follows:
|
|
Incentive
Stock Option
Plans
|
|
|
Weighted
Average Price
Per Share
|
|
|
Exercisable
Weighted
Average Price
Per Share
|
|
Balance outstanding, December 31, 2017
|
|
|
473,641
|
|
|
$
|
9.38
|
|
|
$
|
9.38
|
|
Options exercised
|
|
|
(40,923
|
)
|
|
|
11.49
|
|
|
|
—
|
|
Balance outstanding, March 31, 2018
|
|
|
432,718
|
|
|
|
9.19
|
|
|
|
9.19
|
|
Options exercised
|
|
|
(38,360
|
)
|
|
|
10.02
|
|
|
|
—
|
|
Balance outstanding, June 30, 2018
|
|
|
394,358
|
|
|
$
|
9.12
|
|
|
$
|
9.12
|
|
13
Information relating to stock options at June 30, 2018, summarized by exercise price is as follows:
|
|
Outstanding Weighted
Average
|
|
|
Exercisable Weighted
Average
|
|
Exercise Price Per Share
|
|
Shares
|
|
|
Remaining
Life
(Months)
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Exercise
Price
|
|
Incentive Stock Option Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$7.50
|
|
|
233,545
|
|
|
|
29
|
|
|
$
|
7.5
|
|
|
|
233,545
|
|
|
$
|
7.50
|
|
$11.32—$14.49
|
|
|
160,813
|
|
|
|
76
|
|
|
$
|
11.48
|
|
|
|
160,813
|
|
|
$
|
11.48
|
|
|
|
|
394,358
|
|
|
|
|
|
|
$
|
9.12
|
|
|
|
394,358
|
|
|
$
|
9.12
|
|
The weighted average exercise prices for options granted, and exercisable, and the weighted average remaining contractual life for options outstanding as of June 30, 2018, were as follows:
As of June 30, 2018
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Months)
|
|
|
Intrinsic
Value
(thousands)
|
|
Incentive Stock Option Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
394,358
|
|
|
$
|
9.12
|
|
|
|
48
|
|
|
$
|
5,452
|
|
Expected to Vest
|
|
|
394,358
|
|
|
$
|
9.12
|
|
|
|
48
|
|
|
$
|
5,452
|
|
Exercisable
|
|
|
394,358
|
|
|
$
|
9.12
|
|
|
|
48
|
|
|
$
|
5,452
|
|
Common stock grants
—
A summary of non-vested shares as of, and for, the three and six months ended June 30, 2018 and 2017 is presented below:
|
|
Six Months Ended
June 30, 2018
|
|
|
Six Months Ended
June 30, 2017
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Nonvested shares at December 31
st
|
|
|
391,753
|
|
|
$
|
15.61
|
|
|
|
324,756
|
|
|
$
|
14.75
|
|
Granted
|
|
|
254,972
|
|
|
|
19.97
|
|
|
|
251,475
|
|
|
|
16.10
|
|
Vested
|
|
|
(8,800
|
)
|
|
|
12.07
|
|
|
|
(10,100
|
)
|
|
|
12.95
|
|
Forfeited
|
|
|
(5,265
|
)
|
|
|
16.51
|
|
|
|
(6,544
|
)
|
|
|
15.26
|
|
Nonvested shares at March 31
st
|
|
|
632,660
|
|
|
|
17.41
|
|
|
|
559,587
|
|
|
|
15.38
|
|
Granted
|
|
|
22,308
|
|
|
|
23.66
|
|
|
|
38,502
|
|
|
|
17.08
|
|
Vested
|
|
|
(20,313
|
)
|
|
|
22.82
|
|
|
|
(188,400
|
)
|
|
|
15.22
|
|
Forfeited
|
|
|
(6,424
|
)
|
|
|
17.25
|
|
|
|
(6,593
|
)
|
|
|
15.55
|
|
Nonvested shares at June 30th
|
|
|
628,231
|
|
|
$
|
17.40
|
|
|
|
403,096
|
|
|
$
|
15.61
|
|
Common stock grants — During the six months ended June 30, 2018, the Company issued a total of 277,280 shares of common stock to employees and directors of which 19,313 shares vested immediately, 19,760 shares will vest between a range of 178 days to 1,060 days, and the remaining shares will cliff vest after three years of service. The shares granted in 2018 were average fair valued at $20.27 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 Company will recognize as expense the fair value of restricted shares over the required service period.
During the six months ended June 30, 2017, the Company issued a total of 289,977 shares of common stock to employees and directors of which 24,312 shares vested immediately, 3,900 shares will vest in three equal tranches on the employee’s anniversary, 1,000 shares vested after one year of service, 2,500 shares will cliff vest after two years of service, and the remaining shares will cliff vest after three years of service. The shares granted in 2017 were average fair valued at $16.23 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 Company will recognize as expense the fair value of restricted shares over the required service period.
14
During the three months ended June 30, 2018 and 2017, the Company recognize
d stock-based compensation related to restricted shares of $988 and $777, respectively. During the six months ended June 30, 2018 and 2017, the Company recognized stock-based compensation related to restricted shares of $1,750 and $1,433, respectively.
As of June 30, 2018, the Company had approximately $7,424 of unamortized stock-based compensation related to unvested restricted shares. This amount will be recognized over the weighted-average period of 2.2 years. This projected expense will change if any restricted shares are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.
Performance Based Shares
—
A summary of non-vested performance based shares as of, and for, the six months ended June 30, 2018 and 2017, respectively is presented below:
|
|
Six Months Ended
June 30, 2018
|
|
|
Six Months Ended
June 30, 2017
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Nonvested shares at December 31
st
|
|
|
186,057
|
|
|
$
|
14.93
|
|
|
|
119,022
|
|
|
$
|
14.18
|
|
Granted
|
|
|
122,446
|
|
|
|
18.79
|
|
|
|
121,194
|
|
|
|
15.40
|
|
Vested
|
|
|
(14,625
|
)
|
|
|
11.01
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(1,765
|
)
|
|
|
15.40
|
|
|
|
—
|
|
|
|
—
|
|
Nonvested shares at March 31
st
|
|
|
292,113
|
|
|
|
16.74
|
|
|
|
240,216
|
|
|
|
14.80
|
|
Granted
|
|
|
3,850
|
|
|
|
22.69
|
|
|
|
7,400
|
|
|
|
15.88
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
(48,046
|
)
|
|
|
14.92
|
|
Forfeited
|
|
|
(2,179
|
)
|
|
|
17.67
|
|
|
|
(12,560
|
)
|
|
|
12.92
|
|
Nonvested shares at June 30th
|
|
|
293,784
|
|
|
$
|
16.81
|
|
|
|
187,010
|
|
|
$
|
14.93
|
|
Performance Based Shares — During the six months ended June 30, 2018, the Company issued a total of 126,296 performance-based shares to employees.
The shares granted have an average fair value of $18.91. 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 fair value of the performance based shares over the required service period from grant date.
The majority of 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.
Performance Based Shares — During the six months ended June 30, 2017, the Company issued a total of 128,594 performance-based shares to employees.
The shares granted during the six months of 2017 have an average fair value of $15.43. 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 fair 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.
15
As of June 30, 2018, performance based shares related to EBIT and net sales have an average fair value of $18.88 per share. The fair value was determined by using th
e 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 $15.85 per share. The fair value was determined by using the Monte Carlo valuation me
thod. 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 the three months ended June 30, 2018 and 2017, the Company recognized stock-based compensation related to performance based shares of $481 and $321, respectively. During the six months ended June 30, 2018 and 2017, the Company recognized stock-based compensation related to performance based shares of $1,028 and $621, respectively.
As of June 30, 2018, the Company had approximately $3,336 of unamortized stock-based compensation expense related to unvested performance based shares. This amount will be recognized over the weighted-average period of 2.2 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.
Performance Incentive Stock Options—During the six months ended June 30, 2018 and 2017, the Company did not grant any employees performance incentive stock options to acquire shares of common stock. As of June 30, 2018, the Company has concluded that the performance measure based on EBIT and net sales for the performance stock options granted in 2014, when compared to the peer group, was met at 200% of targeted performance and all related additional expenses were recorded as of December 31, 2017. The performance options based on market price was met at 175%, however, the market condition is reflected in the grant date fair value valuation and no additional expenses were recognized as of December 31, 2017. As a result, 77,598 shares were earned through additional vesting based on performance. The balance outstanding as of June 30, 2018 is increased by the additional options issued based on performance.
Performance option activity is as follows:
|
|
Incentive
Stock Option
Plans
|
|
|
Weighted
Average Price
Per Share
|
|
|
Exercisable
Weighted
Average Price
Per Share
|
|
Balance outstanding, December 31, 2017 and March 31, 2018
|
|
|
81,666
|
|
|
$
|
11.49
|
|
|
$
|
11.49
|
|
Additional vesting based on performance
|
|
|
77,598
|
|
|
|
11.49
|
|
|
|
—
|
|
Options exercised
|
|
|
(17,839
|
)
|
|
|
11.49
|
|
|
|
—
|
|
Balance outstanding, June 30, 2018
|
|
|
141,425
|
|
|
$
|
11.49
|
|
|
$
|
11.49
|
|
Information relating to stock options at June 30, 2018 summarized by exercise price is as follows:
|
|
Outstanding Weighted
Average
|
|
|
Exercisable Weighted
Average
|
|
Exercise Price Per Share
|
|
Shares
|
|
|
Remaining
Life
(Months)
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Exercise
Price
|
|
Performance Incentive Stock Option Plan:
|
|
|
141,425
|
|
|
|
78
|
|
|
$
|
11.49
|
|
|
|
141,425
|
|
|
$
|
11.49
|
|
The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of June 30, 2018 are as follows:
As of June 30, 2018
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Months)
|
|
|
Intrinsic
Value
(thousands)
|
|
Performance Incentive Stock Option Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
141,425
|
|
|
$
|
11.49
|
|
|
|
78
|
|
|
$
|
1,621
|
|
Expected to Vest
|
|
|
141,425
|
|
|
$
|
11.49
|
|
|
|
78
|
|
|
$
|
1,621
|
|
Exercisable
|
|
|
141,425
|
|
|
$
|
11.49
|
|
|
|
78
|
|
|
$
|
1,621
|
|
16
In March 2016, FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718)
. The new standard changes the accounting for certain aspects of share-based payments to employees. The standard requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating addi
tional paid in capital (“APIC”) pools. The standard also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. Cash paid by an employer when directly withholding shares for
tax-withholding purposes should be classified as a financing activity in the condensed consolidated statements of cash flows. In addition, the standard allows for a policy election to account for forfeitures as they occur rather than on an estimated basis.
The new standard is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The Company has considered the different options for treatment of forfeitures in accounting for stock compensation and has elected to continue
to account for such adjustments on the estimated basis. The Company adopted this new standard as of January 1, 2017 on a prospective basis. The impact of this adoption was not material.
13. Legal Proceedings — During the reporting period, there have been no significant developments in material pending or threatened legal proceedings to which the Company is a party, except as described below.
Takings Action
. On June 14, 2016, the Company filed a lawsuit against the United States Environmental Protection Agency (“USEPA”) in the U.S. Court of Federal Claims, entitled “American Vanguard Corporation v. USEPA” (Case No. 16-694C) under which the Company seeks approximately $25,000 in damages from USEPA on the ground that that agency’s improper 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. Since that time, fact discovery has been completed. Further, during the second quarter of 2018, expert witness discovery was substantially completed, and the Company expects that all remaining discovery will be completed during the third quarter of 2018. The Company is sole plaintiff in this matter and is seeking to recover damages; accordingly, no loss contingency is considered for this action.
AMVAC v.
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 (“the 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 has substantially completed the document production during the course of which it incurred approximately $2,000 in legal costs and fees responding to this subpoena. During the third quarter of 2017, the Company received a request from the DoJ to interview several individuals who may be knowledgeable of the matter. The government completed the interview of four corporate witnesses during the second quarter of 2018. Prosecutors have expressed a desire to talk about the matter in the near- to mid-term. At this stage, however, the 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.
Walker v. AMVAC.
On or about April 10, 2017, the Company was served with a summons and complaint that had been filed with the United State District Court for the Eastern District of Tennessee under the caption
Larry L. Walker v. Amvac Chemical Corporation
(as No. 4:17-cv-00017). Plaintiff seeks contract damages, correction of inventorship, accounting and injunctive relief arising from for the Company’s alleged misuse of his confidential information to support a patent application (which was subsequently issued) for a post-harvest corn herbicide that the Company has not commercialized. Plaintiff claims further that he, not the Company, should be identified as the inventor in such application. The Company believes that these claims are without merit and intends to defend vigorously. On May 24, 2017, the Company filed a motion to dismiss this action, or in the alternative, for transfer of venue, on the ground that (i) the complaint fails to state a claim upon which relief can be granted, (ii) the contracts cited by plaintiff in his complaint include a forum selection clause requiring that disputes are to be adjudicated in the U.S. District Court for the Central District of California, and (iii) under the doctrine of forum non conveniens. On March 21, 2018, the District Court in Tennessee ruled on the motion, granting the Company’s request to transfer venue to the United States District Court for the Central District of California (finding that the forum selection clauses in the relevant contracts applied), but denying the request to dismiss the matter. As per the California court’s rules, the parties are discussing a choice of mediator for a mediation to take place in the third quarter of 2018. At this stage in the proceedings, it is too early to determine whether a loss is probable or reasonably estimable; accordingly, the Company has not recorded a loss contingency.
14. 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 condensed consolidated financial statements.
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In January 2018, the FASB released guidance on the accounting for tax on the globa
l 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.
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 Company will evaluate the impact of this update.
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. In the year beginning January 1, 2018, the Company adopted ASU 2016-16 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 condensed consolidated statements of cash flows for the six months ended June 30, 2018 and the Company does not expect any material impact going forward.
In February 2016, FASB issued ASU 2016-02,
Leases
.
The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the condensed consolidated financial statements, with certain practical expedients available. We are currently evaluating our operating lease arrangements to determine the impact of this amendment on the condensed consolidated financial statements,
but we expect this adoption will result in a material increase in the assets and liabilities on our condensed consolidated balance sheet.
We have not determined if the adoption of this standard will materially impact our operating results. The evaluation will include an extensive review of our leases, which are primarily related to our manufacturing sites, regional sales offices, lease vehicles, and office equipment. The ultimate impact will depend on the Company’s lease portfolio at the time the new standard is adopted.
The Company will adopt ASU 2016-02 for the year beginning on January 1, 2019.
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. This amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. 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 three and six months ended June 30, 2018. If there are any observable price changes related to this investment or a similar investment of the same issuer in fiscal years beginning after December 15, 2017, the Company would be required to assess the fair value impact, if any, on each class of stock, and write the individual security interest up or down to its estimated fair value, which could have a significant effect on the
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Company's financial position and results of operations. The adoption of this standard did not have a material impact on the Company’s conden
sed consolidated financial statements.
15. Fair Value of Financial Instruments— The carrying values of cash, receivables and accounts payable approximate their fair values because of the short maturity of these instruments. The fair value of the Company’s long-term debt payable to the bank is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Such fair value approximates the respective carrying values of the Company’s long-term debt payable to bank.
During the three and six months ended June 30, 2018, net measurement period adjustments in the amounts of $1,146 and $347, respectively, were made to reduce provisional amounts recorded for deferred consideration in connection with the 2017 AgriCenter acquisition resulting in a reduction to goodwill. As of June 30, 2018, the Company reassessed the fair value of the deferred consideration balances relating to the 2017 AgriCenter and OHP acquisitions, which resulted in a combined reduction of the deferred consideration balances of approximately $1,468 which has been reflected in other income in the condensed consolidated statements of operations for the three months ended June 30, 2018.
16. Accumulated Other Comprehensive Income (“AOCI”)
—
The following table lists the beginning balance, annual activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency translation adjustments:
|
|
Total
|
|
Balance, December 31, 2017
|
|
$
|
(4,507
|
)
|
FX translation
|
|
|
672
|
|
Balance, March 31, 2018
|
|
|
(3,835
|
)
|
FX translation
|
|
|
(898
|
)
|
Balance, June 30, 2018
|
|
$
|
(4,733
|
)
|
17. Investments —
TyraTech Inc. (“TyraTech”) is a Delaware corporation that specializes in developing, marketing and selling pesticide products containing natural oils. In January 2018, TyraTech finalized a stock repurchase as a result of which the Company’s ownership position in TyraTech increased from approximately 15.11% to approximately 34.38%. The Company utilizes the equity method of accounting with respect to this investment. Accordingly, our net income includes income and losses from equity method investments, which represents our proportionate share of TyraTech’s estimated net losses and impairment charges (if appropriate) for the current accounting period. For the three and six months ended June 30, 2018, the Company recognized a net loss of $347 and $443 as a result of the Company’s ownership position in TyraTech. The Company recognized a loss of $69 and $111 for the three and six months ended June 30, 2017.
On June 27, 2017, both Amvac Netherlands BV and Huifeng Agrochemical Company, Ltd (“Huifeng”) made individual capital contributions of $950 to Huifeng Amvac Innovation Co. Ltd (“Hong Kong Joint Venture”). As of June 30, 2018, the Company’s ownership position in the Hong Kong Joint Venture was 50%. The Company utilizes the equity method of accounting with respect to this investment. On July 7, 2017, the Hong Kong Joint Venture 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 Shanghai Biological Focus center. For the three and six months ended June 30, 2018, the Company recognized gains of $46 and losses of $75, respectively, as a result of the Company’s ownership position in the Hong Kong Joint Venture. There were no similar gains or losses recognized in the prior year comparative period.
In February 2016, AMVAC Netherlands BV made an 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 June 30, 2018, the Company’s ownership position in Bi-PA was 15%. 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 in the three and six months ended June 30, 2018. There was no impairment on the investment as of June 30, 2018. The investment is not material and is recorded within other assets on the condensed consolidated balance sheets.
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18. Income Taxes
— Income
tax expense was
$1,748 for the three months ended June 30, 2018, as compared to $1,681 for the comparable period in 2017. The
effective tax rate
for the quarter
was
23.0
%, as compared to 26.8% in
the
same period of the prior year. Income tax expense was $3,440 for the six
months ended
June 30
, 2018
, as compared to $3,061 for
the six months ended
June 30, 2017. The
effective tax rate for the six months ended June 30,
2018 and 2017 was 24.4%
and
27.5%
, respectively.
The effective tax rate is
based
on the projected income
for the full year and is subject to ongoing review and
adjustment by management.
In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) made broad and complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; and (ii) requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries. The Act also established new tax laws that affect 2018, including, but not limited to: (i) the reduction of the U.S. federal corporate tax rate discussed above; (ii) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (iii) a new provision designed to tax global intangible low-taxed income (“GILTI”); (iv) the repeal of the domestic production activity deductions; (v) limitations on the deductibility of certain executive compensation; and (vi) limitations on the use of foreign tax credits to reduce the U.S. income tax liability.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued 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 Act. For the three and six months ended June 30, 2018, the Company did not obtain additional information affecting the provisional amount initially recorded for the transition tax for 2017. As a result, the Company has not recorded an adjustment to the transition tax. Additional work is ongoing 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. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.
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