American Vanguard (AVD) - 2019 Q3 - Quarterly Report

FORM 10-Q Cover Page - This is a Quarterly Report (Form 10-Q) for the period ended September 30, 2019, filed by AMERICAN VANGUARD CORPORATION (Commission file number 001-13795)[1] - The registrant is an Accelerated Filer and is not a Large accelerated filer, Non-accelerated filer, Smaller reporting company, or Emerging growth company[1] - As of October 29, 2019, there were 30,186,844 shares of Common Stock, $.10 Par Value, outstanding[1] PART I—FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited condensed consolidated financial statements and notes for American Vanguard Corporation, detailing financial performance and position for Q3 and YTD 2019 and 2018 Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended September 30) | Metric (in thousands, except per share data) | 2019 | 2018 | Change | % Change | | :------------------------------------------- | :-------- | :-------- | :-------- | :------- | | Net sales | $124,884 | $111,780 | $13,104 | 11.7% | | Cost of sales | $77,421 | $66,480 | $10,941 | 16.5% | | Gross profit | $47,463 | $45,300 | $2,163 | 4.8% | | Operating expenses | $40,677 | $33,635 | $7,042 | 20.9% | | Operating income | $6,786 | $11,665 | $(4,879) | -41.8% | | Net income attributable to American Vanguard | $3,153 | $6,525 | $(3,372) | -51.7% | | Earnings per common share—basic | $0.11 | $0.22 | $(0.11) | -50.0% | | Earnings per common share—assuming dilution | $0.11 | $0.22 | $(0.11) | -50.0% | Condensed Consolidated Statements of Operations (Nine Months Ended September 30) | Metric (in thousands, except per share data) | 2019 | 2018 | Change | % Change | | :------------------------------------------- | :-------- | :-------- | :-------- | :------- | | Net sales | $337,664 | $322,934 | $14,730 | 4.6% | | Cost of sales | $206,846 | $193,286 | $13,560 | 7.0% | | Gross profit | $130,818 | $129,648 | $1,170 | 0.9% | | Operating expenses | $110,839 | $102,011 | $8,828 | 8.7% | | Operating income | $19,979 | $27,637 | $(7,658) | -27.7% | | Net income attributable to American Vanguard | $10,165 | $16,779 | $(6,614) | -39.4% | | Earnings per common share—basic | $0.35 | $0.57 | $(0.22) | -38.6% | | Earnings per common share—assuming dilution | $0.34 | $0.56 | $(0.22) | -39.3% | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :------------------------------------------- | :------- | :------- | :------- | :------- | | Net income | $3,153 | $6,490 | $(3,337) | -51.4% | | Foreign currency translation adjustment | $(1,080) | $638 | $(1,718) | -269.3% | | Comprehensive income attributable to American Vanguard | $2,073 | $7,163 | $(5,090) | -71.1% | Condensed Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :------------------------------------------- | :------- | :------- | :------- | :------- | | Net income | $10,165 | $16,659 | $(6,494) | -39.0% | | Foreign currency translation adjustment | $(2,192) | $412 | $(2,604) | -632.5% | | Comprehensive income attributable to American Vanguard | $7,973 | $17,191 | $(9,218) | -53.6% | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (as of September 30, 2019 and December 31, 2018) | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | Change | % Change | | :------------------------------------- | :----------- | :----------- | :------- | :------- | | Cash and cash equivalents | $5,887 | $6,168 | $(281) | -4.6% | | Total current assets | $356,994 | $310,188 | $46,806 | 15.1% | | Total assets | $681,297 | $593,587 | $87,710 | 14.8% | | Total current liabilities | $143,174 | $145,528 | $(2,354) | -1.6% | | Long-term debt, net | $165,008 | $96,671 | $68,337 | 70.7% | | Total liabilities | $343,311 | $264,357 | $78,954 | 29.9% | | Total stockholders' equity | $337,986 | $329,230 | $8,756 | 2.7% | Condensed Consolidated Statement of Stockholders' Equity - Total stockholders' equity increased from $329,230 thousand at December 31, 2018, to $337,986 thousand at September 30, 2019[10] - Key changes include an increase in additional paid-in capital ($83,177 thousand to $88,257 thousand), retained earnings ($262,840 thousand to $271,263 thousand), and common stock amount ($3,276 thousand to $3,325 thousand), partially offset by an increase in accumulated other comprehensive loss (from $(4,507) thousand to $(6,699) thousand) and treasury stock at cost (from $(15,556) thousand to $(18,160) thousand)[10] - The company issued common stock under ESPP, recognized stock-based compensation, paid cash dividends ($0.02 per share quarterly), and repurchased shares[10] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Cash Flow Activity (in thousands) | 2019 | 2018 | Change | % Change | | :-------------------------------- | :--------- | :--------- | :--------- | :------- | | Net cash used in operating activities | $(21,684) | $(15,090) | $(6,594) | 43.7% | | Net cash used in investing activities | $(42,382) | $(6,788) | $(35,594) | 524.4% | | Net cash provided by financing activities | $63,825 | $19,795 | $44,030 | 222.4% | | Net decrease in cash and cash equivalents | $(241) | $(2,083) | $1,842 | -88.4% | | Cash and cash equivalents at end of period | $5,887 | $9,368 | $(3,481) | -37.2% | - The significant increase in cash used in investing activities in 2019 was primarily due to higher capital expenditures ($10,546 thousand vs $5,154 thousand) and substantial business/product line acquisitions ($31,836 thousand vs $1,634 thousand)[14] - Net cash provided by financing activities increased significantly due to higher net borrowings under the line of credit agreement ($68,200 thousand vs $19,675 thousand)[14] Notes to Condensed Consolidated Financial Statements Note 1. Basis of Presentation - The unaudited condensed consolidated financial statements are prepared in accordance with US GAAP for interim financial information and Form 10-Q instructions, and do not include all information required for complete annual financial statements[16] Note 2. Leases - The Company adopted ASC 842, Leases, on January 1, 2019, recognizing operating lease right-of-use (ROU) assets and lease liabilities on the balance sheet[17][66] - Operating lease expense for the three and nine months ended September 30, 2019, was $1,387 thousand and $4,145 thousand, respectively[22] Operating Lease Information (as of September 30, 2019) | Metric | Value | | :-------------------------------------- | :---------- | | Weighted-average remaining lease term | 3.43 years | | Weighted-average discount rate | 3.69% | | Total lease payments (future minimum) | $13,174,000 | | Operating lease liabilities, current | $4,889,000 | | Operating lease liabilities, long term | $7,414,000 | Note 3. Revenue Recognition - The Company recognizes revenue from the sale of insecticides, herbicides, soil fumigants, fungicides, and other products, including distribution of third-party products and royalty income[24] Net Sales by Product Category (Three Months Ended September 30) | Product Category | 2019 | 2018 | Change | % Change | | :----------------------------------- | :-------- | :-------- | :-------- | :------- | | Insecticides | $35,847 | $31,048 | $4,799 | 15.5% | | Herbicides/soil fumigants/fungicides | $46,772 | $41,882 | $4,890 | 11.7% | | Other (incl. plant growth regulators)| $22,887 | $22,424 | $463 | 2.1% | | Non-crop (incl. 3rd party products) | $19,378 | $16,426 | $2,952 | 18.0% | | Total Net Sales | $124,884 | $111,780 | $13,104 | 11.7% | Net Sales by Geographic Region (Nine Months Ended September 30) | Geographic Region | 2019 | 2018 | Change | % Change | | :---------------- | :-------- | :-------- | :-------- | :------- | | US | $200,055 | $205,889 | $(5,834) | -2.8% | | International | $137,609 | $117,045 | $20,564 | 17.6% | | Total Net Sales | $337,664 | $322,934 | $14,730 | 4.6% | Note 4. Property, Plant and Equipment Property, Plant and Equipment, Net (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :----------------------------- | :----------- | :----------- | | Total gross value | $148,607 | $138,451 | | Less accumulated depreciation | $(93,277) | $(89,199) | | Total net value | $55,330 | $49,252 | - Depreciation expense for property, plant and equipment was $1,571 thousand for the three months ended September 30, 2019, and $4,796 thousand for the nine months ended September 30, 2019[30][31] Note 5. Inventories - Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out or average cost method[32] Inventories, Net (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :---------------- | :----------- | :----------- | | Finished products | $173,167 | $147,297 | | Raw materials | $13,118 | $12,598 | | Total | $186,285 | $159,895 | Note 6. Segment Information - The Company's business is aggregated into one reportable segment based on similar economic and operational characteristics[34] Net Sales and Gross Profit by Region (Three Months Ended September 30) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :-------------------- | :-------- | :-------- | :-------- | :------- | | Net Sales: | | | | | | US crop | $55,952 | $55,285 | $667 | 1% | | US non-crop | $18,036 | $16,426 | $1,610 | 10% | | US total | $73,988 | $71,711 | $2,277 | 3% | | International | $50,896 | $40,069 | $10,827 | 27% | | Total Net Sales | $124,884 | $111,780 | $13,104 | 12% | | Gross Profit: | | | | | | US crop | $23,926 | $27,106 | $(3,180) | -12% | | US non-crop | $9,491 | $7,991 | $1,500 | 19% | | US total | $33,417 | $35,097 | $(1,680) | -5% | | International | $14,046 | $10,203 | $3,843 | 38% | | Total Gross Profit | $47,463 | $45,300 | $2,163 | 5% | | Gross Margin: | | | | | | Domestic | 45% | 49% | -4% pts | | | International | 28% | 25% | 3% pts | | | Total | 38% | 41% | -3% pts | | Net Sales and Gross Profit by Region (Nine Months Ended September 30) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :-------------------- | :-------- | :-------- | :-------- | :------- | | Net Sales: | | | | | | US crop | $152,512 | $166,397 | $(13,885) | -8% | | US non-crop | $47,543 | $39,492 | $8,051 | 20% | | US total | $200,055 | $205,889 | $(5,834) | -3% | | International | $137,609 | $117,045 | $20,564 | 18% | | Total Net Sales | $337,664 | $322,934 | $14,730 | 5% | | Gross Profit: | | | | | | US crop | $66,140 | $78,439 | $(12,299) | -16% | | US non-crop | $24,363 | $19,843 | $4,520 | 23% | | US total | $90,503 | $98,282 | $(7,779) | -8% | | International | $40,315 | $31,366 | $8,949 | 29% | | Total Gross Profit | $130,818 | $129,648 | $1,170 | 1% | | Gross Margin: | | | | | | Domestic | 45% | 48% | -3% pts | | | International | 29% | 27% | 2% pts | | | Total | 39% | 40% | -1% pts | | Note 7. Accrued Program Costs - Accrued program costs represent variable consideration for customer discounts and incentives, estimated using the expected value method[36] - For the nine months ended September 30, 2019, accruals for programs were $38,900 thousand, with payments of $18,737 thousand[136] Note 8. Dividends Cash Dividends Declared/Paid (2019) | Declaration Date | Record Date | Distribution Date | Per Share | Total Paid (in thousands) | | :--------------- | :----------- | :---------------- | :-------- | :------------------------ | | Sep 16, 2019 | Oct 3, 2019 | Oct 17, 2019 | $0.020 | $582 | | Jun 10, 2019 | Jun 28, 2019 | Jul 12, 2019 | $0.020 | $580 | | Mar 6, 2019 | Mar 27, 2019 | Apr 10, 2019 | $0.020 | $580 | Note 9. Earnings Per Share Earnings Per Share (Three Months Ended September 30) | Metric (in thousands, except per share data) | 2019 | 2018 | | :------------------------------------------- | :------ | :------ | | Net income attributable to AVD | $3,153 | $6,525 | | Weighted average shares outstanding—basic | 29,057 | 29,399 | | Dilutive effect of stock options and grants | 593 | 810 | | Weighted average shares outstanding—diluted | 29,650 | 30,209 | Earnings Per Share (Nine Months Ended September 30) | Metric (in thousands, except per share data) | 2019 | 2018 | | :------------------------------------------- | :------ | :------ | | Net income attributable to AVD | $10,165 | $16,779 | | Weighted average shares outstanding—basic | 29,013 | 29,340 | | Dilutive effect of stock options and grants | 578 | 806 | | Weighted average shares outstanding—diluted | 29,591 | 30,146 | Note 10. Long-term Debt Long-term Indebtedness (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :---------------------- | :----------- | :----------- | | Revolving line of credit| $165,600 | $97,400 | | Deferred loan fees | $(592) | $(729) | | Net long-term debt | $165,008 | $96,671 | - The Company's senior secured revolving line of credit is up to $250,000 thousand with an accordion feature of up to $100,000 thousand, maturing June 30, 2022[39] - As of September 30, 2019, the Company had the capacity to increase borrowings by up to $30,435 thousand, a significant decrease from $105,111 thousand in 2018, due to declining EBITDA, increased net borrowings from acquisitions, and the leverage covenant[40][139] Note 11. Reclassification - Certain prior period condensed consolidated financial statements items may have been reclassified to conform with the September 30, 2019 presentation[42] Note 12. Total Comprehensive Income - Total comprehensive income includes net income attributable to American Vanguard and foreign currency translation adjustments[43] Note 13. Stock Based Compensation Stock-Based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | | :----------------------------- | :-------------------------- | :-------------------------- | | Restricted Stock | $1,082 | $2,751 | | Unrestricted Stock | $105 | $300 | | Performance Based Restricted Stock | $977 | $2,108 | | Total | $2,164 | $5,159 | - As of September 30, 2019, unamortized stock-based compensation was $10,449 thousand, with a weighted-average remaining period of 2.0 years[46] - For performance-based shares granted in 2016 and 2017, EBIT and net sales performance measures were met at 200% of targeted performance, resulting in 42,368 additional shares earned[57] Note 14. Legal Proceedings - The Company records a liability for loss contingencies when a loss is known or probable and reasonably estimable, including for litigation and government proceedings[65] Note 15. Recently Issued Accounting Guidance - The Company adopted ASC 842, Leases, on January 1, 2019, recognizing $12,936 thousand in operating lease ROU assets and liabilities, with no material impact on the statements of operations or cash flows[66][67] - ASU 2017-04, Intangibles-Goodwill and Other (ASC 350), which eliminated Step 2 of the goodwill impairment test, was adopted on January 1, 2019, with no immediate impact[68] - The Company will adopt ASU 2016-13, 'Financial Instruments-Credit Losses (Topic 326),' effective January 1, 2020, which requires an expected credit loss model and earlier recognition of credit losses[69] Note 16. Fair Value of Financial Instruments - The fair values of cash, receivables, accounts payable, and long-term debt approximate their carrying values[71] - Reassessment of deferred consideration for 2017 AgriCenter and OHP acquisitions resulted in a combined reduction of $651 thousand and $3,539 thousand for the three and nine months ended September 30, 2019, respectively[71] - The total deferred consideration reflected in the condensed consolidated balance sheets was $1,400 thousand as of September 30, 2019, compared to $4,398 thousand in 2018[71] Note 17. Accumulated Other Comprehensive Loss ("AOCI") Accumulated Other Comprehensive Loss (in thousands) | Period | Total | | :---------------------- | :----------- | | Balance, Dec 31, 2018 | $(4,507) | | FX translation (Q1 2019)| $(1,769) | | Balance, Mar 31, 2019 | $(6,276) | | FX translation (Q2 2019)| $657 | | Balance, Jun 30, 2019 | $(5,619) | | FX translation (Q3 2019)| $(1,080) | | Balance, Sep 30, 2019 | $(6,699) | Note 18. Investments - The Company recognized losses of $89 thousand and $149 thousand for the three and nine months ended September 30, 2019, respectively, from its 50% ownership in the Hong Kong Joint Venture (Huifeng Amvac Innovation Co. Ltd)[73] - The Company holds a 15% ownership in Bi-PA, a developer of biological plant protection products, accounted for using the cost method, with no material impact or impairment as of September 30, 2019[74] Note 19. Income Taxes Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in thousands) | Effective Tax Rate | | :----------------------------------- | :-------------------------------- | :----------------- | | Three Months Ended Sep 30, 2019 | $1,474 | 31.3% | | Three Months Ended Sep 30, 2018 | $3,526 | 33.4% | | Nine Months Ended Sep 30, 2019 | $4,059 | 28.2% | | Nine Months Ended Sep 30, 2018 | $6,966 | 28.2% | - The 2018 tax rates for both the three and nine-month periods were impacted by a one-time $1,089 thousand adjustment related to the 2017 Tax Cuts and Jobs Act transition tax[76][77] Note 20. Share Repurchase Program - The Company repurchased 158,048 shares of common stock for $2,604 thousand at an average price of $16.48 per share during January 2019 under a program that expired on March 8, 2019[78] Note 21. Business and Asset Acquisitions - On January 10, 2019, the Company acquired Defensive and Agrovant (Brazil) for $20,679 thousand cash, $2,659 thousand deferred consideration, and assumed $17,083 thousand in liabilities, including $10,112 thousand for income tax matters[79] - The acquisition of Defensive and Agrovant was preliminarily allocated $9,449 thousand to product registrations/rights, $1,733 thousand to trade name, $3,114 thousand to customer relationships, and $14,268 thousand to goodwill[79] - On July 1, 2019, the Company completed a product acquisition for $7,293 thousand cash and assumed a $300 thousand liability, recorded as intangible assets and inventory[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results, covering revenue, profitability, liquidity, and capital resources for Q3 and YTD 2019 FORWARD-LOOKING STATEMENTS/RISK FACTORS - The Company's forward-looking statements are subject to risks including product demand, economic conditions, weather, regulatory changes, competition, foreign exchange rates, product development, supply constraints, capital availability, and general business regulations[82] - More detailed risk information can be found in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2018, and Form 10-Q for the period ended September 30, 2019[82] MANAGEMENT OVERVIEW - Third-quarter 2019 net sales grew by 12% to $124,884 thousand, driven by a 27% increase in international businesses, which now account for 41% of total net sales[83][85] - Profitability declined in Q3 2019 due to lower gross margins (38% vs. 41%) from higher sales of lower-margin international products and reduced factory utilization, a 21% increase in operating expenses, and higher interest expense from recent acquisitions[84][85] - Domestic business growth was constrained by severe weather, impacting demand for fumigants, burn-down herbicides, and cotton defoliant (Folex)[83] RESULTS OF OPERATIONS Quarter Ended September 30, 2019 and 2018 Net Sales and Gross Profit by Product Group (Three Months Ended September 30) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :------------------------------------------- | :-------- | :-------- | :-------- | :------- | | Net Sales: | | | | | | Insecticides | $35,847 | $31,048 | $4,799 | 15% | | Herbicides/soil fumigants/fungicides | $46,772 | $41,882 | $4,890 | 12% | | Other, including plant growth regulators | $22,887 | $22,424 | $463 | 2% | | Total crop | $105,506 | $95,354 | $10,152 | 11% | | Non-crop | $19,378 | $16,426 | $2,952 | 18% | | Total net sales | $124,884 | $111,780 | $13,104 | 12% | | Gross Profit: | | | | | | Insecticides | $12,776 | $10,108 | $2,668 | 26% | | Herbicides/soil fumigants/fungicides | $17,358 | $17,068 | $290 | 2% | | Other, including plant growth regulators | $7,239 | $10,133 | $(2,894) | -29% | | Gross profit crop | $37,373 | $37,309 | $64 | 0% | | Gross profit non-crop | $10,090 | $7,991 | $2,099 | 26% | | Total gross profit | $47,463 | $45,300 | $2,163 | 5% | - Domestic non-crop sales increased 10% due to strong demand for mosquito products (Dibrom®) spurred by hurricane and storm activity[89] - International net sales increased 27%, significantly boosted by newly acquired Brazilian and Australian subsidiaries and Assure II herbicide products[90] - Operating expenses rose 21% to $40,677 thousand, primarily due to increased selling expenses (24% increase), general and administrative expenses (54% increase from lower deferred consideration reassessment benefit and acquired businesses), partially offset by an 8% decrease in R&D[100] - Net interest costs increased to $2,070 thousand from $1,116 thousand, driven by higher average indebtedness ($178,886 thousand vs. $80,001 thousand) due to acquisitions[101][103] Nine Months Ended September 30 2019 and 2018 Net Sales and Gross Profit by Product Group (Nine Months Ended September 30) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :------------------------------------------- | :-------- | :-------- | :-------- | :------- | | Net Sales: | | | | | | Insecticides | $112,539 | $115,702 | $(3,163) | -3% | | Herbicides/soil fumigants/fungicides | $115,510 | $113,144 | $2,366 | 2% | | Other, including plant growth regulators | $60,730 | $52,269 | $8,461 | 16% | | Total crop | $288,779 | $281,115 | $7,664 | 3% | | Non-crop | $48,885 | $41,819 | $7,066 | 17% | | Total net sales | $337,664 | $322,934 | $14,730 | 5% | | Gross Profit: | | | | | | Insecticides | $44,138 | $42,261 | $1,877 | 4% | | Herbicides/soil fumigants/fungicides | $43,032 | $46,154 | $(3,122) | -7% | | Other, including plant growth regulators | $18,686 | $20,810 | $(2,124) | -10% | | Gross profit crop | $105,856 | $109,225 | $(3,369) | -3% | | Gross profit non-crop | $24,962 | $20,423 | $4,539 | 22% | | Total gross profit | $130,818 | $129,648 | $1,170 | 1% | - Overall net sales increased 5% to $337,664 thousand, driven by an 18% increase in international business sales, while US sales declined 3% due to adverse weather conditions[108][110] - Gross margin decreased by 1 percentage point to 39%, attributed to strong international sales (generally lower margin) and decisions to reduce factory output to manage inventory[109][110] - Operating expenses increased 9% to $110,839 thousand, primarily due to acquisitions and lower reductions to deferred liabilities for purchase consideration compared to 2018[109][110] - Net interest costs increased to $5,606 thousand from $2,961 thousand, due to higher average debt ($166,877 thousand vs. $92,971 thousand) from acquisition activities[128][129] LIQUIDITY AND CAPITAL RESOURCES - Net cash used in operating activities increased to $21,684 thousand for the nine months ended September 30, 2019, from $15,090 thousand in the prior year[133] - Working capital increased by $49,160 thousand, driven by increases in inventories ($19,713 thousand) and accounts receivables ($15,983 thousand), and an increase in accrued program costs ($20,163 thousand), partially offset by a decrease in deferred revenue ($19,800 thousand)[134] - Cash used for investing activities significantly increased to $42,382 thousand, primarily due to $31,836 thousand for business and product acquisitions and $10,546 thousand for capital expenditures[137] - The Company believes anticipated cash flow from operations, existing cash balances, and available borrowings under its senior credit facility will provide sufficient liquidity for the next twelve months[140] RECENTLY ISSUED ACCOUNTING GUIDANCE - Refer to Note 15 in the accompanying Notes to the Condensed Consolidated Financial Statements for details on recently issued accounting standards[141] CRITICAL ACCOUNTING POLICIES AND ESTIMATES - No material changes to critical accounting policies were identified during the reporting period, except for the adoption of ASC 842, Leases, as of January 1, 2019[143] - Management's judgments in selecting assumptions for financial estimates are based on historical experience, contract terms, industry practices, and other reasonable assumptions, with revisions reflected periodically[144] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company faces market risks from interest rates and foreign currency fluctuations, mitigated by natural hedges and forward exchange coverage - The Company is exposed to market risk from changes in interest rates on its variable-rate line of credit[145] - Foreign currency exchange rate changes, primarily in Europe, Mexico, Central and South America, affect the Company's financial position and cash flows[146] - Foreign currency exposure is mitigated through natural hedges from decentralized foreign operating companies and forward exchange rate coverage for specific purchase orders[146] Item 4. Controls and Procedures Effective disclosure controls and procedures are maintained, with no material changes to internal controls, except for ASC 842 lease implementation - As of September 30, 2019, the Company's disclosure controls and procedures were deemed effective by management, including the CEO and CFO, to provide reasonable assurance of achieving reporting objectives[147] - No material changes to internal controls over financial reporting occurred during the most recent quarter, except for implementing controls to evaluate contracts and assess the impact of ASC 842, Leases[148] PART II—OTHER INFORMATION Item 1. Legal Proceedings No material legal developments, except for a grand jury subpoena on Thimet containers; no loss contingency recorded as outcome is not probable or estimable - No material developments in legal proceedings occurred during the reporting period, except for an ongoing grand jury subpoena from the US Department of Justice concerning the reimportation of depleted Thimet containers[151][152] - The Company has not recorded a loss contingency for the EPA FIFRA/RCRA matter, as it is too early to determine if a loss is probable or reasonably estimable[152] Item 1A. Risk Factors The Company's business risks are continuously reassessed, with detailed factors provided in its Annual Report on Form 10-K and Form 10-Q - The Company's business risks are detailed in its Form 10-K for the fiscal year ended December 31, 2018, and its Form 10-Q for the period ended September 30, 2019[153] Item 2. Purchases of Equity Securities by the Issuer The Company repurchased common stock under a share repurchase program during the nine months ended September 30, 2019 Share Repurchases (Nine Months Ended September 30, 2019) | Month Ended | Total Shares Purchased | Average Price Per Share | Total Amount Paid (in thousands) | | :------------- | :--------------------- | :---------------------- | :------------------------------- | | January 31, 2019 | 158,048 | $16.48 | $2,604 | | Total | 158,048 | $16.48 | $2,604 | Item 6. Exhibits Lists exhibits filed with Form 10-Q, including Sarbanes-Oxley certifications from CEO and CFO, and XBRL formatted financial statements and notes - Exhibits include certifications (31.1, 31.2, 32.1) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[157] - XBRL formatted financial statements and notes are provided as Exhibit 101[157] SIGNATURES The report was signed on November 6, 2019, by the Chief Executive Officer and Chief Financial Officer - The report was signed on November 6, 2019, by Eric G. Wintemute, Chief Executive Officer and Chairman of the Board, and David T. Johnson, Chief Financial Officer & Principal Accounting Officer[159]