American Vanguard (AVD) - 2020 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for American Vanguard Corporation, including statements of operations, comprehensive income (loss), balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial performance, and other relevant disclosures for the periods ended June 30, 2020 and 2019 Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income for the specified reporting periods Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric (in thousands) | 2020 | 2019 | Change | % Change | | :-------------------- | :-------- | :-------- | :-------- | :------- | | Net Sales | $104,555 | $113,104 | $(8,549) | -8% | | Cost of Sales | $64,249 | $71,451 | $(7,202) | -10% | | Gross Profit | $40,306 | $41,653 | $(1,347) | -3% | | Operating Income | $6,751 | $6,291 | $460 | 7% | | Net Income | $3,887 | $3,106 | $781 | 25% | | Basic EPS | $0.13 | $0.11 | $0.02 | 18% | | Diluted EPS | $0.13 | $0.11 | $0.02 | 18% | Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Metric (in thousands) | 2020 | 2019 | Change | % Change | | :-------------------- | :-------- | :-------- | :--------- | :------- | | Net Sales | $200,517 | $212,780 | $(12,263) | -6% | | Cost of Sales | $121,830 | $129,425 | $(7,595) | -6% | | Gross Profit | $78,687 | $83,355 | $(4,668) | -6% | | Operating Income | $8,587 | $13,193 | $(4,606) | -35% | | Net Income | $4,407 | $7,012 | $(2,605) | -37% | | Basic EPS | $0.15 | $0.24 | $(0.09) | -38% | | Diluted EPS | $0.15 | $0.24 | $(0.09) | -38% | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents net income and other comprehensive income (loss) components for the reporting periods Condensed Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30) | Metric (in thousands) | 2020 | 2019 | | :-------------------- | :------- | :------- | | Net Income | $3,887 | $3,106 | | FX Translation Adj. | $324 | $657 | | Comprehensive Income | $4,211 | $3,763 | Condensed Consolidated Statements of Comprehensive Income (Loss) (Six Months Ended June 30) | Metric (in thousands) | 2020 | 2019 | | :-------------------- | :-------- | :------- | | Net Income | $4,407 | $7,012 | | FX Translation Adj. | $(8,739) | $(1,112) | | Comprehensive (Loss) | $(4,332) | $5,900 | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (as of June 30, 2020 and December 31, 2019) | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------------------ | :------------ | :---------------- | | Assets: | | | | Cash and cash equivalents | $8,600 | $6,581 | | Total current assets | $336,750 | $336,199 | | Property, plant and equipment, net | $59,161 | $56,521 | | Intangible assets, net | $194,357 | $198,377 | | Goodwill | $41,278 | $46,557 | | Total assets | $661,334 | $670,098 | | Liabilities & Equity: | | | | Total current liabilities | $131,808 | $138,638 | | Long-term debt, net | $159,407 | $148,766 | | Total liabilities | $321,674 | $325,942 | | Total stockholders' equity | $339,660 | $344,156 | | Total liabilities and stockholders' equity | $661,334 | $670,098 | Condensed Consolidated Statement of Stockholders' Equity This statement details changes in the company's equity accounts over the reporting period Stockholders' Equity Changes (Six Months Ended June 30, 2020) | Item (in thousands) | Common Stock Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock Amount | Total Stockholders' Equity | | :---------------------------------- | :------------------ | :------------------------- | :----------------------------------- | :---------------- | :-------------------- | :------------------------- | | Balance, December 31, 2019 | $3,324 | $90,572 | $(5,698) | $274,118 | $(18,160) | $344,156 | | Common stock issued under ESPP | $2 | $350 | — | — | — | $352 | | Cash dividends | — | — | — | $(586) | — | $(586) | | Foreign currency translation adj. | — | — | $(9,063) | — | — | $(9,063) | | Stock-based compensation | — | $1,357 | — | — | — | $1,357 | | Stock options exercised, etc. | $(7) | $(2,522) | — | — | — | $(2,529) | | Net income | — | — | — | $520 | — | $520 | | Foreign currency translation adj. | — | — | $324 | — | — | $324 | | Stock-based compensation | — | $1,188 | — | — | — | $1,188 | | Stock options exercised, etc. | $5 | $49 | — | — | — | $54 |\ | Net income | — | — | — | $3,887 | — | $3,887 | | Balance, June 30, 2020 | $3,324 | $90,994 | $(14,437) | $277,939 | $(18,160) | $339,660 | Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity (in thousands) | 2020 | 2019 | | :-------------------------------- | :-------- | :-------- | | Net cash from operating activities | $5,688 | $(32,086) | | Net cash used in investing activities | $(11,465) | $(31,518) | | Net cash from financing activities | $7,211 | $63,523 | | Net increase (decrease) in cash | $1,434 | $(81) | | Cash and cash equivalents at end of period | $8,600 | $6,307 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Basis of Presentation and COVID-19 Impact This note outlines the financial statement presentation basis and discusses the impact of the COVID-19 pandemic on operations - The Company is considered an essential business and did not incur significant disruptions from COVID-19 during Q2 2020, but the pandemic led to several million dollars in lost sales opportunities and indeterminate profitability impact due to constraints on in-person meetings, softened demand for certain commodities (corn, potatoes, fruits/vegetables), and significant decline in local currencies (Brazil, Mexico, Australia) against the US dollar[20] - The Company adopted ASU 2016-13, 'Financial Instruments – Credit Losses (Topic 326)', effective January 1, 2020, updating its policy for measuring Current Expected Credit Losses (CECL) on trade receivables, other receivables, and contract assets. The adoption did not result in material adjustments[22][23] Note 2. Leases This note details the company's lease arrangements and associated expenses Operating Lease Expenses (in thousands) | Period | 2020 | 2019 | | :---------------------- | :----- | :----- | | Three months ended June 30 | $1,396 | $1,400 | | Six months ended June 30 | $2,791 | $2,758 | - The weighted-average remaining lease term for operating leases as of June 30, 2020, was 3.12 years, with a weighted-average discount rate of 3.69%[28][29] Note 3. Revenue Recognition This note describes the company's policies for recognizing revenue from product sales and royalty income Net Sales by Category and Geographic Region (in thousands) | Category/Region | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | US crop | $44,670 | $47,575 | $95,032 | $97,845 | | US non-crop | $13,872 | $16,955 | $24,865 | $28,222 | | Total US | $58,542 | $64,530 | $119,897 | $126,067 | | International | $46,013 | $48,574 | $80,620 | $86,713 | | Total net sales | $104,555 | $113,104 | $200,517 | $212,780 | - The Company recognizes revenue from product sales (crop and non-crop) to distributors, retailers, and growers, and royalty income from licensing agreements. Most revenue is recognized at a point in time[31][32] Note 4. Property, Plant and Equipment This note provides details on the company's property, plant, and equipment, including depreciation expenses Property, Plant and Equipment (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :------------------------ | :------------ | :---------------- | | Land | $2,706 | $2,706 | | Buildings and improvements | $18,590 | $18,640 | | Machinery and equipment | $118,056 | $116,757 | | Construction in progress | $8,981 | $5,263 | | Total gross value | $156,865 | $151,356 | | Less accumulated depreciation | $(97,704) | $(94,835) | | Total net value | $59,161 | $56,521 | - Depreciation expense for property, plant and equipment was $1,839 thousand for the three months ended June 30, 2020 (vs. $1,577 thousand in 2019) and $3,356 thousand for the six months ended June 30, 2020 (vs. $3,225 thousand in 2019)[36][37] Note 5. Inventories This note outlines the valuation methods and components of the company's inventories Inventory Components (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :---------------- | :------------ | :---------------- | | Finished products | $168,079 | $151,917 | | Raw materials | $12,914 | $11,396 | | Total Inventories | $180,993 | $163,313 | - Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out or average cost method[38] Note 6. Segment Information This note provides a breakdown of net sales and gross profit by the company's operating segments Net Sales and Gross Profit by Segment (Three Months Ended June 30) | Segment (in thousands) | 2020 Net Sales | 2019 Net Sales | % Change Net Sales | 2020 Gross Profit | 2019 Gross Profit | % Change Gross Profit | | :--------------------- | :------------- | :------------- | :----------------- | :---------------- | :---------------- | :-------------------- | | US crop | $44,670 | $47,575 | -6% | $21,758 | $18,719 | 16% | | US non-crop | $13,872 | $16,955 | -18% | $7,029 | $8,558 | -18% | | International | $46,013 | $48,574 | -5% | $11,519 | $14,376 | -20% | | Total | $104,555 | $113,104 | -8% | $40,306 | $41,653 | -3% | Net Sales and Gross Profit by Segment (Six Months Ended June 30) | Segment (in thousands) | 2020 Net Sales | 2019 Net Sales | % Change Net Sales | 2020 Gross Profit | 2019 Gross Profit | % Change Gross Profit | | :--------------------- | :------------- | :------------- | :----------------- | :---------------- | :---------------- | :-------------------- | | US crop | $95,032 | $97,845 | -3% | $46,003 | $42,214 | 9% | | US non-crop | $24,865 | $28,222 | -12% | $11,748 | $14,872 | -21% | | International | $80,620 | $86,713 | -7% | $20,936 | $26,269 | -20% | | Total | $200,517 | $212,780 | -6% | $78,687 | $83,355 | -6% | Note 7. Accrued Program Costs This note explains the accounting for customer discounts and incentives, which are estimated as variable consideration - The Company offers various discounts and incentives to customers, referred to as 'Programs,' which are recorded as variable consideration and estimated using the expected value method. These programs are a critical part of the US crop and non-crop chemicals market[41] Note 8. Dividends This note details the cash dividends declared and paid by the company Cash Dividends Declared and Paid | Declaration Date | Record Date | Distribution Date | Dividend Per Share | Total Paid (in thousands) | | :--------------- | :------------- | :---------------- | :----------------- | :------------------------ | | March 9, 2020 | March 26, 2020 | April 16, 2020 | $0.020 | $586 | | December 9, 2019 | December 26, 2019 | January 9, 2020 | $0.020 | $582 | | June 10, 2019 | June 28, 2019 | July 12, 2019 | $0.020 | $580 | | March 6, 2019 | March 27, 2019 | April 10, 2019 | $0.020 | $580 | Note 9. Earnings Per Share This note presents the components used to calculate basic and diluted earnings per share Earnings Per Share Components (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to AVD | $3,887 | $3,106 | $4,407 | $7,012 | | Weighted average shares outstanding-basic | 29,413 | 29,001 | 29,350 | 28,989 | | Dilutive effect of stock options and grants | 441 | 539 | 554 | 571 | | Weighted average shares outstanding-diluted | 29,854 | 29,540 | 29,904 | 29,560 | Note 10. Long-Term Debt This note provides information on the company's long-term indebtedness, including its revolving line of credit and financial covenants Long-Term Indebtedness (in thousands) | Debt Type | June 30, 2020 | December 31, 2019 | | :-------------------- | :------------ | :---------------- | | Revolving line of credit | $160,000 | $149,300 | | Deferred loan fees | $(593) | $(534) |\ | Net long-term debt | $159,407 | $148,766 | - The Company's senior secured lending facility has a line of credit up to $250,000 thousand with an accordion feature up to $100,000 thousand, maturing June 30, 2022. Key financial covenants include a Consolidated Funded Debt Ratio (CFD Ratio) and a Consolidated Fixed Charge Covenant Ratio[45] - As of April 22, 2020, the Credit Agreement was amended to increase the maximum permitted CFD Ratio to 4.00-to-1 through September 30, 2020, stepping down thereafter. The Company was compliant with all covenants as of June 30, 2020, with an available borrowing capacity of $49,420 thousand[47][48] Note 11. Reclassification This note indicates that certain prior period financial statement items may have been reclassified for current presentation consistency - Certain prior period Condensed Consolidated Financial Statement items may have been reclassified to conform with the June 30, 2020 presentation[49] Note 12. Comprehensive Income (Loss) This note clarifies that total comprehensive income (loss) includes net income and foreign currency translation adjustments - Total comprehensive income (loss) includes net income attributable to American Vanguard and foreign currency translation adjustments, which are recorded directly into stockholders' equity[50] Note 13. Stock-Based Compensation This note details the company's stock-based compensation expenses and unamortized amounts Stock-Based Compensation Expense (in thousands) | Type | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :------------------ | :------------------------------- | :----------------------------- | | Restricted Stock | $702 | $1,478 | | Unrestricted Stock | $118 | $241 | | Performance-Based Restricted Stock | $368 | $826 | | Total | $1,188 | $2,545 | - Unamortized stock-based compensation totaled $6,137 thousand as of June 30, 2020, with a remaining weighted average amortization period of 1.5 years for restricted stock and performance-based restricted stock, and 0.9 years for unrestricted stock[53] - No stock options were excluded from diluted EPS computation for the three and six months ended June 30, 2020 and 2019, as all outstanding stock options are fully vested and exercisable[44][53] Note 14. Legal Proceedings This note provides an update on the company's involvement in legal matters, including an EPA FIFRA/RCRA case - The Company is involved in an EPA FIFRA/RCRA matter regarding the reimportation of depleted Thimet containers. The U.S. Department of Justice has not yet clarified its intentions, and it is too early to determine if a loss is probable or estimable, so no loss contingency has been recorded[60] Note 15. Recent Accounting Standards This note summarizes recently adopted and evaluated accounting standards and their impact on the financial statements - Adopted ASU 2016-13 'Financial Instruments-Credit Losses (Topic 326)' effective January 1, 2020; no material adjustments[61] - Adopted ASU 2018-13 'Fair Value Measurement (Topic 820)' effective January 1, 2020; no material adjustments[62] - Adopted ASU 2018-15 'Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)' effective January 1, 2020; no material adjustments[63] - Evaluating ASU 2019-12 'Income Taxes (Topic 740)' effective for fiscal years beginning after December 15, 2020; not expected to have a material impact[64] Note 16. Fair Value of Financial Instruments This note discusses the fair value measurements of the company's financial instruments, including contingent earn-out liabilities - The carrying amounts of cash, short-term investments, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturity. Long-term borrowings (Level 2 liabilities) also approximate fair value[68] - Contingent earn-out liabilities from business acquisitions are measured at fair value on a recurring basis using significant unobservable inputs (Level 3), potentially involving Monte-Carlo simulations[70] Contingent Consideration Movements (Six Months Ended June 30, 2020) | Item | Amount (in thousands) | | :----------------------- | :-------------------- | | Balance, Dec 31, 2019 | $1,243 | | Payments | $(1,227) | | Foreign exchange effect | $(16) | | Balance, June 30, 2020 | $0 | Note 17. Accumulated Other Comprehensive Loss ("AOCL") This note details the changes in accumulated other comprehensive loss, primarily due to foreign currency translation adjustments Accumulated Other Comprehensive Loss (AOCL) (in thousands) | Period | Total AOCL | | :----------------------- | :--------- | | Balance, Dec 31, 2019 | $(5,698) | | FX translation | $(9,063) | | Balance, March 31, 2020 | $(14,761) | | FX translation | $324 | | Balance, June 30, 2020 | $(14,437) | Note 18. Equity Investments This note describes the company's equity investments, including a joint venture and a publicly traded security - The Company holds a 50% ownership in Huifeng Amvac Innovation Co. Ltd (Hong Kong Joint Venture), accounted for using the equity method. Losses from this investment were $25 thousand (Q2 2020) and $38 thousand (YTD Q2 2020)[74] - An 8% ownership in Clean Seed Capital Group Ltd. was purchased for $1,190 thousand on April 1, 2020. This is a publicly traded, Level 1 investment, with a fair value of $1,214 thousand as of June 30, 2020, resulting in a $24 thousand gain[76] Note 19. Income Taxes This note provides details on income tax expense and the effective tax rate, including specific tax benefits Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in thousands) | Effective Tax Rate | | :---------------------- | :-------------------------------- | :----------------- | | Three months ended June 30, 2020 | $1,565 | 28.6% | | Three months ended June 30, 2019 | $1,224 | 28.0% | | Six months ended June 30, 2020 | $1,360 | 23.4% | | Six months ended June 30, 2019 | $2,584 | 26.8% | - The Company benefited from two discrete income tax benefits in Q2 2020: the CARES Act reducing 2019 GILTI inclusion and the tax impact of stock grant vesting[78] Note 20. Share Repurchase Program This note summarizes the company's share repurchase activities, noting the program's expiration and recent activity - The share repurchase program, authorized for up to $20,000 thousand, expired on March 8, 2019. During January 2019, the Company repurchased 158,048 shares for $2,604 thousand at an average price of $16.48 per share. No repurchases occurred in Q2 2020[80] Note 21. Product and Business Acquisitions This note details the company's product and business acquisitions completed in 2019, including cash consideration and liabilities assumed - In 2019, the Company completed three acquisitions for a total cash consideration of $37,972 thousand, assuming $19,867 thousand in liabilities. These acquisitions included two affiliated businesses in Brazil (Defensive and Agrovant) and two product acquisitions[81][82][83][84] Note 22. Foreign Currency This note reports the net foreign currency transaction gains and losses for the specified periods Net Foreign Currency Transaction Gains (Losses) (in thousands) | Period | Net Foreign Currency Transaction | | :---------------------- | :------------------------------- | | Three months ended June 30, 2020 | $(291) | | Three months ended June 30, 2019 | $172 | | Six months ended June 30, 2020 | $(1,128) | | Six months ended June 30, 2019 | $86 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and results of operations, including the impact of the COVID-19 pandemic, detailed analysis of sales and profit by segment, and discussions on liquidity and capital resources for the three and six months ended June 30, 2020, compared to the prior year Forward-Looking Statements/Risk Factors This section highlights the inherent risks associated with the company's forward-looking statements, including market, economic, and regulatory 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 difficulties, supply constraints, and capital availability[87] Management Overview This overview discusses the company's operational management during the COVID-19 pandemic and key financial performance highlights - The Company is classified as a 'critical infrastructure' business (Food and Agriculture, Chemical, Public Works and Infrastructure Support Services sectors) and has managed operations with minimal disruption during the COVID-19 pandemic through a Pandemic Work Group and contingency plans[88][89][90] - Despite an 8% decline in net sales for Q2 2020, gross margin increased to 39% (from 37% in 2019) due to improved factory utilization. Net income rose by 25% to $3,887 thousand, driven by tighter control of operating expenses, lower interest rates, and a slightly higher effective tax rate[91] Results of Operations This section provides a detailed analysis of the company's financial performance for the reported periods Quarter Ended June 30, 2020 and 2019 This subsection analyzes the company's financial results for the three months ended June 30, comparing 2020 and 2019 Net Sales, Cost of Sales, and Gross Profit by Segment (Three Months Ended June 30) | Segment (in thousands) | 2020 Net Sales | 2019 Net Sales | % Change Net Sales | 2020 Cost of Sales | 2019 Cost of Sales | % Change Cost of Sales | 2020 Gross Profit | 2019 Gross Profit | % Change Gross Profit | | :--------------------- | :------------- | :------------- | :----------------- | :----------------- | :----------------- | :--------------------- | :---------------- | :---------------- | :-------------------- | | US crop | $44,670 | $47,575 | -6% | $22,912 | $28,592 | -20% | $21,758 | $18,719 | 16% | | US non-crop | $13,872 | $16,955 | -18% | $6,843 | $8,661 | -21% | $7,029 | $8,558 | -18% | | International | $46,013 | $48,574 | -5% | $34,494 | $34,198 | 1% | $11,519 | $14,376 | -20% | | Total | $104,555 | $113,104 | -8% | $64,249 | $71,451 | -10% | $40,306 | $41,653 | -3% | - US crop gross profit margin increased to 49% (from 39%) due to increased sales of higher-margin products and improved factory performance, despite a 6% sales decline[94] - International gross profit declined by 20% and gross margin dropped to 25% (from 30%), influenced by the phase-out of Mocap® insecticide in Europe, COVID-19 restrictions, portfolio streamlining in Brazil, and currency devaluations[97][98] Operating Expenses by Department (Three Months Ended June 30, in thousands) | Department | 2020 | 2019 | Change | % Change | | :----------------------------------- | :------ | :------ | :------ | :------- | | Selling | $10,031 | $11,770 | $(1,739)| -15% | | General and administrative | $10,491 | $9,182 | $1,309 | 14% | | Research, product development and regulatory | $6,104 | $6,856 | $(752) | -11% | | Freight, delivery and warehousing | $6,929 | $7,554 | $(625) | -8% | | Total Operating Expenses | $33,555 | $35,362 | $(1,807)| -5% | - Interest costs decreased to $1,274 thousand (from $1,925 thousand) due to lower interest rates on borrowings in the US, with the effective bank interest rate on the revolving line of credit at 2.7% (vs. 4.3% in 2019)[102] Six Months Ended June 30, 2020 and 2019 This subsection analyzes the company's financial results for the six months ended June 30, comparing 2020 and 2019 - Overall net sales for the first six months of 2020 declined by 6% to $200,517 thousand, and gross profit was down 6% to $78,687 thousand. Gross margin remained flat at 39%[105] Net Sales, Cost of Sales, and Gross Profit by Segment (Six Months Ended June 30) | Segment (in thousands) | 2020 Net Sales | 2019 Net Sales | % Change Net Sales | 2020 Cost of Sales | 2019 Cost of Sales | % Change Cost of Sales | 2020 Gross Profit | 2019 Gross Profit | % Change Gross Profit | | :--------------------- | :------------- | :------------- | :----------------- | :----------------- | :----------------- | :--------------------- | :---------------- | :---------------- | :-------------------- | | US crop | $95,032 | $97,845 | -3% | $49,029 | $55,027 | -11% | $46,003 | $42,214 | 9% | | US non-crop | $24,865 | $28,222 | -12% | $13,117 | $13,929 | -6% | $11,748 | $14,872 | -21% | | International | $80,620 | $86,713 | -7% | $59,684 | $60,289 | -1% | $20,936 | $26,269 | -20% | | Total | $200,517 | $212,780 | -6% | $121,830 | $129,245 | -6% | $78,687 | $83,355 | -6% | - US crop gross profit rose by 9% due to product mix (including recently acquired products) and improved factory performance, despite cautious procurement patterns and a decline in planted cotton acres[107][108] - International net sales decreased by 7%, with gross profit dropping 20%, primarily due to the Mocap® insecticide phase-out, intense price competition for Assure II in Canada, and currency devaluations in Brazil and Mexico (approx. 21% and 11% decrease, respectively)[111][112] Operating Expenses by Department (Six Months Ended June 30, in thousands) | Department | 2020 | 2019 | Change | % Change | | :----------------------------------- | :------ | :------ | :------ | :------- | | Selling | $20,505 | $22,697 | $(2,192)| -10% | | General and administrative | $22,996 | $20,473 | $2,523 | 12% | | Research, product development and regulatory | $12,257 | $12,539 | $(282) | -2% | | Freight, delivery and warehousing | $14,342 | $14,453 | $(111) | -1% | | Total Operating Expenses | $70,100 | $70,162 | $(62) | 0% | - Net income for the six months ended June 30, 2020, decreased to $4,407 thousand (from $7,012 thousand in 2019), with diluted EPS of $0.15 (vs. $0.24 in 2019)[119] Liquidity and Capital Resources This section discusses the company's cash flows, investing and financing activities, and available borrowing capacity - Operating activities provided net cash of $5,688 thousand for the six months ended June 30, 2020, a significant improvement from utilizing $32,086 thousand in the prior year[120] - Cash used for investing activities decreased to $11,465 thousand (from $31,518 thousand in 2019), with capital expenditures of $6,386 thousand and investments/intangible assets of $5,079 thousand[124] - Financing activities provided $7,211 thousand (vs. $63,523 thousand in 2019), primarily due to reduced borrowings on the senior credit facility[125] - As of June 30, 2020, the Company had an available borrowing capacity of $49,420 thousand under its senior credit facility, an increase from $30,557 thousand in 2019[126] Recently Issued Accounting Guidance This section refers to Note 15 for details on recently adopted accounting standards and their impact - Refer to Note 15 for details on recently issued accounting standards, including the adoption of ASU 2016-13, ASU 2018-13, and ASU 2018-15, none of which resulted in material adjustments[128][61][62][63] Critical Accounting Policies and Estimates This section confirms no material changes to critical accounting policies, except for the adoption of ASU 2016-13 - No material changes to critical accounting policies from the 2019 Form 10-K, except for the adoption of ASU 2016-13, 'Financial Instruments – Credit Losses (Topic 326)'[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the Company's exposure to market risks, primarily related to changes in interest rates on its variable-rate debt and foreign currency exchange rates affecting its international operations. The Company does not currently engage in hedging activities for these risks - The Company is exposed to market risk from variable interest rates on its line of credit and foreign currency exchange rate fluctuations affecting non-U.S. dollar functional currency revenues, expenses, assets, and liabilities[132][133] - The Company does not currently hedge foreign currency exchange rate risks, considering its investments in foreign subsidiaries and joint ventures with non-U.S. dollar functional currencies as long-term[133][134] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely. No material changes to internal controls over financial reporting occurred during the quarter - As of June 30, 2020, the Company's disclosure controls and procedures were deemed effective by management, including the CEO and CFO, to ensure timely and accurate financial reporting[135] - There were no material changes in the Company's internal controls over financial reporting during the most recent quarter[135] PART II—OTHER INFORMATION This section provides disclosures on legal proceedings, updated risk factors, equity security purchases, and required exhibits Item 1. Legal Proceedings This section refers to Note 14 in the financial statements for updates on legal proceedings, specifically mentioning the ongoing EPA FIFRA/RCRA matter - No material developments in legal proceedings were reported during the period, with the EPA FIFRA/RCRA matter remaining ongoing as detailed in Note 14[138][60] Item 1A. Risk Factors This section updates the risk factors previously disclosed in the Company's 2019 Form 10-K, highlighting the COVID-19 pandemic as a new significant risk factor impacting sales, customer interactions, demand for certain crops, and foreign currency exchange rates, with future impacts remaining uncertain - The COVID-19 pandemic is a new significant risk factor, limiting new product launches, customer interactions, reducing demand for restaurant-bound crops, and negatively impacting foreign currency exchange rates in Brazil, Mexico, and Australia[139] - The Company cannot predict the full impact of the pandemic on its future financial condition, results of operations, and cash flows due to numerous uncertainties[139] Item 2. Purchases of Equity Securities by the Issuer This section summarizes the Company's share repurchase activities, noting that no shares were repurchased during the six months ended June 30, 2020, following the expiration of the program in March 2019 Common Stock Repurchases (Six Months Ended June 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 | - No shares were repurchased during the three and six months ended June 30, 2020, as the share repurchase program expired on March 8, 2019[80] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and financial statements formatted in iXBRL - Exhibit 31.1: Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002[143] - Exhibit 31.2: Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002[143] - Exhibit 32.1: Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002[143] - Exhibit 101: Financial statements (Condensed Consolidated Statements of Operations, Comprehensive Income (Loss), Balance Sheets, Stockholders' Equity, Cash Flows, and Notes) formatted in iXBRL[143] SIGNATURES This section confirms the official signing of the report by the company's authorized officers - The report was duly signed on August 7, 2020, by Eric G. Wintemute, Chief Executive Officer and Chairman of the Board, and David T. Johnson, Chief Financial Officer & Principal Accounting Officer[145]