AMERICAN VANGUARD CORPORATION FORWARD-LOOKING STATEMENTS/RISK FACTORS:
The Company, from time-to-time, may discuss forward-looking statements including assumptions concerning the Company's operations, future results, and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business regulations, including taxes and other risks as detailed from time-to-time in the Company's reports and filings filed with theU.S. Securities and Exchange Commission (the "SEC"). It is not possible to foresee or identify all such factors. For more detailed information, refer to Item 1A., Risk factors and Item 7A., Quantitative and Qualitative Disclosures about Market Risk, in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 .
MANAGEMENT OVERVIEW
The Company's Operations in the Context of the COVID-19 Pandemic
Since the start of the coronavirus pandemic early in 2020, the company has made sustained efforts to maintain the health and safety of the workforce while ensuring continuity of the business, which, under applicable federal guidelines (https://ww.cisa.gov) is part of the nation's critical infrastructure (as part of the "Food and Agriculture," "Chemical" and "Public Works andInfrastructure Support Services " sectors). In the workplace, we have designed and implemented protocols for social distancing, made provisions for the workforce to work remotely where possible, and established quarantine policies for those who present COVID-like symptoms or may have been in contact with those who have. Further, we keep current with local, state, federal and international laws and restrictions that could affect the business and provide real-time information to the workforce. We have also prepared contingency plans to permit the continued operation of our factories, in the event that there are critical staffing issues. Further, we continuously monitor supply chain, transportation, logistics and border closures and have reached out to third parties to make clear that we are continuing to operate, that we have our own policies relating to health and that we are committed to compliance with COVID-19 policies of our business partners. As has been the case with many other employers, since the start of 2021, we have encouraged our workforce to receive vaccinations against COVID-19 through various means, including incentive programs. However, new variants, particularly the Delta variant, have engendered a resurgence of the virus in many regions particularly among the unvaccinated. In-the-midst of changing conditions, we have nevertheless been able to manage our business with minimal impact during the reporting period. Looking forward, the Company is unable to predict the ultimate impact that the pandemic may have on its future financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company's operations and those of its customers in the near term will depend on future developments, which are highly uncertain and, beyond extrapolating our experience since the start of the pandemic, cannot be predicted with certainty. The Company continues to monitor its business for adverse impacts of the pandemic, including volatility in the foreign exchange markets, demand, supply-chain disruptions in certain markets, and increased costs of employee safety, among others.
Three Months Ended
Overview of the Company's Performance
The third quarter of 2021 provided further evidence of a sustained, post-pandemic recovery within the agricultural industry. Led by soybeans and corn, commodity prices rose sharply, thereby strengthening the domestic farm economy and spurring additional procurement and investment activity by growers. By contrast, the third quarter of 2020 was marked by an industry-wide malaise brought on by the pandemic. Following comparatively strong first and second quarters of 2021, the Company has continued that trend into the third quarter of 2021, during which net sales increased by 25 % ($147,298 , as compared to$117,439 in third quarter of 2020) and net income increased by 88% ($5,498 , as compared to$2,927 in the comparable period of 2020). 22 -------------------------------------------------------------------------------- On a consolidated basis, domestic sales rose 33% and international sales increased 16%, resulting in an overall net sales improvement of 25%. Cost of sales increased by 22%, which was less than the relative increase in net sales for the period. Cost of sales were 61% of net sales during the period as compared to 63% in the comparable period of 2020. These factors, taken together, yielded a 32% increase in gross profit (to$57,064 from$43,265 in the comparable quarter of 2020). Included in this improvement, we experienced stronger factory performance during the period, driven by increased synthesis and formulation activity in our Axis facility. Average gross margin percent for the third quarter of 2021 improved to 39% from 37% during the same period in 2020. Operating expenses on an absolute basis increased by about 24%, as compared to the comparable quarter (to$48,410 from$39,039 ); and remained flat as a percent of net sales at 33% for the 3-month period endedSeptember 30, 2021 , as compared to the same period of 2020.
During the three months ended
Operating income for the period rose 112% (to$8,946 from$4,226 ), driven by significantly higher sales, improved profit margin and greater factory efficiency. During the quarter, interest expense decreased by 6%. However, income taxes increased by$1,025 , as a result of both higher pre-tax income and a higher effective tax rate as a result of the mix of income in different jurisdictions and fewer deductions for tax purposes in jurisdictions with higher statutory tax rates. These factors yielded net income for the period of$5,498 , which was 88% higher than that of the same quarter in 2020. Details on our financial performance are set forth below.
RESULTS OF OPERATIONS
Quarter Ended
2021 2020 Change % Change
Net sales:
U.S. crop $ 66,722 $ 48,361 $ 18,361 38 %
U.S. non-crop 21,622 18,251 3,371 18 %
Total U.S. 88,344 66,612 21,732 33 %
International 58,954 50,827 8,127 16 %
Total net sales: $ 147,298 $ 117,439 $ 29,859 25 %
Cost of sales:
U.S. crop $ 36,485 $ 28,215 $ 8,270 29 %
U.S. non-crop 12,740 9,493 3,247 34 %
Total U.S. 49,225 37,708 11,517 31 %
International 41,009 36,466 4,543 12 %
Total cost of sales: $ 90,234 $ 74,174 $ 16,060 22 %
Gross profit:
U.S. crop $ 30,237 $ 20,146 $ 10,091 50 %
U.S. non-crop 8,882 8,758 124 1 %
Total U.S. 39,119 28,904 10,215 35 %
International 17,945 14,361 3,584 25 %
Total gross profit $ 57,064 $ 43,265 $ 13,799 32 %
Gross margin:
U.S. crop 45 % 42 %
U.S. non-crop 41 % 48 %
Total U.S. 44 % 43 %
International 30 % 28 %
Total gross margin 39 % 37 %
23
-------------------------------------------------------------------------------- Net sales within our domestic crop business were 38% higher than those of the third quarter 2020 ($66,722 as compared to$48,361 ). Strong crop commodity prices, particularly corn and soybeans, fueled grower profitability and increased demand for the purchase of yield-enhancing crop protection inputs. In corn, our leading soil insecticide Aztec® and our Impact® post emergent herbicide brands generated significant sales increases during the period. Similarly, among other granular soil insecticides, sales of Thimet®, used in peanuts and sugar cane, rose by 16%, as compared to the prior year, while sales of our soybean products increased by approximately 64%, as compared to the same period of 2020. With respect to cotton products, quarterly sales of our Bidrin® insecticide increased sharply (driven by higher pest pressure from multiple foliar insects in all areas of the Southeast region) as did those of our Folex® harvest defoliant (driven by higher cotton prices, increased harvestable acreage inTexas and an extended autumn harvest season that fueled demand for defoliants). In general, most of our products sold into theU.S. crop sector equaled or exceeded their sales performance of the third quarter of 2020. Slightly offsetting these increases, sales of our soil fumigants declined due to domestic logistics challenges that will likely push application of these products into the fourth quarter of 2021 and the first quarter of 2022. Cost of sales within the domestic crop business increased by 29%, as compared to the prior year period, which was below the related increase in net sales of 38%. During the period, the Company sold a greater volume of higher margin products within the domestic crop business. Cost of sales was further aided by improved factory performance. These factors translated into an increase of 50% in gross profit. Within our domestic non-crop business, net sales for the three months endedSeptember 30, 2021 increased by 18% (to$21,622 from$18,251 ), as compared to the same period of the prior year. Leading this improvement, we recorded more than a 17% year-over-year improvement in net sales from our OHP nursery and ornamental business as demand for residential landscaping and decorative plants remained strong across theU.S. Our foliar insecticides (Orthene and bifenthrin) used on turf, tree and ornamentals performed very strongly, as did our niche pharmaceutical business. Partially offsetting these gains, sales of our Dibrom® mosquito adulticide declined relative to the prior year's third quarter, despite a strong season of tropical storms/hurricanes this year. This year-over-year purchasing pattern was influenced by heavy customer procurement during the third quarter of 2020 in response to 2021 storm season forecasts. Cost of sales within the domestic non-crop business grew by 34%, as compared to the prior quarter. This increase exceeded the 18% increase in net sales during the period. The timing of high margin royalties from Envance technology during the period, coupled with reduced sales in the Dibrom adulticide contributed to the relative increase in cost of sales. Gross profit for domestic non-crop remained approximately flat. Net sales of our international businesses rose by about 16% during the period (to$58,954 in 2021 from$50,827 in 2020). Newly acquired businesses contributed significantly to this result. With more favorable weather conditions and the acquisition of AgNova, we tripled sales in our Australian business. The addition of the Agrinos biological products business also contributed incrementally with sales inChina ,India andUkraine . The International business posted improved sales of granular soil insecticides, bromacil herbicides, Folex cotton defoliant and soil fumigants for use in high value vegetable crops in a number of countries. Net sales inBrazil increased approximately 11% over the prior year period with the recovery of the agricultural sector and increasing demand for our nematicide Counter. Partially offsetting these gains, our businesses inCentral America reported a 12% sales decline, driven largely by supply chain and regional logistical difficulties.
The cost of sales in our international business was up 12% on sales that increased 18%, and gross profit rose by 25%.
On a consolidated basis, gross profit for the third quarter of 2021 increased by 32% (to$57,064 from$43,265 in 2020). As mentioned above, with improved factory activity, gross margins rose to 39% from 37% in the third quarter of 2021, as compared to the same period of the prior year. 24 -------------------------------------------------------------------------------- Operating expenses increased by$9,371 to$48,410 for the three months endedSeptember 30, 2021 , as compared to the same period in 2020. The differences in operating expenses by department are as follows: 2021 2020 Change % Change Selling$ 12,462 $ 10,824 $ 1,638 15 % General and administrative 15,727 10,629 5,098 48 %
Research, product development and regulatory 7,674 6,639 1,035
16 %
Freight, delivery and warehousing 12,547 10,947 1,600 15 %
$ 48,410 $ 39,039 $ 9,371 24 %
• Selling expenses increased by
ended
drivers were the costs associated with the activities from the businesses
acquired in the last quarter of 2020, increased marketing costs, increased
labor costs related to inflation and some key staff additions and, finally,
increases in travel costs as our global markets are getting back to business
as usual.
• General and administrative expenses increased by
the three months ended
2020. The main drivers were the costs in the amount of
the addition of the entities acquired in the final quarter of 2020, the
increase in short-term and long-term incentive compensation of
reflecting improved financial performance, additional legal expenses of
largely arising from the
foreign exchange adjustments primarily associated with the activities of our
businesses in Central and
strengthening of the US Dollar. Finally, we recorded income of
the adjustment to the fair value of contingent consideration associated with
an acquisition made in the final quarter of 2020. • Research, product development costs and regulatory expenses increased by
the same period of 2020. The main drivers were increased spending on our
Product Development activities, including the commercialization of our SIMPAS
delivery systems. In addition, we incurred expenses associated with newly
acquired entities and increased registration costs for our expanded international businesses.
• Freight, delivery and warehousing costs for the three months ended September
30, 2021 were
for the same period in 2020. This change included some significant increases
in freight changes, partially offset by the mix of product shipped and
associated delivery charges.
OnApril 1, 2020 , the Company made a strategic investment inClean Seed Inc. in the amount of$1,190 . During the three months endedSeptember 30, 2021 , the Company recorded a decrease in fair value in the amount of$269 as compared to recording an increase in fair value of$257 during the same three months of the prior year. These changes in fair value of our investment directly reflect changes in the stock's quoted market price. Further, the Company recorded an impairment on its equity investment in Biological Products for Agriculture ("Bi-PA") in the amount of$399 during the three months endedSeptember 30, 2021 . There was no such impairment recorded during the same period of the prior year. Interest costs net of capitalized interest were$962 in the three months endedSeptember 30, 2021 , as compared to$1,022 in the same period of 2020. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
Three months ended September 30, 2021 Three months ended September 30, 2020
Average Interest Interest Average Interest Interest
Debt Expense Rate Debt Expense Rate
Revolving line of credit
(average) $ 147,171 $ 889 2.4 % $ 162,734 $ 1,007 2.5 %
Amortization of deferred loan
fees - 70 - - 80 -
Amortization of other deferred
liabilities - 2 - - 2 -
Other interest expense - 52 - - 7 -
Subtotal 147,171 1,013 2.8 % 162,734 1,096 2.7 %
Capitalized interest - (51 ) - - (74 ) -
Total $ 147,171 $ 962 2.6 % $ 162,734 $ 1,022 2.5 %
25
-------------------------------------------------------------------------------- The Company's average overall debt for the three months endedSeptember 30, 2021 , was$147,171 , as compared to$162,734 for the three months endedSeptember 30, 2020 . Our borrowings in the three months endedSeptember 30, 2021 were lower mainly due to cash generated over the last 12 months, used to pay down debt, partially offset by the acquisition activity over the same period and the associated investment in expanded working capital. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 2.6% for the three months endedSeptember 30, 2021 , as compared to 2.5% in 2020. Income tax expense increased by$1,025 to$1,517 for the three months endedSeptember 30, 2021 , as compared to$492 for the comparable period in 2020. The effective tax rate for the three months endedSeptember 30, 2021 and 2020, was 20.7% and 14.2%, respectively. The effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management. The increase in effective tax rate is primarily driven by the mix of our domestic and international income and higher benefit on discrete items in 2020 due to a lower pre-tax income for the three months endedSeptember 30, 2020 .
Our net income for the three months ended
Nine Months Ended
Overview of the Company's Performance
Within the global agricultural industry, the first nine months of 2021 were characterized by greater confidence (having just emerged from the worst of the pandemic) and stronger commodity pricing for row crops. Domestic markets within our industry gained strength during the first and second quarters and continued that trend into the third. Our international businesses, for the most part, enjoyed similar market trends. In summary, the Company's overall operating results for the first nine months of 2021 improved considerably over those of the same period of 2020. On a consolidated basis, with domestic sales up 31% and international sales up by 17%, overall net sales increased by 25% (to$398,063 from$317,956 ). Cost of sales were up 24%, an absolute basis and declined as a percent of net sales to 61% from 62% for the same period of the prior year. Included in cost of sales, our overall factory performance was weaker, with under-recovery amounting to 2.5% of sales, as compared to 1.6% of sales in the first nine months of 2020. These factors, taken together, yielded a 27% increase in gross profit (to$154,334 from$121,952 ) and, as a percent of net sales, increased to 39% from 38%, as compared to the comparable period in 2020. Year to date in 2021, operating expenses rose on an absolute basis by 22% and improved as a percentage of sales to 33%, as compared to 34% for the same period of the prior year. Operating income for the nine months endedSeptember 30, 2021 rose 69% (to$21,571 from$12,789 ) as a result of the Company's strong sales performance. Interest expense declined by 23% as a result of cash generated (from increased sales and early pay programs), which was used to pay down debt. Income tax expense increased primarily as a result of stronger financial performance plus an increase in effective tax rate (up to 27.7% from 20.0% in 2020). Overall, the Company generated net income for the period of$13,713 , as compared to$7,334 during the first nine months of 2020; this constitutes an 87% increase. Details on our financial performance are set forth below. 26 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Nine months ended
2021 2020 Change % Change
Net sales:
U.S. crop $ 184,052 $ 148,630 $ 35,422 24 %
U.S. non-crop 60,563 37,881 22,682 60 %
Total U.S. 244,615 186,511 58,104 31 %
International 153,448 131,445 22,003 17 %
Total net sales: $ 398,063 $ 317,956 $ 80,107 25 %
Cost of sales:
U.S. crop $ 105,739 $ 80,511 $ 25,228 31 %
U.S. non-crop 32,516 19,346 13,170 68 %
Total U.S. 138,255 99,857 38,398 38 %
International 105,474 96,147 9,327 10 %
Total cost of sales: $ 243,729 $ 196,004 $ 47,725 24 %
Gross profit:
U.S. crop $ 78,313 $ 68,119 $ 10,194 15 %
U.S. non-crop 28,047 18,535 9,512 51 %
Total U.S. 106,360 86,654 19,706 23 %
International 47,974 35,298 12,676 36 %
Total gross profit $ 154,334 $ 121,952 $ 32,382 27 %
Gross margin:
U.S. crop 43 % 46 %
U.S. non-crop 46 % 49 %
Total U.S. 43 % 46 %
International 31 % 27 %
Total gross margin 39 % 38 %
Our domestic crop business recorded net sales that were 24% above those of nine
months of 2020 (to $184,052 from $148,630 ). Strong crop commodity prices and
gradual economic recovery have facilitated steady procurement patterns in the
domestic agricultural distribution channel. In Midwest corn, we recorded higher
sales of our Impact post-emergent herbicide brands as customers invested to
protect their 2021 in-season corn from challenging weeds in order to maximize
yield. We also recorded increased sales of our industry leading soil insecticide
products, as persistent rootworm and nematode pressure along with concerns about
supply chain disruption drove demand for these products. Sales of our cotton
products increased significantly, due primarily to a healthy commodity price,
intensifying foliar pest pressure, and favorable (cool) autumn weather for our
Folex harvest defoliant. Soil fumigant sales remained relatively flat compared
to the prior year, as renewed potato and vegetable demand resulting from
economic reopening was partially offset by domestic logistical challenges
getting these liquid bulk products to end use applicators. Overall, we saw
increased sales in virtually every category, including soil insecticides, foliar
insecticides, specialty herbicides and growth regulators.
Cost of sales within the domestic crop business increased 31%, as compared to
the increase in net sales of 24%. This was driven by strong sales performance,
partially offset by reduced factory activity, as compared to the first nine
months of 2020. Gross profit rose by 15%.
27
--------------------------------------------------------------------------------
Our domestic non-crop business recorded a 60% year-over-year increase in net
sales (to $60,563 from $37,881 ). In this category, sales of our Dibrom® mosquito
adulticide sales grew significantly, influenced by distribution channel
inventory restocking and a steady progression of tropical storm activity
throughout 2021. Demand for commercial pest control products improved
considerably from 2020 pandemic levels. Revenues for our Envance technologies
increased significantly when compared to the first nine months of last year, due
primarily to additional license fees and royalties during the first quarter of
2021. Our OHP nursery and ornamental business continued to grow sales, as demand
for homeowner garden and landscape products remained strong throughout the first
three quarters. Our GemChem pharmaceutical supply business also grew by
approximately 50%, benefitting from the rebounding economy.
Cost of sales within the domestic non-crop business increased by 68% on a 60% increase in net sales. Gross profit for domestic non-crop increased by 51%.
Net sales of our international businesses increased by nearly 17% during the first nine months of 2021 (to$153,448 in 2021 from$131,445 in 2020). Strong results inMexico andAustralia contributed significantly to this success.Mexico sales have been driven by continuing demand for granular insecticides, bromacil herbicides and soil fumigants for use on high value vegetable crops. InAustralia , the integration of recently acquired AgNova with our existing business in that territory drove sales to more than three-times previous levels. Sales performance was down slightly inCentral America due to continued COVID-19 limitations on in-person sales and marketing efforts, and some unfavorable weather in the region earlier this year. InCanada , we have experienced reduced sales of Assure II due to intense price competition. InBrazil , net sales increased during the first nine months, due to a rebound in the agricultural sector following the height of the pandemic. Cost of sales in our international business increased by 10% driven largely by the 17% increase in net sales. Gross profit for the international businesses increased by 36% during the period compared to the same period in the prior year. On a consolidated basis, gross profit for the first nine months of 2021 increased by 27% (to$154,334 from$121,952 ), as a result of improved sales volumes detailed above. Included in this improvement, factory cost recovery performance declined during the first nine months of 2021, as compared to the same period of 2020. Nevertheless, gross margin performance, when expressed as a percentage of sales, rose to 39% from 38%, for the comparable period in 2020. Operating expenses increased by$23,771 to$132,934 for the nine months endedSeptember 30, 2021 , as compared to the same period in 2020. The differences in operating expenses by department are as follows: 2021 2020 Change % Change Selling$ 35,184 $ 31,329 $ 3,855 12 % General and administrative 46,859 33,649 13,210 39 %
Research, product development and regulatory 21,221 18,896
2,325 12 %
Freight, delivery and warehousing 29,670 25,289 4,381 17 %
$ 132,934 $ 109,163 $ 23,771 22 %
• Selling expenses increased by
ended
drivers were the costs associated with the activities from the businesses
acquired in the last quarter of 2020, increased labor costs related to
inflation and some key staff additions and, increases in travel and
entertainment expenses. These increased expenses were somewhat offset by the
reduction in advertising and promotion costs.
• General and administrative expenses increased by
the nine months ended
2020. The main drivers were the costs in the amount of
the addition of the entities acquired in the final quarter of 2020, the
increase in short-term and long-term incentive compensation of
additional legal expenses of
Justice investigation, increased bad debt expenses of
in
businesses in Central and
acquired in the final quarter of 2020 has performed above expectations and as
a result we recorded an expense of
value of the associated contingent consideration.
28
--------------------------------------------------------------------------------
• Research, product development costs and regulatory expenses increased by
compared to the same period of 2020. The main drivers were increases in our
domestic product development activities including activities in support of our
SIMPAS delivery systems, the activities of our newly acquired businesses and
expanded registration expenses for our international businesses.
• Freight, delivery, and warehousing costs for the nine months ended September
30, 2021 were
for the same period in 2020. This change reflects increased overall sales
offset by a change in the mix of product shipped and associated delivery
charges, which are up over 500% in some instances during the period.
During the nine months endedSeptember 30, 2021 and 2020, the Company recorded an increase in the fair value of our equity investment in Clean Seed in the amount of$502 and$281 , respectively. These changes in fair value of our investment directly reflect changes in the stock's quoted market price. Further, the Company recorded an impairment on its equity investment in Bi-PA in the amount of$399 during the three months endedSeptember 30, 2021 . There was no such impairment recorded during the same period of the prior year. During the nine months endedSeptember 30, 2021 , a Paycheck Protection Program loan assumed on the acquisition of Agrinos in the fourth quarter of 2020 was fully extinguished with the majority of the balance forgiven and recorded as other income in the Company's Condensed Consolidated Statements of Operations in the amount of$672 . Interest costs net of capitalized interest were$2,921 in the first nine months of 2021, as compared to$3,804 in the same period of 2020. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
Nine months ended September 30, 2021 Nine months ended September 30, 2020
Average Interest Interest Average Interest Interest
Debt Expense Rate Debt Expense Rate
Revolving line of credit
(average) $ 144,405 $ 2,733 2.5 % $ 171,203 $ 3,751 2.9 %
Amortization of deferred loan
fees - 230 - - 219 -
Amortization of other deferred
liabilities - (6 ) - - 8 -
Other interest (income) expense - 140 - - 64 -
Subtotal 144,405 3,097 2.9 % 171,203 4,042 3.1 %
Capitalized interest - (176 ) - - (238 ) -
Total $ 144,405 $ 2,921 2.7 % $ 171,203 $ 3,804 3.0 %
The Company's average overall debt for the nine months ended September 30, 2021
was $144,405 , as compared to $171,203 for the nine months ended September 30,
2020 . During the period, we continued to focus on our usage of revolving debt,
while funding working capital for the newly acquired products and businesses. As
can be seen from the table above, our effective bank interest rate on our
revolving line of credit was 2.7% for the nine months ended September 30, 2021 ,
as compared to 3.0% in 2020.
Income tax expense increased by $3,472 to end at $5,324 for the nine months
ended September 30, 2021 , as compared to income tax expense of $1,852 for the
comparable period in 2020. The effective tax rate for the nine months ended
September 30, 2021 was 27.4% as compared to 20.0% for same period last year. For
the nine months ended September 30, 2021 , the Company benefited from the tax
impact of the vesting of certain stock grants and discrete income tax benefit
resulting from return to provision adjustments from Hong Kong off-shore
activities income exclusion and non-taxable income as a result of reinstatement
of an indemnification asset from our international subsidiaries.
The effective tax rate for the nine months ended September 30, 2020 , included
two discrete income tax benefits. First, the Company assessed its income tax
positions to account for the Coronavirus Aid Relief and Economic Security Act
("CARES Act") which was signed into law on March 27, 2020 . A provision of the
act modified the amount of interest deduction allowed and therefore reduced the
Company's 2019 Global Intangible Low Tax Income ("GILTI") inclusion. Second, the
Company benefited from the tax impact of the vesting of certain stock grants
activities.
The effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management.
Our net income for the nine months endedSeptember 30, 2021 was$13,713 or$0.46 per basic and$0.45 per diluted share, as compared to$7,334 or$0.25 per basic and diluted share in the same period of 2020. 29 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used net cash of$174 during the nine months endedSeptember 30, 2021 , as compared to providing net cash of$20,424 during the same period of the prior year. Included in the$174 are net income of$13,713 , plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of$20,016 , amortization of deferred loan fees of$294 and provision for bad debts in the amount of$1,202 . Also included are stock-based compensation of$5,309 , adjustment to contingent consideration in the amount of$520 , loss from equity method investment of$388 , decrease in deferred income taxes of$560 , change in value of equity investments of$103 , loan principal and interest forgiveness of$672 , net foreign currency adjustments of$330 and adjustment to bargain purchase gain on business acquisition of$171 . These together provided net cash inflows of$39,606 , as compared to$26,996 for the same period of 2020. During the nine months of 2021, the Company increased working capital by$37,611 , as compared to an increase of$4,950 during the same period of the prior year. Included in this change: inventories increased by$4,352 , as compared to$16,941 for the same period of 2020. Deferred revenue decreased by$38,272 , as compared to$1,079 in the same period of 2020, driven by customer decisions regarding demand, payment timing and our cash incentive programs. Our accounts payable balances increased by$7,769 , as compared to decreasing by$1,759 in the same period of 2020. Accounts receivables increased by$42,979 , as compared to$5,089 in the same period of 2020. This is primarily driven by increased consolidated sales particularly during the three months endedSeptember 30, 2021 , which included the impact of the new businesses acquired in the last year. Prepaid expenses increased by$2,194 , as compared to$532 in the same period of 2020. Income tax receivable decreased by$2,031 , as compared to$873 in the prior year. Accrued programs increased by$33,982 , as compared to$20,058 in the prior year. Finally, other payables and accrued expenses increased by$4,025 , as compared to decreasing by$2,117 in the prior year. With regard to our program accrual, the increase (as noted above) primarily reflects our mix of sales and customers in the first nine months of 2021, as compared to the prior year. The Company accrues programs in line with the growing season upon which specific products are targeted. Typically crop products have a growing season that ends onSeptember 30th of each year. During the first nine months of 2021, the Company made accruals for programs in the amount of$59,267 and payments in the amount of$25,353 . During the first nine months of the prior year, the Company made accruals in the amount of$42,254 and made payments in the amount of$22,208 . Cash used for investing activities for the nine months endedSeptember 30, 2021 and 2020 was$18,431 and$14,120 , respectively. The Company spent$7,963 on fixed assets acquisitions primarily focused on continuing to invest in manufacturing infrastructure, made a product line acquisition of$10,000 , intangible assets of$285 , and an investment of$183 , during the first nine months of 2021. During the same period of the prior year, the Company spent$8,988 on fixed assets acquisitions, intangible assets of$3,942 , and$1,190 in an equity investment. During the nine months endedSeptember 30, 2021 , financing activities provided$19,974 , as compared to using$3,082 in the same period of the prior year. This is principally from the increased borrowings on the Company's senior credit facility. In the first nine months of 2021, the Company paid dividends to stockholders amounting to$1,789 , as compared to$1,168 in the same period of 2020. In addition, the Company made payments on contingent consideration in the amount of$250 , as compared to$1,227 in the same period of 2020. The Company has a revolving line of credit that is shown as long-term debt in the Condensed Consolidated Balance Sheets atSeptember 30, 2021 andDecember 31, 2020 . These are summarized in the following table: Long-term indebtedness ($000 's) September 30, 2021 December 31, 2020 Revolving line of credit $ 137,300 $ 107,900 Deferred loan fees (972 ) (458 ) Net long-term debt $ 136,328 $ 107,442 30
-------------------------------------------------------------------------------- As ofSeptember 30, 2021 , the Company was compliant with all covenants to its credit agreement. Also, as ofSeptember 30, 2021 , the Company's total Funded Debt amounted to$137,300 . At that date the Company's rolling four quarter Consolidated EBITDA (as defined in the Credit Agreement) amounted to$66,364 , which results in a leverage ratio of 2.07, as compared to a maximum leverage ratio permitted under the Credit Agreement of 3.5. As ofSeptember 30, 2021 , the Company had the capacity to increase its borrowings by up to$94,973 , according to the terms thereof. This compares to an available borrowing capacity of$44,500 as ofSeptember 30, 2020 . As ofDecember 31, 2020 , the Company had borrowing capacity of$86,736 . The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for both the trailing twelve month period and proforma basis arising from acquisitions, (2) net borrowings, and (3) the leverage covenant (the TL Ratio). We believe that anticipated cash flow from operations, existing cash balances and available borrowings under our amended senior credit facility will be sufficient to provide us with liquidity necessary to fund our working capital and cash requirements for the next twelve months.
RECENTLY ISSUED ACCOUNTING GUIDANCE
Please refer to Note 15 in the accompanying Notes to the Condensed Consolidated Financial Statements for recently issued accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company continually re-assesses the critical accounting policies used in preparing its financial statements. In the Company's Form 10-K filed with theSEC for the year endedDecember 31, 2020 , the Company provided a comprehensive statement of critical accounting policies. These policies have been reviewed in detail as part of the preparation work for this Form 10-Q. After our review of these matters, we have determined that, during the subject reporting period, there has been no material change to the critical accounting policies that are listed in the Company's Form 10-K for the year endedDecember 31, 2020 . Certain of the Company's policies require the application of judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on historical experience, terms of existing contracts, commonly accepted industry practices and other assumptions that the Company believes are reasonable under the circumstances. These estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the Condensed Consolidated Financial Statements in the period that revisions are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions. 31
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