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EX-32.1 - EX-32.1 - AMERICAN VANGUARD CORPavd-ex321_7.htm
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EX-31.1 - EX-31.1 - AMERICAN VANGUARD CORPavd-ex311_8.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                      

Commission file number 001-13795

 

AMERICAN VANGUARD CORPORATION

 

 

Delaware

95-2588080

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

4695 MacArthur Court, Newport Beach, California

92660

(Address of principal executive offices)

(Zip Code)

(949) 260-1200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

(Do not check if a small reporting company)

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.10 Par Value—30,324,493 shares as of July 30, 2018.

 

 

 

 

 


 

AMERICAN VANGUARD CORPORATION

INDEX

 

 

 

 

Page Number

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2018 and 2017

 

3

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2018 and 2017

 

4

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

 

5

 

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the three months and six months ended June 30, 2018

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

 

7

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

Item 4.

Controls and Procedures

 

29

 

 

 

PART II—OTHER INFORMATION

 

30

 

 

 

 

Item 1.

Legal Proceedings

 

30

 

 

 

 

Item 6.

Exhibits

 

31

 

 

 

SIGNATURES

 

32

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months

Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net sales

 

$

107,046

 

 

$

77,905

 

 

$

211,154

 

 

$

148,578

 

Cost of sales

 

 

63,749

 

 

 

43,570

 

 

 

126,806

 

 

 

84,159

 

Gross profit

 

 

43,297

 

 

 

34,335

 

 

 

84,348

 

 

 

64,419

 

Operating expenses

 

 

34,718

 

 

 

27,654

 

 

 

68,418

 

 

 

52,605

 

Operating income

 

 

8,579

 

 

 

6,681

 

 

 

15,930

 

 

 

11,814

 

Interest expense, net

 

 

966

 

 

 

400

 

 

 

1,803

 

 

 

698

 

Income before provision for income taxes and loss on equity method

   investments

 

 

7,613

 

 

 

6,281

 

 

 

14,127

 

 

 

11,116

 

Income tax expense

 

 

1,748

 

 

 

1,681

 

 

 

3,440

 

 

 

3,061

 

Income before loss on equity method investments

 

 

5,865

 

 

 

4,600

 

 

 

10,687

 

 

 

8,055

 

Loss from equity method investments

 

 

301

 

 

 

69

 

 

 

518

 

 

 

111

 

Net income

 

 

5,564

 

 

 

4,531

 

 

 

10,169

 

 

 

7,944

 

Net loss (income) attributable to non-controlling interest

 

 

35

 

 

 

(227

)

 

 

85

 

 

 

(188

)

Net income attributable to American Vanguard

 

$

5,599

 

 

$

4,304

 

 

$

10,254

 

 

$

7,756

 

Earnings per common share—basic

 

$

.19

 

 

$

.15

 

 

$

.35

 

 

$

.27

 

Earnings per common share—assuming dilution

 

$

.19

 

 

$

.15

 

 

$

.34

 

 

$

.26

 

Weighted average shares outstanding—basic

 

 

29,330

 

 

 

29,050

 

 

 

29,309

 

 

 

28,999

 

Weighted average shares outstanding—assuming dilution

 

 

30,190

 

 

 

29,605

 

 

 

30,113

 

 

 

29,561

 

 

See notes to the condensed consolidated financial statements.

 

3


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Three Months

Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

5,564

 

 

$

4,531

 

 

$

10,169

 

 

$

7,944

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(898

)

 

 

280

 

 

 

(226

)

 

 

1,037

 

Comprehensive income

 

 

4,666

 

 

 

4,811

 

 

 

9,943

 

 

 

8,981

 

Net loss (income) attributable to non-controlling interest

 

 

35

 

 

 

(227

)

 

 

85

 

 

 

(188

)

Comprehensive income attributable to American Vanguard

 

$

4,701

 

 

$

4,584

 

 

$

10,028

 

 

$

8,793

 

 

See notes to the condensed consolidated financial statements.

 

 

4


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

ASSETS

 

 

 

June 30,

2018

 

 

Dec. 31,

2017

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,099

 

 

$

11,337

 

Receivables:

 

 

 

 

 

 

 

 

Trade, net of allowance for doubtful accounts of $259 and $46, respectively

 

 

94,933

 

 

 

102,534

 

Other

 

 

12,011

 

 

 

7,071

 

Total receivables, net

 

 

106,944

 

 

 

109,605

 

Inventories

 

 

163,180

 

 

 

123,124

 

Prepaid expenses

 

 

11,290

 

 

 

10,817

 

Total current assets

 

 

288,513

 

 

 

254,883

 

Property, plant and equipment, net

 

 

48,399

 

 

 

49,321

 

Intangible assets, net of applicable amortization

 

 

177,512

 

 

 

180,950

 

Goodwill

 

 

21,837

 

 

 

22,184

 

Other assets

 

 

25,753

 

 

 

28,254

 

Total assets

 

$

562,014

 

 

$

535,592

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Current installments of other liabilities

 

$

3,534

 

 

$

5,395

 

Accounts payable

 

 

64,842

 

 

 

53,748

 

Deferred revenue

 

 

7,320

 

 

 

14,574

 

Accrued Program costs

 

 

54,093

 

 

 

39,054

 

Accrued expenses and other payables

 

 

9,786

 

 

 

12,061

 

Income taxes payable

 

 

1,085

 

 

 

1,370

 

Total current liabilities

 

 

140,660

 

 

 

126,202

 

Long-term debt, net of deferred loan fees

 

 

74,258

 

 

 

77,486

 

Other liabilities, excluding current installments

 

 

9,641

 

 

 

10,306

 

Deferred income tax liabilities

 

 

17,224

 

 

 

16,284

 

Total liabilities

 

 

241,783

 

 

 

230,278

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued

 

 

 

 

 

 

Common stock, $.10 par value per share; authorized 40,000,000 shares; issued

   32,743,504 shares at June 30, 2018 and 32,241,866 shares at December 31, 2017

 

 

3,275

 

 

 

3,225

 

Additional paid-in capital

 

 

79,721

 

 

 

75,658

 

Accumulated other comprehensive loss

 

 

(4,733

)

 

 

(4,507

)

Retained earnings

 

 

250,068

 

 

 

238,953

 

 

 

 

328,331

 

 

 

313,329

 

Less treasury stock at cost, 2,450,634 shares at June 30, 2018 and

   December 31, 2017

 

 

(8,269

)

 

 

(8,269

)

American Vanguard Corporation stockholders’ equity

 

 

320,062

 

 

 

305,060

 

Non-controlling interest

 

 

169

 

 

 

254

 

Total stockholders’ equity

 

 

320,231

 

 

 

305,314

 

Total liabilities and stockholders' equity

 

$

562,014

 

 

$

535,592

 

 

See notes to the condensed consolidated financial statements.

 

 

 

 

 

5


 

 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For The Three and Six Months Ended June 30, 2018

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Retained

Earnings

 

 

Shares

 

 

Amount

 

 

AVD

Total

 

 

Controlling Interest

 

 

Total

 

Balance, December 31, 2017

 

 

32,241,866

 

 

$

3,225

 

 

$

75,658

 

 

$

(4,507

)

 

$

238,953

 

 

 

2,450,634

 

 

$

(8,269

)

 

$

305,060

 

 

$

254

 

 

$

305,314

 

Adjustment to recognize new revenue

   recognition standard, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,214

 

 

 

 

 

 

 

 

 

2,214

 

 

 

 

 

 

2,214

 

Adjustment to recognize new standard on taxes

   on foreign asset transfers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(180

)

 

 

 

 

 

 

 

 

(180

)

 

 

 

 

 

(180

)

Common stock issued under ESPP

 

 

17,078

 

 

 

1

 

 

 

298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

299

 

 

 

 

 

 

299

 

Cash dividends on common stock ($0.02

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(586

)

 

 

 

 

 

 

 

 

(586

)

 

 

 

 

 

(586

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

672

 

 

 

 

 

 

 

 

 

 

 

 

672

 

 

 

 

 

 

672

 

Stock based compensation

 

 

 

 

 

 

 

 

1,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,309

 

 

 

 

 

 

1,309

 

Stock options exercised; grants and vesting

   of restricted stock units

 

 

409,979

 

 

 

41

 

 

 

470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

511

 

 

 

 

 

 

511

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,655

 

 

 

 

 

 

 

 

 

4,655

 

 

 

(50

)

 

 

4,605

 

Balance, March 31, 2018

 

 

32,668,923

 

 

 

3,267

 

 

 

77,735

 

 

 

(3,835

)

 

 

245,056

 

 

 

2,450,634

 

 

 

(8,269

)

 

 

313,954

 

 

 

204

 

 

 

314,158

 

Cash dividends on common stock ($0.02

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(587

)

 

 

 

 

 

 

 

 

(587

)

 

 

 

 

 

(587

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

(898

)

 

 

 

 

 

 

 

 

 

 

 

(898

)

 

 

 

 

 

(898

)

Stock based compensation

 

 

 

 

 

 

 

 

1,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,469

 

 

 

 

 

 

1,469

 

Stock options exercised; grants and vesting

   of restricted stock units

 

 

74,581

 

 

 

8

 

 

 

517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

525

 

 

 

 

 

 

525

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,599

 

 

 

 

 

 

 

 

 

5,599

 

 

 

(35

)

 

 

5,564

 

Balance, June 30, 2018

 

 

32,743,504

 

 

$

3,275

 

 

$

79,721

 

 

$

(4,733

)

 

$

250,068

 

 

 

2,450,634

 

 

$

(8,269

)

 

$

320,062

 

 

$

169

 

 

$

320,231

 

 

See notes to the condensed consolidated financial statements.

 

 

 

 

6


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,169

 

 

$

7,944

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of fixed and intangible assets

 

 

9,516

 

 

 

8,094

 

Amortization of other long term assets

 

 

2,313

 

 

 

2,777

 

Amortization of discounted liabilities

 

 

202

 

 

 

13

 

Stock-based compensation

 

 

2,778

 

 

 

2,322

 

Change in deferred income taxes

 

 

(26

)

 

 

7

 

Loss from equity method investments

 

 

518

 

 

 

111

 

Changes in assets and liabilities associated with operations:

 

 

 

 

 

 

 

 

Decrease in net receivables

 

 

5,478

 

 

 

20,749

 

Increase in inventories

 

 

(40,194

)

 

 

(5,506

)

Increase in prepaid expenses and other assets

 

 

(707

)

 

 

(2,658

)

(Increase) in income tax receivable/payable, net

 

 

(271

)

 

 

(12,752

)

Increase in accounts payable

 

 

11,309

 

 

 

579

 

Decrease in deferred revenue

 

 

(7,254

)

 

 

(2,126

)

Increase in accrued Program costs

 

 

15,039

 

 

 

18,819

 

Decrease in other payables and accrued expenses

 

 

(5,151

)

 

 

(4,256

)

Net cash provided by operating activities

 

 

3,719

 

 

 

34,117

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3,230

)

 

 

(4,155

)

Investment

 

 

 

 

 

(950

)

Acquisition of other intangible assets and businesses

 

 

(1,631

)

 

 

(13,400

)

Net cash used in investing activities

 

 

(4,861

)

 

 

(18,505

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments under line of credit agreement

 

 

(62,125

)

 

 

(59,025

)

Borrowings under line of credit agreement

 

 

58,800

 

 

 

45,000

 

Payments on other long-term liabilities

 

 

 

 

 

(26

)

Net receipts from the issuance of common stock (sale of stock under ESPP,

   exercise of stock options, and shares purchased for tax withholding)

 

 

1,335

 

 

 

(1,214

)

Payment of cash dividends

 

 

(1,024

)

 

 

(724

)

Net cash used by financing activities

 

 

(3,014

)

 

 

(15,989

)

Net decrease in cash and cash equivalents

 

 

(4,156

)

 

 

(377

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(82

)

 

 

105

 

Cash and cash equivalents at beginning of period

 

 

11,337

 

 

 

7,869

 

Cash and cash equivalents at end of period

 

$

7,099

 

 

$

7,597

 

 

See notes to the condensed consolidated financial statements.

 

7


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except share data)

(Unaudited)

 

1. The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

 

 

2.  Revenue Recognition—The Company recognizes revenue from the sale of its products, which include insecticides, herbicides, soil fumigants, and fungicides. The Company sells its products to customers, which include distributors and retailers. In addition, the Company recognizes royalty income from the sale of intellectual property. Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Selective enterprise information of sales disaggregated by category and geographic region is as follows:

 

 

 

Three Months Ended

June 30, 2018

 

 

Six Months Ended

June 30, 2018

 

 

 

As reported

 

 

Without adoption

of ASC 606

 

 

As reported

 

 

Without adoption

of ASC 606

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crop:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insecticides

 

$

32,665

 

 

$

32,671

 

 

$

73,958

 

 

$

73,988

 

Herbicides/soil fumigants/fungicides

 

 

31,401

 

 

 

31,401

 

 

 

63,586

 

 

 

63,586

 

Other, including plant growth regulators and

   distribution

 

 

30,377

 

 

 

30,377

 

 

 

48,217

 

 

 

48,217

 

 

 

 

94,443

 

 

 

94,449

 

 

 

185,761

 

 

 

185,791

 

Non-crop, including distribution

 

 

12,603

 

 

 

12,603

 

 

 

25,393

 

 

 

25,393

 

Total net sales:

 

$

107,046

 

 

$

107,052

 

 

$

211,154

 

 

$

211,184

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

$

64,363

 

 

$

64,369

 

 

$

134,178

 

 

$

134,208

 

International

 

 

42,683

 

 

 

42,683

 

 

 

76,976

 

 

 

76,976

 

Total net sales:

 

$

107,046

 

 

$

107,052

 

 

$

211,154

 

 

$

211,184

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods transferred at a point in time

 

$

106,886

 

 

$

107,052

 

 

$

210,591

 

 

$

211,184

 

Goods and services transferred over time

 

 

160

 

 

 

 

 

 

563

 

 

 

 

Total net sales:

 

$

107,046

 

 

$

107,052

 

 

$

211,154

 

 

$

211,184

 

 

In May 2014, Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification “ASC” 606). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In March 2016, FASB issued an amendment to the standard, ASU 2016-08, to clarify the implementation guidance on principal versus agent considerations. Under the amendment, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). In April 2016, FASB issued another amendment to the standard, ASU 2016-10, to clarify identifying performance obligations and the licensing implementation guidance, which retaining the related principles for those areas. The standard and the amendments are effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of

 

8


 

initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).  These amendments are effective upon adoption of ASC 606.  This standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows.

 

The Company adopted ASC 606 using the modified retrospective method, therefore, the comparative information has not been adjusted and continues to be reported under ASC 605. The Company determined that for certain products that are deemed to have no alternative use accompanied by an enforceable right to payment for performance completed to date, recognition will change from point in time, to over time.  These sales were previously recognized upon delivery, and are now recognized over time utilizing an output method.  In addition, the Company earns royalties on certain licenses granted for the use of its intellectual property, which were previously recognized over time.  For certain licenses that are considered functional intellectual property, revenue recognition is now at a point in time.

 

As part of the Company's adoption of ASC 606, the Company elected to use the following practical expedients (i) not to adjust the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less (ii) allowing entities the option to treat shipping and handling activities that occur after control of the good transfers to the customer as fulfillment activities.

For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment for product sales, but also occurs over time for certain products that are deemed to have no alternative use accompanied by an enforceable right to payment for performance completed to date. For revenue recognized over time, the Company uses an output measure, units produced, to measure progress. From time to time, the Company may offer a Program to eligible customers, in good standing, that provides extended payment terms on a portion of the sales on selected products. The Company analyzes these extended payment Programs in connection with its revenue recognition policy to ensure all revenue recognition criteria are satisfied at the time of sale.

Performance ObligationsA performance obligation is a promise in a contract or sales order to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s sales orders have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the sales orders. For sales orders with multiple performance obligations, the Company allocates the sales order’s transaction price to each performance obligation based on its relative stand-alone selling price. The stand-alone selling prices are determined based on the prices at which the Company separately sells these products. The Company’s performance obligations are satisfied either at a point in time or over time as work progresses.

At June 30, 2018, the Company had $34,616 of remaining performance obligations, which is comprised of deferred revenue and services not yet delivered. The Company expects to recognize approximately all of its remaining performance obligations as revenue in fiscal 2018.

Contract BalancesThe timing of revenue recognition, billings and cash collections results in deferred revenue in the condensed consolidated balance sheets. The Company sometimes receives payments from its customers in advance of goods and services being provided in return for early cash incentive Programs, resulting in deferred revenues. These liabilities are reported on the condensed consolidated balance sheet at the end of each reporting period.

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Total receivables, net

 

$

106,944

 

 

$

109,605

 

Contract assets

 

 

3,000

 

 

 

 

Deferred revenue

 

 

7,320

 

 

 

14,574

 

 

Revenue recognized for the three and six months ended June 30, 2018, that was included in the deferred revenue balance at the beginning of 2018 were $12,740 and $4,514, respectively.

 

9


 

The following table presents the effect of the adoption of ASC 606 on our condensed consolidated balance sheet (unaudited) as of December 31, 2017:

 

 

 

As of December 31, 2017

 

 

 

As previously reported

 

 

Adjustment due to

adoption of ASC 606

 

 

As adjusted

 

Total assets

 

$

535,592

 

 

$

3,000

 

 

$

538,592

 

Deferred income tax liabilities, net

 

 

16,284

 

 

 

786

 

 

 

17,070

 

Retained earnings

 

 

238,953

 

 

 

2,214

 

 

 

241,167

 

 

In accordance with ASC 606, the disclosure of the impact of adoption to our consolidated statements of operations for the three and six months ended June 30, 2018 were $33 and $57, respectively, reductions in net sales.  This revenue will move from being recognized at point in time to be recognized over time.  As such, the net sales will be reported as sales in later quarters.  

 

In accordance with ASC 606, the disclosure of the impact of adoption to our condensed consolidated balance sheets was as follows:

 

 

 

As of June 30, 2018

 

 

 

As reported

 

 

Balances without

adoption of ASC

606

 

 

Impact

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Contract assets

 

$

3,000

 

 

$

 

 

$

3,000

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

 

7,320

 

 

 

7,263

 

 

 

57

 

Deferred income tax liabilities

 

 

786

 

 

 

 

 

 

786

 

Stockholders' equity: