AMERICAN VANGUARD CORP

1. Summary of Significant Accounting Policies— The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD” or “the Company”) 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. In the opinion of management, all adjustments (consisting of consolidating adjustments, eliminations and normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The condensed consolidated financial statements and related notes do not include all information and footnotes required by US GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2023.

All significant accounting policies used in the preparation of these condensed consolidated financial statements are consistent with those disclosed in the Company's Annual Report on Form 10-K except for the following:

Transformation

Transformation expenses on the condensed consolidated statements of operations include costs related to the Company’s digital and structural transformation project. The digital transformation effort is intended to ensure that business process owners have access to current and complete data that has been generated through standardized systems and processes. The structural transformation effort is intended to improve operating leverage by applying business analytics to current operations, structures, products and services and identifying process improvements. Transformation expenses primarily include costs for consulting services, severance costs, and other costs which were incurred in connection with the staffing and execution of the Company’s various transformation initiatives.

2. Leases — The Company has operating leases for warehouses, manufacturing facilities, offices, cars, railcars and certain equipment. The lease term includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend (or not terminate) that the Company is reasonably certain to exercise. The Company has leases with a lease term ranging fromone year to approximately 20 years.

The operating lease expense for the three months ended September 30, 2024 and 2023, was $1,972 and $1,701, respectively, and $5,863 and $5,012 for the nine months ended September 30, 2024 and 2023, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. Other information related to operating leases follows:

The weighted-average remaining lease term and discount rate related to the operating leases as of September 30, 2024 were as follows:

Future minimum lease payments under non-cancellable operating leases as of September 30, 2024 were as follows:

Amounts recognized in the condensed consolidated balance sheets at September 30, 2024:

3. Revenue Recognition—The Company recognizes revenue from the sale of its products, which include crop and non-crop products. The Company sells its products to customers, which include distributors, retailers, and growers. In addition, the Company recognizes royalty income from licensing agreements. Substantially all revenue is recognized at a point in time. During the three and nine months ended September 30, 2024, the Company recorded a reduction to sales in the amount of $11,783 related to the U.S. Crop business and $620 related to the international businesses in connection with the Company's voluntarily recall of the Dacthal product line. These amounts are based on estimated return claims from retailers and growers. The Company has one reportable segment. Selective enterprise information of sales disaggregated by category and geographic region is as follows:

The Company sometimes receives payments from its customers in advance of goods and services being provided in return for early cash incentive programs. These payments are included in customer prepayments on the condensed consolidated balance sheets. Revenue recognized for the three and nine months ended September 30, 2024, that was included in customer prepayments at the beginning of 2024, was $12,042 and $65,512, respectively. The remaining balance of those customer prepayments from the start of 2024 in the amount of $48 is expected to be recognized as revenue in fiscal 2024. During the three months ended September 30, 2024, the Company received customer prepayments in the amount of $57,000 that are expected to be recognized as revenue during the 2024-2025 growing season in the United States, which began on September 1, 2024.

4. Property, Plant and Equipment —Property, plant and equipment at September 30, 2024 and December 31, 2023 consists of the following:

The Company recognized depreciation expense related to property and equipment of $2,290 and $2,074 for the three-month periods ended September 30, 2024 and 2023, respectively. The Company recognized depreciation expense related to property and equipment of $6,655 and $6,396 for the nine months ended September 30, 2024 and 2023, respectively.

Substantially all of the Company’s assets are pledged as collateral to its banks.

5. Inventories —Inventory is stated at the lower of cost or net realizable value. Cost is determined by the average cost method, and includes material, labor, factory overhead and subcontracting services.

Finished products consist of products that are sold to customers in their current form as well as intermediate products that require further formulation to be saleable to customers.

6. Accrued Program Costs— The Company offers various discounts to customers based on the volume purchased within a defined period, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments made to distributors, retailers or growers, usually at the end of a growing season. The Company describes these payments as “Programs.” Programs are a critical part of doing business in both the U.S. crop and non-crop chemicals marketplaces. These discount Programs represent variable consideration. Revenues from sales are recorded at the net sales price, which is the transaction price, less an estimate of variable consideration. Variable consideration includes amounts expected to be paid to its customers using the expected value method. Each quarter management compares individual sale transactions with Programs to determine what, if any, Program liabilities have been incurred. Once this initial calculation is made for the specific quarter, sales and marketing management, along with executive and financial management, review the accumulated Program balance and, for volume driven payments, make assessments of whether or not customers are tracking in a manner that indicates that they will meet the requirements set out in agreed upon terms and conditions attached to each Program. Following this assessment, management adjusts the accumulated accrual to properly reflect the liability at the balance sheet date. Programs are paid out predominantly on an annual basis, usually in the final quarter of the financial year or the first quarter of the following year.

7. Cash Dividends on Common Stock—The Company has declared and paid the following cash dividends in the periods covered by this Form 10-Q:

8. Earnings Per Share—The components of basic and diluted net (loss) income per share were as follows:

Due to a net loss for the three- and nine- month periods ended September 30, 2024 and for the three-month period ended September 30, 2023, stock options and other grants were excluded from the computation of diluted net loss per share. For the nine-month period ended September 30, 2023, no stock options were excluded from the computation of diluted net income per share.

9. Debt— The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at September 30, 2024 and December 31, 2023. The Company hasno short-term debt as of September 30, 2024 and December 31, 2023. The debt is summarized in the following table:

The deferred loan fees as of September 30, 2024 and December 31, 2023 are included in other assets on the condensed consolidated balance sheets.

The Company and certain of its affiliates are parties to a revolving line of credit agreement entitled the “Third Amended and Restated Loan and Security Agreement” dated as of August 5, 2021 (the “Credit Agreement”), which is a senior secured lending facility among AMVAC, the Company’s principal operating subsidiary, as Borrower Agent (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by Bank of the West as administrative agent, documentation agent, syndication agent, collateral agent and sole lead arranger, on the other hand. The Credit Agreement consists of a line of credit of up to $275,000, an accordion feature of up to $150,000, a letter of credit and swingline sub-facility (each having limits of $25,000) and has a maturity date of August 5, 2026. With respect to key financial covenants, the Credit Agreement originally contained two: namely, borrowers are required to maintain a Total Leverage Ratio of no more than 3.5-to-1, during the first three years, stepping down to 3.25-to-1 as of September 30, 2024, and a Fixed Charge Coverage Ratio of at least 1.25-to-1. In addition, to the extent that it completes acquisitions totaling $15,000 or more in any 90-day period, AMVAC may step-up the Total Leverage Ratio by 0.5-to-1, not to exceed 4.00-to-1, for the next three full consecutive quarters. Acquisitions below $50,000 do not require Agent consent.

On August 8, 2024, the Company and the lenders entered into Amendment Number Seven to the Credit Agreement, effective June 30, 2024, under which the Maximum Total Leverage Ratio was modified to 4.25 for the period ended June 30, 2024; 5.0 for the period ending September 30, 2024; 4.5 for the periods ending December 31, 2024, March 31, 2025 and 4.25 for June 30, 2025; 4.0 for the period ending September 30, 2025, and returning to 3.25 for the period ending December 31, 2025 and thereafter. The Minimum Fixed Charge Coverage Ratio remains the same, and a new covenant, the Minimum Modified Current Ratio of not less than 1.5 (defined as the ratio of (i) Accounts Receivable plus Inventory, to (ii) Funded Debt of the Company and its Subsidiaries on a consolidated basis). In addition, the Company may not repurchase shares, pay cash dividends to shareholders or make Permitted Acquisitions without Lenders’ consent. In addition, for purposes of calculating Consolidated EBITDA, the basket for transformation and one-time (cash and non-cash charges (which are excluded from such measure) has been increased from $5,000 to $12,500 in second quarter 2024, $45,000 (in third quarter 2024, fourth quarter 2024 and first quarter 2025), $42,500 in second quarter 2025, $15,000 in third quarter 2025 and $7,500 in fourth quarter 2025, as measured on a four-quarter trailing basis. Finally, the interest rates for the Credit Agreement, as amended, were increased by 25bps to the extent the Total Leverage Ratio equals or exceeds 4.0 and remains at the rates set forth in the Amendment Number Six to the extent the Total Leverage Ratio is below 4.0.

The Company’s borrowing capacity varies with its financial performance, measured in terms of Consolidated EBITDA as defined in the Credit Agreement, for the trailing twelve-month period. Under the Credit Agreement, revolving loans bear interest at a variable rate based, at borrower’s election with proper notice, on either (i) LIBOR plus the “Applicable Margin” which is based upon the Total Leverage Ratio (“LIBOR Revolver Loan”) or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month LIBOR Rate plus 1.00%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). The Company and the Lenders entered into an amendment to the Credit Agreement, effective March 9, 2023, whereby LIBOR was replaced by SOFR with a credit spread adjustment of 10.0 bps for all SOFR periods. The revolving loans now bear interest at a variable rate based at our election with proper notice, on either (i) SOFR plus 0.1% per annum and the “Applicable Margin” or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month SOFR Rate plus 1.10%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). Interest payments for SOFR Revolver Loans are payable on the last day of each interest period (either one-, three- or nine- month periods, as selected by the Company) and the maturity date, while interest payments for Adjusted Base Rate Revolver Loans are payable on thelast business day of each month and the maturity date. The interest rate on September 30, 2024, was 8.48%. Interest was $4,435 and $3,384 for the three months ended September 30, 2024 and 2023, respectively, and $12,296 and $8,282 for the nine months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, the Company is deemed to be in compliance with its financial covenants. Furthermore, according to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $44,716 and $115,002 as of September 30, 2024 and December 31, 2023, respectively.

10. Comprehensive (Loss) Income— Total comprehensive (loss) income includes, in addition to net (loss) income, changes in equity that are excluded from the condensed consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three- and nine-month periods ended September 30, 2024 and 2023, total comprehensive (loss) income consisted of net (loss) income and foreign currency translation adjustments.

11. Stock-Based Compensation —Under the Company’s Equity Incentive Plan of 1993, as amended (“the Plan”), all employees are eligible to receive non-assignable and non-transferable restricted stock (RSUs), options to purchase common stock, and other forms of equity. During the three months ended September 30, 2024 and 2023, the Company's stock-based compensation expense amounted to $1,135 and $1,716, respectively. During the nine months ended September 30, 2024 and 2023, the Company's stock-based compensation expense amounted to $3,887 and $4,257, respectively.

RSUs

A summary of nonvested RSUs outstanding is presented below:

As of September 30, 2024, the total unrecognized stock-based compensation expense related to RSUs outstanding was $3,278 and is expected to be recognized over a weighted-average period of 1.3 years.

Stock Options

A summary of the time-based incentive stock option activity for the nine months ended September 30, 2024 is presented below:

As of September 30, 2024, the total unrecognized stock-based compensation expense related to stock options outstanding was $1,209 and is expected to be recognized over a weighted-average period of 2.3 years.

12. Commitments and Contingencies — The Company records a liability on its consolidated financial statements for loss contingencies when a loss is known or considered probable, and the amount can be reasonably estimated. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. The Company recognizes legal expenses in connection with loss contingencies as incurred.

Department of Justice and Environmental Protection Agency Investigation. On November 10, 2016, AMVAC was served with a grand jury subpoena from the United States Attorney’s Office for the Southern District of Alabama, seeking documents regarding the importation, transportation, and management of a specific pesticide. The Company retained defense counsel to assist in responding to the subpoena and otherwise in defending the Company’s interests. AMVAC fully cooperated during the investigation. After interviewing multiple witnesses (including three employees before a grand jury in February 2022) and making multiple document requests, the Department of Justice (“DoJ”) identified the Company and a manager-level employee as targets of the government’s investigation. DoJ’s investigation focused on potential violations of two environmental statutes, the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) and the Resource Conservation and Recovery Act (“RCRA”), as well as obstruction of an agency proceeding and false statement statutes. In March 2022, the individual target entered into a plea agreement relating to provision of false information in a government proceeding. In January 2024, the Company and DoJ reached an agreement in principle, subject to approval by the cognizant court and with respect to which the Company has recorded a loss contingency. A Company representative attended a hearing to enter a plea of guilty (to one count of transporting hazardous waste without a waste manifest) on the matter in late May 2024. Under the terms of the plea agreement, the Company would pay a fine and enter into a three-year probation during which it would be subject to an environmental compliance plan. The court provisionally accepted the plea, subject to entry of an order following a sentencing hearing on October 25, 2024, on which date the court accepted with finality the plea and entered a sentence as per the plea agreement. At that time, the Company paid a monetary fine, with respect to which a liability had been recorded during the quarter ended December 31, 2023.

Reyes v. AMVAC. On September 28, 2023, the Company received correspondence from counsel for ex-employee Jorge Reyes Jr. addressed to the California Department of Industrial Relations alleging a number of wage and hour violations under California law. This is a precursor to a civil filing under applicable state law. Subsequently, plaintiff, putatively on behalf of the class of similarly situated, non-exempt California-based employees, served a summons and complaint on the Company’s registered agent that had been electronically filed as Case No. 238TCV23665, captioned Jorge Reyes v. AMVAC etc., etal., with the Superior Court for the County of Los Angeles, Central District. As is typical of this sort of action, plaintiff alleges multiple wages and hours violations, including overtime, minimum wage, sick leave, rest periods and so on. The parties attended a settlement conference on September 4, 2024, at which time they agreed to settle the matter for an amount that was within the liability recorded during the quarter ended June 30, 2024. The settlement is subject to court approval which the Company believes will be forthcoming in the first quarter of 2025.

Notice of Intention to Suspend DCPA. On April 28, 2022, the USEPA published a notice of intent to suspend (“NOITS”) DCPA, the active ingredient of an herbicide marketed by the Company under the name Dacthal. The agency cited as the basis for the suspension that the Company did not take appropriate steps to provide data studies requested in support of the registration review. In fact, over the course of several years, the Company cooperated in performing the vast majority of the nearly 90 studies requested by USEPA and had been working in good faith to meet the agency’s schedule. After proceedings in law and motion, the Company entered into a settlement agreement with USEPA pursuant to which the parties set a timeline for the submission of remaining studies, which, if approved by the agency, would result in reinstatement of the registration. The Company submitted the studies in question, the agency reviewed them, and the registration was reinstated in November 2023.

After that reinstatement, the agency resumed registration review, during which it expressed concern over the potential health effects on farm workers in early stages of pregnancy. These concerns arose over a comparative thyroid assay (“CTA”), a relatively new and complex study, which indicated an effect on fetal rodents. In an effort to meet the agency’s concerns, over a period of several months, the Company provided significant training to USEPA on actual use patterns for Dacthal, worker re-entry practices, size of fields treated per diem and geographical focus. Nevertheless, in April 2024, USEPA concluded that, despite the mitigation measures and other information proposed by the Company and due to its safety concerns, the agency was at an impasse in advancing its registration review of the then current label. Accordingly, out of an abundance of caution, the Company submitted a significantly narrower label and voluntarily suspended sales of Dacthal pending review and potential approval of that label.

On August 6, 2024, USEPA issued an emergency order suspending all registrations of, and prohibiting all distribution, sale and use of, DCPA/Dacthal on the basis of its finding a risk of imminent harm to pregnant individuals who may be exposed to the product, based upon thyroid hormone disruption observed in prenatal rodents within a comparative thyroid assay test. While noting that the Company had attempted to address the agency’s concerns, USEPA could find no combination of practicable mitigations that would permit continued use of the product. The Company promptly implemented a program for effecting the return of product that was within the channels of trade. Further, on August 19, 2024, the Company filed notice of voluntary cancellation of DCPA products. The Company has taken charges in the amount of $16,191 during the three and nine months ended September 30, 2024. The charges include reported product returns from global distribution, retail and growers in the amount of $12,403 recorded as a reduction to net sales on the condensed consolidated statements of operations , inventory write-offs in the amount of $2,265 included in cost of sales on the condensed consolidated statements of operations, and logistics and disposal costs in the amount of $1,523 included in cost of sales on the condensed consolidated statements of operations. The corresponding liability related to the reported product returns and logistics and disposal costs in the amount of $13,926 is included in accrued expenses and other payables on the condensed consolidated balance sheets as of September 30, 2024.

13. Recent Issued Accounting Guidance —In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its condensed consolidated financial statements.

14. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard established a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:

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Level 1 – Quoted prices in active markets for identical assets or liabilities.

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Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s borrowings, which are considered Level 2 liabilities, approximates fair value as they bear interest at a variable rate at current market rates.

15. Business Acquisitions—On October 5, 2023, the Company completed the acquisition of all outstanding stock of Punto Verde S.A. Punversa (Punto Verde), a well-established distributor in Guayaquil, Ecuador, to strengthen its product portfolio and market access in the Latin American region. The Company paid cash consideration of $4,492, which was net of cash acquired of $233. The acquisition was accounted for as a business combination and the purchase consideration was allocated as follows:

Liabilities assumed include liabilities of $447 related to income tax matters. Goodwill is not expected to be deductible for income tax purposes. The operating results of Punto Verde have been included in the Company's consolidated statements of operations from the date of acquisition. Pro-forma financial information is not included herein as the pro-forma impact of the acquisition is not material.

16. Accumulated Other Comprehensive Loss—The following table lists the beginning balance, quarterly activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency translation adjustments:

17. Equity Investments — In February 2016, AMVAC Netherlands BV made an investment in Biological Products for Agriculture (“Bi-PA”). Bi-PA develops biological plant protection products that can be used for the control of pests and disease of agricultural crops. As of September 30, 2024 and December 31, 2023, the Company’s ownership position in Bi-PA was 15%. Since this investment does not have readily determinable fair value, the Company has elected to measure the investment at cost less impairment, if any, and also records an increase or decrease for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Bi-PA. The Company periodically reviews the investment for possible impairment. There wasno impairment or observable price changes on the investment during the three and nine months ended September 30, 2024 and 2023. The investment is recorded within other assets on the condensed consolidated balance sheets and amounted to $2,869 as of September 30, 2024 and December 31, 2023.

On April 1, 2020, AMVAC purchased 6.25 million shares, an ownership of approximately 8%, of common stock of Clean Seed Capital Group Ltd. The shares were publicly traded, had a readily determinable fair value, and were considered a Level 1 investment. In Q1 2024, Clean Seed's shares temporarily ceased trading. Since this investment does not have readily determinable fair value at this time, the Company has elected to measure the investment at the last trading price less impairment, if any, and also records an increase or decrease for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Clean Seed. The fair value of the stock amounted to $938 and $425 as of September 30, 2024 and December 31, 2023, respectively. The Company recorded a loss of $247 for the three months ended September 30, 2023. There was no change in value andno loss recordedin the three months ended September 30, 2024. The Company recorded a gain of $513 for the nine months ended September 30, 2024 and loss of $324 for the nine months ended September 30, 2023. The investment is recorded within other assets on the condensed consolidated balance sheets.

18. Income Taxes —Income tax benefit was $7,024 for the three months ended September 30, 2024, as compared to income tax expense of $885 for the three-months ended September 30, 2023. Income tax benefit was $7,093 for the nine months ended September 30, 2024 as compared to an income tax expense of $2,066 for the nine months ended September 30, 2023. The effective income tax rate for the three and nine-month periods ended September 30, 2024 was computed based on the actual effective tax rate for the year-to-date period ended September 30, 2024. This calculation resulted in an effective income tax rate of 21.4% for the three months ended September 30, 2024, as compared to 158.0% for the three-months ended September 30, 2023. The effective income tax rate was 16.5% for the nine months ended September 30, 2024, as compared to 79.3%. for the nine months ended September 30, 2023. The decrease in the effective income tax rate for the three and nine months ended September 30, 2024 compared to the same periods in the prior year is primarily attributable to income tax benefits associated with transformation costs and losses before provision for income taxes incurred during the periods of 2024.

It is expected that $328 of unrecognized tax benefits will be released within the next twelve months due to expiration of the statute of limitations.

19. Stock Re-purchase Programs — On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to 1,000,000 shares of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws.

On May 25, 2023, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase up to $15,000 of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws.

The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three and nine months ended September 30, 2024 and 2023.

Pursuant to Amendments Number Six and Seven to the Third Amended Loan and Security Agreement, the Company is currently prevented from making stock repurchases, effective November 7, 2023.

20. Supplemental Cash Flow Information