Phibro Animal Health
Annual Report 2018

Plain-text annual report

☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934TABLE OF CONTENTSUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549​FORM 10-K​(Mark One)For the fiscal year ended June 30, 2018ORFor the transition period from______ to______Commission File Number: 001-36410​Phibro Animal Health Corporation(Exact name of registrant as specified in its charter)​​Delaware13-1840497​​(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)​​Glenpointe Centre East, 3 Floor 300 Frank W. Burr Boulevard, Suite 21 Teaneck, New Jersey (Address of Principal Executive Offices)07666-6712 (Zip Code)​(201) 329-7300 (Registrant’s telephone number, including area code)​Securities registered pursuant to Section 12(b) of the Act:​Class A Common Stock, $0.0001 par value per share(Title of each class)NASDAQ Stock Market (Name of each exchange on which registered)​Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of SecuritiesAct. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct.  Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant wasrequired 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, ifany, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and postsuch files.) Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of thischapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler, a 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 smaller 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 extendedtransition period for complying with any or new revised financial accounting standards provided pursuant to Section 13(a) ofthe Exchange Act. ☒Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes ☐ No ☒The aggregate market value of the registrant’s Class A common stock and Class B common stock held by non-affiliates of the registrant was $654,921,282 as of December 31, 2017, the last business day of the registrant’s mostrecently completed second fiscal quarter based on the closing price of the common stock on the NASDAQ Stock Market.The registrant has no non-voting common stock.As of August 20, 2018, there were 20,121,674 shares of the registrant’s Class A common stock, par value $0.0001per share, and 20,246,034 shares of the registrant’s Class B common stock, par value $0.0001 per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCE:Portions of the registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders to be held on November5, 2018 (hereinafter referred to as the “2018 Proxy Statement”) are incorporated herein by reference in Part III of this AnnualReport on Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days ofthe registrant’s fiscal year ended June 30, 2018.TABLE OF CONTENTSrdItem 1.BusinessItem 1A.Risk FactorsItem 1B.Unresolved Staff CommentsItem 2.PropertiesItem 3.Legal ProceedingsItem 4.Mine Safety DisclosuresItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6.Selected Financial DataItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsItem 7A.Quantitative and Qualitative Disclosures About Market RiskItem 8.Financial Statements and Supplementary DataItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A.Controls and ProceduresItem 9B.Other InformationItem 10.Directors, Executive Officers and Corporate GovernanceItem 11.Executive CompensationItem 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13.Certain Relationships and Related Transactions, and Director IndependenceItem 14.Principal Accounting Fees and ServicesItem 15.Exhibits, Financial Statement SchedulesPHIBRO ANIMAL HEALTH CORPORATION TABLE OF CONTENTSPageForward-Looking Statements3Emerging Growth Company Status4Market Ranking and Other Industry Data5Trademarks, Service Marks and Trade Names5PART I62551525252PART II5355577980116116117PART III119119119119119PART IV120SIGNATURES1212•perceived adverse effects on human health linked to the consumption of food derived fromanimals that utilize our products could cause a decline in the sales of those products;•restrictions on the use of antibacterials in food-producing animals may become more prevalent;•a material portion of our sales and gross profits are generated by antibacterials and other relatedproducts;•competition in each of our markets from a number of large and small companies, some of whichhave greater financial, research and development (“R&D”), production and other resources thanwe have;•outbreaks of animal diseases could significantly reduce demand for our products;•our business may be negatively affected by weather conditions and the availability of naturalresources;•the continuing trend toward consolidation of certain customer groups as well as the emergence oflarge buying groups;•our ability to control costs and expenses;•any unforeseen material loss or casualty;•exposure relating to rising costs and reduced customer income;•competition deriving from advances in veterinary medical practices and animal healthtechnologies;•unanticipated safety or efficacy concerns;•our dependence on suppliers having current regulatory approvals;•our raw materials are subject to price fluctuations and their availability can be limited;•natural and man-made disasters, including but not limited to fire, snow and ice storms, flood, hail,hurricanes and earthquakes;•terrorist attacks, particularly attacks on or within markets in which we operate;•our ability to successfully implement our strategic initiatives;•our reliance on the continued operation of our manufacturing facilities and application of ourintellectual property;•adverse U.S. and international economic market conditions, including currency fluctuations;TABLE OF CONTENTSForward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements that are subject to risks anduncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to ourfinancial condition, results of operations, plans, objectives, future performance and business. You can identifyforward-looking statements by the fact that they do not relate strictly to historical or current facts. Thesestatements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,”“outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “believe,” “may,” “could,” “would,”“will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaningin connection with any discussion of the timing or nature of future operating or financial performance or otherevents. For example, all statements we make relating to our estimated and projected earnings, revenues, costs,expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations,growth or initiatives, strategies, or the expected outcome or impact of pending or threatened litigation areforward-looking statements. All forward-looking statements are subject to risks and uncertainties that may causeactual results to differ materially from those that we expected. Examples of such risks and uncertainties include:3•failure of our product approval, R&D, acquisition and licensing efforts to generate new products;•the risks of product liability claims, legal proceedings and general litigation expenses;•the impact of current and future laws and regulatory changes;•modification of foreign trade policy may harm our food animal product customers•our dependence on our Israeli and Brazilian operations;•our substantial level of indebtedness and related debt-service obligations;•restrictions imposed by covenants in our debt agreements;•the risk of work stoppages; and•other factors as described in “Risk Factors” in Item 1A. of this Annual Report on Form 10-K.TABLE OF CONTENTSWhile we believe that our assumptions are reasonable, we caution that it is very difficult to predict theimpact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.Important factors that could cause actual results to differ materially from our expectations, or cautionarystatements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.” All forward-looking statements are expressly qualified in their entirety bythese cautionary statements. You should evaluate all forward-looking statements made in this report in thecontext of these risks and uncertainties.We caution you that the important factors referenced above may not contain all of the factors that areimportant to you. In addition, we cannot assure you that we will realize the results or developments we expect oranticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us orour operations in the way we expect. The forward-looking statements included in this report are made only as ofthe date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as aresult of new information, future events or otherwise, except as otherwise required by law. If we do update one ormore forward-looking statements, no inference should be made that we will make additional updates withrespect to those or other forward-looking statements.Emerging Growth Company StatusWe are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 (the“Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, weare eligible to take advantage of certain exemptions from various reporting requirements that are applicable toother public companies that are not “emerging growth companies.” These exemptions include, but are notlimited to, (i) not being required to comply with the auditor attestation requirements of Section 404 (“Section404”) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), (ii) reduced disclosureobligations regarding executive compensation in our periodic reports and proxy statements, and (iii) exemptionsfrom the requirements of holding a non-binding advisory vote on executive compensation and stockholderapproval of any golden parachute payments not previously approved. We have taken, and plan to continue totake, advantage of some or all of these exemptions. If we do continue to take advantage of any of theseexemptions, we do not know if some investors will find our Class A common stock less attractive as a result. Ifsome investors find our Class A common stock less attractive, there may be a less active trading market for ourClass A common stock and our stock price may be more volatile. We have elected to forego the extendedtransition period for complying with new or revised accounting standards that emerging growth companies arepermitted to take advantage of pursuant to Section 107 of the JOBS Act.Pursuant to Section 102 of the JOBS Act, our 2018 Proxy Statement will provide reduced executivecompensation disclosure.4TABLE OF CONTENTSWe expect to remain an emerging growth company until June 30, 2019, which is the end of the fiscalyear following the fifth anniversary of our initial public offering. We will be required to comply with the auditorattestation requirements of the Sarbanes-Oxley Act, effective with our June 30, 2019 consolidated financialstatements.Market, Ranking and Other Industry DataUnless otherwise indicated, information contained in this report concerning our industry and themarkets in which we operate, including our general expectations and market position, market opportunity andmarket share, is based on management estimates and on information from Vetnosis Limited (“Vetnosis”), aresearch and consulting firm specializing in global animal health and veterinary medicine. The Vetnosisinformation cited in this document was not prepared by Vetnosis on our behalf. Management estimates arederived from publicly available information, our knowledge of our industry and assumptions based on suchinformation and knowledge, which we believe to be reasonable. We believe these estimates are reasonable as ofthe date of this report, or if an earlier date is specified, as of such earlier date. However, this information mayprove to be inaccurate because of the method by which we obtained some of the data for our estimates orbecause this information is subject to change and cannot always be verified due to limits on the availability andreliability of independent sources, the voluntary nature of the data gathering process and other limitations anduncertainties inherent in any statistical survey of market shares. In addition, purchasing patterns and consumerpreferences can and do change. As a result, you should be aware that market share, ranking and other similar dataset forth in this report, and estimates and beliefs based on such data, may not be reliable.Trademarks, Service Marks and Trade NamesThe following trademarks and service marks used throughout this report belong to, are licensed to, orare otherwise used by us in our business: AB20; Animate; Aviax; Aviax II™; Aviax Plus™; Avi-Carb;Banminth; Biosaf; Bloat Guard; Boviprol™; Cellerate Yeast Solutions; Cerdimix™; Cerditac™;Chromax; Coxistac™; Emulsigen; Eskalin™; Lactrol; Magni-Phi; Mecadox; MJPRRS; MVPAdjuvants; Neo-Terramycin; Neo-TM™; Nicarb; Nicarmix; OmniGen-AF; Posistac™; Procreatin 7;Provia 6086™; Rumatel; Safmannan; Stafac; TAbic; Tailor Made; Terramycin; TM-50; TM-100™;V.H. and, V-Max.5®®®®®®®®®®®®®®®®®®®®®®®®®®®®;®•Animal health products such as antibacterials, anticoccidials, nutritional specialty products andvaccines that help improve the animal’s health and therefore improve performance, food safetyand animal welfare. Our Animal Health segment also includes antibacterials and other processingaids used to improve production efficiency in the ethanol fermentation industry.•Mineral nutrition products that fortify the animal’s diet and help maintain optimal health.TABLE OF CONTENTSPART IItem 1. BusinessOverviewPhibro Animal Health Corporation is a leading global diversified animal health and mineral nutritioncompany. We strive to be a trusted partner with livestock producers, veterinarians and farmers by providingsolutions to help them maintain and enhance the health of their animals and produce healthy, affordable foodwith fewer natural resources. We sell more than 1,500 product presentations in over 70 countries toapproximately 3,000 customers. We develop, manufacture and market products for a broad range of food animalsincluding poultry, swine, beef and dairy cattle and aquaculture. Our products help prevent, control and treatdiseases, enhance nutrition to help improve health and contribute to balanced mineral nutrition. We sell animalhealth and mineral nutrition products either directly to integrated poultry, swine and cattle integrators orthrough commercial animal feed manufacturers, wholesalers and distributors.Our products include:We have focused our efforts in regions where the majority of livestock production is consolidated inlarge commercial farms. We believe we are well positioned to further accelerate our growth with our establishednetwork of sales, marketing and distribution professionals in markets in North America, Latin America, AsiaPacific, Europe and Africa.We are investing development resources and exploring a future entry into the companion animalsector. Our business today is concentrated in the livestock sector.In addition to animal health and mineral nutrition products, we manufacture and market specificingredients for use in the personal care, industrial chemical and chemical catalyst industries. We sellperformance products directly to customers in the aforementioned industries.Unless otherwise indicated or the context requires otherwise, references in this report to “we,” “our,”“us,” “the Company,” “Phibro,” “PAHC” and similar expressions refer to Phibro Animal Health Corporation andits subsidiaries. We completed our initial public offering on April 16, 2014. Our Class A common stock trades onthe NASDAQ Stock Market (“NASDAQ”) under the trading symbol “PAHC.” Our Class B common stock is notlisted or traded on any stock exchange.Business SegmentsWe manage our business in three segments—Animal Health, Mineral Nutrition and PerformanceProducts—each with its own dedicated management and sales team, for enhanced focus and accountability. Netsales by segments, species and regions were:​​Segments​​Change​​Percentage of total​For the Years Ended June 30​​2018​​2017​​2016​​2018/20172017/2016​​201820172016​($ in millions)Animal Health$532$498$486$347$122656565Mineral Nutrition23521821717821292929Performance Products534849511(0(1766Total$820$764$752$567$1326%%%%%%%%%%%))%%%%%%(1)Other includes sales related to: Performance Products customers; the ethanol industry; aquaculture andother minor species; adjuvants for vaccine manufacturers; and Mineral Nutrition pet food, plant nutritionand other customers.(2)Net sales by region are based on country of destination.(1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Generaldescription of non-GAAP financial measures” for description of Adjusted EBITDA.(2)Before unallocated corporate costsTABLE OF CONTENTS​​Species​​ChangePercentage of total​For the Years Ended June 30​​2018​​2017​​2016​​2018/20172017/2016201820172016​($ in millions)Poultry$321$301$292$207$93393939Dairy1771571462013117222119Cattle80769645(20(21101013Swine1009310078(8(8121213Other142137116542118171815Total$820$764$752$567$132​​Regions​​ChangePercentage of total​For the Years Ended June 30​​2018​​2017​​2016​​2018/20172017/2016201820172016​($ in millions)U.S. & Canada$504$502$493$20$92616666Latin America126991092727(10(9151315Asia Pacific70676135610998Europe, Middle East & Africa 1209689242578151312Total$820$764$752$567$132Certain amounts and percentages may reflect rounding adjustments.Adjusted EBITDA by segment was:​​Adjusted EBITDA​​Change​​Percentage of total​For the Year Ended June 30​​201820172016​​2018/2017​​2017/2016​​201820172016​($ in millions)Animal Health$142$130$127$129$33878789Mineral Nutrition19171517216111210Performance Products221(0(91106111Corporate(33(30(29(4*(1*Total$129$120$114$97$65Certain amounts and percentages may reflect rounding adjustments.Net identifiable assets by segment were:​​Net Identifiable Assets​​Change​​Percentage of total​As of June 30​​201820172016​​2018/2017​2017/2016​​201820172016​($ in millions)Animal Health$456$442$445$143$(3(1687173Mineral Nutrition7055581526(2(410910Performance Products24242201210444Corporate1221028420201822181614Total$672$623$608$498$1637%%%%%%%%%%%))%%%%%))%%%%(1)%%%%%%%(2)%%%%%%))%%%%%%%%%%%%%%%%(1)(2)%%%%%%%%%%))%%%%%)))))%%%))%%%%%))%%%%%%%%%%%%%%%%•antibacterials, which inhibit the growth of pathogenic bacteria that cause bacterial infections inanimals; anticoccidials, which inhibit the growth of coccidia (parasites) that damage the intestinaltract of animals; and related products (MFAs and other);•nutritional specialty products, which enhance nutrition to help improve health and performance(nutritional specialties); and•vaccines, which cause an increase in antibody levels against a specific virus or bacterium, thuspreventing infection from that viral or bacterial antigen (vaccines).(1)Net sales by region are based on country of destinationTABLE OF CONTENTSCorporate assets include cash and cash equivalents, short-term investments, debt issuance costs, income taxrelated assets and certain other assets.Certain amounts and percentages may reflect rounding adjustments.Animal HealthOur Animal Health business develops, manufactures and markets more than 900 product presentations,including:Our animal health products help our customers prevent, control and treat diseases and enhancenutrition to help improve health, enabling our customers to more efficiently produce high-quality, wholesomeand affordable animal protein products for human consumption. We develop, manufacture and market animalhealth products for a broad range of food animals including poultry, swine, beef and dairy cattle andaquaculture. We provide technical and product support directly to our customers to ensure the optimal use of ourproducts. The animal health industry and demand for many of our animal health products in a particular regionare affected by changing disease pressures and by weather conditions, as usage of our products follows varyingweather patterns and seasons. As a result, we may experience regional and seasonal fluctuations in our animalhealth segment. Animal Health net sales by product group and regions were:​​Product Groups​​ChangePercentage of total​For the Years Ended June 30​​2018​​2017​​2016​​2018/20172017/2016201820172016​($ in millions)MFAs and other$337$321$340$155$(19(5636570Nutritional specialties1231119412111718232219Vaccines7265527111325141311Animal Health$532$498$486$347$122​​Regions​​ChangePercentage of total​For the Years Ended June 30​​2018​​2017​​2016​​2018/20172017/2016201820172016​($ in millions)U.S. & Canada$221$241$235$(20(8$63424848Latin America121961042526(9(8231921Asia Pacific69676124610131312Europe, Middle East & Africa1219486272989231918Total$532$498$486$347$122Certain amounts and percentages may reflect rounding adjustments.MFAs and OtherOur MFAs and other business primarily consists of concentrated medicated products that areadministered through animal feeds, commonly referred to as Medicated Feed Additives (“MFAs”). Our MFAsand other business primarily consists of the production and sale of antibacterials (including Stafac,8%))%%%%%%%%%%%%%%%%(1)))%%%%%%))%%%%%%%%%%%%%%%%®TABLE OF CONTENTSTerramycin, Neo-Terramycin and Mecadox) and anticoccidials (including Nicarb, Aviax, Aviax Plus™,Coxistac™ and amprolium). MFAs and other also includes antibacterial products used to control bacterialinfections, as well as other processing aids, for the ethanol fermentation industry.Approximately 50% of our MFAs and other sales in fiscal year 2018 were to the poultry industry, withsales to swine, cattle, dairy and other customers accounting for the remainder. We sell our MFAs and otherproducts in all regions where we do business, with the largest region (as measured by net sales) accounting forapproximately one-third of the product group’s net sales.Nutritional SpecialtiesMany of our proprietary nutritional specialty products have been developed through basic research incooperation with private research companies or by leading universities with whom we collaborate and thenfurther develop through commercial trials with customers. Our nutritional specialty products include OmniGen-AF, a patented nutritional specialty product that has been shown in several studies to help maintain a cow’shealthy immune system; Animate, a patented anionic nutritional specialty product that helps optimize thehealth and performance of the transition dairy cow; Magni-Phi, a proprietary nutritional specialty product thathas been shown in several studies to help improve immune response in poultry; and, Cellerate Yeast Solutions,a proprietary yeast culture product that is used in all classes of livestock to help improve digestive health, whichmay lead to improved animal health and performance. We sell our nutritional specialty products in the UnitedStates and various other countries internationally.VaccinesOur vaccines products are primarily focused on preventing diseases in poultry and swine. We marketvaccines in all regions in which we operate. We market our vaccine products to protect animals from either viralor bacterial disease challenges.We have developed and distribute over 20 licensed vaccine presentations for prevention of disease inpoultry including vaccines to protect against Infectious Bursal Disease, Infectious Bronchitis, and NewcastleDisease.We develop, manufacture and distribute autogenous vaccines against animal diseases in the UnitedStates. Our autogenous vaccines allow us to produce custom vaccines for veterinarians that contain antigensspecific to each farm, allowing Phibro to provide comprehensive health management solutions to our customers.We also market adjuvants to vaccine manufacturers and other products. In July 2018, we accelerated the closingdate and completed the purchase of intellectual property and certain other assets relating to the manufacture andsale of an autogenous vaccine against porcine reproductive and respiratory syndrome (“PRRS”). We previouslywere the exclusive distributor of the PRRS vaccine.We have developed TAbic, an innovative and proprietary delivery platform for vaccines. TAbic is apatented technology for formulation and delivery of vaccine antigens in effervescent tablets, packaged in sealedaluminum blister packages. The technology replaces the glass bottles that are in common use today, and offerssignificant advantages including storage requirements, customer handling and disposal. Several of our vaccineproducts are available in the patented TAbic format. We also focus on innovation to produce new antigens ornew presentations of antigens, and have developed new vaccines, such as the inactivated subunit InfectiousBursal Disease Virus and Egg Drop Syndrome vaccines, being sold as monovalent vaccines or in combinationswith other antigens.We recently acquired an idle vaccine production facility in Sligo, Ireland and plan to develop andoperate the facility to produce poultry vaccines, with longer term expectations to add swine and cattle vaccines.9®®®®®®®®®®TABLE OF CONTENTSMineral NutritionOur Mineral Nutrition business manufactures and markets approximately 400 formulations andconcentrations of trace minerals such as zinc, manganese, copper, iron and other compounds, with a focus oncustomers in North America. Our customers use these products to fortify the daily feed requirements of theirlivestock’s diets and maintain an optimal balance of trace elements in each animal. We manufacture and marketmineral nutrition products for a broad range of food animals including poultry, swine and beef and dairy cattle.Volume growth in the mineral nutrition sector is primarily driven by livestock production numbers, whilepricing is largely based on costs of the underlying commodity metals. Demand for our mineral nutrition productscan vary in different seasons of the year and due to changes in weather conditions in a particular region, both ofwhich may cause animal feed consumption to fluctuate. As a result, we may experience regional and seasonalfluctuations in our Mineral Nutrition segment.Performance ProductsOur Performance Products business manufactures and markets a number of specialty ingredients for usein the personal care, industrial chemical and chemical catalyst industries, predominantly in the United States.Our ProductsAnimal HealthMFAs and OtherOur MFAs and other business primarily consists of the production and sale of antibacterials (Stafac,Terramycin, Neo-Terramycin and Mecadox) and anticoccidials (Nicarb, Aviax, Aviax Plus, Coxistac andamprolium). We sell our MFAs and other products in all regions where we do business.Antibacterials and AnticoccidialsWe manufacture and market a broad range of antibacterials and other medicated products to the globallivestock industry. These products provide therapeutic benefits for the animals and increased feed conversionefficiency, which are proven drivers of profitability for animal producers. The table below presents our core MFAproducts:ProductActive IngredientMarket Entry of Active IngredientDescription​Terramycin/TM-50/​TM-100™oxytetracycline1951Antibacterial with multipleapplications for a wide number ofspeciesNicarbnicarbazin1954Anticoccidial for poultryamproliumamprolium1960Anticoccidial for poultry andcattleBloat Guardpoloxalene1967Anti-bloat treatment for cattleBanminthpyrantel tartrate1972Anthelmintic for livestockMecadoxcarbadox1972Antibacterial for swine to controlSalmonellosis and dysenteryStafac/Eskalin™/V-Maxvirginiamycin1975Antibacterial used to prevent andcontrol diseases in poultry, swineand cattleCoxistac™/Posistac™salinomycin1979Anticoccidial for poultry andcattle; disease preventative inswineRumatelmorantel tartrate1981Anthelmintic for livestock10®®®®®®®®®•Oxytetracycline and Neomycin. Terramycin utilizes the active ingredient oxytetracycline andNeo-Terramycin combines the active ingredients neomycin and oxytetracycline to prevent,control and treat a wide range of diseases in chickens, turkeys, cattle, swine and aquaculture. Wesell Terramycin and/or Neo-Terramycin products primarily to livestock and aquacultureproducers, feed companies and distributors.•Virginiamycin. Virginiamycin is an antibacterial marketed under the brand names Stafac topoultry, swine and cattle producers, Eskalin™ to dairy cows and beef cattle producers and V-Max for beef cattle producers. Virginiamycin is used to prevent necrotic enteritis in chickens,treat and control swine dysentery and aid in the prevention of liver abscesses in cattle. Ourexperience in the development and production of virginiamycin has enabled us to developsignificant intellectual property through trade secret know-how, which has helped protect againstcompetition from generics. We are the sole worldwide manufacturer and marketer ofvirginiamycin.•Carbadox. We market carbadox under the brand name Mecadox for use in swine feeds to controlswine Salmonellosis and swine dysentery and, as a result, improve animal health and performance.Mecadox is sold primarily in the United States to feed companies and large integrated swineproducers.•Nicarbazin. We produce and market nicarbazin, a broad-spectrum anticoccidial used forcoccidiosis prevention in poultry. We market nicarbazin under the trademarks Nicarb andNicarmix and as an active pharmaceutical ingredient.•Amprolium. We produce and market amprolium primarily as an active pharmaceutical ingredient.•Salinomycin and Semduramicin. We produce and market Coxistac, Aviax/Aviax II™/AviaxPlus™/Avi-Carb and Posistac™, which are in a class of compounds known as ionophores, tocombat coccidiosis in poultry and increase feed efficiency in swine.TABLE OF CONTENTSProductActive IngredientMarket Entry ofActive IngredientDescription​Cerditac™/Cerdimix™oxibendazole1982Anthelmintic for livestockAviax/Aviax II™semduramicin1995Anticoccidial for poultryNeo-Terramycin/Neo-TM™oxytetracycline +neomycin1999Combination of twoantibacterials with multipleapplications for a wide number ofspeciesAviax Plus/Avi-Carbsemduramicin +nicarbazin2010Anticoccidial for poultryAntibacterials are biological or chemical products used in the animal health industry to treat or toprevent bacterial diseases, thereby promoting more efficient livestock growth. Several factors contribute to limitthe efficiency, weight gain and feed conversions of livestock production, including stress, poor nutrition,environmental and management challenges and disease. Antibacterials help prevent, control and treat disease inlivestock, which can also lead to improved overall health of the animals, improved rate of weight gain and moreefficient feed conversion. Our antibacterial products include:Anticoccidials are produced through fermentation and chemical synthesis, and are primarily used toprevent and control the disease coccidiosis in poultry and cattle, thereby promoting more efficient livestockgrowth. Coccidiosis is a disease of the digestive tract that has considerable health consequences to livestockand, as a result, is of great concern to livestock producers. We sell our anticoccidials primarily to integratedpoultry producers and feed companies and to international animal health companies. Our anticoccidial productsinclude:Anthelmintics are used to treat infestations of parasitic intestinal worms. Our anthelmintic productsinclude Rumatel and Banminth, which are both marketed to control major internal nematode parasites in beefand dairy cattle and swine.11®®®®®®®®®®®®®®®®TABLE OF CONTENTSBloat Guard is an anti-bloat treatment used in cattle to control bloat in animals grazing on legume orwheat-pasture.Nutritional SpecialtiesOur primary nutritional specialty products have been identified, developed and commercialized by ourstaff of nutritionists and veterinarians working with private research companies, leading universities, andcustomers with whom we collaborate. For those of our nutritional specialty products that are not proprietary orexclusive to us, we typically maintain unique supply agreements or exclusive distributor status with the productdevelopers giving us preferential access to trademarks, territories and research data.Our nutritional specialty products include:ProductMarket EntryDescriptionAB201989Natural flow agent that improves overall feed qualityChromax1992Source of organic chromium used to optimize swine production throughreproductive efficiencyAnimate1999Maintains proper blood calcium levels in dairy cows during critical transitionperiodOmnigen-AF2004Optimizes immune status in dairy cowsProvia 6086™2013Direct fed microbial (b.coagulans) for all classes of livestockMagni-Phi2015Proprietary blend that helps to improve immune response and may lead toimproved absorption and utilization of nutrients for poultryCellerate YeastSolutions2017Proprietary yeast culture products for all classes of livestock to help improvedigestive healthAB20 is a natural flow agent that, when added to feed, improves the overall feed quality. The productis one of the most thoroughly researched in the flow agent product category.Chromax, chromium tripicolinate, is a source of organic chromium used to optimize swineproduction and is predominantly used in sows where it has been proven to improve reproductive efficiency andlitter size. Chromax can result in a significant return on investment for swine producers because of its low costrelative to other production costs and the reproductive and litter size improvements it promotes.Animate is a patented anionic mineral supplement that helps optimize the health and performance ofthe transition dairy cow and improves profitability for dairy producers.OmniGen-AF is a proprietary nutritional specialty product manufactured and marketed exclusivelyby us that has been shown in various studies to help maintain a cow’s healthy immune system and improve theirnatural response to potential environmental and health challenges.Magni-Phi is a proprietary blend of saponins, triterpenoids and polyphenols (classes of phytogenicfeed additives or natural botanicals) that helps improve immune response and may lead to improved absorptionand utilization of nutrients for poultry.Cellerate Yeast Solutions is a line of proprietary yeast culture and yeast culture blends with yeastfractions and/or live cell yeast used in all classes of livestock and companion animals for improved digestivehealth, feed intake and/or pathogen inhibition. Improved digestive health may lead to improved animal healthand performance.Nutritional specialty products are marketed to livestock producers by working through keyinfluencers, such as animal nutritionists and veterinarians.12®®®®®®®®®®®®®TABLE OF CONTENTSVaccinesWe develop, manufacture and market vaccines primarily for poultry. We develop, manufacture andmarket autogenous vaccines for chickens, swine and cattle in the United States. We produce vaccines thatprotect animals from either viral or bacterial disease challenges. Our vaccine products include:ProductMarket EntryDescriptionV.H.1974Live vaccine for the prevention of Newcastle Disease in poultryTailor MadeVaccines1982Autogenous vaccines against either bacterial or viral diseases in swine andcattleMVP Adjuvants1982Components of veterinary vaccines which enhance the immune response toa vaccineTAbic M.B.2004Live vaccine for the prevention of Infectious Bursal Disease in poultryMJPRRS2007Autogenous vaccine for the prevention of porcine reproductive andrespiratory syndrome (“PRRS”) in swineTAbic IB VAR2009Live vaccine for the prevention of Infectious Bronchitis variant 1 strain233A in poultryTAbic IB VAR2062010Live vaccine for the prevention of Infectious Bronchitis variant 206 inpoultryThe V.H. strain of Newcastle Disease vaccine is a pathogenic strain and is effective when applied byaerosol, coarse spray, drinking water or eye-drops. It has been used successfully under various management andclimate conditions in many breeds of poultry.Tailor Made Vaccines are autogenous vaccines against either bacterial or viral diseases whichcontain antigens specific to each farm. We manufacture and sell these vaccines to veterinarians for use primarilyin swine and cattle.MVP Adjuvants are integral components used in inactivated veterinary vaccines which enhance theimmune response to a vaccine. Our adjuvants include Emulsigen, Carbigen and Polygen.The M.B. strain of Gumboro vaccine is an intermediate virulence live vaccine strain used for theprevention of Infectious Bursal Disease in poultry. The intermediate strain was developed to provide protectionagainst the new field epidemic virus, which is more virulent than those previously encountered.MJPRRS, an autogenous vaccine for swine, is administered to pregnant sows to protect theiroffspring from PRRS. This vaccine includes multiple PRRS isolates representing different groups of PRRSviruses.TAbic IB VAR and TAbic IB VAR206 vaccines are intermediate virulence live vaccine strains used forthe prevention of infectious bronchitis in poultry. Both vaccines have become significant tools in the increasingfight against infectious bronchitis in regions throughout the world.We focus on innovation to produce new antigens or new presentations of antigens, and havedeveloped new vaccines, such as the inactivated subunit Infectious Bursal Disease Virus and Egg DropSyndrome vaccines, being sold as monovalent vaccines or in combinations with other antigens.Mineral NutritionOur mineral nutrition products principally include inorganic and organic compounds of copper, zinc,cobalt, iron, selenium, manganese, magnesium and iodine.Our major mineral nutrition customers are regional and national feed companies, distributors, co-ops,premixers, integrated swine, beef and poultry operations and pet food companies. The majority of our customershave nutrition staffs who determine their own formulae for custom trace mineral premixes.Trace mineral costs fluctuate with commodity markets, and therefore, these products are price-sensitive. Their sale requires a focused effort on cost management, quality control, customer service, pricing andlogistics execution to be profitable.13®®®®®®®®TABLE OF CONTENTSPerformance ProductsOur Performance Products business manufactures and markets products for use in the personal care,industrial chemical and chemical catalyst industries. We operate the business through our PhibroChem (adivision of PAHC), Ferro Metal and Chemical Corporation Limited and Phibro-Tech, Inc. (“Phibro-Tech”)business units.Sales and MarketingOur sales organization includes sales, marketing and technical support employees. In markets wherewe do not have a direct commercial presence, we generally contract with distributors that provide logistics andsales and marketing support for our products. Together, our Animal Health and Mineral Nutrition businesseshave a sales, marketing and technical support organization of approximately 300 employees plus approximately200 distributors who market our portfolio of more than 1,400 product presentations to livestock producers,animal feed companies and distributors in over 70 countries.In direct sales markets, we sell our animal health and mineral nutrition products through our local salesoffices, either directly to integrated poultry, swine and cattle integrators or through commercial animal feedmanufacturers, wholesalers and distributors. Our sales representatives visit our customers, including animal feedcompanies, distributors and livestock producers, to inform, promote and sell our products and services. In directservice markets, our technical operations specialists provide scientific consulting focused on diseasemanagement and herd management, training and education on diverse topics, including responsible product use.We sell our Performance Products through our local sales offices to the personal care, industrialchemical and chemical catalyst industries. We market these products predominately in the United States.CustomersWe have approximately 3,000 customers, of which approximately 2,900 customers are served by ourAnimal Health and Mineral Nutrition businesses. We consider a diverse set of livestock producers, includingpoultry and swine operations and beef and dairy farmers, to be the primary customers of our livestock products.We sell our products directly to livestock and aquaculture producers and to distributors that typically re-sell theproducts to livestock producers. We do not consider the business to be dependent on a single customer or a fewcustomers, and we believe the loss of any one customer would not have a material adverse effect on our results.We typically sell pursuant to purchase orders from customers and generally do not enter into long-termdelivery contracts.Product Registrations, Patents and TrademarksWe own certain product registrations, patents, trade names and trademarks, and use know-how, tradesecrets, formulae and manufacturing techniques, which assist in maintaining the competitive positions of certainof our products. We believe that technology is an important component of our competitive position, and itprovides us with low cost positions enabling us to produce high quality products. Patents protect some of ourtechnology, but a significant portion of our competitive advantage is based on know-how built up over manyyears of commercial operation, which is protected as trade secrets. We own, or have exclusive rights to use underlicense, approximately 200 patents or pending applications in more than 50 countries but we believe that nosingle patent is of material importance to our business and, accordingly, that the expiration or terminationthereof would not materially affect our business.We market our animal health products under hundreds of governmental product registrationsapproving many of our products with respect to animal drug safety and efficacy. The use of many of ourmedicated products is controlled by regulatory authorities that are specific to each country (e.g., the FDA in theUnited States, Health Canada in Canada and EFSA/EMA in Europe). Because they regulate the safety andwholesomeness of the human food supply, their responsibility includes feed additives for animals from whichhuman food products are derived. Medicated product registrations and requirements are country- and product-specific for each country in which they are sold. We continuously monitor, maintain14TABLE OF CONTENTSand update the appropriate registration files pertaining to such regulations and approvals. In certain countrieswhere we work with a third party distributor, local regulatory requirements may require registration in the nameof such distributor. As of June 30, 2018, we had approximately 700 Animal Health product registrationsglobally, including approximately 400 MFA registrations and approximately 300 vaccine registrations. OurMFA global registrations included 95 registrations for virginiamycin.Additionally, many of our vaccine products are based on proprietary master seeds, proprietaryadjuvant formulations or patented virus grouping technology. We actively seek to protect our proprietaryinformation, including our trade secrets and proprietary know-how, by seeking to require our employees,consultants, advisors and partners to enter into confidentiality agreements and other arrangements upon thecommencement of their employment or engagement.We seek to file and maintain trademark registrations around the world based on commercial activitiesin most regions where we have, or desire to have, a business presence for a particular product or service. Wecurrently maintain, or have rights to use under license, more than 1,700 trademark registrations or pendingapplications globally, identifying goods and services related to our business.Our technology, brands and other intellectual property are important elements of our business. We relyon patent, trademark, copyright and trade secret laws, as well as non-disclosure agreements, to protect ourintellectual property rights. Our policy is to vigorously protect, enforce and defend our rights to our intellectualproperty, as appropriate.RegulatoryMany of our animal health and mineral nutrition products require licensing by a governmental agencybefore marketing. To maintain compliance with these regulatory requirements, we have established processes,systems and dedicated resources with end-to-end involvement from product concept to launch and maintenancein the market. Our regulatory function seeks to engage in dialogue with various global agencies regarding theirpolicies that relate to animal health products. For products that are currently subject to formal licensing bygovernment agencies, our business relies on the ongoing approval and/or periodic re-approval of those licenses.Failure to maintain and, where applicable, renew those licenses for any reason including, but not limited to,changing regulations, more stringent technical, legal or regulatory requirements, or failure of the company or itsagents to make timely, complete or accurate submissions, could result in suspension or loss of the company’srights to market its products in one or more countries.United StatesIn the United States, governmental oversight of animal nutrition and health products is conductedprimarily by the United States Department of Agriculture (“USDA”) and/or the FDA. The United StatesEnvironmental Protection Agency (the “EPA”) has jurisdiction over certain products applied topically toanimals or to premises to control external parasites and shares regulatory jurisdiction of ethanol manufactured inbiofuel manufacturing facilities with the FDA.The USDA and the FDA are primarily responsible for the safety and wholesomeness of the U.S. humanfood supply. The FDA regulates foods intended for human consumption and, through the Center for VeterinaryMedicine (“CVM”), regulates the U.S. manufacture and distribution of animal drugs that will be given toanimals from which human foods are derived. All manufacturers of animal health pharmaceuticals marketed inthe United States, must show their products to be safe, effective and produced by a consistent method ofmanufacture as defined under the Federal Food, Drug, and Cosmetic Act. To protect the food and drug supply foranimals, the FDA develops technical standards for animal drug safety and effectiveness and evaluates datanecessary to support approvals of veterinary drugs. Drug sponsors are required to file reports of certain productquality defects and adverse events in accordance with agency requirements.The main regulatory body in the United States for veterinary pesticides is the EPA. The EPA’s Office ofPesticide Programs is responsible for the regulation of pesticide products applied to animals. All manufacturersof animal health pesticides must show their products will not cause “unreasonable adverse effects to man or theenvironment” as stated in the Federal Insecticide, Fungicide, and Rodenticide Act.15TABLE OF CONTENTSWithin the United States, pesticide products that are approved by the EPA must also be approved by individualstate pesticide authorities before distribution in that state. Post-approval monitoring of products is required, withreports provided to the EPA and some state regulatory agencies.FDA approval of Type A/B/C Medicated Feed Articles and drugs is based on satisfactorydemonstration of safety, efficacy, manufacturing quality standards and appropriate labelling. Efficacyrequirements are based on the desired label claim and encompass all species for which label indication isdesired. Safety requirements include target animal safety and, in the case of food animals, human food safety(HFS). HFS reviews include drug residue levels and the safety of those residue levels. In addition to the safetyand efficacy requirements for animal drugs used in food-producing animals, environmental safety must bedemonstrated. Depending on the compound, the environmental studies may be quite extensive and expensive.In many instances, the regulatory hurdles for a drug that will be used in food-producing animals are at least asstringent as, if not more so than, those required for a drug used in humans. In addition, certain safetyrequirements relating to antimicrobial resistance must be met for antimicrobial products.The CVM Office of New Animal Drug Evaluation is responsible for reviewing information submittedby drug sponsors who wish to obtain approval to manufacture and sell animal drugs. A new animal drug isdeemed unsafe unless there is an approved New Animal Drug Application (“NADA”). Virtually all animal drugsare “new animal drugs” within the meaning of the term in the Federal Food, Drug, and Cosmetic Act. Anapproved Abbreviated New Animal Drug Application (“ANADA”) is a generic equivalent of an NADApreviously approved by the FDA. Both are administered by the FDA. The drug development process for humantherapeutics can be more involved than that for animal drugs. However, because human food safety andenvironmental safety are issues for food-producing animals, the animal drug approval process for food-producing animals typically takes longer than for non-food-producing animals, such as companion animals.The FDA may deny an NADA or ANADA if applicable regulatory criteria are not satisfied, requireadditional testing or information, or require post-marketing testing and surveillance to monitor the safety orefficacy of a product. There can be no assurances that FDA approval of any NADA or ANADA will be granted ona timely basis, or at all. Moreover, if regulatory approval of a product is granted, such approval may entaillimitations on the indicated uses for which it may be marketed. Finally, product approvals may be withdrawn ifcompliance with regulatory standards is not maintained or if problems occur following initial marketing. Amongthe conditions for NADA or ANADA approval is the requirement that the prospective manufacturer’s qualitycontrol and manufacturing procedures conform to FDA’s current Good Manufacturing Practice (“cGMP”)regulations. A manufacturing facility is periodically inspected by the FDA for determination of compliance withcGMP after an initial pre-approval inspection. Certain subsequent manufacturing changes must be approved bythe FDA prior to implementation. In complying with standards set forth in these regulations, manufacturers mustcontinue to expend time, monies and effort in the area of production and quality control to ensure compliance.The process of seeking FDA approvals can be costly, time consuming, and subject to unanticipated andsignificant delays. There can be no assurance that such approvals will be granted on a timely basis, or at all. Anydelay in obtaining or any failure to obtain FDA or foreign government approvals, or the suspension orrevocation of such approvals, would adversely affect our ability to introduce and market our products and togenerate revenue.The issue of the potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led togovernment restrictions on the use of antibiotics in these food-producing animals. The sale of antibiotics is amaterial portion of our business. Legislative bills are introduced in the United States Congress from time to timethat, if adopted, could have an adverse effect on our business. One of these initiatives is a proposed bill calledthe Preservation of Antibiotics for Medical Treatment Act, which has been introduced in every Congress sincethe mid 2000’s. To date, such bills have not had sufficient support to become law. Should statutory, regulatoryor other developments result in restrictions on the sale of our products, it could have a material adverse impacton our financial position, results of operations and cash flows.In November 2004, the CVM released a draft for comment of its risk assessment of streptograminresistance for treatment of certain infections in humans attributable to the use of streptogramins in animals (the“risk assessment”). The risk assessment was initiated after approval of a human drug called Synercid16®TABLE OF CONTENTS(quinupristin/dalfopristin) for treating vancomycin resistant Enterococcus faecium (VREf), which led toincreased attention regarding the use of streptogramins in animals. Synercid and virginiamycin (the activeingredient in our Stafac product) are both members of the streptogramin class of antimicrobial drugs. The riskassessment was unable to produce any firm conclusions as to whether, and, if so, how much, the use ofvirginiamycin in food animals contributes to the occurrence of streptogramin-resistant infections in humans viaa foodborne pathway.In classifying virginiamycin in 2003 as a “medically important antimicrobial” (“MIA”) on the CVM’sGuidance for Industry (“GFI”) 152 list, a guidance document for evaluating the microbial safety of antimicrobialnew animal drugs on food for human consumption, the FDA’s stated concern was the potential impact on use ofSynercid for treating VREf in humans. In 2010, the U.S. label for Synercid was changed and the VREf indicationwas removed. The FDA determined that data submitted by the sponsor of Synercid failed to verify clinicalbenefit of the product for the treatment of VREf infections in humans. We have requested that FDA remove thestreptogramin class of antimicrobials from GFI 152 to reflect that they are not “medically important” for humantherapy, however, the FDA has declined our request, citing primarily the need to engage all stakeholders on anypossible changes to GFI 152 through the processes mandated by the FDA’s good guidance practices, includingissuing guidance revisions in draft and giving the public an opportunity to comment. There can be no assurancethat we will be successful in the future in gaining the FDA’s agreement with our view that removal of the VREfindication for Synercid requires the FDA to remove virginiamycin from the GFI 152 list of MIAs.Effective January 2017, the CVM’s revised VFD regulations, which included changes to the controland use of antimicrobial products for use in animal feed, require that affected antimicrobial products may onlybe used if authorized by a veterinarian in accordance with the regulations. Prior to implementation of the revisedVFD regulations, many approved antimicrobial products could be obtained and used without formal veterinaryauthorization.In January 2017, the FDA and industry completed the process of label changes for MIA products toremove production claims and to limit the use of MIAs to those uses that are considered necessary for assuringanimal health, namely for the prevention, control, and/or treatment of disease, and that MIA use in food-producing animals should include veterinary oversight or consultation. The label changes were the result ofrecommendations from the CVM, as described in GFI 213 (“New Animal Drugs and New Animal DrugCombination Products Administered in or on Medicated Feed or Drinking Water of Food-Producing Animals:Recommendations for Drug Sponsors for Voluntarily Aligning Product Use Conditions with GFI 209”) and GFI209 (“The Judicious Use of Medically Important Antimicrobial Drugs in Food-Producing Animals”). Wecompleted the process for label changes as described in GFI 213 by January 2017, within the timeline requestedby the FDA. United States sales of antibacterial products that the FDA has classified as medically importantantimicrobials were $17 million, $23 million and $37 million for the years ended June 30, 2018, 2017 and 2016,respectively.In April 2016, the FDA began initial steps to withdraw approval of Mecadox (carbadox), due toconcerns that certain residues from the product may persist in tissues for longer than previously determined. InJuly 2016, we submitted our data, analyses and information to the FDA that we believe support the continuedsafe use of Mecadox. In March 2018, the FDA indefinitely stayed the withdrawal proceedings; however, wecontinue to submit data to the FDA and respond to their questions. There is no timeline for the conclusion of thismatter. The initial action by the FDA does not prohibit the sale or use of Mecadox in the United States. We havecomplete confidence in the safety of Mecadox. Mecadox has been approved and sold in the United States formore than 40 years and is a widely used treatment for controlling bacterial diseases including Salmonella andswine dysentery. Mecadox is not used in human medicine and the class of drug is not considered a medicallyimportant antimicrobial. The approved Mecadox label requires a 42-day withdrawal period pre-harvesting, andto date we have not seen any hazardous residues of carbadox being detected from pig meat treated in accordancewith the approved label. Our sales of Mecadox in the United States were approximately $11 million, $15 millionand $15 million for the years ended June 30, 2018, 2017 and 2016, respectively. Should we be unable tosuccessfully defend the safety of the product, the loss of Mecadox sales would have a negative impact to theresults of our operations.In February 2015, the FDA conducted a follow-up inspection at our Teaneck, NJ headquarters to verifychanges to and corrective actions related to various analytical test results and practices, expiration17TABLE OF CONTENTSdating and reporting requirements regarding specification non-conformance. A Form 483 was issued, whichcontained one inspectional observation citing two examples of the observed violation. The observationquestioned whether or not we are able to confirm that the drug components (of Type A medicated products)remain uniformly dispersed and stable under ordinary conditions of shipment, storage and use. We responded tothe inspectional observation in writing in March 2015. This inspectional observation has not impacted ourability to market products in the United States or any other country. We believe the Form 483 observation hasbeen satisfactorily addressed; however, we have not yet received a formal response from the FDA to our writtenresponse.In May 2018, the FDA conducted a routine audit of our manufacturing facility at Guarulhos, Braziland did not issue any inspectional observations. Accordingly, this site is considered to be in conformance withU.S. cGMP standards. In March 2016, the FDA conducted a cGMP audit of this facility and issued sixinspectional observations (Form 483). Audits related to cGMP standards are typically carried out by the FDA ona two year cycle. Although it is our objective to remain in full conformance with U.S. cGMP standards, there canbe no assurance that future inspections will not raise adverse inspectional observation. Failure to comply withcGMP standards could have a material impact on our business and financial results.European UnionEuropean Union (“E.U.”) legislation requires that veterinary medicinal products must have amarketing authorization before they are placed on the market in the European Union. A veterinary medicinalproduct must meet certain quality, safety, efficacy and environmental criteria to receive a marketingauthorization. The European Medicines Agency (and its main veterinary scientific committee, the Committee forMedicinal Products for Veterinary Use) and the national authorities in the various E.U. Member States, areresponsible for administering this regime.A separate E.U. regime applies to feed additives. It provides for a re-registration process for existingadditives and this process is ongoing. For certain types of additives, the authorizations are not generic in nature(so that they can be relied upon by any operator) but are limited to the company that obtained the marketingauthorization. They are known as Brand Specific Approvals (“BSA”). The system is similar to the U.S. system,where regulatory approval is for the formulated product or “brand.”The European Food Safety Authority (“EFSA”) is responsible for the E.U. risk assessment regardingfood and feed safety. In close collaboration with national authorities and in open consultation with itsstakeholders, EFSA provides independent scientific advice and communication on existing and emerging risks.EFSA may issue advice regarding the process of adopting or revising European legislation on food or feedsafety, deciding whether to approve regulated substances such as pesticides and food additives, or developingnew regulatory frameworks and policies, for instance, in the field of nutrition. EFSA aims to provide appropriate,consistent, accurate and timely communications on food safety issues to all stakeholders and the public at large,based on the Authority’s risk assessments and scientific expertise. One of the key areas of concern for the EFSAis the containment of antimicrobial resistance.A number of manufacturers, including us, submitted dossiers in order to re-register variousanticoccidials for the purpose of obtaining regulatory approval from the European Commission. The BSA for ournicarbazin product was published in October 2010. We sell nicarbazin under our own BSA and as an activeingredient for another marketer’s product that has obtained a BSA and is sold in the European Union. Similarly,a BSA for our semduramicin product, Aviax, was published in 2006 and required reauthorization in October2016. We have submitted a dossier for reauthorization in accordance with the requirements of the EFSA andresponded to request for additional information from EFSA by submitting additional data. Because the EFSA’srequests were in addition to standard reauthorization requirements, the current BSA remains valid while EFSAreviews the additional data we have submitted. There can be no guarantee that these submissions will bereviewed favorably or in a timely manner. Failure to gain reauthorization in a timely manner could have anadverse financial impact on our business.BrazilThe Ministry of Agriculture, Livestock Production and Supply (“MAPA”) is the regulatory body inBrazil responsible for the regulation and control of pharmaceuticals, biologicals and medicinal feed18TABLE OF CONTENTSadditives for animal use. MAPA’s regulatory activities are conducted through the Secretary of AgriculturalDefense and its Livestock Products Inspection Department. These activities include the inspection and licensingof both manufacturing and commercial establishments for veterinary products, as well as the submission, reviewand approval of pharmaceuticals, biologicals and medicinal feed additives.Rest of worldWe are subject to regulatory requirements governing investigation, clinical trials and marketingapproval for animal drugs in many other countries in which our products are sold. The regulatory approvalprocess includes similar risks to those associated with FDA and European Commission approvals set forth above.Global policy and guidanceCountry-specific regulatory laws have provisions that include requirements for certain labeling, safety,efficacy and manufacturers’ quality procedures (to assure the consistency of the products), as well as companyrecords and reports. With the exception of Australia, Canada, Japan and New Zealand, most other countries’regulatory agencies will generally refer to the FDA, USDA, European Union and other international animalhealth entities, including the World Organization for Animal Health, Codex Alimentarius Commission, therecognized international standard-setting body for food (“Codex”), before establishing their own standards andregulations for veterinary pharmaceuticals and vaccines.The Joint FAO/WHO Expert Committee on Food Additives is an international expert scientificcommittee that is administered jointly by the Food and Agriculture Organization of the United Nations and theWorld Health Organization. It provides risk assessments and safety evaluations of residues of veterinary drugs inanimal products as well as exposure and residue definition and maximum residue limit proposals for veterinarydrugs in traded food commodities. These internationally published references may also be used by nationalauthorities when setting domestic standards. We work with the national authorities to establish acceptable safelevels of residual product in food-producing animals after treatment. This in turn enables the calculation ofappropriate withdrawal times for our products prior to an animal entering the food chain.In July 2014, the Codex adopted risk management advice language for a number of compoundsincluding carbadox. The advice language states “authorities should prevent residues of carbadox in food. Thiscan be accomplished by not using carbadox in food producing animals.” The advice language is to provideadvice only and is not binding on individual national authorities, and almost all national authorities alreadyhave long-established regulatory standards for carbadox, including prohibiting the use of carbadox in swineproduction within their territory, prohibiting the importation of pork from swine that are fed carbadox, orpermitting the importation of pork from swine that are fed carbadox provided there is no detection of carbadoxresidues in the meat. The advice language may be considered by national authorities in making future riskmanagement determinations. To the extent additional national authorities elect to follow the advice andprohibit the use of carbadox in food-producing animals and/or the importation of pork from swine that are fedcarbadox, such decisions could have an adverse effect on our sales of carbadox in those countries or in countriesthat produce meat for export to those countries.Advertising and promotion reviewPromotion of animal health products is controlled by regulations in many countries. These rulesgenerally restrict advertising and promotion to those approved claims and uses that have been reviewed andendorsed by the applicable agency. We conduct a review of promotion material for compliance with the localand regional requirements in the markets where we sell animal health products.Food Safety Inspection Service/Generally Recognized As SafeThe FDA is authorized to determine the safety of substances (including “generally recognized as safe”(“GRAS”) substances, and food and feed additives), as well as prescribing safe conditions of use. The FDA,which has the responsibility for determining the safety of substances, together with the Food Safety andInspection Service, the food safety branch within the USDA, maintain the authority in the United States todetermine that new substances and new uses of previously approved substances are suitable for use in meat, milkand poultry products.19TABLE OF CONTENTSIn 2008, the FDA announced that the agency required formal review of all additives used in theproduction of ethanol, including our Lactrol product (formulated virginiamycin), where the co-products maybe used for animal feed. Virginiamycin has been certified by an independent expert panel convened by us asGRAS for use as a processing aid in ethanol production and as related to the use of the resulting distiller’s co-products for animal feed. We believe that this determination satisfies the FDA requirement. However, there canbe no assurance we will be successful in maintaining market access for our Lactrol product or other ethanolproduction additives that we sell.CompetitionWe are engaged in highly competitive industries and, with respect to all of our major products, facecompetition from a substantial number of global and regional competitors. Some competitors have greaterfinancial, R&D, production and other resources than we have. Our competitive position is based principally onour product registrations, customer service and support, breadth of product line, product quality, manufacturingtechnology, facility location, and product prices. We face competition in every market in which we participate.Some of our principal competitors include Ceva Santé Animale, Boehringer Ingelheim International GMBH, EliLilly and Company (Elanco Animal Health), Huvepharma Inc., Merck & Co., Inc. (Merck Animal Health andMSD Animal Health), Southeastern Minerals, Inc. and Zoetis Inc. Many of our products face competition fromproducts that may be used as an alternative or substitute.There has been, and there may continue to be consolidation in the animal health market, which couldstrengthen our competitors. Our competitors can be expected to continue to improve the design and performanceof their products and to introduce new products with competitive price and performance characteristics. Therecan be no assurance that we will have sufficient resources to maintain our current competitive position, however,we believe the following strengths create sustainable competitive advantages that will enable us to continue ourgrowth as a leader in our industry:Products Aligned with Need for Increased Protein ProductionIncreased scarcity of natural resources is increasing the need for efficient production of food animalssuch as poultry, swine and cattle. Our animal health products, including our MFAs, vaccines and nutritionalspecialty products, help prevent and manage disease outbreaks and enhance nutrition to help support naturaldefenses against diseases. These products are often critical to our customers’ efficient production of healthyanimals. Our leading MFAs product franchise, Stafac/V-Max/Eskalin, is approved in over 30 countries for use inpoultry, swine and cattle and is regarded as one of the leading MFA products for production animals. Ournicarbazin and amprolium MFAs are globally recognized anticoccidials. Our nutritional specialty productofferings such as OmniGen-AF and Animate are used increasingly in the global dairy industry, and Magni-Phi israpidly becoming an important product for poultry producers. Our vaccine products are effective against criticaldiseases in poultry, swine and cattle.Global Presence with Existing Infrastructure in Key High-Growth MarketsWe have an established direct presence in many important emerging markets, and we believe we are aleader in many of the emerging markets in which we operate. Our existing operations and established sales,marketing and distribution network in over 65 countries, provide us with opportunities to take advantage ofglobal growth opportunities. Outside of the United States, our global footprint reaches to key high growthregions (countries where the livestock production growth rate is expected to be higher than the average growthrate) including Brazil and other countries in South America, China, India and Southeast Asia, Russia and formerCIS countries, Mexico, Turkey, Australia, Canada and South Africa and other countries in Africa. Our operationsin countries outside of the United States contributed approximately 59% of our Animal Health segment revenuesfor the year ended June 30, 2018.Leading Positions in High Growth Sub-sectors of the Animal Health MarketWe are a global leader in the development, manufacture and commercialization of MFA andnutritional specialty products for the animal health market. We believe we are well positioned in the fastestgrowing food animal species segments of the animal health market with significant presence in poultry and20®TABLE OF CONTENTSswine, which are projected by Vetnosis to grow globally at compound annual rates from 2017 through 2022 of6.8% and 5.3%, respectively. Our sales of MFA products were third largest in the animal health market.According to Vetnosis, MFA products are projected to grow at a compound annual rate of approximately 3.7%between 2017 and 2022.Diversified and Complementary Product Portfolio with Strong Brand Name RecognitionWe market products across the three largest livestock species (poultry, cattle and swine) andaquaculture and in the major product categories (MFAs, vaccines and nutritional specialty products). We believeour diversity of species and product categories enhances our sales mix and lowers our sales concentration risk.The complementary nature of our Animal Health and Mineral Nutrition portfolio provides us with unique cross-selling opportunities that can be used to gain access to new customers or deepen our relationships with existingcustomers. We believe we have strong brand name recognition for the Phibro name and for many of our animalhealth and mineral nutrition products, and we believe Phibro vaccines are recognized as an industry standard inefficacy against highly virulent disease challenges. Our diverse portfolio of products also allows us to addressthe distinct growing conditions of livestock in different regions.Experienced Sales Force and Technical Support Staff with Strong, Consultative Customer RelationshipsWithin our Animal Health and Mineral Nutrition segments, utilizing both our sales, marketing andtechnical support organization of approximately 300 employees and a broad distribution network, we marketour portfolio of more than 1,400 product presentations to livestock producers and veterinarians in over 70countries. We interact with customers at both their corporate and operating level, which we believe allows us todevelop an in-depth understanding of their needs. Our technical support and research personnel are alsoimportant contributors to our overall sales effort. We have a total of approximately 150 technical, field serviceand quality control/quality assurance personnel throughout the world. These professionals interface directlywith our key customers to provide practical solutions to derive optimum benefits from our products.Experienced, Committed Employees and Management TeamWe have a diverse and highly skilled team of animal health professionals, including technical andfield service personnel located in key countries throughout the world. These individuals have extensive fieldexperience and are vital to helping us maintain and grow our business. Many of our field team have more than20 years of experience in the animal health industry and many have been with us for more than 10 years.We have a strong management team with a proven track record of success at both the corporate andoperating levels. The executive management team has diverse backgrounds and an average of approximately 19years of experience in the animal health industry.EmployeesAs of June 30, 2018, we had approximately 1,500 employees. Employees at our Guarulhos, Brazilfacility are covered by a multi-employer regional industry-specific union. Certain of our Israeli employees arecovered by site-specific collective bargaining agreements. Certain employees are covered by individualemployment agreements. We believe our relations with union and non-union employees are good.ManufacturingThe Animal Health business segment manufactures many products internally and supplements thatproduction with contract manufacturing organizations (“CMOs”) as necessary.We manufacture active pharmaceutical ingredients for certain of our antibacterial and anticoccidialproducts in Guarulhos, Brazil and Braganca Paulista, Brazil. We manufacture active pharmaceutical ingredientsfor certain of our anticoccidial products in Neot Hovav, Israel. We produce vaccines in Beit Shemesh, Israel andOmaha, Nebraska. We produce adjuvants in Omaha, Nebraska. We21TABLE OF CONTENTSproduce pharmaceuticals, disinfectants and other animal health products in Petach Tikva, Israel. We producecertain of our major nutritional specialty and mineral nutrition products in Quincy and Chillicothe, Illinois, andwe produce certain of our mineral nutrition products in Omaha, Nebraska.We supplement internal manufacturing and production capabilities with CMOs. We purchase certainactive pharmaceutical ingredients for other medicated products from CMOs in China, India, Mexico and otherlocations. We then formulate the final dosage form in our facilities and in contract facilities located in theUnited States, Brazil, Canada, Mexico, Australia, China and Israel.We purchase certain raw materials necessary for the commercial production of our products from avariety of third-party suppliers. Such raw materials are generally available from multiple sources, are purchasedworldwide and are normally available in quantities adequate to meet the needs of the Company’s business.We believe that our existing facilities, as supplemented by CMOs, are adequate for our currentrequirements and for our operations in the foreseeable future.Research and DevelopmentMost of our manufacturing facilities have chemists and technicians on staff involved in productdevelopment, quality assurance, quality control and providing technical services to customers. Research,development and technical service efforts are conducted by our veterinarians (DVMs) and nutritionists atvarious facilities.We operate Animal Health R&D and product testing at our facilities in: Guarulhos, Brazil; BeitShemesh, Israel; Neot Hovav, Israel; Ma’ayan Tzvi, Israel; Quincy, Illinois; Corvallis, Oregon; State College,Pennsylvania; Manhattan, Kansas; St. Paul, Minnesota; and Omaha, Nebraska.These facilities provide R&D services relating to: fermentation development and micro-biologicalstrain improvement; vaccine development; chemical synthesis and formulation development; nutritionalspecialty product development; and ethanol-related products.Our R&D expenses were $10.0 million, $9.4 million and $11.0 million for fiscal years 2018, 2017 and2016, respectively.Environmental, Health and SafetyOur operations and properties are subject to Environmental Laws (as defined below) and regulations.We have incurred, and will continue to incur, expenses to attain and maintain compliance with EnvironmentalLaws. While we believe that our operations are currently in material compliance with Environmental Laws, wehave, from time to time, received notices of violation from governmental authorities, and have been involved incivil or criminal action for such violations, including for odor releases in Guarulhos, Brazil. Additionally, atvarious sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring to addresscontamination associated with historical operations. We maintain accruals for costs and liabilities associatedwith Environmental Laws, which we currently believe are adequate. In many instances, it is difficult to predictthe ultimate costs under Environmental Laws and the time period during which such costs are likely to beincurred.Governmental authorities have the power to enforce compliance with their regulations. Violators ofEnvironmental Laws may be subject to civil, criminal and administrative penalties, injunctions or both. Failureto comply with Environmental Laws may result in the temporary or permanent suspension of operations and/orpermits, limitations on production, or increased operating costs. In addition, private plaintiffs may initiatelawsuits for personal injury, property damage, diminution in property value or other relief as a result of ouroperations. Environmental Laws, and the interpretation or enforcement thereof, are subject to change and maybecome more stringent in the future, potentially resulting in substantial future costs or capital or operatingexpenses. We devote considerable resources to complying with Environmental Laws and managingenvironmental liabilities. We have developed programs to identify requirements under and maintain compliancewith Environmental Laws; however, we cannot predict with certainty the impact of increased and more stringentregulation on our operations, future capital expenditure requirements, or22TABLE OF CONTENTSthe cost of compliance. Based upon our experience to date, we believe that the future cost of compliance withexisting Environmental Laws, and liabilities for known environmental claims pursuant to such EnvironmentalLaws, will not have a material adverse effect on our financial position, results of operations, cash flows orliquidity.Environmental Health and Safety RegulationsThe following summarizes the principal Environmental Laws affecting our business.Waste Management. Our operations are subject to statutes and regulations addressing thecontamination by, and management of, hazardous substances and solid and hazardous wastes. In the UnitedStates, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended(“CERCLA”), also known as the “Superfund” law, and comparable state laws, generally impose strict joint andseveral liability for costs of investigation and remediation and related liabilities, on defined classes of   “potentially responsible parties” (“PRPs”). PRPs can be required to bear all of such costs regardless of fault, thelegality of the original disposal or ownership of the disposal site. We have been, and may become, subject toliability under CERCLA for cleanup costs or investigation or clean up obligations or related third-party claimsin connection with releases of hazardous substances at or from our current or former sites or offsite waste disposalfacilities used by us, including those caused by predecessors or relating to divested properties or operations.We must also comply with the Resource Conservation and Recovery Act of 1976, as amended(“RCRA”), and comparable state laws regulating the treatment, storage, disposal, remediation and transportationof solid and hazardous wastes. These laws impose management requirements on generators and transporters ofsuch wastes and on the owners and operators of treatment, storage and disposal facilities. As current or historicrecyclers of chemical waste, certain of our subsidiaries have been, and are likely to be, the focus of extensivecompliance reviews by environmental regulatory authorities under RCRA. Our subsidiary Phibro-Tech currentlyhas a RCRA operating permit for its Santa Fe Springs, California facility, for which a renewal application isunder review. Phibro-Tech initially submitted an application for renewal of its permit for the Santa Fe Springsfacility in 1996. We are unable to predict when the State of California will issue a draft permit for public reviewand comment. Until the State of California issues its final decision on the renewal application, the facility iscontinuing to operate under the exiting permit. In addition, because we or our subsidiaries have closed severalfacilities that had been the subject of RCRA permits, we or our subsidiaries have been and will be required toinvestigate and remediate certain environmental contamination conditions at these shutdown plant sites withinthe requirements of RCRA corrective action programs.Federal Water Pollution Control Act, as amended. We must comply with regulations related to thedischarge of pollutants to the waters of the United States without governmental authorization, including thosepursuant to the Federal Water Pollution Control Act.Chemical Product Registration Requirements. We must comply with regulations related to the testing,manufacturing, labeling, registration and safety analysis of our products in order to distribute many of ourproducts, including, for example, in the United States, the federal Toxic Substances Control Act and FederalInsecticide, Fungicide and Rodenticide Act, and in the European Union, the Regulation on Registration,Evaluation, Authorization and Restriction of Chemical Substances (“REACH”).Air Emissions. Our operations are subject to the U.S. Clean Air Act (the “CAA”) and comparable U.S.state and foreign statutes and regulations, which regulate emissions of various air pollutants and contaminants.Certain of the CAA’s regulatory programs are the subject of ongoing review and/or are subject to ongoinglitigation, such as the rules establishing new Maximum Achievable Control Technology for industrial boilers;significant expenditures may be required to meet current and emerging air quality standards. Regulatoryagencies can also impose administrative, civil and criminal penalties for non-compliance with air permits orother air quality regulations. States may choose to set more stringent air emissions rules than those in the CAA.State, national and international authorities have also issued requirements focusing on greenhouse gasreductions. In the United States, the EPA has promulgated federal greenhouse gas regulations under the CAAaffecting certain sources. In addition, a number of state, local23TABLE OF CONTENTSand regional greenhouse gas initiatives are also being developed or are already in place. In Israel and Brazil,implementation of the Kyoto Protocol requirements regarding greenhouse gas emission reductions consists ofenergy efficiency regulations, carbon dioxide emissions allowances trading and renewable energy requirements.Capital ExpendituresWe have incurred and expect to continue to incur costs to maintain compliance with environmental,health and safety laws and regulations. Our capital expenditures relating to environmental, health and safetyregulations were $2.5 million for fiscal year ended June 30, 2018. We estimate that our capital expenditures forcompliance will be $5.7 million and $6.2 million for fiscal years 2019 and 2020, respectively; however, theseestimates are subject to change given the uncertainty of future Environmental Laws and the interpretation andenforcement thereof, as further described in this Annual Report on Form 10-K. Our environmental capitalexpenditure plans cover, among other things, the currently expected costs associated with known permitrequirements relating to facility improvements.Contamination and Hazardous Substance RisksInvestigation, Remediation and Monitoring Activities. Certain of PAHC’s subsidiaries that arecurrently or were historically engaged in recycling and other activities involving hazardous materials have beenrequired to perform site investigations at their active, closed and former facilities and neighboring properties.Contamination of soil, groundwater and other environmental media has been identified or is suspected at severalof these locations, including Santa Fe Springs, California; Powder Springs, Georgia; Union, Illinois; Sewaren,New Jersey; Sumter, South Carolina; and Joliet, Illinois, and regulatory authorities have required, and willcontinue to require, further investigation, corrective action and monitoring over future years. These subsidiariesalso have been, and in the future may be, required to undertake additional capital improvements as part of theseactions. In addition, RCRA and other applicable statutes and regulations require these subsidiaries to developclosure and post-closure plans for their facilities and in the event of a facility closure, obtain a permit that setsforth a closure plan for investigation, remediation and monitoring and requires post-closure monitoring andmaintenance for up to 30 years. We believe we are in material compliance with these requirements and maintainadequate reserves to complete remediation and monitoring obligations at these locations.In connection with past acquisitions and divestitures, we have undertaken certain indemnificationobligations that require us, or may in the future require us, to conduct or finance environmental cleanups at siteswe no longer own or operate. Under the terms of the sale of the former facility in Joliet, Illinois, Phibro-Techremains responsible for any required investigation and remediation of the site attributable to conditions at thesite at the time of the February 2011 sale date, and we believe we have sufficient reserves to cover the cost of theremediation.PRP at Omega Chemical Superfund Site. The EPA is investigating and planning for the remediation ofoffsite contaminated groundwater that has migrated from the Omega Chemical Corporation Superfund Site(“Omega Chemical Site”), which is upgradient of Phibro-Tech’s Santa Fe Springs, California facility. The EPAhas named Phibro-Tech and certain other subsidiaries of PAHC as PRPs due to groundwater contamination fromPhibro-Tech’s Santa Fe Springs facility that has allegedly commingled with contaminated groundwater from theOmega Chemical Site. In September 2012, the EPA notified approximately 140 PRPs, including Phibro-Techand the other subsidiaries, that they have been identified as potentially responsible for remedial action for thegroundwater plume affected by the Omega Chemical Site and for EPA oversight and response costs. Phibro-Techcontends that any groundwater contamination at its site is localized and due to historical operations that pre-date Phibro-Tech and/or contaminated groundwater that has migrated from upgradient properties. In addition, asuccessor to a prior owner of the Phibro-Tech site has asserted that PAHC and Phibro-Tech are obligated toprovide indemnification for its potential liability and defense costs relating to the groundwater plume affectedby the Omega Chemical Site. Phibro-Tech has vigorously contested this position and has asserted that thesuccessor to the prior owner is required to indemnify Phibro-Tech for its potential liability and defense costs.Furthermore, a group of companies that sent chemicals to the Omega Chemical Site for processing and recyclinghas filed a complaint under CERCLA and RCRA in the United States District Court for the Central District of24TABLE OF CONTENTSCalifornia against many of the PRPs allegedly associated with the groundwater plume affected by the OmegaChemical Site (including Phibro-Tech) for contribution toward past and future costs associated with theinvestigation and remediation of the groundwater plume affected by the Omega Chemical Site. Due to theongoing nature of the EPA’s investigation, the preliminary stage of the ongoing litigation and Phibro-Tech’sdispute with the prior owner’s successor, at this time we cannot predict with any degree of certainty what, if any,liability Phibro-Tech or the other subsidiaries may ultimately have for investigation, remediation and the EPAoversight and response costs associated with the affected groundwater plume.Potential Claims. In addition to cleanup obligations, we could also be held liable for any and allconsequences arising out of human exposure to hazardous substances or other environmental damage, whichliability may not be covered by insurance.Environmental Accruals and Financial Assurance. We have established environmental accruals tocover known remediation and monitoring costs at certain of our current and former facilities. Our accruals forenvironmental liabilities are recorded by calculating our best estimate of probable and reasonably estimablefuture costs using current information that is available at the time of the accrual. Our accruals for environmentalliabilities totaled $6.8 million and $7.2 million as of June 30, 2018 and 2017, respectively.In certain instances, regulatory authorities have required us to provide financial assurance forestimated costs of remediation, corrective action, monitoring and closure and post-closure plans. Oursubsidiaries, in most instances, have chosen to provide the required financial assurance by means of suretybonds or letters of credit, issued pursuant to our revolving credit facility. As of June 30, 2018, surety bonds andletters of credit provided $10.0 million of financial assurance.Workplace Health and SafetyWe are committed to manufacturing safe products and achieving a safe workplace. Our EnvironmentalHealth and Safety (“EHS”) Global Director, along with regional and site-based EHS professionals, manageenvironmental, health and safety matters throughout the Company. The site managers are responsible forimplementing the established EHS controls. To protect employees, we have established health and safetypolicies, programs and processes at all our manufacturing sites. An external EHS audit is performed at each ofour sites as needed based on the conditions at the respective sites.Where You Can Find More informationWe are subject to the information and periodic and current reporting requirements of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) and, in accordance therewith, will file periodic andcurrent reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).Such periodic and current reports, proxy statements and other information will be available to the public on theSEC’s website at www.sec.gov and through our website at www.pahc.com. You may also read or copy suchperiodic or current reports, proxy statements and other information the Company files with the SEC at the SEC’sPublic Reference Room, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 forfurther information.Item 1A. Risk FactorsYou should carefully consider all of the information set forth in this Annual Report on Form 10-K,including the following risk factors, before deciding to invest in our Class A common stock. If any of thefollowing risks actually occurs, our business, financial condition, results of operation or cash flows could bematerially adversely affected. In any such case, the trading price of our Class A common stock could decline,and you could lose all or part of your investment. The risks below are not the only ones the Company faces.Additional risks not currently known to the Company or that the Company presently deems immaterial may alsoimpair its business operations. This Annual Report on Form 10-K also contains forward-looking statements thatinvolve risks and uncertainties. The Company’s results could materially differ from those anticipated in theseforward-looking statements as a result of certain factors, including the risks it faces described below andelsewhere. See also “Forward-Looking Statements.”25TABLE OF CONTENTSRisk Factors Relating to Our BusinessPerceived adverse effects on human health linked to the consumption of food derived from animals that utilizeour products could cause a decline in the sales of those products.Our business depends heavily on a healthy and growing livestock industry. Some in the publicperceive risks to human health related to the consumption of food derived from animals that utilize certain ofour products, including certain of our MFA products. In particular, there is increased focus, primarily in theUnited States, on the use of medically important antimicrobials, as defined by the FDA. Medically importantantimicrobials include classes that are prescribed in animal and human health and are listed in the Appendix ofthe FDA-CVM Guidance for Industry (GFI) 152. Our products that contain virginiamycin, oxytetracycline orneomycin are classified by the FDA as medically important antimicrobials. This may lead to a decline in thedemand for and production of food products derived from animals that utilize our products and, in turn, demandfor our products. Livestock producers may experience decreased demand for their products or reputational harmas a result of evolving consumer views of nutrition and health-related concerns, animal rights and otherconcerns. Any reputational harm to the livestock industry may also extend to companies in related industries,including us. In addition, campaigns by interest groups, activists and others with respect to perceived risksassociated with the use of our products in animals, including position statements by livestock producers andtheir customers based on non-use of certain medicated products in livestock production, whether or notscientifically-supported, could affect public perceptions and reduce the use of our products. Those adverseconsumer views related to the use of one or more of our products in animals could have a material adverse effecton our financial condition and results of operations. Our sales in the United States of products that the FDA hasclassified as medically important antimicrobials were approximately $17 million, $23 million and $37 millionfor the fiscal years ended June 30, 2018, 2017 and 2016, respectively.Restrictions on the use of antibacterials in food-producing animals may become more prevalent.The issue of the potential transfer of antibacterial resistance from bacteria from food-producinganimals to human bacterial pathogens, and the causality and impact of that transfer, are the subject of globalscientific and regulatory discussion. Antibacterials refer to molecules that can be used to treat or preventbacterial infections and are a sub-categorization of the products that make up our medicated feed additivesportfolios. In some countries, this issue has led to government restrictions on the use of specific antibacterials insome food-producing animals, regardless of the route of administration (in feed, water, intramammary, topical,injectable or other route of administration). These restrictions are more prevalent in countries where animalprotein is plentiful and governments are willing to take action even when there is scientific uncertainty.Effective January 1, 2017, we voluntarily removed non-therapeutic claims from several of ourantibacterial products sold in the United States, in order to align with the FDA’s GFI 209 and GFI 213. The FDAobjective, as described in GFI 209 and GFI 213, was to eliminate the production (non-therapeutic) uses ofmedically important antimicrobials administered in feed or water to food producing animals while providing forthe continued use of medically important antimicrobials in food-producing animals for treatment, control andprevention of disease (“therapeutic” use) under the supervision of a veterinarian. The FDA indicated that it tookthis action to help preserve the efficacy of medically important antimicrobials to treat infections in humans.Our Mecadox (carbadox) product has been approved for use in food animals in the United States forover 40 years. Certain regulatory bodies have raised concerns about the possible presence of certain residues ofour carbadox product in meat from animals that consume the product. The product was banned for use in theEuropean Union in 1998 and has been banned in several other countries outside the United States. In July 2014,the Codex adopted risk management advice language for a number of compounds including carbadox. Theadvice language states “authorities should prevent residues of carbadox in food. This can be accomplished bynot using carbadox in food producing animals.” The advice language is to provide advice only and is notbinding on individual national authorities, and almost all national authorities already have long-establishedregulatory standards for carbadox. The advice language may be considered by national authorities in makingfuture risk management determinations. To the extent additional national26TABLE OF CONTENTSauthorities elect to follow the risk management advice and prohibit the use of carbadox in food-producinganimals, those decisions could have an adverse effect on our sales of carbadox in those countries or in countrieslike the United States that produce meat for export to those countries.In April 2016, the FDA began initial steps to withdraw approval of Mecadox (carbadox), due toconcerns that certain residues from the product may persist in tissues for longer than previously determined. InJuly 2016, we submitted our data, analyses and information to the FDA that we believe support the continuedsafe use of Mecadox. In March 2018, the FDA indefinitely stayed the withdrawal proceedings; however, wecontinue to submit data to the FDA and respond to their questions. There is no timeline for the conclusion of thismatter. The initial action by the FDA does not prohibit the sale or use of Mecadox in the United States. We havecomplete confidence in the safety of Mecadox. Mecadox has been approved and sold in the United States formore than 40 years and is a widely used treatment for controlling bacterial diseases including Salmonella andswine dysentery. Mecadox is not used in human medicine and the class of drug is not considered a medicallyimportant antimicrobial. The approved Mecadox label requires a 42-day withdrawal period pre-harvesting, andto date we have not seen any hazardous residues of carbadox being detected from pig meat treated in accordancewith the approved label. Our sales of Mecadox in the United States were approximately $11 million, $15 millionand $15 million in the years ended June 30, 2018, 2017 and 2016, respectively. Should we be unable tosuccessfully defend the safety of the product, the loss of Mecadox sales would have a negative impact to theresults of our operations.In 2008, the FDA announced that the agency required formal review of all additives used in theproduction of ethanol, including our Lactrol product (formulated virginiamycin), where the co-products may beused for animal feed. Virginiamycin has been certified by an independent expert panel convened by us as“generally recognized as safe” (“GRAS”) for use as a processing aid in ethanol production and as related to theuse of the resulting distiller’s co-products for animal feed. We believe that this certification satisfies the FDArequirement. However, there can be no assurance we will be successful in maintaining market access for ourLactrol product or other ethanol production additives that we sell.Our global sales of antibacterials, anticoccidials and other products were approximately $337 millionfor the year ended June 30, 2018. We cannot predict whether concerns regarding the use of antibacterials willresult in additional restrictions, expanded regulations or public pressure to discontinue or reduce use ofantibacterials in food-producing animals, which could materially adversely affect our operating results andfinancial condition.A material portion of our sales are generated by antibacterials and other related products.Our medicated products business is comprised of a relatively small number of compounds andaccounted for 41% and 42% of net sales for the years ended June 30, 2018 and 2017, respectively. Thesignificant loss of antibacterial or other related product sales for any reason, including product bans orrestrictions, public perception, competition or any of the other risks related to such products as described in thisAnnual Report on Form 10-K, could have a material adverse effect on our business.We face competition in each of our markets from a number of large and small companies, some of which havegreater financial, R&D, production and other resources than we have.Many of our products face competition from alternative or substitute products. We are engaged inhighly competitive industries and, with respect to all of our major products, face competition from a substantialnumber of global and regional competitors. We believe many of our competitors are conducting R&D activitiesin areas served by our products and in areas in which we are developing products. Some competitors have greaterfinancial, R&D, production and other resources than we have. Some of our principal competitors include CevaSanté Animale, Boehringer Ingelheim International GmbH, Eli Lilly and Company (Elanco Animal Health),Huvepharma Inc., Merck & Co., Inc. (Merck Animal Health and MSD Animal Health), Southeastern Minerals,Inc. and Zoetis Inc. To the extent these companies or new entrants offer comparable animal health, mineralnutrition or performance products at lower prices, our business could be adversely affected. New entrants couldsubstantially reduce our market share or render our products obsolete. Furthermore, many of our competitorshave relationships with key distributors and, because of their size, have the ability to offer attractive pricingincentives, which may negatively impact or hinder our relationships with these distributors.27TABLE OF CONTENTSIn certain countries, because of our size and product mix, we may not be able to capitalize on changesin competition and pricing as fully as our competitors. In recent years, there have been new generic medicatedproducts introduced to the livestock industry, particularly in the United States.There has been and likely will continue to be consolidation in the animal health market, which couldstrengthen our competitors. Our competitors can be expected to continue to improve the formulation andperformance of their products and to introduce new products with competitive price and performancecharacteristics. There can be no assurance that we will have sufficient resources to maintain our currentcompetitive position or market share. We also face competitive pressures arising from, among other things, morefavorable safety and efficacy product profiles, limited demand growth or a significant number of additionalcompetitive products being introduced into a particular market, price reductions by competitors, the ability ofcompetitors to capitalize on their economies of scale and the ability of competitors to produce or otherwiseprocure animal health products at lower costs than us. To the extent that any of our competitors are moresuccessful with respect to any key competitive factor, or we are forced to reduce, or are unable to raise, the priceof any of our products in order to remain competitive, our business, financial condition and results of operationscould be materially adversely affected.Outbreaks of animal diseases could significantly reduce demand for our products.Sales of our food animal products could be materially adversely affected by the outbreak of diseasecarried by food animals, which could lead to the widespread death or precautionary destruction of food animalsas well as the reduced consumption and demand for animal protein. The demand for our products could besignificantly affected by outbreaks of animal diseases, and such occurrences may have a material adverse impacton the sale of our products and our financial condition and results of operations. The outbreaks of disease arebeyond our control and could significantly affect demand for our products and consumer perceptions of certainmeat products. An outbreak of disease could result in governmental restrictions on the import and export ofchicken, pork, beef or other products to or from our customers. This could also create adverse publicity that mayhave a material adverse effect on our ability to sell our products successfully and on our financial condition andresults of operations. In addition, outbreaks of disease carried by animals may reduce regional or global sales ofparticular animal-derived food products or result in reduced exports of such products, either due to heightenedexport restrictions or import prohibitions, which may reduce demand for our products due to reduced herd orflock sizes.In the past decade, there has been substantial publicity regarding H1N1, known as North American (orSwine) Influenza and, previously, H5N1, known as Highly Pathogenic Avian Influenza, in the humanpopulation. There have also been concerns relating to E. coli in beef and Salmonella in poultry and other foodpoisoning micro-organisms in meats and other foods. Consumers may associate human health fears with animaldiseases, food, food production or food animals whether or not it is scientifically valid, which may have anadverse impact on the demand for animal protein. Occurrences of this type could significantly affect demand foranimal protein, which in turn could affect the demand for our products in a manner that has a significant adverseeffect on our financial condition and results of operations. Also, the outbreak of any highly contagious diseasenear our main production sites could require us to immediately halt production of our products at such sites orforce us to incur substantial expenses in procuring raw materials or products elsewhere.Outbreaks of an exotic or highly contagious disease in a country where we produce our products(particularly vaccines produced at our Israeli facility) may result in other countries halting importation of ourproducts for fear that our product may be contaminated with the exotic organism.Our business may be negatively affected by weather conditions and the availability of natural resources.The animal health industry and demand for many of our animal health products in a particular regionare affected by changing disease pressures and by weather conditions, as usage of our products follows varyingweather patterns and weather-related pressures from diseases. As a result, we may experience regional andseasonal fluctuations in our results of operations.In addition, livestock producers depend on the availability of natural resources, including abundantrainfall to sustain large supplies of drinking water, grasslands and grain production. Their animals’ health andtheir ability to operate could be adversely affected if they experience a shortage of fresh28TABLE OF CONTENTSwater due to human population growth or floods, droughts or other weather conditions. In the event of adverseweather conditions or a shortage of fresh water, livestock producers may purchase less of our products.Our operations could be subject to the effects of climate change.Our operations and customers may be subject to potential physical impacts of climate change,including changes in weather patterns and the potential for extreme weather events, which could affect themanufacture and distribution of our products, agricultural yields and the demand for our products and result inadditional regulation that increase our operating costs.The testing, manufacturing, and marketing of certain of our products are subject to extensive regulation bynumerous government authorities in the United States and other countries, including, but not limited to, theFDA.Among other requirements, FDA approval of antibacterials and other medicated products, includingthe manufacturing processes and facilities used to produce such products, is required before such products maybe marketed in the United States. Further, cross-clearance approvals are generally required for such products tobe used in combination in animal feed. Similarly, marketing approval by a foreign governmental authority istypically required before such products may be marketed in a particular foreign country. In addition to approvalof the product and its labeling, regulatory authorities typically require approval and periodic inspection of themanufacturing facilities. In order to obtain FDA approval of a new animal health product, we must, among otherthings, demonstrate to the satisfaction of the FDA that the product is safe and effective for its intended uses andthat we are capable of manufacturing the product with procedures that conform to FDA’s current cGMPregulations, which must be followed at all times.In February 2015, the FDA conducted an inspection at our Teaneck, NJ headquarters to verify changesto and corrective actions related to various analytical test results and practices, expiration dating and reportingrequirements regarding specification non-conformance. A Form 483 was issued, which contained oneinspectional observation citing two examples of the observed violation. The observation questioned whether ornot we are able to confirm that the drug components (of Type A medicated products) remain uniformly dispersedand stable under ordinary conditions of shipment, storage and use. We responded to the inspectionalobservation in writing in March 2015. This inspectional observation has not impacted our ability to marketproducts in the United States or any other country. We believe the Form 483 observation has been satisfactorilyaddressed, however, we have not yet received a formal response from the FDA to our written response.In May 2018, the FDA conducted a routine audit of our manufacturing facility at Guarulhos, Braziland did not issue any inspectional observations. Accordingly, this site is considered to be in conformance withU.S. cGMP standards. In March 2016, the FDA also conducted a cGMP audit of this facility and issued sixinspectional observations (Form 483). Audits related to cGMP standards are typically carried out by the FDA ona two year cycle. Although it is our objective to remain in full conformance with U.S. cGMP standards, there canbe no assurance that future inspections will not raise adverse inspectional observation. Failure to comply withcGMP standards could have a material impact on our business and financial results.The process of seeking FDA approvals can be costly, time consuming, and subject to unanticipatedand significant delays. There can be no assurance that such approvals will be granted to us on a timely basis, orat all. Any delay in obtaining or any failure to obtain FDA or foreign government approvals or the suspension orrevocation of such approvals would adversely affect our ability to introduce and market medicated feed additiveproducts and to generate product revenue. For more information on FDA and foreign government approvals andcGMP issues, see “Business—Regulatory.”We may experience declines in the sales volume and prices of our products as the result of the continuing trendtoward consolidation of certain customer and distributor groups as well as the emergence of large buyinggroups.We make a majority of our sales to integrated poultry, swine and cattle operations and to a number ofregional and national feed companies, distributors, co-ops and blenders. Food animal producers,29TABLE OF CONTENTSparticularly, swine and poultry producers, and our distributors have seen recent consolidation in their industries.Significant consolidation of our customers and distributors may result in these groups gaining additionalpurchasing leverage and consequently increasing the product pricing pressures facing our business.Additionally, the emergence of large buying groups potentially could enable such groups to attempt to extractprice discounts on our products. Moreover, if, as a result of increased leverage, customer pressures require us toreduce our pricing such that our gross margins are diminished, we could decide not to sell our products to aparticular customer, which could result in a decrease in our revenues. Consolidation among our customer basemay also lead to reduced demand for our products and replacement of our products by the combined entity withthose of our competitors. The result of these developments could have a material adverse effect on our business,financial condition and results of operations.Our business is subject to risk based on customer exposure to rising costs and reduced customer income.Livestock producers may experience increased feed, fuel, transportation and other key costs or mayexperience decreased animal protein prices or sales. Either of these trends could cause deterioration in thefinancial condition of our livestock producer customers, potentially inhibiting their ability to purchase ourproducts or pay us for products delivered. Our livestock producer customers may offset rising costs by reducingspending on our products, including by switching to lower-cost alternatives to our products.Generic products may be viewed as more cost-effective than certain of our products.We face competition from products produced by other companies, including generic alternatives tocertain of our products. We depend primarily on trade secrets to provide us with competitive advantages formany of our products. The protection afforded is limited by the availability of new competitive products orgeneric versions of existing products that can successfully compete with our products. As a result, we may facecompetition from new competitive products or lower-priced generic alternatives to many of our products.Generic competitors are becoming more aggressive in terms of pricing, and generic products are an increasingpercentage of overall animal health sales in certain regions. If animal health customers increase their use of newor existing generic products, our financial condition and results of operations could be materially adverselyaffected.Advances in veterinary medical practices and animal health technologies could negatively affect the marketfor our products.The market for our products could be impacted negatively by the introduction and/or broad marketacceptance of newly developed or alternative products that address the diseases and conditions for which we sellproducts, including “green” or “holistic” health products or specially bred disease-resistant animals. In addition,technological breakthroughs by others may obviate our technology and reduce or eliminate the market for ourproducts. Introduction or acceptance of such products or technologies could materially adversely affect ourbusiness, financial condition and results of operations.The misuse or extra-label use of our products may harm our reputation or result in financial or other damages.Our products have been approved for use under specific circumstances for, among other things, theprevention, control and/or treatment of certain diseases and conditions in specific species, in some cases subjectto certain dosage levels or minimum withdrawal periods prior to the slaughter date. There may be increased riskof product liability if livestock producers or others attempt any extra-label use of our products, including the useof our products in species for which they have not been approved, or at dosage levels or periods prior towithdrawal that have not been approved. If we are deemed by a governmental or regulatory agency to haveengaged in the promotion of any of our products for extra-label use, such agency could request that we modifyour training or promotional materials and practices and we could be subject to significant fines and penalties.The imposition of these sanctions could also affect our reputation and position within the industry. Even if wewere not responsible for having promoted the extra-label use, concerns could arise about the safety of theresulting meat in the human food supply. Any of these events could materially adversely affect our financialcondition and results of operations.30TABLE OF CONTENTSThe public perception of the safety and efficacy of certain of our animal health products may harm ourreputation.The public perception of the safety and efficacy of certain of our animal health products, whether ornot these concerns are scientifically or clinically supported, may lead to product recalls, withdrawals,suspensions or declining sales as well as product liability and other claims.Regulatory actions based on these types of safety, quality or efficacy concerns could impact all, or asignificant portion of a product’s sales and could, depending on the circumstances, materially adversely affectour results of operations.In addition, we depend on positive perceptions of the safety and quality of our products, and animalhealth products generally, by our customers, veterinarians and end-users, and such concerns may harm ourreputation. In some countries, these perceptions may be exacerbated by the existence of counterfeit versions ofour products, which, depending on the legal and law enforcement recourse available in the jurisdiction wherethe counterfeiting occurs, may be difficult to police or stop. These concerns and the related harm to ourreputation could materially adversely affect our financial condition and results of operations, regardless ofwhether such reports are accurate.We are dependent on suppliers having current regulatory approvals, and the failure of those suppliers tomaintain these approvals or other challenges in replacing any of those suppliers could affect our supply ofmaterials or affect the distribution or sale of our products.Suppliers and third party contract manufacturers for our animal health and mineral nutrition productsor the active pharmaceutical ingredients or other materials we use in our products, like us, are subject toextensive regulatory compliance. If any one of these third parties discontinues its supply to us because ofchanges in the regulatory environment to which such third parties are subject, significant regulatory violationsor for any other reason, or an adverse event occurs at one of their facilities, the interruption in the supply of thesematerials could decrease sales of our affected products. In this event, we may seek to enter into agreements withthird parties to purchase active ingredients, raw materials or products or to lease or purchase new manufacturingfacilities. We may be unable to find a third party willing or able to provide the necessary products or facilitiessuitable for manufacturing pharmaceuticals on terms acceptable to us or the cost of those pharmaceuticals maybe prohibitive. If we have to obtain substitute materials or products, additional regulatory approvals will likelybe required, as approvals are typically specific to a single product produced by a specified manufacturer in aspecified facility and there can be no assurances that such regulatory approvals will be obtained. As such, theuse of new facilities also requires regulatory approvals. While we take measures where economically feasible andavailable to secure back-up suppliers, the continued receipt of active ingredients or products from a sole sourcesupplier could create challenges if a sole source was interrupted. We may not be able to provide adequate andtimely product to eliminate any threat of interruption of supply of our products to customers and these problemsmay materially adversely impact our business.The raw materials used by us and our third party contract manufacturers in the manufacture of our productscan be subject to price fluctuations and their availability can be limited.While the selling prices of our products tend to increase or decrease over time with the cost of rawmaterials, such changes may not occur simultaneously or to the same degree. The costs of certain of oursignificant raw materials are subject to considerable volatility, and we generally do not engage in activities tohedge the costs of our raw materials and our third party contract manufacturers may demand price increasesrelated to increases in the costs of raw materials. Although no single raw material accounted for more than 6% ofour cost of goods sold for the year ended June 30, 2018, volatility in raw material costs can result in significantfluctuations in our costs of goods sold of the affected products. The costs of raw materials used by our MineralNutrition business are particularly subject to fluctuations in global commodities markets and cost changes in theunderlying commodities markets typically lead directly to a corresponding change in our revenues. Althoughwe attempt to adjust the prices of our products to reflect significant changes in raw material costs, we may not beable to pass any increases in raw material costs through to our customers in the form of price increases.Significant increases in the costs of raw materials, if not offset by product price increases, could have a materialadverse effect on our financial condition and31TABLE OF CONTENTSresults of operations. The supply of certain of our raw materials is dependent on third party suppliers. There is noguarantee that supply shortages of such raw materials will not occur. In addition, if any one of these third partiesdiscontinues its supply to us, or an adverse event occurs at one of their facilities, the interruption in the supplyof these materials could decrease sales of our affected products. In the event that we cannot procure necessarymajor raw materials from other suppliers, the occurrence of any of these may have an adverse impact on ourbusiness.Our revenues are dependent on the continued operation of our various manufacturing facilities.Although presently all our manufacturing facilities are considered to be in good condition, theoperation of our manufacturing facilities involves many risks which could cause product interruptions,including the breakdown, failure or substandard performance of equipment, construction delays, mislabeling,shortages of materials, labor problems, power outages, the improper installation or operation of equipment,natural disasters, terrorist activities, the outbreak of any highly contagious diseases near our production sites andthe need to comply with environmental and other directives of governmental agencies. In addition, regulatoryauthorities such as the FDA typically require approval and periodic inspection of the manufacturing facilities toconfirm compliance with applicable regulatory requirements, and those requirements may be enforced byvarious means, including seizures and injunctions. Certain of our product lines are manufactured at a singlefacility, and certain of our product lines are manufactured at a single facility with limited capacity at a secondfacility, and production would not be easily transferable to another site. The occurrence of material operationalproblems, including but not limited to the above events, may adversely affect our financial condition and resultsof operations.Our manufacturing network may be unable to meet the demand for our products or we may have excesscapacity if demand for our products changes. The unpredictability of a product’s regulatory or commercialsuccess or failure, the lead time necessary to construct highly technical and complex manufacturing sites, andshifting customer demand (including as a result of market conditions or entry of branded or generic competition)increase the potential for capacity imbalances. In addition, construction of manufacturing sites is expensive, andour ability to recover costs will depend on the market acceptance and success of the products produced at thenew sites, which is uncertain.We could be subject to changes in our tax rates, the adoption of new U.S. or foreign tax legislation or exposureto additional tax liabilities.We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Changes in the relevanttax laws, regulations and interpretations could adversely affect our future effective tax rates. Modifications tokey elements of the U.S. or international tax framework could have a material adverse effect on our consolidatedfinancial statements.The United States government enacted comprehensive income tax legislation (the “Tax Act”) inDecember 2017. The Tax Act makes broad and complex changes to United States income tax law and includesnumerous elements that affect the Company, including a reduced federal corporate income tax rate from 35% to21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferredforeign earnings and changes to business-related exclusions, deductions and credits. Our provision for incometaxes reflects a statutory 28.1% weighted-average federal income tax rate and other elements of the Tax Act ineffect for our fiscal year ending June 30, 2018. The statutory federal income tax rate will be 21.0% for our fiscalyear beginning July 1, 2018. Pursuant to the Staff Accounting Bulletin No. 118 published by the SEC,companies must report provisional amounts for those specific income tax effects of the Tax Act for which theaccounting is incomplete but a reasonable estimate can be determined. Those provisional amounts will besubject to adjustment during a measurement period of up to one year from the enactment date.Our consolidated effective tax rate is subject to potential risks that various taxing authorities maychallenge the pricing of our cross-border arrangements and subject us to additional tax, adversely affecting ourexpected consolidated effective tax rate and our tax liability. If our effective tax rates were to increase,particularly in the U.S. or other material foreign jurisdictions, our business, financial condition and results ofoperations could be materially adversely affected. In addition, our tax returns and other tax filings and positionsare subject to review by the Internal Revenue Service (the “IRS”) and other tax authorities and32•volatility in the international financial markets;•compliance with governmental controls;•difficulties enforcing contractual and intellectual property rights;•compliance with a wide variety of laws and regulations, such as the U.S. Foreign Corrupt PracticesAct (“FCPA”) and similar non-U.S. laws and regulations;•compliance with foreign labor laws;•compliance with Environmental Laws;•burdens to comply with multiple and potentially conflicting foreign laws and regulations,including those relating to environmental, health and safety requirements;•changes in laws, regulations, government controls or enforcement practices with respect to ourbusiness and the businesses of our customers;•political and social instability, including crime, civil disturbance, terrorist activities and armedconflicts;•trade restrictions, export controls and sanctions laws and restrictions on direct investments byforeign entities, including restrictions administered by the Office of Foreign Assets Control of theU.S. Department of the Treasury;•government limitations on foreign ownership;•government takeover or nationalization of business;•changes in tax laws and tariffs;•imposition of anti-dumping and countervailing duties or other trade-related sanctions;•costs and difficulties and compliance risks in staffing, managing and monitoring internationaloperations;•corruption risk inherent in business arrangements and regulatory contacts with foreigngovernment entities;•longer payment cycles and increased exposure to counterparty risk; and•additional limitations on transferring personal information between countries or other restrictionson the processing of personal information.TABLE OF CONTENTSgovernmental bodies. We regularly assess the likelihood of an adverse outcome resulting from theseexaminations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcomeof these examinations or the effects on our consolidated financial statements.A significant portion of our operations are conducted in foreign jurisdictions and are subject to the economic,political, legal and business environments of the countries in which we do business.Our international operations could be limited or disrupted by any of the following:The multinational nature of our business subjects us to potential risks that various taxing authoritiesmay challenge the pricing of our cross-border arrangements and subject us to additional tax, adverselyimpacting our effective tax rate and our tax liability.In addition, international transactions may involve increased financial and legal risks due to differinglegal systems and customs. Compliance with these requirements may prohibit the import or export of certainproducts and technologies or may require us to obtain a license before importing or exporting certain productsor technology. A failure to comply with any of these laws, regulations or requirements could result in civil orcriminal legal proceedings, monetary or non-monetary penalties, or both, disruptions to our business, limitationson our ability to import and export products and services, and damage to our reputation. In addition, variationsin the pricing of our products in different jurisdictions may result in the unauthorized importation of ourproducts between jurisdictions. While the impact of these factors is33TABLE OF CONTENTSdifficult to predict, any of them could materially adversely affect our financial condition and results ofoperations. Changes in any of these laws, regulations or requirements, or the political environment in aparticular country, may affect our ability to engage in business transactions in certain markets, includinginvestment, procurement and repatriation of earnings.We are subject to product registration and authorization regulations in many of the jurisdictions in which weoperate and/or distribute our products, including the United States and member states of the European Union.We are subject to regulations related to testing, manufacturing, labeling, registration, and safetyanalysis in order to lawfully distribute many of our products, including for example, in the United States, thefederal Toxic Substances Control Act and the Federal Insecticide, Fungicide, and Rodenticide Act, and in theEuropean Union, the Regulation on REACH. We are also subject to similar requirements in many of the otherjurisdictions in which we operate and/or distribute our products. In some cases, such registrations are subject toperiodic review by relevant authorities. Such regulations may lead to governmental restrictions or cancellationsof, or refusal to issue, certain registrations or authorizations, or cause us or our customers to make productsubstitutions in the future. Such regulations may also lead to increased third party scrutiny and personal injuryor product liability claims. Compliance with these regulations can be difficult, costly and time consuming andliabilities or costs relating to such regulations could have a material adverse effect on our business, financialcondition and results of operations.We have significant assets located outside the United States and a significant portion of our sales and earningsis attributable to operations conducted abroad.As of June 30, 2018, we had manufacturing and direct sales operations in 16 countries and sold ourproducts in over 70 countries. Our operations outside the United States accounted for 56% and 52% of ourconsolidated assets as of June 30, 2018 and 2017, respectively, and 40% and 37% of our consolidated net salesfor the years ended June 30, 2018 and 2017, respectively. Our foreign operations are subject to currencyexchange fluctuations and restrictions, political instability in some countries, and uncertainty of, andgovernmental control over, commercial rights.Changes in the relative values of currencies take place from time to time and could in the futureadversely affect our results of operations as well as our ability to meet interest and principal obligations on ourindebtedness. To the extent that the U.S. dollar fluctuates relative to the applicable foreign currency, our resultsare favorably or unfavorably affected. We may from time to time manage this exposure by entering into foreigncurrency contracts. Such contracts generally are entered into with respect to anticipated costs denominated inforeign currencies for which timing of the payment can be reasonably estimated. No assurances can be given thatsuch hedging activities will not result in, or will be successful in preventing, losses that could have an adverseeffect on our financial condition or results of operations. There are times when we do not hedge against foreigncurrency fluctuations and therefore are subject to the risks associated with fluctuations in currency exchangerates.In addition, international manufacturing, sales and raw materials sourcing are subject to other inherentrisks, including possible nationalization or expropriation, labor unrest, political instability, price and exchangecontrols, limitation on foreign participation in local enterprises, health-care regulation, export duties and quotas,domestic and international customs and tariffs, compliance with export controls and sanctions laws, the ForeignCorrupt Practices Act and other laws and regulations governing international trade, unexpected changes inregulatory environments, difficulty in obtaining distribution and support, and potentially adverse taxconsequences. Although such risks have not had a material adverse effect on us in the past, these factors couldhave a material adverse impact on our ability to increase or maintain our international sales or on our results ofoperations in the future.We have manufacturing facilities located in Israel and a portion of our net sales and earnings is attributableto products produced and operations conducted in Israel.Our Israeli manufacturing facilities and local operations accounted for 27% and 25% of ourconsolidated assets, as of June 30, 2018 and 2017, respectively, and 21% and 22% of our consolidated net salesfor the years ended June 30, 2018 and 2017. We maintain manufacturing facilities in Israel, which manufacture:34•nicarbazin and amprolium anticoccidials, most of which are exported;•vaccines, a substantial portion of which are exported; and•animal health pharmaceuticals, nutritional specialty products and trace minerals for the domesticanimal industry.TABLE OF CONTENTSA substantial portion of this production is exported from Israel to major world markets. Accordingly,our Israeli operations are dependent on foreign markets and the ability to reach those markets. Hostilitiesbetween Israel and its neighbors may hinder Israel’s international trade. This, in turn, could have a materialadverse effect on our business, financial condition and results of operations.Certain countries, companies and organizations continue to participate in a boycott of Israeli firms andother companies doing business in Israel or with Israeli companies. We do not believe that the boycott has had amaterial adverse effect on us, but we cannot provide assurance that restrictive laws, policies or practices directedtoward Israel or Israeli businesses will not have an adverse impact on our operations or expansion of ourbusiness. Our business, financial condition and results of operations in Israel may be adversely affected byfactors outside of our control, such as currency fluctuations, energy shortages and other political, social andeconomic developments in or affecting Israel.We have manufacturing facilities located in Brazil and a portion of our sales and earnings is attributable toproducts produced and operations conducted in Brazil.Our Brazilian manufacturing facilities and local operations accounted for 13% and 14% of ourconsolidated assets, as of June 30, 2018 and 2017, respectively, and 20% and 18% of our consolidated net salesfor the years ended June 30, 2018 and 2017, respectively. We maintain manufacturing facilities in Brazil, whichmanufacture virginiamycin, semduramicin and nicarbazin. Our Brazilian facilities also produce Stafac, Aviax,Aviax Plus, Coxistac, Nicarb and Terramycin granular formulations. A substantial portion of the production isexported from Brazil to major world markets. Accordingly, our Brazilian operations are dependent on foreignmarkets and the ability to reach those markets.Our business, financial condition and results of operations in Brazil may be adversely affected byfactors outside of our control, such as currency fluctuations, energy shortages and other political, social andeconomic developments in or affecting Brazil.Certain of our employees are covered by collective bargaining or other labor agreements.As of June 30, 2018, approximately 230 of our Israeli employees and 413 of our Brazilian employeeswere covered by collective bargaining agreements. We believe we have satisfactory relations with ouremployees. There can be no assurance that we will not experience a work stoppage or strike at our manufacturingfacilities. A prolonged work stoppage or strike at any of our manufacturing facilities could have a materialadverse effect on our business, financial condition and results of operations.The loss of key personnel may disrupt our business and adversely affect our financial results.Our operations and future success are dependent on the continued efforts of our senior executiveofficers and other key personnel. Although we have entered into employment agreements with certainexecutives, we may not be able to retain all of our senior executive officers and key employees. These seniorexecutive officers and other key employees may be hired by our competitors, some of which have considerablymore financial resources than we do. The loss of the services of any of our senior executive officers or other keypersonnel, or the inability to hire and retain qualified employees, could have a material adverse effect on ourbusiness, financial condition and results of operations.Our R&D relies on evaluations in animals, which may become subject to bans or additional regulations.As a company that produces animal health medicines and vaccines, evaluation of our existing and newproducts in animals is required in order to be able to register our products. Animal testing in certain industrieshas been the subject of controversy and adverse publicity. Some organizations and individuals have attemptedto ban animal testing or encourage the adoption of additional regulations applicable to35TABLE OF CONTENTSanimal testing. To the extent that the activities of such organizations and individuals are successful, our R&D,and by extension our financial condition and results of operations, could be materially adversely affected. Inaddition, negative publicity about us or our industry could harm our reputation.Our operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal,state, local and foreign environmental laws and regulations.We are subject to environmental, health and safety laws and regulations, including those governingpollution; protection of the environment; the use, management and release of hazardous materials, substancesand wastes; air emissions; greenhouse gas emissions; water use, supply, and discharges; the investigation andremediation of contamination; the manufacture, distribution and sale of regulated materials, includingpesticides; the importing, exporting and transportation of products; and the health and safety of our employeesand the public (collectively, “Environmental Laws”). See “Business—Environmental, Health and Safety.”Pursuant to Environmental Laws, certain of our subsidiaries are required to obtain and maintainnumerous governmental permits, licenses, registrations, authorizations and approvals, including “RCRA Part B”hazardous waste permits, to conduct various aspects of their operations (collectively “Environmental Permits”),any of which may be subject to suspension, revocation, modification, termination or denial under certaincircumstances or which may not be renewed upon their expiration for various reasons, including noncompliance.See “Business—Environmental, Health and Safety.” These Environmental Permits can be difficult, costly andtime consuming to obtain and may contain conditions that limit our operations. Additionally, any failure toobtain and maintain such Environmental Permits could restrict or otherwise prohibit certain aspects of ouroperations, which could have a material adverse effect on our business, financial condition and results ofoperations.We have expended, and may be required to expend in the future, substantial funds for compliance withEnvironmental Laws. As recyclers of hazardous metal-containing chemical wastes, certain of our subsidiarieshave been, and are likely to be, the focus of extensive compliance reviews by environmental regulatoryauthorities under Environmental Laws, including those relating to the generation, transportation, treatment,storage and disposal of solid and hazardous wastes under the RCRA. In the past, some of our subsidiaries havepaid fines and entered into consent orders to address alleged environmental violations. See “Business—Environmental, Health and Safety.” We cannot assure you that our operations or activities or those of certain ofour subsidiaries, including with respect to compliance with Environmental Laws, will not result in civil orcriminal enforcement actions or private actions, regulatory or judicial orders enjoining or curtailing operationsor requiring corrective measures, installation of pollution control equipment or remedial measures or costs,revocation of required Environmental Permits, or fines, penalties or damages, which could have a materialadverse effect on our business, financial condition and results of operations. In addition, we cannot predict theextent to which Environmental Laws, and the interpretation or enforcement thereof, may change or become morestringent in the future, each of which may affect the market for our products or give rise to additional capitalexpenditures, compliance costs or liabilities that could be material.Our operations or products may impact the environment or cause or contribute to contamination or exposureto hazardous substances.Given the nature of our current and former operations, particularly at our chemical manufacturing sites,we have incurred, are currently incurring and may in the future incur liabilities under CERCLA, or under otherfederal, state, local and foreign Environmental Laws related to releases of or contamination by hazardoussubstances, with respect to our current or former sites, adjacent or nearby third-party sites, or offsite disposallocations. See “Business—Environmental, Health and Safety.” Certain Environmental Laws, includingCERCLA, can impose strict, joint, several, and retroactive liability for the cost of investigation and cleanup ofcontaminated sites on owners and operators of such sites, as well as on persons who dispose of or arrange fordisposal of hazardous substances at such sites. Accordingly, we could incur liability, whether as a result ofgovernment enforcement or private claims, for known or unknown liabilities at, or caused by migration from orhazardous waste transported from, any of our current or36TABLE OF CONTENTSformer facilities or properties, including those owned or operated by predecessors or third parties. See “Business—Environmental, Health and Safety.” Such liability could have a material adverse effect on our business,financial condition and results of operations.The nature of our current and former operations also exposes us to the risk of claims underEnvironmental Laws. We could be subject to claims by environmental regulatory authorities, individuals andother third parties seeking damages for alleged personal injury, property damage, and damages to naturalresources resulting from hazardous substance contamination or human exposure caused by our operations,facilities or products, and there can be no assurance that material costs and liabilities will not be incurred inconnection with any such claims. Our insurance may not be sufficient to cover any of these exposure, product,injury or damage claims.Furthermore, regulatory agencies are showing increasing concern over the impact of animal healthproducts and livestock operations on the environment. This increased regulatory scrutiny may necessitate thatadditional time and resources be spent to address these concerns for both new and existing products and couldaffect product sales and materially adversely affect our business, financial condition or results of operations.We cannot assure you that our liabilities arising from past or future releases of, or exposure to,hazardous substances will not materially adversely affect our business, financial condition or results ofoperations.We have been and may continue to be subject to claims of injury from direct exposure to certain of ourproducts that constitute or contain hazardous substances and from indirect exposure when such substances areincorporated into other companies’ products.Because certain of our products constitute or contain hazardous substances, and because theproduction of certain chemicals involves the use, handling, processing, storage and transportation of hazardoussubstances, from time to time we are subject to claims of injury from direct exposure to such substances and fromindirect exposure when such substances are incorporated into other companies’ products. There can be noassurance that as a result of past or future operations, there will not be additional claims of injury by employeesor members of the public due to exposure, or alleged exposure, to such substances. We are also party to a numberof claims and lawsuits arising out of the normal course of business, including product liability claims andallegations of violations of governmental regulations, and face present and future claims with respect toworkplace exposure, workers’ compensation and other matters. In most cases, such claims are covered byinsurance and, where applicable, workers’ compensation insurance, subject to policy limits and exclusions;however, our insurance coverage, to the extent available, may not be adequate to protect us from all liabilitiesthat we might incur in connection with the manufacture, sale and use of our products. Insurance is expensive andin the future may not be available on acceptable terms, if at all. A successful claim or series of claims broughtagainst us in excess of our insurance coverage could have a materially adverse effect on our business, financialcondition and results of operations. In addition, any claims, even if not ultimately successful, could adverselyaffect the marketplace’s acceptance of our products.We are subject to risks from litigation that may materially impact our operations.We face an inherent business risk of exposure to various types of claims and lawsuits. We are involvedin various legal proceedings that arise in the ordinary course of our business. Although it is not possible topredict with certainty the outcome of every pending claim or lawsuit or the range of probable loss, we believethese pending lawsuits and claims will not individually or in the aggregate have a material adverse impact onour results of operations. However, we could, in the future, be subject to various lawsuits, including intellectualproperty, product liability, personal injury, product warranty, environmental or antitrust claims, among others,and incur judgments or enter into settlements of lawsuits and claims that could have a material adverse effect onour results of operations in any particular period.We are subject to risks that may not be covered by our insurance policies.In addition to pollution and other environmental risks, we are subject to risks inherent in the animalhealth, mineral nutrition and performance products industries, such as explosions, fires, spills or37TABLE OF CONTENTSreleases. Any significant interruption of operations at our principal facilities could have a material adverse effecton us. We maintain general liability insurance, pollution legal liability insurance, and property and businessinterruption insurance with coverage limits that we believe are adequate. Because of the nature of industryhazards, it is possible that liabilities for pollution and other damages arising from a major occurrence may not becovered by our insurance policies or could exceed insurance coverages or policy limits or that such insurancemay not be available at reasonable rates in the future. Any such liabilities, which could arise due to injury or lossof life, severe damage to and destruction of property and equipment, pollution or other environmental damage orsuspension of operations, could have a material adverse effect on our business.Adverse U.S. and international economic and market conditions may adversely affect our product sales andbusiness.Current U.S. and international economic and market conditions are uncertain. Our revenues andoperating results may be affected by uncertain or changing economic and market conditions, including thechallenges faced in the credit markets and financial services industry. If domestic and global economic andmarket conditions remain uncertain or persist or deteriorate further, we may experience material impacts on ourbusiness, financial condition and results of operations. Adverse economic conditions impacting our customers,including, among others, increased taxation, higher unemployment, lower customer confidence in the economy,higher customer debt levels, lower availability of customer credit, higher interest rates and hardships relating todeclines in the stock markets, could cause purchases of meat products to decline, resulting in a decrease inpurchases of our products, which could adversely affect our financial condition and results of operation. Adverseeconomic and market conditions could also negatively impact our business by negatively affecting the partieswith whom we do business, including among others, our customers, our manufacturers and our suppliers.We may not be able to realize the expected benefits of our investments in emerging markets.We have been taking steps to take advantage of the rise in global demand for animal protein inemerging markets, including by expanding our manufacturing presence, sales, marketing and distribution inthese markets. Failure to continue to maintain and expand our business in emerging markets could alsomaterially adversely affect our operating results and financial condition.Some countries within emerging markets may be especially vulnerable to periods of local, regional orglobal economic, political or social instability or crisis. For example, our sales in certain emerging markets havesuffered from extended periods of disruption due to natural disasters. Furthermore, we have also experiencedlower than expected sales in certain emerging markets due to local, regional and global restrictions on bankingand commercial activities in those countries. For all these and other reasons, sales within emerging markets carrysignificant risks.Modification of foreign trade policy may harm our food animal product customers.Changes in laws, agreements and policies governing foreign trade in the territories and countries whereour customers do business could negatively impact such customers’ businesses and adversely affect our resultsof operations. A number of our customers, particularly U.S.-based food animal producers, benefit from free tradeagreements, such as the North American Free Trade Agreement (“NAFTA”). The U.S. has initiated negotiationswith Canada and Mexico aimed at re-negotiating terms of NAFTA. Efforts by the U.S. to withdraw from ormaterially modify NAFTA or other international trade agreements to which it is a party, as well as trade disputesor the imposition of tariffs, could harm our customers, and as a result, materially adversely affect our business,financial condition and results of operations.We may not be able to expand through acquisitions or integrate successfully the products, services andpersonnel of acquired businesses.From time to time, we may make selective acquisitions to expand our range of products and servicesand to expand the geographic scope of our business. However, we may be unable to identify suitable targets, andcompetition for acquisitions may make it difficult for us to consummate acquisitions on acceptable terms or atall. We may not be able to locate any complementary products that meet our38TABLE OF CONTENTSrequirements or that are available to us on acceptable terms or we may not have sufficient capital resources toconsummate a proposed acquisition. In addition, assuming we identify suitable products or partners, the processof effectively entering into these arrangements involves risks that our management’s attention may be divertedfrom other business concerns. Further, if we succeed in identifying and consummating appropriate acquisitionson acceptable terms, we may not be able to integrate successfully the products, services and personnel of anyacquired businesses on a basis consistent with our current business practice. In particular, we may face greaterthan expected costs, time and effort involved in completing and integrating acquisitions and potentialdisruption of our ongoing business. Furthermore, we may realize fewer, if any, synergies than envisaged. Ourability to manage acquired businesses may also be limited if we enter into joint ventures or do not acquire fullownership or a controlling stake in the acquired business. In addition, continued growth through acquisitionsmay significantly strain our existing management and operational resources. As a result, we may need to recruitadditional personnel, particularly at the level below senior management, and we may not be able to recruitqualified management and other key personnel to manage our growth. Moreover, certain transactions couldadversely impact earnings as we incur development and other expenses related to the transactions and we couldincur debt to complete these transactions. Debt instruments could contain contractual commitments andcovenants that could adversely affect our cash flow and our ability to operate our business, financial conditionand results of operations.We may not successfully implement our business strategies or achieve expected gross margin improvements.We are pursuing and may continue to pursue strategic initiatives that management considers critical toour long-term success, including, but not limited to, increasing sales in emerging markets, base revenue growththrough new product development and value added product lifecycle development; improving operationalefficiency through manufacturing efficiency improvement and other programs; and expanding ourcomplementary products and services. There are significant risks involved with the execution of these types ofinitiatives, including significant business, economic and competitive uncertainties, many of which are outsideof our control. Accordingly, we cannot predict whether we will succeed in implementing these strategicinitiatives. It could take several years to realize the anticipated benefits from these initiatives, if any benefits areachieved at all. We may be unable to achieve expected gross margin improvements on our products ortechnologies. Additionally, our business strategy may change from time to time, which could delay our abilityto implement initiatives that we believe are important to our business.Our product approval, R&D, acquisition and licensing efforts may fail to generate new products and productlifecycle developments.Our future success depends on both our existing product portfolio, including our ability to obtaincross-clearances enabling the use of our medicated products in conjunction with other products, approval for useof our products with new species, approval for new claims for our products, approval of our products in newmarkets, and our pipeline of new products, including new products that we may develop through joint venturesand products that we are able to obtain through license or acquisition. The majority of our R&D programs focuson product lifecycle development, which is defined as R&D programs that leverage existing animal healthproducts by adding new species or claims, achieving approvals in new markets or creating new combinationsand reformulations. We commit substantial effort, funds and other resources to expanding our product approvalsand R&D, both through our own dedicated resources and through collaborations with third parties.We may be unable to determine with accuracy when or whether any of our expanded productapprovals for our existing product portfolio or any of our products now under development will be approved orlaunched, or we may be unable to obtain expanded product approvals or develop, license or otherwise acquireproduct candidates or products. In addition, we cannot predict whether any products, once launched, will becommercially successful or will achieve sales and revenues that are consistent with our expectations. The animalhealth industry is subject to regional and local trends and regulations and, as a result, products that aresuccessful in some of our markets may not achieve similar success when introduced into new markets.Furthermore, the timing and cost of our R&D may increase, and our R&D may become less predictable. Forexample, changes in regulations applicable to our industry may make it more time-consuming and/or costly toresearch, test and develop products.39•pay monetary damages;•obtain a license in order to continue manufacturing or marketing the affected products, which maynot be available on commercially reasonable terms, or at all; or•stop activities, including any commercial activities, relating to the affected products, which couldinclude a recall of the affected products and/or a cessation of sales in the future.TABLE OF CONTENTSProducts in the animal health industry are sometimes derived from molecules and compoundsdiscovered or developed as part of human health research. We may enter into collaboration or licensingarrangements with third parties to provide us with access to compounds and other technology for purposes of ourbusiness. Such agreements are typically complex and require time to negotiate and implement. If we enter intothese arrangements, we may not be able to maintain these relationships or establish new ones in the future onacceptable terms or at all. In addition, any collaboration that we enter into may not be successful, and thesuccess may depend on the efforts and actions of our collaborators, which we may not be able to control. If weare unable to access human health-generated molecules and compounds to conduct R&D on cost-effective terms,our ability to develop new products could be limited.The actual or purported intellectual property rights of third parties may negatively affect our business.A third party may sue us, our distributors or licensors, or otherwise make a claim, alleging infringementor other violation of the third-party’s patents, trademarks, trade dress, copyrights, trade secrets, domain names orother intellectual property rights. If we do not prevail in this type of litigation, we may be required to:The costs of defending an intellectual property claim could be substantial and could materiallyadversely affect our operating results and financial condition, even if we successfully defend such claims. Wemay also incur costs in connection with an obligation to indemnify a distributor, licensor or other third party.Moreover, even if we believe that we do not infringe a validly existing third-party patent, we may choose tolicense such patent, which would result in associated costs and obligations. We may also incur costs inconnection with an obligation to indemnify a distributor, licensor or other third party.The intellectual property positions of animal health medicines and vaccines businesses frequentlyinvolve complex legal and factual questions, and an issued patent does not guarantee us the right to practice thepatented technology or develop, manufacture or commercialize the patented product. We cannot be certain thata competitor or other third party does not have or will not obtain rights to intellectual property that may preventus from manufacturing, developing or marketing certain of our products, regardless of whether we believe suchintellectual property rights are valid and enforceable or we believe we would be otherwise able to develop amore commercially successful product, which may harm our financial condition and results of operations.If our intellectual property rights are challenged or circumvented, competitors may be able to take advantageof our R&D efforts. We are also dependent upon trade secrets, which generally are difficult to protect.Our long-term success largely depends on our ability to market technologically competitive products.We rely and expect to continue to rely on a combination of intellectual property, including patent, trademark,trade dress, copyright, trade secret and domain name protection laws, as well as confidentiality and licenseagreements with our employees and others, to protect our intellectual property and proprietary rights. If we failto obtain and maintain adequate intellectual property protection, we may not be able to prevent third partiesfrom using our proprietary technologies or from marketing products that are very similar or identical to ours. Ourcurrently pending or future patent applications may not result in issued patents, or be approved on a timelybasis, or at all. Similarly, any term extensions that we seek may not be approved on a timely basis, if at all. Inaddition, our issued patents may not contain claims sufficiently broad to protect us against third parties withsimilar technologies or products or provide us with any competitive advantage, including exclusivity in aparticular product area. The scope of our patent claims also may vary between countries, as individual countrieshave their own patent laws. For example, some countries only permit the issuance of patents covering a novelchemical compound itself, and its first use, and thus further methods of use for the same compound, may not bepatentable. We may be subject to challenges by third parties regarding our intellectual property, includingclaims regarding validity,40TABLE OF CONTENTSenforceability, scope and effective term. The validity, enforceability, scope and effective term of patents can behighly uncertain and often involve complex legal and factual questions and proceedings. Our ability to enforceour patents also depends on the laws of individual countries and each country’s practice with respect toenforcement of intellectual property rights. In addition, if we are unable to maintain our existing licenseagreements or other agreements pursuant to which third parties grant us rights to intellectual property, includingbecause such agreements expire or are terminated, our financial condition and results of operations could bematerially adversely affected.In addition, patent law reform in the United States and other countries may also weaken our ability toenforce our patent rights, or make such enforcement financially unattractive. For instance, in September 2011,the United States enacted the America Invents Act, which will permit enhanced third-party actions forchallenging patents and implement a first-to-invent system, and, in April 2012, Australia enacted the IntellectualProperty Laws Amendment (Raising the Bar) Act, which provides higher standards for obtaining patents. Thesereforms could result in increased costs to protect our intellectual property or limit our ability to patent ourproducts in these jurisdictions.Additionally, certain foreign governments have indicated that compulsory licenses to patents may begranted in the case of national emergencies, which could diminish or eliminate sales and profits from thoseregions and materially adversely affect our operating results and financial condition.Likewise, in the United States and other countries, we currently hold issued trademark registrationsand have trademark applications pending, any of which may be the subject of a governmental or third partyobjection, which could prevent the maintenance or issuance of the same and thus create the potential need torebrand or relabel a product. As our products mature, our reliance on our trademarks to differentiate us from ourcompetitors increases and as a result, if we are unable to prevent third parties from adopting, registering or usingtrademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, our business could bematerially adversely affected.Our competitive position is also dependent upon unpatented trade secrets, which generally may bedifficult to protect. Others may independently develop substantially equivalent proprietary information andtechniques or may otherwise gain access to our trade secrets, trade secrets may be disclosed or we may not beable to protect our rights to unpatented trade secrets.Many of our vaccine products and other products are based on or incorporate proprietary information,including proprietary master seeds and proprietary or patented adjuvant formulations. We actively seek toprotect our proprietary information, including our trade secrets and proprietary know-how, by requiring ouremployees, consultants, other advisors and other third parties to execute confidentiality agreements upon thecommencement of their employment, engagement or other relationship. Despite these efforts and precautions, wemay be unable to prevent a third party from copying or otherwise obtaining and using our trade secrets or ourother intellectual property without authorization and legal remedies may not adequately compensate us for thedamages caused by such unauthorized use. Further, others may independently and lawfully developsubstantially similar or identical products that circumvent our intellectual property by means of alternativedesigns or processes or otherwise.The misappropriation and infringement of our intellectual property, particularly in foreign countrieswhere the laws may not protect our proprietary rights as fully as in the United States, may occur even when wetake steps to prevent it. In the future, we may be party to patent lawsuits and other intellectual property rightsclaims that are expensive and time consuming, and if resolved adversely, could have a significant impact on ourbusiness and financial condition. In the future, we may not be able to enforce intellectual property that relates toour products for various reasons, including licensor restrictions and other restrictions imposed by third parties,and that the costs of doing so may outweigh the value of doing so, and this could have a material adverse impacton our business and financial condition.We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws or trade control laws,as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to civilor criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business,financial condition and results of operations.Our operations are subject to anti-corruption laws, including the FCPA and other anti-corruption lawsthat apply in countries where we do business. The FCPA, UK Bribery Act and other laws generally41•make it more difficult for us to satisfy our financial obligations, including those relating to theCredit Facilities;•require us to dedicate a substantial portion of any cash flow from operations to the payment ofinterest and principal due under our debt, which will reduce funds available for other businesspurposes, including capital expenditures and acquisitions;•increase our vulnerability to general adverse economic and industry conditions;TABLE OF CONTENTSprohibit us and our employees and intermediaries from bribing, being bribed or making other prohibitedpayments to government officials or other persons to obtain or retain business or gain some other businessadvantage. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, and weparticipate in relationships with third parties whose actions could potentially subject us to liability under theFCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatoryrequirements to which our international operations might be subject or the manner in which existing laws mightbe administered or interpreted.We are also subject to other laws and regulations governing our international operations, includingregulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security, theU.S. Department of Treasury’s Office of Foreign Asset Control, and various non-U.S. government entities,including applicable export control regulations, economic sanctions on countries and persons, customsrequirements, currency exchange regulations and transfer pricing regulations (collectively, the “Trade Controllaws”).There is no assurance that we will be completely effective in ensuring our compliance with allapplicable anticorruption laws, including the FCPA or other legal requirements, including Trade Control laws. Ifwe are not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subjectto criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses,which could have an adverse impact on our business, financial condition, results of operations and liquidity.Likewise, any investigation of any potential violations of the FCPA other anti-corruption laws or Trade Controllaws by U.S. or foreign authorities could also have an adverse impact on our reputation, business, financialcondition and results of operationsIncreased regulation or decreased governmental financial support for the raising, processing or consumptionof food animals could reduce demand for our animal health products.Companies in the animal health industry are subject to extensive and increasingly stringentregulations. If livestock producers are adversely affected by new regulations or changes to existing regulations,they may reduce herd sizes or become less profitable and, as a result, they may reduce their use of our products,which may materially adversely affect our operating results and financial condition. Furthermore, adverseregulations related, directly or indirectly, to the use of one or more of our products may injure livestockproducers’ market position. More stringent regulation of the livestock industry or our products could have amaterial adverse effect on our operating results and financial condition. Also, many industrial producers,including livestock producers, benefit from governmental subsidies, and if such subsidies were to be reduced oreliminated, these companies may become less profitable and, as a result, may reduce their use of our products.We have substantial debt and interest payment requirements that may restrict our future operations and impairour ability to meet our obligations under our indebtedness. Restrictions imposed by our outstandingindebtedness, including the restrictions contained in our Credit Facilities, may limit our ability to operate ourbusiness and to finance our future operations or capital needs or to engage in other business activities.As of June 30, 2018, we had $243.8 million of outstanding indebtedness under our Term A loan(reflects the principal amount), $70.0 million of outstanding borrowings under our revolving credit facility(together with the Term A loan, the “Credit Facilities”) and $4.2 million of outstanding letters of credit. Subjectto restrictions in our Credit Facilities, we may incur significant additional indebtedness. If we and oursubsidiaries incur significant additional indebtedness, the related risks that we face could intensify.Our substantial debt may have important consequences. For instance, it could:42•limit our flexibility in planning for or reacting to changes in our business and the industry inwhich we operate;•place us at a competitive disadvantage compared with some of our competitors that may have lessdebt and better access to capital resources; and•limit our ability to obtain additional financing required to fund working capital and capitalexpenditures and for other general corporate purposes.TABLE OF CONTENTSOur ability to satisfy our obligations and to reduce our total debt depends on our future operatingperformance and on economic, financial, competitive and other factors, many of which are beyond our control.Our business may not generate sufficient cash flow, and future financings may not be available to providesufficient net proceeds, to meet these obligations or to successfully execute our business strategy.The terms of the Credit Facilities contain certain covenants that limit our ability and that of oursubsidiaries to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees,repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certaintransactions with affiliates or change the nature of our business. As a result of these covenants and restrictions,we will be limited in how we conduct our business, and we may be unable to raise additional debt or equityfinancing to compete effectively or to take advantage of new business opportunities. The terms of any futureindebtedness we may incur could include more restrictive covenants. We may not be able to maintaincompliance with the covenants in any of our debt instruments in the future and, if we fail to do so, we may not beable to obtain waivers from the lenders and/or amend the covenants.We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to takeother actions to satisfy our obligations under our indebtedness, which may not be successful.Our ability to make scheduled payments on or refinance our debt obligations depends on our financialcondition and operating performance, which are subject to prevailing economic and competitive conditions andto certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable tomaintain a level of cash flows from operating activities sufficient to permit us to pay the principal and intereston our indebtedness.If our cash flows and capital resources are insufficient to fund our debt service obligations, we couldface substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures,or to dispose of material assets or operations, alter our dividend policy, seek additional debt or equity capital orrestructure or refinance our indebtedness. We may not be able to effect any such alternative measures oncommercially reasonable terms or at all and, even if successful, those alternative actions may not allow us tomeet our scheduled debt service obligations. The instruments that govern our indebtedness may restrict ourability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict ourability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may notbe able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt serviceobligations when due.In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of ourindebtedness will depend on the generation of cash flow by our subsidiaries, including our internationalsubsidiaries, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Oursubsidiaries may not have any obligation to pay amounts due on our indebtedness or to make funds available forthat purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us tomake payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and under certaincircumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from our subsidiaries ormay subject any transfer of cash from our subsidiaries to substantial tax liabilities. In the event that we do notreceive distributions from our subsidiaries, we may be unable to make required principal and interest paymentson our indebtedness.Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance ourindebtedness on commercially reasonable terms or at all, may materially adversely affect our operating results,financial condition and liquidity and our ability to satisfy our obligations under our indebtedness or paydividends on our common stock.43TABLE OF CONTENTSWe are subject to change of control provisions.We are a party to certain contractual arrangements that are subject to change of control provisions. Inthis context, “change of control” is generally defined as including (a) any person or group, other than Mr. JackC. Bendheim and his family and affiliates (the current holders of approximately 91.0% of the combined votingpower of all classes of our outstanding common stock), becoming the beneficial owner of more than 50% of thetotal voting power of our stock, and (b) a change in any twelve month period in the majority of the members ofthe Board that is not approved by Mr. Bendheim and/or his family and affiliates or by the majority of directors inoffice at the start of such period.Mr. Bendheim and his family and affiliates may choose to dispose of part or all of their stakes in usand/or may cease to exercise the current level of control they have over the appointment and removal ofmembers of our Board. Any such changes may trigger a “change of control” event that could result in us beingforced to repay the Credit Facilities or lead to the termination of a significant contract to which we are a party. Ifany such event occurs, this may negatively affect our financial condition and operating results. In addition, wemay not have sufficient funds to finance repayment of any of such indebtedness upon any such “change incontrol.”We depend on sophisticated information technology and infrastructure.We rely on various information systems to manage our operations, and we increasingly depend onthird parties and applications on virtualized, or “cloud,” infrastructure to operate and support our informationtechnology systems. These third parties include large established vendors as well as small, privately ownedcompanies. Failure by these providers to adequately service our operations or a change in control or insolvencyof these providers could have an adverse effect on our business, which in turn may materially adversely affectour business, financial condition or results of operations.We may be required to write down goodwill or identifiable intangible assets.Under GAAP, if we determine goodwill or identifiable intangible assets are impaired, we will berequired to write down these assets and record a non-cash impairment charge. As of June 30, 2018, we hadgoodwill of $27.3 million and identifiable intangible assets, less accumulated amortization, of $52.0 million.Identifiable intangible assets consist primarily of developed technology rights and patents, customerrelationships, distribution agreements and trade names and trademarks. During fiscal year 2017, we determinedcertain of our intangible assets were impaired. See “Notes to Consolidated Financial Statements—Summary ofSignificant Accounting Policies and New Accounting Standards, Long-Lived Assets and Goodwill.”Determining whether an impairment exists and the amount of the potential impairment involvesquantitative data and qualitative criteria that are based on estimates and assumptions requiring significantmanagement judgment. Future events or new information may change management’s valuation of goodwill oran intangible asset in a short amount of time. The timing and amount of impairment charges recorded in ourconsolidated statements of operations and write-downs recorded in our consolidated balance sheets could vary ifmanagement’s conclusions change. Any impairment of goodwill or identifiable intangible assets could have amaterial adverse effect on our financial condition and results of operations.We may be unable to adequately protect our customers’ privacy or we may fail to comply with privacy laws.The protection of customer, employee and company data is critical and the regulatory environmentsurrounding information security, storage, use, processing, disclosure and privacy is demanding, with thefrequent imposition of new and changing requirements. In addition, our customers expect that we willadequately protect their personal information. Any actual or perceived significant breakdown, intrusion,interruption, cyber-attack or corruption of customer, employee or company data or our failure to comply withfederal, state, local and foreign privacy laws could damage our reputation and result in lost sales, fines andlawsuits. Despite our considerable efforts and technology to secure our computer network, security could becompromised, confidential information could be misappropriated or system disruptions could occur. Any actualor perceived access, disclosure or other loss of information or any significant breakdown, intrusion, interruption,cyber-attack or corruption of customer, employee or44TABLE OF CONTENTScompany data or our failure to comply with federal, state, local and foreign privacy laws or contractualobligations with customers, vendors, payment processors and other third parties, could result in legal claims orproceedings, liability under laws or contracts that protect the privacy of personal information, regulatorypenalties, disruption of our operations, and damage to our reputation, all of which could materially adverselyaffect our business, revenue and competitive position.We may be subject to information technology system failures, network disruptions and breaches in datasecurity.We are increasingly dependent upon information technology systems and infrastructure to conductcritical operations and generally operate our business, which includes using information technology systems toprocess, transmit and store electronic information in our day-to-day operations, including customer, employeeand company data. The size and complexity of our computer systems make them potentially vulnerable tobreakdown, malicious intrusion and random attack. We also store certain information with third parties. Ourinformation systems and those of our third-party vendors are subjected to computer viruses or other maliciouscodes, unauthorized access attempts, and cyber- or phishing-attacks and also are vulnerable to an increasingthreat of continually evolving cybersecurity risks and external hazards. Disruption, degradation, ormanipulation of these systems and infrastructure through intentional or accidental means could impact keybusiness processes. Cyber-attacks against the Company’s systems and infrastructure could result in exposure ofconfidential information, the modification of critical data, and/or the failure of critical operations. Likewise,improper or inadvertent employee behavior, including data privacy breaches by employees and others withpermitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or tothe public. Any such breach could compromise our networks, and the information stored therein could beaccessed, publicly disclosed, lost or stolen. Such attacks could result in our intellectual property and otherconfidential information being lost or stolen, disruption of our operations, and other negative consequences,such as increased costs for security measures or remediation costs, and diversion of management attention.Although the aggregate impact on the Company’s operations and financial condition has not been material todate, the Company has been the target of events of this nature and expects them to continue as cyber-attacks arebecoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. TheCompany monitors its data, information technology and personnel usage of Company systems to reduce theserisks and continues to do so on an ongoing basis for any current or potential threats. While we have invested inprotection of data and information technology, there can be no assurance that our efforts will preventbreakdowns, cybersecurity attacks or breaches in our systems that could cause reputational damage, businessdisruption and legal and regulatory costs; could result in third-party claims; could result in compromise ormisappropriation of our intellectual property, trade secrets and sensitive information; and could otherwiseadversely affect our business and financial results.Risks Related to Ownership of Our Class A Common StockOur multiple class structure and the concentration of our voting power with certain of our stockholders willlimit your ability to influence corporate matters, and conflicts of interest between certain of our stockholdersand us or other investors could arise in the future.As of August 20, 2018, BFI Co., LLC (“BFI”) beneficially owns 30,000 shares of our Class A commonstock and 20,246,034 shares of our Class B common stock, which together represent approximately 91.0% of thecombined voting power of all classes of our outstanding common stock. As of August 20, 2018, our otherstockholders, collectively own interests representing approximately 9.0% of the combined voting power of allclasses of our outstanding common stock. Because of our multiple class structure and the concentration ofvoting power with BFI, BFI will continue to be able to control all matters submitted to our stockholders forapproval for so long as BFI holds common stock representing greater than 50% of the combined voting power ofall classes of our outstanding common stock. BFI will therefore have significant influence over management andaffairs and control the approval of all matters requiring stockholder approval, including the election of directorsand significant corporate transactions, such as a merger or other sale of the Company or its assets, for theforeseeable future.45•the requirement that a majority of the Board consists of independent directors;•the requirement that we have a nominating and corporate governance committee and that it iscomposed entirely of independent directors;•the requirement that we have a compensation committee and that it is composed entirely ofindependent directors; and•the requirement for an annual performance evaluation of the nominating and corporategovernance and compensation committees.•we may not have a majority of independent directors in the future;•we will not have a nominating and corporate governance committee;•our compensation committee will not consist entirely of independent directors; and•we will not be required to have an annual performance evaluation of the compensation committee.•changes in financial estimates by any securities analysts who follow our Class A common stock,our failure to meet these estimates or failure of those analysts to initiate or maintain coverage ofour Class A common stock;•downgrades by any securities analysts who follow our Class A common stock;•future sales of our Class A common stock by our officers, directors and significant stockholders;•market conditions or trends in our industry or the economy as a whole and, in particular, in theanimal health industry;•investors’ perceptions of our prospects;•announcements by us or our competitors of significant contracts, acquisitions, joint ventures orcapital commitments; and•changes in key personnel.TABLE OF CONTENTSWe are classified as a “controlled company” and, as a result, we qualify for, and intend to rely on, exemptionsfrom certain corporate governance requirements. You will not have the same protections afforded tostockholders of companies that are subject to such requirements.BFI controls a majority of the combined voting power of all classes of our outstanding common stock.As a result, we are a “controlled company” within the meaning of the NASDAQ corporate governance standards.Under NASDAQ rules, a company of which more than 50% of the voting power is held by an individual, groupor another company is a “controlled company” and may elect not to comply with certain corporate governancerequirements, including:We utilize and intend to continue to utilize these exemptions. As a result, while we currently have amajority of independent directors:Accordingly, you will not have the same protections afforded to stockholders of companies that aresubject to all of the NASDAQ corporate governance requirements.Our stock price may be volatile or may decline regardless of our operating performance.The market price of our Class A common stock may fluctuate significantly in response to a number offactors, many of which we cannot control, including those described under “—Risks Related to Our Business”and “—Risks Related to Our Indebtedness” and the following:46•the election of our Board of Directors and the appointment and removal of our officers;•mergers and other business combination transactions, including proposed transactions that wouldresult in our stockholders receiving a premium price for their shares;•other acquisitions or dispositions of businesses or assets;•incurrence of indebtedness and the issuance of equity securities;•repurchase of stock and payment of dividends; and•the issuance of shares to management under our equity incentive plans.TABLE OF CONTENTSIn addition, the stock markets have experienced extreme price and volume fluctuations that haveaffected and continue to affect the market prices of equity securities of many companies. In the past,stockholders have instituted securities class action litigation following periods of market volatility. If we wereinvolved in securities litigation, we could incur substantial costs, and our resources and the attention ofmanagement could be diverted from our business.Our majority stockholder has the ability to control significant corporate activities and our majoritystockholder’s interests may not coincide with yours.As of August 20, 2018, approximately 91.0% of the combined voting power of all classes of ouroutstanding common stock is held by BFI. As a result of its ownership, so long as it holds a majority of thecombined voting power of all classes of our outstanding common stock, BFI will have the ability to control theoutcome of matters submitted to a vote of stockholders and, through our Board of Directors, the ability tocontrol decision-making with respect to our business direction and policies. Matters over which BFI, directly orindirectly, exercises control include:Even if BFI’s ownership of our shares falls below a majority of the combined voting power of allclasses of our outstanding common stock, it may continue to be able to influence or effectively control ourdecisions.Future sales of our Class A common stock, or the perception in the public markets that these sales may occur,may depress our stock price.Sales of substantial amounts of our Class A common stock in the public market, or the perception thatthese sales could occur, could adversely affect the price of our Class A common stock and could impair ourability to raise capital through the sale of additional shares. In addition, subject to certain restrictions onconverting Class B common stock into Class A common stock, all of our outstanding shares of Class B commonstock may be converted into Class A common stock and sold in the public market by existing stockholders. Asof August 20, 2018, we had 20,121,674 shares of Class A common stock and 20,246,034 shares of Class Bcommon stock outstanding.BFI, which holds all of our outstanding Class B common stock, has the right to require us to registerthe sales of their shares under the Securities Act, under the terms of an agreement between us and the holders ofthese securities. In the future, we may also issue our securities in connection with investments or acquisitions.The amount of shares of our Class A common stock issued in connection with an investment or acquisitioncould constitute a material portion of our then-outstanding shares of our Class A common stock.As an emerging growth company under the JOBS Act we are eligible to take advantage of certain exemptionsfrom various reporting requirements.We are an emerging growth company, as defined in the JOBS Act, and we are eligible to takeadvantage of certain exemptions from various reporting requirements that are applicable to other publiccompanies that are not emerging growth companies. These exemptions include, but are not limited to, (i) notbeing required to comply with the auditor attestation requirements of Section 404, (ii) reduced disclosureobligations regarding executive compensation in our periodic reports and proxy statements, and (iii) exemptionsfrom the requirements of holding a nonbinding advisory vote on executive compensation and stockholderapproval of any golden parachute payments not previously approved. We have taken, and47•prepare and distribute periodic reports and other stockholder communications in compliance withour obligations under the federal securities laws and applicable stock exchange rules;•maintain compliance and internal audit functions that are more comprehensive;•maintain effective disclosure controls and procedures;•evaluate and maintain an effective system of internal control over financial reporting, and reporton management’s assessment thereof, in compliance with the requirements of Section 404 and therelated rules and regulations of the SEC and the Public Company Accounting Oversight Board;•continue to enhance our investor relations function;•maintain internal policies, including those relating to disclosure controls and procedures; and•involve and retain outside legal counsel and accountants in connection with the activities listedabove.TABLE OF CONTENTSplan to continue to take, advantage of some or all of these exemptions. If we do continue to take advantage ofany of these exemptions, we do not know if some investors will find our Class A common stock less attractive asa result. The result may be a less active trading market for our securities and our security prices may be morevolatile. We expect to remain an emerging growth company until June 30, 2019, which is the end of the fiscalyear following the fifth anniversary of our initial public offering.Pursuant to the JOBS Act, our independent registered public accounting firm will not be required to attest tothe effectiveness of our internal control over financial reporting pursuant to Section 404 for so long as we arean “emerging growth company.”Section 404 requires annual management assessments of the effectiveness of our internal control overfinancial reporting, starting with the annual report for the year ending June 30, 2015, that we file with the SEC,and generally requires in the same report a report by our independent registered public accounting firm on theeffectiveness of our internal control over financial reporting. However, under the JOBS Act, our independentregistered public accounting firm will not be required to attest to the effectiveness of our internal control overfinancial reporting pursuant to Section 404 until we are no longer an “emerging growth company.” We will berequired to comply with the auditor attestation requirements of the Sarbanes-Oxley Act, effective with our June30, 2019 consolidated financial statements.As a public company, we are subject to financial and other reporting and corporate governance requirementsthat did not previously apply to us and that may be difficult for us to satisfy and may divert management’sattention from our business.As a public company, we are required to file annual and quarterly reports and other informationpursuant to the Exchange Act with the SEC. We are required to ensure that we have the ability to prepareconsolidated financial statements that comply with SEC reporting requirements on a timely basis. We are alsosubject to other reporting and corporate governance requirements, including the applicable stock exchangelisting standards and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder,which impose significant compliance obligations upon us. Specifically, we are required to:As a public company, we are required to commit significant resources and management time andattention to the above-listed requirements, which cause us to incur significant costs and which may place a strainon our systems and resources. As a result, our management’s attention might be diverted from other businessconcerns. Compliance with these requirements place significant demands on our legal, accounting and financestaff and on our accounting, financial and information systems and increase our legal and accountingcompliance costs as well as our compensation expense as we have been or may be required to hire additionalaccounting, tax, finance and legal staff with the requisite technical knowledge, particularly after we are nolonger an “emerging growth company.”48•We did not maintain effective internal controls to ensure processing and reporting of validtransactions are complete, accurate, and timely. Specifically, we have not designed andimplemented formal accounting policies and procedures that define how transactions across thebusiness cycles should be initiated, recorded, processed and reported and appropriatelyauthorized and approved.•We did not maintain effective internal controls that restrict access to key financial systems andrecords to appropriate users and ensure appropriate segregation of duties is maintained. Certainpersonnel had access to financial application, programs and data beyond that needed to performtheir individual job responsibilities and without independent monitoring. In addition, certainfinancial personnel had incompatible duties that allowed for the creation, review and processingof certain financial data without independent review and authorization.TABLE OF CONTENTSOur management and independent registered public accounting firm have determined that there are materialweaknesses in our internal controls over financial reporting. If we fail to maintain an effective system ofinternal controls over financial reporting, we may not be able to accurately report our financial results.Our management and independent registered public accounting firm have identified materialweaknesses in our internal controls over financial reporting and our audit committee has agreed with theassessment of our management and independent registered public accounting firm. A material weakness is adeficiency, or a combination of deficiencies, in internal control over financial reporting such that there is areasonable possibility that a material misstatement of the annual or interim financial statements will not beprevented or detected on a timely basis. Our management and independent registered public accounting firmhave identified the following material weaknesses in our internal controls over financial reporting:Each of these material weaknesses could result in a material misstatement of our annual or interimfinancial statements that possibly would not be prevented or detected on a timely basis. We are currentlyevaluating the controls and procedures we will design and put in place to address these weaknesses and plan toimplement appropriate measures as part of this effort. The measures may include additional staffing and otherresources to strengthen internal controls and financial reporting. Failure to maintain an effective system ofinternal controls over financial reporting could have a material adverse effect on our business, financialcondition and our results of operations. If we are unsuccessful in remediating the material weakness, or if wesuffer other deficiencies or material weaknesses in our internal controls in the future, we may be unable to reportfinancial information in a timely and accurate manner and it could result in a material misstatement of ourannual or interim financial statements that would not be prevented or detected on a timely basis, which couldcause investors to lose confidence in our financial reporting, negatively affect the trading price of our commonstock, and could cause a default under the agreements governing our indebtedness.Failure to comply with requirements to design, implement and maintain effective internal controls could havea material adverse effect on our business and stock price.As a public company, we have significant requirements for enhanced financial reporting and internalcontrols. The process of designing and implementing effective internal controls is a continuous effort thatrequires us to anticipate and react to changes in our business and the economic and regulatory environments andto expend significant resources to maintain a system of internal controls that is adequate to satisfy our reportingobligations as a public company. If we are unable to establish or maintain appropriate internal financialreporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis,result in material misstatements in our consolidated financial statements and harm our operating results. Inaddition, we are required, pursuant to Section 404, to furnish a report by management on, among other things,the effectiveness of our internal control over financial reporting. This assessment includes disclosure of anymaterial weaknesses identified by our management in our internal control over financial reporting and astatement that our auditors have issued an attestation report on the effectiveness of our internal controls,provided that, as long as we are an “emerging growth company,” our independent registered public accountingfirm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant toSection 404. Testing and maintaining internal controls may divert our management’s attention from othermatters that are important to our business. We may not be able to conclude on an ongoing basis that we haveeffective internal control49•authorize the issuance of undesignated preferred stock, the terms of which may be established andthe shares of which may be issued without stockholder approval, and which may include supervoting, special approval, dividend, or other rights or preferences superior to the rights of theholders of Class A common stock;•prohibit, at any time after BFI and its affiliates cease to hold at least 50% of the combined votingpower of all classes of our outstanding common stock, stockholder action by written consent,without the express prior consent of the Board of Directors;•provide that the Board of Directors is expressly authorized to make, alter or repeal our amendedand restated bylaws;•establish advance notice requirements for nominations for elections to our Board of Directors orfor proposing matters that can be acted upon by stockholders at stockholder meetings;•establish a classified Board of Directors, as a result of which our Board of Directors will be dividedinto three classes, with each class serving for staggered three-year terms, which preventsstockholders from electing an entirely new Board of Directors at an annual meeting; and require,at any time after BFI and its affiliates cease to hold at least 50% of the combined voting power ofall classes of our outstanding common stock, the approval of holders of at least three quarters ofthe combined voting power of all classes of our outstanding common stock for stockholders toamend the amended and restated bylaws or amended and restated certificate of incorporation.TABLE OF CONTENTSover financial reporting in accordance with Section 404 or our independent registered public accounting firmmay not issue an unqualified opinion. If either we are unable to conclude that we have effective internal controlover financial reporting or our independent registered public accounting firm is unable to provide us with anunqualified opinion, investors could lose confidence in our reported financial information, which could have amaterial adverse effect on the trading price of our stock.Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisitionattempts for us that you might consider favorable.Our certificate of incorporation and bylaws contain provisions that may make the acquisition of theCompany more difficult without the approval of our Board of Directors. These provisions:These anti-takeover provisions and other provisions under Delaware law could discourage, delay orprevent a transaction involving a change in control of the Company, even if doing so would benefit ourstockholders. These provisions could also discourage proxy contests and make it more difficult for you andother stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole andexclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, whichcould limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,officers or employees.Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery ofthe State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought onour behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers orother employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to anyprovision of the Delaware General Corporation Law, our certificate of incorporation or our by-laws, or (iv) anyother action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entitypurchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice ofand to have consented to the provisions of our certificate of incorporation described above. This choice of forumprovision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputeswith us or our directors, officers or other employees, which may discourage such lawsuits against us and ourdirectors, officers and employees. Alternatively, if a court were to find these provisions of our restated certificateof incorporation50TABLE OF CONTENTSinapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, wemay incur additional costs associated with resolving such matters in other jurisdictions, which could adverselyaffect our business, financial condition and results of operations.Provisions of our certificate of incorporation could have the effect of preventing us from having the benefit ofcertain business opportunities that we would otherwise be entitled to pursue.Our certificate of incorporation provides that BFI and its affiliates are not required to offer corporateopportunities of which they become aware to us and could, therefore, offer such opportunities instead to othercompanies including affiliates of BFI. In the event that BFI obtains business opportunities from which we mightotherwise benefit but chooses not to present such opportunities to us, these provisions of our restated certificateof incorporation could have the effect of preventing us from pursuing transactions or relationships that wouldotherwise be in the best interests of our stockholders.We may not pay cash dividends in the future and, as a result, you may not receive any return on investmentunless you are able to sell your Class A common stock for a price greater than your initial investment.Though we have a paid a quarterly dividend of  $0.10 per share since September 2014 on our Class Aand Class B common stock and our Board of Directors has declared a cash dividend of   $0.10 per share on ClassA common stock and Class B common stock that is payable on September 26, 2018, any determination to paydividends in the future will be at the discretion of our Board of Directors and will depend upon results ofoperations, financial condition, contractual restrictions, and our ability to obtain funds from our subsidiaries tomeet our obligations. Our Credit Facilities permit us to pay distributions to stockholders out of available cashsubject to certain annual limitations and so long as no default or event of default under the Credit Facilities shallhave occurred and be continuing at the time such distribution is declared. Realization of a gain on yourinvestment will depend on the appreciation of the price of our Class A common stock.Item 1B. Unresolved Staff CommentsNone.51TABLE OF CONTENTSItem 2. PropertiesThe following table lists our material properties:Business Segment(s)LocationOwned/LeasedApprox. sq. FootagePurpose(s)​Animal HealthBeit Shemesh, IsraelOwned/​landlease78,000​Manufacturing andResearchAnimal HealthBraganca Paulista, BrazilOwned50,000​Manufacturing andAdministrativeAnimal HealthBuenos Aires, ArgentinaOwned43,000​Manufacturing andAdministrativeAnimal HealthChillicothe, IllinoisOwned19,000​ManufacturingAnimal HealthCorvallis, OregonOwned5,000​ResearchAnimal HealthGuarulhos, BrazilOwned1,294,000​Manufacturing, Sales,Premixing, Research andAdministrativeAnimal HealthNeot Hovav, IsraelOwned/​landlease140,000​Manufacturing andResearchMineral NutritionOmaha, NebraskaOwned84,000​ManufacturingAnimal HealthOmaha, NebraskaOwned43,000​Manufacturing, Salesand ResearchAnimal HealthPetach Tikva, IsraelOwned60,000​ManufacturingAnimal Health and MineralNutritionQuincy, IllinoisOwned306,000​Manufacturing, Sales,Research andAdministrativePerformance ProductsSanta Fe Springs,CaliforniaOwned108,000​ManufacturingAnimal HealthState College,PennsylvaniaOwned13,000​ResearchAnimal HealthSt. Paul, MinnesotaLeased5,000​ResearchCorporateTeaneck, New JerseyLeased50,000​Corporate andAdministrativeIn addition to the above facilities, we maintain sales offices throughout the world in countriesincluding the Argentina, Australia, Belgium, Brazil, Canada, Chile, China, Israel, Malaysia, Mexico,South Africa, Thailand, Turkey, United Kingdom and the United States. We own a facility in Sligo, Ireland thatwe are developing for the production of animal vaccines.Item 3. Legal ProceedingsWe are from time to time subject to claims and litigation arising in the ordinary course of business.These claims and litigation may include, among other things, allegations of violation of United States andforeign competition law, labor laws, consumer protection laws, data protection laws and Environmental Lawsand regulations, as well as claims or litigation relating to product liability, intellectual property, securities,breach of contract and tort. We operate in multiple jurisdictions and, as a result, a claim in one jurisdiction maylead to claims or regulatory penalties in other jurisdictions.We do not believe that the ultimate resolution of existing claims and litigation will have a materialadverse effect on our financial position, results of operations, liquidity or capital resources. However, one ormore unfavorable outcomes in any claim or litigation against us could have a material adverse effect for theperiod in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such mattersare costly, divert management’s attention and may materially adversely affect our reputation, even if resolved inour favor.Item 4. Mine Safety DisclosuresNone.52Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity SecuritiesTABLE OF CONTENTSPART IIMarket Information for Common StockOur Class A common stock is traded on NASDAQ under the trading symbol “PAHC.” Our Class Bcommon stock is not listed or traded on any stock exchange. At June 30, 2018, there were 19,992,204 Class Acommon shares outstanding, and the closing sales price of our Class A common stock was $46.05. The tablebelow sets forth the high and low sales prices of our common stock for the quarters indicated.Quarter EndedHighLow​September 30, 2016$28.04$18.68December 31, 2016$30.75$24.83March 31, 2017$30.85$26.10June 30, 2017$38.85$26.70September 30, 2017$40.25$34.58December 31, 2017$38.80$32.35March 31, 2018$41.05$32.05June 30, 2018$48.40$38.45During the fiscal year ended June 30, 2018, we did not sell any unregistered securities nor did wepurchase any of our equity securities.Holders of RecordAs of August 20, 2018, there were 20,121,674 shares of our Class A common stock outstanding, whichwere held by one stockholder of record, not including beneficial owners of shares registered in nominee or streetname. As of August 20, 2018, there were 20,246,034 shares of our Class B common stock outstanding, whichwere held by one stockholder of record. Each share of Class B common stock is convertible at any time at theoption of the holder into one share of Class A common stock. Information about 5% beneficial owners of ourcommon stock is incorporated by reference from the discussion in our 2018 Proxy Statement under the headingSecurity Ownership of Certain Beneficial Owners and Management.Dividend PolicyDuring fiscal years 2018 and 2017, we paid quarterly dividends of  $0.10 per share to holders of ourClass A and Class B common stock. We intend to pay regular quarterly dividends to holders of our Class A andClass B common stock out of assets legally available for this purpose. On July 30, 2018 and on July 24, 2017,our Board of Directors declared a $0.10 per share quarterly dividend to holders of record as of September 5, 2018and September 6, 2017, respectively, of our Class A and Class B common stock, payable September 26, 2018and September 27, 2017, respectively. Any future determination to pay dividends will depend upon our resultsof operations, financial condition, capital requirements, our ability to obtain funds from our subsidiaries andother factors that our Board of Directors deems relevant. Additionally, the terms of our current and any futureagreements governing our indebtedness could limit our ability to pay dividends or make other distributions.Stock Performance GraphThis performance graph is not “soliciting material,” is not deemed “filed” with the SEC and is not tobe incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or theExchange Act.The following graph shows a comparison from April 11, 2014 (the date our Class A common stockcommenced trading on NASDAQ) through June 30, 2018, of the cumulative stockholder return of our Class Acommon stock, the S&P 500 Index, the NASDAQ Composite Index, the Russell 2000 Index53TABLE OF CONTENTSand S&P Pharmaceuticals Index. The graph assumes that $100 was invested in our Class A common stock andeach of the aforementioned indexes at the market close on April 11, 2014, and assumes dividends, if any, arereinvested. The stock price performance shown on the graph is not necessarily indicative of future stock priceperformance, and we do not make any projections of future stockholder returns.54(1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Generaldescription of non-GAAP financial measures” for descriptions of EBITDA and Adjusted EBITDA.TABLE OF CONTENTSItem 6. Selected Financial DataThe following table presents our selected consolidated financial data and certain other financial data.The balance sheet data as of June 30, 2018, 2017, 2016, 2015 and 2014 and the results of operations data andcash flows data for the years then ended were derived from our consolidated financial statements. Theconsolidated financial data and other financial data presented below should be read in conjunction with ourconsolidated financial statements and the related notes thereto, under the sections entitled “Financial Statementsand Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”For the Years Ended June 302018​​2017​​2016​​2015​​2014​(in thousands, except per share amounts)Results of operations dataNet sales$819,982$764,281$751,526$748,591$691,914Cost of goods sold553,103516,038512,494515,311487,500Gross profit266,879248,243239,032233,280204,414Selling, general and administrative expenses167,953150,309153,288145,612140,620Operating income98,92697,93485,74487,66863,794Interest expense, net11,91014,90616,59214,30532,962Foreign currency (gains) losses, net(1,054(113(7,609(5,4001,753Loss on extinguishment of debt—2,598——22,771Income before income taxes88,07080,54376,76178,7636,308Provision (benefit) for income taxes23,18715,928(5,96718,4839,435Net income (loss)$64,883$64,615$82,728$60,280$(3,127Net income (loss) per sharebasic$1.61$1.63$2.11$1.55$(0.10diluted$1.61$1.61$2.07$1.51$(0.10Weighted average common shares outstandingbasic40,18139,52439,25438,96932,193diluted40,38540,04239,96239,81532,193Dividends per share$0.40$0.40$0.40$0.40$0.82Other financial dataAdjusted EBITDA$128,958$120,119$114,060$110,019$90,597Cash provided (used) by operating activities70,00898,38537,21868,704(712Capital expenditures18,54820,88036,35220,05819,846As of June 30​​2018​​2017​​2016​20152014​(in thousands)Balance sheet dataCash and cash equivalents and short-terminvestments$79,168$56,083$33,605$29,216$11,821Working capital205,651198,036203,356175,988177,999Total assets671,679623,397607,835490,250468,725Total debt312,381313,141350,172286,450285,793Long-term debt and other liabilities343,504356,444408,578349,185341,138Total stockholders’ equity (deficit)184,954151,15790,48029,62815,14955))))))))(1)(2))(3)(4)(2)Cash provided (used) by operating activities:TABLE OF CONTENTSFor the Years Ended June 30​​2018​​2017​​2016​​2015​​2014​(in thousands)Net income (loss)$64,883$64,615$82,728$60,280$(3,127Plus:Interest expense, net11,91014,90616,59214,30532,962Provision (benefit) for income taxes23,18715,928(5,96718,4839,435Depreciation and amortization26,94326,00123,45221,60421,453EBITDA126,923121,450116,805114,67260,723Acquisition-related cost of goods sold1,671—2,566——Acquisition-related accrued compensation1,1521,6801,680747—Acquisition-related transaction costs4001,274618——Acquisition-related other, net(468(972———Stock-based compensation334————Pension settlement cost—1,702———(Gain)/Loss on insurance (settlement)/claim—(7,500——5,350Foreign currency (gains) losses, net(1,054(113(7,609(5,4001,753Loss on extinguishment of debt—2,598——22,771Adjusted EBITDA$128,958$120,119$114,060$110,019$90,597Acquisition-related other, net includes adjustments to contingent consideration on acquisitions andimpairments of intangible assets.For the Years Ended June 302018201720162015​2014​(in thousands)EBITDA$126,923$121,450$116,805$114,672$60,723AdjustmentsAcquisition-related cost of goods sold1,671—2,566——Acquisition-related accrued compensation1,1521,6801,680747—Acquisition-related transaction costs4001,274618——Acquisition-related other, net(468(972———Stock-based compensation334————Pension settlement cost—1,702———(Gain)/Loss on insurance (settlement)/claim—(7,500——5,350Foreign currency (gains) losses, net(1,054(113(7,609(5,4001,753Loss on extinguishment of debt—2,598——22,771Interest paid(11,208(14,600(14,215(12,912(45,370Income taxes paid(15,191(14,762(16,828(10,780(12,207Changes in operating assets and liabilities andother items(32,1511,402(45,181(12,337(16,527Cash provided by/(used for) insurancesettlement/(claim)—7,500—(5,286—Cash used for acquisition-related transaction costs(400(1,274(618——Payment of premiums and costs on extinguished debt————(17,205Net cash provided (used) by operating activities$70,008$98,385$37,218$68,704$(71256))))))))))))))))))))))))))))))))))))(3)We define working capital as total current assets (excluding cash and cash equivalents and short-terminvestments) less total current liabilities (excluding current portion of long-term debt). Current assets in2015 and prior years included current deferred tax assets.(4)Total debt includes revolving credit facility, current and long-term portions of long-term debt andcapitalized lease obligations. Total debt is reduced by certain unamortized debt issuance costs andunamortized debt discount, if any.TABLE OF CONTENTSItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsIntroductionOur management’s discussion and analysis of financial condition and results of operations (“MD&A”)is provided to assist readers in understanding our performance, as reflected in the results of our operations, ourfinancial condition and our cash flows. The following discussion summarizes the significant factors affecting ourconsolidated operating results, financial condition, liquidity and cash flows as of and for the periods presentedbelow. This MD&A should be read in conjunction with the “Selected Financial Data” and our consolidatedfinancial statements and related notes thereto included under the section entitled “Financial Statements andSupplementary Data.” Our future results could differ materially from our historical performance as a result ofvarious factors such as those discussed in “Risk Factors” and “Forward-Looking Statements.”Overview of our businessPhibro Animal Health Corporation is a global diversified animal health and mineral nutritioncompany. We develop, manufacture and market products for a broad range of food animals including poultry,swine, beef and dairy cattle and aquaculture. Our products help prevent, control and treat diseases, enhancenutrition to help improve health and performance and contribute to balanced mineral nutrition. In addition toanimal health and mineral nutrition products, we manufacture and market specific ingredients for use in thepersonal care, industrial chemical and chemical catalyst industries. We sell more than 1,500 productpresentations in over 70 countries to approximately 3,000 customers.Factors affecting our performanceIndustry growthAccording to Vetnosis, a research and consulting firm specializing in global animal health andveterinary medicine, the global livestock animal health sector represented approximately $20.6 billion of salesin 2017. The market grew at a compound annual growth rate of 1.3% between 2012 and 2017 and the market isprojected to grow at a compound annual growth rate of approximately 5.0% per year between 2017 and 2022.We believe global population growth, the growth of the global middle class and the productivity improvementsneeded due to limitations of arable land and water supplies have supported and will continue to support thisgrowth.Regulatory DevelopmentsOur business depends heavily on a healthy and growing livestock industry. Some in the publicperceive risks to human health related to the consumption of food derived from animals that utilize certain ofour products, including certain of our MFA products. In particular, there is increased focus, primarily in theUnited States, on the use of medically important antimicrobials, as defined by the FDA. Medically importantantimicrobials (“MIAs”) include classes that are prescribed in animal and human health and are listed in theAppendix of the FDA-CVM Guidance for Industry (GFI) 152. Our products that contain virginiamycin,oxytetracycline or neomycin are classified by the FDA as medically important antimicrobials. This may lead to adecline in the demand for and production of food products derived from animals that utilize our MIA productsand, in turn, demand for our MIA products. Livestock producers may experience decreased demand for theirproducts or reputational harm as a result of evolving consumer views of nutrition and health-related concerns,animal rights, and other concerns. Any reputational harm to the livestock industry may also extend to companiesin related industries, including us. In addition, campaigns57TABLE OF CONTENTSby interest groups, activists and others with respect to perceived risks associated with the use of our products inanimals, including position statements by livestock producers and their customers based on non-use of certainmedicated products in livestock production, whether or not scientifically-supported, could affect publicperceptions and reduce the use of our products. Those adverse consumer views related to the use of one or moreof our products in animals could have a material adverse effect on our financial condition and results ofoperations. Our sales in the United States of products that the FDA has classified as medically importantantimicrobials were approximately $17 million, $23 million and $37 million for the years ended June 30, 2018,2017 and 2016, respectively.Our business is subject to product registration and authorization regulations. Changes in theregulations could have a material impact on our business. In April 2016, the FDA began initial steps to withdrawapproval of Mecadox (carbadox), due to concerns that certain residues from the product may persist in tissues forlonger than previously determined. In July 2016, we submitted our data, analyses and information to the FDAthat we believe support the continued safe use of Mecadox. In March 2018, the FDA indefinitely stayed thewithdrawal proceedings; however, we continue to submit data to the FDA and respond to their questions. Thereis no timeline for the conclusion of this matter. The initial action by the FDA does not prohibit the sale or use ofMecadox in the United States. We have complete confidence in the safety of Mecadox. Mecadox has beenapproved and sold in the United States for more than 40 years and is a widely used treatment for controllingbacterial diseases including Salmonella and swine dysentery. Mecadox is not used in human medicine and theclass of drug is not considered a medically important antimicrobial. The approved Mecadox label requires a 42-day withdrawal period pre-harvesting, and to date we have not seen any hazardous residues of carbadox beingdetected from pig meat treated in accordance with the approved label. In response to FDA inquiries several yearsago, we began rigorous new studies of the continued safety of the product when used in accordance with thelabel. Should we be unable to successfully defend the safety of the product, the loss of Mecadox sales wouldhave a negative impact to the results of our operations. Our sales of Mecadox in the United States wereapproximately $11 million, $15 million and $15 million for the years ended June 30, 2018, 2017 and 2016,respectively.CompetitionThe animal health industry is highly competitive. We believe many of our competitors are conductingR&D activities in areas served by our products and in areas in which we are developing products. Ourcompetitors include the animal health businesses of large pharmaceutical companies and specialty animal healthbusinesses. In addition to competition from established participants, there could be new entrants to the animalhealth medicines and vaccines industry in the future. Principal methods of competition vary depending on theregion, species, product category or individual products, including reliability, reputation, quality, price, serviceand promotion to veterinary professionals and livestock producers.Foreign exchangeWe conduct operations in many areas of the world, involving transactions denominated in a variety ofcurrencies. In the year ended June 30, 2018, we generated approximately 40% of our revenues from operationsoutside the United States. Although a portion of our revenues are denominated in various currencies, the sellingprices of the majority of our sales outside the United States are referenced in U.S. dollars, and as a result, ourrevenues have not been significantly directly affected by currency movements. We are subject to currency risk tothe extent that our costs are denominated in currencies other than those in which we earn revenues. Wemanufacture some of our major products in Brazil and Israel and production costs are largely denominated inlocal currencies, while the selling prices of the products are largely set in U.S. dollars. As such, we are exposed tochanges in cost of goods sold resulting from currency movements and may not be able to adjust our sellingprices to offset such movements. In addition, we incur selling and administrative expenses in various currenciesand are exposed to changes in such expenses resulting from currency movements. Because our financialstatements are reported in U.S. dollars, changes in currency exchange rates between the U.S. dollar and othercurrencies have had, and will continue to have, an impact on our results of operations.58TABLE OF CONTENTSClimateThe animal health industry and demand for many of our animal health products in a particular regionare affected by changing disease pressures and by weather conditions, as usage of our products follows varyingweather patterns and weather-related pressures from diseases. As a result, we may experience regional andseasonal fluctuations in our results of operations.In addition, livestock producers depend on the availability of natural resources, including abundantrainfall to sustain large supplies of drinking water, grasslands and grain production. Their animals’ health andtheir ability to operate could be adversely affected if they experience a shortage of fresh water due to humanpopulation growth or floods, droughts or other weather conditions. In the event of adverse weather conditions ora shortage of fresh water, livestock producers may purchase less of our products.Product development initiativesOur future success depends on both our existing product portfolio, including our ability to obtaincross-clearances enabling the use of our medicated products in conjunction with other products, approval for useof our products with new species, approval for new claims for our products, approval of our products in newmarkets, and our pipeline of new products, including new products that we may develop through joint venturesand products that we are able to obtain through license or acquisition. The majority of our R&D programs focuson product lifecycle development, which is defined as R&D programs that leverage existing animal healthproducts by adding new species or claims, achieving approvals in new markets or creating new combinationsand reformulations. We commit substantial effort, funds and other resources to expanding our product approvalsand R&D, both through our own dedicated resources and through collaborations with third parties.59*Calculation not meaningfulTABLE OF CONTENTSAnalysis of the consolidated statements of operationsSummary Results of Operations​​Change​For the Years Ended June 3020182017​​2016​​2018/2017​​2017/2016​(in thousands, except per share)Net sales$819,982$764,281$751,526$55,7017$12,7552Gross profit266,879248,243239,03218,63689,2114Selling, general and administrativeexpenses167,953150,309153,28817,64412(2,979(2Operating income98,92697,93485,744992112,19014Interest expense, net11,91014,90616,592(2,996(20(1,686(10Foreign currency (gains) losses, net(1,054(113(7,609(941*7,496*Loss on extinguishment of debt—2,598—(2,598*2,598*Income before income taxes88,07080,54376,7617,52793,7825Provision (benefit) for income taxes23,18715,928(5,9677,2594621,895*Net income (loss)$64,883$64,615$82,728$2680$(18,113(22Net income (loss) per sharebasic$1.61$1.63$2.11$(0.02$(0.48diluted$1.61$1.61$2.07$—$(0.46Weighted average number of sharesoutstandingbasic40,18139,52439,254diluted40,38540,04239,962Ratio to net salesGross profit32.532.531.8Selling, general and administrative expenses20.519.720.4Operating income12.112.811.4Income before income taxes10.710.510.2Net income7.98.511.0Effective tax rate26.319.8(7.8Certain amounts and percentages may reflect rounding adjustments.Changes in net sales from period to period primarily result from changes in volumes and averageselling prices. Although a portion of our net sales is denominated in various currencies, the selling prices of themajority of our sales outside the United States are referenced in U.S. dollars, and as a result, our revenues havenot been significantly directly affected by currency movements.Our effective income tax rate has varied significantly from period to period and from the federalstatutory rate, due to the mix of income tax provisions on profitable foreign jurisdictions; the effect of the 2017and 2016 releases of valuation allowances against foreign and domestic deferred income taxes, respectively;changes in tax rates in various jurisdictions from period to period, including the effect of the Tax Act; minimalincome tax provision or benefit being recorded on domestic pre-tax income or losses prior to fiscal year 2016;and the effect of discrete items. Our future effective income tax rate will vary due60%%%%%))%%%))%))%)))))%%)%%))%)))%%%%%%%%%%%%%%%%%)%(1)reflects ratio to total net salesTABLE OF CONTENTSto the Tax Act, the relative amounts of taxable income in various jurisdictions, future changes in tax rates andother laws and other factors. We intend to continue to reinvest indefinitely the undistributed earnings of ourforeign subsidiaries. See “Notes to Consolidated Financial Statements—Income Taxes” for additionalinformation.Net sales, Adjusted EBITDA and reconciliation of GAAP net income to Adjusted EBITDAWe report Net sales and Adjusted EBITDA by segment to understand the operating performance ofeach segment. This enables us to monitor changes in net sales, costs and other actionable operating metrics atthe segment level. See “—General description of non-GAAP financial measures” for descriptions of EBITDA andAdjusted EBITDA.Segment net sales and Adjusted EBITDA:​​​​Change​For the Years Ended June 30​​2018​​2017​​2016​​2018/2017​​2017/2016​(in thousands)Net salesMFAs and other$336,666$321,430$339,916$15,2365$(18,486(5Nutritional specialties122,978111,28294,08411,6961117,19818Vaccines72,08365,03352,1407,0501112,89325Animal Health531,727497,745486,14033,982711,6052Mineral Nutrition234,922218,298216,68516,62481,6131Performance Products53,33348,23848,7015,09511(463(1Total$819,982$764,281$751,526$55,7017$12,7552Adjusted EBITDAAnimal Health$141,914$130,261$127,442$11,6539$2,8192Mineral Nutrition18,58317,42614,9711,15772,45516Performance Products1,8812,057970(176(91,087112Corporate(33,420(29,625(29,323(3,795*(302*Total$128,958$120,119$114,060$8,8397$6,0595Adjusted EBITDA ratio tosegment net salesAnimal Health26.726.226.2Mineral Nutrition7.98.06.9Performance Products3.54.32.0Corporate(4.1(3.9(3.9Total15.715.715.261%))%%%%%%%%%%))%%%%%%%))%%)))))%%%%%%%%%%%(1))%)%)%(1)%%%(1)Acquisition-related other, net includes adjustments to contingent consideration on acquisitions andimpairments of intangible assets.*Calculation not meaningfulTABLE OF CONTENTSA reconciliation of net income, as reported under GAAP, to Adjusted EBITDA:​​Change​For the Years Ended June 30​​2018​​201720162018/2017​​2017/2016​(in thousands)Net income (loss)$64,883$64,615$82,728$2680$(18,113(22Interest expense, net11,91014,90616,592(2,996(20(1,686(10Provision (benefit) for income taxes23,18715,928(5,9677,2594621,895*Depreciation and amortization26,94326,00123,45294242,54911EBITDA126,923121,450116,8055,47354,6454Acquisition-related cost of goodssold1,671—2,5661,671*(2,566*Acquisition-related accruedcompensation1,1521,6801,680(528(31—0Acquisition-related transaction costs4001,274618(874(69656106Acquisition-related other, net(468(972—504*(972*Stock-based compensation334——334*—*Pension settlement expense—1,702—(1,702*1,702*Gain on insurance settlement—(7,500—7,500*(7,500*Foreign currency (gains) losses, net(1,054(113(7,609(941*7,496*Loss on extinguishment of debt—2,598—(2,598*2,598*Adjusted EBITDA$128,958$120,119$114,060$8,8397$6,0595Certain amounts and percentages may reflect rounding adjustments.Comparison of years ended June 30, 2018 and 2017Net salesNet sales of $820.0 million for the year ended June 30, 2018, increased $55.7 million, or 7%, ascompared to the year ended June 30, 2017. Each of the segments contributed to the sales growth. Animal Health,Mineral Nutrition and Performance Products grew $34.0 million, $16.6 million and $5.1 million, respectively.Animal HealthNet sales of  $531.7 million for the year ended June 30, 2018, grew $34.0 million, or 7%. Net sales ofMFAs and other grew $15.2 million, or 5%. International net sales of MFAs and other increased $29.3 milliondue to growth across most regions, notably due to additional penetration in the cattle sector, plus favorableseasonal demand for certain products and the incremental benefit of a recent acquisition. Domestic net sales ofMFAs and other declined $14.1 million due to $5.9 million lower sales of medically important antimicrobialsand lower volumes of certain antibacterial and anticoccidial products. We believe domestic sales of medicallyimportant antimicrobials have stabilized at current levels. Net sales of nutritional specialty products grew $11.7million, or 11%, primarily due to volume growth of our products for the poultry and dairy industries in variousinternational countries and in the United States. Net sales of vaccines grew $7.1 million, or 11%, primarily dueto volume growth in international markets; domestic growth was moderate due to reduced disease pressure.62%))%))%))%)%%%%%)))%%))%%(1))))))))))))%%TABLE OF CONTENTSMineral NutritionNet sales of $234.9 million increased $16.6 million, or 8%, for the year ended June 30, 2018. Theincreased revenue primarily was driven by higher average selling prices, consistent with the underlying rawmaterial commodity price increases.Performance ProductsNet sales of $53.3 million increased $5.1 million, or 11%, for the year ended June 30, 2018, primarilydue to increased volumes of copper-based products and ingredients used in personal care products and higheraverage selling prices of copper-based products.Gross profitGross profit of $266.9 million for the year ended June 30, 2018, increased $18.6 million, or 8%, ascompared to the year ended June 30, 2017. Gross profit as a percentage of net sales for the year ended June 30,2018, was in-line with the prior year at 32.5%. The year ended June 30, 2018, included $1.7 million ofacquisition-related cost of goods sold. Excluding the effects of the acquisition-related cost of goods sold,Animal Health gross profit increased $19.7 million due to volume growth in international MFAs and other andnutritional specialty products, partially offset by volume declines in domestic MFAs and other sales and short-term cost increases in the production of certain vaccine products. The declines in domestic MFAs and other saleswere primarily driven by medically important antimicrobials. Favorable international demand for certain MFAsand other products and overall lower unit costs from improved manufacturing efficiencies for certain productsalso contributed to the gross profit increase. Mineral Nutrition gross profit increased $1.1 million due to volumegrowth, favorable product mix and higher average selling prices, partially offset by higher raw material costs.Performance Products gross profit decreased $0.5 million due to higher raw material costs, partially offset byhigher average selling prices of copper-based products.Selling, general and administrative expensesSG&A of  $168.0 million for the year ended June 30, 2018, increased $17.6 million, or 12%, ascompared to the year ended June 30, 2017. SG&A for the years ended June 30, 2018 and 2017, includedacquisition-related transaction costs of  $0.4 million and $1.3 million, respectively. SG&A for the year endedJune 30, 2017, included a $1.7 million charge for a partial settlement of the pension plan and a $7.5 million gainfrom an insurance settlement. Excluding these items, SG&A increased $12.7 million or 8%.Animal Health SG&A increased $8.3 million as compared to the prior year, driven by investments inproduct and organizational development. A recent acquisition also contributed to the Animal Health increase.Mineral Nutrition SG&A costs were flat compared to the prior year. Performance Products SG&A decreased $0.2million. Excluding the acquisition-related transaction costs, the pension settlement cost and the insurancesettlement gain, Corporate SG&A increased $4.6 million due to increased employee-related costs and higherprofessional and business development fees, partially offset by reduced pension expense.Interest expense, netInterest expense, net of $11.9 million for the year ended June 30, 2018, decreased $3.0 million, or20%, as compared to the year ended June 30, 2017. Interest expense decreased $3.3 million compared to theprior year, primarily due to lower interest rates from the new Credit Facilities completed in June 2017. Interestincome decreased $0.3 million due to less interest income on deposits in foreign jurisdictions.Foreign currency (gains) losses, netForeign currency (gains) losses, net for the year ended June 30, 2018, amounted to net gains of  ($1.1)million, as compared to net gains of  ($0.1) million for the year ended June 30, 2017. The net foreign currencygains during the year ended June 30, 2018, primarily were driven by the movement of the currencies of Turkey,Brazil, Argentina and Mexico relative to the U.S. dollar.63TABLE OF CONTENTSLoss on extinguishment of debtOur consolidated statements of operations for the year ended June 30, 2017, included a $2.6 millionloss on extinguishment of debt for unamortized debt issuance costs and debt discount related to retired debt.Provision (benefit) for income taxesThe United States government enacted comprehensive income tax legislation (the “Tax Act”) inDecember 2017. The Tax Act makes broad and complex changes to United States income tax law and includesnumerous elements that affect the Company, including a reduced federal corporate income tax rate and changesto business-related exclusions, deductions and credits. Our provision for income taxes reflects a statutory 28.1%weighted-average federal income tax rate and other elements of the Tax Act in effect for the year ended June 30,2018. The statutory federal income tax rate will be 21.0% for the year ending June 30, 2019. The Tax Act alsohas consequences related to our international operations.We have substantially completed our analysis and accounting for the Tax Act and have recorded theeffects thereof. However, the ultimate financial statement effects of the Tax Act could differ from the amounts wehave recognized due to additional information that becomes available, changes in regulations or interpretations,legislative action to address questions around the Tax Act or changes in accounting standards for income taxesor related interpretations. As such, the amounts we have recorded are provisional and we could adjust suchamounts in the future if additional new information so requires.The provision for income taxes, effective income tax rate and certain income tax items for the yearsended June 30, 2018 and 2017, are reflected in the table below:For the Years Ended June 30​​20182017​(in thousands, except percentages)Provision (benefit) for income taxes$23,187$15,928Effective income tax rate26.319.8Certain income tax itemsBenefit from exercised employee stock options$(3,773$(3,096Mandatory toll charge403—Reduction of domestic deferred tax assets2,289—Reduction of foreign deferred tax assets1,156—Recognition of foreign tax credits(565—Reclassification from accumulated other comprehensive income527—Release of unrecognized tax benefits(994(500Release of foreign valuation allowance—(4,118Total$(957$(7,714Provision (benefit) for income taxes, excluding certain items$24,144$23,642Effective income tax rate, excluding certain items27.429.3The mandatory toll charge on deemed repatriation of undistributed earnings of foreign subsidiariesresulted from a one-time tax under the Tax Act.The reduction of deferred tax assets resulted from the remeasurement of deferred tax assets andliabilities, to reflect the reduced federal statutory income tax rate under the Tax Act.The reduction of foreign deferred tax assets resulted from the remeasurement of deferred tax assets, toreflect a reduced income tax rate in certain international jurisdictions.The recognition of foreign tax credits resulted from the recognition of prior-year credits that becameavailable to be applied against current year federal income taxes.The reclassification from accumulated other comprehensive income (“AOCI”) reflected thereclassification of income taxes remaining in AOCI, after all related foreign currency derivatives had maturedand were completely cleared from AOCI.64%%))))))))%%TABLE OF CONTENTSThe release of a foreign valuation allowance related to a foreign subsidiary. During the year endedJune 30, 2017, we concluded it was more likely than not that the value of the deferred tax assets would berealized.Net incomeNet income of $64.9 million for the year ended June 30, 2018, increased $0.3 million, as compared tonet income of $64.6 million for the year ended June 30, 2017. The increase was primarily driven by lowerinterest expense of  $3.0 million, higher operating income of  $1.0 million and increased foreign currency gainsof  $0.9 million. Additionally, the prior year included a $2.6 million loss on extinguishment of debt. Theseincreases were almost entirely offset by increased tax expense of  $7.3 million. The change in operating incomewas influenced by infrequent items including: current-year acquisition-related cost of goods sold; prior-yeargain from an insurance settlement; prior-year cost of a partial pension settlement; and the net effect ofacquisition-related transaction costs, as previously discussed. Excluding the impacts of these items, operatingincome would have increased $7.6 million or 8%, driven by sales growth and gross profit expansion, partiallyoffset by increased SG&A expenses for product and organizational investments to drive future growth.Adjusted EBITDAAdjusted EBITDA of  $129.0 million for the year ended June 30, 2018, increased $8.8 million, or 7%,as compared to the year ended June 30, 2017. Animal Health Adjusted EBITDA increased $11.7 million, or 9%,due to sales growth and increased gross profit, partially offset by increased SG&A. Mineral Nutrition AdjustedEBITDA increased $1.2 million, or 7%, due to volume growth, favorable product mix and higher average sellingprices, partially offset by higher raw material costs. Performance Products Adjusted EBITDA declined $0.2million, due to higher raw material costs, partially offset by higher average selling prices of copper-basedproducts. Corporate expenses increased $3.8 million due to increased employee-related costs and higherprofessional and business development fees, partially offset by reduced pension expense.Comparison of years ended June 30, 2017 and 2016Net salesNet sales of $764.3 million for the year ended June 30, 2017, increased $12.8 million, or 2%, ascompared to the year ended June 30, 2016. Animal Health and Mineral Nutrition grew $11.6 million and $1.6million respectively, while Performance Products declined $0.5 million.Animal HealthNet sales of $497.7 million for the year ended June 30, 2017, grew $11.6 million, or 2%. The growthwas primarily due to volume increases in the nutritional specialty and vaccine product groups within thesegment. Nutritional specialty products grew $17.2 million, or 18%, primarily due to volume growth of ourproducts for the U.S. poultry and dairy industries. Vaccines grew $12.9 million, or 25%, primarily due to volumegrowth of our products for the poultry and swine industries. The vaccine sales growth included the effect ofproducts acquired from MVP Laboratories, Inc. in January 2016 being included in the full year ended June 30,2017. MFAs and other declined $18.5 million, or 5%, primarily due to volume declines. Domestic net sales ofMFAs and other declined $13.8 million as reduced volumes of medically important antimicrobials, due toregulatory changes and consumer preferences, were partially offset by growth in other products. International netsales declined $4.7 million due to economic conditions in Brazil, partially offset by growth in other regions.Mineral NutritionNet sales of $218.3 million increased $1.6 million, or 1%, for the year ended June 30, 2017. Theincreased revenue was primarily due to higher volumes. The increase in volumes was partially offset by loweraverage selling prices resulting from underlying raw material commodity price declines.65•a $7.5 million gain from a payment to us by an insurance carrier. The payment reflected thesettlement of our claims against the carrier under our liability insurance policies, which arose fromdamages incurred in fiscal year 2010 by certain customers resulting from the use of one of ouranimal health products;•$1.7 million in costs relating to the partial settlement of the pension plan;•$1.3 million in acquisition-related transaction costs for professional fees and other items in theevaluation and negotiation of an unsuccessful acquisition; and,•a $1.0 million gain from the net effect of acquisition-related adjustments to contingentconsideration and impairments of intangible assets.TABLE OF CONTENTSPerformance ProductsNet sales of $48.2 million decreased $0.5 million, or 1%, for the year ended June 30, 2017, due tolower average selling prices of personal care ingredients and lower volumes of copper-based products andchemical catalyst products, partially offset by higher volumes of personal care ingredients.Gross profitGross profit of $248.2 million for the year ended June 30, 2017, increased $9.2 million, or 4%, ascompared to the year ended June 30, 2016. Gross profit increased to 32.5% of net sales for the year ended June30, 2017, as compared to 31.8% for the year ended June 30, 2016. The increase included the effect of $2.6million of acquisition-related cost of goods sold recorded for the year ended June 30, 2016. Depreciation andamortization expense included in cost of goods sold increased $3.4 million due to recent capital expendituresand the MVP acquisition. Excluding the effects of the 2016 acquisition-related cost of goods sold and theincreased depreciation and amortization, Animal Health gross profit increased $7.4 million due to volumegrowth in nutritional specialty and vaccine products, as well as lower unit costs from improved operatingefficiencies, partially offset by volume declines in MFAs and other products. Mineral Nutrition gross profitincreased $2.4 million due to lower raw material costs, partially offset by lower average selling prices.Performance Products gross profit increased $0.1 million due to higher volumes of personal care ingredients andhigher average selling prices of copper-based products, partially offset by lower average selling prices ofpersonal care ingredients.Selling, general and administrative expensesSG&A of $150.3 million for the year ended June 30, 2017, decreased $3.0 million, or 2%, as comparedto the year ended June 30, 2016. SG&A for the year ended June 30, 2017, included the following unusual items:SG&A for the year ended June 30, 2016, included $0.6 million in acquisition-related transaction costs.Without the gain on the insurance settlement, the pension settlement costs and the acquisition-related items,SG&A increased $3.1 million, or 2%, for the year.Animal Health SG&A increased $4.2 million, driven by sales force expansion and development costs.Mineral Nutrition decreased $0.1 million due to one-time costs in the prior year. Performance Products decreased$0.8 million primarily due to lower environmental costs. Corporate decreased $0.1 million primarily due tolower retirement plan costs.Interest expense, netInterest expense, net of $14.9 million for the year ended June 30, 2017, decreased $1.7 million, or10%, as compared to the year ended June 30, 2016. Interest income increased $1.7 million from interest ondeposits in foreign jurisdictions. Interest expense was level with the prior year, as increased interest relating tothe Credit Facilities due to higher rates and increased size of the facility, was offset by other items.66TABLE OF CONTENTSForeign currency (gains) losses, netForeign currency (gains) losses, net for the year ended June 30, 2017, amounted to net gains of $0.1million, as compared to $7.6 million in net gains for the year ended June 30, 2016. Foreign currency gains in theyear ended June 30, 2017, were primarily due to the movement of the South African, Turkish and Israelicurrencies relative to the U.S. dollar. Foreign currency gains and losses primarily arise from intercompanybalances.Loss on extinguishment of debtOur consolidated statements of operations for the year ended June 30, 2017, included a $2.6 millionloss on extinguishment of debt for unamortized debt issuance costs and debt discount related to retired debt.Provision (benefit) for income taxesThe provision for income taxes was $15.9 million for the year ended June 30, 2017, as compared to anincome tax benefit of  $(6.0) million for the year ended June 30, 2016. The effective income tax rates for theyears ended June 30, 2017 and 2016, were 19.8% and (7.8)%, respectively. The provisions for income taxes forthe years ended June 30, 2017 and 2016, included benefits of $4.1 million and $19.6 million, respectively, fromthe release of valuation allowances for certain foreign and all domestic deferred income taxes, benefits of  $3.1million and $3.5 million, respectively, from the exercise of employee stock options and benefits of  $0.5 millionand $4.8 million, respectively, from the recognition of previously unrecognized tax benefits. Without thesebenefits, the effective income tax rates for the years ended June 30, 2017 and 2016, would have been 29.3% and28.6%, respectively.Our future effective income tax rate may fluctuate due to various factors, including the relativeamounts of income earned in different taxing jurisdictions, changes in statutory tax rates, potential strategies toreduce our overall income tax expense, discrete items, the benefit of employee stock option exercises and certainnon-deductible items.Net incomeNet income of $64.6 million for the year ended June 30, 2017, decreased $18.1 million, as compared tonet income of  $82.7 million for the year ended June 30, 2016. The decrease was a result of the factors describedabove, including a $19.6 million income tax benefit in the prior year period, an unfavorable change of $7.5million in foreign currency (gains) losses, net, a $2.6 million loss on extinguishment of debt and the favorable$7.5 million gain on insurance settlement.Adjusted EBITDAAdjusted EBITDA of $120.1 million for the year ended June 30, 2017, increased $6.1 million, or 5%,as compared to the year ended June 30, 2016. Animal Health Adjusted EBITDA increased $2.8 million, or 2%,due to sales growth and increased gross profit, partially offset by increased SG&A. Mineral Nutrition AdjustedEBITDA increased $2.5 million, or 16%, due to improved operating margins from lower raw material costs,partially offset by lower average selling prices. Performance Products Adjusted EBITDA increased $1.1 million,due to higher volumes and lower product costs, partially offset by lower average selling prices. Corporateexpenses increased $0.3 million due to increased compensation and benefit costs and business developmentcosts.Pension Plan and Retirement Savings Plan ChangesWe amended our domestic noncontributory defined benefit pension plan to eliminate credit for futureservice and compensation increases, effective September 2016. The amendment resulted in a pensioncurtailment gain of $6.8 million recorded in other comprehensive income. Separately, we completed a partialsettlement of the pension plan in November 2016 and recognized $1.7 million of expense as a component ofSG&A.67TABLE OF CONTENTSConcurrent with the pension plan amendments, we modified the 401(k) retirement savings plan,effective October 2016, to include, for all domestic employees, a non-elective Company contribution of 3% ofcompensation and an additional discretionary contribution of up to 4% of compensation, depending on theemployee’s age and years of service.Analysis of financial condition, liquidity and capital resourcesNet increase (decrease) in cash and cash equivalents was:​​​​​Change​For the Years Ended June 30​​2018​​2017​​2016​​2018/2017​​2017/2016​(in thousands)Cash provided by/(used in):Operating activities$70,008$98,385$37,218$(28,377$61,167Investing activities(84,612(21,942(82,791(62,67060,849Financing activities(11,775(53,73850,38041,963(104,118Effect of exchange-rate changes on cash and cash equivalents(536(227(418(309191Net increase/(decrease) in cash and cashequivalents$(26,915$22,478$4,389$(49,393$18,089Net cash provided (used) by operating activities was comprised of:ChangeFor the Years Ended June 302018201720162018/20172017/2016(in thousands)EBITDA$126,923$121,450$116,805$5,473$4,645AdjustmentsAcquisition-related cost of goods sold1,671—2,5661,671(2,566Acquisition-related accrued compensation1,1521,6801,680(528—Acquisition-related transaction costs4001,274618(874656Acquisition-related other, net(468(972—504(972Stock-based compensation334——334—Pension settlement cost—1,702—(1,7021,702Gain on insurance settlement—(7,500—7,500(7,500Foreign currency (gains) losses, net(1,054(113(7,609(9417,496Loss on extinguishment of debt—2,598—(2,5982,598Interest paid(11,208(14,600(14,2153,392(385Income taxes paid(15,191(14,762(16,828(4292,066Changes in operating assets and liabilities andother items(32,1511,402(45,181(33,55346,583Cash provided by insurance settlement—7,500—(7,5007,500Cash used for acquisition-related transaction costs(400(1,274(618874(656Net cash provided (used) by operating activities$70,008$98,385$37,218$(28,377$61,167Certain amounts may reflect rounding adjustments.Operating activitiesFor the year ended June 30, 2018, net cash provided by operating activities was $70.0 million. Cashprovided by net income, adjusted for the effect of non-cash charges, was partially offset by $33.9 million of cashused in the ordinary course of business for changes in operating assets and liabilities68)))))))))))))))))))))))))))))))))))))))))))))TABLE OF CONTENTSand other items. Increased inventories used $24.3 million of cash due to increased commodity costs of mineralnutrition products and the timing of sales, purchases and production of inventory in our Animal Health segment.In addition, the increase in accounts receivable of  $11.9 million was primarily due to sales growth during thefourth quarter compared with the prior year.For the year ended June 30, 2017, net cash provided by operating activities was $98.4 million,primarily attributable to operating income of $97.9 million and increases in changes in operating assets andliabilities of  $1.4 million. Decreased inventories provided $5.4 million of cash due to timing of purchases andreduced production. Accounts payable and accrued expenses provided $3.2 million of cash primarily due totiming of purchases. Prepaid expenses and other current assets used $3.0 million of cash due to timing ofpayments for insurance premiums and other receivables.Investing activitiesFor the year ended June 30, 2018, net cash used in investing activities was $84.6 million. We invested$50.0 million in short-term investments. We used $18.6 million for capital expenditures as we continued toinvest in our existing asset base and for capacity expansion and productivity improvements. We used $15.0million for the acquisition of a business. Other investing activities used $1.0 million of cash.For the year ended June 30, 2017, net cash used in investing activities was $21.9 million. Capitalexpenditures were $20.9 million as we continued to invest in our existing asset base and for capacity expansionand productivity improvements. Other investing activities used $1.1 million of cash.Financing activitiesNet cash used by financing activities was $11.8 million for the year ended June 30, 2018. We paid$1.3 million in net reductions of our debt, including the revolving credit facility and term loans. We paid $16.1million in dividends to holders of our Class A and Class B common stock. We received $5.7 million from theissuance of common shares related to the exercise of employee stock options.For the year ended June 30, 2017, net cash used by financing activities was $53.7 million. We paid$38.2 million in net reductions of our debt, including the revolving credit facility and term loans. We paid $3.9million in debt issuance costs related to the debt refinancing. We paid $1.3 million in acquisition-relatedcontingent consideration. We paid $15.8 million in dividends to holders of our Class A and Class B commonstock. We received $5.5 million from the issuance of common shares related to the exercise of stock options.Liquidity and capital resourcesWe believe our cash on hand, our operating cash flows and our financing arrangements, including theavailability of borrowings under the Revolver and foreign credit lines, will be sufficient to support our futurecash needs. Our operating plan projects adequate liquidity throughout the year. However, we can provide noassurance that our liquidity and capital resources will be adequate for future funding requirements. We believewe will be able to comply with the terms of the covenants under the Credit Facilities and foreign credit linesbased on our operating plan. In the event of adverse operating results and/or violation of covenants under thefacilities, there can be no assurance we would be able to obtain waivers or amendments. Other risks to ourmeeting future funding requirements include global economic conditions and macroeconomic, business andfinancial disruptions that could arise. There can be no assurance that a challenging economic environment or aneconomic downturn would not impact our liquidity or our ability to obtain future financing. In addition, ourdebt covenants may restrict our ability to invest. During the year ended June 30, 2018, we spent approximately$18.6 million on capital expenditures. We expect our capital expenditures will total approximately $42 millionin the year ending June 30, 2019, primarily in our Animal Health segment, including for the expansion ofproduction capacity, manufacturing efficiencies and compliance with environmental, health and safetyregulations.69TABLE OF CONTENTSCertain relevant measures of our liquidity and capital resources follow:​​​​ChangeAs of June 30​​2018​​2017​​2016​​2018/2017​​2017/2016(in thousands, except ratios)Cash and cash equivalents and short-terminvestments$79,168$56,083$33,605$23,085$22,478Working capital205,651198,036$203,3567,615(5,320Ratio of current assets to current liabilities2.57:12.81:12.92:1We define working capital as total current assets (excluding cash and cash equivalents and short-terminvestments) less total current liabilities (excluding current portion of long-term debt). We calculate the ratio ofcurrent assets to current liabilities based on this definition.At June 30, 2018, we had $70.0 million in outstanding borrowings under the Revolver. We hadoutstanding letters of credit and other commitments of  $4.2 million, leaving $175.8 million available forborrowings and letters of credit.We currently intend to pay quarterly dividends on our Class A and Class B common stock, subject toapproval from the Board of Directors. Our Board of Directors has declared a cash dividend of   $0.10 per share onClass A common stock and Class B common stock that is payable on September 26, 2018. Our future ability topay dividends will depend upon our results of operations, financial condition, capital requirements, our abilityto obtain funds from our subsidiaries and other factors that our Board of Directors deems relevant. Additionally,the terms of our current and any future agreements governing our indebtedness could limit our ability to paydividends or make other distributions.At June 30, 2018, our cash and cash equivalents and short-term investments included $77.6 millionheld by our international subsidiaries. There are no restrictions on cash distributions to PAHC from ourinternational subsidiaries. Based on our operating plan, we consider these funds to be indefinitely reinvested inour international operations. The undistributed earnings of foreign subsidiaries were subject to the U.S. one-timemandatory toll charge and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act.Should our plans change and we decide to repatriate some or all of the remaining cash held by our internationalsubsidiaries, the amounts repatriated could be subject to applicable non-U.S. income and withholding taxes ininternational jurisdictions.Analysis of the consolidated balance sheets​Change​As of June 30​2018201720162018/20172017/2016​(in thousands)Accounts receivable–trade$135,742$125,847$123,790$9,895$2,057DSO585859Payment terms outside the U.S. are typically longer than in the United States. We regularly monitor ouraccounts receivable for collectability, particularly in countries where economic conditions remain uncertain. Webelieve that our allowance for doubtful accounts is appropriate. Our assessment is based on such factors as pastdue history, historical and expected collection patterns, the financial condition of our customers, the robustnature of our credit and collection practices and the economic environment. We calculate DSO based on a 360-day year and compare accounts receivable with sales for the quarter ending at the balance sheet date.Change​As of June 302018201720162018/20172017/2016​(in thousands)Inventories$178,170$161,233$167,691$16,937$(6,458Inventory increased by $16.9 million in 2018, primarily due to increased commodity costs of mineralnutrition products as well as timing of sales, purchases and production of inventory in our Animal Healthsegment.70))TABLE OF CONTENTSContractual obligationsPayments due under contractual obligations as of June 30, 2018, were:Years​​Within 1​​Over 1 to 3​​Over 3 to 5​​Over 5​​Total​(in thousands)Long-term debt (including current portion)$12,579$31,289$200,000$—$243,868Revolving credit facility——70,000—70,000Interest payments11,39221,3539,654—42,399Lease commitments5,2618,4274,7532,03220,473Acquisition-related consideration12,84514014021013,335Other1,594792594—2,980Total contractual obligations$43,671$62,001$285,141$2,242$393,005For purposes of estimating interest payments, we assumed long-term debt will decrease in accordancewith the scheduled payments and the Revolver continues unchanged at the June 30, 2018, balance. We assumedfuture interest rates are the same as the rates at June 30, 2018.Excluded from the contractual obligations table is the liability for unrecognized tax benefits totaling$7.6 million. This liability for unrecognized tax benefits has been excluded because we cannot make a reliableestimate of the periods in which the liability will be realized.Our Board of Directors declared a cash dividend of  $0.10 per share on Class A common stock andClass B common stock, representing $4.0 million, payable on September 26, 2018.The Company expects to contribute approximately $1.0 million to the domestic pension plan during2019.Off-balance sheet arrangementsWe do not currently use off-balance sheet arrangements for the purpose of credit enhancement,hedging transactions, investment or other financial purposes.In the ordinary course of business, we may indemnify our counterparties against certain liabilities thatmay arise. These indemnifications typically pertain to environmental matters. If the indemnified party were tomake a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss.These indemnifications generally are subject to certain restrictions and limitations.71TABLE OF CONTENTSSelected Quarterly Financial Data (Unaudited)To facilitate quarterly comparisons, the following unaudited information presents the quarterly resultsof operations, including segment data, for the years ended June 30, 2018 and 2017. This quarterly financial datawas prepared on the same basis as, and should be read in conjunction with, the audited consolidated financialstatements and related notes included herein.​​Quarters​​Year​For the Periods Ended​​September 30,2017​​December 31,2017​​March 31,2018​​June 30,2018​​June 30,2018​(in thousands)Net salesAnimal Health$128,841$132,845$132,310$137,731$531,727Mineral Nutrition52,07359,61662,93860,295234,922Performance Products12,49813,41513,66013,76053,333Total net sales193,412205,876208,908211,786819,982Cost of goods sold130,030138,957139,839144,277553,103Gross profit63,38266,91969,06967,509266,879Selling, general and administrative expenses40,99542,98142,57741,400167,953Operating income22,38723,93826,49226,10998,926Interest expense, net3,1183,0503,0642,67811,910Foreign currency (gains) losses, net325(323(960(96(1,054Income before income taxes18,94421,21124,38823,52788,070Provision (benefit) for income taxes3,05214,1794,5481,40823,187Net income$15,892$7,032$19,840$22,119$64,883Net income per sharebasic$0.40$0.17$0.49$0.55$1.61diluted$0.39$0.17$0.49$0.55$1.61Adjusted EBITDAAnimal Health$33,742$35,036$36,292$36,844$141,914Mineral Nutrition3,7165,6145,3753,87818,583Performance Products2482643869831,881Corporate(7,589(8,436(8,650(8,745(33,420Adjusted EBITDA$30,117$32,478$33,403$32,960$128,958Reconciliation of net income to AdjustedEBITDANet income$15,892$7,032$19,840$22,119$64,883Interest expense, net3,1183,0503,0642,67811,910Provision (benefit) for income taxes3,05214,1794,5481,40823,187Depreciation and amortization6,6446,6316,7516,91726,943EBITDA28,70630,89234,20333,122126,923Acquisition-related cost of goods sold2491,422——1,671Acquisition-related accrued compensation437487160681,152Acquisition-related transaction costs400———400Acquisition-related other, net———(468(468Stock-based compensation———334334Foreign currency (gains) losses, net325(323(960(96(1,054Adjusted EBITDA$30,117$32,478$33,403$32,960$128,95872)))))))))))))))TABLE OF CONTENTS​​Quarters​​Year​For the Periods Ended​​September 30,2016​​December 31,2016​​March 31,2017​​June 30,2017​​June 30,2017​(in thousands)Net salesAnimal Health$124,501$123,673$120,976$128,595$497,745Mineral Nutrition51,59256,69957,16952,838218,298Performance Products11,89411,22611,71613,40248,238Total net sales187,987191,598189,861194,835764,281Cost of goods sold126,988128,100129,241131,709516,038Gross profit60,99963,49860,62063,126248,243Selling, general and administrative expenses39,18640,87030,64639,607150,309Operating income21,81322,62829,97423,51997,934Interest expense, net3,9073,8723,9293,19814,906Foreign currency (gains) losses, net334(548(403504(113Loss on extinguishment of debt———2,5982,598Income before income taxes17,57219,30426,44817,21980,543Provision (benefit) for income taxes5,3955,8872,8051,84115,928Net income$12,177$13,417$23,643$15,378$64,615Net income per sharebasic$0.31$0.34$0.60$0.39$1.63diluted$0.31$0.34$0.59$0.38$1.61Adjusted EBITDAAnimal Health$32,619$34,609$31,806$31,227$130,261Mineral Nutrition3,9884,7414,3434,35417,426Performance Products7422604466092,057Corporate(7,524(8,416(6,859(6,826(29,625Adjusted EBITDA$29,825$31,194$29,736$29,364$120,119Reconciliation of net income to AdjustedEBITDANet income$12,177$13,417$23,643$15,378$64,615Interest expense, net3,9073,8723,9293,19814,906Provision (benefit) for income taxes5,3955,8872,8051,84115,928Depreciation and amortization6,3186,4446,8426,39726,001EBITDA27,79729,62037,21926,814121,450Acquisition-related accrued compensation4204204204201,680Acquisition-related transaction costs1,274———1,274Acquisition-related other, net———(972(972Pension settlement cost—1,702——1,702Gain on insurance settlement——(7,500—(7,500Foreign currency (gains) losses, net334(548(403504(113Loss on extinguishment of debt———2,5982,598Adjusted EBITDA$29,825$31,194$29,736$29,364$120,119General description of non-GAAP financial measuresAdjusted EBITDAAdjusted EBITDA is an alternative view of performance used by management as our primary operatingmeasure, and we believe that investors’ understanding of our performance is enhanced by disclosing thisperformance measure. We report Adjusted EBITDA to portray the results of our operations prior to consideringcertain income statement elements. We have defined EBITDA as net income (loss) plus73)))))))))))))))•senior management receives a monthly analysis of our operating results that is prepared on anAdjusted EBITDA basis;•our annual budgets are prepared on an Adjusted EBITDA basis; and•other goal setting and performance measurements are prepared on an Adjusted EBITDA basis.TABLE OF CONTENTS(i) interest expense, net, (ii) provision for income taxes or less benefit for income taxes, and (iii) depreciation andamortization. We have defined Adjusted EBITDA as EBITDA plus (a) (income) loss from, and disposal of,discontinued operations, (b) other expense or less other income, as separately reported on our consolidatedstatements of operations, including foreign currency gains and losses and loss on extinguishment of debt, and (c)certain items that we consider to be unusual, non-operational or non-recurring. The Adjusted EBITDA measure isnot, and should not be viewed as, a substitute for GAAP reported net income.The Adjusted EBITDA measure is an important internal measurement for us. We measure our overallperformance on this basis in conjunction with other performance metrics. The following are examples of how ourAdjusted EBITDA measure is utilized:Despite the importance of this measure to management in goal setting and performance measurement,Adjusted EBITDA is a non-GAAP financial measure that has no standardized meaning prescribed by GAAP and,therefore, has limits in its usefulness to investors. Because of its non-standardized definition, Adjusted EBITDA,unlike GAAP net income, may not be comparable to the calculation of similar measures of other companies.Adjusted EBITDA is presented to permit investors to more fully understand how management assessesperformance.We also recognize that, as an internal measure of performance, the Adjusted EBITDA measure haslimitations, and we do not restrict our performance management process solely to this metric. A limitation of theAdjusted EBITDA measure is that it provides a view of our operations without including all events during aperiod, such as the depreciation of property, plant and equipment or amortization of purchased intangibles, anddoes not provide a comparable view of our performance to other companies.Certain significant itemsAdjusted EBITDA is calculated prior to considering certain items. We evaluate such items on anindividual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual ornon-operational nature. Unusual, in this context, may represent items that are not part of our ongoing business;items that, either as a result of their nature or size, we would not expect to occur as part of our normal business ona regular basis. An example of an unusual item is the loss on extinguishment of debt incurred in fiscal year 2017.We consider foreign currency gains and losses to be non-operational because they arise principally fromintercompany transactions and are largely non-cash in nature.New accounting standardsFor discussion of new accounting standards, see “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies and New Accounting Standards.”Significant accounting policies and application of critical accounting estimatesIn presenting our financial statements in conformity with GAAP, we are required to make estimates andassumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses and relateddisclosures.We believe that the following accounting policies are critical to an understanding of our consolidatedfinancial statements as they require the application of the most difficult, subjective and complex judgments and,therefore, could have the greatest impact on our financial statements.Acquisitions, Intangible Assets and GoodwillOur consolidated financial statements reflect the operations of an acquired business beginning as ofthe date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values at the74TABLE OF CONTENTSdate of acquisition; goodwill is recorded for any excess of the purchase price over the fair values of the net assetsacquired. Significant judgment is required to determine contingent consideration on acquisition, if any, and thefair value of certain tangible and intangible assets and in assigning their respective useful lives. Accordingly, wetypically obtain the assistance of third-party valuation specialists for significant tangible and intangible assets.The fair values are based on available historical information and on future expectations and assumptionsdeemed reasonable by management, but are inherently uncertain. We typically use an income method tomeasure the fair value of intangible assets, which is based on forecasts of the expected future cash flowsattributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect aconsideration of other marketplace participants, and include the amount and timing of future cash flows(including expected growth rates and profitability), the underlying product or technology life cycles, economicbarriers to entry and the discount rate applied to the cash flows. Unanticipated market or macroeconomic eventsand circumstances could affect the accuracy or validity of the estimates and assumptions. Determining the usefullife of an intangible asset also requires judgment. Our estimates of the useful lives of intangible assets areprimarily based on a number of factors including competitive environment, underlying product life cycles,operating plans and the macroeconomic environment of the countries in which the products are sold. Intangibleassets are amortized over their estimated lives. Intangible assets associated with acquired in-process research anddevelopment activities (“IPR&D”) are not amortized until a product is available for sale and regulatory approvalis obtained.Long-Lived Assets and GoodwillWe periodically review our long-lived and amortizable intangible assets for impairment and assesswhether significant events or changes in business circumstances indicate that the carrying value of the assetsmay not be recoverable. Such circumstances may include a significant decrease in the market price of an asset, asignificant adverse change in the manner in which the asset is being used or in its physical condition or a historyof operating or cash flow losses associated with the use of an asset. We recognize an impairment loss isrecognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flowsexpected to result from the use of the asset and its eventual disposition. The amount of the impairment loss is theexcess of the asset’s carrying value over its fair value. In addition, we periodically reassess the estimatedremaining useful lives of our long-lived and amortizable intangible assets. Changes to estimated useful liveswould affect the amount of depreciation and amortization recorded in the consolidated statements of operations.During the three months ended June 30, 2017, we determined that certain intangible assets related to technologywithin the Animal Health segment were impaired, based on changes to future product sales assumptions, andrecorded an impairment charge of approximately $0.7 million as a component of selling, general andadministrative expenses in our consolidated statements of operations. There were no significant assetimpairments or changes in estimated remaining useful lives of our long-lived or amortizable intangible assets inthe periods included in the consolidated financial statements prior to fiscal year 2017 or subsequently in fiscalyear 2018.We periodically review our indefinite life intangible assets associated with acquired IPR&D forimpairment and assess whether significant events or changes in business circumstances indicate that the carryingvalue of the assets may not be recoverable. We recognize an impairment loss when the carrying amount of anasset exceeds the anticipated future discounted cash flows expected to result from the use of the asset and itseventual disposition. The amount of the impairment loss is the excess of the asset’s carrying value over its fairvalue. During the fourth quarter of each year, or more frequently if impairment indicators exist, we perform anannual impairment assessment. During the three months ended June 30, 2017, we determined that certain IPR&Dwithin the Animal Health segment was impaired, based on changes to future product sales assumptions, andrecorded an impairment charge of approximately $1.6 million as a component of selling, general andadministrative expenses in our consolidated statements of operations. We did not record any impairment chargesrelated to indefinite-lived intangible assets in fiscal years 2018 or 2016.Goodwill represents the excess of the purchase price over the fair value of the identifiable net assetsacquired in a business combination. We assess goodwill for impairment annually during the fourth quarter, ormore frequently if impairment indicators exist. Impairment exists when the carrying amount of goodwill exceedsits implied fair value. We may elect to assess our goodwill for impairment using a qualitative or a quantitativeapproach, to determine whether it is more likely than not that the fair value of75TABLE OF CONTENTSgoodwill is greater than its carrying value. For 2018, we tested goodwill using a qualitative approach anddetermined goodwill was not impaired. We have not recorded any goodwill impairment charges in the periodsincluded in the consolidated financial statements.We evaluate our investments in equity method investees for impairment if circumstances indicate thatthe fair value of the investment may be impaired. The assets underlying a $3.4 million equity investment arecurrently idled; we have concluded the investment is not currently impaired, based on expected future operatingcash flows and/or disposal value.Environmental LiabilitiesOur operations and properties are subject to extensive federal, state, local and foreign environmental,health and safety laws and regulations, including those governing pollution; protection of the environment; theuse, management and release of hazardous materials, substances and wastes; air emissions; greenhouse gasemissions; water use, supply and discharge; the investigation and remediation of contamination; themanufacture, distribution, and sale of regulated materials, including pesticides; the importing, exporting andtransportation of products; and the health and safety of our employees and the public. As such, the nature of ourcurrent and former operations and those of our subsidiaries expose us and our subsidiaries to the risk of claimswith respect to such matters, including fines, penalties and remediation obligations that may be imposed byregulatory authorities. We record accruals for contingencies when it is probable that a liability has been incurredand the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change oradditional information becomes available.Pension LiabilitiesThe measurement of our pension and postretirement benefit obligations are dependent on a variety ofassumptions determined by management and used by our actuaries. These assumptions affect the amount andtiming of future contributions and expenses. The Company reassesses its benefit plan assumptions on a regularbasis. The discount rate is evaluated on measurement dates and modified to reflect the prevailing market rate of aportfolio of high-quality fixed-income debt instruments that would provide the future cash flows needed to paythe benefits included in the benefit obligation as they come due. At June 30, 2018, the discount rate for theCompany’s U.S. pension plan benefit obligations was 4.2% compared to 3.9% at June 30, 2017. The expectedrate of return on plan assets of 5.6% represents the average rate of return expected to be earned on plan assetsover the period the benefit obligations are expected to be paid. In developing the expected rate of return, theCompany considers long-term compound annualized returns of historical market data as well as actual returns onthe Company’s plan assets.Revenue RecognitionWe recognize revenue for sales of our goods upon transfer of title and when risk of loss passes to thecustomer. Certain of our businesses have terms where title and risk of loss transfer on shipment. Certain of ourbusinesses have terms where title and risk of loss transfer on delivery. Recognition of revenue also requires thatpersuasive evidence of an arrangement exists, the selling price is fixed or determinable, the collection of salesproceeds is reasonably assured and that we have no further performance obligations. We record reductions torevenue for the estimated costs of customer programs and incentive offerings, including pricing arrangementsand other volume-based incentives, at the time the sale is recorded. Net sales include royalty and licensingincome from licensing agreements when all performance obligations have been met. Net sales include shippingand handling fees billed to customers. Delivery costs to our customers are included in cost of goods sold in theconsolidated statements of operations. Net sales exclude value-added and other taxes based on sales.Income TaxesThe provision for income taxes includes U.S. federal, state, and foreign income taxes and foreignwithholding taxes. Our annual effective income tax rate is determined based on our income, statutory tax ratesand tax planning opportunities available in the various jurisdictions in which we operate and the tax76TABLE OF CONTENTSimpacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requirescertain items be included in the tax return at different times than the items are reflected in the financialstatements. Some of these differences are permanent, such as expenses that are not deductible in our tax return,and some differences are temporary, reversing over time, such as depreciation expense. These temporarydifferences give rise to deferred tax assets and liabilities. Deferred tax assets generally represent the tax effect ofitems that can be used as a tax deduction or credit in future years for which we have already recorded the taxbenefit in our income statement. Deferred tax liabilities generally represent the tax effect of items recorded as taxexpense in our income statement for which payment has been deferred, the tax effect of expenditures for which adeduction has already been taken in our tax return but has not yet been recognized in our income statement orthe tax effect of assets recorded at fair value in business combinations for which there was no corresponding taxbasis adjustment.Significant judgment is required in determining our income tax provision and in evaluating our taxpositions. The recognition and measurement of a tax position is based on management’s best judgment giventhe facts, circumstances and information available at the reporting date. Inherent in determining our annualeffective income tax rate are judgments regarding business plans, planning opportunities and expectations aboutfuture outcomes. Realization of certain deferred tax assets, primarily net operating loss carryforwards, isdependent upon generating sufficient future taxable income in the appropriate jurisdiction prior to theexpiration of the carryforward periods. We establish valuation allowances for deferred tax assets when theamount of expected future taxable income is not likely to support the use of the deduction or credit.We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certainof these jurisdictions, we may take tax positions that management believes are supportable, but are potentiallysubject to successful challenge by the applicable taxing authority. We evaluate our tax positions and establishliabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We reviewthese tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjustthem accordingly.We account for income tax contingencies using a benefit recognition model. If our initial assessmentdoes not result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognizethe tax benefit if: (i) there are changes in tax law or there is new information that sufficiently raise the likelihoodof prevailing on the technical merits of the position to “more likely than not;” (ii) the statute of limitationsexpires; or (iii) there is a completion of an audit resulting in a favorable settlement of that tax year with theappropriate agency. We regularly re-evaluate our tax positions based on the results of audits of federal, state andforeign income tax filings, statute of limitations expirations, and changes in tax law or receipt of newinformation that would either increase or decrease the technical merits of a position relative to the “more-likely-than-not” standard.Our assessments concerning uncertain tax positions are based on estimates and assumptions that havebeen deemed reasonable by management, but our estimates of unrecognized tax benefits and potential taxbenefits may not be representative of actual outcomes, and variation from such estimates could materially affectour financial statements in the period of settlement or when the statutes of limitations expire, as we treat theseevents as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities caninclude formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing andrange of possible changes related to our uncertain tax positions, and such changes could be significant.Because there are a number of estimates and assumptions inherent in calculating the variouscomponents of our income tax provision, certain future events such as changes in tax legislation, geographicmix of earnings, completion of tax audits or earnings repatriation plans could have an impact on those estimatesand our effective income tax rate.We consider undistributed earnings of foreign subsidiaries to be indefinitely reinvested inour international operations. The undistributed earnings of foreign subsidiaries were subject to the U.S. one-timemandatory toll charge and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act.Should our plans change and we decide to repatriate some or all of the remaining cash held by our internationalsubsidiaries, the amounts repatriated could be subject to applicable non-U.S. income and withholding taxes ininternational jurisdictions.77TABLE OF CONTENTSFor more information regarding our significant accounting policies, estimates and assumptions, see“Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies and NewAccounting Standards.”ContingenciesLegal mattersWe are subject to numerous contingencies arising in the ordinary course of business, such as productliability and other product-related litigation, commercial litigation, environmental claims and proceedings andgovernment investigations. Certain of these contingencies could result in losses, including damages, finesand/or civil penalties, and/or criminal charges, which could be substantial. We believe that we have strongdefenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. Wedo not believe that any of these matters will have a material adverse effect on our financial position. However,we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certainmatters, and such developments could have a material adverse effect on our results of operations or cash flows inthe period in which the amounts are paid and/or accrued.We have accrued for losses that are both probable and reasonably estimable. Substantially all of thesecontingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/orthe measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonablypossible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that havebeen deemed reasonable by management, but the assessment process relies heavily on estimates andassumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances mayoccur that might cause us to change those estimates and assumptions.EnvironmentalOur operations and properties are subject to Environmental Laws and regulations. As such, the natureof our current and former operations exposes us to the risk of claims with respect to such matters, including fines,penalties, and remediation obligations that may be imposed by regulatory authorities. Under certaincircumstances, we might be required to curtail operations until a particular problem is remedied. Known costsand expenses under Environmental Laws incidental to ongoing operations, including the cost of litigationproceedings relating to environmental matters, are generally included within operating results. Potential costsand expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or newrequirements under Environmental Laws or to investigate or remediate potential or actual contamination andfrom time to time we establish reserves for such contemplated investigation and remediation costs. In manyinstances, the ultimate costs under Environmental Laws and the time period during which such costs are likelyto be incurred are difficult to predict.While we believe that our operations are currently in material compliance with Environmental Laws,we have, from time to time, received notices of violation from governmental authorities, and have been involvedin civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged incontinuing investigation, remediation and/or monitoring efforts to address contamination associated withhistoric operations of the sites. We devote considerable resources to complying with Environmental Laws andmanaging environmental liabilities. We have developed programs to identify requirements under, and maintaincompliance with Environmental Laws; however, we cannot predict with certainty the impact of increased andmore stringent regulation on our operations, future capital expenditure requirements, or the cost of compliance.The nature of our current and former operations exposes us to the risk of claims with respect toenvironmental matters and we cannot assure we will not incur material costs and liabilities in connection withsuch claims. Based upon our experience to date, we believe that the future cost of compliance with existingEnvironmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, willnot have a material adverse effect on our financial position, results of operations, cash flows or liquidity.78TABLE OF CONTENTSFor additional details, see “Notes to Consolidated Financial Statements—Commitments andContingencies.”For additional details, see “Business—Environmental, Health and Safety.”Item 7A. Quantitative and Qualitative Disclosures about Market RiskForeign exchange riskPortions of our net sales and costs are exposed to changes in foreign exchange rates. Our products aresold in more than 65 countries and, as a result, our revenues are influenced by changes in foreign exchange rates.Because we operate in multiple foreign currencies, changes in those currencies relative to the U.S. dollar couldaffect our revenue and expenses, and consequently, net income. Exchange rate fluctuations may also have aneffect beyond our reported financial results and directly affect operations. These fluctuations may affect theability to buy and sell our goods and services in markets affected by significant exchange rate variances.Our primary foreign currency exposures are to the Brazilian and Israeli currencies. From time to time,we manage foreign exchange risk through the use of foreign currency derivative contracts. We use thesecontracts to mitigate the potential earnings effects from exposure to foreign currencies.We analyzed our foreign currency derivative contracts at June 30, 2018, to determine their sensitivityto exchange rate changes. The analysis indicates that if the U.S. dollar were to appreciate or depreciate by 10%,the fair value of these contracts would decrease by $0.1 million or increase by $0.3 million. For additionaldetails, see “Notes to Consolidated Financial Statements—Derivatives.”Interest rate riskSubstantially all of our outstanding debt is floating rate debt. Our Credit Facilities carry floatinginterest rates based on LIBOR and the Prime Rate; therefore, our profitability and cash flows are exposed tointerest rate fluctuations. In July 2017, we entered into an interest rate swap agreement on $150,000 of notionalprincipal that effectively converts the floating LIBOR or base rate portion of our interest obligation on thatamount of debt, to a fixed interest rate of 1.8325% plus the applicable rate. The agreement matures concurrentwith the Credit Agreement. The interest rate swap agreement has been designated as a highly effective cash flowhedge.Based on our outstanding debt balances as of June 30, 2018, and considering the interest rate swapagreement, a 100 basis point increase in LIBOR would increase annual interest expense and decrease cash flowsby $1.7 million. For additional details, see “Notes to the Consolidated Financial Statements—Debt” and “Notesto the Consolidated Financial Statements—Derivatives”.79Item 8.Financial Statements and Supplementary DataTABLE OF CONTENTSPHIBRO ANIMAL HEALTH CORPORATIONINDEX TO CONSOLIDATED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm81Consolidated Statements of Operations for the fiscal years ended June 30, 2018, 2017 and 201682Consolidated Statements of Comprehensive Income for the fiscal years ended June 30, 2018, 2017 and 201683Consolidated Balance Sheets as of June 30, 2018 and 201784Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2018, 2017 and 201685Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended June 30, 2018, 2017 and 201686Notes to Consolidated Financial Statements for the fiscal years ended June 30, 2018, 2017 and 20168780TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Phibro Animal Health CorporationOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Phibro Animal Health Corporationand its subsidiaries as of June 30, 2018 and 2017, and the related consolidated statements of operations,comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the periodended June 30, 2018, including the related notes (collectively referred to as the “consolidated financialstatements”). In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of June 30, 2018 and 2017, and the results of their operations and theircash flows for each of the three years in the period ended June 30, 2018 in conformity with accountingprinciples generally accepted in the United States of America.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission andthe PCAOB.We conducted our audits of these consolidated financial statements in accordance with the standardsof the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of material misstatement, whether due to error or fraud.The Company is not required to have, nor were we engaged to perform, an audit of its internal control overfinancial reporting. As part of our audits we are required to obtain an understanding of internal control overfinancial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of theconsolidated financial statements, whether due to error or fraud, and performing procedures that respond to thoserisks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe consolidated financial statements. Our audits also included evaluating the accounting principles used andsignificant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion./s/ PricewaterhouseCoopers LLP Florham Park, New Jersey August 27, 2018  We have served as the Company’s auditor since 1998.81TABLE OF CONTENTSPHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSFor the Year Ended June 30201820172016​(in thousands, except per share amounts)Net sales$819,982$764,281$751,526Cost of goods sold553,103516,038512,494Gross profit266,879248,243239,032Selling, general and administrative expenses167,953150,309153,288Operating income98,92697,93485,744Interest expense, net11,91014,90616,592Foreign currency (gains) losses, net(1,054(113(7,609Loss on extinguishment of debt—2,598—Income before income taxes88,07080,54376,761Provision (benefit) for income taxes23,18715,928(5,967Net income$64,883$64,615$82,728Net income per sharebasic$1.61$1.63$2.11diluted$1.61$1.61$2.07Weighted average common shares outstandingbasic40,18139,52439,254diluted40,38540,04239,962Dividends per share$0.40$0.40$0.40The accompanying notes are an integral part of these consolidated financial statements82))))TABLE OF CONTENTSPHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor the Year Ended June 30201820172016​(in thousands)Net income$64,883$64,615$82,728Change in fair value of derivative instruments2,300314,197Foreign currency translation adjustment(23,542(1,652(9,181Unrecognized net pension gains (losses)(15412,918(11,093(Provision) benefit for income taxes350(4,9495,892Other comprehensive income (loss)(21,0466,348(10,185Comprehensive income$43,837$70,963$72,543The accompanying notes are an integral part of these consolidated financial statements83))))))))TABLE OF CONTENTSPHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAs of June 30​​20182017​(in thousands, except share and per share amounts)ASSETSCash and cash equivalents$29,168$56,083Short-term investments50,000—Accounts receivable, net135,742125,847Inventories, net178,170161,233Other current assets22,38120,502Total current assets415,461363,665Property, plant and equipment, net130,108127,351Intangibles, net51,97854,602Goodwill27,34823,982Other assets46,78453,797Total assets$671,679$623,397LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent portion of long-term debt$12,579$6,250Accounts payable59,49856,894Accrued expenses and other current liabilities71,14452,652Total current liabilities143,221115,796Revolving credit facility70,00065,000Long-term debt229,802241,891Other liabilities43,70249,553Total liabilities486,725472,240Commitments and contingencies (Note 11)Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 19,992,204 and 19,249,132 shares issued and outstanding at June 30, 2018 and 2017, respectively; 30,000,000 Class B shares authorized, 20,365,504 and 20,626,836 shares issued and outstanding at June 30, 2018 and 2017, respectively44Preferred stock, par value $0.0001 per share; 16,000,000 sharesauthorized, no shares issued and outstanding——Paid-in capital129,873123,840Retained earnings131,56082,750Accumulated other comprehensive income (loss)(76,483(55,437Total stockholders’ equity184,954151,157Total liabilities and stockholders’ equity$671,679$623,397The accompanying notes are an integral part of these consolidated financial statements84))TABLE OF CONTENTSPHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Year Ended June 30201820172016​(in thousands)OPERATING ACTIVITIESNet income$64,883$64,615$82,728Adjustments to reconcile net income to net cash provided (used) byoperating activities:Depreciation and amortization26,94326,00123,452Amortization of debt issuance costs and debt discount8831,015989Acquisition-related cost of goods sold1,671—2,566Acquisition-related accrued compensation1,1521,6801,680Acquisition-related accrued interest1,0851,3731,476Acquisition-related other, net—(972—Pension settlement cost—1,702—Deferred income taxes6,389(28(22,244Foreign currency (gains) losses, net(635(867(7,725Other1,515765354Loss on extinguishment of debt—2,598—Changes in operating assets and liabilities, net of business acquisition:Accounts receivable, net(11,900(2,765(13,086Inventories, net(24,2925,432(16,439Other current assets134(3,012457Other assets(152(1,504(6,547Accounts payable2,446(3,119(3,245Accrued expenses and other liabilities(1145,471(7,198Net cash provided (used) by operating activities70,00898,38537,218INVESTING ACTIVITIESPurchases of short-term investments(82,000——Maturities of short-term investments32,000——Capital expenditures(18,548(20,880(36,352Business acquisition(15,000—(46,576Other, net(1,064(1,062137Net cash provided (used) by investing activities(84,612(21,942(82,791FINANCING ACTIVITIESRevolving credit facility borrowings225,000230,500255,500Revolving credit facility repayments(220,000(234,500(189,500Proceeds from long-term debt—250,000—Payments of long-term debt, capital leases and other(6,401(285,527(3,929Debt issuance costs—(3,925—Proceeds from common shares issued5,6995,5414,017Dividends paid(16,073(15,827(15,708Net cash provided (used) by financing activities(11,775(53,73850,380Effect of exchange rate changes on cash(536(227(418Net increase (decrease) in cash and cash equivalents(26,91522,4784,389Cash and cash equivalents at beginning of period56,08333,60529,216Cash and cash equivalents at end of period$29,168$56,083$33,605Supplemental cash flow informationInterest paid$11,208$14,600$14,215Income taxes paid, net15,19114,76216,828Non-cash investing and financing activitiesProperty, plant and equipment and capital lease additions8,4491,5501,438The accompanying notes are an integral part of these consolidated financial statements85))))))))))))))))))))))))))))))))))))))))))))))TABLE OF CONTENTSPHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY​​Shares of Common Stock​​Common Stock​​Preferred Stock​​Paid-in Capital​​Retained Earnings (Accumulated Deficit)​​Accumulated Other Comprehensive Income (Loss)​​Total​(in thousands, except share amounts)As of June 30, 201539,068,068$ 4 $—$118,192$(36,968$(51,600$29,628Comprehensive income (loss)————82,728(10,18572,543Exercise of stock options339,500——4,017——4,017Dividends paid———(3,910(11,798—(15,708As of June 30, 201639,407,568$4$—$118,299$33,962$(61,785$90,480Comprehensive income (loss)————64,6156,34870,963Exercise of stock options468,400——5,541——5,541Dividends paid————(15,827—(15,827As of June 30, 201739,875,968$4$—$123,840$82,750$(55,437$151,157Comprehensive income (loss)————64,883(21,04643,837Exercise of stock options481,740——5,699——5,699Dividends paid————(16,073—(16,073Stock-based compensation———334——334As of June 30, 201840,357,708$4$—$129,873$131,560$(76,483$184,954The accompanying notes are an integral part of these consolidated financial statements86))))))))))))))1.Description of Business2.Summary of Significant Accounting Policies and New Accounting StandardsTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)Phibro Animal Health Corporation (“Phibro” or “PAHC”) and its subsidiaries (together, the“Company”) is a diversified global developer, manufacturer and marketer of a broad range of animal health andmineral nutrition products for food animals including poultry, swine, cattle, dairy and aquaculture. TheCompany is also a manufacturer and marketer of performance products for use in the personal care, industrialchemical and chemical catalyst industries. Unless otherwise indicated or the context requires otherwise,references in this report to “we,” “our,” “us,” and similar expressions refer to Phibro and its subsidiaries.Principles of Consolidation and Basis of PresentationThe consolidated financial statements have been prepared in accordance with accounting principlesgenerally accepted in the United States (“GAAP”) and include the accounts of Phibro and its consolidatedsubsidiaries. Intercompany balances and transactions have been eliminated from the consolidated financialstatements. The decision whether or not to consolidate an entity requires consideration of majority votinginterests, as well as effective control over the entity.We present our financial statements on the basis of our fiscal year ending June 30. All referencesto years in these consolidated financial statements refer to the fiscal year ending or ended on June 30 of thatyear.Risks, Uncertainties and LiquidityThe issue of the potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led togovernment restrictions on or banning of the use of antibiotics in food-producing animals. The sale ofantibiotics and antibacterials is a material portion of our business. Should product bans or restrictions, publicperception, competition or other developments result in restrictions on the sale of such products, it could have amaterial adverse effect on our financial position, results of operations and cash flows.The testing, manufacturing, and marketing of certain of our products are subject to extensiveregulation by numerous government authorities in the United States and other countries.We have significant assets in Israel, Brazil and other locations outside of the United States and asignificant portion of our sales and earnings are attributable to operations conducted abroad. Our assets, resultsof operations and future prospects are subject to currency exchange fluctuations and restrictions, energyshortages, other economic developments, political or social instability in some countries, and uncertainty of,and governmental control over, commercial rights, which could result in a material adverse effect on ourfinancial position, results of operations and cash flows.  We are subject to environmental laws and regulations governing the use, storage, handling,generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediationof contaminated soil and groundwater, the manufacture, sale and use of regulated materials, including pesticides,and the health and safety of employees. As such, the nature of our current and former operations and those of oursubsidiaries expose Phibro and our subsidiaries to the risk of claims with respect to such matters.Use of EstimatesPreparation of the consolidated financial statements requires management to make certain estimatesand assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.Actual results could differ from these estimates. Significant estimates include valuation of intangible assets,depreciation and amortization periods of long-lived and intangible assets,87TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) recoverability of long-lived and intangible assets and goodwill, realizability of deferred income tax and value-added tax assets, legal and environmental matters and actuarial assumptions related to our pension plans. Weregularly evaluate our estimates and assumptions using historical experience and other factors. Our estimates arebased on complex judgments, probabilities and assumptions that we believe to be reasonable.Revenue RecognitionWe recognize revenue for sales of our goods upon transfer of title and when risk of loss passes to thecustomer. Certain of our businesses have terms where title and risk of loss transfer to the customer on shipment.Certain of our businesses have terms where title and risk of loss transfer to the customer on delivery. Recognitionof revenue also requires that persuasive evidence of an arrangement exists, the selling price is fixed ordeterminable, the collection of sales proceeds is reasonably assured and that we have no further performanceobligations. We record reductions to revenue for the estimated costs of customer programs and incentiveofferings, including pricing arrangements and other volume-based incentives, at the time the sale is recorded.Net sales include royalty and licensing income from licensing agreements when all performance obligationshave been met. Net sales include shipping and handling fees billed to customers. Delivery costs to our customersare included in cost of goods sold in the consolidated statements of operations. Net sales exclude value-addedand other taxes based on sales.Cash and Cash EquivalentsCash equivalents include highly liquid investments with maturities of three months or less whenpurchased. Cash and cash equivalents held at financial institutions may at times exceed federally insuredamounts. We believe we mitigate such risk by investing in or through major financial institutions.Short-term InvestmentsShort-term investments include highly liquid investments with maturities greater than three monthsand less than one year at the time of purchase. We classify these investments as held to maturity and we recordthe related interest income as earned. We determine the appropriate balance sheet classification at the time ofpurchase and at each balance sheet date. Investments held at financial institutions may at times exceed insuredamounts. We believe we mitigate such risk by investing in or through major financial institutions.Accounts Receivable and Allowance for Doubtful AccountsTrade accounts receivable are recorded at the invoiced amount and do not bear interest. We grantcredit terms in the normal course of business and generally do not require collateral or other security to supportcredit sales. Our ten largest customers represented, in aggregate, approximately 24% and 21% of accountsreceivable at June 30, 2018 and 2017, respectively.The allowance for doubtful accounts is our best estimate of the probable credit losses in existingaccounts receivable. We monitor the financial performance and creditworthiness of our customers so that we canproperly assess and respond to changes in their credit profile. We also monitor domestic and internationaleconomic conditions for the potential effect on our customers. Past due balances are reviewed individually forcollectability. Account balances are charged against the allowance when we determine it is probable thereceivable will not be recovered.InventoriesInventories are valued at the lower of cost or net realizable value (“NRV”). Cost is determinedprincipally under weighted average and standard cost methods, which approximate first-in, first-out (FIFO) cost.Obsolete and unsalable inventories, if any, are reflected at estimated net realizable value. Inventory costsinclude materials, direct labor and manufacturing overhead.88TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Property, Plant and EquipmentProperty, plant and equipment are stated at cost.Depreciation is charged to results of operations using the straight-line method based upon the assets’estimated useful lives, ranging from two to thirty years for buildings and improvements, and one to ten years formachinery and equipment. We capitalize costs that extend the useful life or productive capacity of an asset.Repair and maintenance costs are expensed as incurred. In the case of disposals, the assets and relatedaccumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, areincluded in the consolidated statements of operations.Capitalized Software CostsWe capitalize costs to obtain, develop and implement software for internal use. Amounts paid to thirdparties and costs of internal employees who are directly associated with the software project are also capitalized,depending on the stage of development.We expense software costs that do not meet the capitalization criteria. Capitalized software costs areincluded in property, plant and equipment on the consolidated balance sheets and are amortized on a straight-line basis over three to seven years.Deferred Financing CostsCosts and original issue discounts or premiums related to issuance or modification of our debt aredeferred on the consolidated balance sheet and amortized over the lives of the respective debt instruments.Amortization of deferred financing costs is included in interest expense in the consolidated statements ofoperations.Acquisitions, Intangible Assets and GoodwillOur consolidated financial statements reflect the operations of an acquired business beginning as ofthe date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values at the date ofacquisition; goodwill is recorded for any excess of the purchase price over the fair values of the net assetsacquired.Significant judgment is required to determine the fair value of certain tangible and intangible assetsand in assigning their respective useful lives. Accordingly, we typically obtain the assistance of third-partyvaluation specialists for significant tangible and intangible assets. The fair values are based on availablehistorical information and on future expectations and assumptions deemed reasonable by management, but areinherently uncertain. We typically use an income method to measure the fair value of intangible assets, which isbased on forecasts of the expected future cash flows attributable to the respective assets. Significant estimatesand assumptions inherent in the valuations reflect a consideration of other marketplace participants, and includethe amount and timing of future cash flows (including expected growth rates and profitability), the underlyingproduct or technology life cycles, economic barriers to entry and the discount rate applied to the cash flows.Unanticipated market or macroeconomic events and circumstances could affect the accuracy or validity of theestimates and assumptions. Determining the useful life of an intangible asset also requires judgment. Ourestimates of the useful lives of intangible assets are based on factors including competitive environment,underlying product life cycles, operating plans and the macroeconomic environment of the countries in whichthe products are sold. Intangible assets are amortized over their estimated lives. Intangible assets associated withacquired in-process research and development activities (“IPR&D”) are not amortized until a product isavailable for sale.Long-Lived Assets and GoodwillWe periodically review our long-lived and amortizable intangible assets for impairment and assesswhether significant events or changes in business circumstances indicate that the carrying value of the assetsmay not be recoverable. Such circumstances may include a significant decrease in the market price of an asset, asignificant adverse change in the manner in which the asset is being used or in its physical condition89TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) or a history of operating or cash flow losses associated with the use of an asset. We recognize an impairment losswhen the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to resultfrom the use of the asset and its eventual disposition. The amount of the impairment loss is the excess of theasset’s carrying value over its fair value. In addition, we periodically reassess the estimated remaining usefullives of our long-lived and amortizable intangible assets. Changes to estimated useful lives would affect theamount of depreciation and amortization recorded in the consolidated statements of operations. During 2017, wedetermined that certain intangible assets related to technology within the Animal Health segment were impaired,based on changes to future product sales assumptions, and recorded an impairment charge of   $713 as acomponent of selling, general and administrative expenses in our consolidated statements of operations. Therewere no other significant asset impairments and no changes in estimated remaining useful lives of our long-livedor amortizable intangible assets in the periods included in the consolidated financial statements.We periodically review our indefinite-lived intangible assets associated with acquired IPR&D forimpairment and assess whether significant events or changes in business circumstances indicate that the carryingvalue of the assets may not be recoverable. We recognize an impairment loss when the carrying amount of anasset exceeds the anticipated future discounted cash flows expected to result from the use of the asset and itseventual disposition. The amount of the impairment loss is the excess of the asset’s carrying value over its fairvalue. We assess IPR&D for impairment annually during our fourth quarter, or more frequently if impairmentindicators exist. During 2017, we determined that certain IPR&D within the Animal Health segment wasimpaired, based on changes to future product sales assumptions, and recorded an impairment charge of   $1,579as a component of selling, general and administrative expenses in our consolidated statements of operations.There were no other impairment charges related to indefinite-lived intangible assets in the periods included inthe consolidated financial statements.Goodwill represents the excess of the purchase price over the fair value of the identifiable net assetsacquired in a business combination. We assess goodwill for impairment annually during our fourth quarter, ormore frequently if impairment indicators exist. Impairment exists when the carrying amount of goodwill exceedsits implied fair value. We may elect to assess our goodwill for impairment using a qualitative or a quantitativeapproach, to determine whether it is more likely than not that the fair value of goodwill is greater than itscarrying value. For 2018, we tested goodwill using a qualitative approach and determined goodwill was notimpaired. We have not recorded any goodwill impairment charges in the periods included in the consolidatedfinancial statements.Foreign Currency TranslationWe generally use local currency as the functional currency to measure the financial position andresults of operations of each of our international subsidiaries. We translate assets and liabilities of theseoperations at the exchange rates in effect at the balance sheet date. We translate income statement accounts atthe average rates of exchange prevailing during the period. Translation adjustments that arise from the use ofdiffering exchange rates from period to period are included as a component of accumulated other comprehensiveincome (loss) in stockholders’ equity.Certain of our Israeli operations have designated the U.S. dollar as their functional currency. Gains andlosses arising from remeasurement of local currency accounts into U.S. dollars are included in determining netincome.Comprehensive IncomeComprehensive income consists of net income and the changes in: (i) the fair value of derivativeinstruments that qualify for hedge accounting; (ii) foreign currency translation adjustments; (iii) unrecognizednet pension gains (losses); and (iv) the related (provision) benefit for income taxes.Derivative Financial InstrumentsWe record all derivative financial instruments on the consolidated balance sheets at fair value.Changes in the fair value of derivatives are recorded in results of operations or other comprehensive income90TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (loss), depending on whether a derivative is designated and effective as part of a hedge transaction and, if so, thetype of hedge transaction. Gains and losses on derivative instruments designated and effective as part of a hedgetransaction are included in the results of operations in the periods in which operations are affected by theunderlying hedged item.From time to time, we use certain derivative instruments to mitigate the risk associated with certaineconomic factors, such as exchange rates and interest rates, which may potentially affect our future cash flows.As of June 30, 2018, we used (i) foreign currency option contracts to mitigate certain exposures related tochanges in foreign currency exchange rates on forecasted inventory purchases, and (ii) an interest rate swap on$150 million of notional principal to manage future cash flow exposure resulting from variable interest rates onthat amount of debt. To qualify a derivative as a hedge, we document the nature and relationships betweenhedging instruments and hedged items, the prospective effectiveness of the hedging instrument as well as theultimate effectiveness, the risk-management objectives, the strategies for undertaking the various hedgetransactions and the methods of assessing hedge effectiveness. We do not engage in trading or other speculativeuses of financial instruments.Environmental LiabilitiesExpenditures for ongoing compliance with environmental regulations are expensed or capitalized asappropriate. We capitalize expenditures made to extend the useful life or productive capacity of an asset,including expenditures that prevent future environmental contamination. Other expenditures are expensed asincurred and are recorded in selling, general and administrative expenses in the consolidated statements ofoperations. We record the expense and related liability in the period an environmental assessment indicatesremedial efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based uponcurrently available facts, existing technology and presently enacted laws and regulations taking intoconsideration the likely effects of inflation and other societal and economic factors. All available evidence isconsidered, including prior experience in remediation of contaminated sites, other companies’ experiences anddata released by the U.S. Environmental Protection Agency and other organizations. The estimated liabilities arenot discounted. We record anticipated recoveries under existing insurance contracts if probable.Income TaxesThe provision for income taxes includes U.S. federal, state, and foreign income taxes and foreignwithholding taxes. Our annual effective income tax rate is determined based on our income, statutory tax ratesand tax planning opportunities available in the various jurisdictions in which we operate and the tax effects ofitems treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items beincluded in the tax return at different times than the items are reflected in the financial statements. Some of thesedifferences are permanent, such as expenses that are not deductible in our tax return, and some differences aretemporary, reversing over time, such as depreciation expense. These temporary differences give rise to deferredtax assets and liabilities. Deferred tax assets generally represent the tax effect of items that can be used as a taxdeduction or credit in future years for which we have already recorded the tax benefit in our income statement.Deferred tax liabilities generally represent the tax effect of items recorded as tax expense in our incomestatement for which payment has been deferred, the tax effect of expenditures for which a deduction has alreadybeen taken in our tax return but has not yet been recognized in our income statement, and the tax effect of assetsrecorded at fair value in business combinations for which there was no corresponding tax basis adjustment.Significant judgment is required in determining our income tax provision and in evaluating our taxpositions. The recognition and measurement of a tax position is based on management’s best judgment giventhe facts, circumstances and information available at the reporting date. Inherent in determining our annualeffective income tax rate are judgments regarding business plans, planning opportunities and expectations aboutfuture outcomes. Realization of certain deferred tax assets, primarily net operating loss carryforwards, isdependent upon generating sufficient future taxable income in the appropriate jurisdiction91TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) prior to the expiration of the carryforward periods. We establish valuation allowances for deferred tax assetswhen the amount of expected future taxable income is not likely to support the use of the deduction or credit,and release these allowances when it is more likely than not that these deductions or credits will be used.We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certainof these jurisdictions, we may take tax positions that management believes are supportable, but are potentiallysubject to successful challenge by the applicable taxing authority. We evaluate our tax positions and establishliabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We reviewthese tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjustthem accordingly.Because there are a number of estimates and assumptions inherent in calculating the variouscomponents of our income tax provision, future events such as changes in tax legislation, the geographic mix ofearnings, completion of tax audits or earnings repatriation plans could have an effect on those estimates and oureffective income tax rate.AdvertisingAdvertising and marketing costs are expensed as incurred and are reflected in selling, general andadministrative expenses.Research and Development ExpendituresResearch and development expenditures are expensed as incurred and are recorded in selling, generaland administrative expenses in the consolidated statements of operations. Most of our manufacturing facilitieshave chemists and technicians on staff involved in product development, quality assurance, quality control andproviding technical services to customers. Research, development and technical service efforts are conducted atvarious facilities. Our animal health research and development activities relate to: fermentation developmentand microbiological strain improvement; vaccine development; chemical synthesis and formulationdevelopment; nutritional specialties development; and ethanol-related products.Stock-Based CompensationWe recognize expense for stock-based compensation to employees, including grants of stock optionsand restricted stock units, over the requisite service period based on the grant date fair value of the awards. Wedetermine the fair value of stock options and restricted stock units using the Black-Scholes option-pricingmodel and the Monte Carlo simulation model, respectively. Each model uses historical and current market datato estimate the fair value. The models incorporate various assumptions such as the risk-free interest rate,expected volatility, expected dividend yield and expected life of the awards.Net Income per Share and Weighted Average SharesBasic net income per share is calculated by dividing net income by the weighted average number ofcommon shares outstanding during the reporting period.Diluted net income per share is calculated by dividing net income by the weighted average number ofcommon shares outstanding during the reporting period after giving effect to potential dilutive common sharesresulting from the assumed exercise of stock options and vesting of restricted stock units. All common shareequivalents were included in the calculation of diluted net income per share in the periods included in theconsolidated financial statements.92TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) For the Year Ended June 30201820172016​Net income$64,883$64,615$82,728Weighted average number of shares–basic40,18139,52439,254Dilutive effect of stock options and restrictedstock units204518708Weighted average number of shares–diluted40,38540,04239,962Net income per sharebasic$1.61$1.63$2.11diluted$1.61$1.61$2.07New Accounting StandardsFinancial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-2,Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects fromAccumulated Other Comprehensive Income allows reclassification from accumulated other comprehensiveincome to retained earnings of stranded tax effects related to adjustments resulting from the United States TaxCuts and Jobs Act. This ASU is effective for annual reporting periods beginning after December 15, 2018. We donot expect adoption of this guidance to have a material effect on our consolidated financial statements.ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting forHedging Activities simplifies the application of hedge accounting guidance and improves the financialreporting of hedging relationships to better portray the economic results of an entity’s risk managementactivities in its financial statements. We elected early adoption of this guidance and applied the qualitativemethod, during the three months ended September 30, 2017. Adoption of this guidance did not have a materialeffect on our consolidated financial statements. For additional details, see “—Derivatives.”ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts andCash Payments, provides specific guidance for the classification of certain transactions within the statement ofcash flows. The issues addressed by this guidance include, but are not limited to, debt prepayments or debtextinguishment costs, contingent consideration payments made after a business combination and proceeds fromthe settlement of insurance claims. This ASU is effective for annual reporting periods beginning afterDecember 15, 2017. We do not expect adoption of this guidance to have a material effect on our consolidatedfinancial statements.ASU 2016-02, Leases (Topic 842), supersedes the current lease accounting guidance, requires an entityto recognize assets and liabilities for both financing and operating leases on the balance sheet and requiresadditional qualitative and quantitative disclosures regarding leasing arrangements. This ASU and itsamendments are effective for annual reporting periods beginning after December 15, 2018. We are evaluatingthe effect of adoption of this guidance on our consolidated financial statements.ASU 2015-11, Inventory (Topic 330), requires entities to measure inventory at the lower of cost orNRV. NRV is defined as “the estimated selling prices in the ordinary course of business, less reasonablypredictable costs of completion, disposal, and transportation.” We adopted this guidance during thethree months ended September 30, 2017. Adoption of this guidance did not have a material effect on ourconsolidated financial statements.ASU 2014-09, Revenue from Contracts with Customers (Topic 606), establishes principles for therecognition of revenue from contracts with customers. The underlying principle is to identify the performanceobligations of a contract, allocate the revenue to each performance obligation and then to recognize revenuewhen the company satisfies a specific performance obligation of the contract. We will adopt ASU 2014-09 andits amendments effective July 1, 2018, using the modified retrospective method. The cumulative effect ofinitially applying the standard will be recognized as an adjustment to opening retained earnings. We have notidentified any matters that would have a material effect on the timing or amount of revenue recognized for ourtypical sales transactions. The adoption of this standard is not expected to have a material effect on ourconsolidated financial statements.933.Statements of Operations—Additional Information4.Balance Sheets—Additional InformationTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) For the Years Ended June 30​​201820172016​Interest expense, netTerm loan$8,321$11,482$11,631Revolving credit facility2,7772,8972,257Amortization of debt issuance costs and debtdiscount8831,015989Acquisition-related accrued interest1,0851,3731,476Other537105495Interest expense13,60316,87216,848Interest (income)(1,693(1,966(256$11,910$14,906$16,592Depreciation and amortizationDepreciation of property, plant and equipment$21,044$19,916$17,659Amortization of intangible assets5,8515,9505,559Amortization of other assets48135234$26,943$26,001$23,452Depreciation of property, plant and equipment includes amortization of capitalized software costs of $1,519, $2,199 and $2,915 during 2018, 2017 and 2016, respectively.Amortization of intangible assets is expected to be $5,928; $5,800; $5,287; $5,188; $5,187 and$22,788 for 2019, 2020, 2021, 2022, 2023 and thereafter, respectively.For the Years Ended June 30201820172016​Research and development expenditures$  9,998$ 9,442$ 11,029As of June 3020182017​Accounts receivable, netTrade accounts receivable$141,999$132,275Allowance for doubtful accounts(6,257(6,428$135,742$125,847As of June 30201820172016​Allowance for doubtful accountsBalance at beginning of period$6,428$4,953$3,378Provision for bad debts1661,4121,774Effect of changes in exchange rates(215159(132Bad debt write-offs (recovery)(122(96(67Balance at end of period$  6,257$ 6,428$  4,95394))))))))))TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 30June 30, 2018June 30,2017​InventoriesRaw materials$62,373$54,861Work-in-process14,73112,402Finished goods101,06693,970$178,170$161,233As of June 3020182017​Property, plant and equipment, netLand$10,140$9,584Buildings and improvements68,76965,958Machinery and equipment227,092212,589306,001288,131Accumulated depreciation(175,893(160,780$130,108$127,351Certain facilities in Israel are on leased land. The leases expire in 2023, 2035 and 2062.Property, plant and equipment, net includes internal-use software costs, net of accumulateddepreciation, of $2,700 and $3,558 at June 30, 2018 and 2017, respectively.Machinery and equipment includes construction-in-progress of $7,783 and $2,690 at June 30, 2018and 2017, respectively.As of June 30Weighted-AverageUseful Life(Years)20182017​Intangibles, netCostTechnology13$69,475$67,907Product registrations, marketing and distributionrights917,90217,914Customer relationships1312,21110,616Trade names, trademarks and other52,7402,740In-process research and development1,8001,800104,128100,977Accumulated amortizationTechnology(23,937(18,776Product registrations, marketing and distributionrights(17,902(17,914Customer relationships(7,614(6,995Trade names, trademarks and other(2,697(2,690(52,150(46,375$51,978$54,60295))))))))))))TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 30June 30, 2018June 30,2017​Goodwill roll-forwardBalance at beginning of period$23,982$21,121Purchase price allocation adjustment—2,861Acquisition5,642—Translation(2,276—Balance at end of period$27,348$23,982In September 2017, we acquired a business for $15,000. The business develops, manufactures andmarkets animal health products. We accounted for the acquisition as a business combination in accordance withASC 805, Business Combinations. Pro forma information giving effect to the acquisition has not been providedbecause the results are not material to the consolidated financial statements. Net assets acquired includedaccounts receivable, inventories, property, plant and equipment, intangible assets, goodwill, accounts payable,accrued expenses and other liabilities. Goodwill is not deductible for income tax purposes. The business isincluded in the Animal Health segment.In January 2016, we purchased the assets of MVP Laboratories, Inc. (“MVP”). MVP was a developer,manufacturer and marketer of livestock vaccines, adjuvants and other products. We acquired all of the assets andassumed certain liabilities used in MVP’s business, including working capital, intellectual property,manufacturing equipment, real property and facilities. The purchase price of approximately $46,576 was paid incash primarily at closing. The acquisition was accounted for as a business combination in accordance with ASC805, Business Combinations and is included in the Animal Health segment.As of June 3020182017​Other assetsAcquisition-related note receivable$—$5,000Equity method investments3,9444,235Insurance investments5,2355,097Deferred financing fees2,0422,552Deferred income taxes15,42423,269Deposits6,6927,074Indemnification asset3,000—Fair value of derivative5,078—Other5,3696,570$46,784$53,797We evaluate our investments in equity method investees for impairment if circumstances indicate thatthe fair value of the investment may be impaired. The assets underlying a $3,432 equity investment are currentlyidled; we have concluded the investment is not currently impaired, based on expected future operating cashflows and/or disposal value.96)TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 30June 30,2018June 30,2017​Accrued expenses and other current liabilitiesEmployee related$27,333$26,553Commissions and rebates7,3416,443Insurance-related1,1681,515Professional fees4,3503,823Income and other taxes3,6103,035Acquisition-related consideration12,845—Other14,49711,283$71,144$52,652In July 2018, we accelerated the closing date and completed the purchase of intellectual property andcertain other assets comprising the MJ Biologics, Inc. (“MJB”) business relating to animal vaccines. TheCompany and MJB had originally agreed in January 2015 to the purchase, with a contemplated closing date inJanuary 2021. The final amount due, net of previously paid amounts, was $12,775 and is included in accruedexpenses and other current liabilities at June 30, 2018.As of June 3020182017​Other liabilitiesU.S. pension plan$2,910$6,150International retirement plans4,6445,257Supplemental retirement benefits, deferred compensation andother10,7929,783Long term and deferred income taxes9,7298,946Acquisition-related consideration45611,751Other long term liabilities15,1717,666$43,702$49,553As of June 3020182017​Accumulated other comprehensive income (loss)Derivative instruments$4,986$2,686Foreign currency translation adjustment(67,098(43,556Unrecognized net pension gains (losses)(18,213(18,059(Provision) benefit for income taxes on derivative instruments(1,241(1,553(Provision) benefit for incomes taxes on long-termintercompany investments8,1668,166(Provision) benefit for income taxes on pension gains (losses)(3,083(3,121$(76,483$(55,43797))))))))))5.DebtTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Term Loans and Revolving Credit FacilitiesIn June 2017, we entered into a new credit agreement (the “Credit Agreement”). Under the CreditAgreement, lenders extended credit to us in the form of a Term A loan, with an aggregate principal amount of  $250,000 (the “Term A Loan”) and a revolving credit facility, with an aggregate principal amount of $250,000(the “Revolver,” and together with the Term A Loan, the “Credit Facilities”). We used the proceeds from theCredit Facilities to repay all debt outstanding under the previous credit facilities as of the closing date and topay fees and expenses of the transaction. We recorded a $2,598 loss on extinguishment of debt for certainunamortized debt issuance costs and debt discount related to the retired debt.Borrowings under the Credit Facilities bear interest at rates based on the ratio of the Company and itssubsidiaries’ net consolidated first lien indebtedness to the Company and its subsidiaries’ consolidated EBITDA(the “First Lien Net Leverage Ratio”). The interest rate per annum applicable to the loans under the CreditFacilities is based on a fluctuating rate of interest equal to the sum of an applicable rate and, at the Company’selection from time to time, either (1) a Eurodollar rate determined by reference to LIBOR with a term as selectedby the Company, or (2) a base rate determined by reference to the highest of   (a) the rate as publicly announcedfrom time to time by Bank of America as its “prime rate,” (b) the federal funds effective rate plus 0.50% and(c) the LIBOR daily floating rate plus 1.00%.In the case of LIBOR and Eurodollar rate loans, if the First Lien Net Leverage Ratio is (i) equal to orgreater than 3.00:1.00; (ii) less than 3.00:1.00 but greater than or equal to 2.25:1.00; or, (iii) less than 2.25:1.00,the Credit Facilities have applicable rates equal to 2.00%; 1.75%; and, 1.50%, respectively. In the case of baserate loans, if the First Lien Net Leverage Ratio is (i) equal to or greater than 3.00:1.00; (ii) less than 3.00:1.00 butgreater than or equal to 2.25:1.00; or, (iii) less than 2.25:1.00, the Credit Facilities have applicable rates equal to1.00%; 0.75%; and, 0.50%, respectively.Pursuant to the terms of the Credit Agreement, the Credit Facilities are subject to various covenantsthat, among other things and subject to the permitted exceptions described therein, restrict us and oursubsidiaries with respect to: (i) incurring additional debt; (ii) making certain restricted payments or makingoptional redemptions of other indebtedness; (iii) making investments or acquiring assets; (iv) disposing of assets(other than in the ordinary course of business); (v) creating any liens on our assets; (vi) entering into transactionswith affiliates; (vii) entering into merger or consolidation transactions; and (viii) creating guarantee obligations;provided, however, that we are permitted to pay distributions to stockholders out of available cash subject tocertain annual limitations and so long as no default or event of default under the Credit Facilities shall haveoccurred and be continuing at the time such distribution is declared. Indebtedness under the Credit Facilities iscollateralized by a first priority lien on substantially all assets of Phibro and certain of our domestic subsidiaries.The Credit Agreement contains an acceleration clause should an event of default (as defined in the agreement)occur. The Credit Facilities mature on June 29, 2022.The Credit Agreement requires, among other things, compliance with financial covenants that permit:(i) a maximum First Lien Net Leverage Ratio of 4.00:1.00 and, (ii) a minimum interest coverage ratio of3.00:1.00, each calculated on a trailing four-quarter basis. As of June 30, 2018, we were in compliance with thefinancial covenants.As of June 30, 2018, we had $70,000 in borrowings under the Revolver and had outstanding letters ofcredit of  $4,191, leaving $175,809 available for borrowings and letters of credit under the Revolver. We obtainletters of credit in connection with certain regulatory and insurance obligations, inventory purchases and othercontractual obligations. The terms of these letters of credit are all less than one year.In July 2017, we entered into an interest rate swap agreement on $150 million of notional principalthat effectively converts the floating LIBOR or base rate portion of our interest obligation on that amount ofdebt, to a fixed interest rate of 1.8325% plus the applicable rate. The agreement matures concurrent with theCredit Agreement. We designated the interest rate swap as a highly effective cash flow hedge. For additionaldetails, see “—Derivatives.”986.Common Stock, Preferred Stock and DividendsTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 30, 2018, the interest rates for the Revolver and the Term A Loan were 3.59% and 3.43%,respectively. The weighted-average interest rates for the outstanding revolving credit facilities were 3.20% and3.48% for the years ended June 30, 2018 and 2017, respectively. The weighted-average interest rates for the termloans were 3.33% and 4.06% for the years ended June 30, 2018 and 2017, respectively.Foreign Credit FacilitiesOur Israel subsidiaries have aggregate credit facilities available of approximately $13.8 million (the“Israel Credit Facilities”). As of June 30, 2018, we had no outstanding borrowings or other commitmentsoutstanding under the Israel Credit Facilities. Interest rate elections under the Israel Credit Facilities are LIBORplus 2.25% or Prime Rate plus 0.50%. The Israel Credit Facilities mature in March and August 2019.Long-Term DebtAs of June 30June 30,2018June 30,2017​Term A Loan due June 2022$243,750$250,000Capitalized lease obligations118—243,868250,000Unamortized debt issuance costs and debt discount(1,487(1,859242,381248,141Less: current maturities(12,579(6,250$229,802$241,891Aggregate Maturities of Long-Term DebtFor the Years Ended June 302019$12,579202012,539202118,7502022200,000Total$243,868Preferred stock and common stock at June 30, 2018 and 2017 were:​​2018​​2017​​​​​​20182017​As of June 30​​Authorized Shares​​Par value​​Issued and outstanding shares​Preferred stock16,000,00016,000,000$0.0001——Common stock–Class A300,000,000300,000,000$0.000119,992,20419,249,132Common stock–Class B30,000,00030,000,000$0.000120,365,50420,626,836Common StockGeneralExcept as otherwise provided by our amended and restated certificate of incorporation or applicablelaw, the holders of our Class A common stock and Class B common stock shall vote together as a single class.There are no cumulative voting rights.99))))7.Stock Incentive PlanTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Holders of our Class A common stock and Class B common stock are entitled to receive dividendswhen and if declared by our Board of Directors out of funds legally available therefore, subject to any statutoryor contractual restrictions on the payment of dividends and to any restrictions on the payment of dividendsimposed by the terms of any outstanding preferred stock.Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment infull of all amounts required to be paid to creditors and to the holders of preferred stock having liquidationpreferences, if any, the holders of our Class A common stock and Class B common stock will be entitled toreceive our remaining assets available for distribution.Class A Common StockHolders of our Class A common stock are entitled to one vote for each share held of record on allmatters submitted to a vote of stockholders.Holders of our Class A common stock do not have preemptive, subscription or conversion rights. OurClass A common stock is not convertible and there are no redemption or sinking fund provisions applicable toour Class A common stock. Unless our Board of Directors determines otherwise, we will issue all of our capitalstock in uncertificated form.Class B Common StockHolders of our Class B common stock are entitled to 10 votes for each share held of record on allmatters submitted to a vote of stockholders. BFI holds all of our outstanding Class B common stock.Holders of our Class B common stock do not have preemptive or subscription rights. There are noredemption or sinking fund provisions applicable to our Class B common stock.Each share of Class B common stock is convertible at any time at the option of the holder into oneshare of Class A common stock. In addition, each share of Class B common stock will convert automatically intoone share of Class A common stock upon any transfer, whether or not for value, except for certain transfers byand among BFI, its affiliates and certain Bendheim family members, as described in the amended and restatedcertificate of incorporation. Once transferred and converted into Class A common stock, the Class B commonstock will not be reissued. In addition, all shares of Class B common stock will automatically convert to sharesof Class A common stock when the outstanding shares of Class B common stock and Class A common stockheld by BFI, its affiliates and certain Bendheim family members, together, is less than 15% of the totaloutstanding shares of Class A common stock and Class B common stock, taken as a single class.Holders of our Class B common stock have the right to require us to register the sales of their sharesunder the Securities Act, under the terms of an agreement between us and the holders.Preferred StockWe do not have any preferred stock outstanding. Our Board of Directors has the authority to issueshares of preferred stock from time to time on terms it may determine, to divide shares of preferred stock into oneor more series and to fix the designations, preferences, privileges, and restrictions of preferred stock, includingdividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fundterms, and the number of shares constituting any series or the designation of any series to the fullest extentpermitted by the General Corporation Law of the State of Delaware.DividendsWe declared and paid quarterly cash dividends totaling $16,073 for the year ended June 30, 2018, toholders of our Class A common stock and Class B common stock.In March 2008, our Board of Directors and stockholders adopted the 2008 Incentive Plan (the“Incentive Plan”). The Incentive Plan provides directors, officers, employees and consultants to the100TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Company with opportunities to purchase common stock pursuant to options that may be granted, and receivegrants of restricted stock and other stock-based awards granted, from time to time by the Board of Directors or acommittee approved by the Board. The Incentive Plan provides for grants of stock options, stock awards andother incentives for up to 6,630,000 shares. There were 4,881,620 Class A shares available for grant pursuant tothe Incentive Plan as of June 30, 2018.Restricted Stock UnitsIn May 2018, PAHC’s Compensation Committee approved the grant of 250,000 restricted stock units(“RSUs”) to an officer of the Company, pursuant to the Incentive Plan. Each RSU represents the right to receive ashare of our common stock upon vesting. A portion of the RSUs are subject to performance-based vesting (the“Performance-Based RSUs”). The Performance-Based RSUs will vest in increments from 15% to 100% based onthe 90-day average of the Company’s common stock price from $30 to $80 ending on December 31, 2020. Aportion of the RSUs are subject to time-based vesting (the “Time-Based RSUs”). The RSUs will vest onDecember 31, 2020, provided the individual remains employed with the Company or is terminated under aqualifying termination.We used a Monte Carlo simulation model to determine the grant date fair value of the Performance-Based RSUs. Assumptions used by the model were based on information as of the grant date and included: risk-free rate of return of 2.59%; expected volatility of 31.94%; and, an expected dividend yield of 0.95%. The risk-free rate of return is based on U.S. treasury yields for bonds with similar maturities. Expected volatility is basedon the historical volatility of the Company’s common stock. The expected dividend yield considers estimatedannual dividends and the closing share price of the underlying common stock.The fair value of the Time-Based RSUs is equal to the closing market price of the underlying commonstock on the grant date, less the present value of expected dividends over the vesting period.The following table summarizes the activity related to RSUs during 2018:For the Years Ended June 30RSUsGrant DateFair Valueper RSU ShareGrant DateFair Value​Performance-Based RSUs Granted200,000$19.63$3,926Time-Based RSUs Granted50,000$41.10$2,055Outstanding, June 30, 2018250,000$23.92$5,981We will recognize the total grant date fair value of the RSUs as stock-based compensation expense ona straight-line basis over the vesting period. Stock-based compensation expense related to RSUs was $334 in2018. We expect stock-based compensation expense related to RSUs will be $2,259; $2,259; and $1,129 in2019, 2020 and 2021, respectively.Stock OptionsThere was no stock-based compensation expense related to employee stock options in the periodsincluded in the consolidated financial statements. The following table details stock option activity for 2018:OptionSharesWeighted-AverageExercise Price Per Share​Outstanding, June 30, 2017577,640$11.83Exercised(481,740$11.83Outstanding, June 30, 201895,900$11.83Exercisable, June 30, 201895,900$11.83101)8.Related Party Transactions9.Employee Benefit PlansTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) At June 30, 2018, exercisable options had a weighted-average remaining contractual life of 0.7 yearsand had a $3,282 aggregate intrinsic value, based on the closing market price at that date.Certain relatives of Jack C. Bendheim, our Chief Executive Officer, provided services to us asemployees or consultants and received aggregate compensation and benefits of approximately $1,857, $1,735and $1,910 during 2018, 2017 and 2016. Mr. Bendheim has sole authority to vote shares of our stock owned byBFI Co., LLC, an investment vehicle of the Bendheim family.Domestic Pension PlanWe maintain a noncontributory defined benefit pension plan for all domestic nonunion employeesemployed on or prior to December 31, 2013, who meet certain requirements of age, length of service and hoursworked per year. Plan benefits are based upon years of service and average compensation, as defined. Themeasurement dates for the plan were as of June 30, 2018, 2017 and 2016.We amended the plan to eliminate credit for future service and compensation increases, effectiveSeptember 2016. The amendment resulted in a pension curtailment gain of $6,822 recorded in othercomprehensive income. Separately, we completed a partial settlement of the plan in November 2016 andrecognized $1,702 of expense in the consolidated statements of operations.Changes in the projected benefit obligation, plan assets and funded status of the plan were:For the Years Ended June 3020182017​Change in projected benefit obligationProjected benefit obligation at beginning of year$63,260$75,664Service cost—845Interest cost2,1572,045Benefits paid(2,196(1,521Actuarial (gain) loss(1,664(1,448Liability (gain) due to curtailment—(6,822Settlement payments—(5,503Projected benefit obligation at end of year$61,557$63,260For the Years Ended June 3020182017​Change in plan assetsFair value of plan assets at beginning of year$57,110$54,293Actual return on plan assets9655,647Employer contributions2,7684,194Benefits paid(2,195(1,521Settlement payments—(5,503Fair value of plan assets at end of year$58,648$57,110Funded status at end of year$(2,909$(6,150The funded status is included in other liabilities in the consolidated balance sheets.The Company expects to contribute approximately $1,035 to the plan during 2019. We seek tomaintain an asset balance that meets the long-term funding requirements identified by actuarial projectionswhile also satisfying ERISA fiduciary responsibilities.102)))))))))))TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Accumulated other comprehensive (income) loss related to the plan was:For the Years Ended June 3020182017​Accumulated Other Comprehensive (Income) Loss Related toPension PlanBalance at beginning of period$18,059$30,977Amortization of net actuarial loss(453(9,213Current period net actuarial loss (gain)607(3,705Net change154(12,918Balance at end of period$18,213$18,059Amortization of unrecognized net actuarial loss will be approximately $432 during 2019.Net pension expense was:For the Years Ended June 30​​2018​​2017​2016​Service cost–benefits earned during the year$—$845$2,939Interest cost on benefit obligation2,1572,0452,893Expected return on plan assets(3,236(3,389(3,177Amortization of net actuarial loss and prior service costs4536721,784Curtailment expense—16—Settlement expense—1,702—Net periodic pension expense (benefit)$(626$1,891$4,439Significant actuarial assumptions for the plan were:For the Years Ended June 30201820172016​Discount rate for service costN/A4.04.6Discount rate for interest cost3.93.24.6Expected rate of return on plan assets5.66.16.1Discount rate for year-end benefit obligation4.23.93.9The plan used the Aon Hewitt AA Bond Universe as a benchmark for its discount rate as of June 30,2018, 2017 and 2016. The discount rate is determined by matching the plan’s timing and amount of expectedcash outflows to a bond yield curve constructed from a population of AA-rated corporate bond issues that aregenerally non-callable and have at least $250 million par value outstanding. From this, the discount rate thatresults in the same present value is calculated.Estimated future benefit payments are:For the Years Ended June 302019$2,35920202,62720212,86920223,07820233,2622024–202817,984The plan’s target asset allocations for 2019 and the weighted-average asset allocation of plan assets asof June 30, 2018 and 2017 are:103))))))))%%%%%%%%%%%(1)The global asset allocation/risk parity category consists of a variety of asset classes including, but notlimited to, global bonds, global equities, real estate and commodities.TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Target AllocationPercentage of Plan Assets​For the years ended June 30201920182017​Debt securities55%–75%6333Equity securities15%–35%2638Global asset allocation/risk parity0%–20%1017Other0%–10%112The expected long-term rate of return for the plan’s total assets is generally based on the plan’s assetmix. In determining the rate to use, we consider the expected long-term real returns on asset categories,expectations for inflation, estimates of the effect of active management and actual historical returns.The investment policy and strategy is to earn a long-term investment return sufficient to meet theobligations of the plan, while assuming a moderate amount of risk in order to maximize investment return. Inorder to achieve this goal, assets are invested in a diversified portfolio consisting of equity securities, debtsecurities, and other investments in a manner consistent with ERISA’s fiduciary requirements.The fair values of the plan assets by asset category were:Fair Value Measurements UsingAs of June 30, 2018Level 1Level 2Level 3Total​Cash and cash equivalents$428$—$—$428Common-collective fundsGlobal large cap equities—11,6323,81115,443Fixed income securities—36,671—36,671Global asset allocations/risk parity—2,957—2,957OtherGlobal asset allocations/risk parity——2,8812,881Other——268268$428$51,260$6,960$58,648Fair Value Measurements UsingAs of June 30, 2017Level 1Level 2Level 3Total​Cash and cash equivalents$3,023$—$—$3,023Common-collective fundsGlobal large cap equities—12,3857,13219,517Fixed income securities—16,8501,13617,986Global asset allocations/risk parity—5,822—5,822Mutual fundsGlobal Equities1,972——1,972Fixed income securities1,099——1,099Global asset allocations/risk parity————OtherGlobal asset allocations/risk parity——4,1034,103Other——3,5883,588$6,094$35,057$15,959$57,110104%%%%(1)%%%%•Cash and cash equivalents are valued at $1 per unit;•Common-collective funds are determined based on current market values of the underlying assetsof the fund;•Mutual funds and foreign currency deposits are valued using quoted market prices in activemarkets; and•For Level 3 managed assets, business appraisers use a combination of valuations and appraisalmethodologies, as well as a number of assumptions to create a price that brokers evaluate. ForLevel 3 non-managed assets, pricing is provided by various sources, such as issuer or investmentmanager.10.Income TaxesTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The table below provides a summary of the changes in the fair value of Level 3 assets:Change in Fair Value Level 3 assets20182017​Balance at beginning of period$15,959$20,513Redemptions(9,901(9,353Purchases—2,533Change in fair value9022,266Balance at end of period$6,960$15,959The following outlines the valuation methodologies used to estimate the fair value of plan assets:Other employee benefit plansWe provide a 401(k) retirement savings plan, under which United States employees may make pre-taxand post-tax contributions. The Company contributes: (i) a matching contribution equal to 100% of the first 1%of an employee’s contribution; (ii) a matching contribution equal to 50% of the next 5% of an employee’scontribution; (iii) a non-elective contribution of 3% of an employee’s compensation; and, (iv) an additionaldiscretionary contribution of up to 4% of compensation, depending on the employee’s age and years of service,provided that such contributions comply with ERISA non-discrimination requirements. Employee and Companycontributions are subject to certain ERISA limitations. Employees are fully vested in Company contributionsafter two years of service. Our contribution expense was $4,937, $4,154, and $2,309, in 2018, 2017 and 2016,respectively.Our consolidated balance sheets include other employee-related liabilities of $15,536 and $15,139 asof June 30, 2018 and 2017, respectively, including international retirement plans, supplemental retirementbenefits and long-term incentive arrangements. Expense under these plans was $4,009, $4,304, and $5,239 in2018, 2017 and 2016, respectively.The United States government enacted comprehensive income tax legislation (the “Tax Act”) inDecember 2017. The Tax Act makes broad and complex changes to United States income tax law and includesnumerous elements that affect the Company, including a reduced federal corporate income tax rate from 35% to21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferredforeign earnings and changes to business-related exclusions, deductions and credits. Our provision for incometaxes reflects a statutory 28.1% weighted-average federal income tax rate and other elements of the Tax Act ineffect for our fiscal year ending June 30, 2018. The statutory federal income tax rate will be 21.0% for our fiscalyear beginning July 1, 2018. The Tax Act also has consequences related to our international operations.We have substantially completed our analysis and accounting for the Tax Act and have recorded theeffects thereof. However, the ultimate financial statement effects of the Tax Act could differ from the amounts wehave recognized due to additional information that becomes available, changes in regulations or105))•a $2,289 provision for income taxes and reduction in deferred tax assets for the remeasurement ofdeferred tax assets and liabilities to reflect the reduced income tax rate•a $403 provision for income taxes and increase in current liabilities to reflect the one-timemandatory toll charge on the deemed repatriation of undistributed earnings of foreignsubsidiaries.TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) interpretations, legislative action to address questions around the Tax Act or changes in accounting standardsfor income taxes or related interpretations. As such, the amounts we have recorded are provisional and we couldadjust such amounts in the future if additional new information so requires.Our consolidated financial statements as of June 30, 2018, reflect the effects of the Tax Act, including:Income (loss) before income taxes was:For the Years Ended June 30201820172016​Domestic$19,819$18,015$2,027Foreign68,25162,52874,734Income (loss) before income taxes$88,070$80,543$76,761Components of the provision for income taxes were:For the Years Ended June 30​201820172016​Current provision (benefit):Federal$81$383$(2,889State and local1,744724(474Foreign15,26814,83920,168Total current provision17,09315,94616,805Deferred provision (benefit):Federal2,7464,675(2,985State and local2,156251911Foreign769(833(989Change in valuation allowance–domestic——(19,588Change in valuation allowance–foreign423(4,111(121Total deferred provision6,094(18(22,772Provision (benefit) for income taxes$23,187$15,928$(5,967During 2017, based on continued profitability, we concluded that it was more likely than not that thevalue of certain foreign deferred tax assets would be realized, and it was no longer necessary to maintain arelated valuation allowance. Accordingly, we released the valuation allowance related to these foreign deferredtax assets. We review the realizability of our deferred tax assets when circumstances indicate a review is required.106)))))))))))TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Reconciliations of the federal statutory rate to the Company’s effective tax rate were:For the Years Ended June 30​201820172016​Federal income tax rate28.135.035.0State and local taxes, net of federal benefit1.50.90.2Foreign income tax rates(1.5(6.8(5.5Foreign incentive tax rates(3.3(3.1(4.5Domestic tax on foreign income—2.72.7Changes in uncertain tax positions1.11.6(4.9Permanent items0.5(0.91.5Exercise of employee stock options(4.3(3.8(4.6Mandatory toll charge from Tax Act0.5——Reduction of domestic deferred tax assets2.6——Reduction of foreign deferred tax assets1.3——Recognition of foreign tax credits(0.7——Reclassification from accumulated othercomprehensive income0.6——Release of foreign valuation allowance—(5.1—Release of domestic valuation allowance——(27.8Other(0.1(0.70.1Effective tax rate26.319.8(7.8We consider undistributed earnings of foreign subsidiaries to be indefinitely reinvested in ourinternational operations. The undistributed earnings of foreign subsidiaries of  $227,084 were subject to the U.S.one-time mandatory toll charge and are eligible to be repatriated to the U.S. without additional U.S. tax underthe Tax Act. Should our plans change and we decide to repatriate some or all of the remaining cash held by ourinternational subsidiaries, the amounts repatriated could be subject to applicable non-U.S. income andwithholding taxes in international jurisdictions. Taxes are not provided for foreign currency translationadjustments relating to investments in international subsidiaries that will be held indefinitely.The tax effects of significant temporary differences that comprise deferred tax assets and liabilitieswere:As of June 3020182017​Deferred tax assets:Employee related accruals$4,952$7,146Inventory3,9534,851Environmental remediation1,3412,280Net operating loss carry forwards–domestic1,5774,893Net operating loss carry forwards–foreign3,2434,023Other9,98611,13925,05234,332Valuation allowance(861(43824,19133,894Deferred tax liabilities:Property, plant and equipment and intangible assets(8,957(9,671Other(1,906(2,004(10,863(11,675Net deferred tax asset$13,328$22,219107%%%))))))))))))))))%%)%))))))))•U.S. federal and significant states, through June 30, 2007;•Brazil, through December 31, 2012;TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Deferred taxes are included in the consolidated balance sheets as follows:As of June 3020182017​Other assets$15,424$23,269Other liabilities(2,096(1,050$13,328$22,219The valuation allowances for deferred tax assets were:As of June 30201820172016​Balance at beginning of period$438$4,614$26,622Provision for income taxes423(4,111(19,709Net operating loss utilization—(65(2,299Balance at end of period$861$438$4,614The valuation allowances for deferred tax assets as of June 30, 2018, 2017 and 2016 were solelyrelated to foreign jurisdictions.We have $23,038 of state net operating loss carry forwards that will expire in 2018 through 2037. Inaddition, we have $11,630 of foreign net operating loss carry forwards, most of which are in jurisdictions thathave no expiration.As tax law is complex and often subject to varied interpretations, it is uncertain whether some of ourtax positions will be sustained upon examination. Tax liabilities associated with uncertain tax positionsrepresent unrecognized tax benefits, which arise when the estimated benefit recorded in our financial statementsdiffers from the amounts taken or expected to be taken in a tax return because of the uncertainties describedabove. Substantially all of these unrecognized tax benefits, if recognized, would benefit our effective income taxrate. The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:As of June 30​​2018​​2017​​2016​Unrecognized tax benefits–beginning of period$6,553$4,946$8,078Tax position changes–current period1,7491,490472Tax position changes–prior periods, net ofsettlements with tax authorities(994—188Lapse of statute of limitations—(391(3,700Translation(308508(92Unrecognized tax benefits–end of period7,0006,5534,946Interest and penalties–end of period633449308Total liabilities related to uncertain tax positions$7,633$7,002$5,254We recognize interest and penalties associated with uncertain tax positions as a component of theprovision for income taxes. We recognized interest and penalties expense (income) of $203, $116 and $(980) for2018, 2017 and 2016, respectively.During 2019, we potentially will reverse $1,472 of uncertain tax positions as a result of the lapse of thestatute of limitations, with a corresponding benefit to the provision for income taxes.Income tax returns for the following periods are no longer subject to examination by the relevant taxauthorities:108)))))))))))•Israel, through June 30, 2013 for certain subsidiaries and through June 30, 2015 for certainsubsidiaries.11.Commitments and ContingenciesTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) LeasesWe lease land and office, warehouse and manufacturing equipment and facilities for minimum annualrentals, plus certain cost escalations. We record rent expense on a straight-line basis over the term of the lease. AtJune 30, 2018, we had the following future minimum lease commitments:For the Years Ended June 30CapitalleasesNon-cancellableoperating leases​2019$79$5,2612020394,5252021—3,9022022—3,0882023—1,664Thereafter—2,032Total minimum lease payments$118$20,472Rent expense under operating leases was $8,453, $7,715, and $8,131 for 2018, 2017 and 2016,respectively.EnvironmentalOur operations and properties are subject to extensive federal, state, local and foreign laws andregulations, including those governing pollution; protection of the environment; the use, management, andrelease of hazardous materials, substances and wastes; air emissions; greenhouse gas emissions; water use,supply and discharges; the investigation and remediation of contamination; the manufacture, distribution, andsale of regulated materials, including pesticides; the importing, exporting and transportation of products; andthe health and safety of our employees (collectively, “Environmental Laws”). As such, the nature of our currentand former operations exposes us to the risk of claims with respect to such matters, including fines, penalties,and remediation obligations that may be imposed by regulatory authorities. Under certain circumstances, wemight be required to curtail operations until a particular problem is remedied. Known costs and expenses underEnvironmental Laws incidental to ongoing operations, including the cost of litigation proceedings relating toenvironmental matters, are included within operating results. Potential costs and expenses may also be incurredin connection with the repair or upgrade of facilities to meet existing or new requirements under EnvironmentalLaws or to investigate or remediate potential or actual contamination and from time to time we establish reservesfor such contemplated investigation and remediation costs. In many instances, the ultimate costs underEnvironmental Laws and the time period during which such costs are likely to be incurred are difficult topredict.While we believe that our operations are currently in material compliance with Environmental Laws,we have, from time to time, received notices of violation from governmental authorities, and have been involvedin civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged incontinuing investigation, remediation and/or monitoring efforts to address contamination associated withhistoric operations of the sites. We devote considerable resources to complying with Environmental Laws andmanaging environmental liabilities. We have developed programs to identify requirements under, and maintaincompliance with Environmental Laws; however, we cannot predict with certainty the effect of increased andmore stringent regulation on our operations, future capital expenditure requirements, or the cost of compliance.The nature of our current and former operations exposes us to the risk of claims with respect toenvironmental matters and we cannot assure we will not incur material costs and liabilities in connection withsuch claims. Based upon our experience to date, we believe that the future cost of compliance with109TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) existing Environmental Laws, and liabilities for known environmental claims pursuant to such EnvironmentalLaws, will not have a material adverse effect on our financial position, results of operations, cash flows orliquidity.The United States Environmental Protection Agency (the “EPA”) is investigating and planning for theremediation of offsite contaminated groundwater that has migrated from the Omega Chemical CorporationSuperfund Site (“Omega Chemical Site”), which is upgradient of Phibro-Tech’s Santa Fe Springs, Californiafacility. The EPA has named Phibro-Tech and certain other subsidiaries of PAHC as potentially responsibleparties (“PRPs”) due to groundwater contamination from Phibro-Tech’s Santa Fe Springs facility that hasallegedly commingled with contaminated groundwater from the Omega Chemical Site. In September 2012, theEPA notified approximately 140 PRPs, including Phibro-Tech and the other subsidiaries, that they have beenidentified as potentially responsible for remedial action for the groundwater plume affected by the OmegaChemical Site and for EPA oversight and response costs. Phibro-Tech contends that any groundwatercontamination at its site is localized and due to historical operations that pre-date Phibro-Tech and/orcontaminated groundwater that has migrated from upgradient properties. In addition, a successor to a prior ownerof the Phibro-Tech site has asserted that PAHC and Phibro-Tech are obligated to provide indemnification for itspotential liability and defense costs relating to the groundwater plume affected by the Omega Chemical Site.Phibro-Tech has vigorously contested this position and has asserted that the successor to the prior owner isrequired to indemnify Phibro-Tech for its potential liability and defense costs. Furthermore, a group ofcompanies that sent chemicals to the Omega Chemical Site for processing and recycling has filed a complaintunder CERCLA and RCRA in the United States District Court for the Central District of California against manyof the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (includingPhibro-Tech) for contribution toward past and future costs associated with the investigation and remediation ofthe groundwater plume affected by the Omega Chemical Site. Due to the ongoing nature of the EPA’sinvestigation, the preliminary stage of the ongoing litigation and Phibro-Tech’s dispute with the prior owner’ssuccessor, at this time we cannot predict with any degree of certainty what, if any, liability Phibro-Tech or theother subsidiaries may ultimately have for investigation, remediation and the EPA oversight and response costsassociated with the affected groundwater plume.Based upon information available, to the extent such costs can be estimated with reasonable certainty,we estimated the cost for further investigation and remediation of identified soil and groundwater problems atoperating sites, closed sites and third-party sites, and closure costs for closed sites, to be approximately $6,833and $7,211 at June 30, 2018 and 2017, respectively, which is included in current and long-term liabilities on theconsolidated balance sheets. However, future events, such as new information, changes in existingEnvironmental Laws or their interpretation, and more vigorous enforcement policies of regulatory agencies, maygive rise to additional expenditures or liabilities that could be material. For all purposes of the discussion underthis caption and elsewhere in this report, it should be noted that we take and have taken the position that neitherPAHC nor any of our subsidiaries is liable for environmental or other claims made against one or more of ourother subsidiaries or for which any of such other subsidiaries may ultimately be responsible.Claims and LitigationPAHC and its subsidiaries are party to a number of claims and lawsuits arising out of the normal courseof business including product liabilities, payment disputes and governmental regulation. Certain of theseactions seek damages in various amounts. In many cases, such claims are covered by insurance. We believe thatnone of the claims or pending lawsuits, either individually or in the aggregate, will have a material adverseeffect on our financial position, results of operations, cash flows or liquidity.Employment and Severance AgreementsWe have entered into employment agreements with certain executive management and otheremployees that specify severance benefits of up to 15 months of the employee’s compensation.11012.DerivativesTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) We monitor our exposure to foreign currency exchange rates and interest rates and from time-to-timeuse derivatives to manage certain of these risks. We designate derivatives as a hedge of a forecasted transactionor of the variability of the cash flows to be received or paid in the future related to a recognized asset or liability(cash flow hedge). All changes in the fair value of a highly effective cash flow hedge are recorded inaccumulated other comprehensive income (loss).We routinely assess whether the derivatives used to hedge transactions are effective. If we determine aderivative ceases to be an effective hedge, we discontinue hedge accounting in the period of the assessment forthat derivative, and immediately recognize any unrealized gains or losses related to the fair value of thatderivative in the consolidated statements of operations.We record derivatives at fair value in the consolidated balance sheets. For additional details regardingfair value, see “—Fair Value Measurements.”The following table details the Company’s outstanding derivatives that are designated and effective ascash flow hedges as of June 30, 2018:InstrumentHedgeNotional Amount at June 30, 2018Consolidated Balance SheetFair value as of​June 30, 2018June 30, 2017​OptionsBrazilian Real callsR$ 65,000Other current assets$71$2,686SwapInterest rate swap$150,000Other assets$5,078$—The following tables show the effects of derivatives on the consolidated statements of operations andother comprehensive income for the years ended June 30, 2018 and 2017.For the Year Ended June 30Gain (Loss) recorded in OCIGain (Loss) recognized in consolidated statements of operationsConsolidated Statement of Operations Line Item Total​InstrumentHedge20182017ConsolidatedStatement ofOperations2018201720182017​OptionsBrazilian Real calls$(2,778$31Cost of goods sold$3,136$(1,483$553,103$516,038SwapInterest rate swap$5,078$ —Interest expense, net$—$—$11,910$14,906The foreign currency derivatives generally have a maturity of less than a year; the fair values of thetotal foreign currency derivatives outstanding as of June 30, 2018 were $71, which were recorded as part of othercurrent assets on the balance sheet. The foreign currency derivatives are designated to hedge cash flows relatedto the purchase of inventory. We recognize gains (losses) related to these foreign currency derivatives as acomponent of cost of goods sold at the time the hedged item is sold. Realized gains of $1,084 and $966 relatedto matured contracts were recorded as a component of inventory as of June 30, 2018 and June 30, 2017,respectively. We recognized gains of  $3,136 as an offset to costs of goods sold during the year ended June 30,2018. We anticipate the net gains included in inventory as of June 30, 2018, will be recognized as an offset tocost of goods sold within the next three months.In July 2017, we entered into an interest rate swap agreement on $150,000 of notional principal thateffectively converts the floating LIBOR or base rate portion of our interest obligation on that amount of debt, toa fixed interest rate of 1.8325% plus the applicable rate. The agreement matures concurrent with the CreditAgreement. The forecasted transactions are probable of occurring, and the interest rate swap has been designatedas a highly effective cash flow hedge. The fair value of the interest rate swap agreement is recorded as an asset orliability with a corresponding amount included in accumulated other comprehensive income (loss).111))13.Fair Value MeasurementsLevel 1—Quoted prices in active markets for identical assets or liabilities.Level 2—Significant observable inputs, other than quoted prices included within Level 1, that areobservable for the asset or liability, either directly or indirectly through corroboration withobservable market data.Level 3—Unobservable inputs for which there is little or no market data available, and that aresignificant to the overall fair value measurement, are employed that require the reportingentity to develop its own assumptions.TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Fair value is defined as the exit price that would be received to sell an asset or paid to transfer aliability. Fair value is a market-based measurement that should be determined using assumptions that marketparticipants would use in pricing an asset or liability. Financial assets and liabilities are measured at fair valueusing the three-level valuation hierarchy for disclosure of fair value measurements. The determination of theapplicable level within the hierarchy of a particular asset or liability depends on the inputs used in the valuationas of the measurement date, notably the extent to which the inputs are market-based (observable) or internallyderived (unobservable). Observable inputs are inputs that market participants would use in pricing the asset orliability developed based on market data obtained from independent sources. Unobservable inputs are inputsbased on a company’s own assumptions about market participant assumptions developed based on the bestinformation available in the circumstances. The hierarchy is broken down into three levels based on thereliability of inputs as follows:In assessing the fair value of financial instruments at June 30, 2018 and 2017, we used a variety ofmethods and assumptions that were based on estimates of market conditions and risks existing at the time.Short-term investmentsAs of June 30, 2018, our short-term investments consist of cash deposits held at financial institutions.We consider the carrying amounts of these short-term investments to be representative of their fair value.Current Assets and LiabilitiesWe consider the carrying amounts of current assets and current liabilities to be representative of theirfair value because of the current nature of these items.Letters of CreditWe obtain letters of credit in connection with certain regulatory and insurance obligations, inventorypurchases and other contractual obligations. The carrying values of these letters of credit are considered to berepresentative of their fair values because of the nature of the instruments.DebtWe record debt, including term loans and revolver balances, at book value in our consolidatedfinancial statements. We believe the carrying value of the debt is approximately equal to its fair value, due to thevariable nature of the instruments.Contingent Consideration on AcquisitionsWe determine the fair value of contingent consideration on acquisitions based on contractual terms,our current forecast of performance factors related to the acquired business and an applicable discount rate.DerivativesWe determine the fair value of derivative instruments based upon pricing models using observablemarket inputs for these types of financial instruments, such as spot and forward currency translation rates.11214.Business SegmentsTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 30​​2018​​2017​​​Level 1​​Level 2​​Level 3​​Level 1​​Level 2​Level 3​Short-term investments$50,000$—$—$—$—$—Derivatives asset$—$71$—$—$2,686$—Interest rate swap$—$5,078$—$—$—$—Contingent consideration onacquisitions$—$—$—$—$—$(7,644Fair Value of Level 3 Assets (Liabilities)The table below provides a summary of the changes in the fair value of Level 3 assets (liabilities):20182017​Balance, Beginning$(7,644$(6,745Adjustment to contingent consideration—404Acquisition-related accrued interest—(1,373Payment—70Reclassification7,644—Balance, Ending$—$(7,644The Company completed the purchase of intellectual property and certain other assets comprising theMJB business in July 2018. As a result, the contingent consideration associated with this purchase is no longercontingent and was reclassified out of Level 3 during the year ended June 30, 2018. See “Balance Sheets—Additional Information.”For a detailed discussion on the fair value of our pension plan assets, see “—Employee Benefit Plans.”The Animal Health segment manufactures and markets a broad range of products for food animals,including poultry, swine, cattle, dairy and aquaculture. The business includes net sales of medicated feedadditives and other related products, nutritional specialty products and vaccines. The Mineral Nutrition segmentmanufactures and markets a broad range of trace minerals for food animals. The Performance Products segmentmanufactures and markets a variety of products for use in the personal care, industrial chemical and chemicalcatalyst industries.We evaluate performance and allocate resources based on the Animal Health, Mineral Nutrition andPerformance Products segments. Certain of our costs and assets are not directly attributable to these segmentsand we refer to these items as Corporate. We do not allocate Corporate costs or assets to the segments becausethey are not used to evaluate the segments’ operating results or financial position. Corporate costs includecertain costs related to executive management, business technology, legal, finance, human resources andbusiness development. Corporate assets include cash and cash equivalents, certain debt issue costs, income taxrelated assets and certain other assets.We evaluate performance of our segments based on Adjusted EBITDA. We define Adjusted EBITDA asincome before income taxes plus (a) interest expense, net, (b) depreciation and amortization, (c) (income) lossfrom, and disposal of, discontinued operations, (d) other expense or less other income, as separately reported onour consolidated statements of operations, including foreign currency gains and losses and loss onextinguishment of debt, and (e) certain items that we consider to be unusual, non-operational or non-recurring.The accounting policies of our segments are the same as those described in the summary of significantaccounting policies included herein.113)))))TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) For the Years Ended June 30​201820172016​Net salesAnimal Health$531,727$497,745$486,140Mineral Nutrition234,922218,298216,685Performance Products53,33348,23848,701Total segments$819,982$764,281$751,526Depreciation and amortizationAnimal Health$21,447$20,132$17,149Mineral Nutrition2,3712,3322,467Performance Products1,029939807Total segments$24,847$23,403$20,423Adjusted EBITDAAnimal Health$141,914$130,261$127,442Mineral Nutrition18,58317,42614,971Performance Products1,8812,057970Total segments$162,378$149,744$143,383Reconciliation of income before income taxes toAdjusted EBITDAIncome before income taxes$88,070$80,543$76,761Interest expense, net11,91014,90616,592Depreciation and amortization–Total segments 24,84723,40320,423Depreciation and amortization–Corporate2,0962,5983,029Corporate costs33,42029,62529,323Acquisition-related cost of goods sold1,671—2,566Acquisition-related accrued compensation1,1521,6801,680Acquisition-related transaction costs4001,274618Acquisition-related other, net(468(972—Stock-based compensation334——Pension settlement cost—1,702—Gain on insurance settlement—(7,500—Foreign currency (gains) losses, net(1,054(113(7,609Loss on extinguishment of debt—2,598—Adjusted EBITDA–Total segments$162,378$149,744$143,383Acquisition-related other, net includes adjustments to contingent consideration on acquisitions andimpairments of intangible assets.114))))))15.Geographic InformationTABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of June 3020182017​Identifiable assetsAnimal Health$455,704$442,521Mineral Nutrition69,77955,184Performance Products24,04023,681Total segments549,523521,386Corporate122,156102,011Total$671,679$623,397The Animal Health segment includes all goodwill of the Company. The Animal Health segmentincludes advances to and investment in an equity method investee of  $3,432 and $3,719 as of June 30, 2018and 2017, respectively. The Performance Products segment includes an investment in equity method investeeof  $437 and $516 as of June 30, 2018 and 2017, respectively. Corporate assets include cash and cashequivalents, short-term investments, certain debt issuance costs, income tax related assets and certain otherassets.The following is information about our geographic operations. Information is attributed to thegeographic areas based on the locations of our subsidiaries.For the Years Ended June 30201820172016​Net salesUnited States$494,599$484,148$473,247Israel109,22292,75289,999Latin America and Canada120,85496,687105,667Europe and Africa43,90140,21136,177Asia/Pacific51,40650,48346,436$819,982$764,281$751,526As of June 3020182017​Property, plant and equipment, netUnited States$55,268$56,459Israel45,05547,027Brazil19,65322,793Other10,1321,072$130,108$127,351115•We did not maintain effective internal controls to ensure processing and reporting of validtransactions is complete, accurate, and timely. Specifically, we have not designed andimplemented a sufficient level of formal accounting policies and procedures that define howtransactions across the business cycles should be initiated, recorded, processed, reported,appropriately authorized and approved.•We did not maintain effective internal control that restricts access to key financial systems andrecords to appropriate users and ensures that appropriate segregation of duties is maintained.Certain personnel had access to financial application, programs and data beyond that neededTABLE OF CONTENTSItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresManagement of the Company, with the participation of its Chief Executive Officer and Chief FinancialOfficer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2018.The Company’s disclosure controls and procedures are designed to ensure that information required tobe disclosed by the issuer in the reports that it files or submits under the Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported, within the time periods specified in the Commission’s rules andforms, and that such information is accumulated and communicated to management of the Company, includingits Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regardingrequired disclosure.Based on their evaluation, as of the end of the period covered by this Annual Report on Form 10-K, theCompany’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosurecontrols and procedures were not effective because of the material weaknesses in our internal control overfinancial reporting described below.Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financialreporting, as such term is defined in the Exchange Act Rule 13a-15(f). Internal control over financial reporting isa process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer andeffected by our Board of Directors, management and other personnel to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatement. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.Management has assessed the effectiveness of our internal control over financial reporting as ofJune 30, 2018. In making its assessment of internal control over financial reporting, we used the criteriadescribed in Internal Control—Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).A material weakness is a deficiency, or combination of deficiencies, in internal control over financialreporting, such that there is a reasonable possibility that a material misstatement of our annual or interimconsolidated financial statements will not be prevented or detected on a timely basis.Based on this assessment, management has concluded that we did not maintain effective internalcontrol over financial reporting as of June 30, 2018, due to the fact that certain material weaknesses previouslyidentified in the 2017 Annual Report on Form 10-K filing on August 30, 2017 continue to exist at June 30,2018, as discussed below:116TABLE OF CONTENTSto perform their individual job responsibilities and without independent monitoring. In addition,certain financial personnel had incompatible duties that allowed for the creation, review andprocessing of certain financial data without independent review and authorization. This materialweakness affects substantially all financial statement accounts.Each of the control deficiencies described above could result in a misstatement that would result in amaterial misstatement of the annual or interim consolidated financial statements that would not be prevented ordetected. Accordingly, our management has determined that these control deficiencies constitute materialweaknesses.Due to a transition period established by the rules of the SEC for emerging growth companies, thisAnnual Report on Form 10-K does not include an attestation report of our registered public accounting firm.Material Weakness Remediation EffortsWe continue to make further progress in implementing a broad range of changes to our internal controlover financial reporting to remediate the material weaknesses described in this item. Our actions to addressmaterial weaknesses have included the design and implementation of additional formal accounting policies andprocedures to ensure transactions are properly initiated, recorded, processed, reported, appropriately authorizedand approved. Also, our efforts to ensure maintenance of the appropriate level of segregation of duties includesrestricting access to key financial systems and records to appropriate users. We have decreased the level ofsegregation of duties conflicts and continue to determine the extent it is necessary to limit access and modifyresponsibilities of certain personnel, as well as designing and implementing additional user access controls andcompensating controls. We will continue to build on the progress we have made in our remediation plan. Wecannot determine when our remediation plan will be fully completed, and we cannot provide any assurance thatthese remediation efforts will be successful or that our internal control over financial reporting will be effectiveas a result of these efforts.Changes in Internal Control over Financial ReportingThere have been no changes in internal control over financial reporting during the three months endedJune 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controlover financial reporting.Item 9B. Other InformationDEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTANOFFICERS.(d) The Board of Directors increased the size of the Board of Directors to nine (9) directors andappointed Jonathan Bendheim as a Class I director of the Company, effective August 27, 2018. Mr. Bendheim isexpected to stand for election by the stockholders of the Corporation at the 2020 Annual Meeting ofStockholders of the Company.Mr. Bendheim serves as President of the Company’s MACIE Region (which consists of the MiddleEast, Africa, the Commonwealth of Independent States, India and Europe), and is the general manager of theCompany’s operating plants in Israel and Ireland. Mr. Bendheim is a son of Jack C. Bendheim who, togetherwith certain other family members, is a manager of BFI Co., LLC, an investment vehicle of the Bendheim familywhich controls a majority of the combined voting power of the Company’s outstanding Class A common stockand Class B common stock. Mr. Bendheim has been employed by the Company since 2001 and as an employeeof the Company receives compensation and other benefits. For additional details, see “Notes to ConsolidatedFinancial Statements—Related Party Transactions.”117TABLE OF CONTENTSAs an employee of the Company, Mr. Bendheim will not receive compensation for his service on theBoard. Mr. Bendheim and the Company have entered into the Company’s standard (i) director indemnificationagreement, which requires the Corporation to indemnify Mr. Bendheim to the fullest extent permitted underDelaware law against liabilities that may arise by reason of his service on the Board and to advance expensesincurred as a result of any proceeding against him for which he could be indemnified, and (ii) executive directorappointment letter which describes certain of Mr. Bendheim’s rights and responsibilities as a director.118TABLE OF CONTENTSPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required by this item is incorporated by reference to our 2018 Proxy Statement to befiled with the SEC within 120 days of the year ended June 30, 2018.Our Board of Directors has adopted a Code of Business Conduct and Ethics applicable to all officers,directors and employees, which is available on our website (investors.pahc.com) under “Corporate Governance.”Item 11. Executive CompensationThe information required by this item is incorporated by reference to our 2018 Proxy Statement to befiled with the SEC within 120 days of the year ended June 30, 2018.Item 12. Security Ownership of Certain Beneficial Owners and Management Related Stockholder MattersThe information required by this item is incorporated by reference to our 2018 Proxy Statement to befiled with the SEC within 120 days of the year ended June 30, 2018.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated by reference to our 2018 Proxy Statement to befiled with the SEC within 120 days of the year ended June 30, 2018.Item 14. Principal Accounting Fees and ServicesThe information required by this item is incorporated by reference to our 2018 Proxy Statement to befiled with the SEC within 120 days of the year ended June 30, 2018. 119(1)Consolidated Financial Statements:(2)Schedules: None(3)The exhibits filed are listed in the Index to Exhibits immediately following the signature page ofthis Annual Report on Form 10-K.TABLE OF CONTENTSPART IVItem 15. Exhibits, Financial Statement SchedulesWe have filed the following documents as part of this Form 10-K:Report of Independent Registered Public Accounting FirmConsolidated Statements of Operations for the fiscal years ended June 30, 2018, 2017 and 2016Consolidated Statements of Comprehensive Income for the fiscal years ended June 30, 2018, 2017and 2016Consolidated Balance Sheets at June 30, 2018 and 2017Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2018, 2017 and 2016Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended June 30,2018, 2017 and 2016Notes to Consolidated Financial Statements120TABLE OF CONTENTSSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly causedthis Annual Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.Phibro Animal Health CorporationAugust 27, 2018By:/s/ Jack C. BendheimJack C. Bendheim Chairman, President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-Khas been signed by the following persons on behalf of the registrant and in the capacities and on the datesindicated.Phibro Animal Health CorporationAugust 27, 2018By:/s/ Jack C. BendheimJack C. Bendheim Chairman, President and Chief Executive OfficerAugust 27, 2018By:/s/ Richard G. JohnsonRichard G. Johnson Chief Financial OfficerAugust 27, 2018By:/s/ Daniel M. BendheimDaniel M. Bendheim Director and Executive Vice President, Corporate StrategyAugust 27, 2018By:/s/ Jonathan BendheimJonathan BendheimDirector and President, MACIE Region and GeneralManager of Israel OperationsAugust 27, 2018By:/s/ Gerald K. CarlsonGerald K. Carlson DirectorAugust 27, 2018By:/s/ E. Thomas CorcoranE. Thomas Corcoran DirectorAugust 27, 2018By:/s/ Sam GejdensonSam Gejdenson DirectorAugust 27, 2018By:/s/ George GunnGeorge Gunn DirectorAugust 27, 2018By:/s/ Mary Lou MalanoskiMary Lou Malanoski DirectorAugust 27, 2018By:/s/ Carol A. WrennCarol A. Wrenn Director121TABLE OF CONTENTSEXHIBIT INDEXExhibit 2.1*Asset Purchase Agreement dated January 12, 2016 by and among MVP Laboratories,Inc., Mary Lou Chapek, AVP, LLC and Phibro Animal Health Corporation(incorporated by reference to Exhibit 2.1 to Phibro Animal Health Corporation’sQuarterly Report on Form 10-Q filed on May 9, 2016 (File No. 001-36410)).Exhibit 3.1Amended and Restated Certificate of Incorporation of Phibro Animal HealthCorporation (incorporated by reference to Exhibit 3.1 to Phibro Animal HealthCorporation’s Quarterly Report on Form 10-Q filed on May 13, 2014 (File No. 001-36410)).Exhibit 3.2Amended and Restated Bylaws of Phibro Animal Health Corporation (incorporated byreference to Exhibit 3.2 of Phibro Animal Health Corporation’s Quarterly Report onForm 10-Q filed on May 13, 2014 (File No. 001-36410)).Exhibit 4.1Registration Rights Agreement between Phibro Animal Health Corporation and BFICo., LLC, dated as of April 16, 2014 (incorporated by reference to Exhibit 4.9 ofPhibro Animal Health Corporation’s registration statement on Form S-1/A filed onMarch 31, 2014 (File No. 333-194467)).Exhibit 10.1  Credit Agreement dated June 29, 2017, among Phibro Animal Health Corporation,Bank of America, N.A., and each lender from time to time party thereto (incorporatedby reference to Exhibit 10.1 to Phibro Animal Health Corporation’s Current Report onForm 8-K, filed with the Securities and Exchange Commission on June 29, 2017 (FileNo. 001-36410)).Exhibit 10.2 Unprotected Lease Agreement, dated January 26, 2011, by and between SamariaCarpets Ltd. and ABIC Biological Laboratories Ltd. (translated from Hebrew)(incorporated by reference to Exhibit 10.17 of Phibro Animal Health Corporation’sregistration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)).Exhibit 10.3Employment Agreement, dated March 27, 2014, 2014, by and between Jack C.Bendheim and Phibro Animal Health Corporation. (incorporated by reference toExhibit 10.18 of Phibro Animal Health Corporation’s registration statement on Form S-1/A filed on March 31, 2014 (File No. 333-194467)).Exhibit 10.4 Employment Offer Letter, dated May 2, 2008, by and between Larry L. Miller andPhibro Animal Health Corporation, including confidentiality and nondisclosure,employee invention, and noncompetition and nonsolicitation agreements dated as ofMay 2, 2008 (incorporated by reference to Exhibit 10.20 of Phibro Animal HealthCorporation’s registration statement on Form S-1 filed on March 10, 2014 (File No.333-194467)).Exhibit 10.5 Clarifying Amendment to Employment Offer Letter, dated December 21, 2009, by andbetween Larry L. Miller and Phibro Animal Health Corporation (incorporated byreference to Exhibit 10.21 of Phibro Animal Health Corporation’s registrationstatement on Form S-1 filed on March 10, 2014 (File No. 333-194467)).Exhibit 10.6 Amendment to Employment Offer Letter, dated December 15, 2011, by and betweenLarry L. Miller and Phibro Animal Health Corporation (incorporated by reference toExhibit 10.22 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)).Exhibit 10.7 Phibro Animal Health Corporation 2008 Incentive Plan (incorporated by reference toExhibit 10.23 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)).122TABLE OF CONTENTSExhibit 10.8Phibro Animal Health Corporation Management Incentive Plan (incorporated byreference to Exhibit 10.24 of Phibro Animal Health Corporation’s registrationstatement on Form S-1/A filed on March 31, 2014 (File No. 333-194467)).Exhibit 10.9 Phibro Animal Health Corporation Retirement Income and Deferred CompensationPlan, as amended and restated as of April 15, 2009 (incorporated by reference toExhibit 10.25 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)).Exhibit 10.10 Phibro Animal Health Corporation Executive Income Deferred CompensationAgreement, dated as of March 1, 1990 (incorporated by reference to Exhibit 10.26 ofPhibro Animal Health Corporation’s registration statement on Form S-1 filed onMarch 10, 2014 (File No. 333-194467)).Exhibit 10.11Form of 2009 Stock Option Grant Agreement (incorporated by reference toExhibit 10.28 of Phibro Animal Health Corporation’s registration statement on Form S-1/A filed on March 31, 2014 (File No. 333-194467)).Exhibit 10.12Form of 2013 Stock Option Grant Agreement (incorporated by reference toExhibit 10.29 of Phibro Animal Health Corporation’s registration statement on Form S-1/A filed on March 31, 2014 (File No. 333-194467)).Exhibit 10.13Form of Indemnification Agreement (incorporated by reference to Exhibit 10.32 ofPhibro Animal Health Corporation’s registration statement on Form S-1/A filed onApril 4, 2014 (File No. 333-194467)).Exhibit 10.14*Intellectual Property Purchase Agreement dated January 20, 2015 by and between MJBiologics, Inc. and Phibro Animal Health Corporation (incorporated by reference toExhibit 10.33 to Phibro Animal Health Corporation’s Quarterly Report on Form 10-Q,filed with the Securities and Exchange Commission on May 11, 2015)Exhibit 10.15Promotion Letter Agreement, dated June 16, 2016, between Phibro Animal HealthCorporation and Dean J. Warras (incorporated by reference to Exhibit 10.38 to PhibroAnimal Health Corporation’s 2017 Annual Report on Form 10-K, filed with theSecurities and Exchange Commission on August 30, 2017 (File No. 001-36410)).Exhibit 10.16Retention Letter Agreement, dated August 1, 2016, between Phibro Animal HealthCorporation and Dean J. Warras (incorporated by reference to Exhibit 10.39 to PhibroAnimal Health Corporation’s 2017 Annual Report on Form 10-K, filed with theSecurities and Exchange Commission on August 30, 2017 (File No. 001-36410)).Exhibit 10.17Form of Restricted Stock Unit Award Agreement (incorporated by referenceto Exhibit 10.2 to Phibro Animal Health Corporation’s Current Report on Form 8-K,filed with the Securities and Exchange Commission on May 7, 2018 (File No. 13-1840497)).Exhibit 21.1List of Subsidiaries of Phibro Animal Health Corporation.Exhibit 23Consent of Independent Registered Public Accounting FirmExhibit 31.1Chief Executive Officer—Certification pursuant to Sarbanes-Oxley Act of 2002Section 302Exhibit 31.2Chief Financial Officer—Certification pursuant to Sarbanes-Oxley Act of 2002Section 302123*Confidential treatment of certain provisions of this exhibit has been requested with the Securities andExchange Commission. Omitted material for which confidential treatment has been requested has beenfiled separately with the Securities and Exchange Commission.**This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwisesubject to the liability of that section, nor shall it be deemed incorporated by reference into any filingunder the Securities Act of 1933, as amended, or the Exchange Act.***Furnished with this Annual Report on Form 10-K. Pursuant to Rule 406T of Regulation S-T, theseinteractive data files are deemed not filed for purposes of sections 11 or 12 of the Securities Act of1933 and are deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934.TABLE OF CONTENTSExhibit 32.1**Chief Executive Officer—Certification pursuant to Sarbanes-Oxley Act of 2002Section 906Exhibit 32.2**Chief Financial Officer—Certification pursuant to Sarbanes-Oxley Act of 2002Section 906Exhibit 101.INS***XBRL Instance DocumentExhibit 101.SCH***XBRL Taxonomy Extension Schema DocumentExhibit 101.CAL***XBRL Taxonomy Extension Calculation Linkbase DocumentExhibit 101.DEF***XBRL Taxonomy Extension Definition Linkbase DocumentExhibit 101.LAB***XBRL Taxonomy Extension Label Linkbase DocumentExhibit 101.PRE***XBRL Taxonomy Extension Presentation Linkbase Document124(1)Formerly known as Koffolk (1949) Ltd.(2)Formerly known as Agrozan Ltd.(3)Formerly known as Planalquimica Industrial Ltda.(4)We directly or indirectly own 50% of the entity.EXHIBIT 21.1​PHIBRO ANIMAL HEALTH CORPORATION LIST OF SUBSIDIARIESSUBSIDIARYJURISDICTIONPrince Agri Products, Inc.DelawareOmniGen Research, LLCOregonPhibro Animal Health Holdings, Inc.DelawarePhibro Animal Health de Argentina SRLArgentinaBiotay S.A.ArgentinaPhibro Animal PTY LimitedAustraliaPhibro Animal Health (Belgium) S.A.BelgiumPhibro Saude Animal Internacional Ltda.BrazilPhibro Animal Health Ltd.CanadaPhibro Animal Health Holdings, Inc. Chile LimitadaChilePhibro Animal Health Colombia S.A.S.ColombiaPhibro Animal Health de Republica Dominicana, SRLDominican RepublicPhibro Animal Health LimitedIrelandPhibro Corporation LimitedHong KongPhibro Corporation (M) Sdn. Bhd.MalaysiaPB Animal Health de Mexico S. de R.L. de C.V.MexicoPBAH Peruana S.A.C.PeruPhibro Animal Health (Proprietary) LimitedSouth AfricaPhibro Animal Health (Thailand) LimitedThailandPhibro Hayvan Sagligi Urunleri Sanayi ve Ticaret A.S.TurkeyPhibro Animal Health de Venezuela, C.A.VenezuelaPhibro Animal Health Ltd.IsraelPhibro Animal Nutrition Ltd.IsraelKofimex Ltd.IsraelAbic Biological Laboratories Ltd.IsraelAbic Veterinary Products Ltd.IsraelPhibro Saude e Nutricao Animal Ltda.BrazilC P Chemicals, Inc.New JerseyPhibro-Tech, Inc.DelawareCalifornia Water Technologies LLCMichiganNorth Field Extension, LLCNew JerseyWestern Magnesium Corp.CaliforniaFirst Dice Road Company, a California Ltd. PartnershipCaliforniaFerro Metal and Chemical Corporation Ltd.United KingdomMarion Bio-Tech, LLCDelawareHannibal Bio-Tech, LLCDelaware(1)(2)(3)(4)(4)(4)(4)EXHIBIT 23​CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.333-198809) of Phibro Animal Health Corporation of our report dated August 27, 2018 relating to the financialstatements, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPFlorham Park, New JerseyAugust 27, 2018EXHIBIT 31.1​CERTIFICATIONSI, Jack C. Bendheim, certify that:1. I have reviewed this Annual Report on Form 10-K for the year ended June 30, 2018, of PhibroAnimal Health Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omitto state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave: a) Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of theend of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’sboard of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability torecord, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.Dated: August 27, 2018/s/ Jack C. BendheimJack C. BendheimChairman, President and Chief Executive OfficerEXHIBIT 31.2​CERTIFICATIONSI, Richard G. Johnson, certify that:1. I have reviewed this Annual Report on Form 10-K for the year ended June 30, 2018, of PhibroAnimal Health Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omitto state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave: a) Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of theend of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’sboard of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability torecord, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.Dated: August 27, 2018/s/ Richard G. JohnsonRichard G. JohnsonChief Financial OfficerEXHIBIT 32.1​CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that thisperiodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934 and that information contained in this periodic report fairly presents, in all material respects, the financialcondition and results of operations of the issuer.Dated: August 27, 2018/s/ Jack C. BendheimJack C. BendheimChairman, President and Chief Executive OfficerEXHIBIT 32.2​CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that thisperiodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934 and that information contained in this periodic report fairly presents, in all material respects, the financialcondition and results of operations of the issuer.Dated: August 27, 2018/s/ Richard G. JohnsonRichard G. JohnsonChief Financial Officer

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