Phibro Animal Health
Annual Report 2020

Plain-text annual report

TABLE OF CONTENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from            to            Commission File Number: 001-36410 Phibro Animal Health Corporation (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) Glenpointe Centre East, 3 Floor 300 Frank W. Burr Boulevard, Suite 21 Teaneck, New Jersey (Address of Principal Executive Offices) rd 13-1840497 (I.R.S. Employer Identification No.) 07666-6712 (Zip Code) (201) 329-7300 (Registrant’s telephone number, including area code) Title of each class Class A Common Stock, $0.0001 par value per share Securities registered pursuant to Section 12(b) of the Act: Trading Symbol(s) Name of each exchange on which registered PAHC Nasdaq Stock Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)  Yes  ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Non-accelerated filer Emerging growth company Accelerated filer Smaller reporting company ☐ ☐ ☐ ☒ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financing reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report  Yes ☒ No ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  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 $502,263,574 as of December 31, 2019, the last business day of the registrant’s most recently 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 24, 2020, there were 20,287,574 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 20,166,034 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 2020 Annual Meeting of Shareholders to be held on November 2, 2020 (hereinafter referred to as the “2020 Proxy Statement”) are incorporated herein by reference in Part III of this Annual Report on Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended June 30, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ PHIBRO ANIMAL HEALTH CORPORATION TABLE OF CONTENTS Forward-Looking Statements Market Ranking and Other Industry Data Trademarks, Service Marks and Trade Names PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules SIGNATURES 2 Page 3 ​ 4 ​ 5 ​ 6 ​ 28 ​ 54 ​ 54 ​ 54 ​ 55 ​ 56 ​ 57 ​ 60 ​ 81 ​ 83 ​ 123 ​ 123 ​ 125 ​ 126 ​ 126 ​ 126 ​ 126 ​ 126 ​ 127 ​ 131 ​ ​ ​ ​ ​ TABLE OF CONTENTS​ Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties. 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 our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. 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 are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Examples of such risks and uncertainties include: • the negative effects of a pandemic, epidemic, or outbreak of an infectious disease in humans, such as COVID-19, on our business, financial results, manufacturing facilities and supply chain, as well as our customers and protein processors; • perceived adverse effects on human health linked to the consumption of food derived from animals 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 related products; • competition in each of our markets from a number of large and small companies, some of which have greater financial, research and development (“R&D”), production and other resources than we 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 natural resources; • the continuing trend toward consolidation of certain customer groups as well as the emergence of large 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 health technologies; • 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 our intellectual property; 3 TABLE OF CONTENTS​ • adverse U.S. and international economic market conditions, including currency fluctuations; • 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. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact 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 cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. Market, Ranking and Other Industry Data Unless otherwise indicated, information contained in this report concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on management estimates and on information from Vetnosis Limited (“Vetnosis”), a research and consulting firm specializing in global animal health and veterinary medicine. The Vetnosis information cited in this document was not prepared by Vetnosis on our behalf. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. We believe these estimates are reasonable as of the date of this report, or if an earlier date is specified, as of such earlier date. However, this information may prove to be inaccurate because of the method by which we obtained some of the data for our estimates or because this information is subject to change and cannot always be verified due to limits on the availability and reliability of independent sources, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. In addition, purchasing patterns and consumer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth in this report, and estimates and beliefs based on such data, may not be reliable. 4 TABLE OF CONTENTS​ Trademarks, Service Marks and Trade Names The following trademarks and service marks used throughout this report belong to, are licensed to, or are ® ® ™ ® otherwise used by us in our business: AB20 ; Animate ; Aviax ; Aviax Plus ; Avi-Carb ; Banminth ; Bloat ® Guard ; Boviprol ; Cellerate Yeast Solutions ; Cerdimix ; Cerditac ; Chromax ; Coxistac ; Emulsigen ; ® ® ™ Eskalin ; Gemstone ; Lactrol ™ ® Terramycin ; Neo-TM ; Nicarb ; Nicarmix ; OmniGen ; pHi-Tech ; Posistac ; Procreatin 7 ; Provia Prime ; ® Rumatel ; V-Max ; and ® Vistore . ; MB-1 ; Mecadox ; MJPRRS ; MVP Adjuvants ; Neo- ® ; Safmannan ; Stafac ; TAbic ; Tailor Made ; Terramycin ; TM-50 ; TM-100 ; V.H. ; Magni-Phi ® ™ ™ ™ ™ ™ ™ ™ ™ ™ ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® 5 TABLE OF CONTENTS​ Item 1. Business Overview PART I Phibro Animal Health Corporation is a leading global diversified animal health and mineral nutrition company. We strive to be a trusted partner with livestock producers, veterinarians and farmers by providing solutions to help them maintain and enhance the health of their animals and produce healthy, affordable food while using fewer natural resources. We sell more than 1,600 product presentations in over 75 countries to approximately 3,700 customers. We develop, manufacture and market a broad range of products for food animals including poultry, swine, beef and dairy cattle and aquaculture. Our products help prevent, control and treat diseases and support nutrition to help improve animal health and well-being. We sell animal health and mineral nutrition products either directly to integrated poultry, swine and cattle integrators or through commercial animal feed manufacturers, wholesalers and distributors. Our products include: • Animal health products such as antibacterials, anticoccidials, nutritional specialty products and vaccines that help improve the animal’s health and therefore improve performance, food safety and animal welfare. Our Animal Health segment also includes antibacterials and other processing aids used to improve production efficiency in the ethanol fermentation industry. • Mineral nutrition products that fortify the animal’s diet and help maintain optimal health. We have focused our efforts in regions where the majority of livestock production is consolidated in large commercial farms. We believe we are well positioned to grow our sales with our established network of sales, marketing and distribution professionals in markets in North America, Latin America, Asia Pacific, Europe and Africa. We are investing resources to develop future products for the companion animal sector. Our business is currently concentrated in the livestock sector. In addition to animal health and mineral nutrition products, we manufacture and market specific ingredients for use in the personal care, industrial chemical and chemical catalyst industries. We sell performance products directly to customers in the aforementioned industries. Our Class A common stock trades on the Nasdaq Stock Market (“Nasdaq”) under the trading symbol “PAHC.” Our Class B common stock is not listed or traded on any stock exchange. We are a Delaware corporation. 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 and its subsidiaries. COVID-19 Pandemic In March 2020, the World Health Organization declared COVID-19, a novel strain of coronavirus, a global pandemic. The COVID-19 pandemic has caused significant disruptions in international and U.S. economies and markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain. The pandemic may affect our future revenues, expenses, reserves and allowances, manufacturing operations and employee-related costs. The pandemic may have significant economic impact on customers, suppliers and markets. New information may emerge concerning COVID-19 and the actions required to contain or treat the virus may affect the duration and severity of the pandemic. Our financial statements include estimates of the effects of COVID-19 and there may be changes to those estimates in future periods. Phibro is an integral participant in the essential production of meat, milk, eggs and fish for human consumption. In the face of the pandemic, we have focused on the safety of our employees, while continuing 6 ​ TABLE OF CONTENTS to supply our customers. Despite supply chain and logistical challenges, our global production facilities have continued to operate without interruption and we are implementing procedures designed to protect our employees, taking into account guidelines published by the relevant governmental health agencies. Our sales and technical service people remain in close virtual contact with our customers, as most travel and in-person meetings have been cancelled. Most of our administrative and management staff are working remotely. For discussion regarding the impact of COVID-19 on our financial results, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Business Segments We manage our business in three segments — Animal Health, Mineral Nutrition, and Performance Products —  each with its own dedicated management and sales team, for enhanced focus and accountability. Net sales by segments, species and regions were: For the Year Ended June 30 2020 2019 2018 2020 / 2019 ​ 2019 / 2018 Segments Change Animal Health Mineral Nutrition Performance Products Total ​$527​ ​ 214​ 59​ ​$800​ ​$532​ ​ 234​ 62​ ​$828​ ​$532​ ​ 235​ 53​ ​$820​ ($ in millions) ) ​ (1​ ) ​ (8​ ) ​ (5​ ​ (3​ ​$ (5​ ​ (19​ (3​ ​$(28​ ) )% )% )% )% ) ​$ 0​ ​ (1​ ​ 9​ ​$ 8​ ​ 0 ​ (0 ​ 17 ​ 1 % )% % % For the Year Ended June 30 2020 2019 2018 2020 / 2019 2019 / 2018 Species Change Poultry Dairy Cattle Swine Other (1) Total ​$301​ ​ 163​ 94​ 81​ ​ 161​ ​$800​ ​$316​ ​ 170​ 88​ ​ 101​ ​ 153​ ​$828​ ​$321​ ​ 177​ 80​ ​ 100​ ​ 142​ ​$820​ ($ in millions) )% ) ​ (5​ ​$(15​ )% ) ​ (4​ (7​ % 6​ 7​ )% ​ (20​ ​ (20​ % 8​ 5​ ​ (3​ ​$(28​ )% ) ) ) ) ​$ (5​ (7​ 8​ 1​ ​ 11​ ​$ 8​ ​ (2​ ​ (4​ ​ 10​ ​ 1​ ​ 8​ ​ 1​ )% )% % % % % For the Year Ended June 30 ​ 2020 ​ ​ 2019 ​ ​ 2018 2020 / 2019 2019 / 2018 ​ Regions (2) Change Percentage of total ​ 2018​ 2019 2020 66 27 7 % % % 64 28 8 % % % 65 ​ % % 29 ​ % 7 ​ Percentage of total ​ 2018​ 2019 2020 38 20 12 10 % % % % 20 % 38 21 11 12 % % % % 18 % 39 ​ % % 22 ​ 10 ​ % 12 ​ % % 17 ​ ​ Percentage of total ​ 2018​ 2019 ​ 2020 United States Latin America and Canada Europe, Middle East and Africa Asia Pacific Total ​$472​ ​ 159​ ​ 112​ 57​ ​$800​ ​$481​ ​ 152​ ​ 105​ 90​ ​$828​ ​$491​ ​ 143​ ​ 110​ 76​ ​$820​ ($ in millions) )% ) ​ (2​ ​$ (9​ % 5​ 7​ % 7​ 7​ )% ​ (37​ ​ (33​ ​ (3​ ​$(28​ )% ) ) ) ) ​$(10​ 9​ (5​ ​ 14​ ​$ 8​ )% % ​ 59 ​ 20 % % )% % ​ 14 % % 7 ​ (2​ ​ 6​ ​ (5​ ​ 18​ ​ 1​ % 58 18 13 11 % % % % 60 ​ % 17 ​ % 13 ​ % % 9 ​ (1) Other includes sales related to: Performance Products customers; the ethanol industry; aquaculture and other minor species; adjuvants for animal vaccine manufacturers; and Mineral Nutrition other customers. (2) Net sales by region are based on country of destination. 7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS Certain amounts and percentages may reflect rounding adjustments. Adjusted EBITDA by segment was: For the Year Ended June 30 Animal Health Mineral Nutrition Performance Products Corporate Total ​ Adjusted EBITDA ​ 2020 2019 2018 ​ (1) Change 2020 / 2019 2019 / 2018 ​ Percentage of total 2019 ​ 2020 2018​ (2) ​$123​ 15​ 5​ (40​ ​$102​ ) ​$136​ 16​ 5​ (38​ ​$118​ ) ​$142​ 19​ 2​ (33​ ​$129​ ) ($ in millions) ) ​ (10​ ​$(13​ ) ​ (7​ (1​ ) ​ (4​ (0​ ) (2​ ​$(16​ ​ (13​ ) )% )% )% * )% ​$ (6​ (3​ 3​ (5​ ​$(11​ ) ) ) ) (4​ ​ (15​ ​ 151​ ​ 87 )% % )% % ​ 10 % % 3 * (8​ )% 87 10 3 % % % 87 ​ % 11 ​ % % 1 ​ (1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations General description of non-GAAP financial measures” for description of Adjusted EBITDA. (2) Before unallocated corporate costs. Certain amounts and percentages may reflect rounding adjustments. Net identifiable assets by segment were: As of June 30 2020 2019 2018 2020 / 2019 2019 / 2018 Net Identifiable Assets Change Animal Health Mineral Nutrition Performance Products Corporate Total ​$561​ 66​ 31​ ​ 127​ ​$784​ ​$509​ 68​ 33​ ​ 117​ ​$727​ ​$456​ 70​ 24​ ​ 122​ ​$672​ ($ in millions) ​ 10​ ​ (2​ ​ (6​ ​ 8​ ​ 8​ ​$52​ (2​ (2​ ​ 10​ ​$58​ ) ) % )% )% % % ​$53​ (2​ 9​ (5​ ​$54​ ) ) ​ 12​ ​ (3​ ​ 37​ ​ (4​ ​ 8​ % )% % )% % Percentage of total ​ 2018​ 2019 2020 71 8 4 16 % % % % 70 9 5 16 % % % % 68 ​ % 10 ​ % 4 ​ % % 18 ​ Corporate assets include cash and cash equivalents, short-term investments, debt issuance costs, income tax related assets and certain other assets. Certain amounts and percentages may reflect rounding adjustments. Animal Health Our Animal Health business develops, manufactures and markets more than 1,000 product presentations, including: • • • antibacterials, which inhibit the growth of pathogenic bacteria that cause bacterial infections in animals; anticoccidials, which inhibit the growth of coccidia (parasites) that damage the intestinal tract of animals; and related products (MFAs and other); nutritional specialty products, which support nutrition to help improve health and performance (nutritional specialties); and vaccines, which induce an increase in antibody levels against a specific virus or bacterium, thus preventing disease from that viral or bacterial antigen (vaccines). Our animal health products help our customers prevent, control and treat diseases and support nutrition to help improve health, enabling our customers to more efficiently produce high-quality, wholesome and affordable animal protein products for human consumption. We develop, manufacture and market a broad range of animal health products for food animals including poultry, swine, beef and dairy cattle and aquaculture. We provide technical and product support directly to our customers to ensure the optimal use of our products. The animal health industry and demand for many of our animal health products in a 8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS particular region are affected by changing disease pressures and by weather conditions, as usage of our products follows varying weather patterns and seasons. As a result, we may experience regional and seasonal fluctuations in our animal health segment. Animal Health net sales by product group and regions were: For the Years Ended June 30 ​ 2020 ​ 2019 2018 2020 / 2019 2019 / 2018 Product Groups Change MFAs and other Nutritional specialties Vaccines Animal Health ​$322​ ​ 129​ 75​ ​$527​ ​$350​ ​ 113​ 68​ ​$532​ ​$337​ ​ 123​ 72​ ​$532​ ($ in millions) ) ​ (8​ ​ 14​ ​ 10​ ​ (1​ ​$(28​ ​ 16​ 7​ ​$ (5​ ) )% % % )% ​$ 13​ ​ (10​ (4​ ​$ (0​ ) ) ) ​ 4​ ​ (8​ ​ (5​ ​ (0​ % )% )% )% For the Years Ended June 30 ​ 2020 ​ ​ 2019 ​ ​ 2018 2020 / 2019 2019 / 2018 ​ Regions (1) Change Percentage of total ​ 2018​ 2019 2020 61 25 14 % % % 66 21 13 % % % 63 ​ % % 23 ​ % 14 ​ ​ Percentage of total ​ 2018​ 2019 ​ 2020 United States Latin America and Canada Europe, Middle East and Africa Asia Pacific Total ​$214​ ​ 148​ ​ 109​ 56​ ​$527​ ​$199​ ​ 142​ ​ 103​ 88​ ​$532​ ​$220​ ​ 129​ ​ 108​ 75​ ​$532​ ($ in millions) % 8​ ​$ 15​ % 4​ 6​ % 6​ 6​ )% ​ (36​ ​ (32​ ​ (1​ ​$ (5​ )% ) ) ) ) ​$(21​ ​ 13​ (5​ ​ 13​ ​$ —​ )% % ​ 41 % % ​ 28 )% % ​ 21 % % ​ 11 ​ (10​ ​ 10​ ​ (5​ ​ 17​ % 0​ 37 27 19 17 % % % % % 41 ​ % 24 ​ 20 ​ % % 14 ​ (1) Net sales by region are based on country of destination. Certain amounts and percentages may reflect rounding adjustments. MFAs and Other Our MFAs and other products primarily consists of concentrated medicated products administered through ® animal feeds, commonly referred to as Medicated Feed Additives (“MFAs”). Our MFAs and other products primarily consists of the production and sale of antibacterials (including Stafac , Terramycin , Neo-Terramycin ® and Mecadox ) and anticoccidials (including Nicarb , Aviax , Aviax Plus™, Coxistac™ and amprolium). Antibacterials inhibit the growth of pathogenic bacteria that cause bacterial infections in animals, while anticoccidals inhibit growth of coccida (parasites) that damage the intestinal tract of animals. MFAs and other products also include antibacterial products and other processing aids, used to improve production efficiencies in the ethanol fermentation industry. ® ® ® ® Approximately 50% of our MFAs and other sales in fiscal year 2020 were to the poultry industry, with sales to swine, cattle, dairy and other customers accounting for the remainder. We sell our MFAs and other products in all regions where we do business. Nutritional Specialties Nutritional specialty products enhance nutrition to help improve health and performance in areas such as immune system function and digestive health. Many of our proprietary nutritional specialty products have been developed through basic research in cooperation with private research companies or by leading universities with whom we collaborate and then further develop through commercial trials with customers. Our nutritional specialty products include the OmniGen family of products, patented nutritional specialty products that have been shown in several studies to help maintain a cow’s healthy immune system; Animate , an anionic nutritional specialty product that helps optimize the health and performance of the transition dairy cow; Magni-Phi specialty product that has been shown to help improve intestinal health and immune response in poultry; and, Cellerate Yeast Solutions , a line of proprietary yeast culture products that are used in all classes of livestock to help improve digestive health, , a proprietary nutritional ® ® ® 9 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS which may lead to improved animal health and performance. We sell our nutritional specialty products in the United States and various other countries internationally. In August 2019, we acquired the business and assets of Osprey Biotechnics, Inc. (“Osprey”). Osprey is a developer, manufacturer and marketer of microbial products and bioproducts for a variety of applications serving animal health and nutrition, environmental, industrial and agricultural customers. Osprey also produces key , a four-strain direct fed microbial product for poultry. components of our recently launched Provia Prime TM Vaccines Our vaccines products are primarily focused on preventing diseases in poultry, swine and cattle. We market vaccines in all regions in which we operate. We market our vaccine products to protect animals from either viral or bacterial disease challenges. We have developed and distribute over 400 licensed vaccine presentations for prevention of diseases in poultry, including vaccines to protect against Infectious Bursal Disease, Infectious Bronchitis, Newcastle Disease, Reovirus, Salmonella and Coryza. We develop, manufacture and distribute autogenous vaccines against animal diseases for swine, poultry and cattle in the United States. Our autogenous vaccines allow us to produce custom vaccines for veterinarians that contain antigens specific to each farm, allowing Phibro to provide comprehensive and customized health management solutions to our customers. Our autogenous vaccine products include the Tailor Made line of vaccines and the MJPRRS vaccine. We also market adjuvants to animal vaccine manufacturers globally. ® ® We have developed TAbic , an innovative and proprietary delivery platform for vaccines. TAbic is a patented ® technology for formulation and delivery of vaccine antigens in effervescent tablets, packaged in sealed aluminum blister packages. The technology replaces the glass bottles that are in common use today, and offers significant advantages including storage requirements, customer handling and disposal. Several of our vaccine products are available in the patented TAbic format. We also focus on innovation to produce new antigens or new presentations of antigens, and have developed new vaccines, such as: • • • • TM MB-1 in-ovo or subcutaneous injection at the hatchery, , a live attenuated vaccine for Infectious Bursal disease, developed from the M.B. strain, adapted for TAbic IBVAR206, a live attenuated virus vaccine for Infectious Bronchitis developed from a unique genotype 2 variant strain, the inactivated subunit Infectious Bursal Disease Virus and, Egg Drop Syndrome vaccines, being sold as monovalent vaccines or in combinations with other antigens. We have developed pHi-Tech™, a new technology in the form of a portable electronic vaccination device and software that ensures proper delivery of vaccines and provides management information. We are making operational a vaccine production facility in Sligo, Ireland to produce poultry vaccines, with longer-term expectations to add swine and cattle vaccines. Installation of machinery and equipment and preparation for regulatory approvals is in process. Mineral Nutrition Our Mineral Nutrition business manufactures and markets approximately 400 formulations and concentrations of trace minerals such as zinc, manganese, copper, iron and other compounds, with a focus on customers in North America. Our customers use these products to fortify the daily feed requirements of their livestock’s diets and maintain an optimal balance of trace elements in each animal. We manufacture and market a broad range of mineral nutrition products for food animals including poultry, swine and beef and dairy cattle. Volume growth in the mineral nutrition sector is primarily driven by livestock production 10 TABLE OF CONTENTS numbers, while pricing is largely based on costs of the underlying commodity metals. Demand for our mineral nutrition products can vary in different seasons of the year and due to changes in weather conditions in a particular region, both of which may cause animal feed consumption to fluctuate. As a result, we may experience regional and seasonal fluctuations in our Mineral Nutrition segment. Performance Products Our Performance Products business manufactures and markets a number of specialty ingredients for use in the personal care, industrial chemical and chemical catalyst industries, predominantly in the United States. Our Products Animal Health MFAs and Other Our MFAs and other products primarily consists of the production and sale of antibacterials (Stafac, Terramycin, Neo-Terramycin and Mecadox) and anticoccidials (Nicarb, Aviax, Aviax Plus, Coxistac and amprolium). We sell our MFAs and other products in all regions where we do business. Antibacterials and Anticoccidials We manufacture and market a broad range of antibacterials and other medicated products to the global livestock industry. These products provide therapeutic benefits for the animals while helping to control pathogens that have a negative impact on animal health and productivity. The table below presents our core MFA products: Active Ingredient oxytetracycline Market Entry of Active Ingredient 1951 Product ® ® Terramycin /TM-50 / TM-100™ Nicarb ® Amprolium ® Bloat Guard ® Banminth ® Mecadox nicarbazin amprolium poloxalene pyrantel tartrate carbadox Stafac /Eskalin™/V-Max ® ® virginiamycin Coxistac™/Posistac™ salinomycin Rumatel ® morantel tartrate Cerditac™/Cerdimix™ oxibendazole Aviax ® Neo-Terramycin /​ Neo-TM™ ® Aviax Plus/Avi-Carb ® ® semduramicin oxytetracycline + neomycin semduramicin + nicarbazin Description Antibacterial with multiple applications for a wide number of species Anticoccidial for poultry Anticoccidial for poultry and cattle Anti-bloat treatment for cattle Anthelmintic for livestock Antibacterial for enteric pathogens in swine including Salmonellosis and dysentery Antibacterial used to prevent and control diseases in poultry, swine and cattle Anticoccidial for poultry, cattle and swine Anthelmintic for livestock Anthelmintic for livestock Anticoccidial for poultry Combination of two antibacterials with multiple applications for a wide number of species 1954 1960 1967 1972 1972 1975 1979 1981 1982 1995 1999 2010 Anticoccidial for poultry Antibacterials are biological or chemical products used in the animal health industry to treat or to prevent bacterial diseases, thereby promoting animal health, resulting in more efficient livestock growth. 11 TABLE OF CONTENTS Several factors contribute to limit the 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 in livestock, which can also lead to improved overall health of the animals, improved rate of weight gain and more efficient feed conversion. Our antibacterial products include: • • • ® Oxytetracycline and Neomycin. Terramycin utilizes the active ingredient oxytetracycline and Neo- 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. We sell Terramycin and Neo- Terramycin products primarily to livestock and aquaculture producers, feed companies and distributors. ® Virginiamycin. Virginiamycin is an antibacterial marketed under the brand names Stafac to poultry, swine and cattle producers, Eskalin™ to dairy cows and beef cattle producers and V-Max for beef cattle producers. Virginiamycin is used primarily to prevent necrotic enteritis in chickens, treat and control swine dysentery and aid in the prevention or reduce the incidence of rumen acidosis and liver abscesses in cattle. Our experience in the development and production of virginiamycin has enabled us to develop significant intellectual property through trade secret know-how, which has helped protect against competition from generics. We are the sole worldwide manufacturer and marketer of virginiamycin. ® ® Carbadox. We market carbadox under the brand name Mecadox for use in swine feeds to control swine Salmonellosis and swine dysentery and, as a result, improve animal health and productivity. Mecadox is sold primarily in the United States to feed companies and large integrated swine producers. ® Anticoccidials are produced through fermentation or chemical synthesis, and are primarily used to prevent and control the disease coccidiosis in poultry and cattle, thereby promoting animal health, resulting in healthier animals. Coccidiosis is a disease of the digestive tract that has considerable health consequences to livestock and, as a result, is of great concern to livestock producers. We sell our anticoccidials primarily to integrated poultry producers and feed companies and to international animal health companies. Our anticoccidial products include: • • • Nicarbazin. We produce and market nicarbazin, a broad-spectrum anticoccidial used for coccidiosis prevention in poultry. We market nicarbazin under the trademarks Nicarb and Nicarmix 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 Plus™/Avi-Carb and Posistac™, which are in a class of compounds known as ionophores, to combat coccidiosis in poultry and increase feed efficiency in swine. ® ® ® Anthelmintics are used to treat infestations of parasitic intestinal worms. Our anthelmintic products include and Banminth , which are both marketed to control major internal nematode parasites in beef and dairy ® ® Rumatel cattle and swine. Bloat Guard is an anti-bloat treatment used in cattle to control bloat in animals grazing on legume or wheat- ® pasture. Nutritional Specialties Our primary nutritional specialty products have been identified, developed and commercialized by our staff of nutritionists and veterinarians working with private research companies, leading universities, and customers with whom we collaborate. For those of our nutritional specialty products that are not proprietary or exclusive to us, we typically maintain unique supply agreements or exclusive distributor status with the product developers giving us preferential access to trademarks, territories and research data. Our nutritional specialty products include: Product ® AB20 Market Entry Description 1989 Natural flow agent that improves overall feed quality 12 ​ TABLE OF CONTENTS Product Animate ® OmniGen ® Provia 6086™ Magni-Phi ® Cellerate Yeast Solutions ® Provia Prime™ Market Entry 1999 Maintains proper blood calcium levels in dairy cows during critical Description transition period 2004 2013 2015 2017 2019 Optimize immune function in dairy cows and improve productivity Direct fed microbial (B.coagulans) for all classes of livestock Proprietary blend that helps to improve intestinal health and immune response which may lead to improved absorption and utilization of nutrients for poultry Proprietary yeast culture products for all classes of livestock to help improve digestive health 4-way combination direct-fed microbial for optimization of gut health in poultry AB20 is a natural flow agent that, when added to feed, improves the overall feed quality. The product is one ® of the most thoroughly researched in the flow agent product category. Animate is a patented anionic mineral supplement that helps optimize the health and performance of the ® transition dairy cow and improves profitability for dairy producers. ® OmniGen is a proprietary nutritional specialty product line designed to maintain a cow’s healthy immune system, improve their natural response to potential environmental stressors and health challenges, and improve productivity. Magni-Phi ® is a proprietary blend of saponins, triterpenoids and polyphenols (classes of phytogenic feed additives or natural botanicals) that helps improve intestinal health and immune response which may lead to improved absorption and utilization of nutrients for poultry. Cellerate Yeast Solutions is a line of proprietary yeast culture and yeast culture blends with yeast fractions ® and/or live cell yeast used in all classes of livestock and companion animals for improved digestive health, feed intake and/or pathogen inhibition. Improved digestive health may lead to improved animal health and performance. Provia Prime™ is a proprietary combination of four strains of bacillus-based direct-fed microbials that have been shown to promote beneficial gut bacteria, which can help promote health, immunity and weight gain in poultry and may also lead to lower pathogens (such as Clostridium perfringens, E. coli and Salmonella) in commercial poultry production. We market nutritional specialty products to livestock producers with the support of key influencers, such as animal nutritionists and veterinarians. 13 ​ TABLE OF CONTENTS Vaccines We develop, manufacture and market fully licensed and autogenous vaccines for poultry, swine, cattle and aquaculture globally. We also develop, manufacture and market vaccination equipment. We produce vaccines that protect animals from either viral or bacterial disease challenges. Our vaccine products include: Product ® V.H. Tailor Made Vaccines ® MVP Adjuvants ® ® TAbic M.B. MJPRRS ® TAbic IB VAR ® TAbic IB VAR206 ® MB-1 TM pHi-Tech TM Market Entry 1974 1982 1982 2004 2007 2009 2010 2017 2019 Description Live vaccine for the prevention of Newcastle Disease in poultry Autogenous vaccines against either bacterial or viral diseases in poultry, swine and cattle Components of veterinary vaccines that enhance the immune response to a vaccine Live vaccine for the prevention of Infectious Bursal Disease in poultry Autogenous vaccine for the prevention of porcine reproductive and respiratory syndrome (“PRRS”) in swine Live vaccine for the prevention of Infectious Bronchitis variant 1 strain 233A in poultry Live vaccine for the prevention of Infectious Bronchitis variant 206 in poultry Live hatchery vaccine for the prevention of Infections Bursal Disease in poultry Portable electronic injection device and software enabling proper delivery of vaccines and management information The V.H. strain of Newcastle Disease vaccine is a pathogenic strain and is effective when applied by aerosol, coarse spray, drinking water or eye-drops. It has been used successfully under various management and climate conditions in many breeds of poultry. ® Tailor Made Vaccines are autogenous vaccines against either bacterial or viral diseases which contain antigens specific to each farm. We manufacture and sell these vaccines to U.S. veterinarians for use primarily in swine and cattle. MVP Adjuvants are integral components used in veterinary vaccines which enhance the immune response to ® a vaccine. Our adjuvants include Emulsigen , Emulsigen D, Carbigen and Polygen. ® ® The M.B. strain of Gumboro vaccine is an intermediate virulence live vaccine strain used for the prevention of Infectious Bursal Disease in poultry. The intermediate strain was developed to provide protection against 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 their offspring from ® PRRS. This vaccine includes multiple PRRS isolates representing different virus strains of PRRS. TAbic IB VAR and TAbic IB VAR206 vaccines are intermediate virulence live vaccine strains used for the ® ® prevention of infectious bronchitis in poultry. Both vaccines have become significant tools in the increasing fight against infectious bronchitis in regions throughout the world. MB-1™ is a live attenuated vaccine for Infectious Bursal disease, developed from the M.B. strain, adapted for in-ovo or subcutaneous injection in the hatchery. pHi-Tech™ is new technology in the form of a portable electronic vaccination device and software that ensures proper delivery of vaccines and provides management information. We focus on innovation to produce new antigens or new presentations of antigens, and have developed new vaccines, such as the inactivated subunit Infectious Bursal Disease Virus and Egg Drop Syndrome vaccines, being sold as monovalent vaccines or in combinations with other antigens. 14 ​ TABLE OF CONTENTS Mineral Nutrition Our mineral nutrition products principally include inorganic and organic compounds of copper, zinc, cobalt, iron, selenium, manganese, magnesium and iodine. ® Our mineral nutrition products also include GemStone , our exclusive line of chelated organic trace minerals, including zinc, manganese, copper and iron glycine chelates. Our formulas feature high metal content to ensure greater mineral presence and preserve critical ration space. Each product is also highly chelated for superior bioavailability to maximize mineral absorption and minimize environmental impact. These organic trace minerals are available in a highly concentrated, easy-flowing granule. ® Our mineral nutrition products also include the Vistore portfolio of products, our chloride mineral option of value-driven trace mineral offerings. Our formulas feature high metal content to ensure optimal mineral presence and preserve critical ration space. High bioavailability also promotes maximized absorption for enhanced results and minimized waste. 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 customers have 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 and logistics execution to be profitable. Performance Products Our 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 (a division of PAHC), Ferro Metal and Chemical Corporation Limited and Phibro-Tech, Inc. (“Phibro-Tech”) business units. Sales and Marketing Our sales organization includes sales, marketing and technical support employees. In markets where we do not have a direct commercial presence, we generally contract with distributors that provide logistics and sales and marketing support for our products. Together, our Animal Health and Mineral Nutrition businesses have a sales, marketing and technical support organization of approximately 390 employees plus approximately 200 distributors who market our portfolio of approximately 1,500 product presentations to livestock producers, veterinarians, nutritionists, animal feed companies and distributors in over 75 countries. In direct sales markets, we sell our animal health and mineral nutrition products through our local sales offices, either directly to integrated poultry, swine and cattle integrators or through commercial animal feed manufacturers, wholesalers and distributors. Our sales representatives visit our customers, including livestock producers, veterinarians, nutritionists, animal feed companies, and distributors, to inform, promote and sell our products and services. In direct service markets, our technical operations specialists provide scientific consulting focused on disease management 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, industrial chemical and chemical catalyst industries. We market these products predominately in the United States. Customers We have approximately 3,700 customers, of which approximately 3,400 customers are served by our Animal Health and Mineral Nutrition businesses. We consider a diverse set of livestock producers, including poultry 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 the products to livestock producers. We do not consider the business to be dependent on a 15 TABLE OF CONTENTS single customer or a few customers, 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-term delivery contracts. Product Registrations, Patents and Trademarks We own certain product registrations, patents, trade names and trademarks, and use know-how, trade secrets, formulae and manufacturing techniques, which assist in maintaining the competitive positions of certain of our products. We believe that technology is an important component of our competitive position, and it provides us with low cost positions enabling us to produce high quality products. Patents protect some of our technology, but a significant portion of our competitive advantage is based on know-how built up over many years of commercial operation, which is protected as trade secrets. We own, or have exclusive rights to use under license, approximately 340 patents or pending applications in more than 50 countries but we believe that no single patent is of material importance to our business and, accordingly, that the expiration or termination thereof would not materially affect our business. We market our animal health products under hundreds of governmental product registrations approving many of our products with respect to animal drug safety and efficacy. The use of many of our medicated products is regulated by authorities that are specific to each country (e.g., the Food and Drug Administration (“FDA”) in the United States, Health Canada in Canada and European Food Safety Authority (“EFSA”) and the European Medicines Agency (“EMA”) in Europe. Medicated product registrations and requirements are country- and product- specific for each country in which they are sold. We continuously monitor, maintain and update the appropriate registration files pertaining to such regulations and approvals. In certain countries where we work with a third party distributor, local regulatory requirements may require registration in the name of such distributor. As of June 30, 2020, we had approximately 770 Animal Health product registrations globally, including approximately 400 MFA registrations and approximately 370 vaccine registrations. Our MFA global registrations included 87 registrations for virginiamycin. Additionally, many of our vaccine products are based on proprietary master seeds, proprietary adjuvant formulations or patented virus grouping technology. We actively seek to protect our proprietary information, 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 the commencement of their employment or engagement. We seek to file and maintain trademark registrations around the world based on commercial activities in most regions where we have, or desire to have, a business presence for a particular product or service. We currently maintain, or have rights to use under license, approximately 2,500 trademark registrations or pending applications globally, identifying goods and services related to our business. Our technology, brands and other intellectual property are important elements of our business. We rely on patent, trademark, copyright and trade secret laws, as well as non-disclosure agreements, to protect our intellectual property rights. Our policy is to vigorously protect, enforce and defend our rights to our intellectual property, as appropriate. Regulatory Many of our animal health and mineral nutrition products require licensing by a governmental agency before 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 maintenance in the market. Our regulatory function seeks to engage in dialogue with various global agencies regarding their policies that relate to animal health products. For products that are currently subject to formal licensing by government 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 its agents to make timely, complete or accurate submissions, could result in suspension or loss of the company’s rights to market its products in one or more countries. 16 TABLE OF CONTENTS United States In the United States, governmental oversight of animal nutrition and health products is conducted primarily by the United States Department of Agriculture (“USDA”) and/or the FDA. The United States Environmental Protection Agency (the “EPA”) has jurisdiction over certain products applied topically to animals or to premises to control external parasites and shares regulatory jurisdiction of ethanol manufactured in biofuel manufacturing facilities with the FDA. The USDA and the FDA are the agencies responsible for the safety and wholesomeness of the U.S. human food supply. The FDA regulates foods intended for human consumption and, through the Center for Veterinary Medicine (“CVM”), regulates the manufacture and distribution of animal drugs marketed in the U.S. including those administered to animals from which human foods are derived. All manufacturers of animal health pharmaceuticals marketed in the United States, must show their products to be safe, effective and produced by a consistent method of manufacture as defined under the Federal Food, Drug, and Cosmetic Act. To protect the food and drug supply, the FDA develops technical standards for human and animal drug safety, effectiveness, labeling and Good Manufacturing Practice. The CVM evaluates data necessary to support approvals of veterinary drugs. Drug sponsors are required to file reports of certain product quality 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 of Pesticide Programs is responsible for the regulation of pesticide products applied to animals. All manufacturers of animal health pesticides must show their products will not cause “unreasonable adverse effects to man or the environment” as stated in the Federal Insecticide, Fungicide, and Rodenticide Act. Within the United States, pesticide products that are approved by the EPA must also be approved by individual state pesticide authorities before distribution in that state. Post-approval monitoring of products is required, with reports provided to the EPA and some state regulatory agencies. FDA approval of Type A/B/C Medicated Feed Articles and drugs is based on satisfactory demonstration of safety, efficacy, manufacturing quality standards and appropriate labeling. Efficacy requirements are based on the desired label claim and encompass all species for which label indication is desired. 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 safety and efficacy requirements for animal drugs used in food-producing animals, environmental safety must be demonstrated. 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 as stringent as, if not more so than, those required for a drug used in humans. In addition, certain safety requirements relating to antimicrobial resistance must be met for antimicrobial products. The CVM Office of New Animal Drug Evaluation is responsible for reviewing information submitted by drug sponsors who wish to obtain approval to manufacture and sell animal drugs. A new animal drug is deemed unsafe unless there is an approved New Animal Drug Application (“NADA”). Virtually all animal drugs are “new animal drugs” within the meaning of the term in the Federal Food, Drug, and Cosmetic Act. An approved Abbreviated New Animal Drug Application (“ANADA”) is a generic equivalent of an NADA previously approved by the FDA. Both are regulated by the FDA. The drug development process for human therapeutics can be more involved than that for animal drugs. However, because human food safety and environmental 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, require additional testing or information, or require post-marketing testing and surveillance to monitor the safety or efficacy of a product. There can be no assurances that FDA approval of any NADA or ANADA will be granted on a timely basis, or at all. Moreover, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Finally, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. Among the conditions for NADA or ANADA approval is the requirement that the prospective manufacturer’s quality control 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 with cGMP after an initial pre-approval inspection. Certain subsequent 17 TABLE OF CONTENTS manufacturing changes must be approved by the FDA prior to implementation. In complying with standards set forth in these regulations, manufacturers must continue 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 and significant delays. There can be no assurance that such approvals will be granted on a timely basis, or at all. Any delay in obtaining or any failure to obtain FDA or foreign government approvals, or the suspension or revocation of such approvals, would adversely affect our ability to introduce and market our products and to generate 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 to government restrictions on the use of antibiotics in these food-producing animals. The sale of antibiotics is a material portion of our business. Legislative bills are introduced in the United States Congress from time to time that, if adopted, could have an adverse effect on our business. One of these initiatives is a proposed bill called the Preservation of Antibiotics for Medical Treatment Act, which has been introduced in almost every Congress since the mid 2000’s. To date, such bills have not had sufficient support to become law. Should statutory, regulatory or other developments result in restrictions on the sale of our products, it could have a material adverse impact on our financial position, results of operations and cash flows. In November 2004, the CVM released a draft for comment of its risk assessment of streptogramin resistance ® 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 Synercid (quinupristin/dalfopristin) for treating vancomycin resistant Enterococcus faecium (VREf), which led to increased attention regarding the use of streptogramins in animals. Synercid and virginiamycin (the active ingredient in our Stafac product) are both members of the streptogramin class of antimicrobial drugs. The risk assessment was unable to produce any firm conclusions as to whether, and, if so, how much, the use of virginiamycin in food animals contributes to the occurrence of streptogramin-resistant infections in humans via a foodborne pathway. In classifying streptogramins in 2003 as a “medically important antimicrobial” (“MIA”) on the CVM’s Guidance for Industry (“GFI”) 152 list, a guidance document for evaluating the microbial safety of antimicrobial new animal drugs on food for human consumption, the FDA’s stated concern was the potential impact on use of Synercid for treating VREf in humans. In 2010, the U.S. label for Synercid was changed and the VREf indication was removed. The FDA determined that data submitted by the sponsor of Synercid failed to verify clinical benefit of the product for the treatment of VREf infections in humans. We have requested that the FDA remove the streptogramin class of antimicrobials from GFI 152 to reflect that they are not “medically important” for human therapy, however, the FDA has declined our request. There can be no assurance that we will be successful in the future in gaining the FDA’s agreement with our view that streptogramins are no longer medically important and accordingly that this antimicrobial class should be removed from the GFI 152 list of MIAs. The FDA has announced its intention to further review the GFI 152 list and to review labelling directions of products on the GFI 152 list, which may lead to increased restrictions on the use of these products. Effective January 2017, the CVM’s revised Veterinary Feed Directive (“VFD”) regulations, which included changes to the control and use of antimicrobial products for use in animal feed, require that affected antimicrobial products may only be used if authorized by a veterinarian in accordance with the regulations. Prior to implementation of the revised VFD regulations, many approved antimicrobial products could be obtained and used without formal veterinary authorization. In January 2017, the FDA and industry completed the process of label changes for MIA products to remove production claims and to limit the use of MIAs to those uses that are considered necessary for assuring animal 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 of recommendations from the CVM, as described in GFI 213 (“New Animal Drugs and New Animal Drug Combination 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 GFI 209 (“The Judicious Use of Medically Important Antimicrobial Drugs in Food-Producing Animals”). We completed the process for label changes as described in GFI 213 by January 2017, within the timeline requested by the FDA. 18 TABLE OF CONTENTS In April 2016, the FDA began initial steps to withdraw approval of Mecadox (carbadox) via a regulatory process known as a Notice of Opportunity for Hearing (“NOOH”), due to concerns that certain residues from the product may persist in tissues for longer than previously determined. The NOOH process provided Phibro with an opportunity to defend the safety of Mecadox prior to the FDA taking final steps to remove Mecadox from the market. Over the next four years, as part of an ongoing process of responding to CVM’s inquiries, we provided extensive and meticulous research and data that confirmed the safety of carbadox. In March 2018, the FDA indefinitely stayed the withdrawal proceedings. The FDA published a notice in the Federal Register in July 2020 that it does not agree with Phibro’s scientific conclusions that carbadox is safe under the current conditions of use. Instead of proceeding to a hearing on the scientific concerns raised in the 2016 NOOH, as would be the normal regulatory procedure, the FDA announced that it was withdrawing the current NOOH, and issuing a proposed order to review the regulatory method for carbadox. The approved regulatory method determines if there are residues of carcinogenic concern in animal tissue at the time of slaughter. If the order (after the 60-day comment period) is finalized, the FDA has indicated it plans to issue a new NOOH proposing the withdrawal of carbadox from the market because of lack of an approved regulatory method. The 60-day comment period ends September 18, 2020. Phibro disagrees with the agency’s actions and has submitted a request to the FDA Office of the Commissioner that the agency continue the process it started in 2016 and proceed with a hearing to review the substantial body of data supporting the safety of carbadox. We have complete confidence in the safety of Mecadox. Mecadox has been approved and sold in the United States for more than 45 years and is a widely used treatment for controlling bacterial diseases including Salmonella and swine dysentery. Mecadox is not used in human medicine and the class 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 being detected from pig meat treated in accordance with the approved label. Sales of Mecadox for the 12 months ended June 30, 2020 were $17 million. Should we be unable to successfully defend the safety of the product, the loss of Mecadox sales would have an adverse effect on our financial condition and results of operations. The FDA routinely carries out audits related to cGMP standards for manufacturing facilities that make veterinary drug products and active pharmaceutical ingredients approved for sale in the U.S. The FDA inspectors may make observations during the course of these inspections, which may require corrective action in order for the manufacturing facility to remain in compliance with cGMP standards. Failure to take such corrective actions could result in the manufacturing facility being ineligible to receive future FDA approvals. In very serious cases of noncompliance with cGMP standards, the FDA may issue a warning letter which could result in products produced in such manufacturing facility no longer being eligible for sale in the U.S. Although it is our objective to remain in full conformance with U.S. cGMP standards, we have in the past received adverse observations and may in the future receive adverse observations or warning letters. Failure to comply with cGMP standards could have a material impact on our business and financial results. European Union European Union (“E.U.”) legislation requires that veterinary medicinal products must have a marketing authorization before they are placed on the market in the European Union. A veterinary medicinal product must meet certain quality, safety, efficacy and environmental criteria to receive a marketing authorization. The European Medicines Agency (and its main veterinary scientific committee, the Committee for Medicinal Products for Veterinary Use) and the national authorities in the various E.U. Member States, are responsible for administering this regime. A separate E.U. regime applies to feed additives. It provides for a re-registration process for existing additives 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 marketing authorization. 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 EFSA is responsible for the E.U. risk assessment regarding food and feed safety. Operating under the European Commission, in close collaboration with national authorities and in open consultation with its stakeholders, the EFSA provides independent scientific advice and communication on existing and 19 TABLE OF CONTENTS emerging risks. The EFSA may issue advice regarding the process of adopting or revising European legislation on food or feed safety, deciding whether to approve regulated substances such as pesticides and food additives, or developing new regulatory frameworks and policies, for instance, in the field of nutrition. The 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. The containment of antimicrobial resistance is one of the key areas of concern for the EFSA, EMA, the European Commission and its Directorates, the European Parliament and European Member State Governments. A number of manufacturers, including us, submitted dossiers in order to re-register various anticoccidials for the purpose of obtaining regulatory approval from the European Commission. The BSA for our nicarbazin product was published in October 2010 and a reauthorization will be required in October 2020. We sell nicarbazin under our own BSA and as an active ingredient 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 October 2016. We have submitted a dossier for reauthorization in accordance with the requirements of the EFSA and responded to requests for additional information from the EFSA by submitting additional data for both products. The current BSA remains valid while the EFSA reviews the additional data we have submitted. There can be no guarantee that these submissions will be reviewed favorably or in a timely manner. Failure to gain reauthorization in a timely manner could have an adverse financial impact on our business. In December 2018, the European Parliament and Council of the E.U. promulgated new veterinary medicinal products regulations known as E.U. 2019/6. The Delegating and Implementing Acts for these regulations have not yet been passed but Regulation 2019/6 includes provisions that could require animals or animal origin products imported into the E.U. from other countries to be produced under the same conditions as are required in the E.U. This may preclude the use of veterinary products not approved in the E.U. or require animal health products to be used in the manner approved in the E.U. If such restrictions are implemented, they could result in a reduction or elimination of the use of our products, especially our antibacterial products, in countries that export animals or animal origin products to the E.U. and other countries that align their regulations with E.U. regulations. Brazil The Ministry of Agriculture, Livestock Production and Supply (“MAPA”) is the regulatory body in Brazil responsible for the regulation and control of pharmaceuticals, biologicals and medicinal feed additives for animal use. MAPA’s regulatory activities are conducted through the Secretary of Agricultural Defense and its Livestock Products Inspection Department. These activities include the inspection and licensing of both manufacturing and commercial establishments for veterinary products, as well as the submission, review and approval of pharmaceuticals, biologicals and medicinal feed additives. Rest of world We are subject to regulatory requirements governing investigation, clinical trials and marketing approval for animal drugs in many other countries in which our products are sold. The regulatory approval process includes similar risks to those associated with the FDA and European Commission approvals set forth above. Global policy and guidance Country-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 company records 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 animal health entities, including the World Organization for Animal Health, Codex Alimentarius Commission, the recognized international standard- setting body for food (“Codex”), before establishing their own standards and regulations for veterinary pharmaceuticals and vaccines. 20 TABLE OF CONTENTS The Joint FAO/WHO Expert Committee on Food Additives is an international expert scientific committee that is administered jointly by the Food and Agriculture Organization of the United Nations and the World Health Organization. It provides risk assessments and safety evaluations of residues of veterinary drugs in animal products as well as exposure and residue definition and maximum residue limit proposals for veterinary drugs in traded food commodities. These internationally published references may also be used by national authorities when setting domestic standards. We work with the national authorities to establish acceptable safe levels of residual product in food-producing animals after treatment. This in turn enables the calculation of appropriate 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 compounds including carbadox. The advice language states “authorities should prevent residues of carbadox in food. This can be accomplished by not using carbadox in food producing animals.” The advice language is to provide advice only and is not binding on individual national authorities, and almost all national authorities already have long-established regulatory standards for carbadox, including prohibiting the use of carbadox in swine production within their territory, prohibiting the importation of pork from swine that are fed carbadox, or permitting the importation of pork from swine that are fed carbadox provided there is no detection of carbadox residues in the meat. The advice language may be considered by national authorities in making future risk management determinations. To the extent additional national authorities elect to follow the advice and prohibit the use of carbadox in food-producing animals and/or the importation of pork from swine that are fed carbadox, such decisions could have an adverse effect on our sales of carbadox in those countries or in countries that produce meat for export to those countries. Advertising and promotion review Promotion of animal health products is controlled by regulations in many countries. These rules generally restrict advertising and promotion to those approved claims and uses that have been reviewed and endorsed by the applicable agency. We conduct a review of promotion material for compliance with the local and regional requirements in the markets where we sell animal health products. Food Safety Inspection Service/Generally Recognized As Safe The FDA is authorized to determine the safety of substances (including “generally recognized as safe” 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 and Inspection Service, the food safety branch within the USDA, maintain the authority in the United States to determine that new substances and new uses of previously approved substances are suitable for use in meat, milk and poultry products. Competition We are engaged in highly competitive industries and, with respect to all of our major products, face competition from a substantial number of global and regional competitors. Some competitors have greater financial, R&D, production and other resources than we have. Our competitive position is based principally on our product registrations, customer service and support, breadth of product line, product quality, manufacturing technology, facility location, and product prices. We face competition in every market in which we participate. Many of our products face competition from products 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 could strengthen our competitors. Our competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. There can 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 our growth as a leader in our industry: 21 TABLE OF CONTENTS Products Aligned with Need for Increased Protein Production Increased scarcity of natural resources is increasing the need for efficient production of food animals such as poultry, swine and cattle. Our animal health products, including our MFAs, vaccines and nutritional specialty products, help prevent and manage disease outbreaks and enhance nutrition to help support natural defenses against diseases. These products are often critical to our customers’ efficient production of healthy animals. Our leading MFAs product franchise, Stafac/V-Max/Eskalin, is approved in over 30 countries for use in poultry, swine and cattle and is regarded as one of the leading MFA products for production animals. Our nicarbazin and amprolium MFAs are globally recognized anticoccidials. Our nutritional specialty product offerings such as OmniGen-AF and Animate are used increasingly in the global dairy industry, and Magni-Phi is rapidly becoming an important product for poultry producers. Our vaccine products are effective against critical diseases in poultry, swine and cattle. Global Presence with Existing Infrastructure in Key High-Growth Markets We have an established direct presence in many important emerging markets, and we believe we are a leader in many of the emerging markets in which we operate. Our existing operations and established sales, marketing and distribution network in over 75 countries provide us with opportunities to take advantage of global growth opportunities. Outside of the United States, our global footprint reaches to key high growth regions (countries where the livestock production growth rate is expected to be higher than the average growth rate) including Brazil and other countries in South America, China, India and Southeast Asia, Russia and former CIS countries, Mexico, Turkey, Australia, Canada and South Africa and other countries in Africa. Our operations in countries outside of the United States contributed approximately 59% of our Animal Health segment revenues for the year ended June 30, 2020. Leading Positions in High Growth Sub-sectors of the Animal Health Market We are a global leader in the development, manufacture and commercialization of MFAs and nutritional specialty products for the animal health market. We believe we are well positioned in the fastest growing food animal species segments of the animal health market with significant presence in poultry and swine, which are projected by Vetnosis to grow globally at compound annual rates from 2019 through 2024 of 4.2% and 1.1%, 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 1.7% between 2019 and 2024. Diversified and Complementary Product Portfolio with Strong Brand Name Recognition We market products across the three largest livestock species (poultry, cattle and swine) and aquaculture and in the major product categories (MFAs, vaccines and nutritional specialty products). We believe our 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 existing customers. We believe we have strong brand name recognition for the Phibro name and for many of our animal health and mineral nutrition products, and we believe Phibro vaccines are recognized as an industry standard in efficacy against highly virulent disease challenges. Our diverse portfolio of products also allows us to address the distinct growing conditions of livestock in different regions. Experienced Sales Force and Technical Support Staff with Strong, Consultative Customer Relationships Within our Animal Health and Mineral Nutrition segments, utilizing both our sales, marketing and technical support organization of approximately 390 employees and a broad distribution network, we market our portfolio of more than 1,500 product presentations to livestock producers and veterinarians in over 75 countries. We interact with customers at both their corporate and operating level, which we believe allows us to develop an in-depth understanding of their needs. Our technical support and research personnel are also important contributors to our overall sales effort. We have a total of approximately 180 technical, field service and quality control/quality assurance personnel throughout the world. These professionals interface directly with our key customers to provide practical solutions to derive optimum benefits from our products. 22 TABLE OF CONTENTS Experienced, Committed Employees and Management Team We have a diverse and highly skilled team of animal health professionals, including technical and field service personnel located in key countries throughout the world. These individuals have extensive field experience and are vital to helping us maintain and grow our business. Many of our field team have more than 20 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 and operating levels. The executive management team has diverse backgrounds and an average of approximately 20 years of experience in the animal health industry. Employees As of June 30, 2020, we had approximately 1,700 employees. Employees at our Guarulhos, Brazil facility are covered by a multi-employer regional industry-specific union. Certain of our Israeli employees are covered by site- specific collective bargaining agreements. Certain employees are covered by individual employment agreements. We believe our relations with union and non-union employees are good. Manufacturing The Animal Health business segment manufactures many products internally and supplements that production with contract manufacturing organizations (“CMOs”) as necessary. We manufacture active pharmaceutical ingredients for certain of our antibacterial and anticoccidial products in Guarulhos, Brazil and Braganca Paulista, Brazil. We manufacture active pharmaceutical ingredients for certain of our anticoccidial and antimicrobial products in Neot Hovav, Israel. We produce vaccines in Beit Shemesh, Israel and Omaha, Nebraska. We produce adjuvants in Omaha, Nebraska. We produce pharmaceuticals, disinfectants and other animal health products in Petach Tikva, Israel. We produce certain of our nutritional specialty products in Quincy and Chillicothe, Illinois and Sarasota, Florida. We produce certain of our mineral nutrition products in Quincy, Illinois and Omaha, Nebraska. We supplement internal manufacturing and production capabilities with CMOs. We purchase certain active pharmaceutical ingredients for other medicated products from CMOs in China, India, Mexico and other locations. We then formulate the final dosage form in our facilities and in contract facilities located in Argentina, Australia, Brazil, Canada, China, Israel, Malaysia, Mexico, South Africa and the United States. We purchase certain raw materials necessary for the commercial production of our products from a variety of third-party suppliers. Such raw materials are generally available from multiple sources, are purchased worldwide 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 current requirements and for our operations in the foreseeable future. Research and Development Most of our manufacturing facilities have chemists and technicians on staff involved in product development, quality assurance, quality control and providing technical services to customers. Research, development and technical service efforts are conducted by our veterinarians (DVMs) and nutritionists at various facilities. We operate Animal Health R&D and product testing at our facilities in: Guarulhos, Brazil; Beit Shemesh, Israel; Neot Hovav, Israel; Ma’ayan Tzvi, Israel; Quincy, Illinois; Corvallis, Oregon; State College, Pennsylvania; Sarasota, Florida; Manhattan, Kansas; St. Paul, Minnesota; and Omaha, Nebraska. We also engage various independent contract research organizations to undertake research and development activities. These facilities provide R&D services relating to: fermentation development and micro-biological strain improvement; vaccine development; chemical synthesis and formulation development; nutritional specialty product development; and ethanol-related products. 23 TABLE OF CONTENTS Environmental, Health and Safety Our 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 Environmental Laws. 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 involved in civil or criminal action for such violations, including for odor releases in Guarulhos, Brazil. Additionally, at various sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring to address contamination associated with historical operations. We maintain accruals for costs and liabilities associated with Environmental Laws, which we currently believe are adequate. In many instances, it is difficult to predict the ultimate costs under Environmental Laws and the time period during which such costs are likely to be incurred. Governmental authorities have the power to enforce compliance with their regulations. Violators of Environmental Laws may be subject to civil, criminal and administrative penalties, injunctions or both. Failure to comply with Environmental Laws may result in the temporary or permanent suspension of operations and/or permits, limitations on production, or increased operating costs. In addition, private plaintiffs may initiate lawsuits for personal injury, property damage, diminution in property value or other relief as a result of our operations. Environmental Laws, and the interpretation or enforcement thereof, are subject to change and may become more stringent in the future, potentially resulting in substantial future costs or capital or operating expenses. We devote considerable resources to complying with Environmental Laws and managing environmental liabilities. We have developed programs to identify requirements under and maintain compliance with Environmental Laws; however, we cannot predict with certainty the impact of increased and more stringent regulation on our operations, future capital expenditure requirements, or the cost of compliance. Based upon our experience to date, we believe that the future cost of compliance with existing Environmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity. Environmental Health and Safety Regulations The following summarizes the principal Environmental Laws affecting our business. Waste Management. Our operations are subject to statutes and regulations addressing the contamination by, and management of, hazardous substances and solid and hazardous wastes. In the United States, 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 and several 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, the legality of the original disposal or ownership of the disposal site. We have been, and may become, subject to liability under CERCLA for cleanup costs or investigation or clean up obligations or related third-party claims in connection with releases of hazardous substances at or from our current or former sites or offsite waste disposal facilities 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 transportation of solid and hazardous wastes. These laws impose management requirements on generators and transporters of such wastes and on the owners and operators of treatment, storage and disposal facilities. As current or historic recyclers of chemical waste, certain of our subsidiaries have been, and are likely to be, the focus of extensive compliance reviews by environmental regulatory authorities under RCRA. Our subsidiary Phibro-Tech currently has a RCRA operating permit for its Santa Fe Springs, California facility, for which a renewal application is under review. Phibro-Tech initially submitted an application for renewal of its permit for the Santa Fe Springs facility in 1996. We are unable to predict when the State of California will issue a draft permit for public review and comment. Until the State of California issues its final decision on the renewal application, the facility is continuing to operate under the exiting permit. Phibro-Tech has updated its permit application on several occasions, and DTSC has approved a number of permit modifications to the existing permit. In addition, because we or our subsidiaries have closed several facilities that had been the 24 TABLE OF CONTENTS subject of RCRA permits, we or our subsidiaries have been and will be required to investigate and remediate certain environmental contamination conditions at these shutdown plant sites within the requirements of RCRA corrective action programs. Federal Water Pollution Control Act, as amended. We must comply with regulations related to the discharge of pollutants to the waters of the United States without governmental authorization, including those pursuant 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 our products, including, for example, in the United States, the federal Toxic Substances Control Act and Federal Insecticide, 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 ongoing litigation, 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. Regulatory agencies can also impose administrative, civil and criminal penalties for non-compliance with air permits or other 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 gas reductions. In the United States, the EPA has promulgated federal greenhouse gas regulations under the CAA affecting certain sources. In addition, a number of state, local and 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 of energy efficiency regulations, carbon dioxide emissions allowances trading and renewable energy requirements. Capital Expenditures We 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 safety regulations were $6.4 million for fiscal year ended June 30, 2020. We estimate that our capital expenditures for compliance will be $5.0 million and $4.2 million for fiscal years 2021 and 2022, respectively; however, these estimates are subject to change given the uncertainty of future Environmental Laws and the interpretation and enforcement thereof, as further described in this Annual Report on Form 10-K. Our environmental capital expenditure plans cover, among other things, the currently expected costs associated with known permit requirements relating to facility improvements. Contamination and Hazardous Substance Risks Investigation, Remediation and Monitoring Activities. Certain of PAHC’s subsidiaries that are currently or were historically engaged in recycling and other activities involving hazardous materials have been required 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 several of 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 will continue to require, further investigation, corrective action and monitoring over future years. These subsidiaries also have been, and in the future may be, required to undertake additional capital improvements as part of these actions. In addition, RCRA and other applicable statutes and regulations require these subsidiaries to develop closure and post-closure plans for their facilities and in the event of a facility closure, obtain a permit that sets forth a closure plan for investigation, remediation and monitoring and requires post-closure monitoring and maintenance for up to 30 years. We believe we are in material compliance with these requirements and maintain adequate reserves to complete remediation and monitoring obligations at these locations. 25 TABLE OF CONTENTS In connection with past acquisitions and divestitures, we have undertaken certain indemnification obligations that require us, or may in the future require us, to conduct or finance environmental cleanups at sites we no longer own or operate. Under the terms of the sale of the former facility in Joliet, Illinois, Phibro-Tech remains responsible for any required investigation and remediation of the site attributable to conditions at the site at the time of the February 2011 sale date, and we believe we have sufficient reserves to cover the cost of the remediation. PRP at Omega Chemical Superfund Site. The EPA is investigating and planning for the remediation of offsite 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 EPA has entered into a settlement agreement with a group of companies that sent chemicals to the Omega Chemical Site for processing and recycling (“OPOG”) to remediate the contaminated groundwater that has migrated from the Omega site in accordance with a general remedy selected by EPA. The EPA has named Phibro-Tech and certain other subsidiaries of PAHC as PRPs due to groundwater contamination from Phibro-Tech’s Santa Fe Springs facility that has allegedly commingled with contaminated groundwater from the Omega Chemical Site. In September 2012, the EPA notified approximately 140 PRPs, including Phibro-Tech and the other subsidiaries, that they have been identified as potentially responsible for remedial action for the groundwater plume affected by the Omega Chemical Site and for EPA oversight and response costs. Phibro-Tech contends 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, a successor to a prior owner of the Phibro-Tech site has asserted that PAHC and Phibro-Tech are obligated to provide indemnification for its potential 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 is required to indemnify Phibro-Tech for its potential liability and defense costs. Furthermore, the members of OPOG filed a complaint under CERCLA and RCRA in the United States District Court for the Central District of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for contribution toward past and future costs associated with the investigation and remediation of the groundwater plume affected by the Omega Chemical Site. Due to the ongoing nature of the EPA’s investigation, the preliminary stage of the ongoing litigation and Phibro-Tech’s dispute 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 EPA oversight 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 all consequences arising out of human exposure to hazardous substances or other environmental damage, which liability may not be covered by insurance. Environmental Accruals and Financial Assurance. We have established environmental accruals to cover known remediation and monitoring costs at certain of our current and former facilities. Our accruals for environmental liabilities are recorded by calculating our best estimate of probable and reasonably estimable future costs using current information that is available at the time of the accrual. Our accruals for environmental liabilities totaled $5.3 million and $5.9 million as of June 30, 2020 and 2019, respectively. In certain instances, regulatory authorities have required us to provide financial assurance for estimated costs of remediation, corrective action, monitoring and closure and post-closure plans. Our subsidiaries, in most instances, have chosen to provide the required financial assurance by means of surety bonds or letters of credit issued pursuant to our revolving credit facility. As of June 30, 2020, surety bonds and letters of credit provided $12.0 million of financial assurance. Workplace Health and Safety We are committed to manufacturing safe products and achieving a safe workplace. Our Environmental Health and Safety (“EHS”) Global Director, along with regional and site-based EHS professionals, manage environmental, health and safety matters throughout the Company. The site managers are responsible for implementing the established EHS controls. To protect employees, we have established health and safety policies, programs and processes at all our manufacturing sites. An external EHS audit is performed at each of our sites as needed based on the conditions at the respective sites. 26 TABLE OF CONTENTS Where You Can Find More Information We are subject to the information and periodic and current reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, in accordance therewith, will file periodic and current 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 the SEC’s website at www.sec.gov and through our website at www.pahc.com. 27 TABLE OF CONTENTS​ Item 1A. Risk Factors You 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 the following risks actually occurs, our business, financial condition, results of operation or cash flows could be materially 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 also impair its business operations. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. The Company’s results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks it faces described below and elsewhere. See also “Forward-Looking Statements.” Risk Factors Relating to Our Business A pandemic, epidemic, or outbreak of an infectious disease in humans, such as COVID-19, may materially and adversely affect our business and our financial results. In late 2019, a novel strain of coronavirus, COVID-19, was first detected in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected workforces, customers, suppliers, consumer sentiment, economies and financial markets, and have led to an economic downturn in many countries in which we operate. Disruptions due to COVID-19 or other similar health epidemics could extend to our manufacturing facilities and our supply chain, as well as to our customers and end users of our products who raise animals or who process meat, milk, eggs and seafood for human consumption. The continued spread of COVID-19 or other disease epidemics may result in a period of economic and business disruption and could have a material adverse impact on our business and financial results. Workforce limitations and travel restrictions resulting from pandemics, epidemics and disease outbreaks, and related government actions such as quarantines, shelter-in-place and “social distancing” requirements, travel restrictions and other similar government orders, may impact many aspects of our business. Our operations could be negatively impacted if a significant percentage of our workforce is unable to work or if we must alter the way in which we conduct our business because of illness or governmental restrictions. These negative impacts could include disruptions or slowdowns in manufacturing of our products, disruptions in our logistics and supply chain operations such as difficulty in importing and exporting our products or raw materials, and difficulties related to the transport of our products. In addition, we may take temporary precautionary measures intended to help minimize the risk of COVID-19 to our employees, including temporarily requiring employees to work remotely if possible, suspending all non-essential travel worldwide for our employees, and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business. These limitations and restrictions could also negatively affect operations at our third-party manufacturers and suppliers, which could result in delays or disruptions in the supply of the products and raw materials that they manufacture for us and increase the costs of such products and raw materials, both of which could ultimately negatively impact sales of our products. The ongoing economic downturn and quarantines due to COVID-19 could lead to decreased demand for protein, which may lead to end users of our products reducing their herd or flock sizes. Protein processing plants may reduce or temporarily cease operations due to quarantines and “social distancing” requirements, which may also result in end users of our products reducing herd or flock sizes due to lack of processing capacity. In addition, demand for protein could be reduced because consumers may associate human health fears related to COVID-19 with animal diseases, food, food production or food animals, whether or not it is scientifically valid. Reductions in demand for animal protein resulting from these factors could in turn affect the demand for our products in a manner that has a significant adverse effect on our financial condition and results of operations. 28 TABLE OF CONTENTS The COVID-19 pandemic continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic or similar health epidemics is highly uncertain and subject to change. We cannot presently predict with certainty the full scope and severity of any potential disruptions to our business, operating results, cash flows and/or financial condition, but we expect that the resulting adverse impact on our business and financial results could be material. Perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our 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 public perceive risks to human health related to the consumption of food derived from animals that utilize certain of our products, including certain of our MFA products. In particular, there is increased focus in the United States, the E.U., China and other countries on the use of antimicrobials in the livestock industry. In the United States, this focus is primarily on the use of medically important antimicrobials, which include classes that are prescribed in animal and human health and are listed in the Appendix of the FDA-CVM Guidance for Industry (GFI) 152. As defined by the FDA, medically important antimicrobials (“MIAs”) include classes that are prescribed in animal and human health and are listed in the Appendix of GFI 152. Our products that contain virginiamycin, oxytetracycline or neomycin are classified by the FDA as medically important antimicrobials and are included in the GFI 152 list. The FDA announced its intention to further review the GFI 152 list and to review labeling directions of products on the GFI 152 list, which may lead to increased restrictions on the use of these products. In addition to the United States, the World Health Organization (WHO), the E.U., Australia and Canada have promulgated rating lists for antimicrobials that are used in veterinary medicine and that include certain of our products. The classification of our products as MIAs or similar listings may lead to a decline in the demand for and production of food products derived from animals that utilize our products and, in turn, demand for our products. Rules or regulations adopted by any territory that restrict the use of our products, especially our antibacterial products, which require animals or animal origin products imported into that territory to be produced under the same conditions as are required within the territory could result in a reduction or elimination of the use of our products in countries that export animals or animal origin products to such territories. Livestock producers may experience decreased demand for their products 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 companies in related industries, including us. In addition, campaigns by interest groups, activists and others with respect to perceived risks associated with the use of our products in animals, including position statements by livestock producers and their customers based on non-use of certain medicated products in livestock production, whether or not scientifically-supported, could affect public perceptions and reduce the use of our products. Those adverse consumer views related to the use of one or more of our products in animals could have a material adverse effect on our financial condition and results of operations. 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-producing animals to human bacterial pathogens, and the causality and impact of that transfer, are the subject of global scientific and regulatory discussion. Antibacterials refer to molecules that can be used to treat or prevent bacterial infections and are a sub-categorization of the products that make up our medicated feed additives portfolios. In some countries, this issue has led to government restrictions on the use of specific antibacterials in some food-producing animals, regardless of the route of administration (in feed, water, intra-mammary, topical, injectable or other route of administration). These restrictions include prohibitions on use of antibacterials for non-therapeutic uses, preventative use, duration of use and requiring veterinary oversight to use products. These restrictions are more prevalent in countries where animal protein 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 our antibacterial products sold in the United States, in order to align with the FDA’s GFI 209 and GFI 213. The FDA objective, as described in GFI 209 and GFI 213, was to eliminate the production (non-therapeutic) uses of medically important antimicrobials administered in feed or water to food producing animals while providing for the continued use of medically important antimicrobials in food-producing animals for 29 TABLE OF CONTENTS treatment, control and prevention of disease (“therapeutic” use) under the supervision of a veterinarian. The FDA indicated that it took this 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 for over 45 years. Certain regulatory bodies have raised concerns about the possible presence of certain residues of our carbadox product in meat from animals that consume the product. The product was banned for use in the European 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. The advice language states “authorities should prevent residues of carbadox in food. This can be accomplished by not using carbadox in food producing animals.” The advice language is to provide advice only and is not binding on individual national authorities, and almost all national authorities already have long-established regulatory standards for carbadox. The advice language may be considered by national authorities in making future risk management determinations. To the extent additional national authorities elect to follow the risk management advice and prohibit the use of carbadox in food-producing animals, those decisions could have an adverse effect on our sales of carbadox in those countries or in countries like 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) via a regulatory process known as a Notice of Opportunity for Hearing (“NOOH”), due to concerns that certain residues from the product may persist in tissues for longer than previously determined. The NOOH process provided Phibro with an opportunity to defend the safety of Mecadox prior to the FDA taking final steps to remove Mecadox from the market. Over the next four years, as part of an ongoing process of responding to CVM’s inquiries, we provided extensive and meticulous research and data that confirmed the safety of carbadox. In March 2018, the FDA indefinitely stayed the withdrawal proceedings. The FDA published a notice in the Federal Register in July 2020 that it does not agree with Phibro’s scientific conclusions that carbadox is safe under the current conditions of use. Instead of proceeding to a hearing on the scientific concerns raised in the 2016 NOOH, as would be the normal regulatory procedure, the FDA announced that it was withdrawing the current NOOH, and issuing a proposed order to review the regulatory method for carbadox. The approved regulatory method determines if there are residues of carcinogenic concern in animal tissue at the time of slaughter. If the order (after the 60-day comment period) is finalized, the FDA has indicated it plans to issue a new NOOH proposing the withdrawal of carbadox from the market because of lack of an approved regulatory method. The 60-day comment period ends September 18, 2020. Phibro disagrees with the agency’s actions and has submitted a request to the FDA Office of the Commissioner that the agency continue the process it started in 2016 and proceed with a hearing to review the substantial body of data supporting the safety of carbadox. We have complete confidence in the safety of Mecadox. Mecadox has been approved and sold in the United States for more than 45 years and is a widely used treatment for controlling bacterial diseases including Salmonella and swine dysentery. Mecadox is not used in human medicine and the class 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 being detected from pig meat treated in accordance with the approved label. Should we be unable to successfully defend the safety of the product, the loss of Mecadox sales would have an adverse effect on our financial condition and results of operations. Our global sales of antibacterials, anticoccidials and other products were $322 million, $350 million and $337 million for the years ended June 30, 2020, 2019 and 2018, respectively. Mecadox sales were $17 million for the year ended June 30, 2020 and are included in global sales of antibacterials, anticoccidials and other products. We cannot predict whether concerns regarding the use of antibacterials will result in additional restrictions, expanded regulations or consumer preferences to discontinue or reduce use of antibacterials in food-producing animals, which could materially adversely affect our operating results and financial 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 and accounted for 40% and 42% of net sales for the years ended June 30, 2020 and 2019, respectively. The significant loss of antibacterial or other related product sales for any reason, including product bans or 30 TABLE OF CONTENTS restrictions, public perception, competition or any of the other risks related to such products as described in this Annual 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 have greater financial, R&D, production and other resources than we have. Many of our products face competition from alternative or substitute products. We are engaged in highly competitive industries and, with respect to all of our major products, face competition from a substantial number of global and regional competitors. We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products. Some competitors have greater financial, R&D, production and other resources than we have. Some of our principal competitors include Ceva Santé Animale, Boehringer Ingelheim International GmbH, 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, mineral nutrition or performance products at lower prices, our business could be adversely affected. New entrants could substantially reduce our market share or render our products obsolete. Furthermore, many of our competitors have relationships with key distributors and, because of their size, have the ability to offer attractive pricing incentives, which may negatively impact or hinder our relationships with these distributors. In certain countries, because of our size and product mix, we may not be able to capitalize on changes in competition and pricing as fully as our competitors. In recent years, there have been new generic medicated products 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 could strengthen our competitors. Our competitors can be expected to continue to improve the formulation and performance of their products and to introduce new products with competitive price and performance characteristics. There can be no assurance that we will have sufficient resources to maintain our current competitive position or market share. We also face competitive pressures arising from, among other things, more favorable safety and efficacy product profiles, limited demand growth or a significant number of additional competitive products being introduced into a particular market, price reductions by competitors, the ability of competitors to capitalize on their economies of scale and the ability of competitors to produce or otherwise procure animal health products at lower costs than us. To the extent that any of our competitors are more successful with respect to any key competitive factor, or we are forced to reduce, or are unable to raise, the price of any of our products in order to remain competitive, our business, financial condition and results of operations could 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 disease carried by food animals, which could lead to the widespread death or precautionary destruction of food animals as well as the reduced consumption and demand for animal protein. The demand for our products could be significantly affected by outbreaks of animal diseases, and such occurrences may have a material adverse impact on the sale of our products and our financial condition and results of operations. The outbreaks of disease are beyond our control and could significantly affect demand for our products and consumer perceptions of certain meat products. An outbreak of disease could result in governmental restrictions on the import and export of chicken, pork, beef or other products to or from our customers. This could also create adverse publicity that may have a material adverse effect on our ability to sell our products successfully and on our financial condition and results of operations. In addition, outbreaks of disease carried by animals may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our products due to reduced herd or flock sizes. Most recently, outbreaks of African Swine Fever, primarily in China, have reduced animal populations and have reduced consumer demand for pork in the affected markets. In the past decade, there has been substantial publicity regarding H1N1, known as North American (or Swine) Influenza and, previously, H5N1, known as Highly Pathogenic Avian Influenza, in the human population. There have also been concerns relating to E. coli in beef and Salmonella in poultry and other food poisoning micro-organisms in meats 31 TABLE OF CONTENTS and other foods. Consumers may associate human health fears with animal diseases, food, food production or food animals whether or not it is scientifically valid, which may have an adverse impact on the demand for animal protein. Occurrences of this type could significantly affect demand for animal protein, which in turn could affect the demand for our products in a manner that has a significant adverse effect on our financial condition and results of operations. Also, the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force 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 our products 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 region are affected by changing disease pressures and by weather conditions, as usage of our products follows varying weather patterns and weather-related pressures from diseases. As a result, we may experience regional and seasonal fluctuations in our results of operations. In addition, livestock producers depend on the availability of natural resources, including abundant rainfall to sustain large supplies of drinking water, grasslands and grain production. Their animals’ health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods, droughts or other weather conditions. In the event of adverse weather 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 the manufacture and distribution of our products, agricultural yields and the demand for our products and result in additional regulation that increase our operating costs. The testing, manufacturing, and marketing of certain of our products are subject to extensive regulation by numerous government authorities in the United States and other countries, including, but not limited to, the FDA. Among other requirements, FDA approval of antibacterials and other medicated products, including the manufacturing processes and facilities used to produce such products, is required before such products may be marketed in the United States. Further, cross-clearance approvals are generally required for such products to be used in combination in animal feed. Similarly, marketing approval by a foreign governmental authority is typically required before such products may be marketed in a particular foreign country. In addition to approval of the product and its labeling, regulatory authorities typically require approval and periodic inspection of the manufacturing facilities. In order to obtain FDA approval of a new animal health product, we must, among other things, demonstrate to the satisfaction of the FDA that the product is safe and effective for its intended uses and that we are capable of manufacturing the product with procedures that conform to FDA’s current cGMP regulations, which must be followed at all times. Audits related to cGMP standards are typically carried out by the FDA on a two-year cycle. We are routinely subject to these inspections and respond to the FDA to address any concerns they may make in their inspectional observations (Form 483). Although it is our objective to remain in full conformance with U.S. cGMP standards, there can be no assurance that future inspections will not raise adverse inspectional observations. Failure to comply with cGMP standards could have a material impact on our business and financial results. In February 2015, the FDA conducted an inspection at our Teaneck, NJ headquarters to verify changes to and corrective actions related to various analytical test results and practices, expiration dating and reporting requirements regarding specification non-conformance. A Form 483 was issued, which contained one inspectional observation citing two examples of the observed violation. The observation questioned whether or not we are able to confirm that the drug components (of Type A medicated products) 32 TABLE OF CONTENTS remain uniformly dispersed and stable under ordinary conditions of shipment, storage and use. We responded to the inspectional observation in writing in March 2015. This inspectional observation has not impacted our ability to market products in the United States or any other country. We believe the Form 483 observation has been satisfactorily addressed, however, we have not yet received a formal response from the FDA to our written response. The process of seeking FDA approvals can be costly, time-consuming, and subject to unanticipated and significant delays. There can be no assurance that such approvals will be granted to us on a timely basis, or at all. Any delay in obtaining or any failure to obtain FDA or foreign government approvals or the suspension or revocation of such approvals would adversely affect our ability to introduce and market medicated feed additive products and to generate product revenue. For more information on FDA and foreign government approvals and cGMP issues, see “Business — Regulatory.” We may experience declines in the sales volume and prices of our products as the result of the continuing trend toward consolidation of certain customer and distributor groups as well as the emergence of large buying groups. We make a majority of our sales to integrated poultry, swine and cattle operations and to a number of regional and national feed companies, distributors, co-ops and blenders. Food animal producers, particularly, 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 additional purchasing 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 extract price discounts on our products. Moreover, if, as a result of increased leverage, customers require us to reduce our pricing such that our gross margins are diminished, we could decide not to sell our products to a particular customer, which could result in a decrease in our revenues. Consolidation among our customer base may also lead to reduced demand for our products and replacement of our products by the combined entity with those 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 may experience decreased animal protein prices or sales, including as a result of the economic downturn relating to the COVID-19 pandemic. International trade disputes and tariffs could reduce demand for our customers’ products. These trends could cause deterioration in the financial condition of our livestock producer customers, potentially inhibiting their ability to purchase our products or pay us for products delivered. Our livestock producer customers may offset rising costs by reducing spending 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 to certain of our products. We depend primarily on trade secrets to provide us with competitive advantages for many of our products. The protection afforded is limited by the availability of new competitive products or generic versions of existing products that can successfully compete with our products. As a result, we may face competition 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 increasing percentage of overall animal health sales in certain regions. If animal health customers increase their use of new or existing generic products, our financial condition and results of operations could be materially adversely affected. Advances in veterinary medical practices and animal health technologies could negatively affect the market for our products. The market for our products could be impacted negatively by the introduction and/or broad market acceptance of newly developed or alternative products that address the diseases and conditions for which we sell products, including “green” or “holistic” health products or specially bred disease-resistant animals. In 33 TABLE OF CONTENTS addition, technological breakthroughs by others may obviate our technology and reduce or eliminate the market for our products. Introduction or acceptance of such products or technologies could materially adversely affect our business, 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, the prevention, control and/or treatment of certain diseases and conditions in specific species, in some cases subject to certain dosage levels or minimum withdrawal periods prior to the slaughter date. There may be increased risk of product liability if livestock producers or others attempt any extra-label use of our products, including the use of our products in species for which they have not been approved, or at dosage levels or periods prior to withdrawal that have not been approved. If we are deemed by a governmental or regulatory agency to have engaged in the promotion of any of our products for extra-label use, such agency could request that we modify our 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 we were not responsible for having promoted the extra-label use, concerns could arise about the safety of the resulting meat in the human food supply. Any of these events could materially adversely affect our financial condition and results of operations. The public perception of the safety and efficacy of certain of our animal health products may harm our reputation. The public perception of the safety and efficacy of certain of our animal health products, whether or not 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 a significant portion of a product’s sales and could, depending on the circumstances, materially adversely affect our results of operations. In addition, we depend on positive perceptions of the safety and quality of our products, and animal health products generally, by our customers, veterinarians and end-users, and such concerns may harm our reputation. In some countries, these perceptions may be exacerbated by the existence of counterfeit versions of our products, which, depending on the legal and law enforcement recourse available in the jurisdiction where the counterfeiting occurs, may be difficult to police or stop. These concerns and the related harm to our reputation could materially adversely affect our financial condition and results of operations, regardless of whether such reports are accurate. We are dependent on suppliers having current regulatory approvals, and the failure of those suppliers to maintain these approvals or other challenges in replacing any of those suppliers could affect our supply of materials or affect the distribution or sale of our products. Suppliers and third party contract manufacturers for our animal health and mineral nutrition products or the active pharmaceutical ingredients or other materials we use in our products, like us, are subject to extensive regulatory compliance. If any one of these third parties discontinues its supply to us because of changes in the regulatory environment to which such third parties are subject, significant regulatory violations or for any other reason, or an adverse event occurs at one of their facilities, the interruption in the supply of these materials could decrease sales of our affected products. In this event, we may seek to enter into agreements with third parties to purchase active ingredients, raw materials or products or to lease or purchase new manufacturing facilities. We may be unable to find a third party willing or able to provide the necessary products or facilities suitable for manufacturing pharmaceuticals on terms acceptable to us or the cost of those pharmaceuticals may be prohibitive. If we have to obtain substitute materials or products, additional regulatory approvals will likely be required, as approvals are typically specific to a single product produced by a specified manufacturer in a specified facility and there can be no assurances that such regulatory approvals will be obtained. As such, the use of new facilities also requires regulatory approvals. While we take measures where economically feasible and available to secure back-up suppliers, the continued receipt of active ingredients or products from a sole source supplier could create challenges if a sole source was 34 TABLE OF CONTENTS interrupted. We may not be able to provide adequate and timely product to eliminate any threat of interruption of supply of our products to customers and these problems may materially adversely impact our business. The raw materials used by us and our third party contract manufacturers in the manufacture of our products can 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 raw materials, such changes may not occur simultaneously or to the same degree. The costs of certain of our significant raw materials are subject to considerable volatility, and we generally do not engage in activities to hedge the costs of our raw materials and our third party contract manufacturers may demand price increases related to increases in the costs of raw materials. In addition, we may be subject to new or increased tariffs on imported raw materials with limited ability to pass those increased costs through to our customers. Although no single raw material accounted for more than 5% of our cost of goods sold for the year ended June 30, 2020, volatility in raw material costs can result in significant fluctuations in our costs of goods sold of the affected products. The costs of raw materials used by our Mineral Nutrition business are particularly subject to fluctuations in global commodities markets and cost changes in the underlying commodities markets typically lead directly to a corresponding change in our revenues. Although we attempt to adjust the prices of our products to reflect significant changes in raw material costs, we may not be able 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 material adverse effect on our financial condition and results of operations. The supply of certain of our raw materials is dependent on third party suppliers. There is no guarantee that supply shortages or disruptions of such raw materials will not occur and the likelihood of such supply shortages and disruptions has been, and will likely continue to be, increased due to the COVID-19 pandemic. In addition, if any one of these third parties discontinues its supply to us, or an adverse event occurs at one of their facilities, the interruption in the supply of these materials could decrease sales of our affected products. In the event that we cannot procure necessary major raw materials from other suppliers, the occurrence of any of these may have an adverse impact on our business. 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, the operation 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, such as COVID-19 in humans or African Swine Fever in swine, near our production sites and the need to comply with environmental and other directives of governmental agencies. In addition, regulatory authorities such as the FDA typically require approval and periodic inspection of the manufacturing facilities to confirm compliance with applicable regulatory requirements, and those requirements may be enforced by various means, including seizures and injunctions. Certain of our product lines are manufactured at a single facility, and certain of our product lines are manufactured at a single facility with limited capacity at a second facility, and production would not be easily transferable to another site. The occurrence of material operational problems, including but not limited to the above events, may adversely affect our financial condition and results of operations. Our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes. The unpredictability of a product’s regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites, and shifting 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, and our ability to recover costs will depend on the market acceptance and success of the products produced at the new 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 exposure to additional tax liabilities. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Changes in the relevant tax laws, regulations and interpretations could adversely affect our future effective tax rates. Modifications 35 TABLE OF CONTENTS to key elements of the U.S. or international tax framework could have a material adverse effect on our consolidated financial statements. Our consolidated effective tax rate is subject to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely affecting our expected 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 of operations could be materially adversely affected. In addition, our tax returns and other tax filings and positions are subject to review by the Internal Revenue Service (the “IRS”) and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of 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: • • • • • • • • • • • • • • • • • • 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 Practices Act (“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 our business and the businesses of our customers; political and social instability, including crime, civil disturbance, terrorist activities, outbreaks of disease and pandemics and armed conflicts; trade restrictions, export controls and sanctions laws and restrictions on direct investments by foreign entities, including restrictions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or an increase in trade restrictions as a result of the COVID-19 pandemic; 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 international operations; corruption risk inherent in business arrangements and regulatory contacts with foreign government entities; longer payment cycles and increased exposure to counterparty risk; and additional limitations on transferring personal information between countries or other restrictions on the processing of personal information. The multinational nature of our business subjects us to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely impacting our effective tax rate and our tax liability. 36 TABLE OF CONTENTS In addition, international transactions may involve increased financial and legal risks due to differing legal systems and customs. Compliance with these requirements may prohibit the import or export of certain products and technologies or may require us to obtain a license before importing or exporting certain products or technology. A failure to comply with any of these laws, regulations or requirements could result in civil or criminal legal proceedings, monetary or non-monetary penalties, or both, disruptions to our business, limitations on our ability to import and export products and services, and damage to our reputation. In addition, variations in the pricing of our products in different jurisdictions may result in the unauthorized importation of our products between jurisdictions. While the impact of these factors is difficult to predict, any of them could materially adversely affect our financial condition and results of operations. Changes in any of these laws, regulations or requirements, or the political environment in a particular country, may affect our ability to engage in business transactions in certain markets, including investment, procurement and repatriation of earnings. We are subject to product registration and authorization regulations in many of the jurisdictions in which we operate 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 safety analysis in order to lawfully distribute many of our products, including for example, in the United States, the federal Toxic Substances Control Act and the Federal Insecticide, Fungicide, and Rodenticide Act, and in the European Union, the Regulation on REACH. We are also subject to similar requirements in many of the other jurisdictions in which we operate and/or distribute our products. In some cases, such registrations are subject to periodic review by relevant authorities. Such regulations may lead to governmental restrictions or cancellations of, or refusal to issue, certain registrations or authorizations, or cause us or our customers to make product substitutions in the future. Such regulations may also lead to increased third party scrutiny and personal injury or product liability claims. Compliance with these regulations can be difficult, costly and time consuming and liabilities or costs relating to such regulations could have a material adverse effect on our business, financial condition and results of operations. We have significant assets located outside the United States and a significant portion of our sales and earnings is attributable to operations conducted abroad. As of June 30, 2020, we had manufacturing and direct sales operations in 20 countries and sold our products in over 75 countries. Our operations outside the United States accounted for 54% and 59% of our consolidated assets as of June 30, 2020 and 2019, respectively, and 41% and 42% of our consolidated net sales for the years ended June 30, 2020 and 2019, respectively. Our foreign operations are subject to currency exchange fluctuations and restrictions, political instability in some countries, and uncertainty of, and governmental control over, commercial rights. Changes in the relative values of currencies take place from time to time and could in the future adversely affect our results of operations as well as our ability to meet interest and principal obligations on our indebtedness. To the extent that the U.S. dollar fluctuates relative to the applicable foreign currency, our results are favorably or unfavorably affected. We may from time to time manage this exposure by entering into foreign currency contracts. Such contracts generally are entered into with respect to anticipated costs denominated in foreign currencies for which timing of the payment can be reasonably estimated. No assurances can be given that such hedging activities will not result in, or will be successful in preventing, losses that could have an adverse effect on our financial condition or results of operations. There are times when we do not hedge against foreign currency fluctuations and therefore are subject to the risks associated with fluctuations in currency exchange rates. In addition, international manufacturing, sales and raw materials sourcing are subject to other inherent risks, including possible nationalization or expropriation, labor unrest, political instability, price and exchange controls, 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 Foreign Corrupt Practices Act and other laws and regulations governing international trade, unexpected changes in regulatory environments, difficulty in obtaining distribution and support, and potentially adverse tax consequences. Although such risks have not had a material adverse effect on us in the past, these factors could have a material adverse impact on our ability to increase or maintain our international sales or on our results of operations in the future. 37 TABLE OF CONTENTS We have manufacturing facilities located in Israel and a portion of our net sales and earnings is attributable to products produced and operations conducted in Israel. Our Israeli manufacturing facilities and local operations accounted for 30% and 28% of our consolidated assets, as of June 30, 2020 and 2019, respectively, and 21% and 20% of our consolidated net sales for the years ended June 30, 2020 and 2019. We maintain manufacturing facilities in Israel, which manufacture: • anticoccidials and antimicrobials, 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 domestic animal industry. A 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. Hostilities between Israel and its neighbors may hinder Israel’s international trade. This, in turn, could have a material adverse effect on our business, financial condition and results of operations. Certain countries, companies and organizations continue to participate in a boycott of Israeli firms and other companies doing business in Israel or with Israeli companies. We do not believe that the boycott has had a material adverse effect on us, but we cannot provide assurance that restrictive laws, policies or practices directed toward Israel or Israeli businesses will not have an adverse impact on our operations or expansion of our business. Our business, financial condition and results of operations in Israel may be adversely affected by factors outside of our control, such as currency fluctuations, energy shortages and other political, social and economic developments in or affecting Israel, including as a result of the impact of the COVID-19 pandemic in Israel. We have manufacturing facilities located in Brazil and a portion of our sales and earnings is attributable to products produced and operations conducted in Brazil. Our Brazilian manufacturing facilities and local operations accounted for 9% and 13% of our consolidated assets, as of June 30, 2020 and 2019, respectively, and 17% and 20% of our consolidated net sales for the years ended June 30, 2020 and 2019, respectively. We maintain manufacturing facilities in Brazil, which manufacture 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 is exported from Brazil to major world markets. Accordingly, our Brazilian operations are dependent on foreign markets and the ability to reach those markets. Our business, financial condition and results of operations in Brazil may be adversely affected by factors outside of our control, such as currency fluctuations, energy shortages and other political, social and economic developments in or affecting Brazil, including as a result of the impact of the COVID-19 pandemic in Brazil. Certain of our employees are covered by collective bargaining or other labor agreements. As of June 30, 2020, approximately 260 of our Israeli employees and 415 of our Brazilian employees were covered by collective bargaining agreements. We believe we have satisfactory relations with our employees. There can be no assurance that we will not experience a work stoppage or strike at our manufacturing facilities. A prolonged work stoppage or strike at any of our manufacturing facilities could have a material adverse 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 executive officers and other key personnel. Although we have entered into employment agreements with certain executives, we may not be able to retain all of our senior executive officers and key employees. These senior executive officers and other key employees may be hired by our competitors, some of which have considerably more financial resources than we do. The loss of the services of any of our senior executive officers or 38 TABLE OF CONTENTS other key personnel, or the inability to hire and retain qualified employees, could have a material adverse effect on our business, 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 new products in animals is required in order to be able to register our products. Animal testing in certain industries has been the subject of controversy and adverse publicity. Some organizations and individuals have attempted to ban animal testing or encourage the adoption of additional regulations applicable to animal 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. In addition, 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 governing pollution; protection of the environment; the use, management and release 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 and sale of regulated materials, including pesticides; the importing, exporting and transportation of products; and the health and safety of our employees and the public (collectively, “Environmental Laws”). See “Business — Environmental, Health and Safety.” Pursuant to Environmental Laws, certain of our subsidiaries are required to obtain and maintain numerous 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 certain circumstances 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 and time consuming to obtain and may contain conditions that limit our operations. Additionally, any failure to obtain and maintain such Environmental Permits could restrict or otherwise prohibit certain aspects of our operations, which could have a material adverse effect on our business, financial condition and results of operations. We have expended, and may be required to expend in the future, substantial funds for compliance with Environmental Laws. As recyclers of hazardous metal-containing chemical wastes, certain of our subsidiaries have been, and are likely to be, the focus of extensive compliance reviews by environmental regulatory authorities 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 have paid 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 of our subsidiaries, including with respect to compliance with Environmental Laws, will not result in civil or criminal enforcement actions or private actions, regulatory or judicial orders enjoining or curtailing operations or 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 material adverse effect on our business, financial condition and results of operations. In addition, we cannot predict the extent to which Environmental Laws, and the interpretation or enforcement thereof, may change or become more stringent in the future, each of which may affect the market for our products or give rise to additional capital expenditures, compliance costs or liabilities that could be material. Our operations or products may impact the environment or cause or contribute to contamination or exposure to 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 other federal, state, local and foreign Environmental Laws related to releases of or contamination by hazardous substances, with respect to our current or former sites, adjacent or nearby third-party sites, or 39 TABLE OF CONTENTS offsite disposal locations. See “Business — Environmental, Health and Safety.” Certain Environmental Laws, including CERCLA, can impose strict, joint, several, and retroactive liability for the cost of investigation and cleanup of contaminated sites on owners and operators of such sites, as well as on persons who dispose of or arrange for disposal of hazardous substances at such sites. Accordingly, we could incur liability, whether as a result of government enforcement or private claims, for known or unknown liabilities at, or caused by migration from or hazardous waste transported from, any of our current or former 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 under Environmental Laws. We could be subject to claims by environmental regulatory authorities, individuals and other third parties seeking damages for alleged personal injury, property damage, and damages to natural resources 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 in connection with any such claims. Our insurance may not be sufficient to cover any of these exposures, product, injury or damage claims. Furthermore, regulatory agencies are showing increasing concern over the impact of animal health products and livestock operations on the environment. This increased regulatory scrutiny may necessitate that additional time and resources be spent to address these concerns for both new and existing products and could affect 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 of operations. We have been and may continue to be subject to claims of injury from direct exposure to certain of our products that constitute or contain hazardous substances and from indirect exposure when such substances are incorporated into other companies’ products. Because certain of our products constitute or contain hazardous substances, and because the production of certain chemicals involves the use, handling, processing, storage and transportation of hazardous substances, from time to time we are subject to claims of injury from direct exposure to such substances and from indirect exposure when such substances are incorporated into other companies’ products. There can be no assurance that as a result of past or future operations, there will not be additional claims of injury by employees or members of the public due to exposure, or alleged exposure, to such substances. We are also party to a number of claims and lawsuits arising out of the normal course of business, including product liability claims and allegations of violations of governmental regulations, and face present and future claims with respect to workplace exposure, workers’ compensation and other matters. In most cases, such claims are covered by insurance 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 liabilities that we might incur in connection with the manufacture, sale and use of our products. Insurance is expensive and in the future may not be available on acceptable terms, if at all. A successful claim or series of claims brought against us in excess of our insurance coverage could have a materially adverse effect on our business, financial condition and results of operations. In addition, any claims, even if not ultimately successful, could adversely affect 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 involved in various legal proceedings that arise in the ordinary course of our business. Although it is not possible to predict with certainty the outcome of every pending claim or lawsuit or the range of probable loss, we believe these pending lawsuits and claims will not individually or in the aggregate have a material adverse impact on our results of operations. However, we could, in the future, be subject to various lawsuits, including intellectual property, product liability, personal injury, product warranty, environmental or antitrust claims, 40 TABLE OF CONTENTS among others, and incur judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our 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 animal health, mineral nutrition and performance products industries, such as explosions, fires, spills or releases. Any significant interruption of operations at our principal facilities could have a material adverse effect on us. We maintain general liability insurance, pollution legal liability insurance, and property and business interruption insurance with coverage limits that we believe are adequate. Because of the nature of industry hazards, it is possible that liabilities for pollution and other damages arising from a major occurrence may not be covered by our insurance policies or could exceed insurance coverages or policy limits or that such insurance may not be available at reasonable rates in the future. Any such liabilities, which could arise due to injury or loss of life, severe damage to and destruction of property and equipment, pollution or other environmental damage or suspension 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 and business. Current U.S. and international economic and market conditions are uncertain. The COVID-19 pandemic and measures taken to reduce the spread of COVID-19 have adversely affected international economic conditions and financial markets, and have led to an economic downturn in many countries in which we operate. Our revenues and operating results may be affected by uncertain or changing economic and market conditions, including as a result of the COVID-19 pandemic and other challenges faced in the credit markets and financial services industry. If domestic and global economic and market conditions remain uncertain or persist or deteriorate further, we may experience material impacts on our business, 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 to declines in the stock markets, could cause purchases of meat products to decline, resulting in a decrease in purchases of our products, which could adversely affect our financial condition and results of operation. Adverse economic and market conditions could also negatively impact our business by negatively affecting the parties with 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 in emerging markets, including by expanding our manufacturing presence, sales, marketing and distribution in these markets. Failure to continue to maintain and expand our business in emerging markets could also materially adversely affect our operating results and financial condition. Some countries within emerging markets may be especially vulnerable to periods of local, regional or global economic, political or social instability or crisis. For example, our sales in certain emerging markets have suffered from extended periods of disruption due to natural disasters. Furthermore, we have also experienced lower than expected sales in certain emerging markets due to local, regional and global restrictions on banking and commercial activities in those countries. For all these and other reasons, sales within emerging markets carry significant 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 where our customers do business could negatively impact such customers’ businesses and adversely affect our results of operations. A number of our customers, particularly U.S.-based food animal producers have benefited from free trade agreements, including, in the past, the North American Free Trade Agreement (“NAFTA”). The U.S., Canada and Mexico reached an agreement to replace NAFTA with the United States-Mexico-Canada Agreement (USMCA). The USMCA entered into force in July 2020 and the impact it will have on 41 TABLE OF CONTENTS our customers is not yet clear. This new agreement, as well as any other changes to international trade agreements or policies could harm our customers, and as a result, negatively impact our financial condition and results of operations. Additionally, in response to new U.S. tariffs affecting foreign imports, some foreign governments, including China, have instituted or are considering instituting tariffs on certain U.S. goods. While the scope and duration of these and any future tariffs remain uncertain, tariffs imposed by the U.S. or foreign governments on our customers’ products, or on our products or the active pharmaceutical ingredients or other components thereof, could negatively impact our financial condition and results of operations. We may not be able to expand through acquisitions or integrate successfully the products, services and personnel of acquired businesses. From time to time, we may make selective acquisitions to expand our range of products and services and to expand the geographic scope of our business. However, we may be unable to identify suitable targets, and competition for acquisitions may make it difficult for us to consummate acquisitions on acceptable terms or at all. We may not be able to locate any complementary products that meet our requirements or that are available to us on acceptable terms or we may not have sufficient capital resources to consummate a proposed acquisition. In addition, assuming we identify suitable products or partners, the process of effectively entering into these arrangements involves risks that our management’s attention may be diverted from other business concerns. Further, if we succeed in identifying and consummating appropriate acquisitions on acceptable terms, we may not be able to integrate successfully the products, services and personnel of any acquired businesses on a basis consistent with our current business practice. In particular, we may face greater than expected costs, time and effort involved in completing and integrating acquisitions and potential disruption of our ongoing business. Furthermore, we may realize fewer, if any, synergies than envisaged. Our ability to manage acquired businesses may also be limited if we enter into joint ventures or do not acquire full ownership or a controlling stake in the acquired business. In addition, continued growth through acquisitions may significantly strain our existing management and operational resources. As a result, we may need to recruit additional personnel, particularly at the level below senior management, and we may not be able to recruit qualified management and other key personnel to manage our growth. Moreover, certain transactions could adversely impact earnings as we incur development and other expenses related to the transactions and we could incur debt to complete these transactions. Debt instruments could contain contractual commitments and covenants that could adversely affect our cash flow and our ability to operate our business, financial condition and 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 to our long-term success, including, but not limited to, increasing sales in emerging markets, base revenue growth through new product development and value added product lifecycle development; improving operational efficiency through manufacturing efficiency improvement and other programs; and expanding our complementary products and services. There are significant risks involved with the execution of these types of initiatives, including significant business, economic and competitive uncertainties, many of which are outside of our control. Accordingly, we cannot predict whether we will succeed in implementing these strategic initiatives. It could take several years to realize the anticipated benefits from these initiatives, if any benefits are achieved at all. We may be unable to achieve expected gross margin improvements on our products or technologies. Additionally, our business strategy may change from time to time, which could delay our ability to 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 product lifecycle developments. Our future success depends on both our existing product portfolio, including our ability to obtain cross- clearances enabling the use of our medicated products in conjunction with other products, approval for use of our products with new species, approval for new claims for our products, approval of our products in new markets, and our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition. The majority of our R&D 42 TABLE OF CONTENTS programs focus on product lifecycle development, which is defined as R&D programs that leverage existing animal health products by adding new species or claims, achieving approvals in new markets or creating new combinations and reformulations. We commit substantial effort, funds and other resources to expanding our product approvals and 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 product approvals for our existing product portfolio or any of our products now under development will be approved or launched, or we may be unable to obtain expanded product approvals or develop, license or otherwise acquire product candidates or products. In addition, we cannot predict whether any products, once launched, will be commercially successful or will achieve sales and revenues that are consistent with our expectations. The animal health industry is subject to regional and local trends and regulations and, as a result, products that are successful 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. For example, changes in regulations applicable to our industry may make it more time-consuming and/or costly to research, test and develop products. Products in the animal health industry are sometimes derived from molecules and compounds discovered or developed as part of human health research. We may enter into collaboration or licensing arrangements with third parties to provide us with access to compounds and other technology for purposes of our business. Such agreements are typically complex and require time to negotiate and implement. If we enter into these arrangements, we may not be able to maintain these relationships or establish new ones in the future on acceptable terms or at all. In addition, any collaboration that we enter into may not be successful, and the success may depend on the efforts and actions of our collaborators, which we may not be able to control. If we are 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 infringement or other violation of the third-party’s patents, trademarks, trade dress, copyrights, trade secrets, domain names or other intellectual property rights. If we do not prevail in this type of litigation, we may be required to: • pay monetary damages; • • obtain a license in order to continue manufacturing or marketing the affected products, which may not be available on commercially reasonable terms, or at all; or stop activities, including any commercial activities, relating to the affected products, which could include a recall of the affected products and/or a cessation of sales in the future. The costs of defending an intellectual property claim could be substantial and could materially adversely affect our operating results and financial condition, even if we successfully defend such claims. We may 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 to license such patent, which would result in associated costs and obligations. We may also incur costs in connection with an obligation to indemnify a distributor, licensor or other third party. The intellectual property positions of animal health medicines and vaccines businesses frequently involve complex legal and factual questions, and an issued patent does not guarantee us the right to practice the patented technology or develop, manufacture or commercialize the patented product. We cannot be certain that a competitor or other third party does not have or will not obtain rights to intellectual property that may prevent us from manufacturing, developing or marketing certain of our products, regardless of whether we believe such intellectual property rights are valid and enforceable or we believe we would be otherwise able to develop a more commercially successful product, which may harm our financial condition and results of operations. 43 TABLE OF CONTENTS If our intellectual property rights are challenged or circumvented, competitors may be able to take advantage of our R&D efforts. We are also dependent upon trade secrets, which in some cases may be 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 license agreements with our employees and others, to protect our intellectual property and proprietary rights. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from using our proprietary technologies or from marketing products that are very similar or identical to ours. Our currently pending or future patent applications may not result in issued patents, or be approved on a timely basis, or at all. Similarly, any term extensions that we seek may not be approved on a timely basis, if at all. In addition, our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage, including exclusivity in a particular product area. The scope of our patent claims also may vary between countries, as individual countries have their own patent laws. For example, some countries only permit the issuance of patents covering a novel chemical compound itself, and its first use, and thus further methods of use for the same compound, may not be patentable. We may be subject to challenges by third parties regarding our intellectual property, including claims regarding validity, enforceability, scope and effective term. The validity, enforceability, scope and effective term of patents can be highly uncertain and often involve complex legal and factual questions and proceedings. Our ability to enforce our patents also depends on the laws of individual countries and each country’s practice with respect to enforcement of intellectual property rights. In addition, if we are unable to maintain our existing license agreements or other agreements pursuant to which third parties grant us rights to intellectual property, including because such agreements expire or are terminated, our financial condition and results of operations could be materially adversely affected. In addition, patent law reform in the United States and other countries may also weaken our ability to enforce 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 for challenging patents and implement a first-to-invent system, and, in April 2012, Australia enacted the Intellectual Property Laws Amendment (Raising the Bar) Act, which provides higher standards for obtaining patents. These reforms could result in increased costs to protect our intellectual property or limit our ability to patent our products in these jurisdictions. Additionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies, which could diminish or eliminate sales and profits from those regions and materially adversely affect our operating results and financial condition. Likewise, in the United States and other countries, we currently hold issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third party objection, which could prevent the maintenance or issuance of the same and thus create the potential need to rebrand or relabel a product. As our products mature, our reliance on our trademarks to differentiate us from our competitors increases and as a result, if we are unable to prevent third parties from adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, our business could be materially adversely affected. Our competitive position is also dependent upon unpatented trade secrets, which in some cases may be difficult to protect. Others may independently develop substantially equivalent proprietary information and techniques or may otherwise gain access to our trade secrets, trade secrets may be disclosed or we may not be able 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 to protect our proprietary information, including our trade secrets and proprietary know-how, by requiring our employees, consultants, other advisors and other third parties to execute confidentiality agreements upon the commencement of their employment, engagement or other relationship. Despite these efforts and precautions, we may be unable to prevent a third party from copying or otherwise obtaining and using our trade secrets or our other intellectual property without authorization and legal remedies may not adequately compensate us for the damages caused by such unauthorized use. Further, others may independently and 44 TABLE OF CONTENTS lawfully develop substantially similar or identical products that circumvent our intellectual property by means of alternative designs or processes or otherwise. The misappropriation and infringement of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, may occur even when we take steps to prevent it. In the future, we may be party to patent lawsuits and other intellectual property rights claims that are expensive and time consuming, and if resolved adversely, could have a significant impact on our business and financial condition. In the future, we may not be able to enforce intellectual property that relates to our products for various reasons, including licensor restrictions and other restrictions imposed by third parties, and the costs of doing so may outweigh the value of doing so, and this could have a material adverse impact on 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 civil or 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 laws that apply in countries where we do business. The FCPA, UK Bribery Act and other laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, and we participate in relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. We are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security, the U.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, customs requirements, currency exchange regulations and transfer pricing regulations (collectively, the “Trade Control laws”). There is no assurance that we will be completely effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to 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 Control laws by U.S. or foreign authorities could also have an adverse impact on our reputation, business, financial condition and results of operations Increased regulation or decreased governmental financial support for the raising, processing or consumption of food animals could reduce demand for our animal health products. Companies in the animal health industry are subject to extensive and increasingly stringent regulations. 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, adverse regulations related, directly or indirectly, to the use of one or more of our products may injure livestock producers’ market position. More stringent regulation of the livestock industry or our products could have a material 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 or eliminated, these companies may become less profitable and, as a result, may reduce their use of our products. 45 TABLE OF CONTENTS We have substantial debt and interest payment requirements that may restrict our future operations and impair our ability to meet our obligations under our indebtedness. Restrictions imposed by our outstanding indebtedness, including the restrictions contained in our Credit Facilities, may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities. As of June 30, 2020, we had $218.8 million of outstanding indebtedness under our Term A loan (reflects the principal amount), $169.0 million of outstanding borrowings under our revolving credit facility (the “Revolver,” and together with the Term A loan, the “Credit Facilities”) and $2.7 million of outstanding letters of credit. Subject to restrictions in our Credit Facilities, we may incur significant additional indebtedness. If we and our subsidiaries incur significant additional indebtedness, the related risks that we face could intensify. Our substantial debt may have important consequences. For instance, it could: • • • • • • make it more difficult for us to satisfy our financial obligations, including those relating to the Credit Facilities; require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, including capital expenditures and acquisitions; increase our vulnerability to general adverse economic and industry conditions; limit our flexibility in planning for or reacting to changes in our business and the industry in which we operate; place us at a competitive disadvantage compared with some of our competitors that may have less debt and better access to capital resources; and limit our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes. Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance 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 provide sufficient 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 our subsidiaries 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 certain transactions 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 equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We may not be able to maintain compliance with the covenants in any of our debt instruments in the future and, if we fail to do so, we may not be able 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 take other 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 financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control, including the impact of the COVID-19 pandemic and related economic downturn on the debt markets. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face 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 or restructure or refinance our indebtedness. We may not be able to effect any such alternative 46 TABLE OF CONTENTS measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due. In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by our subsidiaries, including our international subsidiaries, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from our subsidiaries or may subject any transfer of cash from our subsidiaries to substantial tax liabilities. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness 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 pay dividends on our common stock. We are subject to change of control provisions. We are a party to certain contractual arrangements that are subject to change of control provisions. In this context, “change of control” is generally defined as including (a) any person or group, other than Mr. Jack C. Bendheim and his family and affiliates (the current holders of approximately 90.9% of the combined voting power of all classes of our outstanding common stock), becoming the beneficial owner of more than 50% of the total voting power of our stock, and (b) a change in any twelve month period in the majority of the members of the Board that is not approved by Mr. Bendheim and/or his family and affiliates or by the majority of directors in office 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 us and/or may cease to exercise the current level of control they have over the appointment and removal of members of our Board. Any such changes may trigger a “change of control” event that could result in us being forced to repay the Credit Facilities or lead to the termination of a significant contract to which we are a party. If any such event occurs, this may negatively affect our financial condition and operating results. In addition, we may not have sufficient funds to finance repayment of any of such indebtedness upon any such “change in control.” We depend on sophisticated information technology and infrastructure. We rely on various information systems to manage our operations, and we increasingly depend on third parties and applications on virtualized, or “cloud,” infrastructure to operate and support our information technology systems. These third parties include large established vendors as well as small, privately owned companies. Failure by these providers to adequately service our operations or a change in control or insolvency of these providers could have an adverse effect on our business, which in turn may materially adversely affect our business, financial condition or results of operations. We may be required to write down goodwill or identifiable intangible assets. Under generally accepted accounting principles in the United States (“GAAP”), if we determine goodwill or identifiable intangible assets are impaired, we will be required to write down these assets and record a non-cash impairment charge. As of June 30, 2020, we had goodwill of $52.7 million and identifiable intangible assets, less accumulated amortization, of $71.0 million. Identifiable intangible assets consist primarily of developed technology rights and patents, customer relationships, distribution agreements and trade names and trademarks. 47 TABLE OF CONTENTS Determining whether an impairment exists and the amount of the potential impairment involves quantitative data and qualitative criteria that are based on estimates and assumptions requiring significant management judgment. Future events or new information may change management’s valuation of goodwill or an intangible asset in a short amount of time. The timing and amount of impairment charges recorded in our consolidated statements of operations and write-downs recorded in our consolidated balance sheets could vary if management’s conclusions change. Any impairment of goodwill or identifiable intangible assets could have a material 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 environment surrounding information security, storage, use, processing, disclosure and privacy is demanding, with the frequent imposition of new and changing requirements. In addition, our customers expect that we will adequately 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 with federal, state, local and foreign privacy laws could damage our reputation and result in lost sales, fines and lawsuits. Despite our considerable efforts and technology to secure our computer network, security could be compromised, confidential information could be misappropriated or system disruptions could occur. Any actual or perceived access, disclosure or other loss of information or any significant breakdown, intrusion, interruption, cyber-attack or corruption of customer, employee or company data or our failure to comply with federal, state, local and foreign privacy laws or contractual obligations with customers, vendors, payment processors and other third parties, could result in legal claims or proceedings, liability under laws or contracts that protect the privacy of personal information, regulatory penalties, disruption of our operations, and damage to our reputation, all of which could materially adversely affect our business, revenue and competitive position. We may be subject to information technology system failures, network disruptions and breaches in data security. We are increasingly dependent upon information technology systems and infrastructure to conduct critical operations and generally operate our business, which includes using information technology systems to process, transmit and store electronic information in our day-to-day operations, including customer, employee and company data. The COVID-19 pandemic and related quarantines, shelter-in-place and “social distancing” requirements, travel restrictions and other similar government orders, have resulted in a substantial portion of our employees working remotely and have increased our dependence on tools that facilitate employees working from home and gaining remote access to our information technology systems. As a result, any disruption to our information technology systems, including from cyber incidents, could have a material adverse effect on our business. The increased use of these tools could also make our information technology systems more vulnerable to breaches of data security and cybersecurity attacks. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and random attack. We also store certain information with third parties. Our information systems and those of our third-party vendors are subjected to computer viruses or other malicious codes, unauthorized access attempts, and cyber- or phishing-attacks and also are vulnerable to an increasing threat of continually evolving cybersecurity risks and external hazards. Disruption, degradation, or manipulation of these systems and infrastructure through intentional or accidental means could impact key business processes. Cyber- attacks against the Company’s systems and infrastructure could result in exposure of confidential 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 with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. Any such breach could compromise our networks, and the information stored therein could be accessed, publicly disclosed, lost or stolen. Such attacks could result in our intellectual property and other confidential 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 to date, the Company has been the target of events of this nature and expects them to continue as cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. The Company monitors its data, information technology and personnel usage of Company systems to reduce 48 TABLE OF CONTENTS these risks and continues to do so on an ongoing basis for any current or potential threats. While we have invested in protection of data and information technology, there can be no assurance that our efforts will prevent breakdowns, cybersecurity attacks or breaches in our systems that could cause reputational damage, business disruption and legal and regulatory costs; could result in third-party claims; could result in compromise or misappropriation of our intellectual property, trade secrets and sensitive information; and could otherwise adversely affect our business and financial results. Risks Related to Ownership of Our Class A Common Stock Our multiple class structure and the concentration of our voting power with certain of our stockholders will limit your ability to influence corporate matters, and conflicts of interest between certain of our stockholders and us or other investors could arise in the future. As of August 24, 2020, BFI Co., LLC (“BFI”) beneficially owns 59.480 shares of our Class A common stock and 20,166,034 shares of our Class B common stock, which together represent approximately 90.9% of the combined voting power of all classes of our outstanding common stock. As of August 24, 2020, our other stockholders, collectively own interests representing approximately 9.1% of the combined voting power of all classes of our outstanding common stock. Because of our multiple class structure and the concentration of voting power with BFI, BFI will continue to be able to control all matters submitted to our stockholders for approval for so long as BFI holds common stock representing greater than 50% of the combined voting power of all classes of our outstanding common stock. BFI will therefore have significant influence over management and affairs and control the approval of all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of the Company or its assets, for the foreseeable future. We are classified as a “controlled company” and, as a result, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders 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, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including: • 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 is composed entirely of independent directors; the requirement that we have a compensation committee and that it is composed entirely of independent directors; and the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees. We utilize and intend to continue to utilize these exemptions. As a result, while we currently have a majority of independent directors: • 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. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements. 49 TABLE OF CONTENTS 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 of factors, many of which we cannot control, including those described under “— Risks Related to Our Business” and “— Risks Related to Our Indebtedness” and the following: • 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 of our 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 the animal health industry; • investors’ perceptions of our prospects; • announcements by us or our competitors of significant contracts, acquisitions, joint ventures or capital commitments; and • changes in key personnel. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Most recently, the COVID-19 pandemic has contributed to significant volatility in stock and financial markets in the United States and globally. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs, and our resources and the attention of management could be diverted from our business. Our majority stockholder has the ability to control significant corporate activities and our majority stockholder’s interests may not coincide with yours. As of August 24, 2020, approximately 90.9% of the combined voting power of all classes of our outstanding common stock is held by BFI. As a result of its ownership, so long as it holds a majority of the combined voting power of all classes of our outstanding common stock, BFI will have the ability to control the outcome of matters submitted to a vote of stockholders and, through our Board of Directors, the ability to control decision-making with respect to our business direction and policies. Matters over which BFI, directly or indirectly, exercises control include: • 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 would result 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. Even if BFI’s ownership of our shares falls below a majority of the combined voting power of all classes of our outstanding common stock, it may continue to be able to influence or effectively control our decisions. 50 TABLE OF CONTENTS 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 that these sales could occur, could adversely affect the price of our Class A common stock and could impair our ability to raise capital through the sale of additional shares. In addition, subject to certain restrictions on converting Class B common stock into Class A common stock, all of our outstanding shares of Class B common stock may be converted into Class A common stock and sold in the public market by existing stockholders. As of August 24, 2020, we had 20,287,574 shares of Class A common stock and 20,166,034 shares of Class B common stock outstanding. BFI, which holds all of our outstanding Class B common stock, has the right to require us to register the sales of their shares under the Securities Act under the terms of an agreement between us and the holders of these 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 acquisition could constitute a material portion of our then-outstanding shares of our Class A common stock. As a public company, we are subject to financial and other reporting and corporate governance requirements that may be difficult for us to satisfy and may divert management’s attention from our business. As a public company, we are required to file annual and quarterly reports and other information pursuant to the Exchange Act with the SEC. We are required to ensure that we have the ability to prepare consolidated financial statements that comply with SEC reporting requirements on a timely basis. We are also subject to other reporting and corporate governance requirements, including the applicable stock exchange listing standards and certain provisions of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder, which impose significant compliance obligations upon us. As a public company, we are required to commit significant resources and management time and attention to these requirements, which cause us to incur significant costs and which may place a strain on our systems and resources. As a result, our management’s attention might be diverted from other business concerns. Compliance with these requirements place significant demands on our legal, accounting and finance staff and on our accounting, financial and information systems and increase our legal and accounting compliance costs as well as our compensation expense as we have been or may be required to hire additional accounting, tax, finance and legal staff with the requisite technical knowledge, particularly now that we are no longer an “emerging growth company. Our management and independent registered public accounting firm have determined that there are material weaknesses in our internal controls over financial reporting. If we fail to maintain an effective system of internal 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 material weaknesses in our internal controls over financial reporting and our audit committee has agreed with the assessment of our management and independent registered public accounting firm. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Our management and independent registered public accounting firm have concluded that we did not maintain effective internal control over financial reporting due to a lack of sufficient resources with an appropriate level of knowledge, experience and training commensurate with our financial reporting requirements. This deficiency contributed to the following material weaknesses: • We did not design and maintain effective internal controls to ensure processing and reporting of valid transactions are complete, accurate, and timely. Specifically, we have not designed and implemented a sufficient level of formal accounting policies and procedures that define how transactions across the business cycles are initiated, recorded, processed, reported, appropriately authorized and approved. 51 TABLE OF CONTENTS • We did not maintain effective internal control that restricts access to key financial systems and records to appropriate users and ensures that appropriate segregation of duties is maintained. Certain personnel had access to financial applications, programs and data beyond that needed to perform their individual job responsibilities and without independent monitoring. In addition, certain financial personnel had incompatible duties that allowed for the creation, review and processing of certain financial data without independent review and authorization. This material weakness affects substantially all financial statement accounts. Each of these material weaknesses could result in a material misstatement of our annual or interim financial statements that possibly would not be prevented or detected on a timely basis. We are in the process of implementing a range of changes to our internal control over financial reporting to remediate the material weaknesses. While we will continue to implement our remediation plan, we cannot determine when our remediation plan will be fully completed, and we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. If we are unsuccessful in remediating the material weakness, or if we suffer other deficiencies or material weaknesses in our internal controls in the future, we may be unable to report financial information in a timely and accurate manner and it could result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis, which could cause investors to lose confidence in our financial reporting, negatively affect the trading price of our common stock, 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 have a material adverse effect on our business and stock price. As a public company, we have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting 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. In addition, 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 any material weaknesses identified by our management in our internal control over financial reporting and a statement that our auditors have issued an attestation report on the effectiveness of our internal controls. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified opinion, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our stock. Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable. Our certificate of incorporation and bylaws contain provisions that may make the acquisition of the Company more difficult without the approval of our Board of Directors. These provisions: • • authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of Class A common stock; prohibit, at any time after BFI and its affiliates cease to hold at least 50% of the combined voting power of all classes of our outstanding common stock, stockholder action by written consent, without the express prior consent of the Board of Directors; 52 TABLE OF CONTENTS • • • provide that the Board of Directors is expressly authorized to make, alter or repeal our amended and restated bylaws; establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and establish a classified Board of Directors, as a result of which our Board of Directors will be divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders 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 of all classes of our outstanding common stock, the approval of holders of at least three quarters of the combined voting power of all classes of our outstanding common stock for stockholders to amend the amended and restated bylaws or amended and restated certificate of incorporation. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of the Company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other 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 and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could 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 of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our by-laws, or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect 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 of certain 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 corporate opportunities of which they become aware to us and could, therefore, offer such opportunities instead to other companies including affiliates of BFI. In the event that BFI obtains business opportunities from which we might otherwise benefit but chooses not to present such opportunities to us, these provisions of our restated certificate of incorporation could have the effect of preventing us from pursuing transactions or relationships that would otherwise 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 investment unless 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 since September 2014 on our Class A and Class B common stock and our Board of Directors has declared a cash dividend of  $0.12 per share on Class A common stock and Class B common stock that is payable on September 23, 2020, any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, 53 TABLE OF CONTENTS​ financial condition, contractual restrictions, and our ability to obtain funds from our subsidiaries to meet our obligations. Our Credit Facilities permit us to pay distributions to stockholders out of available cash subject to certain annual limitations and so long as no default or event of default under the Credit Facilities shall have occurred and be continuing at the time such distribution is declared. Realization of a gain on your investment will depend on the appreciation of the price of our Class A common stock. Item 1B. Unresolved Staff Comments None. Item 2. Properties The following table lists our material properties: Business Segment(s) Animal Health Location Beit Shemesh, Israel Owned/​ Leased Owned/ land lease Approx. sq. Footage 78,000 Manufacturing and Research Purpose(s) Braganca Paulista, Brazil Owned 50,000 Manufacturing and Administrative Buenos Aires, Argentina Owned 43,000 Manufacturing and Administrative Animal Health Animal Health Animal Health Animal Health Animal Health Chillicothe, Illinois Corvallis, Oregon Guarulhos, Brazil Animal Health Neot Hovav, Israel Mineral Nutrition Omaha, Nebraska Animal Health Omaha, Nebraska Animal Health Petach Tikva, Israel Animal Health and Mineral Nutrition Performance Products Animal Health Animal Health Animal Health Quincy, Illinois Santa Fe Springs, California State College, Pennsylvania Owned Owned Owned Owned/​ land lease Owned Owned Owned Owned 19,000 Manufacturing 5,000 Research 1,294,000 Manufacturing, Sales, Premixing, Research and Administrative 140,000 Manufacturing and Research 84,000 Manufacturing 43,000 Manufacturing, Sales and Research 60,000 Manufacturing 306,000 Manufacturing, Sales, Research and Administrative Owned 108,000 Manufacturing Owned 13,000 Research St. Paul, Minnesota Sarasota, FL Leased Leased 5,000 Research 93,000 Manufacturing, Sales, Research and Administrative Corporate Teaneck, New Jersey Leased 50,000 Corporate and Administrative In addition to the above facilities, we maintain leased offices in countries including Argentina, Australia, Bangladesh, Belgium, Brazil, Canada, Chile, China, Indonesia, Israel, Malaysia, Mexico, Poland, Russia, South Africa, Thailand, Turkey, the United Kingdom and Vietnam. We own a facility in Sligo, Ireland that we are developing for the production of animal vaccines. Item 3. Legal Proceedings We 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 and foreign competition law, labor laws, consumer protection laws, data protection laws and Environmental Laws 54 ​ ​ ​ TABLE OF CONTENTS​ and 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 may lead to claims or regulatory penalties in other jurisdictions. We do not believe that the ultimate resolution of existing claims and litigation will have a material adverse effect on our financial position, results of operations, liquidity or capital resources. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor. Item 4. Mine Safety Disclosures Not applicable. 55 TABLE OF CONTENTS​ PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our Class A common stock is traded on Nasdaq under the trading symbol “PAHC.” Our Class B common stock is not listed or traded on any stock exchange. At June 30, 2020, there were 20,287,574 shares of Class A common stock outstanding. During the fiscal year ended June 30, 2020, we did not sell any unregistered securities nor did we purchase any of our equity securities. Holders of Record As of August 24, 2020, there were 20,287,574 shares of our Class A common stock outstanding, which were held by one stockholder of record, not including beneficial owners of shares registered in nominee or street name. As of August 24, 2020, there were 20,166,034 shares of our Class B common stock outstanding, which were held by one stockholder of record. Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. Information about 5% beneficial owners of our common stock is incorporated by reference from the discussion in our 2020 Proxy Statement under the heading Security Ownership of Certain Beneficial Owners and Management. Dividend Policy We intend to pay regular quarterly dividends to holders of our Class A and Class B common stock out of assets legally available for this purpose. Any future determination to pay dividends is subject to review and approval by our Board of Directors and will depend upon our results of operations, financial condition, capital requirements, our ability to obtain funds from our subsidiaries and other factors that our Board of Directors deem relevant. Additionally, the terms of our current and any future agreements governing our indebtedness could limit our ability to pay dividends or make other distributions. Stock Performance Graph This performance graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act. The following graph shows a comparison from June 30, 2015 through June 30, 2020, of the cumulative stockholder return of our Class A common stock, the S&P 500 Index, the Nasdaq Composite Index, the Russell 2000 Index and S&P Pharmaceuticals Index. The graph assumes that $100 was invested in our Class A common stock and each of the aforementioned indexes at the market close on June 30, 2015, and assumes dividends, if any, are reinvested. The stock price performance shown on the graph is not necessarily indicative of future stock price performance, and we do not make any projections of future stockholder returns. 56 ​ TABLE OF CONTENTS​ Item 6. Selected Financial Data The following table presents our selected consolidated financial data and certain other financial data. The balance sheet data as of June 30, 2020, 2019, 2018, 2017 and 2016 and the results of operations data and cash flows data for the years then ended were derived from our consolidated financial statements. The consolidated financial data and other financial data presented below should be read in conjunction with our consolidated financial statements and the related notes thereto, under the sections entitled “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 57 TABLE OF CONTENTS For the Year Ended June 30 2020 2019 2018 2017 2016 (in thousands, except per share amounts) Results of operations data Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Interest expense, net Foreign currency (gains) losses, net Loss on extinguishment of debt Income before income taxes Provision (benefit) for income taxes Net income Net income per share basic diluted Weighted average common shares outstanding basic diluted Dividends per share Other financial data (1) Adjusted EBITDA Cash provided by operating activities (2) Capital expenditures ​$800,354​ ​ 543,472​ ​ 256,882​ ​ 187,688​ 69,194​ 12,856​ 826​ —​ 55,512​ 21,960​ ​$ 33,552​ ​$827,995​ ​ 563,371​ ​ 264,624​ ​ 181,398​ 83,226​ 11,776​ (55​ —​ 71,505​ 16,792​ ​$ 54,713​ ) ​$819,982​ ​ 553,103​ ​ 266,879​ ​ 167,953​ 98,926​ 11,910​ (1,054​ —​ 88,070​ 23,187​ ​$ 64,883​ ) ​$764,281​ ​ 516,038​ ​ 248,243​ ​ 150,309​ 97,934​ 14,906​ (113​ 2,598​ 80,543​ 15,928​ ​$ 64,615​ ) ​$751,526​ ​ 512,494​ ​ 239,032​ ​ 153,288​ 85,744​ 16,592​ (7,609​ —​ 76,761​ (5,967​ ​$ 82,728​ ) ) ​$ ​$ 0.83​ 0.83​ ​$ ​$ 1.35​ 1.35​ ​$ ​$ 1.61​ 1.61​ ​$ ​$ 1.63​ 1.61​ ​$ ​$ 2.11​ 2.07​ 40,454​ 40,504​ 40,412​ 40,523​ 40,181​ 40,385​ 39,524​ 40,042​ 39,254​ 39,962​ ​$ 0.48​ ​$ 0.46​ ​$ 0.40​ ​$ 0.40​ ​$ 0.40​ ​$102,140​ 59,348​ 34,045​ ​$118,037​ 47,169​ 29,891​ ​$128,958​ 70,008​ 18,548​ ​$120,119​ 98,385​ 20,880​ ​$114,060​ 37,218​ 36,352​ For the Year Ended June 30 2020 2019 2018 2017 2016 (in thousands) Balance sheet data Cash and cash equivalents and short-term investments Working capital (3) Total assets (4) Total debt Long-term debt and other liabilities Total stockholders’ equity ​$ 91,343​ ​ 222,006​ ​ 784,100​ ​ 387,007​ ​ 438,658​ ​ 188,204​ ​$ 81,573​ ​ 242,902​ ​ 726,671​ ​ 326,175​ ​ 356,429​ ​ 216,015​ ​$ 79,168​ ​ 205,651​ ​ 671,679​ ​ 312,381​ ​ 343,504​ ​ 184,954​ ​$ 56,083​ ​ 198,036​ ​ 623,397​ ​ 313,141​ ​ 356,444​ ​ 151,157​ ​$ 33,605​ ​ 203,356​ ​ 607,835​ ​ 350,172​ ​ 408,578​ 90,480​ (1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — General description of non-GAAP financial measures” for descriptions of EBITDA and Adjusted EBITDA. 58 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS For the Year Ended June 30 2020 2019 2018 2017 2016 Net income Plus: Interest expense, net Provision (benefit) for income taxes Depreciation and amortization EBITDA Restructuring costs Stock-based compensation Acquisition-related cost of goods sold Acquisition-related accrued compensation Acquisition-related transaction costs Acquisition-related other, net Other Pension settlement cost Gain on insurance settlement Foreign currency (gains) losses, net Loss on extinguishment of debt Adjusted EBITDA (2) Cash provided by operating activities: ​$ 33,552​ ​$ 54,713​ (in thousands) ​$ 64,883​ ​$ 64,615​ ​$ 82,728​ 12,856​ 21,960​ 32,341​ ​ 100,709​ 425​ 2,259​ 280​ —​ 462​ (2,821​ —​ —​ —​ 826​ —​ ​$102,140​ ) 11,776​ 16,792​ 27,564​ ​ 110,845​ 6,281​ 2,259​ —​ —​ 213​ —​ (1,506​ —​ —​ (55​ —​ ​$118,037​ ) ) 11,910​ 23,187​ 26,943​ ​ 126,923​ —​ 334​ 1,671​ 1,152​ 400​ (468​ —​ —​ —​ (1,054​ —​ ​$128,958​ ) ) 14,906​ 15,928​ 26,001​ ​ 121,450​ —​ —​ —​ 1,680​ 1,274​ (972​ —​ 1,702​ (7,500​ (113​ 2,598​ ​$120,119​ ) ) ) ) ) 16,592​ (5,967​ 23,452​ ​ 116,805​ —​ —​ 2,566​ 1,680​ 618​ —​ —​ —​ —​ (7,609​ —​ ​$114,060​ For the Year Ended June 30 2020 2019 2018 2017 2016 EBITDA Adjustments Restructuring costs Stock-based compensation Acquisition-related cost of goods sold Acquisition-related accrued compensation Acquisition-related transaction costs Acquisition-related other, net Other Pension settlement cost Gain on insurance settlement Foreign currency (gains) losses, net Loss on extinguishment of debt Interest paid Income taxes paid Changes in operating assets and liabilities and other items Cash provided by insurance settlement Net cash provided by operating activities ​$100,709​ ​$110,845​ (in thousands) ​$126,923​ ​$121,450​ ​$116,805​ 425​ 2,259​ 280​ —​ 462​ (2,821​ —​ —​ —​ 826​ —​ (11,577​ (20,866​ (10,349​ —​ ​$ 59,348​ ) ) ) ) 6,281​ 2,259​ —​ —​ 213​ —​ (1,506​ —​ —​ (55​ —​ (12,250​ (16,215​ (42,403​ —​ ​$ 47,169​ ) ) ) ) ) —​ 334​ 1,671​ 1,152​ 400​ (468​ —​ —​ —​ (1,054​ —​ (11,208​ (15,191​ (32,551​ —​ ​$ 70,008​ ) ) ) ) ) —​ —​ —​ 1,680​ 1,274​ (972​ —​ 1,702​ (7,500​ (113​ 2,598​ (14,600​ (14,762​ ) ) ) ) ) —​ —​ 2,566​ 1,680​ 618​ —​ —​ —​ —​ (7,609​ —​ (14,215​ (16,828​ 128​ 7,500​ ​$ 98,385​ (45,799​ —​ ​$ 37,218​ ) ) ) ) (3) We define working capital as total current assets (excluding cash and cash equivalents and short-term investments) less total current liabilities (excluding current portion of long-term debt). 59 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ (4) Total debt includes revolving credit facility, current and long-term portions of long-term debt and financing lease obligations. Total debt is reduced by certain unamortized debt issuance costs and unamortized debt discount, if any. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction Our 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, our financial condition and our cash flows. The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. This MD&A should be read in conjunction with the “Selected Financial Data” and our consolidated financial statements and related notes thereto included under the section entitled “Financial Statements and Supplementary Data.” Our future results could differ materially from our historical performance as a result of various factors such as those discussed in “Risk Factors” and “Forward-Looking Statements.” Overview of our business Phibro Animal Health Corporation is a global diversified animal health and mineral nutrition company. We develop, manufacture and market a broad range of products for food animals including poultry, swine, beef and dairy cattle and aquaculture. Our products help prevent, control and treat diseases, enhance nutrition to help improve health and performance and contribute to balanced mineral nutrition. In addition to animal health and mineral nutrition products, we manufacture and market specific ingredients for use in the personal care, industrial chemical and chemical catalyst industries. We sell more than 1,600 product presentations in over 75 countries to approximately 3,700 customers. Factors affecting our performance Effects of the COVID-19 pandemic During the three months ended June 30, 2020, the global food animal industry experienced unprecedented demand disruption and production impacts due to the COVID-19 pandemic. The downstream effects from the demand disruption, production impacts and broader changes in economic conditions caused a decline in the demand for our products during the quarter ended June 30, 2020. Phibro is an integral participant in the essential production of meat, milk, eggs and fish for human consumption. In the face of the pandemic, we have focused on the safety of our employees, while continuing to supply our customers. Our global production facilities have continued to operate without interruption, despite supply chain and logistical challenges. Our sales and technical service people remain in close virtual contact with our customers, as most travel and in-person meetings have been cancelled. Most of our administrative and management staff are working remotely. We are experiencing some cost increases from the safety measures implemented to protect our employees as well as from supply chain disruptions. We have maintained headcount and compensation at constant levels. We are closely monitoring sales trends, cash flow and liquidity. We experienced a short-term decline in demand for our products during the quarter ended June 30, 2020, due to the pandemic, primarily in the Animal Health segment. The animal production industry faced unprecedented demand disruptions, production impacts, price declines and currency volatility in international markets. Animal producers rapidly adjusted the number of animals and amount of milk being produced. The industry continues to adjust and has partially recovered from the disruptions, but has not yet returned to typical levels. The effects COVID-19 will have on our consolidated results going forward and the broader economic environment are uncertain. The demand for our products will be dependent upon economic conditions and the ability of our customers and end users of our products to operate their businesses and production facilities, among other factors. Our future operational results may be impacted by government mandated 60 TABLE OF CONTENTS response efforts, supply chain and manufacturing disruptions, increased volatility in raw material costs and decreased demand due to changes in our customer purchasing patterns and preferences. We are unable to predict with certainty the nature and timing of when any of these events may occur. We will continue to evaluate the nature and extent of the effects of COVID-19 on our business, consolidated results of operations, financial condition, and liquidity. For additional considerations and risks associated with COVID-19 on our business, please refer to the updates to Item 1A. “Risk Factors.” Industry growth According to Vetnosis, the global livestock animal health sector represented approximately $19.7 billion of sales in 2019. The market is projected to grow at a compound annual growth rate of approximately 2.2% per year between 2019 and 2024. We believe global population growth, the growth of the global middle class and the productivity improvements needed due to limitations of arable land and water supplies have supported and will continue to support this growth. Regulatory Developments Our business depends heavily on a healthy and growing livestock industry. Some in the public perceive risks to human health related to the consumption of food derived from animals that utilize certain of our products, including certain of our MFA products. In particular, there is increased focus, in the United States and other countries, on the use of medically important antimicrobials. As defined by the FDA, medically important antimicrobials (“MIAs”) include classes that are prescribed in animal and human health and are listed in the Appendix 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. In addition to the United States, the World Health Organization (WHO), the E.U., Australia and Canada have promulgated rating lists for antimicrobials that are used in veterinary medicine and that include certain of our products. The classification of our products as MIAs or similar listings may lead to a decline in the demand for and production of food products derived from animals that utilize our products and, in turn, demand for our products. Livestock producers may experience decreased demand for their products 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 companies in related industries, including us. In addition, campaigns by interest groups, activists and others with respect to perceived risks associated with the use of our products in animals, including position statements by livestock producers and their customers based on non-use of certain medicated products in livestock production, whether or not scientifically-supported, could affect public perceptions and reduce the use of our products. Those adverse consumer views related to the use of one or more of our products in animals could have a material adverse effect on our financial condition and results of operations. In April 2016, the FDA began initial steps to withdraw approval of Mecadox (carbadox) via a regulatory process known as a Notice of Opportunity for Hearing (“NOOH”), due to concerns that certain residues from the product may persist in tissues for longer than previously determined. The NOOH process provided Phibro with an opportunity to defend the safety of Mecadox prior to the FDA taking final steps to remove Mecadox from the market. Over the next four years, as part of an ongoing process of responding to CVM’s inquiries, we provided extensive and meticulous research and data that confirmed the safety of carbadox. In March 2018, the FDA indefinitely stayed the withdrawal proceedings. In July 2020, the FDA published a notice in the Federal Register that it does not agree with Phibro’s scientific conclusions that carbadox is safe under the current conditions of use. Instead of proceeding to a hearing on the scientific concerns raised in the 2016 NOOH, as would be the normal regulatory procedure, the FDA announced that it was withdrawing the current NOOH, and issuing a proposed order to review the regulatory method for carbadox. The approved regulatory method determines if there are residues of carcinogenic concern in animal tissue at the time of slaughter. If the order (after the 60-day comment period) is finalized, the FDA has indicated it plans to issue a new NOOH proposing the withdrawal of carbadox from the market because of lack of an approved regulatory method. The 60-day comment period ends September 18, 2020. Phibro disagrees with the agency’s actions and has submitted a request to the FDA Office of the Commissioner that the agency continue the process it started in 2016 and proceed with a hearing to review the substantial 61 TABLE OF CONTENTS body of data supporting the safety of carbadox. We have complete confidence in the safety of Mecadox. Mecadox has been approved and sold in the United States for more than 45 years and is a widely used treatment for controlling bacterial diseases including Salmonella and swine dysentery. Mecadox is not used in human medicine and the class 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 being detected from pig meat treated in accordance with the approved label. Should we be unable to successfully defend the safety of the product, the loss of Mecadox sales would have an adverse effect on our financial condition and results of operations. As of the date of this Annual Report on Form 10-K, Mecadox continues to be available for use by swine producers. Our global sales of antibacterials, anticoccidials and other products were $322 million, $350 million and $337 million for the years ended June 30, 2020, 2019 and 2018, respectively. Mecadox sales of $17 million are included in the preceding amount disclosed for the year ended June 30, 2020. Competition The animal health industry is highly competitive. We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products. Our competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses. In addition to competition from established participants, there could be new entrants to the animal health medicines and vaccines industry in the future. Principal methods of competition vary depending on the region, species, product category or individual products, including reliability, reputation, quality, price, service and promotion to veterinary professionals and livestock producers. Foreign exchange We conduct operations in many areas of the world, involving transactions denominated in a variety of currencies. For the year ended June 30, 2020, we generated approximately 41% of our revenues from operations outside the United States. Although a portion of our revenues are denominated in various currencies, the selling prices of the majority of our sales outside the United States are referenced in U.S. dollars, and as a result, our revenues have not been significantly directly affected by currency movements. We are subject to currency risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. We manufacture some of our major products in Brazil and Israel and production costs are largely denominated in local currencies, while the selling prices of the products are largely set in U.S. dollars. As such, we are exposed to changes in cost of goods sold resulting from currency movements and may not be able to adjust our selling prices to offset such movements. In addition, we incur selling and administrative expenses in various currencies and are exposed to changes in such expenses resulting from currency movements. Because our financial statements are reported in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations. Climate The animal health industry and demand for many of our animal health products in a particular region are affected by changing disease pressures and by weather conditions, as usage of our products follows varying weather patterns and weather-related pressures from diseases. As a result, we may experience regional and seasonal fluctuations in our results of operations. In addition, livestock producers depend on the availability of natural resources, including abundant rainfall to sustain large supplies of drinking water, grasslands and grain production. Their animals’ health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods, droughts or other weather conditions. In the event of adverse weather conditions or a shortage of fresh water, livestock producers may purchase less of our products. Product development initiatives Our future success depends on our existing product portfolio, including additional approvals for new claims for our products, for use of our products in new markets, for use of our products with new species 62 TABLE OF CONTENTS and for cross-clearances enabling the use of our medicated products in conjunction with other products. Our future success also depends on our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition. The majority of our R&D programs focus on product lifecycle development, which is defined as R&D programs that leverage existing animal health products by adding new species or claims, achieving approvals in new markets or creating new combinations and reformulations. We commit substantial effort, funds and other resources to expanding our product approvals and R&D, both through our own dedicated resources and through collaborations with third parties. We also commit significant resources to development of new vaccine technologies. We currently are working to develop a potential vaccine for African Swine Fever, a virulent disease that is highly lethal in swine. We also have developed an innovative, automated vaccination delivery system that insures vaccination injection accuracy, enables real-time oversight and offers data analytics to optimize the management of the vaccination process. Analysis of the consolidated statements of operations Summary Results of Operations For the Year Ended June 30 2020 2019 2018 2020 / 2019 2019 / 2018 Change Net sales Gross profit Selling, general and administrative ​$800,354​ ​ 256,882​ ​$827,995​ ​ 264,624​ (in thousands, except per share) ​$819,982​ ​ 266,879​ ​$(27,641​ (7,742​ ​ (3​ ​ (3​ ) ) )% )% ​$ 8,013​ (2,255​ ) % 1​ ​ (1​ )% expenses Operating income Interest expense, net Foreign currency (gains) losses, net ​ Income before income taxes Provision for income taxes Net income Net income per share basic diluted Weighted average number of shares outstanding basic diluted ​ 187,688​ ​ 181,398​ ​ 167,953​ 6,290​ % 3​ ​ 13,445​ % 8​ 69,194​ 12,856​ 826​ 83,226​ 11,776​ (55​ ) 98,926​ 11,910​ (1,054​ ) 55,512​ 21,960​ ​$ 33,552​ 71,505​ 16,792​ ​$ 54,713​ 88,070​ 23,187​ ​$ 64,883​ ) ​ (14,032​ 1,080​ 881​ ) ​ (15,993​ 5,168​ )% ​ (17​ % 9​ * ​ (22​ ​ 31​ )% % ) ) ​ (15,700​ (134​ 999​ ​ (16,565​ (6,395​ ) ) ​ (16​ ​ (1​ )% )% * ​ (19​ ​ (28​ )% )% ​$(21,161​ ) ​ (39​ )% ​$(10,170​ ) ​ (16​ )% ​$ ​$ 0.83​ 0.83​ ​$ ​$ 1.35​ 1.35​ ​$ ​$ 1.61​ 1.61​ ​$ ​$ (0.52​ (0.52​ ) ) ​$ ​$ (0.26​ (0.26​ ) ) 40,454​ 40,504​ 40,412​ 40,523​ 40,181​ 40,385​ 63 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS For the Year Ended June 30 2020 2019 2018 2020 / 2019 2019 / 2018 (in thousands, except per share) Change Ratio to net sales Gross profit Selling, general and administrative expenses Operating income Income before income taxes Net income Effective tax rate 32.1 % 32.0 % 32.5 % 23.5 % 8.6 % 6.9 % 4.2 % 21.9 % 10.1 % 8.6 % 6.6 % 39.6 % 23.5 % 20.5 % 12.1 % 10.7 % 7.9 % 26.3 % Certain amounts and percentages may reflect rounding adjustments. * Calculation not meaningful Changes in net sales from period to period primarily result from changes in volumes and average selling prices. Although a portion of our net sales is denominated in various currencies, the selling prices of the majority of our sales outside the United States are referenced in U.S. dollars, and as a result, currency movements have not significantly directly affected our revenues. Our effective income tax rate has varied from period to period and from the federal statutory rate, due to the mix of taxable profits in various jurisdictions; changes in tax rates from period to period, including changes in income tax legislation in the United States and various international jurisdictions; and the effects of certain other items. Our future effective income tax rate will vary due to the relative amounts of taxable income in various jurisdictions, future changes in tax rates and legislation and other factors. We intend to continue to reinvest indefinitely the undistributed earnings of our foreign subsidiaries where we could be subject to applicable non-U.S. income and withholding taxes if amounts are repatriated to the U.S. See “Notes to Consolidated Financial Statements — Income Taxes” for additional information. Net sales, Adjusted EBITDA and reconciliation of GAAP net income to Adjusted EBITDA We report Net sales and Adjusted EBITDA by segment to understand the operating performance of each segment. This enables us to monitor changes in net sales, costs and other actionable operating metrics at the segment level. See “— General description of non-GAAP financial measures” for descriptions of EBITDA and Adjusted EBITDA. Segment net sales and Adjusted EBITDA: For the Year Ended June 30 2020 2019 2018 2020 / 2019 2019 / 2018 Change Net sales MFAs and other Nutritional specialties Vaccines Animal Health Mineral Nutrition Performance Products Total (in thousands) ​$336,666​ ​ 122,978​ 72,083​ ​ 531,727​ ​ 234,922​ 53,333​ ​$819,982​ ​$(28,168​ ​ 16,049​ 7,049​ (5,070​ ​ (19,370​ (3,201​ ​$(27,641​ ) ) ) ) ) ​$322,300​ ​ 129,264​ 75,340​ ​ 526,904​ ​ 214,412​ 59,038​ ​$800,354​ ​$350,468​ ​ 113,215​ 68,291​ ​ 531,974​ ​ 233,782​ 62,239​ ​$827,995​ 64 ​ (8​ ​ 14​ ​ 10​ ​ (1​ ​ (8​ ​ (5​ ​ (3​ )% % % )% )% )% )% ) ) ) ​$13,802​ (9,763​ (3,792​ 247​ (1,140​ 8,906​ ​$ 8,013​ ​ 4​ ​ (8​ ​ (5​ ​ 0​ ​ (0​ ​ 17​ ​ 1​ % )% )% % )% % % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS For the Year Ended June 30 2020 2019 2018 2020 / 2019 2019 / 2018 (in thousands) Change Adjusted EBITDA Animal Health Mineral Nutrition Performance Products Corporate Total Adjusted EBITDA ratio to segment net sales Animal Health Mineral Nutrition Performance Products (1) Corporate Total (1) (1) Reflects ratio to total net sales. ​$123,106​ 14,678​ 4,534​ (40,178​ ​$102,140​ ) ​$136,049​ 15,712​ 4,728​ (38,452​ ​$118,037​ ) ​$141,914​ 18,583​ 1,881​ (33,420​ ​$128,958​ ) ​$(12,943​ (1,034​ (194​ (1,726​ ) ) ) ) ​ (10​ ​ (7​ ​ (4​ )% )% )% * ​$ (5,865​ (2,871​ 2,847​ (5,032​ ) ) ) (4​ ​ (15​ ​ 151​ )% )% % * ​$(15,897​ ) ​ (13​ )% ​$(10,921​ ) (8​ )% 23.4​ 6.8​ 7.7​ (5.0​ 12.8​ % % % )% % 25.6​ 6.7​ 7.6​ (4.6​ 14.3​ % % % )% % 26.7​ 7.9​ 3.5​ (4.1​ 15.7​ % % % )% % A reconciliation of net income, as reported under GAAP, to Adjusted EBITDA: For the Year Ended June 30 2020 2019 2018 2020/ 2019 2019 / 2018 Change Net income Interest expense, net Provision for income taxes Depreciation and amortization EBITDA Restructuring costs Stock-based compensation Acquisition-related cost of goods sold Acquisition-related accrued compensation Acquisition-related transaction costs Acquisition-related other, net Other, net Foreign currency (gains) losses, net Adjusted EBITDA (in thousands) ​$ 33,552​ 12,856​ 21,960​ ​$ 54,713​ 11,776​ 16,792​ ​$ 64,883​ 11,910​ 23,187​ ) ​$(21,161​ 1,080​ 5,168​ )% ​ (39​ % 9​ % ​ 31​ ​$(10,170​ (134​ (6,395​ ) ) ) ​ (16​ (1​ ​ (28​ )% )% )% 32,341​ ​ 100,709​ 425​ 2,259​ 27,564​ ​ 110,845​ 6,281​ 2,259​ 26,943​ ​ 126,923​ —​ 334​ 4,777​ ​ (10,136​ (5,856​ —​ ) ) % ​ 17​ )% (9​ )% ​ (93​ % 0​ ) 621​ ​ (16,078​ —​ 1,925​ % 2​ ​ (13​ )% * % ​ 576​ 280​ —​ —​ —​ 462​ (2,821​ —​ ) 213​ —​ (1,506​ 826​ ​$102,140​ (55​ ​$118,037​ 1,671​ 1,152​ 400​ (468​ —​ ) ) (1,054​ ​$128,958​ ) ) 280​ —​ 249​ (2,821​ 1,506​ ) 881​ * * ​ 117​ % * * * (1,671​ ) (1,152​ ) (187​ 468​ (1,506​ ) ) 999​ * * ​ (47​ )% * * * ​$(15,897​ ) ​ (13​ )% ​$(10,921​ ) (8​ )% Certain amounts and percentages may reflect rounding adjustments. * Calculation not meaningful 65 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS Comparison of the years ended June 30, 2020 and 2019 Net sales Net sales of $800.4 million for the year ended June 30, 2020, decreased $27.6 million, or 3%, as compared to the year ended June 30, 2019. Animal Health, Mineral Nutrition and Performance Products sales declined $5.1 million, $19.4 million and $3.2 million, respectively. Animal Health Net sales of $526.9 million for the year ended June 30, 2020, decreased $5.1 million, or 1%. Net sales of MFAs and other declined $28.2 million, or 8%, due to a $30.9 million sales decline in China driven by the effects of African Swine Fever and regulatory changes. Net sales of nutritional specialty products grew $16.0 million, or 14%, due to volume growth in poultry and dairy products. The recent Osprey acquisition accounted for approximately two-thirds of the nutritional specialty sales growth. Net sales of vaccines increased $7.0 million, or 10%, due to international demand and increased market penetration. Excluding a domestic distribution arrangement that was terminated in October 2018, net sales of vaccines would have increased approximately 14%. We experienced a short-term decline in demand for our products during the quarter ended June 30, 2020 due to the COVID-19 pandemic, primarily in the Animal Health segment. The animal production industry faced unprecedented demand disruptions, production impacts, price declines and currency volatility in international markets. Animal producers rapidly adjusted the number of animals and amount of milk being produced. Mineral Nutrition Net sales of $214.4 million for the year ended June 30, 2020, decreased $19.4 million, or 8%, primarily driven by lower average selling prices. The decline in average selling prices is correlated with the movement of the underlying raw material costs. Performance Products Net sales of $59.0 million for the year ended June 30, 2020, decreased $3.2 million, or 5%. The decline was driven by lower volumes of copper-based products partially offset by increased volumes of personal care ingredients. Gross profit Gross profit of $256.9 million for the year ended June 30, 2020, decreased $7.7 million, or 3%, as compared to the year ended June 30, 2019. Gross profit as a percentage of net sales for the year ended June 30, 2020, increased to 32.1% as compared to 32.0% for the year ended June 30, 2019. The year ended June 30, 2020, included $0.3 million of acquisition-related cost of goods sold. Animal Health gross profit decreased $6.0 million due to volume declines in MFAs and other, partially offset by volume growth in nutritional specialty and vaccine products. In the Animal Health segment, unfavorable product mix contributed to a lower gross profit ratio compared to the prior year. Mineral Nutrition gross profit decreased $0.7 million, as declines in average selling prices outpaced favorable raw material costs and increased unit volumes. Performance Products gross profit decreased $0.7 million due to lower overall volume. Selling, general and administrative expenses Selling, general and administrative expenses (“SG&A”) of $187.7 million for the year ended June 30, 2020, increased $6.3 million, or 3%, as compared to the year ended June 30, 2019. SG&A for the year ended June 30, 2020, included $0.4 million of restructuring costs, $0.5 million of acquisition-related transaction costs and a $2.8 million benefit from acquisition-related other, primarily as a result of a reduction to acquisition-related contingent consideration. SG&A for the year ended June 30, 2019, included $6.3 million 66 TABLE OF CONTENTS of restructuring costs, $0.2 million of acquisition-related transaction costs and a $1.5 million benefit from the cancellation of a certain business arrangement. Excluding the effects of these costs, SG&A increased $13.2 million, or 8%. Animal Health SG&A increased $10.8 million, including increased investments in product development and the effect of the Osprey acquisition. Mineral Nutrition SG&A increased $0.5 million due to increased employee- related costs. Performance Products SG&A increased $0.2 million. Corporate expenses increased $1.7 million due to increased costs of strategic initiatives and public company costs. The restructuring costs, acquisition-related transaction costs, acquisition-related other items and the benefit in the prior year from the cancellation of a certain business arrangement resulted in a net $6.9 million decrease to SG&A. Interest expense, net Interest expense, net of $12.9 million for the year ended June 30, 2020, increased $1.1 million, or 9%, as compared to the year end June 30, 2019. The increase in interest expense was primarily driven by the increase in outstanding borrowings on the Revolver. The increased outstanding borrowings were partially offset by the benefit of lower variable interest rates. Interest income from short-term investments was comparable to the prior year. Foreign currency (gains) losses, net Foreign currency (gains) losses, net for the year ended June 30, 2020, amounted to net losses of $0.8 million, as compared to net gains of $0.1 million for the year ended June 30, 2019. Increased foreign currency losses from the effects of currency devaluations were partially offset by foreign currency gains from intercompany transactions, driven by currency volatility during the three months ended June 30, 2020. Provision for income taxes In March 2020, in response to economic instability prompted by the COVID-19 pandemic, the United States government enacted the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The CARES act established various stimulus measures, including certain tax provisions. We have utilized certain CARES Act provisions, including modifications to the interest deduction limitation, technical corrections to tax depreciation methods for qualified improvement property and deferral of employer social security payments. The provision for income taxes was $22.0 million and $16.8 million for the years ended June 30, 2020 and 2019, respectively. The effective income tax rates were 39.6% and 23.5% for the years ended June 30, 2020 and 2019, respectively. The fiscal year 2020 effective income tax rate was substantially higher than the federal statutory rate primarily due to income tax expense for: • • • Global Intangible Low-Taxed Income (GILTI) federal tax of $3.5 million, net of foreign tax credits, which added 6.2 percentage points to the effective income tax rate. The GILTI federal tax for the year ended June 30, 2019 was $0.5 million. GILTI for the current year was elevated due to the interplay of domestic profitability and limitations on offsetting credits. Changes in uncertain tax positions of $2.9 million, which added 5.2 percentage points to the effective income tax rate. Changes in uncertain tax positions for the year ended June 30, 2019 were a benefit of $(0.8) million. Changes in uncertain tax positions for the current year were elevated due to the complex nature of tax law in various jurisdictions and related interpretations of tax law. Increases in the valuation allowance of $2.0 million, which added 3.6 percentage points to the effective income tax rate. Increases in the valuation allowance for the year ended June 30, 2019 was negligible. Increases in the valuation allowance for the current year were elevated due to losses in certain international jurisdictions, in part due to the unfavorable effect of foreign currency losses, partially caused by the economic effects of the pandemic, and in part due to the start-up of new international locations with no current income tax benefit. 67 TABLE OF CONTENTS Net income Net income of $33.6 million for the year ended June 30, 2020, decreased $21.2 million, or 39%, as compared to net income of $54.7 million for the year ended June 30, 2019. The decrease was primarily due to a $14.0 million decline in operating income, coupled with a $5.2 million increase in the provision for income taxes, higher interest expense of $1.1 million and unfavorable foreign currency movements of $0.9 million. The decline in operating income was driven by a $7.7 million reduction in gross profit and increased SG&A costs of $6.3 million. The decline in gross profit was primarily driven by lower overall volume and unfavorable product mix in our Animal Health business. Increased SG&A costs reflect our investments in product development and strategic growth initiatives and the effects of the Osprey acquisition. Adjusted EBITDA Adjusted EBITDA of $102.1 million for the year ended June 30, 2020, decreased $15.9 million, or 13%, as compared to the year ended June 30, 2019. Animal Health Adjusted EBITDA decreased $12.9 million due to the sales and related gross profit declines, coupled with increased SG&A costs. The SG&A increase was driven by investments in product development and strategic growth initiatives and the effects of the Osprey acquisition. Mineral Nutrition Adjusted EBITDA declined $1.0 million as a result of lower gross profit and increased SG&A costs. Performance Products Adjusted EBITDA decreased $0.2 million as compared to the prior year. Corporate expenses increased $1.7 million driven by investments in strategic initiatives and increased public company costs. Comparison of the years ended June 30, 2019 and 2018 Net sales Net sales of $828.0 million for the year ended June 30, 2019, increased $8.0 million, or 1%, as compared to the year ended June 30, 2018. Animal Health net sales were comparable to the prior year. Mineral Nutrition declined $1.1 million, while Performance Products grew $8.9 million. Animal Health Net sales of $532.0 million for the year ended June 30, 2019, were comparable to the prior year. Net sales of MFAs and other increased $13.8 million, or 4%, driven by year over year international volume growth, particularly in the Asia Pacific and Latin America regions, partially offset by lower domestic demand from the poultry and swine sectors. While the Asia Pacific region reported strong sales growth for the full year, sales in the region declined in the fourth quarter of fiscal year 2019, due to reduced demand for MFAs related to African Swine Fever in China. Net sales of nutritional specialty products declined by $9.8 million, or 8%, primarily due to volume declines from the continued negative dairy industry conditions and reduced demand from poultry customers. Net sales of vaccines declined $3.8 million, or 5%, due to turbulent economic conditions in certain international countries and the loss of a domestic distribution arrangement; volume growth in other international markets partially offset the reductions. Mineral Nutrition Net sales of $233.8 million for the year ended June 30, 2019, declined $1.1 million. Lower volumes and product mix were the primarily drivers of the decline. An increase in overall selling prices partially offset the volume decline. Our selling prices of mineral nutrition products generally move in direct correlation with the underlying commodity costs. Performance Products Net sales of $62.2 million for the year ended June 30, 2019, increased $8.9 million, or 17%, primarily due to volume growth of personal care and copper-based products. Gross profit Gross profit of $264.6 million for the year ended June 30, 2019, declined $2.3 million, or 1%, as compared to the year ended June 30, 2018. As a percentage of net sales, gross profit declined to 32.0% for the year ended June 30, 2019, as compared to 32.5% for the year ended June 30, 2018. 68 TABLE OF CONTENTS Animal Health gross profit decreased $3.1 million due to volume declines in the nutritional specialty and vaccine categories, partially offset by international volume growth and favorable product mix in MFAs and other. Mineral Nutrition gross profit decreased $3.5 million, primarily due to unfavorable product mix and constrained pricing in a competitive environment. Performance Products gross profit increased $2.6 million, primarily due to volume growth and manufacturing cost efficiencies. Gross profit for the year ended June 30, 2018, included $1.7 million of acquisition-related cost of goods sold. Selling, general and administrative expenses SG&A of $181.4 million for the year ended June 30, 2019, increased $13.4 million, or 8%, as compared to the year ended June 30, 2018. SG&A for the year ended June 30, 2019, included $6.3 million of restructuring-related costs, $2.3 million of stock-based compensation, $0.2 million of acquisition-related transaction costs and a $1.5 million benefit from the cancellation of a certain business arrangement. SG&A for the year ended June 30, 2018, included $0.3 million of stock-based compensation, $1.2 million in acquisition-related compensation costs, $0.4 million in acquisition-related transaction costs and a benefit of $0.5 million associated with other acquisition- related costs. Excluding the effects of these costs, SG&A increased $7.5 million, or 5%. Animal Health SG&A increased $3.6 million primarily due to increased costs related to increased investments in marketing and product development. These increases were partially offset by close control of other spending and a reduction in variable compensation. Mineral Nutrition SG&A declined by $0.7 million on spending control. Performance Products SG&A declined $0.1 million. Corporate costs increased $4.7 million, primarily due to increased business development expenses and public company costs associated with strengthening and testing of controls over financial reporting, partially offset by a reduction in variable compensation. The restructuring-related costs, stock-based compensation, cancellation of a business arrangement, acquisition-related compensation costs and acquisition-related transaction costs resulted in a net $5.9 million increase in SG&A. During the three months ended June 30, 2019, we recorded pre-tax charges of  $6.3 million for business restructuring activities related to productivity and cost saving initiatives in the Animal Health segment. The charges included $3.5 million related to termination of a contract manufacturing agreement and $2.8 million for employee separation costs. The charges are included in selling, general and administrative expenses in our consolidated statements of operations. We expect to record an additional charge for employee separation costs of an estimated $1.0 million and complete actions by December 31, 2019. Interest expense, net Interest expense, net of $11.8 million for the year ended June 30, 2019, decreased $0.1 million, or 1%, as compared to the year ended June 30, 2018. Interest expense on the Term loan and Revolver increased $1.2 million due to higher debt levels and higher variable interest rates. Interest expense for the year ended June 30, 2018 included $1.1 million of acquisition-related accrued interest. Interest income from short-term investments improved by $0.2 million. Foreign currency (gains) losses, net Foreign currency (gains) losses, net for the year ended June 30, 2019, amounted to net gains of $(0.1) million, as compared to $(1.1) million in net gains for the year ended June 30, 2018. Foreign currency gains and losses primarily arose from cash and intercompany balances. Provision for income taxes In December 2017, the United States government enacted comprehensive income tax legislation (the “Tax Act”). The Tax Act made broad and complex changes to United States income tax law and includes numerous elements that affect the Company, including a reduced federal corporate income tax rate of 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings and changes to business-related exclusions, deductions and credits. Our provision for income taxes reflects a statutory 21.0 % and 28.1% weighted-average federal income tax rate for our fiscal years ending June 30, 2019 and 2018, respectively. The Tax Act also has consequences related to our international operations. 69 TABLE OF CONTENTS The provision for income taxes, effective income tax rate and certain income tax items for the years ended June 30, 2019 and 2018, are reflected in the table below: For the Year Ended June 30 Provision for income taxes Effective income tax rate Certain income tax items Benefit from exercised employee stock options Mandatory toll charge Reduction of domestic deferred tax assets Reduction of foreign deferred tax assets Recognition of federal and foreign tax credits Reclassification from accumulated other comprehensive income Release of unrecognized tax benefits Total Provision for income taxes, excluding certain items Effective income tax rate, excluding certain items 2019 2018 (in thousands, except percentages) ​$ 16,792 ​ % 23.5 ​ ​ $ 23,187 26.3 % ​$ ) (310 ​ ) (360 ​ — ​ — ​ ) (1,417 ​ — ​ ) (1,271 ​ ) ​$ (3,358 ​ ​$ 20,150 ​ % 28.2 ​ ) ​ $ (3,773 403 2,289 1,156 (565 ) 527 (994 ) (957 ​ $ ​ $ 24,144 27.4 ) % The mandatory toll charge on deemed repatriation of undistributed earnings of foreign subsidiaries resulted from a one-time tax under the Tax Act. The reduction of deferred tax assets resulted from the remeasurement of deferred tax assets and liabilities, 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, to reflect a reduced income tax rate in certain international jurisdictions. The recognition of federal and foreign prior-year tax credits resulted from the implementation of the Tax Act. The reclassification from accumulated other comprehensive income (“AOCI”) reflected the reclassification of income taxes remaining in AOCI, after all related foreign currency derivatives had matured and were completely cleared from AOCI. Net income Net income of $54.7 million for the year ended June 30, 2019, decreased $10.2 million, as compared to net income of $64.9 million for the year ended June 30, 2018. Operating income declined $15.7 million, driven by a decrease in gross profit of $2.3 million and increased SG&A expenses of $13.4 million, including $6.3 million of restructuring costs. Foreign currency movements resulted in a reduction of foreign currency gains of $1.0 million. These declines were partially offset by decreased income tax expense of $6.4 million. The year ended June 30, 2018 included additional income tax expense from the initial application of the comprehensive U.S. income tax legislation and certain other items. Adjusted EBITDA Adjusted EBITDA of $118.0 million for the year ended June 30, 2019, decreased $10.9 million, or 8%, as compared to the year ended June 30, 2018. Animal Health Adjusted EBITDA declined $5.9 million compared to the prior year. Volume declines in the nutritional specialty and vaccine categories were partially offset by year over year international volume growth and favorable unit costs and product mix in MFAs and other. Investments in organization and business development were offset by close control of other spending and a reduction in variable compensation. Mineral Nutrition Adjusted EBITDA decreased $2.9 million, or 15%, due to the effect of unfavorable product mix and constrained pricing in a competitive 70 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS environment. Performance Products Adjusted EBITDA increased $2.8 million, primarily due to sales volume growth, favorable product mix and manufacturing efficiencies. Corporate expenses increased $5.0 million due to increased business development expenses and public company costs associated with strengthening and testing of controls over financial reporting, partially offset by a reduction in variable compensation. Analysis of financial condition, liquidity and capital resources Net increase (decrease) in cash and cash equivalents was: Change For the Year Ended June 30 2020 2019 2018 2020 / 2019 2019 / 2018​ (in thousands) Cash provided by/(used in): Operating activities Investing activities Financing activities Effect of exchange-rate changes on cash and cash equivalents Net increase/(decrease) in cash and cash equivalents ​$ 59,348​ ​ (120,390​ 40,936​ ) ​$ 47,169​ ​ (14,133​ (4,107​ ) ) ​$ 70,008​ ​ (84,612​ ​ (11,775​ ) ) ​$ 12,179​ ​ (106,257​ 45,043​ ) ) $ (22,839 ​ 70,479 ​ 7,668 ​ (1,124​ ) (524​ ) (536​ ) (600​ ) 12 ​ ​$ (21,230​ ) ​$ 28,405​ ​$(26,915​ ) ​$ (49,635​ ) $ 55,320 ​ Net cash provided (used) by operating activities was comprised of: For the Year Ended June 30 2020 2019 2018 2020 / 2019 2019 / 2018​ Change EBITDA Adjustments Restructuring costs Stock-based compensation Acquisition-related cost of goods sold Acquisition-related accrued compensation Acquisition-related transaction costs Acquisition-related other, net Other, net Foreign currency (gains) losses, net Interest paid, net Income taxes paid Changes in operating assets and liabilities and other items Net cash provided by operating activities ​$100,709​ ​$110,845​ ​$126,923​ ) $ (10,136 ​ ) $ (16,078 ​ (in thousands) 425​ 2,259​ 280​ —​ 462​ (2,821​ —​ 826​ (11,577​ (20,866​ (10,349​ ​$ 59,348​ ) ) ) ) 6,281​ 2,259​ —​ —​ 213​ —​ (1,506​ (55​ (12,250​ (16,215​ (42,403​ ​$ 47,169​ ) ) ) ) ) —​ 334​ 1,671​ 1,152​ 400​ (468​ —​ (1,054​ (11,208​ (15,191​ (32,551​ ​$ 70,008​ ) ) ) ) ) ) (5,856 ​ — ​ 280 ​ — ​ 249 ​ ) (2,821 ​ 1,506 ​ 881 ​ 673 ​ ) (4,651 ​ 6,281 ​ 1,925 ​ (1,671 ​ ) ) (1,152 ​ ) (187 ​ 468 ​ ) (1,506 ​ 999 ​ (1,042 ​ ) ) (1,024 ​ 32,054 ​ ) (9,852 ​ $ 12,179 ​ ) $ (22,839 ​ Certain amounts may reflect rounding adjustments. Operating activities Operating activities provided $59.3 million of net cash for the year ended June 30, 2020. Cash provided by net income, adjusted for the effect of non-cash charges, was partially offset by $13.7 million of cash used in the ordinary course of business for changes in operating assets and liabilities. Accounts receivable provided $28.7 million of cash, due to reduced sales levels and improved collection timing; days sales 71 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS outstanding at June 30, 2020, of 61 days improved from 70 days at the prior year end. Inventory used $12.9 million of cash, driven by the timing of sales and consistent production levels, primarily in our Animal Health segment. Other current assets and other assets used $11.2 million and $2.1 million, respectively, due to the timing of payments in international regions and timing of domestic tax and insurance payments. Accounts payable used $7.7 million of cash, primarily due to the timing of domestic inventory purchases. Accrued expenses and other liabilities used $8.5 million, driven by payments for long-term incentive compensation and restructuring costs. Operating activities provided $47.2 million for the year ended June 30, 2019. Cash provided by net income, adjusted for the effect of non-cash charges, was partially offset by $35.9 million of cash used in the ordinary course of business for changes in operating assets and liabilities. Accounts receivable used $23.7 million of cash, primarily due to the timing of sales and collections in international regions. Increased inventories used $21.0 million of cash due to the timing of sales, purchases and production, primarily in our Animal Health segment. Other current assets used $7.5 million of cash due to the timing of payments. Cash used was partially offset by $16.2 million of cash provided by accounts payable and accrued expenses, including $5.6 million of accrued restructuring costs. Investing activities Investing activities used $120.4 million of net cash for the year ended June 30, 2020. Capital expenditures were $34.0 million as we continued to invest in our existing asset base and for capacity expansion and productivity improvements. The Osprey acquisition used $54.5 million of cash. We purchased $31.0 million of short-term investments. Investing activities used $14.1 million of net cash for the year ended June 30, 2019. Capital expenditures were $29.9 million as we invested in our existing asset base and for capacity expansion and productivity improvements. Cash used for business acquisitions was $9.8 million. Maturities of short-term investments provided $26.0 million of cash. Financing activities Financing activities provided $40.9 million of net cash for the year ended June 30, 2020. Net borrowings on our Revolver provided $73.0 million, primarily to fund the Osprey acquisition. We paid $19.4 million in dividends to holders of our Class A and Class B common stock. We paid $12.7 million in scheduled debt and other requirements. Financing activities used $4.1 million of net cash for the year ended June 30, 2019. Net borrowings on our Revolver provided $26.0 million. We paid $18.6 million in dividends to holders of our Class A and Class B common stock. We paid $12.6 million in scheduled debt and other requirements. The issuance of shares of common stock related to the exercise of employee stock options provided cash of $1.1 million. Liquidity and capital resources We believe our cash on hand, our operating cash flows and our financing arrangements, including the availability of borrowings under the Revolver and foreign credit lines, will be sufficient to support our ongoing cash needs. We have considered the current and potential future effects of COVID-19 on the financial markets. At this time, we expect adequate liquidity for at least the next twelve months. However, we can provide no assurance that our liquidity and capital resources will be adequate for future funding requirements. We believe we will be able to comply with the terms of the covenants under the Credit Facilities and foreign credit lines based on our operating plan. In the event of adverse operating results and/or violation of covenants under the facilities, there can be no assurance we would be able to obtain waivers or amendments. Other risks to our meeting future funding requirements include global economic conditions and macroeconomic, business and financial disruptions that could arise, including those caused by COVID-19. There can be no assurance that a challenging economic environment or an economic downturn would not affect our liquidity or our ability to obtain future financing or fund operations or investment opportunities. In addition, our debt covenants may restrict our ability to invest. 72 TABLE OF CONTENTS Certain relevant measures of our liquidity and capital resources follow: As of June 30 Cash and cash equivalents and short-term investments Working capital Ratio of current assets to current liabilities 2020 2019 2018 2020 / 2019 2019 / 2018​ (in thousands, except ratios) Change ​$ 91,343​ ​ 222,006​ 2.6:1​ ​$ 81,573​ ​ 242,902​ 2.71:1​ ​$ 79,168​ ​ 205,651​ 2.57:1​ $ 9,770 ​ ) (20,896 ​ $ 2,405 ​ 37,251 ​ We define working capital as total current assets (excluding cash and cash equivalents and short-term investments) less total current liabilities (excluding current portion of long-term debt). We calculate the ratio of current assets to current liabilities based on this definition. At June 30, 2020, we had $169.0 million in outstanding borrowings under the Revolver. We had outstanding letters of credit and other commitments of $2.7 million, leaving $78.3 million available for borrowings and letters of credit. We currently intend to pay quarterly dividends on our Class A and Class B common stock, subject to approval from the Board of Directors. Our Board of Directors has declared a cash dividend of $0.12 per share on Class A common stock and Class B common stock, payable on September 23, 2020. Our future ability to pay dividends will depend upon our results of operations, financial condition, capital requirements, our ability to 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 pay dividends or make other distributions. At June 30, 2020, our cash and cash equivalents and short-term investments included $89.6 million held by our international subsidiaries. There are no restrictions on cash distributions to PAHC from our international subsidiaries. Analysis of the consolidated balance sheets Change As of June 30 2020 2019 2018 2020/2019 2019/2018​ Accounts receivable – trade DSO ​$126,522​ 61​ ​$159,022​ 70​ (in thousands) ​$135,742​ 58​ ​$(32,500​ ) $ 23,280 ​ Payment terms outside the U.S. are typically longer than in the United States. We regularly monitor our accounts receivable for collectability, particularly in countries where economic conditions remain uncertain. We believe that our allowance for doubtful accounts is appropriate. Our assessment is based on such factors as past due history, historical and expected collection patterns, the financial condition of our customers, the robust nature 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. As of June 30 Inventories 2020 2019 2018 2020/2019 2019/2018​ ​$196,659​ ​$198,322​ (in thousands) ​$178,170​ ) $ (1,663 ​ $ 20,152 ​ Change Inventory decreased by $1.7 million in 2020, primarily due to the effect of currency fluctuations. Inventories increased $12.9 million, net of business acquisitions, as measured by exchange rates at the time of the transactions. 73 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS Contractual obligations Payments due under contractual obligations as of June 30, 2020, were: Long-term debt (including current portion) Revolving credit facility Interest payments Lease commitments Contingent consideration Other Total contractual obligations Years ​ Within 1 Over 1 to 3 Over 3 to 5 Over 5 Total ​$18,750​ —​ ​ 10,726​ 7,211​ —​ 1,010​ ​$37,697​ ​$200,000 ​ 169,000 10,321 8,942 4,840 1,822 ​$394,925 (in thousands) $ — ​ — ​ — ​ 4,457 ​ — ​ 1,228 ​ $ 5,685 ​ ​$ —​ ​ —​ ​ —​ ​ 6,869​ ​ —​ ​ 1,123​ ​$7,992​ ​$218,750​ ​ 169,000​ 21,047​ 27,479​ 4,840​ 5,183​ ​$446,299​ For purposes of estimating interest payments, we assumed long-term debt will decrease in accordance with the scheduled payments and the Revolver continues unchanged at the June 30, 2020, balance. We assumed future interest rates are the same as the rates at June 30, 2020. Excluded from the contractual obligations table is the liability for unrecognized tax benefits totaling $10.5 million. This liability for unrecognized tax benefits has been excluded because we cannot make a reliable estimate of the periods in which the liability will be realized. Our Board of Directors declared a cash dividend of $0.12 per share on Class A common stock and Class B common stock, representing $4.9 million, payable on September 23, 2020. The Company expects to contribute approximately $1.6 million to the domestic pension plan during 2021. Off-balance sheet arrangements We currently do not 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 that may arise. These indemnifications typically pertain to environmental matters. If the indemnified party were to make 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. Selected Quarterly Financial Data (Unaudited) To facilitate quarterly comparisons, the following unaudited information presents the quarterly results of operations, including segment data, for the years ended June 30, 2020 and 2019. This quarterly financial data was prepared on the same basis as, and should be read in conjunction with, the audited consolidated financial statements and related notes included herein. For the Periods Ended Net sales MFAs and other Nutritional Specialties Vaccines Animal Health Quarters September 30, 2019 December 31, 2019 March 31, 2020 June 30, 2020 (in thousands) Year June 30, 2020 ​ $ 75,034 ​ 30,433 ​ 16,383 ​ ​ $ 121,850 ​ $ 91,955 ​ 33,062 ​ 18,672 ​ $ 143,689 ​ ​$ 82,670​ 34,636​ 21,668​ ​$138,974​ ​$ 72,641​ 31,133​ 18,617​ ​$122,391​ ​$322,300​ ​ 129,264​ 75,340​ ​$526,904​ 74 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS For the Periods Ended Mineral Nutrition Performance Products Total net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Interest expense, net Foreign currency (gains) losses, net Income before income taxes Provision (benefit) for income taxes Net income Net income per share basic diluted Adjusted EBITDA Animal Health Mineral Nutrition Performance Products Corporate Adjusted EBITDA Reconciliation of net income to Adjusted EBITDA Net income Interest expense, net Provision (benefit) for income taxes Depreciation and amortization EBITDA Restructuring costs Stock-based compensation Acquisition-related cost of goods sold Acquisition-related transaction costs Acquisition-related other, net Foreign currency (gains) losses, net Adjusted EBITDA ​ $ Year June 30, 2020 ​ 214,412​ 59,038​ ​ 800,354​ ​ 543,472​ ​ 256,882​ ​ 187,688​ 69,194​ 12,856​ 826​ 55,512​ 21,960​ ​$ 33,552​ Quarters September 30, 2019 December 31, 2019 March 31, 2020 June 30, 2020 52,649 ​ 15,221 ​ 189,720 ​ 132,057 ​ 57,663 ​ (in thousands) 55,685 ​ 14,638 ​ 214,012 ​ 144,908 ​ 69,104 ​ 56,200​ 15,565​ ​ 210,739​ ​ 141,188​ 69,551​ 49,878​ 13,614​ ​ 185,883​ ​ 125,319​ 60,564​ 42,445​ 18,119​ 2,807​ (1,069​ 16,381​ 10,739​ 5,642​ ) 49,495 ​ 19,609 ​ 3,432 ​ ) (718 ​ 16,895 ​ 5,001 ​ 11,894 ​ 48,232​ 21,319​ 3,263​ (608​ 18,664​ 5,163​ ​$ 13,501​ ) 0.29 ​ 0.29 ​ ​$ ​$ 0.33​ 0.33​ ​$ ​$ ​$ 0.14​ 0.14​ ​$ ​$ 0.83​ 0.83​ 33,838 ​ 3,684 ​ 1,457 ​ ) (10,491 ​ 28,488 ​ ​$ 34,635​ 4,055​ 1,506​ (10,064​ ​$ 30,132​ ) ​$ 29,572​ 3,464​ 719​ (9,895​ ​$ 23,860​ ) ​$123,106​ 14,678​ 4,534​ (40,178​ ​$102,140​ ) 11,894 ​ 3,432 ​ 5,001 ​ 8,148 ​ 28,475 ​ — ​ 564 ​ — ​ — ​ 167 ​ ) (718 ​ 28,488 ​ ​$ 13,501​ 3,263​ 5,163​ 8,248​ 30,175​ —​ 565​ —​ —​ —​ (608​ ​$ 30,132​ ) ​$ 5,642​ 2,807​ 10,739​ 8,164​ 27,352​ —​ 565​ —​ —​ (2,988​ (1,069​ ​$ 23,860​ ) ) ​$ 33,552​ 12,856​ 21,960​ 32,341​ ​ 100,709​ 425​ 2,259​ 280​ 462​ (2,821​ 826​ ​$102,140​ ) ​ $ ​ $ ​ $ ​ $ ​ $ ​ $ 47,516 ​ 10,147 ​ 3,354 ​ 3,221 ​ 3,572 ​ 1,057 ​ 2,515 ​ 0.06 ​ 0.06 ​ 25,061 ​ 3,475 ​ 852 ​ ) (9,728 ​ 19,660 ​ 2,515 ​ 3,354 ​ 1,057 ​ 7,781 ​ 14,707 ​ 425 ​ 565 ​ 280 ​ 462 ​ — ​ 3,221 ​ 19,660 ​ 75 ​ $ ​ $ ​ $ ​ $ ​ $ ​ $ ​ $ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS For the Periods Ended Net sales MFAs and other Nutritional Specialties Vaccines Animal Health Mineral Nutrition Performance Products Total net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Interest expense, net Foreign currency (gains) losses, net Income before income taxes Provision for income taxes Net income Net income per share basic diluted Adjusted EBITDA Animal Health Mineral Nutrition Performance Products Corporate Adjusted EBITDA Reconciliation of net income to Adjusted EBITDA Net income Interest expense, net Provision for income taxes Depreciation and amortization EBITDA Restructuring costs Stock-based compensation Acquisition-related transaction costs Other Foreign currency (gains) losses, net Adjusted EBITDA ​ $ Quarters September 30, 2018 December 31, 2018 March 31, 2019 June 30, 2019 (in thousands) ​ $ 87,004 ​ 26,970 ​ 17,215 ​ ​ $ 131,189 ​ 54,838 ​ 14,126 ​ 200,153 ​ 134,348 ​ 65,805 ​ ​ $ 93,054 ​ 29,460 ​ 17,048 ​ ​ $ 139,562 ​ 62,319 ​ 16,342 ​ 218,223 ​ 149,579 ​ 68,644 ​ ​$ 84,095​ 28,227​ 16,867​ ​$129,189​ 60,653​ 15,894​ ​ 205,736​ ​ 140,864​ 64,872​ ​$ 86,315​ 28,558​ 17,161​ ​$132,034​ 55,972​ 15,877​ ​ 203,883​ ​ 138,580​ 65,303​ Year June 30, 2019 ​$350,468​ ​ 113,215​ 68,291​ ​$531,974​ ​ 233,782​ 62,239​ ​ 827,995​ ​ 563,371​ ​ 264,624​ ​ $ ​ $ ​ $ ​ $ ​ $ ​ $ 42,304​ 53,204​ ​ 181,398​ 42,952 ​ 22,853 ​ 2,783 ​ ) (2,635 ​ 22,705 ​ 6,391 ​ 16,314 ​ ​ $ 42,938 ​ 25,706 ​ 3,015 ​ 2,617 ​ 20,074 ​ 5,326 ​ 14,748 ​ 22,568​ 2,931​ 122​ 19,515​ 4,666​ ​$ 14,849​ 0.40 ​ 0.40 ​ ​ $ ​ $ 0.37 ​ 0.36 ​ ​$ ​$ 0.37​ 0.37​ ) 12,099​ 3,047​ (159​ 9,211​ 409​ 8,802​ ) 83,226​ 11,776​ (55​ 71,505​ 16,792​ ​$ 54,713​ 0.22​ 0.22​ ​$ ​$ 1.35​ 1.35​ ​$ ​$ ​$ 35,925 ​ 4,084 ​ 1,514 ​ ) (9,918 ​ 31,605 ​ ​$ 33,241​ 5,287​ 1,330​ (9,850​ ​$ 30,008​ ) ​$ 31,167​ 3,778​ 1,168​ (9,798​ ​$ 26,315​ ) ​$136,049​ 15,712​ 4,728​ (38,452​ ​$118,037​ ) 14,748 ​ 3,015 ​ 5,326 ​ 6,841 ​ 29,930 ​ — ​ 564 ​ — ​ ) (1,506 ​ 2,617 ​ 31,605 ​ ​$ 14,849​ 2,931​ 4,666​ 6,875​ 29,321​ —​ 565​ —​ —​ 122​ ​$ 30,008​ ​$ 8,802​ 3,047​ 409​ 7,157​ 19,415​ 6,281​ 565​ 213​ —​ (159​ ​$ 26,315​ ) ​$ 54,713​ 11,776​ 16,792​ 27,564​ ​ 110,845​ 6,281​ 2,259​ 213​ (1,506​ (55​ ​$118,037​ ) ) ​ $ ​ $ ​ $ ​ $ 35,716 ​ 2,563 ​ 716 ​ ) (8,886 ​ 30,109 ​ 16,314 ​ 2,783 ​ 6,391 ​ 6,691 ​ 32,179 ​ — ​ 565 ​ — ​ — ​ ) (2,635 ​ 30,109 ​ 76 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS General description of non-GAAP financial measures Adjusted EBITDA Adjusted EBITDA is an alternative view of performance used by management as our primary operating measure, and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. We report Adjusted EBITDA to portray the results of our operations prior to considering certain income statement elements. We have defined EBITDA as net income (loss) plus (i) interest expense, net, (ii) provision for income taxes or less benefit for income taxes, and (iii) depreciation and amortization. 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 consolidated statements 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 is not, 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 overall performance on this basis in conjunction with other performance metrics. The following are examples of how our Adjusted EBITDA measure is utilized: • • • senior management receives a monthly analysis of our operating results that is prepared on an Adjusted 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. 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 assesses performance. We also recognize that, as an internal measure of performance, the Adjusted EBITDA measure has limitations, and we do not restrict our performance management process solely to this metric. A limitation of the Adjusted EBITDA measure is that it provides a view of our operations without including all events during a period, such as the depreciation of property, plant and equipment or amortization of purchased intangibles, and does not provide a comparable view of our performance to other companies. Certain significant items Adjusted EBITDA is calculated prior to considering certain items. We evaluate such items on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual or non-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 on a regular basis. We consider acquisition-related activities and business restructuring costs related to productivity and cost saving initiatives, including employee separation costs, to be unusual items that we do not expect to occur as part of our normal business on a regular basis. We consider foreign currency gains and losses to be non-operational because they arise principally from intercompany transactions and are largely non-cash in nature. New accounting standards We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016- 02, Leases (Topic 842), effective July 1, 2019. For discussion of new accounting standards, see “Notes to Consolidated Financial Statements — Summary of Significant Accounting Policies and New Accounting Standards.” 77 TABLE OF CONTENTS Critical accounting policies Critical accounting policies are those that require application of management’s most difficult, subjective and/or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all accounting policies require management to make difficult, subjective or complex judgments or estimates. In presenting our consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (GAAP), we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results that differ from our estimates and assumptions could have an unfavorable effect on our financial position and results of operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain. The pandemic may have significant economic impact on customers, suppliers and markets. New information may emerge concerning COVID-19 and the actions required to contain or treat the virus may affect the duration and severity of the pandemic. Our financial statements include estimates of the effects of COVID-19 and there may be changes to those estimates in future periods. The following is a summary of accounting policies that we consider critical to the consolidated financial statements. Revenue Recognition We recognize revenue from product sales when control of the products has transferred to the customer, typically when title and risk of loss transfer to the customer. Certain of our businesses have terms where control of the products transfers to the customer on shipment, while others have terms where control transfers to the customer on delivery. Revenue reflects the total consideration to which we expect to be entitled, in exchange for delivery of products or services, net of variable consideration. Variable consideration includes customer programs and incentive offerings, including pricing arrangements, rebates and other volume-based incentives. We record reductions to revenue for estimated variable consideration at the time we record the sale. Our estimates for variable consideration reflect the amount by which we expect variable consideration to effect the revenue recognized. Such estimates are based on contractual terms and historical experience, and are adjusted to reflect future expectations as new information becomes available. Historically, we have not had significant adjustments to our estimates of customer incentives. Sales returns and product recalls have been insignificant and infrequent due to the nature of the products we sell. Net sales include shipping and handling fees billed to customers. The associated costs are considered fulfillment activities, not additional promised services to the customer, and are included in costs of goods sold when the related revenue is recognized in the consolidated statements of operations. Net sales exclude value-added and other taxes based on sales. Business Combinations Our consolidated financial statements reflect the operations of an acquired business beginning as of the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values at the date of acquisition; goodwill is recorded for any excess of the purchase price over the fair values of the net assets acquired. Significant judgment may be required to determine the fair values of certain tangible and intangible assets and in assigning their respective useful lives. Significant judgment also may be required to determine the fair values of contingent consideration, if any. We typically utilize third-party valuation specialists to assist us in determining fair values of significant tangible and intangible assets and contingent consideration. The fair values are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain. We typically use an income method to measure the fair value of intangible assets, based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect consideration of other marketplace participants, and include the amount and timing of future cash flows, specifically the expected revenue growth rate applied to the cash flows. Unanticipated market or 78 TABLE OF CONTENTS macroeconomic events and circumstances could affect the accuracy or validity of the estimates and assumptions. Determining the useful life of an intangible asset also requires judgment. Our estimates of the useful lives of intangible assets primarily are based on a number of factors including the competitive environment, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the products are sold. Intangible assets are amortized over their estimated lives. Intangible assets associated with acquired in-process research and development activities (“IPR&D”) are not amortized until a product is available for sale and regulatory approval is obtained. Long-Lived Assets and Goodwill We periodically review our long-lived and amortizable intangible assets for impairment and assess whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include a significant decrease in the market price of an asset, a significant adverse change in the manner in which the asset is being used or in its physical condition or a history of operating or cash flow losses associated with the use of an asset. We recognize an impairment loss when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss is the excess of the asset’s carrying value over its fair value. In addition, we periodically reassess the estimated remaining useful lives of our long-lived and amortizable intangible assets. Changes to estimated useful lives would affect the amount of depreciation and amortization recorded in the consolidated statements of operations. Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination. We assess goodwill for impairment annually during the fourth quarter, or more frequently if impairment indicators exist. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. We may elect to assess our goodwill for impairment using a qualitative or a quantitative approach, to determine whether it is more likely than not that the fair value of goodwill is greater than its carrying value. During the three months ended June 30, 2020, we tested goodwill using a quantitative approach, which involved estimating fair values of reporting units using the discounted cash flow method. We determined goodwill was not impaired. We have not recorded any goodwill impairment charges in the periods included in the consolidated financial statements. We evaluate our investments in equity method investees for impairment if circumstances indicate that the fair value of the investment may be impaired. The assets underlying a $2.9 million equity investment are currently idled; we have concluded the investment is not currently impaired, based on expected future operating cash flows and/or disposal value. Income Taxes The provision for income taxes includes U.S. federal, state, and foreign income taxes and foreign withholding taxes. Our annual effective income tax rate is determined based on our income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items be included in the tax return at different times than the items are reflected in the financial statements. 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 temporary differences give rise to deferred tax assets and liabilities. Deferred tax assets generally represent the tax effect of items that can be used as a tax deduction 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 income statement for which payment has been deferred, the tax effect of expenditures for which a deduction has already been taken in our tax return but has not yet been recognized in our income statement or the tax effect of assets recorded at fair value in business combinations for which there was no corresponding tax basis adjustment. The recognition and measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the reporting date. Inherent in determining our annual effective income tax rate are judgments regarding business plans, planning opportunities and expectations about future outcomes. Realization of certain deferred tax assets, primarily net operating loss carryforwards, 79 TABLE OF CONTENTS is dependent upon generating sufficient future taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. We establish valuation allowances for deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. We may take tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority in the jurisdictions where we operate. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We account for income tax contingencies using a benefit recognition model. If our initial assessment does not result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognize the tax benefit if: (i) there are changes in tax law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the position to “more likely than not;” (ii) the statute of limitations expires; or (iii) there is a completion of an audit resulting in a favorable settlement of that tax year with the appropriate agency. We regularly re-evaluate our tax positions based on the results of audits of federal, state and foreign income tax filings, statute of limitations expirations, and changes in tax law or receipt of new information 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 have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range 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 various components of our income tax provision, certain future events such as changes in tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans could have an impact on those estimates and our effective income tax rate. We consider undistributed earnings of foreign subsidiaries to be indefinitely reinvested in our international operations. The undistributed earnings of foreign subsidiaries 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 under the Tax Act. Should our plans change and we decide to repatriate some or all of the remaining cash held by our international subsidiaries, the amounts repatriated could be subject to applicable non-U.S. income and withholding taxes in international jurisdictions. For more information regarding our significant accounting policies, estimates and assumptions, see “Notes to Consolidated Financial Statements — Summary of Significant Accounting Policies and New Accounting Standards.” Contingencies Legal matters We are subject to numerous contingencies arising in the ordinary course of business, such as product liability and other product-related litigation, commercial litigation, environmental claims and proceedings and government investigations. Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial. We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do 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 certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid and/or accrued. 80 TABLE OF CONTENTS​ We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Environmental Our operations and properties are subject to Environmental Laws and regulations. As such, the nature of 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 certain circumstances, we might be required to curtail operations until a particular problem is remedied. Known costs and expenses under Environmental Laws incidental to ongoing operations, including the cost of litigation proceedings relating to environmental matters, are generally included within operating results. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under Environmental Laws or to investigate or remediate potential or actual contamination and from time to time we establish reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under Environmental Laws and the time period during which such costs are likely to 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 involved in civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring efforts to address contamination associated with historic operations of the sites. We devote considerable resources to complying with Environmental Laws and managing environmental liabilities. We have developed programs to identify requirements under, and maintain compliance with Environmental Laws; however, we cannot predict with certainty the impact of increased and more 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 to environmental matters and we cannot assure we will not incur material costs and liabilities in connection with such claims. Based upon our experience to date, we believe that the future cost of compliance with existing Environmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity. For additional details, see “Notes to Consolidated Financial Statements — Commitments and Contingencies.” For additional details, see “Business — Environmental, Health and Safety.” Item 7A. Quantitative and Qualitative Disclosures about Market Risk Foreign exchange risk Portions of our net sales and costs are exposed to changes in foreign exchange rates. Our products are sold in more than 75 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 could affect our revenue and expenses, and consequently, net income. Exchange rate fluctuations may also have an effect beyond our reported financial results and directly affect operations. These fluctuations may affect the ability 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 these contracts to mitigate the potential earnings effects from exposure to foreign currencies. 81 TABLE OF CONTENTS​ We analyzed our foreign currency derivative contracts at June 30, 2020 to determine their sensitivity to 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 $1.8 million or increase by $1.9 million. For additional details, see “Notes to Consolidated Financial Statements — Derivatives.” Interest rate risk Substantially all of our outstanding debt is floating rate debt. Our Credit Facilities carry floating interest rates based on LIBOR and the Prime Rate; therefore, our profitability and cash flows are exposed to interest rate fluctuations. In July 2017, we entered into an interest rate swap agreement on $150 million of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed interest rate of 1.8325% plus the applicable rate. The agreement matures concurrently with the Credit Agreement. In March 2020, we entered into an interest rate swap agreement on an additional $150 million of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.620% plus the applicable rate. On the maturity of the July 2017 agreement, this agreement increases to a notional principal amount of $300 million through June 30, 2025, and effectively converts the floating LIBOR portion of our interest obligation on $300 million of debt to a fixed interest rate of 0.620% plus the applicable rate. We designated the interest rate swaps as highly effective cash flow hedges. Based on our outstanding debt balances as of June 30, 2020, and considering the interest rate swap agreements, a 100 basis point increase in LIBOR would increase annual interest expense and decrease cash flows by $0.9 million. For additional details, see “Notes to the Consolidated Financial Statements — Debt” and “Notes to the Consolidated Financial Statements — Derivatives.” 82 ​ TABLE OF CONTENTS​ Item 8. Financial Statements and Supplementary Data PHIBRO ANIMAL HEALTH CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​Report of Independent Registered Public Accounting Firm ​Consolidated Statements of Operations for the fiscal years ended June 30, 2020, 2019 and 2018 Consolidated Statements of Comprehensive Income for the fiscal years ended June 30, 2020, 2019 and 2018 ​Consolidated Balance Sheets as of June 30, 2020 and 2019 ​Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2020, 2019 and 2018 Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended June 30, 2020, 2019 and 2018. Notes to Consolidated Financial Statements for the fiscal years ended June 30, 2020, 2019 and 2018 ​ 84​ ​ 86​ ​ 87​ ​ 88​ ​ 89​ ​ 90​ ​ 91​ 83 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Phibro Animal Health Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Phibro Animal Health Corporation and its subsidiaries (the “Company”) as of June 30, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to: (i) the Company not maintaining an effective control environment due to a lack of sufficient resources with an appropriate level of accounting knowledge, experience and training commensurate with its financial reporting requirements, which contributed to material weaknesses related to: (ii) the Company not designing and maintaining effective internal controls to ensure processing and reporting of valid transactions is complete, accurate, and timely and (iii) the Company not maintaining effective internal control that restricts access to key financial systems and records to appropriate users and ensures that appropriate segregation of duties is maintained. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the June 30, 2020 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also 84 TABLE OF CONTENTS included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey August 26, 2020 We have served as the Company’s auditor since 1998. 85 TABLE OF CONTENTS​ PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended June 30 Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Interest expense, net Foreign currency (gains) losses, net Income before income taxes Provision for income taxes Net income Net income per share basic diluted Weighted average common shares outstanding basic diluted 2020 2019 2018 (in thousands, except per share amounts) ​$ 819,982 ​ ​$ 827,995​ ​$ 800,354​ ​ 553,103 ​ ​ 563,371​ ​ 543,472​ ​ 266,879 ​ ​ 264,624​ ​ 256,882​ ​ 167,953 ​ ​ 181,398​ ​ 187,688​ 98,926 ​ 83,226​ 69,194​ 11,910 ​ 11,776​ 12,856​ ) (1,054 ​ (55​ 826​ 88,070 ​ 71,505​ 55,512​ 23,187 ​ 16,792​ 21,960​ ​$ 64,883 ​ ​$ 54,713​ ​$ 33,552​ ) ​$ ​$ 0.83​ 0.83​ ​$ ​$ 1.35​ 1.35​ ​$ ​$ 1.61 ​ 1.61 ​ 40,454​ 40,504​ 40,412​ 40,523​ 40,181 ​ 40,385 ​ The accompanying notes are an integral part of these consolidated financial statements 86 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Year Ended June 30 2020 2019 2018 Net income Change in fair value of derivative instruments Foreign currency translation adjustment Unrecognized net pension gains (losses) (Provision) benefit for income taxes Other comprehensive income (loss) Comprehensive income (loss) ​$ 33,552​ ​ (12,854​ ​ (32,513​ (2,521​ 3,684​ ​ (44,204​ ​$(10,652​ ) ) ) ) ) ) ) ) (in thousands) ​$54,713​ (5,580​ (4,127​ (1,837​ 1,846​ (9,698​ ​$45,015​ ) ​$ 64,883​ 2,300​ ​ (23,542​ (154​ 350​ ​ (21,046​ ​$ 43,837​ ) ) ) The accompanying notes are an integral part of these consolidated financial statements 87 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 30 ASSETS Cash and cash equivalents Short-term investments Accounts receivable, net Inventories, net Other current assets Total current assets Property, plant and equipment, net Intangibles, net Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current portion of long-term debt Accounts payable Accrued expenses and other current liabilities Total current liabilities Revolving credit facility Long-term debt Other liabilities Total liabilities Commitments and contingencies (Note 13) Common stock,        par value $0.0001 per share; 300,000,000 Class A shares authorized, 20,287,574 shares issued and outstanding at June 30, 2020 and 2019; 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at June 30, 2020 and 2019 Preferred stock,        par value $0.0001 per share; 16,000,000 shares authorized, no shares issued and outstanding Paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total stockholders’ equity Total liabilities and stockholders’ equity 2020 2019 (in thousands, except share and per share amounts) ​$ 36,343​ 55,000​ 126,522​ 196,659​ 37,313​ 451,837​ 148,109​ 70,997​ 52,679​ 60,478​ ​$ 784,100​ ​$ 18,750​ 66,091​ 72,397​ 157,238​ 169,000​ 199,257​ 70,401​ 595,896​ ​$ 57,573 ​ 24,000 ​ ​ 159,022 ​ ​ 198,322 ​ 27,245 ​ ​ 466,162 ​ ​ 140,235 ​ 47,478 ​ 27,348 ​ 45,448 ​ ​$ 726,671 ​ ​$ 12,540 ​ 73,189 ​ 68,498 ​ ​ 154,227 ​ 96,000 ​ ​ 217,635 ​ 42,794 ​ ​ 510,656 ​ 4​ 4 ​ —​ 135,525​ 183,060​ (130,385​ 188,204​ ​$ 784,100​ ) — ​ ​ 133,266 ​ ​ 168,926 ​ ) (86,181 ​ ​ 216,015 ​ ​$ 726,671 ​ The accompanying notes are an integral part of these consolidated financial statements 88 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended June 30 OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization Amortization of debt issuance costs Stock-based compensation Acquisition-related items Deferred income taxes Foreign currency (gains) losses, net Other Changes in operating assets and liabilities, net of business acquisitions: Accounts receivable, net Inventories, net Other current assets Other assets Accounts payable Accrued expenses and other liabilities Net cash provided by operating activities INVESTING ACTIVITIES Purchases of short-term investments Maturities of short-term investments Capital expenditures Business acquisitions Other, net Net cash (used) by investing activities FINANCING ACTIVITIES Revolving credit facility borrowings Revolving credit facility repayments Payments of long-term debt and other Issuance of acquisition note payable Payment of acquisition note payable Proceeds from common stock issued Dividends paid Net cash provided (used) by financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow information Interest paid, net Income taxes paid, net Non-cash investing and financing activities Property, plant and equipment 2020 2019 2018 (in thousands) ​$ 33,552​ ​$ 54,713​ ​$ 64,883​ 32,341​ 882​ 2,259​ (2,433​ 8,125​ (2,540​ 818​ ) ) 28,713​ (12,930​ (11,137​ (2,121​ (7,672​ (8,509​ 59,348​ ) ) ) ) ) (80,000​ 49,000​ (34,045​ (54,549​ (796​ ​ (120,390​ ) ) ) ) ) ) ) ) ) ) ​ 243,000​ ​ (170,000​ (12,646​ —​ —​ —​ (19,418​ 40,936​ (1,124​ (21,230​ 57,573​ ​$ 36,343​ 27,564​ 882​ 2,259​ —​ (105​ (1,899​ (302​ (23,679​ (20,982​ (7,173​ (299​ 12,092​ 4,098​ 47,169​ ) ) ) ) ) ) ) (34,000​ 60,000​ (29,891​ (9,838​ (404​ (14,133​ ) ) ) ) ) 26,943​ 883​ 334​ 3,908​ 6,389​ (635​ 1,181​ ) ) ) ) ) (11,900​ (24,292​ 134​ (152​ 2,446​ (114​ 70,008​ (82,000​ 32,000​ (18,548​ (15,000​ (1,064​ (84,612​ ) ) ) ) ) ) ) ) ) ) ) ​ 213,000​ ​ (187,000​ (12,649​ 3,775​ (3,775​ 1,134​ (18,592​ (4,107​ (524​ 28,405​ 29,168​ ​$ 57,573​ ) ) ) ) ) ) ​ 225,000​ ​ (220,000​ (6,401​ —​ —​ 5,699​ (16,073​ (11,775​ (536​ (26,915​ 56,083​ ​$ 29,168​ ​$ 11,577​ 20,866​ ​$ 12,250​ 16,215​ ​$ 11,208​ 15,191​ 4,353​ 2,890​ 8,449​ The accompanying notes are an integral part of these consolidated financial statements 89 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Shares of Common Stock Common Stock Preferred Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total As of June 30, 2017 ​ 39,875,968​ ​ $ 4 ​ $ — ​ ​$123,840​ ​$ 82,750​ ​ $ (55,437 ) ​$151,157​ Comprehensive income (loss) —​ ​ — ​ Exercise of stock options 481,740​ ​ — ​ — ​ — ​ —​ 64,883​ (21,046 ) 43,837​ 5,699​ —​ — ​ 5,699​ Dividends declared ($0.40 per share) Stock-based —​ ​ — ​ — ​ —​ (16,073​ ) — ​ (16,073​ ) compensation expense —​ ​ — ​ — ​ 334​ —​ — ​ 334​ As of June 30, 2018 ​ 40,357,708​ ​ $ 4 ​ $ — ​ ​$129,873​ ​$131,560​ ​ $ (76,483 ) ​$184,954​ Adoption of new revenue standard Comprehensive income (loss) —​ ​ — ​ — ​ —​ ​ — ​ — ​ — ​ —​ —​ 1,134​ 1,245​ — ​ 1,245​ 54,713​ —​ (9,698 ) 45,015​ — ​ 1,134​ Exercise of stock options 95,900​ ​ — ​ Dividends declared ($0.46 per share) Stock-based —​ ​ — ​ — ​ —​ (18,592​ ) — ​ (18,592​ ) compensation expense —​ ​ — ​ — ​ 2,259​ —​ — ​ 2,259​ As of June 30, 2019 ​ 40,453,608​ ​ $ 4 ​ $ — ​ ​$133,266​ ​$168,926​ ​ $ (86,181 ) ​$216,015​ Comprehensive income (loss) Dividends declared ($0.48 per share) Stock-based —​ ​ — ​ — ​ —​ 33,552​ (44,204 ) (10,652​ ) —​ ​ — ​ — ​ —​ (19,418​ ) — ​ (19,418​ ) compensation expense —​ ​ — ​ — ​ 2,259​ —​ — ​ 2,259​ As of June 30, 2020 ​ 40,453,608​ ​ $ 4 ​ $ — ​ ​$135,525​ ​$183,060​ ​ $ (130,385 ) ​$188,204​ The accompanying notes are an integral part of these consolidated financial statements 90 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share amounts) 1. Description of Business 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 and mineral nutrition products for food animals including poultry, swine, dairy and beef cattle and aquaculture. The Company is also a manufacturer and marketer of performance products for use in the personal care, industrial chemical 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. 2. Summary of Significant Accounting Policies and New Accounting Standards Principles of Consolidation and Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of Phibro and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated from the consolidated financial statements. The decision whether or not to consolidate an entity requires consideration of majority voting interests, as well as effective control over the entity. We present our financial statements on the basis of our fiscal year ending June 30. All references to years in these consolidated financial statements refer to the fiscal year ending or ended on June 30 of that year. Risks and Uncertainties The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain. The pandemic may affect our future revenues, expenses, reserves and allowances, manufacturing operations and employee-related costs. The pandemic may have significant economic impact on customers, suppliers and markets. New information may emerge concerning COVID-19 and the actions required to contain or treat the virus may affect the duration and severity of the pandemic. Our financial statements include estimates of the effects of COVID-19 and there may be changes to those estimates in future periods. 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 to government restrictions on or banning of the use of antibiotics in food-producing animals. The sale of antibiotics and antibacterials is a material portion of our business. Should product bans or restrictions, public perception, competition or other developments result in restrictions on the sale of such products, it could have a material adverse effect on our financial position, results of operations and cash flows. An outbreak of disease carried by food animals, which could lead to the widespread death or precautionary destruction of food animals as well as reduced consumption and demand for animal protein, could adversely affect demand for our products. Such occurrences could have a material adverse effect on our financial condition, results of operations and cash flows. The testing, manufacturing, and marketing of certain of our products are subject to extensive regulation 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 a significant portion of our sales and earnings are attributable to operations conducted abroad. Our assets, results of operations and future prospects are subject to currency exchange fluctuations and restrictions, energy shortages, 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 our financial position, results of operations and cash flows. 91 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 remediation of 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 our subsidiaries expose Phibro and our subsidiaries to the risk of claims with respect to such matters. Use of Estimates The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). Preparation of these financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from these estimates. Estimates are used when accounting for the valuation of intangible assets, depreciation and amortization periods of long-lived and intangible assets, recoverability of long-lived and intangible assets and goodwill, realizability of deferred income tax assets, sales discounts, rebates, allowances and incentives, contingencies, employee compensation and actuarial assumptions related to our pension plans. We regularly evaluate our estimates and assumptions using historical experience and other factors. Our estimates are based on complex judgments, probabilities and assumptions that we believe to be reasonable. Revenue Recognition We recognize revenue from product sales when control of the product has transferred to the customer, typically when title and risk of loss transfer to the customer. Certain of our businesses have terms where control of the underlying product transfers to the customer on shipment, while others have terms where control transfers to the customer on delivery. Revenue reflects the total consideration to which we expect to be entitled in exchange for delivery of products or services, net of variable consideration. Variable consideration includes customer programs and incentive offerings, including pricing arrangements, rebates and other volume-based incentives. We record reductions to revenue for estimated variable consideration at the time we record the sale. Our estimates for variable consideration reflect the amount by which we expect variable consideration to effect the revenue recognized. Such estimates are generally based on contractual terms and historical experience, and are adjusted to reflect future expectations as new information becomes available. Historically, we have not had significant adjustments to our estimates of variable compensation. Sales returns and product recalls have been insignificant and infrequent due to the nature of the products we sell. Net sales include shipping and handling fees billed to customers. The associated costs are considered fulfillment activities and are included in costs of goods sold in the consolidated statements of operations when the related revenue is recognized. Net sales exclude value-added and other taxes based on sales. Cash and Cash Equivalents Cash equivalents include highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents held at financial institutions may at times exceed insured amounts. We believe we mitigate such risk by investing in or through major financial institutions. Short-term Investments Short-term investments include highly liquid investments with maturities greater than three months and less than one year at the time of purchase. We classify these investments as held to maturity and we record the related interest income as earned. We determine the appropriate balance sheet classification at the time of purchase and at each balance sheet date. Investments held at financial institutions may at times exceed insured amounts. We believe we mitigate such risk by investing in or through major financial institutions. 92 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. We grant credit terms in the normal course of business and generally do not require collateral or other security to support credit sales. Our ten largest customers represented, in aggregate, approximately 19% and 31% of accounts receivable at June 30, 2020 and 2019, respectively. The allowance for doubtful accounts is our best estimate of the credit losses in existing accounts receivable. We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We also monitor domestic and international economic conditions for the potential effect on our customers. Past due balances are reviewed individually for collectability. Account balances are charged against the allowance when we determine it is probable the receivable will not be recovered. Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined principally 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 costs include materials, direct labor and manufacturing overhead. Property, Plant and Equipment Property, 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 three to ten years for machinery 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 related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in the consolidated statements of operations. Leases We determine at the inception of an arrangement whether the arrangement contains a lease. If an arrangement contains a lease, we assess the lease term when the underlying asset is available for use (“lease commencement”). Individual lease terms reflect the non-cancellable period of the lease, reasonably certain renewal periods and consideration of termination options. We determine the lease classification as either operating or financing at lease commencement, which governs the pattern of expense recognition and presentation in our consolidated financial statements. Our current lease portfolio only includes operating leases. We recognize a right-of-use (“ROU”) asset and a corresponding lease liability at lease commencement for leases with terms exceeding twelve months. Short-term leases with terms of twelve months or less are not recognized on the consolidated balance sheet and lease payments are recognized on a straight-line basis over the term. The values of the ROU assets and lease liabilities are calculated based on the present value of the fixed payment obligations over the lease term, using our incremental borrowing rate (“IBR”), determined at lease commencement. The IBR reflects the rate of interest we would expect to pay on a secured basis to borrow an amount equal to the lease payments under similar terms. The IBR incorporates the term and economic environment of the respective lease arrangements. We have elected to account for lease and non-lease components together as a single lease component and include fixed payment obligations related to such non-lease components in the measurement of ROU assets and lease liabilities. Fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments can include index-based lease payments, real estate taxes, maintenance costs, 93 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) utilization charges and other non-lease services paid to lessors and are not determinable at lease commencement. Variable lease payments are not included in the measurement of ROU assets and lease liabilities and are recognized in the period incurred. Capitalized Software Costs We capitalize costs to obtain, develop and implement software for internal use. Amounts paid to third parties 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 are included in property, plant and equipment on the consolidated balance sheets and are amortized on a straight-line basis over three to seven years. Debt Issuance Costs Costs and original issue discounts or premiums related to issuance or modification of our debt are deferred on the consolidated balance sheet and amortized over the lives of the respective debt instruments. Amortization of debt issuance costs is included in interest expense in the consolidated statements of operations. Business Combinations Our consolidated financial statements reflect the operations of an acquired business beginning as of the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values at the date of acquisition; goodwill is recorded for any excess of the purchase price over the fair values of the net assets acquired. Significant judgment may be required to determine the fair values of certain tangible and intangible assets and in assigning their respective useful lives. Significant judgment also may be required to determine the fair values of contingent consideration, if any. We typically utilize third-party valuation specialists to assist us in determining fair values of significant tangible and intangible assets and contingent consideration. The fair values are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain. We typically use an income method to measure the fair value of intangible assets, based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect consideration of other marketplace participants, and include the amount and timing of future cash flows, specifically the expected revenue growth rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances could affect the accuracy or validity of the estimates and assumptions. Determining the useful life of an intangible asset also requires judgment. Our estimates of the useful lives of intangible assets primarily are based on a number of factors including the competitive environment, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the products are sold. Intangible assets are amortized over their estimated lives. Intangible assets associated with acquired in-process research and development activities (“IPR&D”) are not amortized until a product is available for sale and regulatory approval is obtained. Long-Lived Assets and Goodwill We periodically review our long-lived and amortizable intangible assets for impairment and assess whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such circumstances may include a significant decrease in the market price of an asset, a significant adverse change in the manner in which the asset is being used or in its physical condition or a history of operating or cash flow losses associated with the use of an asset. We recognize an impairment loss when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss is the excess of the asset’s carrying value over its fair value. In addition, we periodically reassess the estimated 94 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) remaining useful lives of our long-lived and amortizable intangible assets. Changes to estimated useful lives would affect the amount of depreciation and amortization recorded in the consolidated statements of operations. We periodically review our indefinite-lived intangible assets associated with acquired IPR&D for impairment and assess whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. We recognize an impairment loss when the carrying amount of an asset exceeds the anticipated future discounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss is the excess of the asset’s carrying value over its fair value. We assess IPR&D for impairment annually during our fourth quarter, or more frequently if impairment indicators exist. Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination. We assess goodwill for impairment annually during our fourth quarter, or more frequently if impairment indicators exist. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. We may elect to assess our goodwill for impairment using a qualitative or a quantitative approach, to determine whether it is more likely than not that the fair value of goodwill is greater than its carrying value. During the three months ended June 30, 2020, we tested goodwill using a quantitative approach, which involved estimating fair values of reporting units using the discounted cash flow method. We determined goodwill was not impaired. We have not recorded any goodwill impairment charges in the periods included in the consolidated financial statements. Foreign Currency Translation We generally use local currency as the functional currency to measure the financial position and results of operations of each of our international subsidiaries. We translate assets and liabilities of these operations at the exchange rates in effect at the balance sheet date. We translate income statement accounts at the average rates of exchange prevailing during the period. Translation adjustments that arise from the use of differing exchange rates from period to period are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Certain of our Israeli operations have designated the U.S. dollar as their functional currency. Gains and losses arising from remeasurement of local currency accounts into U.S. dollars are included in determining net income. Comprehensive Income Comprehensive income consists of net income and the changes in: (i) the fair value of derivative instruments that qualify for hedge accounting; (ii) foreign currency translation adjustments; (iii) unrecognized net pension gains (losses); and (iv) the related (provision) benefit for income taxes. Derivative Financial Instruments We 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 income (loss), depending on whether a derivative is designated and effective as part of a hedge transaction and, if so, the type of hedge transaction. Gains and losses on derivative instruments designated and effective as part of a hedge transaction are included in the results of operations in the periods in which operations are affected by the underlying hedged item. From time to time, we use certain derivative instruments to mitigate the risk associated with certain economic factors, such as exchange rates and interest rates, which may potentially affect our future cash flows. As of June 30, 2020, we used (i) foreign currency option contracts to mitigate certain exposures related to changes in foreign currency exchange rates on forecasted inventory purchases, and (ii) interest rate swaps on $300,000 of notional principal to manage future cash flow exposure resulting from variable interest rates on that amount of debt. To qualify a derivative as a hedge, we document the nature and relationships between hedging instruments and hedged items, the prospective effectiveness of the hedging instrument as well as the ultimate effectiveness, the risk- management objectives, the strategies for undertaking the 95 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) various hedge transactions and the methods of assessing hedge effectiveness. We do not engage in trading or other speculative uses of financial instruments. Environmental Liabilities Expenditures for ongoing compliance with environmental regulations are expensed or capitalized as appropriate. 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 as incurred and are recorded in selling, general and administrative expenses in the consolidated statements of operations. We record the expense and related liability in the period an environmental assessment indicates remedial efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors. All available evidence is considered, including prior experience in remediation of contaminated sites, other companies’ experiences and data released by the U.S. Environmental Protection Agency and other organizations. The estimated liabilities are not discounted. We record anticipated recoveries under existing insurance contracts if probable. Income Taxes The provision for income taxes includes U.S. federal, state, and foreign income taxes and foreign withholding taxes. Our annual effective income tax rate is determined based on our income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate and the tax effects of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items be included in the tax return at different times than the items are reflected in the financial statements. 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 temporary differences give rise to deferred tax assets and liabilities. Deferred tax assets generally represent the tax effect of items that can be used as a tax deduction 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 income statement for which payment has been deferred, the tax effect of expenditures for which a deduction has already been taken in our tax return but has not yet been recognized in our income statement, and the tax effect of assets recorded at fair value in business combinations for which there was no corresponding tax basis adjustment. The recognition and measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the reporting date. Inherent in determining our annual effective income tax rate are judgments regarding business plans, planning opportunities and expectations about future outcomes. Realization of certain deferred tax assets, primarily net operating loss carryforwards, is dependent upon generating sufficient future taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. We establish valuation allowances for deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. We may take tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority in the jurisdictions where we operate. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. Because there are a number of estimates and assumptions inherent in calculating the various components of our income tax provision, future events such as changes in tax legislation, the geographic mix of earnings, completion of tax audits or earnings repatriation plans could have an effect on those estimates and our effective income tax rate. Advertising Advertising and marketing costs are expensed as incurred and are reflected in selling, general and administrative expenses. 96 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Research and Development Expenditures Research and development expenditures are expensed as incurred and are recorded in selling, general and administrative expenses in the consolidated statements of operations. Most of our manufacturing facilities have scientists and technicians on staff involved in product development, quality assurance and providing technical services to customers. Research, development and technical service efforts are conducted at various facilities. Our animal health research and development activities relate to: fermentation development and microbiological strain improvement; vaccine development; chemical synthesis and formulation development; nutritional specialties development; and ethanol-related products. Stock-Based Compensation We recognize expense for stock-based compensation to employees, including grants of stock options and restricted stock units, over the requisite service period based on the grant date fair value of the awards. We determine the fair value of stock options and restricted stock units using the Black-Scholes option-pricing model and the Monte Carlo simulation model, respectively. Each model uses historical and current market data to 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 Shares Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period after giving effect to potential dilutive common shares resulting from the assumed exercise of stock options and vesting of restricted stock units. All common share equivalents were included in the calculation of diluted net income per share in the periods included in the consolidated financial statements. For the Year Ended June 30 Net income Weighted average number of shares – basic Dilutive effect of stock options and restricted stock units Weighted average number of shares – diluted Net income per share basic diluted New Accounting Standards 2020 ​$33,552​ ​ 40,454​ 50​ ​ 40,504​ 2019 ​$54,713​ ​ 40,412​ 111​ ​ 40,523​ 2018 ​$64,883​ ​ 40,181​ 204​ ​ 40,385​ ​$ ​$ 0.83​ 0.83​ ​$ ​$ 1.35​ 1.35​ ​$ ​$ 1.61​ 1.61​ Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), provides optional expedients and exceptions to GAAP guidance for contracts and hedging relationships that reference the London Interbank Offered Rate (LIBOR) and other interbank offered rates expected to be discontinued by rate reform. The purpose of this guidance is to ease the financial reporting burdens related to the expected market transition to alternative reference rates. This ASU may be applied beginning with the interim period ended March 31, 2020, and prospectively through December 31, 2022. We continue to evaluate the effect of adoption of this guidance on our consolidated financial statements. ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, removes certain exceptions and amends certain requirements in the existing income tax guidance to ease accounting requirements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning 97 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) after December 15, 2020, and must be applied on a retrospective basis. We continue to evaluate the effect of adoption of this guidance on our consolidated financial statements. ASU 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, modifies existing disclosure requirements for defined benefit pension and other postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020 and must be applied on a retrospective basis. We continue to evaluate the effect of adoption of this guidance on our consolidated financial statements. ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, modifies existing disclosure requirements for fair value measurement. This ASU is effective for fiscal years beginning after December 15, 2019. We continue to evaluate the effect of adoption of this guidance on our consolidated financial statements. ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income allows reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects related to adjustments resulting from the United States Tax Cuts and Jobs Act. This ASU was effective for our consolidated financial statements beginning July 1, 2019. The adoption of this guidance did not have a material effect on our consolidated financial statements. ASU 2016-02, Leases (Topic 842), requires an entity to recognize assets and liabilities on the balance sheet for both financing and operating leases and requires additional qualitative and quantitative disclosures regarding leasing arrangements. We adopted ASU 2016-02 and its amendments effective July 1, 2019, using a modified retrospective transition approach, which does not require modifications to periods prior to the date of initial application. We elected not to reassess whether expired or existing contracts contain leases and carried forward the original lease classifications prior to adoption. We also did not use hindsight in our assessment of lease terms as of the effective date. Please refer to our lease policy for our elections regarding the accounting of short-term leases and the assessment of lease components. Upon adoption of ASU 2016-02, we recognized initial ROU assets and lease liabilities of $18,576 and $19,368, respectively, on the consolidated balance sheet. The difference in the amounts of the ROU assets and lease liabilities recognized relates to landlord incentives and deferred rent. An adjustment to opening retained earnings was not required, and the recognition of lease expense in the consolidated statements of operations did not change significantly. Refer to “Note 7 — Leases” for further information. 3. Acquisition In August 2019, we acquired the business and assets of Osprey Biotechnics, Inc. (“Osprey”). Osprey is a developer, manufacturer and marketer of microbial products and bioproducts for a variety of applications, serving customers in the animal health and nutrition, environmental, industrial and plant protection industries. We acquired Osprey to gain access to Osprey’s microbial technology and developed products and expand our customer relationships. The business is included in the Animal Health segment. We acquired assets used in Osprey’s business, including intellectual property, working capital and property, plant and equipment, for an aggregate cash payment of $54,549. The acquisition agreement included contingent consideration, with the payment amount to be determined based on Osprey’s financial performance for the year ending June 30, 2021. The payment will be no less than $4,840 and has no maximum limit. Total consideration of $62,102 included a $7,553 liability for the estimated contingent consideration, based on the expected financial performance of the Osprey business. During the three months ended June 30, 2020, we updated our expectations of the future financial performance of the business and adjusted the contingent consideration amount to the minimum value of $4,840. The adjustment of $2,988 was recorded as a reduction to selling, general and administrative expenses. In connection with the Osprey acquisition, we incurred acquisition-related transaction costs of $462 and $213 during the years ended June 30, 2020 and 2019, respectively; the costs are included in selling, general and administrative expenses. 98 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) We accounted for the acquisition as a business combination in accordance with FASB Accounting Standards Codification No. 805, Business Combinations. Pro forma information giving effect to the acquisition has not been provided because the results are not material to the consolidated financial statements. The fair values of the acquired assets and liabilities as of the acquisition date were: ​Working capital, net ​Property, plant and equipment ​Definite-lived intangible assets ​Goodwill ​Net assets acquired ​$ 2,366​ 2,005​ ​ 32,400​ ​ 25,331​ ​$62,102​ Definite-lived intangible assets include $18,900 for customer relationships, $12,200 for developed products and $1,300 for tradename. The definite-lived intangible assets will be amortized over periods ranging from 5 –  12 years. Goodwill represents the expected future benefits from the combination of Osprey’s business with Phibro. The amount of goodwill expected to be deductible for tax purposes is $25,331. 4. Statements of Operations — Additional Information Disaggregated revenue, deferred revenue and customer payment terms We develop, manufacture and market a broad range of products for food animals including poultry, swine, beef and dairy cattle and aquaculture. The products help prevent, control and treat diseases, enhance nutrition to help improve health and contribute to balanced mineral nutrition. The animal health and mineral nutrition products are sold directly to integrated poultry, swine and cattle integrators and through commercial animal feed manufacturers, wholesalers and distributors. The animal health industry and demand for many of the animal health products in a particular region are affected by changing disease pressures and by weather conditions, as product usage follows varying weather patterns and seasons. Our operations are primarily focused in regions where the majority of livestock production is consolidated in large commercial farms. We have a diversified portfolio of products that are classified within our three business segments — Animal Health, Mineral Nutrition and Performance Products. Each segment has its own dedicated management and sales team. Animal Health The Animal Health business develops, manufactures and markets products in three main categories: • • • MFAs and Other: MFAs and other products primarily consist of concentrated medicated products that are administered through animal feeds, commonly referred to as Medicated Feed Additives (“MFAs”). Specific product classifications include antibacterials, which inhibit the growth of pathogenic bacteria that cause bacterial infections in animals; anticoccidials, which inhibit the growth of coccidia (parasites) that damage the intestinal tract of animals; and other related products. Nutritional Specialties: Nutritional specialty products enhance nutrition to help improve health and performance in areas such as immune system function and digestive health. Vaccines: Our vaccines are primarily focused on preventing diseases in poultry and swine. They protect animals from either viral or bacterial disease challenges. We develop, manufacture and market conventionally licensed and autogenous vaccine products and also produce and market adjuvants to vaccine manufacturers. We have developed and market an innovative and proprietary delivery platform for vaccines. Mineral Nutrition The Mineral Nutrition business is comprised of formulations and concentrations of trace minerals such as zinc, manganese, copper, iron and other compounds, with a focus on customers in North America. 99 ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The customers use these products to fortify the daily feed requirements of their livestock’s diets and maintain an optimal balance of trace elements in each animal. We manufacture and market a broad range of mineral nutrition products for food animals including poultry, swine and beef and dairy cattle. Performance Products The Performance Products business manufactures and markets a number of specialty ingredients for use in the personal care, industrial chemical and chemical catalyst industries, predominantly in the United States. The following tables present our revenues disaggregated by major product category and geographic region: Net Sales by Product Type For the Year Ended June 30 Animal Health MFAs and other Nutritional specialties Vaccines Total Animal Health Mineral Nutrition Performance Products Total Net Sales by Region For the Year Ended June 30 United States Latin America and Canada Europe, Middle East and Africa Asia Pacific Total 2020 2019 2018 ​$322,300​ ​ 129,264​ 75,340​ ​$526,904​ ​ 214,412​ 59,038​ ​$800,354​ ​$350,468​ ​ 113,215​ 68,291​ ​$531,974​ ​ 233,782​ 62,239​ ​$827,995​ ​$336,666​ ​ 122,978​ 72,083​ ​ 531,727​ ​ 234,922​ 53,333​ ​$819,982​ 2020 ​$471,938​ ​ 158,939​ ​ 112,179​ 57,298​ ​$800,354​ 2019 ​$480,101​ ​ 152,380​ ​ 105,365​ 90,149​ ​$827,995​ 2018 ​$490,880​ ​ 143,231​ ​ 110,377​ 75,494​ ​$819,982​ Net sales by region are based on country of destination. Deferred revenue was $4,570 and $5,464 as of June 30, 2020 and June 30, 2019, respectively. Accrued expenses and other current liabilities included $1,109 and $965 of the total deferred revenue as of June 30, 2020 and June 30, 2019, respectively. The deferred revenue results primarily from certain customer arrangements, including technology licensing fees and discounts on future product sales. The transaction price associated with our deferred revenue arrangements is generally based on the stand alone sales prices of the individual products or services. Our customer payment terms generally range from 30 to 120 days globally and do not include any significant financing components. Payment terms vary based on industry and business practices within the regions in which we operate. Our average worldwide collection period for accounts receivable is approximately 60 to 70 days after the revenue is recognized. 100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Interest Expense and Depreciation and Amortization For the Year Ended June 30 Interest expense, net Term loan Revolving credit facility Amortization of debt issuance costs Other Interest expense Interest (income) 2020 2019 2018 ​$ 7,751​ 5,317​ 882​ 663​ ​ 14,613​ (1,757​ ​$12,856​ ) ​$ 8,553​ 3,748​ 882​ 494​ ​ 13,677​ (1,901​ ​$11,776​ ) ​$ 8,321​ 2,777​ 883​ 1,622​ ​ 13,603​ (1,693​ ​$11,910​ ) For the Year Ended June 30 2020 2019 2018 Depreciation and amortization Depreciation of property, plant and equipment Amortization of intangible assets Amortization of other assets ​$23,250​ 8,869​ 222​ ​$32,341​ ​$21,423​ 6,092​ 49​ ​$27,564​ ​$21,044​ 5,851​ 48​ ​$26,943​ Depreciation of property, plant and equipment includes amortization of capitalized software costs of $1,038, $1,217 and $1,519 during 2020, 2019 and 2018, respectively. Amortization of intangible assets as of June 30, 2020, is expected to be $8,732, $8,608, $8,608, $8,428, $6,773 and $29,848 for 2021, 2022, 2023, 2024, 2025 and thereafter, respectively. For the Year Ended June 30 Research and development expenditures 2020 ​$13,738​ 2019 ​$12,093​ 2018 ​ ​$9,998​ 5. Balance Sheets — Additional Information As of June 30 Accounts receivable, net Trade accounts receivable Allowance for doubtful accounts As of June 30 Allowance for doubtful accounts Balance at beginning of period Provision for bad debts Effect of changes in exchange rates Bad debt write-offs Balance at end of period 101 2020 2019 ​$130,462​ (3,940​ ​$126,522​ ) ​$163,464​ (4,442​ ​$159,022​ ) 2020 2019 2018 ​ ​$4,442​ 230​ (304​ (428​ ​$3,940​ ) ) ​$ 6,257​ (201​ 38​ ​ (1,652​ ​$ 4,442​ ) ) ​$6,428​ 166​ (215​ (122​ ​$6,257​ ) ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of June 30 Inventories Raw materials Work-in-process Finished goods As of June 30 Property, plant and equipment, net Land Buildings and improvements Machinery and equipment Accumulated depreciation 2020 2019 ​$ 73,837​ 8,881​ ​ 113,941​ ​$196,659​ ​$ 64,441​ 10,699​ ​ 123,182​ ​$198,322​ 2020 2019 ​$ 9,796​ 69,444​ ​ 267,805​ ​ 347,045​ ​ (198,936​ ​$ 148,109​ ) ​$ 10,152​ 71,036​ ​ 252,097​ ​ 333,285​ ​ (193,050​ ​$ 140,235​ ) Certain 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 accumulated depreciation, of $3,517 and $3,475 at June 30, 2020 and 2019, respectively. Machinery and equipment includes construction-in-progress of $25,582 and $15,630 at June 30, 2020 and 2019, respectively. As of June 30 Intangibles, net Cost Technology Product registrations, marketing and distribution rights Customer relationships Trade names, trademarks and other In-process research and development Accumulated amortization Technology Product registrations, marketing and distribution rights Customer relationships Trade names, trademarks and other Weighted-Average Useful Life (Years) 2020 2019 12 9 12 5 ​$ 85,016​ 17,795​ 31,089​ 3,857​ —​ ​ 137,757​ ​$ 71,016​ 17,858​ 12,194​ 2,740​ 1,800​ ​ 105,608​ ) ) ) ) ) (35,859​ (17,770​ (10,336​ (2,795​ (66,760​ ​$ 70,997​ ) ) ) ) ) (29,333​ (17,811​ (8,282​ (2,704​ (58,130​ ​$ 47,478​ 102 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of June 30 Goodwill roll-forward Balance at beginning of period Osprey acquisition Balance at end of period As of June 30 Other assets ROU operating lease assets Deferred income taxes Deposits Insurance investments Equity method investments Indemnification asset Debt issuance costs Other 2020 2019 ​$27,348​ ​ 25,331​ ​$52,679​ ​$27,348​ —​ ​$27,348​ 2020 2019 ​$22,873​ ​ 11,430​ 5,158​ 5,801​ 4,219​ 3,000​ 1,021​ 6,976​ ​$60,478​ ​$ —​ ​ 16,770​ 7,024​ 5,431​ 4,196​ 3,000​ 1,531​ 7,496​ ​$45,448​ We evaluate our investments in equity method investees for impairment if circumstances indicate that the fair value of the investment may be impaired. The assets underlying a $2,918 equity investment are currently idled; we have concluded the investment is not currently impaired, based on expected future operating cash flows and/or disposal value. As of June 30 Accrued expenses and other current liabilities Employee related Current operating lease liabilities Commissions and rebates Professional fees Income and other taxes Restructuring costs Insurance-related Derivatives Other 2020 2019 ​$25,825​ 6,439​ 5,782​ 5,766​ 3,821​ 2,314​ 1,272​ 5,757​ ​ 15,421​ ​$72,397​ ​$28,298​ —​ 8,397​ 5,212​ 6,067​ 3,590​ 1,279​ —​ ​ 15,655​ ​$68,498​ During the three months ended June 30, 2019, we recorded costs of $6,281 for business restructuring activities related to productivity and cost saving initiatives in the Animal Health segment, including $3,500 related to the termination of a contract manufacturing agreement and $2,781 for employee separation charges. During the year ended June 30, 2020, we recorded costs of $425 related to employee separation charges. 103 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The costs are included in selling, general and administrative expenses in our consolidated statements of operations. The following table summarizes the activity of the restructuring liability during the year ended June 30, 2020: ​Liability balance at June 30, 2019 ​Charges ​Payments ​Liability balance at June 30, 2020 As of June 30 Other liabilities Long-term operating lease liabilities Long term and deferred income taxes Derivatives Supplemental retirement benefits, deferred compensation and other Contingent consideration International retirement plans Restructuring costs U.S. pension plan Other long term liabilities As of June 30 Accumulated other comprehensive income (loss) Derivative instruments Foreign currency translation adjustment Unrecognized net pension gains (losses) (Provision) benefit for income taxes on derivative instruments (Provision) benefit for incomes taxes on long-term intercompany investments (Provision) benefit for income taxes on pension gains (losses) ​$ 5,590​ 425​ ​ (3,155​ ​$ 2,860​ ) 2020 2019 ​$17,276​ ​ 11,680​ 7,691​ 8,067​ 4,840​ 5,499​ 546​ 3,563​ ​ 11,239​ ​$70,401​ ​$ —​ 8,978​ 977​ 7,605​ —​ 5,133​ 2,000​ 3,934​ ​ 14,167​ ​$42,794​ 2020 2019 ​$ (13,448​ ​ (103,738​ (22,571​ 3,256​ 8,166​ (2,050​ ​$(130,385​ ) ) ) ) ) ​$ (594​ ​ (71,225​ ​ (20,050​ 148​ 8,166​ (2,626​ ​$(86,181​ ) ) ) ) ) 6. Debt Term Loans and Revolving Credit Facilities In June 2017, we entered into a new credit agreement (the “Credit Agreement”). Under the Credit Agreement, 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 the Credit Facilities to repay all debt outstanding under the previous credit facilities as of the closing date and to pay fees and expenses of the transaction. Borrowings under the Credit Facilities bear interest at rates based on the ratio of the Company and its subsidiaries’ 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 Credit Facilities is based on a fluctuating rate of interest equal to the sum of an applicable rate and, at the Company’s election from time to time, either (1) a Eurodollar rate determined by reference to LIBOR with 104 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) a term as selected by the Company, or (2) a base rate determined by reference to the highest of  (a) the rate as publicly announced from 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 or greater 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 base rate 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 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 1.00%; 0.75%; and, 0.50%, respectively. Pursuant to the terms of the Credit Agreement, the Credit Facilities are subject to various covenants that, among other things and subject to the permitted exceptions described therein, restrict us and our subsidiaries with respect to: (i) incurring additional debt; (ii) making certain restricted payments or making optional 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 transactions with 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 to certain annual limitations and so long as no default or event of default under the Credit Facilities shall have occurred and be continuing at the time such distribution is declared. Indebtedness under the Credit Facilities is collateralized 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 of 3.00:1.00, each calculated on a trailing four-quarter basis. As of June 30, 2020, we were in compliance with the financial covenants. As of June 30, 2020, we had $169,000 in borrowings under the Revolver and had outstanding letters of credit of $2,709, leaving $78,291 available for borrowings and letters of credit under the Revolver. We obtain letters of credit in connection with certain regulatory and insurance obligations, inventory purchases and other contractual 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 $150,000 of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed interest rate of 1.8325% plus the applicable rate. The agreement matures concurrently with the Credit Agreement. We designated the interest rate swap as a highly effective cash flow hedge. For additional details, see “— Derivatives.” In March 2020, we entered into an interest rate swap agreement on an additional $150,000 of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.620% plus the applicable rate. On the maturity of the July 2017 agreement, this agreement increases to a notional principal amount of $300,000 through June 30, 2025, and effectively converts the floating LIBOR portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.620% plus the applicable rate. We designated the interest rate swaps as highly effective cash flow hedges. For additional details, see “— Derivatives.” As of June 30, 2020, the interest rates for the Revolver and the Term A Loan were 2.14% and 3.20%, respectively. The weighted-average interest rates for the Revolver were 3.17% and 3.86% for the years ended June 30, 2020 and 2019, respectively. The weighted-average interest rates for the Term A Loan were 3.38% and 3.52% for the years ended June 30, 2020 and 2019, respectively. Foreign Credit Facilities Our Israel subsidiaries have aggregate credit facilities available of approximately $14,000 (the “Israel Credit Facilities”). As of June 30, 2020, we had no outstanding borrowings or other commitments 105 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) outstanding under the Israel Credit Facilities. Interest rate elections under the Israel Credit Facilities are LIBOR plus 2.25% or Prime Rate plus 0.50%. The Israel Credit Facilities mature in October 2020 and May 2021. Long-Term Debt As of June Term A Loan due June 2022 Other Unamortized debt issuance costs Less: current maturities Aggregate Maturities of Long-Term Debt For the Year Ended June 30 2021 2022 Total 7. Leases 2020 ​$218,750​ —​ ​ 218,750​ (743​ ​ 218,007​ (18,750​ ​$199,257​ ) ) 2019 ​$231,250​ 40​ ​ 231,290​ (1,115​ ​ 230,175​ (12,540​ ​$217,635​ ) ) 18,750​ ​ 200,000​ ​$218,750​ Our lease portfolio consists of real estate, vehicles and equipment ROU assets, classified as operating leases. The remaining non-cancelable lease terms, inclusive of renewal options reasonably certain of exercise, range from one to 16 years. The following table summarizes the ROU assets and the related lease liabilities recorded on the consolidated balance sheet: As of June 30, Assets: Operating lease ROU assets Liabilities: Current portion Non-current portion 2020 Balance Sheet Classification $22,873 Other Assets Accrued expenses and other current liabilities ​ 6,439 ​ 17,276 Other liabilities Total operating lease liabilities $23,715 The following table summarizes the composition of net lease expense: For the Year Ended June 30 Operating lease expense Variable lease expense Short-term lease expense Total lease expense 106 2020 ​$7,570​ ​ 1,304​ 802​ ​$9,676​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following tables include other supplemental information: For the Year Ended June 30 Operating cash flows used for ROU operating leases Right of use assets obtained in exchange for new operating lease liabilities As of Weighted average remaining lease term (in years) – ROU operating leases Weighted average discount rate – ROU operating leases At June 30, 2020, maturities of future lease liabilities were: For the Years Ending June 30, 2021 2022 2023 2024 2025 2026 and thereafter Total lease payments Less: interest Total operating lease liabilities 2020 ​$ 7,696​ ​$11,017​ June 30, 2020 ​ 6.49 ​ 4.40 % ​$ 7,211​ 5,634​ 3,308​ 2,659​ 1,798​ 6,869​ ​ 27,479​ 3,764​ ​$23,715​ There were no significant future payment obligations related to executed lease agreements for which the related lease had not yet commenced as of June 30, 2020. Our lease agreements do not contain any material restrictive covenants or residual value guarantee provisions. Future minimum lease payments for operating leases accounted for under ASC 840, “Leases,” with remaining non-cancelable terms in excess of one year at June 30, 2019, were: For the Year Ended June 30 2020 2021 2022 2023 2024 Thereafter Total minimum lease payments ​$ 5,815​ 4,160​ 3,191​ 1,445​ 865​ 765​ ​$16,241​ 8. Common Stock, Preferred Stock and Dividends Preferred stock and common stock at June 30, 2020 and 2019 were: As of June 30 Preferred stock Common stock – Class A Common stock – Class B 2020 2019 Authorized Shares ​ 16,000,000​ ​ 300,000,000​ ​ 30,000,000​ ​ 16,000,000​ ​ 300,000,000​ ​ 30,000,000​ 2020 2019 Par value ​$0.0001​ ​$0.0001​ ​$0.0001​ Issued and outstanding shares​ — ​ ​ 20,287,574 ​ ​ 20,166,034 ​ —​ ​ 20,287,574​ ​ 20,166,034​ Holders of our Class B common stock converted zero and 199,470 shares of Class B common stock to Class A common stock in 2020 and 2019, respectively. 107 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS Common Stock General NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Except as otherwise provided by our amended and restated certificate of incorporation or applicable law, 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. Holders of our Class A common stock and Class B common stock are entitled to receive dividends when and if declared by our Board of Directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed 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 in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our Class A common stock and Class B common stock will be entitled to receive our remaining assets available for distribution. Class A Common Stock Holders of our Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of our Class A common stock do not have preemptive, subscription or conversion rights. Our Class A common stock is not convertible and there are no redemption or sinking fund provisions applicable to our Class A common stock. Unless our Board of Directors determines otherwise, we will issue all of our capital stock in uncertificated form. Class B Common Stock Holders of our Class B common stock are entitled to 10 votes for each share held of record on all matters 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 no redemption 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 one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers by and among BFI, its affiliates and certain Bendheim family members, as described in the amended and restated certificate of incorporation. Once transferred and converted into Class A common stock, the Class B common stock will not be reissued. In addition, all shares of Class B common stock will automatically convert to shares of Class A common stock when the outstanding shares of Class B common stock and Class A common stock held by BFI, its affiliates and certain Bendheim family members, together, is less than 15% of the total outstanding 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 shares under the Securities Act, under the terms of an agreement between us and the holders. Preferred Stock We do not have any preferred stock outstanding. Our Board of Directors has the authority to issue shares of preferred stock from time to time on terms it may determine, to divide shares of preferred stock into one or more series and to fix the designations, preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, 108 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) sinking fund terms, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by the General Corporation Law of the State of Delaware. Dividends We declared and paid quarterly cash dividends totaling $19,418 for the year ended June 30, 2020, to holders of our Class A common stock and Class B common stock. 9. Stock Incentive Plan 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 the Company with opportunities to purchase common stock pursuant to options that may be granted, and receive grants of restricted stock and other stock-based awards granted, from time to time by the Board of Directors or a committee approved by the Board. The Incentive Plan provides for grants of stock options, stock awards and other incentives for up to 6,630,000 shares. There were 4,881,620 Class A shares available for grant pursuant to the Incentive Plan as of June 30, 2020. Restricted Stock Units In 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 a share 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 on the 90-day average of the Company’s common stock price from $30 to $80 ending on December 31, 2020. A portion of the RSUs are subject to time-based vesting (the “Time-Based RSUs”). The Time-Based RSUs will vest on December 31, 2020, provided the individual remains employed with the Company or is terminated under a qualifying 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 based on the historical volatility of the Company’s common stock. The expected dividend yield considers estimated annual 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 common stock on the grant date, less the present value of expected dividends over the vesting period. The following table summarizes the activity related to RSUs: Performance-Based RSUs Granted May 2018 Time-Based RSUs Granted May 2018 Outstanding June 30, 2020 and 2019 Grant Date Fair Value per RSU Share $ 19.63 $ 41.10 $ 23.92 Grant Date Fair Value ​ $ 3,926 ​ $ 2,055 ​ $ 5,981 ​ RSUs ​ 200,000​ ​ 50,000​ ​ 250,000​ We will recognize the total grant date fair value of the RSUs as stock-based compensation expense on a straight-line basis over the vesting period. Stock-based compensation expense related to RSUs was $2,259, $2,259 and $334 for the years ended June 30, 2020, 2019 and 2018, respectively. We expect stock-based compensation expense related to RSUs will be $1,129 in 2021. Stock Options There was no stock-based compensation expense related to employee stock options in the periods included in the consolidated financial statements and there was no stock option activity during 2020. 109 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 10. Related Party Transactions Certain relatives of Jack C. Bendheim, our Chairman, President and Chief Executive Officer, provided services to us as employees or consultants and received aggregate compensation and benefits of approximately $1,553, $1,969 and $1,857 during 2020, 2019 and 2018, respectively. Mr. Bendheim has sole authority to vote shares of our stock owned by BFI Co., LLC, an investment vehicle of the Bendheim family. 11. Employee Benefit Plans Domestic Pension Plan We maintain a noncontributory defined benefit pension plan for all domestic nonunion employees employed on or prior to December 31, 2013, who meet certain requirements of age, length of service and hours worked per year. We amended the plan to eliminate credit for future service and compensation increases, effective September 2016. Plan benefits are based upon years of service and average compensation, as defined. The measurement dates for the plan were as of June 30, 2020, 2019 and 2018. Changes in the projected benefit obligation, plan assets and funded status of the plan were: For the Year Ended June 30 Change in projected benefit obligation Projected benefit obligation at beginning of year Interest cost Benefits paid Actuarial loss Projected benefit obligation at end of year For the Year Ended June 30 Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at end of year Funded status at end of year 2020 2019 ​$68,527​ 2,112​ (2,000​ ​ 10,714​ ​$79,353​ ) ​$61,557​ 2,407​ (1,758​ 6,321​ ​$68,527​ ) 2020 2019 ​$64,593​ ​ 10,821​ 2,377​ (2,000​ ​$75,791​ ​$ (3,562​ ) ) ​$58,648​ 6,861​ 842​ (1,758​ ​$64,593​ ​$ (3,934​ ) ) The funded status is included in other liabilities in the consolidated balance sheets. The Company expects to contribute approximately $1,562 to the plan during 2021. We seek to maintain an asset balance that meets the long-term funding requirements identified by actuarial projections while also satisfying ERISA fiduciary responsibilities. Accumulated other comprehensive income (loss) related to the plan was: For the Year Ended June 30 Accumulated other comprehensive income (loss) related to pension plan Balance at beginning of period Amortization of net actuarial loss and prior service costs Current period net actuarial (loss) Net change Balance at end of period 2020 2019 ​$(20,050​ 515​ (3,036​ (2,521​ ​$(22,571​ ) ) ) ) ​$(18,213​ 465​ (2,302​ (1,837​ ​$(20,050​ ) ) ) ) 110 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Amortization of unrecognized net actuarial loss will be approximately $534 during 2021. Net periodic pension expense was: For the Year Ended June 30 Interest cost on benefit obligation Expected return on plan assets Amortization of net actuarial loss and prior service costs Net periodic pension expense (income) Significant actuarial assumptions for the plan were: For the Year Ended June 30 Discount rate for interest cost Expected rate of return on plan assets Discount rate for year-end benefit obligation 2020 ​$ 2,112​ ​ (3,144​ 515​ ​$ (517​ ) ) 2019 ​$ 2,407​ ​ (2,842​ 465​ 30​ ​$ ) 2018 ​$ 2,157​ ​ (3,236​ 453​ ​$ (626​ ) ) 2020 2019 2.2 4.9 2.8 % % % 3.1 4.9 3.6 % % % 2018​ 3.9 ​ 5.6 ​ 4.2 ​ % % % The plan used the Aon Hewitt AA Bond Universe as a benchmark for its discount rate as of June 30, 2020, 2019 and 2018. The discount rate is determined by matching the plan’s timing and amount of expected cash outflows to a bond yield curve constructed from a population of AA-rated corporate bond issues that are generally non-callable and have at least $250 million par value outstanding. From this, the discount rate that results in the same present value is calculated. Estimated future benefit payments are: For the Year Ended June 30 2021 2022 2023 2024 2025 2026 – 2030 ​$ 2,887​ 3,138​ 3,364​ 3,531​ 3,661​ ​ 19,789​ The plan’s target asset allocations for 2021 and the weighted-average asset allocation of plan assets as of June 30, 2020 and 2019 are: For the Year Ended June 30 Debt securities Equity securities Global asset allocation/risk parity (1) Other Target Allocation 2021 57% – 77% 18% – 38% 0% – 15% 0% – 10% Percentage of Plan Assets ​ 2019 ​ 2020 67 ​ % % 28 ​ 4 ​ % % 1 ​ 66 27 % % % % 5 2 (1) The global asset allocation/risk parity category consists of a variety of asset classes including, but not limited to, global bonds, global equities, real estate and commodities. The expected long-term rate of return for the plan’s total assets generally is based on the plan’s asset mix. 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 the obligations of the plan, while assuming a moderate amount of risk in order to maximize investment return. 111 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In order to achieve this goal, assets are invested in a diversified portfolio consisting of equity securities, debt securities, and other investments in a manner consistent with ERISA’s fiduciary requirements. The fair values of the plan assets by asset category were: As of June 30, 2020 Cash and cash equivalents Common-collective funds Global large cap equities Fixed income securities Global asset allocations/risk parity Other Global asset allocations/risk parity Other As of June 30, 2019 Cash and cash equivalents Common-collective funds Global large cap equities Fixed income securities Global asset allocations/risk parity Other Global asset allocations/risk parity Other Fair Value Measurements Using Level 1 ​$1,812​ Level 2 ​$ —​ Level 3 ​$ —​ Total ​$ 1,812​ ​ —​ ​ —​ ​ —​ ​ —​ ​ —​ ​$1,812​ ​ 16,678​ ​ 49,902​ 1,667​ —​ —​ ​$68,247​ ​ 4,038​ ​ —​ ​ —​ ​ 1,669​ 25​ ​$5,732​ ​ 20,716​ ​ 49,902​ 1,667​ 1,669​ 25​ ​$75,791​ Fair Value Measurements Using Level 1 $ 215 ​ Level 2 ​$ —​ Level 3 ​$ —​ Total ​$ 215​ — ​ — ​ — ​ ​ 13,995​ ​ 43,288​ 1,446​ — ​ — ​ $ 215 ​ —​ —​ ​$58,729​ ​ 4,016​ ​ —​ ​ —​ ​ 1,447​ 186​ ​$5,649​ ​ 18,011​ ​ 43,288​ 1,446​ 1,447​ 186​ ​$64,593​ The table below provides a summary of the changes in the fair value of Level 3 assets: Change in Fair Value Level 3 assets Balance at beginning of period Redemptions Purchases Change in fair value Balance at end of period 2020 ​$5,649​ (49​ 200​ (68​ ​$5,732​ ) ) ) 2019 ​$ 6,960​ ​ (4,336​ ​ 2,800​ 225​ ​$ 5,649​ The following outlines the valuation methodologies used to estimate the fair value of plan assets: • • • • Cash and cash equivalents are valued at $1 per unit; Common-collective funds are determined based on current market values of the underlying assets of the fund; Mutual funds and foreign currency deposits are valued using quoted market prices in active markets; and For Level 3 managed assets, business appraisers use a combination of valuations and appraisal methodologies, as well as a number of assumptions to create a price that brokers evaluate. For Level 3 non- managed assets, pricing is provided by various sources, such as issuer or investment manager. 112 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Other employee benefit plans We provide a 401(k) retirement savings plan, under which United States employees may make pre-tax and post-tax contributions. The Company contributes: (i) a matching contribution equal to 100% of the first 6% of an employee’s contribution; and, (ii) an additional discretionary contribution of up to 4.5% of compensation, depending on the employee’s age and years of service, provided that such contributions comply with ERISA non- discrimination requirements. Employee and Company contributions are subject to certain ERISA limitations. Employees are immediately vested in Company contributions. Our contribution expense was $5,566, $5,201, and $4,937, in 2020, 2019 and 2018, respectively. Our consolidated balance sheets include other employee-related liabilities of $13,666 and $17,391 as of June 30, 2020 and 2019, respectively, including international retirement plans, supplemental retirement benefits and long-term incentive arrangements. Expense under these plans was $5,725, $5,685, and $4,009 in 2020, 2019 and 2018, respectively. 12. Income Taxes In March 2020, in response to economic instability prompted by the COVID-19 pandemic, the United States government enacted the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The CARES Act established various stimulus measures, including certain tax provisions. We have utilized certain CARES Act provisions, including modifications to the interest deduction limitation, technical corrections to tax depreciation methods for qualified improvement property and deferral of employer social security payments. We record Global Intangible Low-Taxed Income (GILTI) aspects of federal income taxes as a period expense. The provision for income taxes includes $3,453 and $537 of GILTI federal tax for the years ended June 30, 2020 and 2019, respectively. In December 2017, the United States government enacted comprehensive income tax legislation (the “Tax Act”). The Tax Act makes broad and complex changes to United States income tax law and includes numerous elements that affect the Company, including a reduced federal corporate income tax rate of 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings and changes to business-related exclusions, deductions and credits. The Tax Act also has consequences related to our international operations. During the year ended June 30, 2019, we completed our accounting for the Tax Act and recorded a benefit in the provision for income taxes of $360 related to the previously recorded one-time mandatory toll charge on deemed repatriation of undistributed earnings of foreign subsidiaries. We also recorded a benefit in the provision of income taxes of $1,032 as a result of retroactive elections made on certain of our foreign tax credits. Our consolidated financial statements as of June 30, 2018, reflected the provisional effects of the Tax Act, including: • • a $2,289 provision for income taxes and reduction in deferred tax assets for the remeasurement of deferred tax assets and liabilities to reflect the reduced income tax rate a $403 provision for income taxes and increase in current liabilities to reflect the one-time mandatory toll charge on the deemed repatriation of undistributed earnings of foreign subsidiaries. The components of income before income taxes consisted of the following: For the Year Ended June 30 Domestic Foreign Income before income taxes 2020 2019 2018 ) ​$ (3,142​ ​ 58,654​ ​$55,512​ ​$ 2,331​ ​ 69,174​ ​$71,505​ ​$19,819​ ​ 68,251​ ​$88,070​ 113 ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Components of the provision for income taxes were: For the Year Ended June 30 Current provision (benefit): Federal State and local Foreign Total current provision Deferred provision (benefit): Federal State and local Foreign Change in valuation allowance – foreign Total deferred provision (benefit) Provision for income taxes 2020 2019 2018 ) ​$ (1,271​ 401​ ​ 14,705​ ​ 13,835​ ) ​$ (459​ 102​ ​ 16,603​ ​ 16,246​ ​$ 81​ 1,744​ ​ 15,268​ ​ 17,093​ 5,226​ 696​ 218​ 1,985​ 8,125​ ​$21,960​ 858​ 432​ (691​ (53​ 546​ ​$16,792​ ) ) 2,746​ 2,156​ 769​ 423​ 6,094​ ​$23,187​ Reconciliation of the federal statutory rate to the Company’s effective tax rate were: For the Year Ended June 30 Federal income tax rate State and local taxes, net of federal benefit Foreign income tax rates Global Intangible Low-Taxed Income Changes in uncertain tax positions Increase in valuation allowance Recognition of federal and foreign tax credits Exercise of employee stock options Mandatory toll charge from Tax Act Reduction of deferred tax assets Other Effective tax rate % % % 2020 ​ 21.0​ ​ 1.7​ ​ 3.6​ ​ 6.2​ ​ 5.2​ ​ 3.6​ ​ (0.9​ ​ —​ ​ —​ ​ —​ ​ (0.8​ ​ 39.6​ ) ) 2019 ​ 21.0​ ​ 0.6​ ​ 4.1​ ​ 0.8​ ​ (1.0​ ​ —​ ​ (2.5​ ​ (0.4​ ​ (0.5​ ​ —​ ​ 1.4​ ​ 23.5​ ) ) ) ) ) ) ) 2018 ​ ​ 28.1​ ​ 1.5​ ​ (4.8​ ​ —​ ​ 1.1​ ​ —​ ​ (0.7​ ​ (4.3​ ​ 0.5​ ​ 3.9​ ​ 1.0​ ​ 26.3​ % % % Included in other for the year ended June 30, 2020 is (1.3%) related to foreign currency movement. The undistributed earnings of foreign subsidiaries 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 under the Tax Act. If amounts are repatriated from certain of our foreign subsidiaries, we could be subject to additional non-U.S. income and withholding taxes. We consider undistributed earnings of such foreign subsidiaries to be indefinitely reinvested. At June 30, 2020, our cash and cash equivalents and short-term investments included $89,596 million held by our international subsidiaries. We do not provide income taxes for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely. 114 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The tax effects of significant temporary differences that comprise deferred tax assets and liabilities were: As of June 30 Deferred tax assets: Employee related accruals Inventory Environmental remediation Net operating loss carry forwards – domestic Net operating loss carry forwards – foreign Operating lease liabilities Other Valuation allowance Deferred tax liabilities: Property, plant and equipment and intangible assets Operating lease ROU assets Other Net deferred tax asset Deferred taxes are included in the consolidated balance sheets as follows: As of June 30 Other assets Other liabilities The valuation allowance established against the deferred tax assets were: As of June 30 Balance at beginning of period Provision for income taxes Balance at end of period 2020 2019 ​$ 5,703​ 726​ 974​ 1,618​ 5,221​ 5,732​ 6,340​ ​ 26,314​ (3,403​ ​ 22,911​ ) ​$ 5,735​ 4,766​ 1,128​ 902​ 3,703​ —​ 6,302​ ​ 22,536​ (808​ ​ 21,728​ ) ) ) ) ) (6,108​ (5,657​ (921​ ​ (12,686​ ​$ 10,225​ ) ) ) (6,071​ —​ (772​ (6,843​ ​$14,885​ 2020 ​$11,430​ (1,205​ ​$10,225​ ) 2019 ​$16,770​ (1,885​ ​$14,885​ ) 2020 ​$ 808​ ​ 2,595​ ​$3,403​ 2019 ​$861​ (53​ ​$808​ ) 2018 ​ ​$438​ ​ 423​ ​$861​ The Company establishes valuation allowances against certain foreign and state deferred tax assets when management believes that, after considering all available evidence, it is more likely than not the assets will not be realized. We have $31,732 of state net operating loss carry forwards. $14,332 that will expire in 2021 through 2038, and $17,400 that do not expire. In addition, we have $23,362 of foreign net operating loss carry forwards of which most are in jurisdictions that have no expiration. As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon examination. Tax liabilities associated with uncertain tax positions represent unrecognized tax benefits, which arise when the estimated benefit recorded in our financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. Substantially all of these unrecognized tax benefits, if recognized, would benefit our effective income tax rate. 115 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows: As of June 30 Unrecognized tax benefits – beginning of period Tax position changes – current period Tax position changes – prior periods, net of settlements with tax authorities Lapse of statute of limitations Translation Unrecognized tax benefits – end of period Interest and penalties – end of period Total liabilities related to uncertain tax positions 2020 ​$ 6,343​ 2,850​ 2019 ​$ 7,000​ 528​ 2018 ​ ​$6,553​ ​ 1,749​ 108​ 206​ 9,507​ 969​ ​$10,475​ ) ) (317​ ​ (1,053​ 185​ ​ 6,343​ 750​ ​$ 7,093​ ) ) (994​ ​ —​ (308​ ​ 7,000​ 633​ ​$7,633​ We recognize interest and penalties associated with uncertain tax positions as a component of the provision for income taxes. We recognized interest and penalties expense of $214, $94, and $203 for 2020, 2019 and 2018, respectively. Income tax returns for the following periods are no longer subject to examination by the relevant tax authorities: • • • U.S. federal and significant states, through June 30, 2008; Brazil, through December 31, 2014; Israel, through June 30, 2015 for certain subsidiaries and through June 30, 2016 for certain subsidiaries. 13. Commitments and Contingencies Environmental Our operations and properties are subject to extensive federal, state, local and foreign laws and regulations, including those governing pollution; protection of the environment; the use, management, and release 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, and sale of regulated materials, including pesticides; the importing, exporting and transportation of products; and the health and safety of our employees (collectively, “Environmental Laws”). As such, the nature of 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 certain circumstances, we might be required to curtail operations until a particular problem is remedied. Known costs and expenses under Environmental Laws incidental to ongoing operations, including the cost of litigation proceedings relating to environmental matters, are included within operating results. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under Environmental Laws or to investigate or remediate potential or actual contamination and from time to time we establish reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under Environmental Laws and the time period during which such costs are likely to 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 involved in civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring efforts to address contamination associated with historic operations of the sites. We devote considerable resources to complying with Environmental Laws and managing environmental liabilities. We have developed programs to identify requirements under, and maintain compliance with Environmental Laws; however, we cannot predict with 116 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) certainty the effect of increased and more 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 to environmental matters and we cannot assure we will not incur material costs and liabilities in connection with such claims. Based upon our experience to date, we believe that the future cost of compliance with existing Environmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity. The United States Environmental Protection Agency (the “EPA”) is investigating and planning for the remediation of offsite contaminated groundwater that has migrated from the Omega Chemical Corporation Superfund Site (“Omega Chemical Site”), which is upgradient of the Santa Fe Springs, California facility of our subsidiary, Phibro-Tech, Inc. (“Phibro-Tech”). The EPA has entered into a settlement agreement with a group of companies that sent chemicals to the Omega Chemical Site for processing and recycling (“OPOG”) to remediate the contaminated groundwater that has migrated from the Omega site in accordance with a general remedy selected by EPA. The EPA has named Phibro-Tech and certain other subsidiaries of PAHC as potentially responsible parties (“PRPs”) due to groundwater contamination from Phibro-Tech’s Santa Fe Springs facility that has allegedly commingled with contaminated groundwater from the Omega Chemical Site. In September 2012, the EPA notified approximately 140 PRPs, including Phibro-Tech and the other subsidiaries, that they have been identified as potentially responsible for remedial action for the groundwater plume affected by the Omega Chemical Site and for EPA oversight and response costs. Phibro-Tech contends 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, a successor to a prior owner of the Phibro-Tech site has asserted that PAHC and Phibro-Tech are obligated to provide indemnification for its potential 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 is required to indemnify Phibro-Tech for its potential liability and defense costs. Furthermore, the members of OPOG filed a complaint under the Comprehensive Environmental Response, Compensation, and Liability Act and the Resource Conservation and Recovery Act in the United States District Court for the Central District of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for contribution toward past and future costs associated with the investigation and remediation of the groundwater plume affected by the Omega Chemical Site. Due to the ongoing nature of the EPA’s investigation, the preliminary stage of the ongoing litigation and Phibro-Tech’s dispute 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 EPA oversight and response costs associated 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 at operating sites, closed sites and third-party sites, and closure costs for closed sites, to be approximately $5,254 and $5,890 at June 30, 2020 and 2019, respectively, which is included in current and long-term liabilities on the consolidated balance sheets. However, future events, such as new information, changes in existing Environmental Laws or their interpretation, and more vigorous enforcement policies of regulatory agencies, may give rise to additional expenditures or liabilities that could be material. For all purposes of the discussion under this caption and elsewhere in this report, it should be noted that we take and have taken the position that neither PAHC nor any of our subsidiaries are liable for environmental or other claims made against one or more of our other subsidiaries or for which any of such other subsidiaries may ultimately be responsible. Claims and Litigation PAHC and its subsidiaries are party to a number of claims and lawsuits arising out of the normal course of business including product liabilities, payment disputes and governmental regulation. Certain of 117 TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) these actions seek damages in various amounts. In many cases, such claims are covered by insurance. We believe that none of the claims or pending lawsuits, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, cash flows or liquidity. Employment and Severance Agreements We have entered into employment agreements with certain executive management and other employees that specify severance benefits of up to 15 months of the employee’s compensation. 14. Derivatives We monitor our exposure to foreign currency exchange rates and interest rates and from time-to-time use derivatives to manage certain of these risks. We designate derivatives as a hedge of a forecasted transaction or 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 in accumulated other comprehensive income (loss). We routinely assess whether the derivatives used to hedge transactions are effective. If we determine a derivative ceases to be an effective hedge, we discontinue hedge accounting in the period of the assessment for that derivative, and immediately recognize any unrealized gains or losses related to the fair value of that derivative in the consolidated statements of operations. We record derivatives at fair value in the consolidated balance sheets. For additional details regarding fair value, see “— Fair Value Measurements.” In July 2017, we entered into an interest rate swap agreement on the first $150,000 of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed interest rate of 1.8325% plus the applicable rate. The agreement matures concurrently with the Credit Agreement. In March 2020, we entered into an interest rate swap agreement on an additional $150,000 of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.620% plus the applicable rate. On the maturity of the July 2017 agreement, this agreement increases to a notional principal amount of $300,000 through June 30, 2025, and effectively converts the floating LIBOR portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.620% plus the applicable rate. The forecasted transactions are probable of occurring, and the interest rate swaps have been designated as highly effective cash flow hedges. We entered into foreign currency option contracts to hedge cash flows related to monthly inventory purchases. The individual option contracts mature monthly through April 2022. The forecasted inventory purchases are probable of occurring and the individual option contracts were designated as highly effective cash flow hedges. The following table details the Company’s outstanding derivatives that are designated and effective as cash flow hedges as of June 30, 2020: Instrument Options Options Swap Hedge Brazilian Real calls Brazilian Real puts Interest rate swap Notional Amount at June 30, 2020 R$120,000 R$120,000   $300,000 Consolidated Balance Sheet (1) (1) (2) Asset (Liability) fair value as of June 30, 2020 ​$ 126​ ​$(3,900​ ​$(9,674​ ) ) June 30, 2019 ​ $ 413 ​ ) $ (30 ​ ) $ (977 ​ (1) We record the net fair values of our outstanding foreign currency option contracts within the respective balance sheet line item based on the net financial position and maturity date of the individual contracts as of the balance sheet date. As of June 30, 2020, accrued expenses and other current liabilities and other 118 ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (2) liabilities included net fair values of $2,477 and $1,297, respectively. As of June 30, 2019, other current assets included net fair values of $383. We classify the current and noncurrent amounts associated with our interest rate swap based on the expected timing of the cash flows. As of June 30, 2020, accrued expenses and other current liabilities and other liabilities included $3,280 and $6,394, respectively. As of June 30, 2019, other liabilities included $977. The following tables show the effects of derivatives on the consolidated statements of operations and other comprehensive income for the years ended June 30, 2020 and 2019. For the Year Ended June 30 Gain (Loss) recorded in OCI Gain (Loss) recognized in consolidated statements of operations Consolidated Statement of Operations Line Item Total Instrument Options Swap Hedge ​ Brazilian Real calls ​ ​ Interest rate swap 2020 ​$ (4,157​ ​$ (8,697​ ) ) 2019 475 ​ ​ $ ) ​ $ (6,055 ​ Consolidated Statement of Operations ​ ​ Cost of goods sold ​ ​ Interest expense, net ​ ​ 2020 ​ ) ​$(115​ ) ​$(310​ ​ 2019 ​ ​$1,069​ ​$ 766​ 2020 ​$543,472​ ​$ 12,856​ 2019 ​$563,371​ ​$ 11,776​ We recognize gains (losses) related to these foreign currency derivatives as a component of cost of goods sold at the time the hedged item is sold. Realized net losses of $590 related to matured contracts were recorded as a component of inventory at June 30, 2020. 15. Fair Value Measurements Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Financial assets and liabilities are measured at fair value using the three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in the valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally derived (unobservable). Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs based on a company’s own assumptions about market participant assumptions developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 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 are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 3 — Unobservable inputs for which there is little or no market data available, and that are significant to the overall fair value measurement, are employed that require the reporting entity to develop its own assumptions. In assessing the fair value of financial instruments at June 30, 2020 and 2019, we used a variety of methods and assumptions that were based on estimates of market conditions and risks existing at the time. Short-term investments As of June 30, 2020, 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 Liabilities We consider the carrying amounts of current assets and current liabilities to be representative of their fair value because of the current nature of these items. 119 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Contingent Consideration on Acquisitions We 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. Debt We record debt, including term loans and revolver balances, at amortized cost in our consolidated financial statements. We believe the carrying value of the debt is approximately equal to its fair value, due to the variable nature of the instruments and our evaluation of estimated market prices. Derivatives We determine the fair value of derivative instruments based upon pricing models using observable market inputs for these types of financial instruments, such as spot and forward currency translation rates. Non-financial assets Our non-financial assets, which primarily consist of goodwill, other intangible assets, property and equipment, and lease-related ROU assets, are not required to be measured at fair value on a recurring basis, and instead are reported at carrying value in the consolidated balance sheet. We assess the carrying values of non-financial assets for impairment on a periodic basis or whenever events or changes in circumstances indicate an asset may not be fully recoverable. Fair Value of Assets (Liabilities) 2020 2019 As of June 30 Level 1 Level 2 Level 3 Level 1 Short-term investments Foreign currency derivatives Interest rate swap Contingent consideration on acquisitions ​ ​$55,000​ ​$ —​ ​$ —​ ​$ —​ ​$ —​ ​$(3,774​ ​$(9,674​ ​$ —​ ) ) ​$ —​ ​$ —​ ​$ —​ ​$(4,840​ ) ​$24,000​ ​$ —​ ​$ —​ ​$ —​ There were no transfers between levels during the years ended June 30, 2020 and 2019. The table below provides a summary of the changes in the fair value of Level 3 liabilities: Level 2 Level 3​ ​$ — $ — ​ $ — ​ ​$ 383 ​$(977 $ — ​ ​$ — $ — ​ ) Balance at June 30, 2019 Osprey acquisition Accretion for the time value of money Fair value adjustment Balance at June 30, 2020 June 30, 2020 ​$ —​ ​ (7,553​ (275​ ​ 2,988​ ​$(4,840​ ) ) ) For a detailed discussion on the fair value of our pension plan assets, see “— Employee Benefit Plans.” 16. Business Segments We evaluate performance and allocate resources based on the Animal Health, Mineral Nutrition and Performance Products segments. Certain of our costs and assets are not directly attributable to these segments and we refer to these items as Corporate. We do not allocate Corporate costs or assets to the segments because they are not used to evaluate the segments’ operating results or financial position. Corporate costs 120 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) include certain costs related to executive management, business technology, legal, finance, human resources and business development. We evaluate performance of our segments based on Adjusted EBITDA. We define Adjusted EBITDA as income before income taxes plus (a) interest expense, net, (b) depreciation and amortization, (c) (income) loss from, and disposal of, discontinued operations, (d) other expense or less other income, as separately reported on our consolidated statements of operations, including foreign currency gains and losses and loss on extinguishment 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 significant accounting policies included herein. For the Year Ended June 30 Net sales Animal Health Mineral Nutrition Performance Products Total segments Depreciation and amortization Animal Health Mineral Nutrition Performance Products Total segments Adjusted EBITDA Animal Health Mineral Nutrition Performance Products Total segments Reconciliation of income before income taxes to Adjusted EBITDA ​Income before income taxes Interest expense, net ​ Depreciation and amortization – Total segments ​ Depreciation and amortization – Corporate ​ Corporate costs ​ Restructure costs ​ Stock-based compensation ​ Acquisition-related cost of goods sold ​ Acquisition-related accrued compensation ​ Acquisition-related transaction costs ​ Acquisition-related other, net ​ Other, net ​ Foreign currency (gains) losses, net ​Adjusted EBITDA – Total segments 121 2020 2019 2018 ​$526,904​ ​ 214,412​ 59,038​ ​$800,354​ ​$ 26,287​ 2,522​ 1,860​ ​$ 30,669​ ​$123,106​ 14,678​ 4,534​ ​$142,318​ ​$531,974​ ​ 233,782​ 62,239​ ​$827,995​ ​$ 22,312​ 2,319​ 1,127​ ​$ 25,758​ ​$136,049​ 15,712​ 4,728​ ​$156,489​ ​$531,727​ ​ 234,922​ 53,333​ ​$819,982​ ​$ 21,447​ 2,371​ 1,029​ ​$ 24,847​ ​$141,914​ 18,583​ 1,881​ ​$162,378​ ​$ 55,512​ 12,856​ 30,669​ 1,672​ 40,178​ 425​ 2,259​ 280​ —​ 462​ (2,821​ —​ 826​ ​$142,318​ ) ​$ 71,505​ 11,776​ 25,758​ 1,806​ 38,452​ 6,281​ 2,259​ —​ —​ 213​ —​ (1,506​ (55​ ​$156,489​ ) ) ​$ 88,070​ 11,910​ 24,847​ 2,096​ 33,420​ —​ 334​ 1,671​ 1,152​ 400​ (468​ —​ (1,054​ ​$162,378​ ) ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of June 30 Identifiable assets Animal Health Mineral Nutrition Performance Products Total segments Corporate Total 2020 2019 ​$560,663​ 65,686​ 31,016​ ​ 657,365​ ​ 126,735​ ​$784,100​ ​$508,864​ 67,662​ 32,886​ ​ 609,412​ ​ 117,259​ ​$726,671​ The Animal Health segment includes all goodwill of the Company. Corporate assets include cash and cash equivalents, short-term investments, debt issuance costs, income tax related assets and certain other assets. The geographic location of property, plant and equipment, net was: As of June 30 Property, plant and equipment, net United States Israel Brazil Ireland Other 2020 2019 ​$ 59,778​ 54,041​ 14,771​ 15,263​ 4,256​ ​$148,109​ ​$ 55,001​ 52,434​ 19,647​ 9,409​ 3,744​ ​$140,235​ 122 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS​ Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2020. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management of the Company, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, as of the end of the period covered by this Annual Report on Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective because of material weaknesses in our internal control over financial reporting described below. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as described in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Internal control over financial reporting is defined as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in our conditions, or that the degree of compliance with our policies or procedures may deteriorate. Our management, under the supervision and participation of our Chief Executive Officer and our Chief Financial Officer, has conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2020 using criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. 123 ​ TABLE OF CONTENTS​ Based on this assessment, management has concluded that we did not maintain effective internal control over financial reporting as of June 30, 2020, due to a lack of sufficient resources with an appropriate level of knowledge, experience and training commensurate with our financial reporting requirements. This control deficiency contributed to the following additional control deficiencies: • • We did not design and maintain effective internal controls to ensure processing and reporting of valid transactions is complete, accurate, and timely. Specifically, we have not designed and implemented a sufficient level of formal accounting policies and procedures that define how transactions across the business cycles are initiated, recorded, processed, reported, appropriately authorized and approved. We did not maintain effective internal control that restricts access to key financial systems and records to appropriate users and ensures that appropriate segregation of duties is maintained. Certain personnel had access to financial applications, programs and data beyond that needed to perform their individual job responsibilities and without independent monitoring. In addition, certain financial personnel had incompatible duties that allowed for the creation, review and processing of certain financial data without independent review and authorization. This material weakness affects substantially all financial statement accounts. Each of these control deficiencies did not result in material misstatements of the consolidated financial statements; however, each of the control deficiencies described above could result in a misstatement that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses. The effectiveness of our internal control over financial reporting as of June 30, 2020, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report in Item 8. Material Weakness Remediation Efforts We believe we have made substantial progress in our remediation plans. Our progress was slowed by the effects of the COVID-19 pandemic; we believe we would have made additional progress if not for the pandemic. We have implemented a broad range of changes to our internal control over financial reporting to make progress in the remediation of the material weaknesses described in this item 9A. The material weaknesses will be considered remediated only once we have completely implemented the necessary controls, the applicable controls have operated for a sufficient period of time and we have validated through testing that the controls are effective. We are committed to maintaining a strong internal control environment. We will continue to build on the progress we have made to date in our remediation efforts. Our ongoing actions to remediate the material weaknesses include: • • • • Enhancing the finance team with resources with knowledge and experience in the requirements for internal control over financial reporting. Additional staff have been added with the responsibility for the design and implementation of internal controls. We have also reassigned responsibilities, increased the number of roles and provided training programs related to internal control over financial reporting. Updating a gap analysis of our key controls, including identifying areas where new or enhanced policies, procedures or controls are needed. Performing this analysis has allowed us to further develop a work plan to identify areas where new controls are needed or where enhancements to existing controls, policies and procedures are needed to remediate our material weaknesses. Designing and implementing additional formal accounting policies and procedures to ensure transactions are properly initiated, recorded, processed, reported, appropriately authorized and approved. The additional procedures include enhancements to our internal review procedures. Implementing improvements to maintain the appropriate level of segregation of duties, including further restricting access to key financial systems and records to appropriate users. We have reduced the number of segregation of duties conflicts and continue to evaluate the extent it is necessary to limit 124 ​ ​ ​ ​ ​ TABLE OF CONTENTS​ access and modify responsibilities of certain personnel, as well as designing and implementing additional user access controls and compensating controls. Further improvements to segregation of duties will employ a combination of automated, system-based and manual controls. We cannot determine when our remediation plan will be fully completed, and we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. Changes in Internal Control over Financial Reporting There have been no changes in internal control over financial reporting during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 125 ​ TABLE OF CONTENTS​ PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated by reference to our 2020 Proxy Statement to be filed with the SEC within 120 days of the year ended June 30, 2020. 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 Compensation The information required by this item is incorporated by reference to our 2020 Proxy Statement to be filed with the SEC within 120 days of the year ended June 30, 2020. Item 12. Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters The information required by this item is incorporated by reference to our 2020 Proxy Statement to be filed with the SEC within 120 days of the year ended June 30, 2020. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated by reference to our 2020 Proxy Statement to be filed with the SEC within 120 days of the year ended June 30, 2020. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated by reference to our 2020 Proxy Statement to be filed with the SEC within 120 days of the year ended June 30, 2020. 126 ​ ​ ​ ​ ​ TABLE OF CONTENTS​ PART IV Item 15. Exhibits, Financial Statement Schedules We have filed the following documents as part of this Form 10-K: (1) Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations for the fiscal years ended June 30, 2020, 2019 and 2018 Consolidated Statements of Comprehensive Income for the fiscal years ended June 30, 2020, 2019 and 2018 Consolidated Balance Sheets at June 30, 2020 and 2019 Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2020, 2019 and 2018 Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended June 30, 2020, 2019 and 2018 Notes to Consolidated Financial Statements (2) Schedules: None (3) The exhibits filed are listed in the Index to Exhibits immediately preceding the signature page of this Annual Report on Form 10-K. 127 ​ TABLE OF CONTENTS Exhibit 2.1* Exhibit 3.1 Exhibit 3.2 Exhibit 4.1 Exhibit 4.2 Exhibit 10.1   Exhibit 10.2  Exhibit 10.3 Exhibit 10.4  Exhibit 10.5  Exhibit 10.6  EXHIBIT INDEX Asset Purchase Agreement dated as of August 1, 2019 by and among Phibro Animal Health Corporation, as Purchaser, Osprey Biotechnics, Inc., as Company and together with Lauren Danielson and Vincent Scuilla, as Selling Parties (incorporated by reference to Exhibit 2.1 to Phibro Animal Health Corporation’s Quarterly Report on Form 10-Q filed on April 11, 2019 (File No. 001-36410)). Amended and Restated Certificate of Incorporation of Phibro Animal Health Corporation (incorporated by reference to Exhibit 3.1 to Phibro Animal Health Corporation’s Quarterly Report on Form 10-Q filed on May 13, 2014 (File No. 001- 36410)). Amended and Restated Bylaws of Phibro Animal Health Corporation (incorporated by reference to Exhibit 3.2 of Phibro Animal Health Corporation’s Quarterly Report on Form 10-Q filed on May 13, 2014 (File No. 001-36410)). Registration Rights Agreement between Phibro Animal Health Corporation and BFI Co., LLC, dated as of April 16, 2014 (incorporated by reference to Exhibit 4.9 of Phibro Animal Health Corporation’s registration statement on Form S-1/A filed on March 31, 2014 (File No. 333-194467)). Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.2 of the Phibro Animal Health Corporation’s 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on August 27, 2019 (File No. 001-36410)). 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 (incorporated by reference to Exhibit 10.1 to Phibro Animal Health Corporation’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 29, 2017 (File No. 001-36410)). Unprotected Lease Agreement, dated January 26, 2011, by and between Samaria Carpets Ltd. and ABIC Biological Laboratories Ltd. (translated from Hebrew) (incorporated by reference to Exhibit 10.17 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)). Employment Agreement, dated March 27, 2014, by and between Jack C. Bendheim and Phibro Animal Health Corporation (incorporated by reference to Exhibit 10.18 of Phibro Animal Health Corporation’s registration statement on Form S-1/A filed on March 31, 2014 (File No. 333-194467)). Employment Offer Letter, dated May 2, 2008, by and between Larry L. Miller and Phibro Animal Health Corporation, including confidentiality and nondisclosure, employee invention, and noncompetition and nonsolicitation agreements dated as of May 2, 2008 (incorporated by reference to Exhibit 10.20 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)). Clarifying Amendment to Employment Offer Letter, dated December 21, 2009, by and between Larry L. Miller and Phibro Animal Health Corporation (incorporated by reference to Exhibit 10.21 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)). Amendment to Employment Offer Letter, dated December 15, 2011, by and between Larry L. Miller and Phibro Animal Health Corporation (incorporated by reference to Exhibit 10.22 of Phibro Animal Health Corporation’s registration statement on Form S- 1 filed on March 10, 2014 (File No. 333-194467)). 128 TABLE OF CONTENTS Exhibit 10.7  Exhibit 10.8   Exhibit 10.9  Exhibit 10.10 Exhibit 10.11 Exhibit 10.12 Exhibit 10.13 Exhibit 10.14* Exhibit 10.15* Exhibit 10.16 Exhibit 10.17 Exhibit 10.18 Exhibit 21.1 Exhibit 23.1 Exhibit 31.1 Exhibit 31.2 Phibro Animal Health Corporation 2008 Incentive Plan (incorporated by reference to Exhibit 10.23 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)). Phibro Animal Health Corporation Management Incentive Plan (incorporated by reference to Exhibit 10.24 of Phibro Animal Health Corporation’s registration statement on Form S-1/A filed on March 31, 2014 (File No. 333-194467)). Phibro Animal Health Corporation Retirement Income and Deferred Compensation Plan, as amended and restated as of April 15, 2009 (incorporated by reference to Exhibit 10.25 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)). Phibro Animal Health Corporation Executive Income Deferred Compensation Agreement, dated as of March 1, 1990 (incorporated by reference to Exhibit 10.26 of Phibro Animal Health Corporation’s registration statement on Form S-1 filed on March 10, 2014 (File No. 333-194467)). Form of 2009 Stock Option Grant Agreement (incorporated by reference to Exhibit 10.28 of Phibro Animal Health Corporation’s registration statement on Form S- 1/A filed on March 31, 2014 (File No. 333-194467)). Form of 2013 Stock Option Grant Agreement (incorporated by reference to Exhibit 10.29 of Phibro Animal Health Corporation’s registration statement on Form S- 1/A filed on March 31, 2014 (File No. 333-194467)). Form of Indemnification Agreement (incorporated by reference to Exhibit 10.32 of Phibro Animal Health Corporation’s registration statement on Form S-1/A filed on April 4, 2014 (File No. 333-194467)). Intellectual Property Purchase Agreement dated January 20, 2015 by and between MJ Biologics, Inc. and Phibro Animal Health Corporation (incorporated by reference to Exhibit 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). First Amendment, dated July 31, 2018 to the Intellectual Property Purchase Agreement, drafted as of January 20, 2015, by and among MJ Biologics, Inc. and Phibro Animal Health Corporation (incorporated by reference to Exhibit 10.18 to Phibro Animal Health Corporation’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 6, 2018 (File No. 001-36410)). Form of Restricted Stock Unit Award Agreement (incorporated by reference to 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)). Executive Long-Term Incentive Agreement dated May 11, 2015, by and between Phibro Animal Health Corporation and Richard G. Johnson (incorporated by reference to Exhibit 10.34 to Phibro Animal Health Corporation’s 2015 Annual Report on Form 10- K, filed with the Securities and Exchange Commission on September 10, 2015 (File No. 001-36410)). Employment Offer Letter, dated May 6, 2019, by and between Rob Aukerman and Phibro Animal Health Corporation, including confidentiality and nondisclosure, employee invention, and noncompetition and nonsolicitation agreements. List of Subsidiaries of Phibro Animal Health Corporation. Consent of Independent Registered Public Accounting Firm. Chief Executive Officer-Certification pursuant to Sarbanes-Oxley Act of 2002 Section 302. Chief Financial Officer-Certification pursuant to Sarbanes-Oxley Act of 2002 129 TABLE OF CONTENTS Exhibit 32.1** Exhibit 32.2** Section 302. Chief Executive Officer-Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906. Chief Financial Officer-Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906. Exhibit 101.INS*** XBRL Instance Document. Exhibit 101.SCH*** XBRL Taxonomy Extension Schema Document. Exhibit 101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document. Exhibit 101.DEF*** XBRL Taxonomy Extension Definition Linkbase Document. Exhibit 101.LAB*** XBRL Taxonomy Extension Label Linkbase Document. Exhibit 101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document. * ** Confidential treatment of certain provisions of this exhibit has been requested with the Securities and Exchange Commission. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under 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, these interactive data files are deemed not filed for purposes of sections 11 or 12 of the Securities Act of 1933 and are deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934. 130 TABLE OF CONTENTS​ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized. August 26, 2020 By: /s/ Jack C. Bendheim Phibro Animal Health Corporation Jack C. Bendheim Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Phibro Animal Health Corporation August 26, 2020 By: /s/ Jack C. Bendheim Jack C. Bendheim Chairman, President and Chief Executive Officer August 26, 2020 By: /s/ Richard G. Johnson Richard G. Johnson Chief Financial Officer August 26, 2020 By: /s/ Daniel M. Bendheim Daniel M. Bendheim Director and Executive Vice President, Corporate Strategy August 26, 2020 By: /s/ Jonathan Bendheim Jonathan Bendheim Director and President, MACIE Region and General Manager of Israel Operations August 26, 2020 By: /s/ Gerald K. Carlson Gerald K. Carlson Director August 26, 2020 By: /s/ E. Thomas Corcoran August 26, 2020 E. Thomas Corcoran Director By: /s/ Sam Gejdenson Sam Gejdenson Director 131 TABLE OF CONTENTS August 26, 2020 By: /s/ Mary Lou Malanoski August 26, 2020 Mary Lou Malanoski Director By: /s/ Carol A. Wrenn Carol A. Wrenn Director 132 Exhibit 10.18​ May 6, 2019 Rob Aukerman *** *** Dear Rob, I am pleased to present an offer of employment to you with Phibro Animal Health Corporation as President, North America Region, reporting to me. Our offer to you is as follows: Start Date Your anticipated start date will be May 20, 2019. This date presumes that you have satisfactorily cleared the pre-employment background check and substance abuse test referred to below. Location You will be based out of your home office with the expectation that you will travel to corporate headquarters as required. Compensation You will be compensated at the semi-monthly base salary rate of $18,750 (equivalent to $450,000 annually) less applicable deductions as required by law. Your compensation is subject to periodic review per Company policy. You are eligible to participate in the Pay for Performance Incentive Plan beginning with our 2020 fiscal year commencing July 1, 2019. Your target bonus will be 40% of your base salary (the Plan provides for a maximum payout of 60% of your base salary). For fiscal years 2020, 2021 and 2022, you will be guaranteed a minimum bonus payout of $50,000 each year. Bonuses are subject to corporate performance, contingent on satisfactory individual performance and subject to the approval of the Company’s Board of Directors. In order to receive any bonus, you must be employed by the Company on the date the applicable bonus is paid. You will be provided with a vehicle allowance in the amount of $750/month ($9,000/year) less applicable taxes. Retention Bonus In addition to the compensation outlined above, you are eligible to receive a retention bonus as follows: On each of the following dates: June 1, 2020, June 1, 2021, and June 1, 2022, $35,000 will be accrued on your behalf. Provided that you continue to be employed with the Company as President, North America Region, through June 1, 2022, you will receive the retention bonus payment of $105,000 less applicable deductions required by law payable in a lump sum cash payment in the first pay period following June 1, 2022. May 6, 2019 Page 2 Termination If your employment with the Company is terminated by the Company prior to June 1, 2022, for reasons other than for Cause (as defined below), you will receive the portion of your retention bonus in the amount accrued as of the date of termination, contingent upon signing a form of General Release and Acknowledgement (“Release”) provided by the Company by the 60th day following the date of termination or such earlier date as set forth in the Release, which cannot be revoked in whole or part (if applicable) by such date or such earlier date as set forth in the Release (the date that the Release can no longer be revoked is referred to as the “Release Effective Date”). For example, if you were terminated on October 25, 2021, you would receive a $70,000 bonus, contingent upon timely signing the Release. Any payments pursuant to this provision shall be paid in a lump sum cash payment less applicable deductions in the first pay period following the Release Effective Date. In the event your employment is terminated for “Cause,” the Company shall have no further obligations under this Agreement. “Cause” shall be defined as: (i) your continued and willful failure to materially perform your duties and responsibilities under this Agreement after written notice and where such failure is not cured within five (5) days of your receipt of such notice, (ii) engaging in gross and willful misconduct including, but not limited to, fraud or intentional misrepresentation, (iii) conviction of a felony (other than traffic violations), habitual drunkenness or drug abuse, (iv) any violation of your confidentiality or non-competition/non-solicitation obligations, or (v) violation of any Company policy including but not limited to the Code of Business Conduct and Ethics. Section 409A of the Internal Revenue Code It is the Company’s intention that all payments or benefits provided under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and this Agreement shall be interpreted, administered and operated accordingly. Notwithstanding anything to the contrary herein, the Company does not guarantee the tax treatment of any payments or benefits under this Agreement, including without limitation under the Code, federal, state, local or foreign tax laws and regulations. To the extent that any severance benefits are deferred compensation under Section 409A of the Code, and are not otherwise exempt from the application of Section 409A, then, if the period during which you may consider and sign the Release spans two calendar years, the payment of severance benefits will not be made or begin until the later calendar year. If a payment obligation under this Agreement arises on account of your separation from service while you are a “specified employee” (as defined under Section 409A of the Code and determined in good faith by the Company), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accrue without interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of your estate. Benefit Plan You will be eligible to participate in the Company’s Benefit Plan, which includes Health, Dental, Life and Disability Insurance after a 30-day waiting period, and 401(k) Retirement and Savings Plan. Participation in these Plans is subject to the terms and conditions of the Plans, and they are subject to change at any time at the sole discretion of the Company. Please see the Summary of Insurance and Benefits for more details. Vacation You are eligible for 20 vacation days per year and will begin to accrue that time with your start date. Holidays Currently the Company provides employees with 8 holidays and 3 personal days each year, for which you are May 6, 2019 Page 3 eligible as of your start date. Contingencies: This offer is contingent upon: • A satisfactory result on a pre-employment background check and substance abuse test. After receipt of your written acceptance of this offer, you will receive a personal e-mail from HireRight that will provide you with a registration number and the location of the testing site. • Your signed acceptance of, and agreement to be bound by, the Company’s standard forms of Confidentiality and Nondisclosure, Noncompetition and Nonsolicitation, and Employee Invention agreements. • Your signed agreement to abide by the Company’s Code of Business Conduct and Ethics. Prior Employment Agreements You agree that you have fully disclosed to the Company any post-termination obligations you may have with your current and prior employers, that your employment with the Company will not violate any such obligations, and that as a condition of your employment you will strictly comply with any such obligations, including any obligation to maintain the confidentiality of your current and prior employers’ confidential information. Employment-At-Will Your employment status with the Company will be that of an at-will employee. Nothing in this offer of employment at-will shall be deemed to create a contract of employment. This offer of employment is not for a fixed duration and may be terminated at any time by either you or the Company with or without cause. This offer expires May 10, 2019. Rob, I am excited about our future at the Company and the potential of your leadership, and I look forward to working with you. If you agree with the above terms, please sign and date and return to me at your earliest convenience a copy of this letter; the Confidentiality and Nondisclosure, Noncompetition and Nonsolicitation, and Employee Invention agreements; and your agreement to abide by the Company’s Code of Business Conduct and Ethics. If you have any questions regarding your employment with Phibro, please feel free to call me at 201-329-7097. Sincerely, /s/ Larry L. Miller Larry L. Miller Chief Operating Officer Offer Accepted: CC: Lisa Escudero /s/ Rob Aukerman Rob Aukerman 07-May-2019 Date PHIBRO ANIMAL HEALTH CORPORATION CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT For good and valuable consideration, including but not limited to my initial or continued at-will employment by PHIBRO ANIMAL HEALTH CORPORATION, or any of its subsidiaries or affiliates (collectively “PAHC”), I hereby acknowledge and agree: 1. In the course of my employment with PAHC, certain trade secrets or confidential or proprietary information (“Protected Matters”) of PAHC may be disclosed to or otherwise become known by me, including, but not limited to: a. b. Product and Technical Information: Product formulations, new and innovative product ideas, research and development projects, investigations, experiments, clinical trials, new business development, sketches, plans, drawings, prototypes, methods, processes, formulae, compositions, raw materials, inventions, machines, computer programs, research projects and other non-public technical information, data, and techniques having value to PAHC. Financial and Business Information: Customer lists, mailing lists, specific customer needs and requirements, leads and referrals to prospective customers, pricing data, sources of supply, marketing, production or merchandising systems and plans, cost information, commissions, fees, profits, sales, sales margins, capital structure, operating results, borrowing arrangements, strategies and plans for future business, pending projects and proposals, potential acquisitions or divestitures, and other non-public business information, data and techniques having value to PAHC. c. Personnel information: the identity and number of PAHC’s other employees, their salaries, bonuses, benefits, skills, qualifications, and abilities. The foregoing types of information belonging to third parties in the possession of PAHC. 2. Other than in carrying out my duties as an employee of PAHC in an authorized and approved manner, I will not at any time during my employment, or after the separation of my employment with PAHC (regardless of the reason for separation), use for myself or others, or disclose or disseminate to others, any Protected Matters. Nothing in this Agreement is intended to prohibit my discussing with other employees, or with third parties who are not my future employers or PAHC’s competitors, my wages, hours or other terms and conditions of employment. 3. I agree that I will not disclose to PAHC, use for PAHC’s benefit, or induce PAHC to use any trade secrets or confidential information I may possess or any intellectual property belonging to any former employer or other third party. 4. Upon separation of my employment with PAHC: a. I shall return to PAHC all documents relating to PAHC or to Protected Matters, or obtained by me during the course of my employment with PAHC, and shall not retain any copies of such documents. For the purpose of this Agreement, “document” means, without limitation, any paper or other writing, any electronically or digitally stored data or collection of data, and any item of audio, video or graphic material, however recorded or reproduced. For any equipment or devices owned by me or in my possession on which documents relating to PAHC or to Protected Matters is stored or accessible, I shall, upon request by PAHC, deliver such equipment or devices to PAHC so that any documents relating to PAHC or to Protected Matters may be deleted or removed. I expressly authorize PAHC’s designated representatives to access such equipment or devices for this limited purpose and shall provide any passwords or access codes necessary to accomplish this task. b. This Agreement shall not apply to any information or materials that (i) is or becomes available in the public domain through no fault of, or act, or failure to act on my part, or (ii) is obtained by me on a non-confidential basis from any third party that is lawfully in possession of such information or materials, provided, that such third party is not in violation of a confidentiality obligation to PAHC with respect to such information or materials. I shall notify any future or prospective employer of mine of the existence of this Agreement. I further agree that PAHC may inform any future or prospective employer of mine of the existence of this Agreement Note: 18 U.S.C. § 1833(b)(1) states: “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that — (A) is made — (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Further 18 U.S.C. § 1833(b)(2) states: “An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual — (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.” Notwithstanding anything in this Agreement to the contrary, disclosures in compliance with 18 U.S.C. § 1833(b) are expressly permitted by this Agreement. Nothing in this Agreement prohibits me from reporting possible violations of United States federal law or regulation to any governmental agency or entity, including but not limited to, the United States Department of Justice, the United States Securities and Exchange Commission, the United States Congress, and any Inspector General of any United States federal agency, or making other disclosures that are protected under the whistleblower provisions of United States federal, state or local law or regulation; provided, that I will use my reasonable best efforts to (i) disclose only information that is reasonably related to such possible violations or that is requested by such agency or entity, and (ii) request that such agency or entity treat such information as confidential. I understand that I do not need the prior authorization from PAHC to make any such reports or disclosures and I am not required to notify PAHC that I have made such reports or disclosures. This Agreement does not limit my right to receive an award for information provided to any governmental agency or entity. The unenforceability of any provision or portion of this Agreement shall not impair or affect the enforceability of any other provision or portion of this Agreement. If any provision or portion of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction, that provision or portion shall be deemed modified so as to render it enforceable. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY WITHOUT REGARD FOR CONFLICTS OF LAWS PRINCIPLES. ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND MY EMPLOYMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE OR FEDERAL COURTS OF NEW JERSEY. I EXPRESSLY CONSENT TO VENUE IN, AND THE PERSONAL JURISDICTION OF, THE STATE AND FEDERAL COURTS LOCATED IN NEW JERSEY FOR ANY LAWSUIT ARISING FROM OR RELATING TO THIS AGREEMENT. 5. 6. 7. 8. 9. 10. This Agreement does not alter the status of my employment as an at-will employee of PAHC. 11. I understand PAHC is engaged in a highly competitive business and that its competitive position depends upon its ability to maintain the confidentiality of the Protected Matters, which were developed, compiled and acquired by PAHC at its great effort and expense. I further acknowledge and agree that compliance with the provisions of this Agreement is necessary to protect the Protected Matters, business and goodwill of PAHC, and that any breach of this Agreement will result in irreparable and continuing harm to PAHC, for which money damages may not provide adequate relief. In the event of breach or threatened breach of this Agreement, PAHC shall have full rights to injunctive relief, in addition to any other existing rights and remedies, without requirement of posting bond. 12. The terms of this Agreement shall survive the separation of my employment with PAHC. 13. This Agreement shall be binding upon me and my personal representatives and successors in interest, and shall inure to the benefit of PAHC, its successors and assigns. 14. This Agreement constitutes the entire agreement between PAHC and me with respect to the subject matter of this Agreement, and supersedes all prior agreements between us relating to the same subject matter. Any waiver of a breach of any provision of this Agreement by PAHC shall not be construed as a waiver of any other breach of this Agreement, and no failure or delay by PAHC in exercising any right under this Agreement shall operate as a waiver of any breach by me. This Agreement cannot be changed except by written agreement of PAHC and me. I have read, understand and consent to the above Agreement. By: /s/ Rob Aukerman Employee Signature Rob Aukerman Employee Name (please print) 07-May-2019 Date PHIBRO ANIMAL HEALTH CORPORATION EMPLOYEE INVENTION AGREEMENT For good and valuable consideration, including but not limited to my initial or continued at-will employment by PHIBRO ANIMAL HEALTH CORPORATION, or any of its subsidiaries or affiliates (collectively “PAHC”), I hereby acknowledge and agree: 1. During my employment with PAHC, and for a period of one year after my separation of employment regardless of reason, I shall promptly disclose in writing to PAHC all Inventions that: a. b. c. result from any work performed on behalf of PAHC, or pursuant to a suggested research project by PAHC, or relate in any manner to the existing or stated contemplated business of PAHC, or result from the use of PAHC’s time, material, employment or facilities. For purposes of this Agreement, “Inventions” shall mean all works of authorship, inventions, discoveries, improvements, developments, and innovations, whether patentable, copyrightable, trademarkable, or not, conceived in whole or in part by the undersigned or through the assistance of the undersigned, and whether conceived or developed during working hours or not and whether conceived individually or jointly. 2. 3. I agree to assign, and do hereby assign, to PAHC, its successors and assigns, all right, title and interest to each and every Invention, whether or not such Invention is a “work for hire” as that term is defined in the United States Copyright Act. I understand and agree that the decision whether or not to commercialize or market any Invention developed by me solely or jointly with others is within PAHC’s sole discretion and for PAHC’s sole benefit and that no royalty will be due to me as a result of PAHC’s efforts to commercialize or market any such Invention. I agree to assist PAHC, or its designee, at PAHC’s expense, in every proper way to secure PAHC’s rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including, but not limited to, the disclosure to PAHC of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which PAHC shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to PAHC, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If PAHC is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to PAHC as above, then I hereby irrevocably designate and appoint PAHC and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me. 4. I understand that the provisions of this Agreement requiring assignment of Inventions to PAHC shall not apply to any Inventions that are not within the scope of Paragraph 1.a, b or c above (collectively “Outside Discoveries). I will advise PAHC promptly in writing of any Outside Discoveries, including those listed below which I claim were conceived or reduced to practice before the date of this Agreement: Outside Discoveries: NONE 5. 6. 7. 8. 9. 10. I shall notify any future or prospective employer of mine of the existence of this Agreement. I further agree that PAHC may inform any future or prospective employer of mine of the existence of this Agreement. The unenforceability of any provision or portion of this Agreement shall not impair or affect any other provision or portion of this Agreement. If any provision or portion of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction, that provision or portion shall be deemed modified so as to render it enforceable. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY WITHOUT REGARD FOR CONFLICTS OF LAWS PRINCIPLES. ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND MY EMPLOYMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE OR FEDERAL COURTS OF NEW JERSEY. I EXPRESSLY CONSENT TO VENUE IN, AND THE PERSONAL JURISDICTION OF, THE STATE AND FEDERAL COURTS LOCATED IN NEW JERSEY FOR ANY LAWSUIT ARISING FROM OR RELATING TO THIS AGREEMENT. This Agreement does not alter the status of my employment as an at-will employee of PAHC. This Agreement does not alter my obligations to maintain the confidentiality of PAHC protected information or my obligations under the PAHC Confidentiality and Nondisclosure Agreement. I acknowledge and agree that compliance with the provisions of this Agreement is necessary to protect the business of PAHC, and that any breach of this Agreement will result in irreparable and continuing harm to PAHC, for which money damages may not provide adequate relief. In the event of breach or threatened breach of this Agreement, PAHC shall have full rights to injunctive relief, in addition to any other existing rights and remedies, without requirement of posting bond. 11. The terms of this Agreement shall survive my separation of employment with PAHC. 12. This Agreement shall be binding upon me and my personal representatives and successors in interest, and shall inure to the benefit of PAHC, its successors and assigns. 13. This Agreement constitutes the entire agreement between PAHC and me with respect to the subject of this Agreement, and supersedes all prior agreements between us relating to the same subject matter. Any waiver of a breach of any provision of this Agreement by PAHC shall not be construed as a waiver of any other breach of the Agreement, and no failure or delay by PAHC in exercising any right under this Agreement shall operate as a waiver of any breach by me. This Agreement cannot be changed except by written agreement of PAHC and me. I have read, understand and consent to the above Agreement. By: /s/ Rob Aukerman Employee Signature Rob Aukerman Employee Name (please print) 07-May-2019 Date PHIBRO ANIMAL HEALTH CORPORATION NONCOMPETITION AND NONSOLICITATION AGREEMENT In consideration of my initial or continued employment by PHIBRO ANIMAL HEALTH CORPORATION, or any of its subsidiaries or affiliates (collectively “PAHC”), my access to and provision with PAHC’s confidential information and trade secrets under the terms and conditions of my Confidentiality and Nondisclosure Agreement with PAHC, and for other good and sufficient consideration, I hereby acknowledge and agree: 1. During my employment with PAHC and for a period of one year after my separation of employment regardless of the reason, I shall not: a. b. Directly or indirectly (i) be employed by or (ii) be engaged to perform work in a capacity similar to the position(s) I held with PAHC on behalf of, any firm engaged in any business: (A) that is a direct competitor with PAHC’s business in those geographic regions or territories in which PAHC marketed its products or had sales during the twelve-month period prior to the separation of my employment at PAHC, or (B) which PAHC has plans to enter during the twelve-month period following the separation of my employment with PAHC of which I was aware during the term of my employment with PAHC. Directly or indirectly, or in any capacity, on my own behalf or on behalf of another, undertake or assist in the servicing or solicitation of any customer or prospective customer for the purpose of selling products or services of the type for which I had (i) responsibility, (ii) knowledge of or (iii) access to confidential information and trade secrets, while employed by PAHC. This restriction (A) shall apply only to those customers or prospective customers of PAHC with whom I came into contact during the 24-month period prior to the date of my separation of employment with PAHC. (B) shall not restrict me from engaging in the solicitation of any customer or prospective customer for the purpose of selling products or services that are not directly competitive with PAHC products or services, and (C) shall not restrict me from being engaged by a customer to provide consulting services to such customer so long as I am not acting on behalf of a PAHC competitor. For the purposes of this section, the term “contact” means interaction between the customer and me which takes place to further the business relationship, or making sales to or performing services for the customer on behalf of PAHC. For purposes of this section, the term “contact” with respect to a “prospective” customer means interaction between a potential customer and me which takes place to obtain the business of the potential customer on behalf of PAHC. c. Directly or indirectly solicit any employee of PAHC to leave the employ of PAHC or to violate the terms of his or her employment arrangement with PAHC. This restriction shall apply only to those employees of PAHC with whom I came into contact during the 24-month period prior to the date of my separation of employment with PAHC. 2. For the purposes of this Agreement, I understand that, as of July 1, 2017, PAHC is engaged in businesses which include but are not limited to manufacturing and/or marketing of pharmaceutical and nutritional products for animals (including but not limited to medicated and non-medicated feed additives and vaccines), and manufacturing and/or marketing specialty chemicals including products used in ethanol- production, surface finishing and coating materials, and personal care ingredients. I further understand that, for the purposes of this Agreement, from time to time the businesses engaged in by PAHC may change from this description. 3. 4. 5. 6. 7. 8. 9. 10. For a period of one year following the separation of my employment from PAHC, regardless of reason, I shall notify any future or prospective employer of mine of the existence of this Agreement, and I further agree that PAHC may inform any future or prospective employer of mine of the existence of this Agreement. The unenforceability of any provision or portion of this Agreement shall not impair or affect the enforceability of any other provision or portion of this Agreement. If any provision or portion of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction, that provision or portion shall be deemed modified so as to render it enforceable. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY WITHOUT REGARD FOR CONFLICTS OF LAWS PRINCIPLES. ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND MY EMPLOYMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE OR FEDERAL COURTS OF NEW JERSEY. I EXPRESSLY CONSENT TO VENUE IN, AND THE PERSONAL JURISDICTION OF, THE STATE AND FEDERAL COURTS LOCATED IN NEW JERSEY FOR ANY LAWSUIT ARISING FROM OR RELATING TO THIS AGREEMENT. This Agreement does not alter the status of my employment as an at-will employee of PAHC. I understand PAHC is engaged in a highly competitive business and that its competitive position depends upon its ability to maintain the confidentiality of its confidential information, proprietary information, and trade secrets, which were developed, compiled and acquired by PAHC at its great effort and expense. I further acknowledge and agree that compliance with the provisions of this Agreement and PAHC’s Confidentiality and Nondisclosure Agreement is necessary to protect the confidential information, proprietary information, and trade secrets, business and goodwill of PAHC, and that any breach of this Agreement will result in irreparable and continuing harm to PAHC, for which money damages may not provide adequate relief. Accordingly, in the event of a breach or threatened breach of this Agreement, PAHC shall have full rights to injunctive relief, in addition to any other existing rights and remedies, without requirement of posting bond. The terms of this Agreement shall survive my separation of employment with PAHC. This Agreement shall inure to the benefit of PAHC, its successors and assigns. This Agreement constitutes the entire agreement between PAHC and me with respect to the subject of this Agreement and supersedes all prior agreements between us relating to the same subject matter, except the Confidentiality and Nondisclosure Agreement between PAHC and me, which is incorporated herein by reference. Any waiver of a breach of any provision of this Agreement by PAHC shall not be construed as a waiver of any other breach of this Agreement, and no failure or delay by PAHC in exercising any right under this Agreement shall operate as a waiver of any breach by me. This Agreement cannot be changed except by written agreement of PAHC and me, wherein specific reference is made to this Agreement. I have read, understand and consent to the above Agreement. By: /s/ Rob Aukerman Employee Signature Rob Aukerman Employee Name (please print) 07-May-2019 Date PHIBRO ANIMAL HEALTH CORPORATION LIST OF SUBSIDIARIES EXHIBIT 21.1​ SUBSIDIARY First Dice Road Company, a California Ltd. Partnership Western Magnesium Corp. Phibro Animal Health Holdings, Inc. Prince Agri Products, Inc. Phibro-Tech, Inc. C P Chemicals, Inc. Phibrochem, Inc. OmniGen Research, LLC Phibro Animal Health de Argentina SRL Biotay S.A. Phibro Animal PTY Limited Phibro Animal Health (Belgium) S.A. Phibro Saude Animal Internacional Ltda. (1) Phibro Saude e Nutricao Animal Ltda. Phibro Animal Health Ltd. Phibro Animal Health Holdings, Inc. Chile Limitada Phibro Animal Health Colombia S.A.S. Phibro Animal Health de Republica Dominicana, SRL Phibro Corporation Limited Phibro Parent Service Limited Phibro Animal Health Limited Abic Biological Laboratories Ltd. Abic Veterinary Products Ltd. (2) Phibro Animal Health Ltd. Phibro Animal Nutrition Ltd. Kofimex Ltd. Target Point-Technologies Ltda. Phibro Corporation (M) Sdn. Bhd. PB Animal Health de Mexico S. de R.L. de C.V. PBAH Peruana S.A.C. Phibro Animal Health (Poland) sp. z.o.o. Phibro Animal Health (Proprietary) Limited Phibro Animal Health (Thailand) Limited Phibro Hayvan Sagligi Urunleri Sanayi ve Ticaret A.S Ferro Metal and Chemical Corporation Ltd. Phibro Animal Health de Venezuela, C.A. California Water Technologies LLC North Field Extension, LLC Marion Bio-Tech, LLC Hannibal Bio-Tech, LLC (4) (4) (4) (4) (3) (1) Formerly known as Planalquimica Industrial Ltda. (2) Formerly known as Koffolk (1949) Ltd. (3) Formerly known as Agrozan Ltd. (4) We directly or indirectly own 50% of the entity. JURISDICTION California California Delaware Delaware Delaware New Jersey New Jersey Oregon Argentina Argentina Australia Belgium Brazil Brazil Canada Chile Colombia Dominican Republic Hong Kong Hong Kong Ireland Israel Israel Israel Israel Israel Israel Malaysia Mexico Peru Poland South Africa Thailand Turkey United Kingdom Venezuela Michigan New Jersey Delaware Delaware CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We 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 26, 2020 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. EXHIBIT 23.1​ /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey August 26, 2020 I, Jack C. Bendheim, certify that: CERTIFICATIONS EXHIBIT 31.1​ 1. I have reviewed this Annual Report on Form 10-K for the year ended June 30, 2020, of Phibro Animal Health Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements 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 this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, 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 over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end 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 that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Dated: August 26, 2020 /s/ Jack C. Bendheim Jack C. Bendheim Chairman, President and Chief Executive Officer EXHIBIT 31.2​ I, Richard G. Johnson, certify that: CERTIFICATIONS 1. I have reviewed this Annual Report on Form 10-K for the year ended June 30, 2020, of Phibro Animal Health Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements 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 this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, 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 over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end 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 that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Dated: August 26, 2020 /s/ Richard G. Johnson Richard G. Johnson Chief Financial Officer EXHIBIT 32.1​ CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Dated: August 26, 2020 /s/ Jack C. Bendheim Jack C. Bendheim Chairman, President and Chief Executive Officer CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. EXHIBIT 32.2​ Dated: August 26, 2020 /s/ Richard G. Johnson Richard G. Johnson Chief Financial Officer 

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