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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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