FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20192020
OR
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 | 13-1840497 | ||||
(State or other jurisdiction of | (I.R.S. Employer | ||||
incorporation or organization) | Identification No.) | ||||
| | ||||
Glenpointe Centre East, | 07666-6712 | ||||
300 Frank W. Burr Boulevard, Suite 21 | (Zip Code) | ||||
Teaneck, New Jersey | | ||||
(Address of Principal Executive Offices) | |
(201) 329-7300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Class A Common Stock, $0.0001 | | PAHC | | Nasdaq Stock Market |
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”largeof “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | | Accelerated filer | ☒ | |||||||
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | |||||||
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
As of October 29, 2019,28, 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.
PHIBRO ANIMAL HEALTH CORPORATION
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2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
| | | (unaudited) (in thousands, except per share amounts) | | |||||||||
Net sales | | | | $ | 189,720 | | | | | $ | 200,153 | | |
Cost of goods sold | | | | | 132,057 | | | | | | 134,348 | | |
Gross profit | | | | | 57,663 | | | | | | 65,805 | | |
Selling, general and administrative expenses | | | | | 47,516 | | | | | | 42,952 | | |
Operating income | | | | | 10,147 | | | | | | 22,853 | | |
Interest expense, net | | | | | 3,354 | | | | | | 2,783 | | |
Foreign currency (gains) losses, net | | | | | 3,221 | | | | | | (2,635) | | |
Income before income taxes | | | | | 3,572 | | | | | | 22,705 | | |
Provision for income taxes | | | | | 1,057 | | | | | | 6,391 | | |
Net income | | | | $ | 2,515 | | | | | $ | 16,314 | | |
Net income per share | | | | | | | | | | | | | |
Basic | | | | $ | 0.06 | | | | | $ | 0.40 | | |
Diluted | | | | $ | 0.06 | | | | | $ | 0.40 | | |
Weighted average common shares outstanding | | | | | | | | | | | | | |
Basic | | | | | 40,454 | | | | | | 40,369 | | |
Diluted | | | | | 40,504 | | | | | | 40,560 | | |
| | | | | | |
| | Three Months | ||||
For the Periods Ended September 30 |
| 2020 |
| 2019 | ||
| | (unaudited) | ||||
| | (in thousands, except per share amounts) | ||||
Net sales | | $ | 195,194 | | $ | 189,720 |
Cost of goods sold | |
| 131,075 | |
| 132,057 |
Gross profit | |
| 64,119 | |
| 57,663 |
Selling, general and administrative expenses | |
| 48,431 | |
| 47,516 |
Operating income | |
| 15,688 | |
| 10,147 |
Interest expense, net | |
| 2,810 | |
| 3,354 |
Foreign currency (gains) losses, net | |
| (3,631) | |
| 3,221 |
Income before income taxes | |
| 16,509 | |
| 3,572 |
Provision for income taxes | |
| 4,207 | |
| 1,057 |
Net income | | $ | 12,302 | | $ | 2,515 |
| | | | | | |
Net income per share | |
|
| |
|
|
basic | | $ | 0.30 | | $ | 0.06 |
diluted | | $ | 0.30 | | $ | 0.06 |
Weighted average common shares outstanding | |
| | |
| |
basic | |
| 40,454 | |
| 40,454 |
diluted | |
| 40,504 | |
| 40,504 |
The accompanying notes are an integral part of these consolidated financial statements
3
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
| | | (unaudited) (in thousands) | | |||||||||
Net income | | | | $ | 2,515 | | | | | $ | 16,314 | | |
Change in fair value of derivative instruments | | | | | (1,084) | | | | | | 541 | | |
Foreign currency translation adjustment | | | | | (6,823) | | | | | | (7,682) | | |
Unrecognized net pension gains (losses) | | | | | 120 | | | | | | 108 | | |
(Provision) benefit for income taxes | | | | | 240 | | | | | | (162) | | |
Other comprehensive income (loss) | | | | | (7,547) | | | | | | (7,195) | | |
Comprehensive income (loss) | | | | $ | (5,032) | | | | | $ | 9,119 | | |
| | | | | | |
| | Three Months | ||||
For the Periods Ended September 30 |
| 2020 |
| 2019 | ||
| | (unaudited) | ||||
| | (in thousands) | ||||
Net income | | $ | 12,302 | | $ | 2,515 |
Change in fair value of derivative instruments | |
| 1,089 | |
| (1,084) |
Foreign currency translation adjustment | |
| (4,723) | |
| (6,823) |
Unrecognized net pension gains (losses) | |
| 135 | |
| 120 |
(Provision) benefit for income taxes | |
| (306) | |
| 240 |
Other comprehensive income (loss) | |
| (3,805) | |
| (7,547) |
Comprehensive income (loss) | | $ | 8,497 | | $ | (5,032) |
The accompanying notes are an integral part of these consolidated financial statements
4
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
| | | (unaudited) (in thousands, except share and per share amounts) | | |||||||||
ASSETS | | | | | | | | | | | | | |
Cash and cash equivalents | | | | $ | 54,893 | | | | | $ | 57,573 | | |
Short-term investments | | | | | 24,000 | | | | | | 24,000 | | |
Accounts receivable, net | | | | | 145,444 | | | | | | 159,022 | | |
Inventories, net | | | | | 203,873 | | | | | | 198,322 | | |
Other current assets | | | | | 27,302 | | | | | | 27,245 | | |
Total current assets | | | | | 455,512 | | | | | | 466,162 | | |
Property, plant and equipment, net | | | | | 142,164 | | | | | | 140,235 | | |
Intangibles, net | | | | | 77,536 | | | | | | 47,478 | | |
Goodwill | | | | | 52,990 | | | | | | 27,348 | | |
Other assets | | | | | 67,037 | | | | | | 45,448 | | |
Total assets | | | | $ | 795,239 | | | | | $ | 726,671 | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | |
Current portion of long-term debt | | | | $ | 14,084 | | | | | $ | 12,540 | | |
Accounts payable | | | | | 61,372 | | | | | | 73,189 | | |
Accrued expenses and other current liabilities | | | | | 66,517 | | | | | | 68,498 | | |
Total current liabilities | | | | | 141,973 | | | | | | 154,227 | | |
Revolving credit facility | | | | | 168,000 | | | | | | 96,000 | | |
Long-term debt | | | | | 213,040 | | | | | | 217,635 | | |
Other liabilities | | | | | 65,532 | | | | | | 42,794 | | |
Total liabilities | | | | | 588,545 | | | | | | 510,656 | | |
Commitments and contingencies (Note 9) | | | | | | | | | | | | | |
Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 20,287,574 shares issued and outstanding at September 30, 2019 and June 30, 2019; 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at September 30, 2019 and June 30, 2019 and 2018 | | | | | 4 | | | | | | 4 | | |
Preferred stock, par value $0.0001 per share; 16,000,000 shares authorized, no shares issued and outstanding | | | | | — | | | | | | — | | |
Paid-in capital | | | | | 133,831 | | | | | | 133,266 | | |
Retained earnings | | | | | 166,587 | | | | | | 168,926 | | |
Accumulated other comprehensive income (loss) | | | | | (93,728) | | | | | | (86,181) | | |
Total stockholders’ equity | | | | | 206,694 | | | | | | 216,015 | | |
Total liabilities and stockholders’ equity | | | | $ | 795,239 | | | | | $ | 726,671 | | |
|
| | | | | | |
| | September 30, | | June 30, | ||
As of |
| 2020 |
| 2020 | ||
| | | (unaudited) | |||
|
| (in thousands, except share and per share amounts) | ||||
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 30,969 | | $ | 36,343 |
Short-term investments | |
| 61,000 | |
| 55,000 |
Accounts receivable, net | |
| 125,457 | |
| 126,522 |
Inventories, net | |
| 205,846 | |
| 196,659 |
Other current assets | |
| 41,010 | |
| 37,313 |
Total current assets | |
| 464,282 | |
| 451,837 |
Property, plant and equipment, net | |
| 147,256 | |
| 148,109 |
Intangibles, net | |
| 68,792 | |
| 70,997 |
Goodwill | |
| 52,679 | |
| 52,679 |
Other assets | |
| 56,545 | |
| 60,478 |
Total assets | | $ | 789,554 | | $ | 784,100 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
|
|
Current portion of long-term debt | | $ | 20,312 | | $ | 18,750 |
Accounts payable | |
| 62,497 | |
| 66,091 |
Accrued expenses and other current liabilities | |
| 78,143 | |
| 72,397 |
Total current liabilities | |
| 160,952 | |
| 157,238 |
Revolving credit facility | |
| 185,000 | |
| 169,000 |
Long-term debt | |
| 193,100 | |
| 199,257 |
Other liabilities | |
| 58,090 | |
| 70,401 |
Total liabilities | |
| 597,142 | |
| 595,896 |
Commitments and contingencies (Note 7) | |
|
| |
|
|
Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 20,287,574 shares issued and outstanding at September 30, 2020 and June 30, 2020; 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at September 30, 2020 and June 30, 2020 | |
| 4 | |
| 4 |
Preferred stock, par value $0.0001 per share; 16,000,000 shares authorized, 0 shares issued and outstanding | |
| - | | | — |
Paid-in capital | |
| 136,090 | |
| 135,525 |
Retained earnings | |
| 190,508 | |
| 183,060 |
Accumulated other comprehensive income (loss) | |
| (134,190) | |
| (130,385) |
Total stockholders’ equity | |
| 192,412 | |
| 188,204 |
Total liabilities and stockholders’ equity | | $ | 789,554 | | $ | 784,100 |
The accompanying notes are an integral part of these consolidated financial statements
5
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
| | | (unaudited) (in thousands) | | |||||||||
OPERATING ACTIVITIES | | | | | | | | | | | | | |
Net income | | | | $ | 2,515 | | | | | $ | 16,314 | | |
Adjustments to reconcile net income to net cash provided (used) by operating activities: | | | | | | | | | | | | | |
Depreciation and amortization | | | | | 7,781 | | | | | | 6,691 | | |
Amortization of debt issuance costs and debt discount | | | | | 221 | | | | | | 221 | | |
Stock-based compensation | | | | | 565 | | | | | | 565 | | |
Acquisition-related cost of goods sold | | | | | 280 | | | | | | — | | |
Acquisition-related accrued interest | | | | | 53 | | | | | | — | | |
Deferred income taxes | | | | | (652) | | | | | | (473) | | |
Foreign currency (gains) losses, net | | | | | 1,660 | | | | | | (2,981) | | |
Other | | | | | 116 | | | | | | 266 | | |
Changes in operating assets and liabilities, net of business acquisitions: | | | | | | | | | | | | | |
Accounts receivable, net | | | | | 14,065 | | | | | | (85) | | |
Inventories, net | | | | | (9,086) | | | | | | (9,504) | | |
Other current assets | | | | | (813) | | | | | | (3,654) | | |
Other assets | | | | | (1,071) | | | | | | 371 | | |
Accounts payable | | | | | (11,834) | | | | | | 2,794 | | |
Accrued expenses and other liabilities | | | | | (7,370) | | | | | | (9,245) | | |
Net cash provided (used) by operating activities | | | | | (3,570) | | | | | | 1,280 | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | |
Capital expenditures | | | | | (7,675) | | | | | | (6,049) | | |
Business acquisitions | | | | | (54,560) | | | | | | (9,838) | | |
Other, net | | | | | (296) | | | | | | (262) | | |
Net cash provided (used) by investing activities | | | | | (62,531) | | | | | | (16,149) | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | |
Revolving credit facility borrowings | | | | | 119,000 | | | | | | 71,000 | | |
Revolving credit facility repayments | | | | | (47,000) | | | | | | (56,000) | | |
Payments of long-term debt and other | | | | | (3,215) | | | | | | (3,215) | | |
Issuance of acquisition note payable | | | | | — | | | | | | 3,775 | | |
Proceeds from common shares issued | | | | | — | | | | | | 211 | | |
Dividends paid | | | | | (4,854) | | | | | | (4,037) | | |
Net cash provided (used) by financing activities | | | | | 63,931 | | | | | | 11,734 | | |
Effect of exchange rate changes on cash | | | | | (510) | | | | | | (173) | | |
Net increase (decrease) in cash and cash equivalents | | | | | (2,680) | | | | | | (3,308) | | |
Cash and cash equivalents at beginning of period | | | | | 57,573 | | | | | | 29,168 | | |
Cash and cash equivalents at end of period | | | | $ | 54,893 | | | | | $ | 25,860 | | |
|
| | | | | | |
| | Three Months | ||||
For the Periods Ended September 30 |
| 2020 |
| 2019 | ||
| | | (unaudited) | |||
| | | (in thousands) | |||
OPERATING ACTIVITIES |
| |
|
| |
|
Net income | | $ | 12,302 | | $ | 2,515 |
Adjustments to reconcile net income to | |
| | |
| |
net cash provided (used) by operating activities: | |
| | |
| |
Depreciation and amortization | |
| 8,036 | |
| 7,781 |
Amortization of debt issuance costs | |
| 221 | |
| 221 |
Stock-based compensation | |
| 565 | |
| 565 |
Acquisition-related items | |
| 0 | |
| 333 |
Deferred income taxes | |
| (277) | |
| (652) |
Foreign currency (gains) losses, net | |
| (4,349) | |
| 1,660 |
Other | |
| 97 | |
| 116 |
Changes in operating assets and liabilities, net of business acquisitions: | |
| | |
| |
Accounts receivable, net | |
| 1,002 | |
| 14,065 |
Inventories, net | |
| (9,501) | |
| (9,086) |
Other current assets | |
| (632) | |
| (813) |
Other assets | |
| (205) | |
| (1,071) |
Accounts payable | |
| (1,188) | |
| (11,834) |
Accrued expenses and other liabilities | |
| (4,373) | |
| (7,370) |
Net cash provided (used) by operating activities | |
| 1,698 | |
| (3,570) |
INVESTING ACTIVITIES | |
|
| |
|
|
Purchases of short-term investments | |
| (6,000) | |
| — |
Capital expenditures | | | (7,420) | | | (7,675) |
Business acquisitions | |
| 0 | |
| (54,560) |
Other, net | |
| (215) | |
| (296) |
Net cash (used) by investing activities | |
| (13,635) | |
| (62,531) |
FINANCING ACTIVITIES | |
| | |
|
|
Revolving credit facility borrowings | |
| 36,000 | |
| 119,000 |
Revolving credit facility repayments | |
| (20,000) | |
| (47,000) |
Payments of long-term debt and other | |
| (4,688) | |
| (3,215) |
Dividends paid | |
| (4,854) | |
| (4,854) |
Net cash provided by financing activities | |
| 6,458 | |
| 63,931 |
Effect of exchange rate changes on cash | |
| 105 | |
| (510) |
Net increase (decrease) in cash and cash equivalents | |
| (5,374) | |
| (2,680) |
Cash and cash equivalents at beginning of period | |
| 36,343 | |
| 57,573 |
Cash and cash equivalents at end of period | | $ | 30,969 | | $ | 54,893 |
The accompanying notes are an integral part of these consolidated financial statements
6
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
| | | Shares of Common Stock | | | Common Stock | | | Preferred Stock | | | Paid-in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Total | | |||||||||||||||||||||
| | | (unaudited) (in thousands, except share amounts) | | |||||||||||||||||||||||||||||||||||||||
As of June 30, 2019 | | | | | 40,453,608 | | | | | $ | 4 | | | | | $ | — | | | | | $ | 133,266 | | | | | $ | 168,926 | | | | | $ | (86,181) | | | | | $ | 216,015 | | |
Comprehensive income (loss) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,515 | | | | | | (7,547) | | | | | | (5,032) | | |
Exercise of stock options | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Dividends declared ($0.12 per share) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (4,854) | | | | | | — | | | | | | (4,854) | | |
Stock-based compensation expense | | | | | — | | | | | | — | | | | | | — | | | | | | 565 | | | | | | — | | | | | | — | | | | | | 565 | | |
As of September 30, 2019 | | | | | 40,453,608 | | | | | $ | 4 | | | | | $ | — | | | | | $ | 133,831 | | | | | $ | 166,587 | | | | | $ | (93,728) | | | | | $ | 206,694 | | |
|
| | | Shares of Common Stock | | | Common Stock | | | Preferred Stock | | | Paid-in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Total | | |||||||||||||||||||||
| | | (unaudited) (in thousands, except share amounts) | | |||||||||||||||||||||||||||||||||||||||
As of June 30, 2018 | | | | | 40,357,708 | | | | | $ | 4 | | | | | $ | — | | | | | $ | 129,873 | | | | | $ | 131,560 | | | | | $ | (76,483) | | | | | $ | 184,954 | | |
Adoption of new revenue standard | | | | | | | | | | | | | | | | | — | | | | | | — | | | | | | 1,245 | | | | | | — | | | | | | 1,245 | | |
Comprehensive income (loss) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 16,314 | | | | | | (7,195) | | | | | | 9,119 | | |
Exercise of stock options | | | | | 17,860 | | | | | | — | | | | | | — | | | | | | 211 | | | | | | — | | | | | | — | | | | | | 211 | | |
Dividends declared ($0.10 per share) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (4,037) | | | | | | — | | | | | | (4,037) | | |
Stock-based compensation expense | | | | | — | | | | | | — | | | | | | — | | | | | | 565 | | | | | | — | | | | | | — | | | | | | 565 | | |
As of September 30, 2018 | | | | | 40,375,568 | | | | | $ | 4 | | | | | $ | — | | | | | $ | 130,649 | | | | | $ | 145,082 | | | | | $ | (83,678) | | | | | $ | 192,057 | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Accumulated | | | | |
| | Shares of | | | | | | | | | | | | | | Other | | | | |
| | Common | | Common | | Preferred | | Paid-in | | Retained | | Comprehensive | | | | |||||
|
| Stock |
| Stock |
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Total | ||||||
| | (unaudited) | ||||||||||||||||||
| | (in thousands, except share amounts) | ||||||||||||||||||
As of June 30, 2020 |
| 40,453,608 | | $ | 4 | | $ | — | | $ | 135,525 | | $ | 183,060 | | $ | (130,385) | | $ | 188,204 |
Comprehensive income (loss) | | — | | | — | | | — | | | — | | | 12,302 | | | (3,805) | | | 8,497 |
Dividends declared ($0.12 per share) |
| — |
| | — |
| | — |
| | — |
| | (4,854) |
| | — |
| | (4,854) |
Stock-based compensation expense |
| — |
| | — |
| | — |
| | 565 |
| | — |
| | — |
| | 565 |
As of September 30, 2020 | | 40,453,608 | | $ | 4 | | $ | — | | $ | 136,090 | | $ | 190,508 | | $ | (134,190) | | $ | 192,412 |
| | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| | |
| | | | Accumulated | | | | |
| | Shares of | | | | | | | | | | | | | | Other | | | | |
| | Common | | Common | | Preferred | | Paid-in | | Retained | | Comprehensive | | | | |||||
|
| Stock |
| Stock |
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Total | ||||||
| | (unaudited) | ||||||||||||||||||
| | (in thousands, except share amounts) | ||||||||||||||||||
As of June 30, 2019 | | 40,453,608 | | $ | 4 | | $ | — | | $ | 133,266 | | $ | 168,926 | | $ | (86,181) | | $ | 216,015 |
Comprehensive income (loss) |
| — | |
| — | |
| — | |
| — | |
| 2,515 | |
| (7,547) | |
| (5,032) |
Dividends declared ($0.12 per share) |
| — | |
| — | |
| — | |
| — | |
| (4,854) | |
| — | |
| (4,854) |
Stock-based compensation expense |
| — | |
| — | |
| — | |
| 565 | |
| — | |
| — | |
| 565 |
As of September 30, 2019 | | 40,453,608 | | $ | 4 | | $ | — | | $ | 133,831 | | $ | 166,587 | | $ | (93,728) | | $ | 206,694 |
The accompanying notes are an integral part of these consolidated financial statements
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
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, dairy 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.
The unaudited consolidated financial information for the three months ended September 30, 20192020 and 2018,2019, is presented on the same basis as the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 20192020 (the “Annual Report”), filed with the Securities and Exchange Commission on August 27, 201926, 2020 (File no. 001-36410). In the opinion of management, these financial statements include all adjustments necessary for a fair statement of the financial position, results of operations and cash flows of the Company for the interim periods, and the adjustments are of a normal and recurring nature. The financial results for any interim period are not necessarily indicative of the results for the full year. The consolidated balance sheet information as of June 30, 2019,2020, was derived from the audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. 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 impacts on customers, suppliers and markets. New information that may emerge concerning COVID-19 and the actions required to contain or treat it 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 consolidated financial statements 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.
2.
Our significant accounting policies are described in the notes to the consolidated financial statements included in our Annual Report. We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), effective July 1, 2019. See “New Accounting Standards” and “Note 7—Leases.” As of September 30, 2019,2020, there have been no other material changes to ourany of the significant accounting policies.
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.
8
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.
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
Net income | | | | $ | 2,515 | | | | | $ | 16,314 | | |
Weighted average number of shares – basic | | | | | 40,454 | | | | | | 40,369 | | |
Dilutive effect of stock options and restricted stock units | | | | | 50 | | | | | | 191 | | |
Weighted average number of shares – diluted | | | | | 40,504 | | | | | | 40,560 | | |
Net income per share | | | | | | | | | | | | | |
basic | | | | $ | 0.06 | | | | | $ | 0.40 | | |
diluted | | | | $ | 0.06 | | | | | $ | 0.40 | | |
| | | | | | |
| | | Three Months | |||
For the Periods Ended September 30 |
| 2020 |
| 2019 | ||
Net income | | $ | 12,302 | | $ | 2,515 |
Weighted average number of shares – basic | |
| 40,454 | |
| 40,454 |
Dilutive effect of stock options and restricted stock units | |
| 50 | |
| 50 |
Weighted average number of shares – diluted | |
| 40,504 | |
| 40,504 |
Net income per share | |
| | |
|
|
basic | | $ | 0.30 | | $ | 0.06 |
diluted | | $ | 0.30 | | $ | 0.06 |
New Accounting Standards
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 and potential timing 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 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.
3. 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. The business is included in the Animal Health segment.
| Working capital, net | | | | $ | 2,366 | | |
| Property, plant and equipment | | | | | 2,005 | | |
| Definite-lived intangible assets | | | | | 32,100 | | |
| Goodwill | | | | | 25,642 | | |
| Net assets acquired | | | | $ | 62,113 | | |
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.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. 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
| | | | | | |
| | Three Months | ||||
For the Periods Ended September 30 |
| 2020 |
| 2019 | ||
| | | | | | |
Animal Health | | |
|
| |
|
MFAs and other | | $ | 78,703 | | $ | 75,034 |
Nutritional specialties | |
| 32,600 | |
| 30,433 |
Vaccines | |
| 17,066 | |
| 16,383 |
Total Animal Health | | $ | 128,369 | | $ | 121,850 |
Mineral Nutrition | |
| 51,440 | |
| 52,649 |
Performance Products | |
| 15,385 | |
| 15,221 |
Total | | $ | 195,194 | | $ | 189,720 |
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
Animal Health | | | | | | | | | | | | | |
MFAs and other | | | | $ | 75,034 | | | | | $ | 87,004 | | |
Nutritional specialties | | | | | 30,433 | | | | | | 26,970 | | |
Vaccines | | | | | 16,383 | | | | | | 17,215 | | |
Total Animal Health | | | | $ | 121,850 | | | | | $ | 131,189 | | |
Mineral Nutrition | | | | | 52,649 | | | | | | 54,838 | | |
Performance Products | | | | | 15,221 | | | | | | 14,126 | | |
Total | | | | $ | 189,720 | | | | | $ | 200,153 | | |
10
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
United States | | | | $ | 118,487 | | | | | $ | 114,487 | | |
Latin America and Canada | | | | | 36,741 | | | | | | 38,883 | | |
Europe, Middle East and Africa | | | | | 23,693 | | | | | | 24,836 | | |
Asia Pacific | | | | | 10,799 | | | | | | 21,947 | | |
Total | | | | $ | 189,720 | | | | | $ | 200,153 | | |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net Sales by Region
| | | | | | |
For the Periods Ended September 30 | | Three Months | ||||
|
| 2020 |
| 2019 | ||
United States | | $ | 118,771 | | $ | 118,487 |
Latin America and Canada | |
| 37,756 | |
| 36,741 |
Europe, Middle East and Africa | |
| 26,872 | |
| 23,693 |
Asia Pacific | |
| 11,795 | |
| 10,799 |
Total | | $ | 195,194 | | $ | 189,720 |
Net sales by region are based on country of destination.
Deferred revenue was $5,276$ 4,358 and $5,464$4,570 as of September 30, 20192020, and June 30, 2019,2020, respectively. Accrued expenses and other current liabilities included $1,002$ 1,196 and $965$1,109 of the total deferred revenue as of September 30, 20192020, and June 30, 2019,2020, respectively. The deferred revenue resulted 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 alonestand-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.
Interest Expense and Depreciation and Amortization
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
Interest expense, net | | | | | | | | | | | | | |
Term loan | | | | $ | 2,048 | | | | | $ | 2,112 | | |
Revolving credit facility | | | | | 1,431 | | | | | | 747 | | |
Amortization of debt issuance costs and debt discount | | | | | 221 | | | | | | 221 | | |
Acquisition-related accrued interest | | | | | 53 | | | | | | — | | |
Other | | | | | 80 | | | | | | 163 | | |
Interest expense | | | | | 3,833 | | | | | | 3,243 | | |
Interest (income) | | | | | (479) | | | | | | (460) | | |
| | | | $ | 3,354 | | | | | $ | 2,783 | | |
|
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
Depreciation and amortization | | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | | | $ | 5,731 | | | | | $ | 5,188 | | |
Amortization of intangible assets | | | | | 2,038 | | | | | | 1,491 | | |
Amortization of other assets | | | | | 12 | | | | | | 12 | | |
| | | | $ | 7,781 | | | | | $ | 6,691 | | |
| | | | | | |
| | Three Months | ||||
For the Periods Ended September 30 | | 2020 |
| 2019 | ||
Interest expense, net | | | | | | |
Term loan | | $ | 1,875 | | $ | 2,048 |
Revolving credit facility | |
| 946 | |
| 1,431 |
Amortization of debt issuance costs | |
| 221 | |
| 221 |
Other | |
| 67 | |
| 133 |
Interest expense | |
| 3,109 | |
| 3,833 |
Interest (income) | |
| (299) | |
| (479) |
| | $ | 2,810 | | $ | 3,354 |
| | | | | | |
| | Three Months | ||||
For the Periods Ended September 30 |
| 2020 |
| 2019 | ||
Depreciation and amortization | |
| | |
|
|
Depreciation of property, plant and equipment | | $ | 5,831 | | $ | 5,731 |
Amortization of intangible assets | |
| 2,205 | |
| 2,038 |
Amortization of other assets | |
| 0 | |
| 12 |
| | $ | 8,036 | | $ | 7,781 |
4. Balance Sheets—Additional Information
| | | | | | |
| | September 30, | | June 30, | ||
As of |
| 2020 |
| 2020 | ||
Inventories | | | | | |
|
Raw materials | | $ | 67,499 | | $ | 73,837 |
Work-in-process | | | 10,336 | | | 8,881 |
Finished goods | | | 128,011 | | | 113,941 |
| | $ | 205,846 | | $ | 196,659 |
11
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Inventories | | | | | | | | | | | | | |
Raw materials | | | | $ | 71,737 | | | | | $ | 64,441 | | |
Work-in-process | | | | | 8,934 | | | | | | 10,699 | | |
Finished goods | | | | | 123,202 | | | | | | 123,182 | | |
| | | | $ | 203,873 | | | | | $ | 198,322 | | |
|
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Goodwill roll-forward | | | | | | | | | | | | | |
Balance at beginning of period | | | | $ | 27,348 | | | | | $ | 27,348 | | |
Osprey acquisition | | | | | 25,642 | | | | | | — | | |
Balance at end of period | | | | $ | 52,990 | | | | | $ | 27,348 | | |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Other assets | | | | | | | | | | | | | |
Equity method investments | | | | $ | 4,374 | | | | | $ | 4,196 | | |
Insurance investments | | | | | 5,521 | | | | | | 5,431 | | |
Deferred financing fees | | | | | 1,404 | | | | | | 1,531 | | |
Deferred income taxes | | | | | 17,357 | | | | | | 16,770 | | |
ROU operating lease assets | | | | | 20,830 | | | | | | — | | |
Deposits | | | | | 6,534 | | | | | | 7,024 | | |
Indemnification asset | | | | | 3,000 | | | | | | 3,000 | | |
Other | | | | | 8,017 | | | | | | 7,496 | | |
| | | | $ | 67,037 | | | | | $ | 45,448 | | |
| | | | | | |
|
| September 30, |
| June 30, | ||
As of |
| 2020 |
| 2020 | ||
Goodwill roll-forward |
| |
| |
|
|
Balance at beginning of period |
| $ | 52,679 | | $ | 27,348 |
Osprey acquisition |
| | 0 | |
| 25,331 |
Balance at end of period |
| $ | 52,679 | | $ | 52,679 |
| | | | | | |
|
| September 30, | | June 30, | ||
As of |
| 2020 |
| 2020 | ||
Other assets | | | | | | |
ROU operating lease assets | | $ | 22,089 |
| $ | 22,873 |
Deferred income taxes | |
| 11,368 |
| | 11,430 |
Deposits | |
| 5,042 |
| | 5,158 |
Insurance investments | |
| 5,891 |
| | 5,801 |
Equity method investments | |
| 4,367 |
| | 4,219 |
Indemnification asset | |
| 0 |
| | 3,000 |
Debt issuance costs | |
| 893 |
| | 1,021 |
Other | |
| 6,895 |
| | 6,976 |
| | $ | 56,545 |
| $ | 60,478 |
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 $3,446$2,988 equity investment are currently idled; we have concluded that the investment is not currently impaired, based on expected future operating cash flows and/or disposal value.
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Accrued expenses and other current liabilities | | | | | | | | | | | | | |
Employee related | | | | $ | 25,999 | | | | | $ | 28,298 | | |
Current operating lease liabilities | | | | | 6,267 | | | | | | — | | |
Commissions and rebates | | | | | 7,366 | | | | | | 8,397 | | |
Insurance-related | | | | | 1,274 | | | | | | 1,279 | | |
Professional fees | | | | | 3,993 | | | | | | 5,212 | | |
Income and other taxes | | | | | 3,655 | | | | | | 6,067 | | |
Restructuring costs | | | | | 2,655 | | | | | | 3,590 | | |
Other | | | | | 15,308 | | | | | | 15,655 | | |
| | | | $ | 66,517 | | | | | $ | 68,498 | | |
| | | | | | |
|
| September 30, |
| June 30, | ||
As of | | 2020 | | 2020 | ||
Accrued expenses and other current liabilities |
| |
|
| |
|
Employee related | | $ | 24,789 | | $ | 25,825 |
Current operating lease liabilities | |
| 6,471 | |
| 6,439 |
Commissions and rebates | | | 4,259 | | | 5,782 |
Professional fees | |
| 5,822 | |
| 5,766 |
Income and other taxes | | | 5,245 | | | 3,821 |
Derivatives | | | 5,930 | | | 5,757 |
Contingent consideration | |
| 4,840 | |
| — |
Restructuring costs | |
| 2,029 | |
| 2,314 |
Insurance-related | |
| 1,267 | |
| 1,272 |
Other | |
| 17,491 | |
| 15,421 |
| | $ | 78,143 | | $ | 72,397 |
In connection with productivity and cost savingcost-saving initiatives in the Animal Health segment. We recorded pre-tax charges of $6,281 for these activities, including $3,500segment, we incurred business restructuring costs related to the termination of a contract manufacturing agreement and $2,781 for employee separation charges. AsAll actions have been executed as of June 30, 2019, $691 had been paid.
The following table summarizes the activity of the restructuring activitiesliability during the three months ended September 30, 2019, are summarized in the below table:2020:
| | | |
Liability balance at June 30, 2020 |
| $ | 2,860 |
Charges | |
| 0 |
Payments | |
| (831) |
Liability balance at September 30, 2020 | | $ | 2,029 |
| Liability balance at June 30, 2019 | | | | $ | 5,590 | | |
| Charges | | | | | 425 | | |
| Payments | | | | | (1,360) | | |
| Liability balance at September 30, 2019 | | | | $ | 4,655 | | |
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Other liabilities | | | | | | | | | | | | | |
U.S. pension plan | | | | $ | 3,545 | | | | | $ | 3,934 | | |
International retirement plans | | | | | 5,139 | | | | | | 5,133 | | |
Supplemental retirement benefits, deferred compensation and other | | | | | 7,713 | | | | | | 7,605 | | |
Long term and deferred income taxes | | | | | 9,022 | | | | | | 8,978 | | |
Acquisition-related consideration | | | | | 7,603 | | | | | | — | | |
Long-term operating lease liabilities | | | | | 15,546 | | | | | | — | | |
Restructuring costs | | | | | 2,000 | | | | | | 2,000 | | |
Other long term liabilities | | | | | 14,964 | | | | | | 15,144 | | |
| | | | $ | 65,532 | | | | | $ | 42,794 | | |
|
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Accumulated other comprehensive income (loss) | | | | | | | | | | | | | |
Derivative instruments | | | | $ | (1,678) | | | | | $ | (594) | | |
Foreign currency translation adjustment | | | | | (78,048) | | | | | | (71,225) | | |
Unrecognized net pension gains (losses) | | | | | (19,930) | | | | | | (20,050) | | |
(Provision) benefit for income taxes on derivative instruments | | | | | 418 | | | | | | 148 | | |
(Provision) benefit for incomes taxes on long-term intercompany investments | | | | | 8,166 | | | | | | 8,166 | | |
(Provision) benefit for income taxes on pension gains (losses) | | | | | (2,656) | | | | | | (2,626) | | |
| | | | $ | (93,728) | | | | | $ | (86,181) | | |
As of September 30, 2020, $1,600 and $429 of the liability balance related to contract termination and employee separation costs, respectively.
| | | | | | |
|
| September 30, |
| June 30, | ||
As of |
| 2020 |
| 2020 | ||
Other liabilities | | | | | | |
Long-term operating lease liabilities | | $ | 16,366 | | $ | 17,276 |
Long term and deferred income taxes | |
| 10,867 | | | 11,680 |
Derivatives | | | 6,429 | | | 7,691 |
Supplemental retirement benefits, deferred compensation and other | | | 8,199 | | | 8,067 |
Contingent consideration | | | 0 | | | 4,840 |
International retirement plans | |
| 5,576 | |
| 5,499 |
U.S. pension plan | |
| 2,918 | |
| 3,563 |
Restructuring costs | |
| 0 | |
| 546 |
Other long term liabilities | |
| 7,735 | |
| 11,239 |
| | $ | 58,090 | | $ | 70,401 |
| | | | | | |
| | September 30, |
| June 30, | ||
As of |
| 2020 |
| 2020 | ||
Accumulated other comprehensive income (loss) | | |
| | |
|
Derivative instruments | | $ | (12,359) | | $ | (13,448) |
Foreign currency translation adjustment | |
| (108,461) | |
| (103,738) |
Unrecognized net pension gains (losses) | |
| (22,436) | |
| (22,571) |
(Provision) benefit for income taxes on derivative instruments | |
| 2,984 | |
| 3,256 |
(Provision) benefit for incomes taxes on long-term intercompany investments | | | 8,166 | | | 8,166 |
(Provision) benefit for income taxes on pension gains (losses) | | | (2,084) | | | (2,050) |
| | $ | (134,190) | | $ | (130,385) |
5. Debt
Term Loans and Revolving Credit Facilities
Pursuant to a credit agreement entered into in June 2017 (the “Credit Agreement”), we have a revolving credit facility (the “Revolver”), whereunder which we can borrow up to $250,000, subject to the terms of the agreement, and a term A loan with an aggregate initial principal amount of $250,000 (the “Term A Loan,” and together with the Revolver, the “Credit Facilities”). The interest rate per annum applicable to the loans under the Credit Facilities haveis based on the fluctuating rate of interest plus an applicable marginsrate equal to 2.00%, 1.75% or 1.50%, in the case of LIBOR and Eurodollar rate loans and 1.00%, 0.75% or 0.50%, in the case of base rate loans; the applicable marginsrates are based on the First Lien Net Leverage Ratio, as defined in the Credit Agreement. The LIBOR rate is subject to a floor of 0.00%. The Credit Facilities mature on June 29, 2022.
The Credit Facilities require,Agreement requires, among other things, the maintenance ofcompliance with financial covenants that permit: (i) a maximum First Lien Net Leverage Ratio of 4.00:1.00 and (ii) a minimum consolidated interest coverage ratio of 3.00:1.00, each calculated on a trailing four quarter basis, and containfour-quarter basis. The Credit Agreement contains an acceleration clause should an event of default (as defined in the Credit Agreement) occur. As of September 30, 2019,2020, we were in compliance with the financial covenants.
As of September 30, 2019,2020, we had $168,000$185,000 in borrowings under the Revolver and had outstanding letters of credit of $3,009,$2,709, leaving $78,991$62,291 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.
13
The agreement matures concurrentconcurrently 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 | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Term A Loan due June 2022 | | | | $ | 228,125 | | | | | $ | 231,250 | | |
Other | | | | | 21 | | | | | | 40 | | |
| | | | | 228,146 | | | | | | 231,290 | | |
Unamortized debt issuance costs and debt discount | | | | | (1,022) | | | | | | (1,115) | | |
| | | | | 227,124 | | | | | | 230,175 | | |
Less: current maturities | | | | | (14,084) | | | | | | (12,540) | | |
| | | | $ | 213,040 | | | | | $ | 217,635 | | |
As of September 30, 2019,2020, the remaining non-cancelable lease terms, inclusive of renewal options reasonably certain of exercise, range from one to 20 years.
As of | | | September 30, 2019 | | | Balance Sheet Classification | | |||
Assets: | | | | | | | | | | |
Operating lease ROU assets | | | | $ | 20,830 | | | | Other Assets | |
Liabilities: | | | | | | | | | | |
Current portion | | | | | 6,267 | | | | Accrued expenses and other current liabilities | |
Non-current portion | | | | | 15,546 | | | | Other liabilities | |
Total operating lease liabilities | | | | $ | 21,813 | | | | | |
| | | Three months | | |||
For the Period Ended September 30 | | | 2019 | | |||
Operating lease expense | | | | $ | 1,851 | | |
Variable lease expense | | | | | 324 | | |
Short-term lease expense | | | | | 203 | | |
Total lease cost | | | | $ | 2,378 | | |
| | | Three months | | |||
For the Period Ended September 30 | | | 2019 | | |||
Operating cash flows used for ROU operating leases | | | | $ | 1,677 | | |
Right of use assets obtained in exchange for new operating lease liabilities (non-cash) | | | | $ | 3,790 | | |
For the Years Ending June 30 | | | | | | | |
2020 | | | | $ | 5,450 | | |
2021 | | | | | 5,856 | | |
2022 | | | | | 4,382 | | |
2023 | | | | | 2,258 | | |
2024 | | | | | 1,786 | | |
2025 and thereafter | | | | | 5,473 | | |
Total lease payments | | | | | 25,205 | | |
Less: interest | | | | | 3,392 | | |
Total operating lease liabilities | | | | $ | 21,813 | | |
For the Years Ending June 30 | | | | | | | |
2020 | | | | $ | 5,815 | | |
2021 | | | | | 4,160 | | |
2022 | | | | | 3,191 | | |
2023 | | | | | 1,445 | | |
2024 | | | | | 865 | | |
Thereafter | | | | | 765 | | |
Total minimum lease payments | | | | $ | 16,241 | | |
Long-Term Debt
| | | | | | |
|
| September 30, |
| June 30, | ||
As of | | 2020 | | 2020 | ||
Term A Loan due June 2022 | | $ | 214,062 | | $ | 218,750 |
Unamortized debt issuance costs | |
| (650) | |
| (743) |
| |
| 213,412 | |
| 218,007 |
Less: current maturities | |
| (20,312) | |
| (18,750) |
| | $ | 193,100 | | $ | 199,257 |
6. 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 $451$532 and $783$451 during the three months ended September 30, 20192020 and 2018,2019, respectively. Mr. Bendheim has sole authority to vote shares of our stock owned by BFI Co., LLC, an investment vehicle of the Bendheim family.
7. 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.
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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 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 Phibro-Tech’sthe Santa Fe Springs, California facility.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, a groupthe members of companies that sent chemicals to the Omega Chemical Site for processing and recycling hasOPOG filed a complaint under CERCLAthe Comprehensive Environmental Response, Compensation, and RCRALiability 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
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 these actions seek damages in various amounts. In many
15
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.
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 concurrentconcurrently 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 swap hasswaps have been designated as a highly effective cash flow hedge.
We entered into foreign currency option contracts to hedge cash flows related to monthly inventory purchases. The individual option contracts mature monthly through June 2021.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 September 30, 2019:
Instrument | | | Hedge | | | Notional Amount at September 30, 2019 | | | Consolidated Balance Sheet | | | Asset (Liability) fair value as of | | |||||||||
| September 30, 2019 | | | June 30, 2019 | | |||||||||||||||||
Options | | | Brazilian Real calls | | | R$90,000 | | | (1) | | | | $ | 390 | | | | | $ | 413 | | |
Options | | | Brazilian Real puts | | | R$90,000 | | | (1) | | | | $ | (370) | | | | | $ | (30) | | |
Swap | | | Interest rate swap | | | $150,000 | | | Other assets / (Other liabilities) | | | | $ | (1,698) | | | | | $ | (977) | | |
| | | | | | | | | | | | | |
| | | | | | | | Asset (Liability) | |||||
| | | | Notional | | | | fair value as of | |||||
| | | | Amount at | | Consolidated | | September 30, | | June 30, | |||
Instrument |
| Hedge |
| September 30, 2020 |
| Balance Sheet |
| 2020 |
| 2020 | |||
Options |
| Brazilian Real calls |
| R$ | 102,000 |
| (1) |
| $ | 83 | | $ | 126 |
Options | | Brazilian Real puts | | R$ | 102,000 | | (1) | | $ | (3,481) | | $ | (3,900) |
Swap | | Interest rate swap | | $ | 300,000 | | (2) | | $ | (8,961) | | $ | (9,674) |
(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 September 30, 2020 and June 30, 2020, accrued expenses and other current liabilities included net fair values of $2,635 and $2,477, respectively. As of September 30, 2020 and June 30, 2020, other liabilities included net fair values of $763 and $1,297, respectively. |
(2) | We classify the current and noncurrent amounts associated with our interest rate swap based on the expected timing of the cash flows. As of September 30, 2020 and June 30, 2020, accrued expenses and other current liabilities included net fair values of $3,295 and $3,280, respectively. As of September 30, 2020 and June 30, 2020, other liabilities included net fair values of $5,666 and $6,394, respectively. |
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables show the effects of derivatives on the consolidated statements of operations and other comprehensive income for the three months ended September 30, 20192020 and 2018.
For the Three Months Ended September 30 | | ||||||||||||||||||||||||||||||||||||||||||
| | | | | | Gain (Loss) recorded in OCI | | | Gain (Loss) recognized in consolidated statements of operations | | | Consolidated Statement of Operations Line Item Total | | ||||||||||||||||||||||||||||||
Instrument | | | Hedge | | | 2019 | | | 2018 | | | Consolidated Statement of Operations | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | ||||||||||||||||||
Options | | | Brazilian Real calls | | | | $ | (363) | | | | | $ | (109) | | | | Cost of goods sold | | | | $ | (45) | | | | | $ | 1084 | | | | | $ | 132,057 | | | | | $ | 134,348 | | |
Swap | | | Interest rate swap | | | | $ | (721) | | | | | $ | 650 | | | | Interest expense, net | | | | $ | — | | | | | $ | — | | | | | $ | 3,354 | | | | | $ | 2,783 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Consolidated Statement | ||||
| | | | | | | | | | Gain (Loss) recognized in | | of Operations Line | ||||||||||
For the Three Months Ended September 30 | | Gain (Loss) recorded in OCI | | consolidated statements of operations | | Item Total | ||||||||||||||||
| | |
| | |
| | |
| Consolidated |
| | |
| | |
| | |
| | |
| | | | | | | | | | Statement | | | | | | | | | | | | |
Instrument |
| Hedge |
| 2020 |
| 2019 |
| of Operations |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||
Options |
| Brazilian Real calls | | $ | 376 | | $ | (363) |
| Cost of goods sold | | $ | 3 | | $ | (45) | | $ | 131,075 | | $ | 132,057 |
Swap |
| Interest rate swap | | $ | 713 | | $ | (721) |
| Interest expense, net | | $ | (813) | | $ | 165 | | $ | 2,810 | | $ | 3,354 |
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.
9. Fair Value Measurements
Short-term investments
As of September 30, 2019,2020, 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.
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 book valueamortized 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.
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.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||||||||||||||||||||||||||
| | | Level 1 | | | Level 2 | | | Level 3 | | | Level 1 | | | Level 2 | | | Level 3 | | ||||||||||||||||||
Short-term investments | | | | $ | 24,000 | | | | | $ | — | | | | | $ | — | | | | | $ | 24,000 | | | | | $ | — | | | | | $ | — | | |
Derivatives asset (liability) | | | | $ | — | | | | | $ | 20 | | | | | $ | — | | | | | $ | — | | | | | $ | 383 | | | | | $ | — | | |
Interest rate swap (liability) | | | | $ | — | | | | | $ | (1,698) | | | | | $ | — | | | | | $ | — | | | | | $ | (977) | | | | | $ | — | | |
Contingent consideration on acquisitions | | | | $ | — | | | | | $ | — | | | | | $ | (7,603) | | | | | $ | — | | | | | $ | — | | | | | $ | — | | |
| | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | June 30, 2020 | ||||||||||||||
As of |
| Level 1 |
| Level 2 |
| Level 3 |
| Level 1 |
| Level 2 |
| Level 3 | ||||||
Short-term investments | | $ | 61,000 | | $ | 0 | | $ | — | | $ | 55,000 | | $ | — | | $ | 0 |
Foreign currency derivatives | | $ | 0 | | $ | (3,398) | | $ | — | | $ | 0 | | $ | (3,774) | | $ | 0 |
Interest rate swap | | $ | 0 | | $ | (8,961) | | $ | — | | $ | 0 | | $ | (9,674) | | $ | 0 |
Contingent consideration on acquisitions | | $ | 0 | | $ | 0 | | $ | (4,840) | | $ | 0 | | $ | — | | $ | (4,840) |
There were 0 transfers between levels during the three months ended September 30, 2019, we recorded $7,603 ofperiods presented.
The contingent consideration associatedon acquisitions is the minimum amount payable in accordance with the Osprey acquisition inclusive of accrued interest.
10. 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 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.
18
The accounting policies of our segments are the same as those described in the summary of significant accounting policies included herein.
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
Net sales | | | | | | | | | | | | | |
Animal Health | | | | $ | 121,850 | | | | | $ | 131,189 | | |
Mineral Nutrition | | | | | 52,649 | | | | | | 54,838 | | |
Performance Products | | | | | 15,221 | | | | | | 14,126 | | |
Total segments | | | | $ | 189,720 | | | | | $ | 200,153 | | |
Depreciation and amortization | | | | | | | | | | | | | |
Animal Health | | | | $ | 6,384 | | | | | $ | 5,356 | | |
Mineral Nutrition | | | | | 613 | | | | | | 597 | | |
Performance Products | | | | | 377 | | | | | | 273 | | |
Total segments | | | | $ | 7,374 | | | | | $ | 6,226 | | |
Adjusted EBITDA | | | | | | | | | | | | | |
Animal Health | | | | $ | 25,061 | | | | | $ | 35,716 | | |
Mineral Nutrition | | | | | 3,475 | | | | | | 2,563 | | |
Performance Products | | | | | 852 | | | | | | 716 | | |
Total segments | | | | $ | 29,388 | | | | | $ | 38,995 | | |
|
| | | Three Months | | |||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | ||||||
Reconciliation of income before income taxes to Adjusted EBITDA | | | | | | | | | | | | | |
Income before income taxes | | | | $ | 3,572 | | | | | $ | 22,705 | | |
Interest expense, net | | | | | 3,354 | | | | | | 2,783 | | |
Depreciation and amortization – Total segments | | | | | 7,374 | | | | | | 6,226 | | |
Depreciation and amortization – Corporate | | | | | 407 | | | | | | 465 | | |
Corporate costs | | | | | 9,728 | | | | | | 8,886 | | |
Restructure costs | | | | | 425 | | | | | | — | | |
Stock-based compensation | | | | | 565 | | | | | | 565 | | |
Acquisition-related cost of goods sold | | | | | 280 | | | | | | — | | |
Acquisition-related transaction costs | | | | | 462 | | | | | | — | | |
Foreign currency (gains) losses, net | | | | | 3,221 | | | | | | (2,635) | | |
Adjusted EBITDA – Total segments | | | | $ | 29,388 | | | | | $ | 38,995 | | |
|
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
Identifiable assets | | | | | | | | | | | | | |
Animal Health | | | | $ | 572,933 | | | | | $ | 508,864 | | |
Mineral Nutrition | | | | | 71,551 | | | | | | 67,662 | | |
Performance Products | | | | | 33,323 | | | | | | 32,886 | | |
Total segments | | | | | 677,807 | | | | | | 609,412 | | |
Corporate | | | | | 117,432 | | | | | | 117,259 | | |
Total | | | | $ | 795,239 | | | | | $ | 726,671 | | |
| | | | | | | |
|
| Three Months |
| ||||
For the Periods Ended September 30 |
| 2020 |
| 2019 | | ||
Net sales |
|
|
|
|
|
|
|
Animal Health | | $ | 128,369 | | $ | 121,850 | |
Mineral Nutrition | |
| 51,440 | |
| 52,649 | |
Performance Products | |
| 15,385 | |
| 15,221 | |
Total segments | | $ | 195,194 | | $ | 189,720 | |
| | | | | | | |
Depreciation and amortization | | | | | | | |
Animal Health | | $ | 6,521 | | $ | 6,384 | |
Mineral Nutrition | |
| 649 | |
| 613 | |
Performance Products | |
| 445 | |
| 377 | |
Total segments | | $ | 7,615 | | $ | 7,374 | |
| | | | | | | |
Adjusted EBITDA | | | | | | | |
Animal Health | | $ | 30,101 | | $ | 25,061 | |
Mineral Nutrition | |
| 3,047 | |
| 3,475 | |
Performance Products | |
| 1,972 | |
| 852 | |
Total segments | | $ | 35,120 | | $ | 29,388 | |
Reconciliation of income before income taxes to Adjusted EBITDA | | | | | | | |
Income before income taxes | | $ | 16,509 | | $ | 3,572 | |
Interest expense, net | |
| 2,810 | |
| 3,354 | |
Depreciation and amortization – Total segments | |
| 7,615 | |
| 7,374 | |
Depreciation and amortization – Corporate | |
| 421 | |
| 407 | |
Corporate costs | |
| 10,831 | |
| 9,728 | |
Restructuring costs | | | 0 | | | 425 | |
Stock-based compensation | |
| 565 | |
| 565 | |
Acquisition-related cost of goods sold | |
| 0 | |
| 280 | |
Acquisition-related transaction costs | |
| 0 | |
| 462 | |
Foreign currency (gains) losses, net | |
| (3,631) | |
| 3,221 | |
Adjusted EBITDA – Total segments | | $ | 35,120 | | $ | 29,388 | |
| | | | | | |
| | September 30, |
| June 30, | ||
|
| 2020 |
| 2020 | ||
Identifiable assets |
| |
|
| |
|
Animal Health | | $ | 556,895 | | $ | 560,663 |
Mineral Nutrition | |
| 72,295 | |
| 65,686 |
Performance Products | |
| 33,955 | |
| 31,016 |
Total segments | |
| 663,145 | |
| 657,365 |
Corporate | |
| 126,409 | |
| 126,735 |
Total | | $ | 789,554 | | $ | 784,100 |
The Animal Health segment includes all goodwill of the Company. The Animal Health segment includes advances to and investment in an equity method investee of $3,446 and $3,287 as of September 30, 2019 and June 30, 2019, respectively. The Performance Products segment includes an investment in an equity method investee of $852 and $759 as of September 30, 2019 and June 30, 2019, respectively. Corporate assets include cash and cash equivalents, short-term investments, debt issuance costs, income tax relatedtax-related assets and certain other assets.
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Item 2. 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 our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 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.
Effects of the COVID-19 pandemic
The global food and animal production industry has experienced demand disruption, production impacts, price declines and currency volatility in international markets due to the COVID-19 pandemic. The industry continues to adjust and has partially recovered from the disruptions, but demand has not yet returned to typical levels.
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 continue to monitor sales trends, cash flow and liquidity.
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 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 “Risk Factors” in Item 1A. of our Annual Report.
20
Trends and uncertainties
In April 2016, the Food and Drug Administration ("FDA") began initial steps to withdraw approval of 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 animal tissues for longer than previously determined. The NOOH process provided Phibro with an opportunity to defend the safety of carbadox prior to the FDA taking final steps to remove carbadox from the market. Over the next four years, as part of an ongoing process of responding to the inquiries from the FDA's Center for Veterinary Medicine ("CVM"), 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 announced 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, consistent with 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 is finalized, the FDA has indicated it plans to issue a new NOOH proposing the withdrawal of carbadox from the market because of a lack of an approved regulatory method.
In September 2020, Phibro commented on the proposed order reiterating the safety of carbadox and the appropriateness of the regulatory method and further offered to work with the CVM to generate additional data to support the existing regulatory method or select a suitable alternative regulatory method. Phibro disagrees with the agency's actions and has submitted a request to the FDA Office of the Commissioner that the agency continue the NOOH process it started in 2016 and proceed with a hearing to review the substantial body of data supporting the safety of carbadox. Should we be unable to successfully defend the safety of the product, the loss of carbadox sales would have an adverse effect on our financial condition and results of operations. Sales of carbadox for the twelve months ended September 30, 2020, were $17 million.
21
Analysis of the consolidated statements of operations
Summary Results of Operations
| | | Three Months | | |||||||||||||||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | | Change | | |||||||||||||||
| | | (in thousands, except per share amounts and percentages) | | |||||||||||||||||||||
Net sales | | | | $ | 189,720 | | | | | $ | 200,153 | | | | | $ | (10,433) | | | | | | (5)% | | |
Gross profit | | | | | 57,663 | | | | | | 65,805 | | | | | | (8,142) | | | | | | (12)% | | |
Selling, general and administrative expenses | | | | | 47,516 | | | | | | 42,952 | | | | | | 4,564 | | | | | | 11% | | |
Operating income | | | ��� | | 10,147 | | | | | | 22,853 | | | | | | (12,706) | | | | | | (56)% | | |
Interest expense, net | | | | | 3,354 | | | | | | 2,783 | | | | | | 571 | | | | | | 21% | | |
Foreign currency (gains) losses, net | | | | | 3,221 | | | | | | (2,635) | | | | | | 5,856 | | | | | | * | | |
Income before income taxes | | | | | 3,572 | | | | | | 22,705 | | | | | | (19,133) | | | | | | (84)% | | |
Provision for income taxes | | | | | 1,057 | | | | | | 6,391 | | | | | | (5,334) | | | | | | (83)% | | |
Net income | | | | $ | 2,515 | | | | | $ | 16,314 | | | | | $ | (13,799) | | | | | | (85)% | | |
Net income per share | | | | | | | | | | | | | | | | | | | | | | | | | |
basic | | | | $ | 0.06 | | | | | $ | 0.40 | | | | | $ | (0.34) | | | | | | | | |
diluted | | | | $ | 0.06 | | | | | $ | 0.40 | | | | | $ | (0.34) | | | | | | | | |
Weighted average number of shares outstanding | | | | | | | | | | | | | | | | | | | | | | | | | |
basic | | | | | 40,454 | | | | | | 40,369 | | | | | | | | | | | | | | |
diluted | | | | | 40,504 | | | | | | 40,560 | | | | | | | | | | | | | | |
Ratio to net sales | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | | | 30.4% | | | | | | 32.9% | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | 25.0% | | | | | | 21.5% | | | | | | | | | | | | | | |
Operating income | | | | | 5.3% | | | | | | 11.4% | | | | | | | | | | | | | | |
Income before income taxes | | | | | 1.9% | | | | | | 11.3% | | | | | | | | | | | | | | |
Net income | | | | | 1.3% | | | | | | 8.2% | | | | | | | | | | | | | | |
Effective tax rate | | | | | 29.6% | | | | | | 28.1% | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Three Months | | ||||||||
For the Periods Ended September 30 |
| 2020 |
| 2019 |
| Change | | ||||
| | (in thousands, except per share amounts and percentages) | | ||||||||
Net sales | | $ | 195,194 | | $ | 189,720 | | $ | 5,474 | 3 | % |
Gross profit | |
| 64,119 | |
| 57,663 | |
| 6,456 | 11 | % |
Selling, general and administrative expenses | |
| 48,431 | |
| 47,516 | |
| 915 | 2 | % |
Operating income | |
| 15,688 | |
| 10,147 | |
| 5,541 | 55 | % |
Interest expense, net | |
| 2,810 | |
| 3,354 | |
| (544) | (16) | % |
Foreign currency (gains) losses, net | |
| (3,631) | |
| 3,221 | |
| (6,852) | * | |
Income before income taxes | |
| 16,509 | |
| 3,572 | |
| 12,937 | * | |
Provision for income taxes | |
| 4,207 | |
| 1,057 | |
| 3,150 | * | |
Net income | | $ | 12,302 | | $ | 2,515 | | $ | 9,787 | * | |
| | | | | | | | | | | |
Net income per share | |
|
| |
|
| |
|
| |
|
basic | | $ | 0.30 | | $ | 0.06 | | $ | 0.24 | | |
diluted | | $ | 0.30 | | $ | 0.06 | | $ | 0.24 | | |
| | | | | | | | | | | |
Weighted average number of shares outstanding | |
|
| |
|
| |
|
| |
|
basic | |
| 40,454 | |
| 40,454 | |
|
| |
|
diluted | |
| 40,504 | |
| 40,504 | |
|
| |
|
| | | | | | | | | | | |
Ratio to net sales | |
|
| |
|
| |
|
| |
|
Gross profit | |
| 32.8 | % |
| 30.4 | % |
|
| |
|
Selling, general and administrative expenses | |
| 24.8 | % |
| 25.0 | % |
|
| |
|
Operating income | |
| 8.0 | % |
| 5.3 | % |
|
| |
|
Income before income taxes | |
| 8.5 | % |
| 1.9 | % |
|
| |
|
Net income | |
| 6.3 | % |
| 1.3 | % |
|
| |
|
Effective tax rate | |
| 25.5 | % |
| 29.6 | % |
|
| |
|
Certain amounts and percentages may reflect rounding adjustments.
* | Calculation not meaningful |
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.”
22
Segment net sales and Adjusted EBITDA:
| | | Three Months | | |||||||||||||||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | | Change | | |||||||||||||||
| | | (in thousands, except percentages) | | |||||||||||||||||||||
Net sales | | | | | |||||||||||||||||||||
MFAs and other | | | | $ | 75,034 | | | | | $ | 87,004 | | | | | $ | (11,970) | | | | | | (14)% | | |
Nutritional specialties | | | | | 30,433 | | | | | | 26,970 | | | | | | 3,463 | | | | | | 13% | | |
Vaccines | | | | | 16,383 | | | | | | 17,215 | | | | | | (832) | | | | | | (5)% | | |
Animal Health | | | | | 121,850 | | | | | | 131,189 | | | | | | (9,339) | | | | | | (7)% | | |
Mineral Nutrition | | | | | 52,649 | | | | | | 54,838 | | | | | | (2,189) | | | | | | (4)% | | |
Performance Products | | | | | 15,221 | | | | | | 14,126 | | | | | | 1,095 | | | | | | 8% | | |
Total | | | | $ | 189,720 | | | | | $ | 200,153 | | | | | $ | (10,433) | | | | | | (5)% | | |
Adjusted EBITDA | | | | | | | | | | | | | | | | | | | | | | | | | |
Animal Health | | | | $ | 25,061 | | | | | $ | 35,716 | | | | | $ | (10,655) | | | | | | (30)% | | |
Mineral Nutrition | | | | | 3,475 | | | | | | 2,563 | | | | | | 912 | | | | | | 36% | | |
Performance Products | | | | | 852 | | | | | | 716 | | | | | | 136 | | | | | | 19% | | |
Corporate | | | | | (9,728) | | | | | | (8,886) | | | | | | (842) | | | | | | * | | |
Total | | | | $ | 19,660 | | | | | $ | 30,109 | | | | | $ | (10,449) | | | | | | (35)% | | |
Adjusted EBITDA ratio to segment net sales | | | | | | | | | | | | | | | | | | | | | | | | | |
Animal Health | | | | | 20.6% | | | | | | 27.2% | | | | | | | | | | | | | | |
Mineral Nutrition | | | | | 6.6% | | | | | | 4.7% | | | | | | | | | | | | | | |
Performance Products | | | | | 5.6% | | | | | | 5.1% | | | | | | | | | | | | | | |
Corporate(1) | | | | | (5.1)% | | | | | | (4.4)% | | | | | | | | | | | | | | |
Total(1) | | | | | 10.4% | | | | | | 15.0% | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Three Months | | ||||||||
For the Periods Ended September 30 |
| 2020 |
| 2019 |
| Change | | ||||
| | (in thousands, except percentages) | | ||||||||
Net sales | | |
|
| |
|
| |
| |
|
MFAs and other | | $ | 78,703 | | $ | 75,034 | | $ | 3,669 | 5 | % |
Nutritional specialties | |
| 32,600 | |
| 30,433 | |
| 2,167 | 7 | % |
Vaccines | |
| 17,066 | |
| 16,383 | |
| 683 | 4 | % |
Animal Health | |
| 128,369 | |
| 121,850 | |
| 6,519 | 5 | % |
Mineral Nutrition | |
| 51,440 | |
| 52,649 | |
| (1,209) | (2) | % |
Performance Products | |
| 15,385 | |
| 15,221 | |
| 164 | 1 | % |
Total | | $ | 195,194 | | $ | 189,720 | | $ | 5,474 | 3 | % |
| | | | | | | | | | | |
Adjusted EBITDA | |
|
| |
|
| |
|
| |
|
Animal Health | | $ | 30,101 | | $ | 25,061 | | $ | 5,040 | 20 | % |
Mineral Nutrition | |
| 3,047 | |
| 3,475 | |
| (428) | (12) | % |
Performance Products | |
| 1,972 | |
| 852 | |
| 1,120 | 131 | % |
Corporate | |
| (10,831) | |
| (9,728) | |
| (1,103) | * | |
Total | | $ | 24,289 | | $ | 19,660 | | $ | 4,629 | 24 | % |
| | | | | | | | | | | |
Adjusted EBITDA ratio to segment net sales | |
|
| |
|
| |
|
| |
|
Animal Health | |
| 23.4 | % |
| 20.6 | % |
|
| |
|
Mineral Nutrition | |
| 5.9 | % |
| 6.6 | % |
|
| |
|
Performance Products | |
| 12.8 | % |
| 5.6 | % |
|
| |
|
Corporate(1) | |
| (5.5) | % |
| (5.1) | % |
|
| |
|
Total(1) | |
| 12.4 | % |
| 10.4 | % |
|
| |
|
(1) | Reflects ratio to total net sales |
The table below sets forth a reconciliation of net income, as reported under GAAP, to Adjusted EBITDA:
| | | Three Months | | |||||||||||||||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | | Change | | |||||||||||||||
| | | (in thousands, except percentages) | | |||||||||||||||||||||
Net income | | | | $ | 2,515 | | | | | $ | 16,314 | | | | | $ | (13,799) | | | | | | (85)% | | |
Interest expense, net | | | | | 3,354 | | | | | | 2,783 | | | | | | 571 | | | | | | 21% | | |
Provision for income taxes | | | | | 1,057 | | | | | | 6,391 | | | | | | (5,334) | | | | | | (83)% | | |
Depreciation and amortization | | | | | 7,781 | | | | | | 6,691 | | | | | | 1,090 | | | | | | 16% | | |
EBITDA | | | | | 14,707 | | | | | | 32,179 | | | | | | (17,472) | | | | | | (54)% | | |
Restructuring costs | | | | | 425 | | | | | | — | | | | | | 425 | | | | | | * | | |
Stock-based compensation | | | | | 565 | | | | | | 565 | | | | | | — | | | | | | 0% | | |
Acquisition-related cost of goods sold | | | | | 280 | | | | | | — | | | | | | 280 | | | | | | * | | |
Acquisition-related transaction costs | | | | | 462 | | | | | | — | | | | | | 462 | | | | | | * | | |
Foreign currency (gains) losses, net | | | | | 3,221 | | | | | | (2,635) | | | | | | 5,856 | | | | | | * | | |
Adjusted EBITDA | | | | $ | 19,660 | | | | | $ | 30,109 | | | | | $ | (10,449) | | | | | | (35)% | | |
| | | | | | | | | | |
| | Three Months | | |||||||
For the Periods Ended September 30 |
| 2020 |
| 2019 |
| Change | | |||
| | (in thousands, except percentages) | | |||||||
Net income | | $ | 12,302 | | $ | 2,515 | | $ | 9,787 | |
Interest expense, net | | | 2,810 | | | 3,354 | | | (544) | |
Provision for income taxes | | | 4,207 | | | 1,057 | | | 3,150 | |
Depreciation and amortization | | | 8,036 | | | 7,781 | | | 255 | |
EBITDA | | | 27,355 | | | 14,707 | | | 12,648 | |
Stock-based compensation | | | 565 | | | 565 | | | — | |
Restructuring costs | | | — | | | 425 | | | (425) | |
Acquisition-related cost of goods sold | | | — |
| | 280 |
| | (280) | |
Acquisition-related transaction costs | | | — |
| | 462 |
| | (462) | |
Foreign currency (gains) losses, net | | | (3,631) |
| | 3,221 |
| | (6,852) | |
Adjusted EBITDA | | $ | 24,289 | | $ | 19,660 | | $ | 4,629 | |
Certain amounts and percentages may reflect rounding adjustments.
23
Comparison of three months ended September 30, 20192020 and 2018
Net sales
Net sales of $189.7$195.2 million for the three months ended September 30, 2019, decreased $10.42020, increased $5.5 million, or 5%3%, as compared to the three months ended September 30, 2018.2019. Animal Health and Performance Products increased $6.5 million and $0.2 million, respectively, while Mineral Nutrition declined $9.3 million and $2.2 million, respectively. Performance Products grew $1.1$1.2 million.
Animal Health
Net sales of $121.9$128.4 million for the three months ended September 30, 2019, declined $9.32020, increased $6.5 million, or 7%5%. Net sales of MFAs and other declined $12.0increased $3.7 million, or 14%5%, driven by increased international demand, primarily due to reduced demand related to the effectfor poultry products, coupled with favorable timing of African Swine Fever in China. Net sales of MFAs and other also declined in other international regions due tocertain customer order patterns.orders. Net sales of nutritional specialty products grew $3.5$2.2 million, or 13%7%, due to volumeinternational growth in poultry and dairy products. The recent Osprey acquisition accounted for approximately one-half ofproducts, while domestic sales were comparable to the nutritional specialty sales growth.prior year. Net sales of vaccines declined $0.8increased $0.7 million, or 5%. The loss of a domestic distribution arrangement in October 2018 offset volume growth in most regions. 4%, driven by increased international demand for our poultry vaccines.
Mineral Nutrition
Net sales of vaccines would have increased approximately 5%, excluding the loss of the distribution arrangement.
Performance Products
Net sales of $15.2$15.4 million for the three months ended September 30, 2019,2020, increased $1.1$0.2 million, or 8%, driven by increased volumes1%. Increased sales of personal care product ingredients were partially offset by lower volumesales of copper-based products.
Gross profit
Gross profit of $57.7$64.1 million for the three months ended September 30, 2019, decreased $8.12020, increased $6.5 million, or 12%11%, as compared to the three months ended September 30, 2018.2019. Gross profit decreasedincreased to 30.4%32.8% of net sales for the three months ended September 30, 2019,2020, as compared to 32.9%30.4% for the three months ended September 30, 2018.2019. The three months ended September 30, 2019, included $0.3 million of acquisition-related cost of goods sold.
Animal Health gross profit decreased $8.5increased $5.5 million due to volume declines and unfavorablesales growth, favorable product mix in MFAs and other and vaccines, partially offset by volume growth in nutritional specialty products.favorable production costs, primarily related to foreign currency movements. Mineral Nutrition gross profit increased $0.9decreased $0.5 million, as favorable raw material costs and product mix offset the decline in average selling prices.driven primarily by unfavorable production costs. Performance Products gross profit decreased $0.2increased $1.1 million as increased unit volumes were more than offsetdriven by unfavorable manufacturingfavorable product mix and production costs.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) of $47.5$48.4 million for the three months ended September 30, 2019,2020, increased $4.6$0.9 million, or 11%2%, as compared to the three months ended September 30, 2018.2019. SG&A for the three months ended September 30, 2019, included $0.4 million of restructuring costs $0.6 million of stock-based compensation and $0.5 million of acquisition-related transaction costs. SG&A for the three months ended September 30, 2018, included $0.6 million of stock-based compensation. Excluding the effects of these costs, SG&A increased $3.7$1.8 million, or 9%4%.
Animal Health SG&A increased $3.1$0.6 million, includingprimarily due to increased investments in product developmentprofessional fees to support the continued use of carbadox and costs associated with new products, partially offset by the favorable effect of the Osprey acquisition.foreign currency movements and timing of marketing spending. Mineral Nutrition and Performance Products SG&A waswere comparable to the prior year and Performance Products decreased $0.2 million.year. Corporate expensesSG&A increased $0.8$1.1 million due to increased costs for strategic initiatives.
24
Interest expense, net
Interest expense, net of $3.4$2.8 million for the three months ended September 30, 2019, increased $0.62020, decreased $0.5 million, or 21%16%, as compared to the three months ended September 30, 2018. The increase in2019. Interest expense decreased due to favorable variable interest expense was primarily drivenrates, partially offset by the increase in outstanding borrowings on the Revolver.higher levels of debt outstanding. Interest income from short-term investments was comparable to the prior year.
Foreign currency (gains) losses, net
Foreign currency (gains) losses, net for the three months ended September 30, 2019,2020, amounted to net lossesgains of $3.2$3.6 million, as compared to $2.6$3.2 million in net gainslosses for the three months ended September 30, 2018.2019. Foreign currency gains and losses primarily arose from intercompany balances and the effects of a currency devaluation in Argentina.
Provision for income taxes
The provision for income taxes was $1.1$4.2 million and $6.4$1.1 million for the three months ended September 30, 20192020 and 2018,2019, respectively. The effective income tax rate was 29.6%25.5% and 28.1%29.6% for the three months ended September 30, 20192020 and 2018,2019, respectively. The provision for income taxes during the three months ended September 30, 2018,2020, included a $0.6 million benefit fromrelated to final regulations issued in July 2020 for the exerciseGlobal Intangible Low-Taxed Income (“GILTI”) tax for the year ended June 30, 2020, and a $0.6 million benefit for the reversal of employee stock options of $0.2 million.an uncertain tax position. The effective income tax rate, without the benefit of the employee stock option exercises,these benefits, would have been 28.8%32.5% for the three months ended September 30, 2018.
Net income
Net income of $12.3 million for the three months ended September 30, 2020, increased $9.8 million, as compared to net income of $2.5 million for the three months ended September 30, 2019,2019. The increase was primarily due to a $5.5 million increase in operating income, decreased $13.8interest expense of $0.5 million as compared to netand favorable foreign currency comparisons of $6.9 million, partially offset by increased income tax expense of $16.3$3.2 million. The increase in operating income was driven by increased gross profit in the Animal Health and Performance Product segments, partially offset by a decline in Mineral Nutrition gross profit and higher SG&A costs.
Adjusted EBITDA
Adjusted EBITDA of $24.3 million for the three months ended September 30, 2018. The decrease was primarily due to a $12.7 million decline in operating income coupled with unfavorable foreign currency movements of $5.9 million and2020, increased interest expense of $0.5 million, partially offset
Analysis of financial condition, liquidity and capital resources
Net increase (decrease) in cash and cash equivalents was:
| | | Three Months | | |||||||||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | | Change | | |||||||||
| | | (in thousands) | | |||||||||||||||
Cash provided by/(used in): | | | | | |||||||||||||||
Operating activities | | | | $ | (3,570) | | | | | $ | 1,280 | | | | | $ | (4,850) | | |
Investing activities | | | | | (62,531) | | | | | | (16,149) | | | | | | (46,382) | | |
Financing activities | | | | | 63,931 | | | | | | 11,734 | | | | | | 52,197 | | |
Effect of exchange-rate changes on cash and cash equivalents | | | | | (510) | | | | | | (173) | | | | | | (337) | | |
Net increase/(decrease) in cash and cash equivalents | | | | $ | (2,680) | | | | | $ | (3,308) | | | | | $ | 628 | | |
| | | | | | | | | |
|
| Three Months | |||||||
For the Periods Ended September 30 |
| 2020 |
| 2019 |
| Change | |||
| | (in thousands) | |||||||
Cash provided by/(used in): | |
| | |
| | |
| |
Operating activities | | $ | 1,698 | | $ | (3,570) | | $ | 5,268 |
Investing activities | |
| (13,635) | |
| (62,531) | |
| 48,896 |
Financing activities | |
| 6,458 | |
| 63,931 | |
| (57,473) |
Effect of exchange-rate changes on cash and cash equivalents | |
| 105 | |
| (510) | |
| 615 |
Net increase/(decrease) in cash and cash equivalents | | $ | (5,374) | | $ | (2,680) | | $ | (2,694) |
Certain amounts may reflect rounding adjustments.
25
Net cash provided (used) by operating activities was comprised of:
| | | Three Months | | |||||||||||||||
For the Periods Ended September 30 | | | 2019 | | | 2018 | | | Change | | |||||||||
| | | (in thousands) | | |||||||||||||||
EBITDA | | | | $ | 14,707 | | | | | $ | 32,179 | | | | | $ | (17,472) | | |
Adjustments | | | | | | | | | | | | | | | | | | | |
Restructuring costs | | | | | 425 | | | | | | — | | | | | | 425 | | |
Stock-based compensation | | | | | 565 | | | | | | 565 | | | | | | — | | |
Acquisition-related cost of goods sold | | | | | 280 | | | | | | — | | | | | | 280 | | |
Acquisition-related transaction costs | | | | | 462 | | | | | | — | | | | | | 462 | | |
Foreign currency (gains) losses, net | | | | | 3,221 | | | | | | (2,635) | | | | | | 5,856 | | |
Interest paid | | | | | (3,201) | | | | | | (2,732) | | | | | | (469) | | |
Income taxes paid | | | | | (4,657) | | | | | | (5,817) | | | | | | 1,160 | | |
Changes in operating assets and liabilities and other items | | | | | (14,910) | | | | | | (20,280) | | | | | | 4,908 | | |
Cash used for acquisition-related transaction costs | | | | | (462) | | | | | | — | | | | | | (462) | | |
Net cash provided (used) by operating activities | | | | $ | (3,570) | | | | | $ | 1,280 | | | | | $ | (4,850) | | |
| | | | | | | | | |
|
| Three Months | |||||||
For the Periods Ended September 30 |
| 2020 |
| 2019 |
| Change | |||
| | (in thousands) | |||||||
EBITDA | | $ | 27,355 | | $ | 14,707 | | $ | 12,648 |
Adjustments |
| |
|
| |
|
| |
|
Stock-based compensation |
| | 565 |
| | 565 |
| | — |
Restructuring costs |
| | — |
| | 425 |
| | (425) |
Acquisition-related cost of goods sold |
| | — |
| | 280 |
| | (280) |
Acquisition-related transaction costs |
| | — |
| | 462 |
| | (462) |
Foreign currency (gains) losses, net |
| | (3,631) |
| | 3,221 |
| | (6,852) |
Interest paid, net |
| | (2,527) |
| | (3,201) |
| | 674 |
Income taxes paid |
| | (4,967) |
| | (4,657) |
| | (310) |
Changes in operating assets and liabilities and other items |
| | (15,097) |
| | (15,372) |
| | 275 |
Net cash provided (used) by operating activities | | $ | 1,698 | | $ | (3,570) | | $ | 5,268 |
Certain amounts may reflect rounding adjustments.
Operating activities
Operating activities provided $1.7 million of net cash used by operating activities was $3.6 million for the three months ended September 30, 2019.2020. Cash provided by net income and non-cash items, of $12.5 million, including depreciation and amortization, was offset by $16.1 million of cash$16.6 million. Cash used in the ordinary course of business for changes in operating assets and liabilities and other items. Accounts payableitems was $14.9 million. Inventory used $11.8$9.5 million of cash due to the timing of payments for inventory purchases. Increased inventories used $9.1 million of cash due to the timing of sales purchases and production. Accrued expenses and other liabilities used $7.4$4.4 million of cash, primarily due to the timing of payments for professional fees, employee related costsincentive compensation and customer commissions and rebates. Accounts payable used $1.2 million due to timing of payments for inventory purchases. Accounts receivable provided $14.1$1.0 million of cash, due to the timing of sales andas favorable collections in international regions.
Investing activities
Investing activities used $13.6 million of net cash used in investing activities was $62.5 million for the three months ended September 30, 2019. Cash used for the Osprey acquisition was $54.6 million.2020. Capital expenditures were $7.7$7.4 million as we continued to invest in our existing asset base and for capacity expansion and productivity improvements.
Financing activities
Financing activities provided $6.5 million of net cash provided by financing activities was $63.9 million for the three months ended September 30, 2019.2020. Net borrowings on our Revolver provided $72.0 million, primarily to fund the cash paid for the Osprey acquisition.$16.0 million. We paid $4.9 million in dividends to holders of our Class A and Class B common stock. We paid $3.2$4.7 million in scheduled debt and other requirements.
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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. Our operating plan projectsWe are aware of the current and potential future effects of COVID-19 on the financial markets. At this time, we expect adequate liquidity throughoutfor at least the year.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.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.financing or fund operations or investment opportunities. In addition, our debt covenants may restrict our ability to invest.
Certain relevant measures of our liquidity and capital resources follow:
As of | | | September 30, 2019 | | | June 30, 2019 | | ||||||
| | | (in thousands, except ratios) | | |||||||||
Cash and cash equivalents and short-term investments | | | | $ | 78,893 | | | | | $ | 81,573 | | |
Working capital | | | | | 248,730 | | | | | | 242,902 | | |
Ratio of current assets to current liabilities | | | | | 2.94:1 | | | | | | 2.71:1 | | |
| | | | | | |
|
| September 30, |
| June 30, | ||
As of |
| 2020 |
| 2020 | ||
| | (in thousands, except ratios) | ||||
Cash and cash equivalents and short-term investments | | $ | 91,969 | | $ | 91,343 |
Working capital | |
| 231,673 | |
| 222,006 |
Ratio of current assets to current liabilities | |
| 2.65:1 | |
| 2.60:1 |
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 September 30, 2019,2020, we had $168.0$185.0 million in outstanding borrowings under the Revolver. We had outstanding letters of credit and other commitments of $3.0$2.7 million, leaving $79.0$62.3 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. On November 4, 2019, ourOur Board of Directors declared a cash dividend of $0.12 per share on Class A and Class B common stock, outstanding on the record date of
As of September 30, 2019,2020, our cash and cash equivalents and short-term investments included $76.3$90.1 million held by our international subsidiaries. There are no restrictions on cash distributions to PAHC from our international subsidiaries.
Contractual obligations
As of September 30, 2019,2020, there were no material changes in payments due under contractual obligations from those disclosed in the Annual Report on Form 10-K for the year ended June 30, 2019.
Off-balance sheet arrangements
We do not currently use off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions, investment or other financial purposes.
In the ordinary course of business, we may indemnify our counterparties against certain liabilities 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.
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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. We present 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;business and 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 savingcost-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
For discussion of new accounting standards, see “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies and New Accounting Standards.”
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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 of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management is required to make certain estimates and assumptions during the preparation ofIn presenting our consolidated financial statements in accordance with generally accepted accounting principles generally accepted in the United States of America. Significant estimates include depreciation and amortization periods of long-lived and intangible assets, recoverability of long-lived and intangible assets and goodwill, realizability of deferred income tax and value-added tax assets, assessment of the incremental borrowing rates and reasonably certain renewal periods associated with our lease agreements, legal and environmental matters and actuarial assumptions relatedAmerica (GAAP), we are required to our pension plans. Thesemake estimates and assumptions impactthat affect the reported amountamounts of assets, liabilities, revenues and liabilitiesexpenses. Actual results that differ from our estimates and disclosuresassumptions could have an unfavorable effect on our financial position and results of contingentoperations. Critical accounting policies include revenue recognition, business combinations, long-lived assets, goodwill, and liabilities asincome taxes.
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 is expected to affect our sales, expenses, reserves and allowances, manufacturing operations, research and development costs and employee-related amounts. The pandemic may have significant economic impact on local, regional, national and international customers and markets. New information that may emerge concerning COVID-19 and the actions required to contain or treat it may affect the duration and severity of the datepandemic. Our financial statements include estimates of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period they are determined toCOVID-19 and there may be necessary. Actual results could differ from those estimates. Our significant accounting policies are described in the notes to the consolidated financial statements included in the Annual Report. As of September 30, 2019, there have been no material changes to any of the critical accounting policies contained therein, other than those related to the adoption of the new lease standard, ASU 2016-02, Leases (Topic 842). See “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies and New Accounting Standards” for the changes made to our lease accounting policy.
Forward-Looking Statements
This Quarterly Report on Form 10-Q 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,” “believe,” “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
● | 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; |
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● | 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; |
● | 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 our Annual Report. |
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.
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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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of operations, we are exposed to market risks arising from adverse changes in interest rates, foreign currency exchange rates and commodity prices. As a result, future earnings, cash flows and fair values of assets and liabilities are subject to uncertainty. We use, from time to time, foreign currency contracts and interest rate swaps as a means of hedging exposure to foreign currency risks and fluctuating interest rates, respectively. We do not utilize derivative instruments for trading or speculative purposes. We do not hedge our exposure to market risks in a manner that completely eliminates the effects of changing market conditions on earnings, cash flows and fair values. We monitor the financial stability and credit standing of our major counterparties.
For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Qualitative and Quantitative Disclosures about Market Risk” section in the Annual Report and to the notes to the consolidated financial statements included therein. ThereAs of the date of this report, there were no material changes in the Company’s financial market risks from the risks disclosed in the Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation as of September 30, 2019,2020, our Chief Executive Officer and Chief Financial Officer each concluded that, as of the end of such period, our disclosure controls and procedures were not effective because of material weaknesses in our internal control over financial reporting, as described in Management’s Report on Internal Control over Financial Reporting in “Item 9A. Controls and Procedures” in the Annual Report on Form 10-K for the year ended June 30, 2019.
Material Weakness Remediation Efforts
We continue to make further progress in implementing a broad range of changes to our internal control over financial reporting to remediate the material weaknesses described in this item."Item 9A. Controls and Procedures" in the Annual Report. Our actions to address the material weaknesses have included the design and implementation of additional formal accounting policies and procedures to ensure transactions are properly initiated, recorded, processed,
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Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the three months ended September 30, 20192020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Information required by this Item is incorporated herein by reference to “Notes to the Consolidated Financial Statements—Commitments and Contingencies” in Part I, Item 1, of this Quarterly Report on Form 10-Q.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in the “Risk Factors” section in the Annual Report, which could materially affect our business, financial condition or future results.
There were no material changes in the Company’s risk factors from the risks disclosed in the Annual Report.
None.
None.
Not applicable.
Richard Johnson Employment Letter
As previously disclosed on September 17, 2020, Richard G. Johnson will retire from his position as Chief Financial Officer of the Company effective November 15, 2020. Mr. Johnson will continue with the Company for a period of time in an advisory capacity to ensure a smooth transition with his successor. On November 2, 2020, the Company entered into a continuing employment letter with Mr. Johnson (the “Employment Letter”).
Pursuant to the Employment Letter, Mr. Johnson will take on the role of Finance Advisor for the Company as of November 16, 2020, and will continue in this position through September 30, 2021. Mr. Johnson’s responsibilities will include providing support related to transition issues and undertaking special projects as requested by the Company. The position is not expected to be full-time and Mr. Johnson will be free to pursue other non-competitive ventures.
Pursuant to the Employment Letter, Mr. Johnson will receive an annual salary of $100,000 and will continue to be provided a Company vehicle allowance. Mr. Johnson will not be eligible for a bonus in his new position. In lieu of any payment that Mr. Johnson would otherwise be eligible to receive with respect to our 2021 fiscal year under the Company’s management incentive plan (“MIP”), Mr. Johnson will be eligible to receive a bonus payment, if any, calculated in accordance with the terms of the MIP based on the performance of the Company for our 2021 fiscal year and pro-rated based on his service period as Chief Financial Officer through November 15, 2020.
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The Employment Letter also provides for, among other things the continuation of confidentiality, noncompete, nonsolicitation and intellectual property obligations applicable to Mr. Johnson under his existing arrangements with the Company, mutual non-disparagement obligations, and the continuation of Mr. Johnson’s participation in the Company’s employee benefit plans. In exchange for the compensation and benefits provided for in the Employment Letter, Mr. Johnson will sign a general release and separation agreement providing for a release of claims by Mr. Johnson in favor of the Company and its affiliates when his role as Chief Financial Officer ends on November 15, 2020, and an employment termination certificate upon the termination of his employment as Finance Advisor on or before September 30, 2021, which, among other things, provides for the extension of the release to cover the time period of his employment as Finance Advisor. The Company will have no further obligations under the Employment Letter in the event Mr. Johnson’s employment is terminated for “Cause.” For purposes of the Employment Letter, “Cause” is defined as (i) Mr. Johnson’s continued and willful failure to materially perform his duties and responsibilities after written notice and a cure period, (ii) Mr. Johnson engaging in gross and willful misconduct, including fraud or intentional misrepresentation, (iii) Mr. Johnson’s conviction of a felony, habitual drunkenness or drug abuse, (iv) any violation of Mr. Johnson’s confidentiality or noncompetition obligations or (v) violation by Mr. Johnson of any Company policy including but not limited to the Code of Business Conduct and Ethics.
The foregoing description of the Employment Letter is qualified in its entirety by reference to the full text of Employment Letter, a copy of which is filed as Exhibit 10.2 and is incorporated by reference herein.
Item 6.
*
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Phibro Animal Health Corporation | ||||||||
| | ||||||||
November 4, | By: | /s/ Jack C. Bendheim | |||||||
| | Jack C. Bendheim | |||||||
| | Chairman, President and Chief Executive Officer | |||||||
| | ||||||||
November 4, | By: | /s/ Richard G. Johnson | |||||||
| | Richard G. Johnson | |||||||
| Chief Financial Officer |
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