UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐

~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the transition period from ~~_____ to _____~~

________to______

Commission File Number: 001-36410

Phibro Animal Health Corporation

(Exact name of registrant as specified in its charter)

	~~Delaware~~		~~13-1840497~~
Delaware	13-1840497
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)		~~(I.R.S. Employer~~ Identification No.)

Glenpointe Centre East, 3rd3rd Floor	07666-6712
300 Frank W. Burr Boulevard, Suite 21	(Zip Code)
Teaneck, New Jersey
(Address of Principal Executive Offices)		~~07666-6712~~ ~~(Zip Code)~~

~~(201)~~

(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 par value per share		PAHC	~~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”large~~of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	☐	Accelerated filer	☒
Non-accelerated filer	☐	☐	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.

Table of Contents

~~TABLE OF CONTENTS~~

PHIBRO ANIMAL HEALTH CORPORATION

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)		3
	Consolidated Statements of Operations		3
	Consolidated Statements of Comprehensive Income		4
	Consolidated Balance Sheets		5
	Consolidated Statements of Cash Flows		6
	Consolidated Statements of Changes in Stockholders’ Equity		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32	31
Item 4.	Controls and Procedures		32	31
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		34	32
Item 1A.	Risk Factors		34	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34	32
Item 3.	Defaults Upon Senior Securities		34	32
Item 4.	Mine Safety Disclosures		34	32
Item 5.	Other Information		34	32
SIGNATURES			36	34

Table of Contents

~~TABLE OF CONTENTS~~

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

~~TABLE OF CONTENTS~~Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

~~TABLE OF CONTENTS~~Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

~~TABLE OF CONTENTS~~Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

~~TABLE OF CONTENTS~~Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Shares of
Common Stock Common
Stock Preferred
Stock Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
(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

~~TABLE OF CONTENTS~~Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(unaudited)

Description of Business

Phibro Animal Health Corporation (“Phibro” or “PAHC”) and its subsidiaries (together, the “Company”) is a diversified global developer, manufacturer and marketer of a broad range of animal health and mineral nutrition products for food animals including poultry, swine, dairy and beef cattle, ~~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, ~~2019~~2020 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, ~~2019~~2020 (the “Annual Report”), filed with the Securities and Exchange Commission on August ~~27, 2019~~26, 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.

Summary of Significant Accounting Policies and New Accounting Standards

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 ~~our~~any of the significant accounting ~~policies.~~

~~Leases~~

We determine at the inception of an arrangement whether the arrangement contains a lease. If an arrangement contains a lease, we assess the lease term when the underlying asset is available for use (“lease commencement.”) Individual lease terms reflect the non-cancellable period of the lease, reasonably certain renewal periods and consideration of termination options. We determine the lease classification as either operating or financing at lease commencement, which governs the pattern of expense recognition and presentation in our consolidated financial statements. Our current lease portfolio only includes operating leases.

We recognize a right-of-use (“ROU”) asset and a corresponding lease liability at lease commencement for leases with terms exceeding twelve months. Short-term leases with terms of twelve months or less are not recognized on the consolidated balance sheet and lease payments are recognized on a straight-line basis over the term.

The values of the ROU assets and lease liabilities are calculated based on the present value of the fixed payment obligations over the lease term, using our incremental borrowing rate (“IBR”), determined at lease commencement. The IBR reflects the rate of interest we would expect to pay on a secured basis to borrow an amount equal to the lease payments under similar terms. The IBR incorporates the term and economic environment of the respective lease arrangements.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

We have elected to account for lease and non-lease components together as a single lease component and include fixed payment obligations related to such non-lease components in the measurement of ROU assets and lease liabilities. Fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments can include index-based lease payments, real estate taxes, maintenance costs, utilization charges and other non-lease services paid to lessors and are not determinable at lease commencement. Variable lease payments are not included in the measurement of ROU assets and lease liabilities and are recognized in the period incurred.

policies contained therein.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.~~

~~ASU 2018-02,~~ ~~Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~ allows reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects related to adjustments resulting from the United States Tax Cuts and Jobs Act. This ASU is effective for our consolidated financial statements beginning July 1, 2019. The adoption ~~of this guidance~~ did not have a material effect on our ~~consolidated financial statements.~~

~~ASU 2016-02,~~ ~~Leases (Topic 842)~~ requires an entity to recognize assets and liabilities on the balance sheet for both financing and operating leases and requires additional qualitative and quantitative disclosures regarding leasing arrangements. We adopted ASU 2016-02 and its amendments effective July 1, 2019, using a modified retrospective transition approach, which does not require modifications to periods prior to the date of initial application. We utilized certain permitted practical expedients intended to ease

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

transition to the new standard, including carrying forward the original lease classifications without reassessment. We did not use hindsight in our assessment of lease terms as of the effective date. Upon adoption of ASU 2016-02 on July 1, 2019, we recognized initial ROU assets and lease liabilities of $18,576 and $19,368 respectively, on the consolidated balance sheet. The difference in the amounts of the ROU assets and lease liabilities recognized relates to landlord incentives and deferred rent. An adjustment to opening retained earnings was not required, and the recognition of lease expense in the consolidated statements of operations did not change significantly. Refer to “Note 7—Leases” for further information.

~~Acquisition~~

fair value measurement disclosures.

~~In August 2019, we acquired the business and assets of Osprey Biotechnics, Inc. (“Osprey”)~~

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.

We acquired assets used in Osprey’s business, including intellectual property, working capital and property, plant and equipment, for an aggregate cash payment at closing of $54,560, subject to certain customary adjustments. The agreement also includes a future additional payment to be determined based on Osprey’s financial performance for the year ending June 30, 2021. We recorded a $7,553 liability for the estimated future payment. The additional payment will be no less than $4,840 and has no maximum limit.

~~We accounted for the acquisition as a business combination in accordance with FASB Accounting Standards Codification No. 805,~~ ~~Business Combinations~~. Pro forma information giving effect to the acquisition has not been provided because the results are not material to the consolidated financial statements. The preliminary fair values of the acquired assets and liabilities as of the acquisition date were:

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
We may further refine the determination of certain assets during the measurement period. The definite-lived intangible assets relate to trade names, developed products and customer relationships and will be amortized over estimated useful lives ranging from five to twelve years. The preliminary amount of goodwill has been allocated to our Animal Health segment and is deductible for tax purposes.
4.
Statements of Operations—Additional Information

Disaggregated revenue, deferred revenue and customer payment terms

We develop, manufacture and market a broad range of products for food animals including poultry, swine, beef and dairy cattle, and aquaculture. The products help prevent, control and treat diseases, enhance nutrition to help improve health and contribute to balanced mineral nutrition. The animal health and mineral nutrition products are sold directly to integrated poultry, swine and cattle integrators and through commercial animal feed manufacturers, wholesalers and distributors. The animal health industry and demand for many of the animal health products in a particular region are affected by changing disease pressures and by weather conditions, as product usage follows varying weather patterns and seasons. Our operations are primarily focused in regions where the majority of livestock production is consolidated in large commercial farms.

We have a diversified portfolio of products that are classified within our three business segments—Animal Health, Mineral Nutrition and Performance Products. Each segment has its own dedicated management and sales team.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Animal Health

The Animal Health business develops, manufactures and markets products in three main categories:

●

MFAs and Other: MFAs and other products primarily consist of concentrated medicated products that are administered through animal feeds, commonly referred to as Medicated Feed Additives (“MFAs”). Specific product classifications include antibacterials, which inhibit the growth of pathogenic bacteria that cause bacterial infections in animals; anticoccidials, which inhibit the growth of coccidia (parasites) that damage the intestinal tract of animals; and other related products.

●

Nutritional Specialties: Nutritional specialty products enhance nutrition to help improve health and performance in areas such as immune system function and digestive health.

●

Vaccines: Our vaccines are primarily focused on preventing diseases in poultry and swine. They protect animals from either viral or bacterial disease challenges. We develop, manufacture and market conventionally licensed and autogenous vaccine products and also produce and market adjuvants to vaccine manufacturers. We have developed and market an innovative and proprietary delivery platform for vaccines.

•

~~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 licensed and autogenous vaccine products and also 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

~~Net Sales by Region~~

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

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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, ~~2019~~2020, 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, ~~2019~~2020, 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 alone~~stand-alone sales prices of the individual products or services.

Our customer payment terms generally range from 30 to 120 days globally and do not include any significant financing components. Payment terms vary based on industry and business practices within the regions in which we operate. Our average worldwide collection period for accounts receivable is approximately 60 ~~to 70~~ days after the revenue is recognized.

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

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

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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

~~During the three months ended June 30, 2019, we initiated business restructuring activities related to~~


	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 saving~~cost-saving initiatives in the Animal Health ~~segment. We recorded pre-tax charges of $6,281 for these activities, including $3,500~~segment, 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.~~

~~During the three months ended~~ September 30, ~~2019, we recorded an additional $425 and paid $1,360 related to employee separation charges. Business~~2020.

The following table summarizes the activity of the restructuring ~~activities~~liability 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

~~The charges are included in selling, general and administrative expenses in our consolidated statements~~

Table of operations. As of September 30, 2019, $2,655 was included in accrued expenses and other current liabilities and $2,000 was included in other liabilities. We expect to record an additional charge for employee separation costs of an estimated $500 and complete the additional separation actions by December 31, 2019.

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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”), ~~where~~under 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 ~~have~~is based on the fluctuating rate of interest plus an applicable ~~margins~~rate 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 ~~margins~~rates 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 of~~compliance 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 contain~~four-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.

As of September 30, 2019, the interest rates for the Revolver and the Term A Loan were 3.53% and 3.42%, respectively. The weighted-average interest rates for the outstanding revolving credit facilities were 3.70% and 3.68% for the three months ended September 31, 2019 and 2018, respectively. The weighted-average interest rates for the term loans were 3.48% and 3.43% for the three months ended September 30, 2019 and 2018, respectively.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The agreement matures ~~concurrent~~concurrently with the Credit Agreement. We designated the interest rate swap as a highly effective cash flow hedge. For additional details, see "- Derivatives."

In March 2020, we entered into an interest rate swap agreement on an additional $150,000 of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.620% plus the applicable rate. On the maturity of the July 2017 agreement, this agreement increases to a notional principal amount of $300,000 through June 30, 2025, and effectively converts the floating LIBOR portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.620% plus the applicable rate. We designated the interest rate swaps as highly effective cash flow hedges. For additional details, see “—Derivatives.”

~~Long-Term Debt~~

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

~~Leases~~

~~Our lease portfolio consists of real estate, vehicles and equipment ROU assets, classified as operating leases.~~

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.~~

~~The following table summarizes~~interest rates for the ~~ROU assets~~Revolver and the ~~related lease liabilities recorded on~~Term A Loan were 2.37% and 3.47%, respectively. The weighted-average interest rates for the ~~consolidated balance sheet:~~

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

~~The following table summarizes~~Revolver were 2.12% and 3.70% for the ~~composition of net lease cost:~~

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

~~The following tables include other supplemental information:~~

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

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

	~~As of~~
	~~September 30, 2019~~
~~Weighted average remaining lease term (in years) – ROU operating leases~~		~~6.36~~
~~Weighted average discount rate – ROU operating leases~~		~~4.13~~%

Atthree months ended September 30, 2020 and 2019, ~~maturities of future lease liabilities are:~~

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

~~There~~respectively. The weighted-average interest rates for the Term A Loan were ~~no significant future payment obligations related to executed lease agreements~~3.19% and 3.48% for ~~which~~ the ~~related lease had not yet commenced as of~~three months ended September 30, ~~2019. Our lease agreements do not contain any material restrictive covenants or residual value guarantee provisions.~~

~~Future minimum lease payments for operating leases accounted for under ASC 840, “Leases,” with remaining non-cancelable terms in excess of one year at June 30,~~2020 and 2019, ~~were:~~

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

respectively.

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, ~~2019~~2020 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.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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’s~~the 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 group~~the members of ~~companies that sent chemicals to the Omega Chemical Site for processing and recycling has~~OPOG filed a complaint under ~~CERCLA~~the Comprehensive Environmental Response, Compensation, and ~~RCRA~~Liability Act and the Resource Conservation and Recovery Act in the United States District Court for the Central District of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for contribution toward past and future costs associated with the investigation and remediation of the groundwater plume affected by the Omega Chemical Site. Due to the ongoing nature of the EPA’s investigation, the preliminary stage of the ongoing litigation and Phibro-Tech’s dispute with the prior owner’s successor, at this time we cannot predict with any degree of certainty what, if any, liability Phibro-Tech or the other subsidiaries may ultimately have for investigation, remediation and the EPA oversight and response costs associated with the affected groundwater plume.

Based upon information available, to the extent such costs can be estimated with reasonable certainty, we estimated the cost for further investigation and remediation of identified soil and groundwater problems at operating sites, closed sites and third-party sites, and closure costs for closed sites, to be

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

approximately ~~$5,869~~$5,101 and ~~$5,890~~$5,254 at September 30, ~~2019~~2020, and June 30, ~~2019,~~2020, respectively, which is included in current and long-term liabilities on the consolidated balance sheets. However, future events, such as new information, changes in existing Environmental Laws or their interpretation, and more vigorous enforcement policies of regulatory agencies, may give rise to additional expenditures or liabilities that could be material. For all purposes of the discussion under this caption and elsewhere in this report, it should be noted that we take and have taken the position that neither PAHC nor any of our subsidiaries isare liable for environmental or other claims made against one or more of our other subsidiaries or for which any of such other subsidiaries may ultimately be responsible.

Claims and Litigation

PAHC and its subsidiaries are party to a number of claims and lawsuits arising out of the normal course of business including product liabilities, payment disputes and governmental regulation. Certain of these actions seek damages in various amounts. In many

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

~~10.~~

8. Derivatives

We monitor our exposure to foreign currency exchange rates and interest rates and from time-to-time use derivatives to manage certain of these risks. We designate derivatives as a hedge of a forecasted transaction or of the variability of the cash flows to be received or paid in the future related to a recognized asset or liability (cash flow hedge). All changes in the fair value of a highly effective cash flow hedge are recorded in accumulated other comprehensive income (loss).

We routinely assess whether the derivatives used to hedge transactions are effective. If we determine a derivative ceases to be an effective hedge, we discontinue hedge accounting in the period of the assessment for that derivative, and immediately recognize any unrealized gains or losses related to the fair value of that derivative in the consolidated statements of operations.

We record derivatives at fair value in the consolidated balance sheets. For additional details regarding fair value, see “—Fair Value Measurements.”

In July 2017, we entered into an interest rate swap agreement on the first $150,000 of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed interest rate of 1.8325% plus the applicable rate. The agreement matures ~~concurrent~~concurrently with the Credit Agreement. In March 2020, we entered into an interest rate swap agreement on an additional $150,000 of notional principal that effectively converts the floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.620% plus the applicable rate. On the maturity of the July 2017 agreement, this agreement increases to a notional principal amount of $300,000 through June 30, 2025, and effectively converts the floating LIBOR portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.620% plus the applicable rate. The forecasted transactions are probable of occurring, and the interest rate ~~swap has~~swaps have been designated as a highly effective cash flow ~~hedge.~~

hedges.

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)
2020:


					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.

~~(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. Other current assets as of September 30, 2019 and June 30, 2019, included net fair values of $20 and $383, respectively.

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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, ~~2019~~2020 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

2019.


											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.

~~11.~~

Realized net losses of $1,199 related to matured contracts were recorded as a component of inventory at September 30, 2020. We anticipate the net losses included in inventory will be recognized in cost of goods sold within the next twelve months.

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.

~~Letters of Credit~~

We obtain letters of credit in connection with certain regulatory and insurance obligations, inventory purchases and other contractual obligations. The carrying values of these letters of credit are considered to be representative of their fair values because of the nature of the instruments.

Debt

We record debt, including term loans and revolver balances, at ~~book value~~amortized cost in our consolidated financial statements. We believe the carrying value of the debt is approximately equal to its fair value, due to the variable nature of the ~~instruments.~~

instruments and our evaluation of estimated market prices.

Derivatives

We determine the fair value of derivative instruments based upon pricing models using observable market inputs for these types of financial instruments, such as spot and forward currency translation rates.

Non-financial assets

Our non-financial assets, which primarily consist of goodwill, other intangible assets, property and equipment, and lease-related ROU assets, are not required to be measured at fair value on a recurring basis, and instead are reported at carrying value in the consolidated balance sheet. We assess the carrying values of non-financial assets for impairment on a periodic basis or whenever events or changes in circumstances indicate an asset may not be fully recoverable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Assets (Liabilities)

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) $ — $ — $ —

~~During~~


	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 of~~periods presented.

The contingent consideration ~~associated~~on acquisitions is the minimum amount payable in accordance with the ~~Osprey~~ acquisition ~~inclusive of accrued interest.~~

~~12.~~

agreement for Osprey.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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 related~~tax-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.

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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.

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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~~

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~~November 27, 2019,~~ payable on December ~~18, 2019.~~16, 2020. Our future ability to pay dividends will depend upon our results of operations, financial condition, capital requirements, our ability to obtain funds from our subsidiaries and other factors that our Board of Directors deems relevant. Additionally, the terms of our current and any future agreements governing our indebtedness could limit our ability to pay dividends or make other distributions.

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.~~

Report.

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.

•

~~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.

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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 saving~~cost-saving initiatives, including employee separation costs, to be unusual items that we do not expect to occur as part of our normal business on a regular basis. We consider foreign currency gains and losses to be non-operational because they arise principally from intercompany transactions and are largely non-cash in nature.

New accounting standards

~~We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02,~~ ~~Leases (Topic 842),~~ ~~effective July 1, 2019.~~

For discussion of new accounting standards, see “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies and New Accounting Standards.”

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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 of~~In 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. These~~make estimates and assumptions ~~impact~~that affect the reported ~~amount~~amounts of assets, liabilities, revenues and ~~liabilities~~expenses. Actual results that differ from our estimates and ~~disclosures~~assumptions could have an unfavorable effect on our financial position and results of ~~contingent~~operations. Critical accounting policies include revenue recognition, business combinations, long-lived assets, goodwill, and ~~liabilities as~~income 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 ~~date~~pandemic. 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 to~~COVID-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.~~

estimates in future periods.

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

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results, our plans and objectives for future operations, growth or initiatives, strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Examples of such risks and uncertainties include:

●

the negative effects of a pandemic, epidemic, or outbreak of an infectious disease in humans, such as COVID-19, on our business, financial results, manufacturing facilities and supply chain, as well as our customers and protein processors;

●

perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products could cause a decline in the sales of those products;

●

restrictions on the use of antibacterials in food-producing animals may become more prevalent;

●

a material portion of our sales and gross profits are generated by antibacterials and other related products;

●

competition in each of our markets from a number of large and small companies, some of which have greater financial, research and development (“R&D”), production and other resources than we have;

●

outbreaks of animal diseases could significantly reduce demand for our products;

●

our business may be negatively affected by weather conditions and the availability of natural resources;

●

the continuing trend toward consolidation of certain customer groups as well as the emergence of large buying groups;

•

~~perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products could cause a decline in the sales of those products;~~

•

~~restrictions on the use of antibacterials in food-producing animals may become more prevalent;~~

•

~~a material portion of our sales and gross profits are generated by antibacterials and other related products;~~

•

~~competition in each of our markets from a number of large and small companies, some of which have greater financial, research and development (“R&D”), production and other resources than we have;~~

•

~~outbreaks of animal diseases could significantly reduce demand for our products;~~

•

~~our business may be negatively affected by weather conditions and the availability of natural resources;~~

•

~~the continuing trend toward consolidation of certain customer groups as well as the emergence of large buying groups;~~

•

~~our ability to control costs and expenses;~~

•

~~any unforeseen material loss or casualty;~~

•

~~exposure relating to rising costs and reduced customer income;~~

•

~~competition deriving from advances in veterinary medical practices and animal health technologies;~~

•

~~unanticipated safety or efficacy concerns;~~

•

~~our dependence on suppliers having current regulatory approvals;~~

•

~~our raw materials are subject to price fluctuations and their availability can be limited;~~

•

~~natural and man-made disasters, including but not limited to fire, snow and ice storms, flood, hail, hurricanes and earthquakes;~~

•

~~terrorist attacks, particularly attacks on or within markets in which we operate;~~

•

~~our ability to successfully implement our strategic initiatives;~~

•

~~our reliance on the continued operation of our manufacturing facilities and application of our intellectual property;~~

•

~~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;~~

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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.

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•

~~the risk of work stoppages; and~~

•

~~other factors as described in “Risk Factors” in Item 1A. of our Annual Report on Form 10-K.~~

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

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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. ~~There~~As 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.~~

Report.

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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reported, appropriately authorized and approved. Also, our efforts to ensure maintenance of the appropriate level of segregation of duties includes restricting access to key financial systems and records to appropriate users. We continue to make improvements by reducing the number of segregation of duties conflicts and continue to evaluate the extent it is necessary to limit access and modify responsibilities of certain personnel, as well as designing and implementing additional user access controls and compensating controls. We have completed a gap analysis of our key controls. In completing this analysis, we identified areas where new controls were needed and enhancements to existing controls, policies and procedures need to be made. Through this analysis, we have developed a ~~workplan~~plan for remediation of our material weaknesses. ~~The~~We are executing our remediation plan ~~includes~~by enhancing and supplementing the finance team ~~by increasing the~~through an increased number of roles, reassigning responsibilities, enhancing key financial systems and adding additional resources with an appropriate level of knowledge and experience in internal control over financial reporting commensurate with our financial reporting requirements. We will continue to build on the progress we have made in our remediation plan. We cannot determine when our remediation plan will be fully completed, and we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.

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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, ~~2019~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

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.

Item 1A.

Risk Factors

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.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

~~None.~~

Item 3.

Defaults Upon Senior Securities

None.

~~None.~~

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

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.

~~None.~~

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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.

Exhibits


Exhibit 10.1			~~Exhibit 2.1 Asset Purchase Agreement~~Employment Offer Letter, dated September 14, 2020, by and ~~among~~between Damian L. Finio and Phibro Animal Health Corporation, ~~as Purchaser, Osprey Biotechnics, Inc., as Company~~including confidentiality and ~~together with Lauren Danielson~~nondisclosure, employee invention, and Vincent Scuilla, as Selling Parties dated as of August 1, 2019 (Filing excludes certain schedules (or similar attachments) pursuant to Item 601(a)(5) of Regulation S-K, which the registrant agrees to furnish supplementally to the SEC upon request by the SEC).noncompetition and nonsolicitation agreements.
Exhibit 10.2	Continuing Employment Letter, dated November 2, 2020, by and between Richard G. Johnson and Phibro Animal Health Corporation.
		Exhibit 31.1	Chief Executive Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 302
				Exhibit 31.2	Chief Financial Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 302
				Exhibit 32.1	Chief Executive Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906
				Exhibit 32.2	Chief Financial Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906
Exhibit 101 .INS*				Exhibit 101.INS* XBRL Instance Document
				Exhibit 101.SCH*	XBRL Taxonomy Extension Schema Document
				Exhibit 101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
				Exhibit 101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
				Exhibit 101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
				Exhibit 101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

Furnished with this Quarterly Report. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933 and are deemed not filed for purposes of section 18 of the Exchange Act.

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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, ~~2019~~2020	By:		~~By:~~		/s/ Jack C. Bendheim
		Jack C. Bendheim
		Chairman, President and Chief Executive Officer

November 4, ~~2019~~2020	By:		~~By:~~		/s/ Richard G. Johnson
		Richard G. Johnson
		Chief Financial Officer

	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

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

	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

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

Liability balance at June 30, 2019	$	5,590
Charges		425
Payments		(1,360)
Liability balance at September 30, 2019	$	4,655

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

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

Instrument	Hedge	Notional Amount at September 30, 2019	Consolidated Balance Sheet	Asset (Liability) fair value as of
Instrument	Hedge	Notional Amount at September 30, 2019	Consolidated Balance Sheet	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)

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

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)		$	—		$	—		$	—