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 ~~December~~March 31, ~~2017~~2021


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

☐

~~TRANSITION REPORT PURSUANT TO SECTION 13 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		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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

☐

Emerging growth company

☐

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the 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 ~~January~~April 29, ~~2018,~~2021, there were ~~19,589,889~~20,337,574 shares of the registrant’s Class A common stock, par value $0.0001 per share, and ~~20,602,836~~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				7		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations				18		24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk				31		37
Item 4.	Controls and Procedures				31		37
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings				33		38
Item 1A.	Risk Factors				33		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds				33		38
Item 3.	Defaults Upon Senior Securities				33		38
Item 4.	Mine Safety Disclosures				33		39
Item 5.	Other Information				33		39
~~Item 6.~~ SIGNATURES ~~Exhibits~~					33
~~SIGNATURES~~				34		40

~~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 Six Months
For the Periods Ended December 31 2017 2016 2017 2016
(unaudited)
(in thousands, except per share amounts)
Net sales $ 205,876 $ 191,598 $ 399,288 $ 379,585
Cost of goods sold 138,957 128,100 268,987 255,088
Gross profit 66,919 63,498 130,301 124,497
Selling, general and administrative expenses 42,981 40,870 83,976 80,056
Operating income 23,938 22,628 46,325 44,441
Interest expense, net 3,050 3,872 6,168 7,779
Foreign currency (gains) losses, net (323) (548) 2 (214)
Income before income taxes 21,211 19,304 40,155 36,876
Provision (benefit) for income taxes 14,179 5,887 17,231 11,282
Net income $ 7,032 $ 13,417 $ 22,924 $ 25,594
Net income per share
basic $ 0.17 $ 0.34 $ 0.57 $ 0.65
diluted $ 0.17 $ 0.34 $ 0.57 $ 0.64
Weighted average common shares outstanding
basic 40,186 39,411 40,065 39,409
diluted 40,364 40,002 40,329 39,954
Dividends per share $ 0.10 $ 0.10 $ 0.20 $ 0.20


	Three Months				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020

	(unaudited)
	(in thousands, except per share amounts)
Net sales	$	211,729	$	210,739	$	613,072	$	614,471
Cost of goods sold		142,564		141,188		411,523		418,153
Gross profit		69,165		69,551		201,549		196,318
Selling, general and administrative expenses		49,033		48,232		145,839		145,243
Operating income		20,132		21,319		55,710		51,075
Interest expense, net		2,933		3,263		8,957		10,049
Foreign currency (gains) losses, net		(583)		(608)		(3,590)		1,895
Income before income taxes		17,782		18,664		50,343		39,131
Provision for income taxes		5,621		5,163		13,079		11,221
Net income	$	12,161	$	13,501	$	37,264	$	27,910

Net income per share
basic	$	0.30	$	0.33	$	0.92	$	0.69
diluted	$	0.30	$	0.33	$	0.92	$	0.69
Weighted average common shares outstanding
basic		40,483		40,454		40,463		40,454
diluted		40,504		40,504		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 Six Months
For the Periods Ended December 31 2017 2016 2017 2016
(unaudited)
(in thousands)
Net income $ 7,032 $ 13,417 $ 22,924 $ 25,594
Change in fair value of derivative instruments (276) 270 (898) 304
Foreign currency translation adjustment (5,005) (2,296) (1,772) (3,189)
Unrecognized net pension gains (losses) 95 4,671 226 11,840
(Provision) benefit for income taxes 809 (1,894) 996 (4,644)
Other comprehensive income (loss) (4,377) 751 (1,448) 4,311
Comprehensive income $ 2,655 $ 14,168 $ 21,476 $ 29,905


	Three Months				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020

	(unaudited)
	(in thousands)
Net income	$	12,161	$	13,501	$	37,264	$	27,910
Change in fair value of derivative instruments		5,749		(9,995)		10,567		(9,999)
Foreign currency translation adjustment		(9,122)		(23,873)		(4,345)		(28,493)
Unrecognized net pension gains		144		129		416		387
(Provision) benefit for income taxes		(1,473)		2,457		(2,745)		2,394
Other comprehensive income (loss)		(4,702)		(31,282)		3,893		(35,711)
Comprehensive income (loss)	$	7,459	$	(17,781)	$	41,157	$	(7,801)

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
December 31,
2017

June 30,
2017

(unaudited)
(in thousands, except share
and per share amounts)
ASSETS
Cash and cash equivalents $ 40,185 $ 56,083
Short-term investments 27,000 —
Accounts receivable, net 132,242 125,847
Inventories, net 173,613 161,233
Other current assets 23,407 20,502
Total current assets 396,447 363,665
Property, plant and equipment, net 127,940 127,351
Intangibles, net 56,454 54,602
Goodwill 29,624 23,982
Other assets 52,665 53,797
Total assets $ 663,130 $ 623,397
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt $ 9,458 $ 6,250
Accounts payable 64,779 56,894
Accrued expenses and other current liabilities 52,999 52,652
Total current liabilities 127,236 115,796
Revolving credit facility 71,000 65,000
Long-term debt 235,910 241,891
Other liabilities 60,659 49,553
Total liabilities 494,805 472,240
Commitments and contingencies (Note 9)
Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 19,585,889 and 19,249,132 shares issued and outstanding at December 31, 2017, and June 30, 2017, respectively; 30,000,000 Class B shares authorized, 20,602,836 and 20,626,836 shares issued and outstanding at December 31, 2017, and June 30, 2017, respectively 4 4
Preferred stock, par value $0.0001 per share; 16,000,000 shares authorized, no shares issued and outstanding — —
Paid-in capital 127,540 123,840
Retained earnings 97,666 82,750
Accumulated other comprehensive income (loss) (56,885) (55,437)
Total stockholders’ equity 168,325 151,157
Total liabilities and stockholders’ equity $ 663,130 $ 623,397


	March 31,		June 30,
As of	2021		2020

	(in thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents	$	49,103	$	36,343
Short-term investments		44,000		55,000
Accounts receivable, net		135,562		126,522
Inventories, net		206,258		196,659
Other current assets		36,795		37,313
Total current assets		471,718		451,837
Property, plant and equipment, net		150,188		148,109
Intangibles, net		64,434		70,997
Goodwill		52,679		52,679
Other assets		65,998		60,478
Total assets	$	805,017	$	784,100
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt	$	23,437	$	18,750
Accounts payable		62,803		66,091
Accrued expenses and other current liabilities		82,651		72,397
Total current liabilities		168,891		157,238
Revolving credit facility		176,000		169,000
Long-term debt		180,786		199,257
Other liabilities		63,419		70,401
Total liabilities		589,096		595,896
Commitments and contingencies (Note 8)
Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 20,337,574 and 20,287,574 shares issued and outstanding at March 31, 2021, and June 30, 2020, respectively. 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at March 31, 2021, 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		136,654		135,525
Retained earnings		205,755		183,060
Accumulated other comprehensive loss		(126,492)		(130,385)
Total stockholders’ equity		215,921		188,204
Total liabilities and stockholders’ equity	$	805,017	$	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

Six Months
For the Periods Ended December 31 2017 2016
(unaudited)
(in thousands)
OPERATING ACTIVITIES
Net income $ 22,924 $ 25,594
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization 13,275 12,762
Amortization of debt issuance costs and debt discount 441 508
Acquisition-related cost of goods sold 1,671 —
Acquisition-related accrued compensation 924 840
Acquisition-related accrued interest 505 855
Pension settlement cost — 1,702
Deferred income taxes 5,725 3,736
Foreign currency (gains) losses, net 11 293
Other 418 310
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable, net (5,075) (1,583)
Inventories, net (10,845) 7,017
Other current assets (4,751) 919
Other assets 664 (512)
Accounts payable 7,473 (4,667)
Accrued expenses and other liabilities 3,733 (41)
Net cash provided (used) by operating activities 37,093 47,733
INVESTING ACTIVITIES
Purchases of short-term investments (27,000) —
Capital expenditures (8,851) (10,564)
Business acquisition (15,000) —
Other, net (716) (201)
Net cash provided (used) by investing activities (51,567) (10,765)
FINANCING ACTIVITIES
Revolving credit facility borrowings 109,870 73,000
Revolving credit facility repayments (103,870) (93,500)
Payments of long-term debt, capital leases and other (3,236) (2,776)
Proceeds from common shares issued 3,700 110
Dividends paid (8,008) (7,882)
Net cash provided (used) by financing activities (1,544) (31,048)
Effect of exchange rate changes on cash 120 (305)
Net increase (decrease) in cash and cash equivalents (15,898) 5,615
Cash and cash equivalents at beginning of period 56,083 33,605
Cash and cash equivalents at end of period $ 40,185 $ 39,220


	Nine Months
For the Periods Ended March 31	2021		2020

	(unaudited)
	(in thousands)
OPERATING ACTIVITIES
Net income	$	37,264	$	27,910
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization		24,042		24,177
Amortization of debt issuance costs		662		662
Stock-based compensation		1,129		1,694
Acquisition-related items		0		480
Deferred income taxes		18		(1,279)
Foreign currency (gains) losses, net		(7,293)		676
Other		389		620
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable, net		(8,410)		4,009
Inventories, net		(8,091)		6,584
Other current assets		3,746		(1,841)
Other assets		(1,019)		(1,369)
Accounts payable		(751)		(4,159)
Accrued expenses and other liabilities		3,550		(2,693)
Net cash provided by operating activities		45,236		55,471
INVESTING ACTIVITIES
Purchases of short-term investments		(50,000)		(55,000)
Maturities of short-term investments		61,000		24,000
Capital expenditures		(22,226)		(23,969)
Business acquisitions		-		(54,549)
Other, net		(164)		(1,339)
Net cash used by investing activities		(11,390)		(110,857)
FINANCING ACTIVITIES
Revolving credit facility borrowings		135,000		194,000
Revolving credit facility repayments		(128,000)		(144,000)
Payments of long-term debt and other		(14,063)		(9,486)
Dividends paid		(14,569)		(14,563)
Net cash provided (used) by financing activities		(21,632)		25,951
Effect of exchange rate changes on cash		546		(1,390)
Net increase (decrease) in cash and cash equivalents		12,760		(30,825)
Cash and cash equivalents at beginning of period		36,343		57,573
Cash and cash equivalents at end of period	$	49,103	$	26,748

The accompanying notes are an integral part of these consolidated financial statements

~~TABLE~~Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CONTENTS~~CHANGES IN STOCKHOLDERS’ EQUITY


										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
Comprehensive income	—		—		—		—		12,801		12,400		25,201
Dividends declared ($0.12 per share)	—		—		—		—		(4,855)		—		(4,855)
Stock-based compensation expense	—		—		—		564		—		—		564
As of December 31, 2020	40,453,608	$	4	$	—	$	136,654	$	198,454	$	(121,790)	$	213,322
Comprehensive income (loss)	—		—		—		—		12,161		(4,702)		7,459
Shares issued pursuant to stock incentive plan	50,000		—		—		—		—		—		—
Dividends declared ($0.12 per share)	—		—		—		—		(4,860)		—		(4,860)
Stock-based compensation expense	—		—		—		—		—		—		—
As of March 31, 2021	40,503,608	$	4	$	—	$	136,654	$	205,755	$	(126,492)	$	215,921


										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
Comprehensive income	—		—		—		—		11,894		3,118		15,012
Dividends declared ($0.12 per share)	—		—		—		—		(4,855)		—		(4,855)
Stock-based compensation expense	—		—		—		564		—		—		564
As of December 31, 2019	40,453,608	$	4	$	—	$	134,395	$	173,626	$	(90,610)	$	217,415
Comprehensive income (loss)	—		—		—		—		13,501		(31,282)		(17,781)
Dividends declared ($0.12 per share)	—		—		—		—		(4,854)		—		(4,854)
Stock-based compensation expense	—		—		—		565		—		—		565
As of March 31, 2020	40,453,608	$	4	$	—	$	134,960	$	182,273	$	(121,892)	$	195,345

The accompanying notes are an integral part of these consolidated financial statements

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, ~~automotive,~~ 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 and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2021 and ~~2016,~~2020, 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, ~~2017~~2020 (the “Annual Report”), filed with the Securities and Exchange Commission on August ~~30, 2017~~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, ~~2017,~~2020, was derived from the audited consolidated financial statements, ~~which include the accounts of Phibro and its consolidated subsidiaries,~~ 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 uncertain. Although vaccines are now available, distribution efforts vary widely country-by-country and state-by-state. New information may continue to emerge concerning COVID-19, and the actions required to contain or treat it may affect the duration and severity of the pandemic. The pandemic may have significant economic impacts on customers, suppliers and markets. The pandemic may affect our future revenues, expenses, reserves and allowances, manufacturing operations and employee-related costs. 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 infrom 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. As of ~~December~~March 31, ~~2017,~~2021, there have been no material changes to any of the significant accounting policies contained ~~therein, except for the addition of our policy on short-term investments.~~

~~Short-term Investments~~

Short-term investments include highly liquid investments with maturities of greater than three months and less than one year at the time of purchase. These investments are classified as held to maturity and related interest income is recorded as earned. We determine the appropriate balance sheet classification at the time of purchase and at each balance sheet date. Investments held at financial institutions may at times exceed insured amounts. We believe we mitigate such risk by investing in or through major financial institutions.

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.

Table of Contents

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. For the three~~options and ~~six months ended December 31, 2017 and 2016, all~~vesting of restricted stock units. All common share equivalents were included in the calculation of diluted net income per ~~share.~~

~~TABLE OF CONTENTS~~

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

Three Months Six Months
For the Periods Ended December 31 2017 2016 2017 2016
Net income $ 7,032 $ 13,417 $ 22,924 $ 25,594
Weighted average number of shares – basic 40,186 39,411 40,065 39,409
Dilutive effect of stock options 178 591 264 545
Weighted average number of shares – diluted 40,364 40,002 40,329 39,954
Net income per share
basic $ 0.17 $ 0.34 $ 0.57 $ 0.65
diluted $ 0.17 $ 0.34 $ 0.57 $ 0.64

share in the periods included in the consolidated financial statements.


	Three Months				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020
Net income	$	12,161	$	13,501	$	37,264	$	27,910
Weighted average number of shares – basic		40,483		40,454		40,463		40,454
Dilutive effect of stock options and restricted stock units		21		50		41		50
Weighted average number of shares – diluted		40,504		40,504		40,504		40,504
Net income per share
basic	$	0.30	$	0.33	$	0.92	$	0.69
diluted	$	0.30	$	0.33	$	0.92	$	0.69

New Accounting Standards

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) ~~2017-12,~~ ~~Derivatives~~2020-04 and ~~Hedging~~2021-01, Reference Rate Reform (Topic ~~815): Targeted Improvements~~848), provide optional expedients and exceptions to ~~Accounting~~GAAP guidance, if certain criteria are met, for ~~Hedging Activities~~ ~~simplifies~~contracts, hedging relationships and derivative instruments that reference the ~~application~~London Interbank Offered Rate (LIBOR) and other interbank offered rates expected to be discontinued or modified by rate reform. The overall purpose of ~~hedge accounting guidance and improves~~Topic 848 is to ease the financial reporting ofburdens related to the expected market transition to alternative reference rates. These ASUs may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. We continue to better portray the economic results of an entity’s risk management activities in its financial statements. We elected early adoption of this guidance and applied the qualitative method, and it did not have a material effect on our consolidated financial statements. For additional details, see “—Derivatives.”

~~ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, provides specific guidance for the classification of certain transactions within the statement of cash flows. The issues addressed by this guidance include, but are not limited to, debt prepayments or debt extinguishment costs, contingent consideration payments made after a business combination and proceeds from the settlement of insurance claims. This ASU is effective for annual reporting periods beginning after December 15, 2017. Early application is permitted, as long as all provisions under the guidance are applied simultaneously. The provisions of this guidance are to be applied using a retrospective transition approach. We do not expect adoption of this guidance to have a material effect on our consolidated financial statements.

~~ASU 2016-02,~~ ~~Leases (Topic 842)~~, supersedes the current lease accounting guidance, requires an entity to recognize assets and liabilities for both financing and operating leases on the balance sheet and requires additional qualitative and quantitative disclosures regarding leasing arrangements. This ASU is effective for annual reporting periods beginning after December 15, 2018. We are evaluatingevaluate the effect of adoption of this guidance on our consolidated financial statements.

ASU ~~2015-11,~~ ~~Inventory~~2019-12, Income Taxes (Topic ~~330)~~740): Simplifying the Accounting for Income Taxes, ~~requires entities to measure inventory at the lower of cost~~removes certain exceptions and ~~net realizable value (“NRV”). NRV is defined as “the estimated selling prices~~amends certain requirements in the ~~ordinary course~~existing income tax guidance to ease accounting requirements. ASU 2019-12 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 ~~business, less reasonably predictable costs~~adoption of ~~completion, disposal, and transportation.” We adopted~~ 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 itother postretirement plans. ASU 2018-14 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 disclosures.

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. ASU 2018-13 was effective for fiscal years beginning after December 15, 2019. The adoption did not have a material effect on our ~~consolidated financial statements.~~

~~ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606), establishes principles~~fair value measurement disclosures.

3. Statements of Operations—Additional Information

Disaggregated revenue, deferred revenue and customer payment terms

We develop, manufacture and market a broad range of products for ~~the recognition of revenue from contracts with customers.~~food animals including poultry, swine, beef and dairy cattle, and aquaculture. The ~~underlying principle is~~products help prevent, control and treat diseases, enhance nutrition to ~~identify the performance obligations of a contract, allocate the revenue~~help improve health and contribute to ~~each performance obligation~~balanced mineral nutrition. The animal health and ~~then~~mineral nutrition products are sold directly to ~~recognize revenue when the company satisfies a specific performance obligation~~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 ~~contract. ASU 2014-09~~animal health products in a particular region are affected by changing disease pressures and ~~its amendments~~by weather conditions, as product usage follows varying weather patterns and seasons. Our operations are ~~effective for our~~primarily focused in regions where the majority of livestock production is consolidated ~~financial statements beginning July 1, 2018. We expect to apply the new standard using the modified retrospective method. We continue to evaluate the effect that the adoption~~in large commercial farms.

Table of ~~this guidance may have on our consolidated financial statements.~~

~~TABLE OF CONTENTS~~Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~Statements~~

We have a diversified portfolio of ~~Operations—Additional Information~~

Three Months Six Months
For the Periods Ended December 31 2017 2016 2017 2016
Interest expense, net
Term loan $ 2,110 $ 2,866 $ 4,143 $ 5,771
Revolving credit facility 739 731 1,420 1,686
Amortization of debt issuance costs and debt discount 220 255 441 508
Acquisition-related accrued interest 252 462 505 855
Other 2 47 241 128
Interest expense 3,323 4,361 6,750 8,948
Interest (income) (273) (489) (582) (1,169)
$ 3,050 $ 3,872 $ 6,168 $ 7,779
Depreciation and amortization
Depreciation of property, plant and equipment $ 5,222 $ 4,952 $ 10,405 $ 9,683
Amortization of intangible assets 1,397 1,434 2,846 2,962
Amortization of other assets 12 58 24 117
$ 6,631 $ 6,444 $ 13,275 $ 12,762

~~Balance Sheets—Additional Information~~

As of
December 31,
2017

June 30,
2017

Inventories
Raw materials $ 65,976 $ 54,861
Work-in-process 13,325 12,402
Finished goods 94,312 93,970
$ 173,613 $ 161,233

~~In September 2017, we acquired a~~products that are classified within our three business ~~for $15,000.~~ segments—Animal Health, Mineral Nutrition and Performance Products. Each segment has its own dedicated management and sales team.

Animal Health

The Animal Health business develops, manufactures and markets ~~animal health~~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 produce and market adjuvants to vaccine manufacturers. We have developed and market an innovative and proprietary delivery platform for vaccines.

Mineral Nutrition

The Mineral Nutrition business is comprised of formulations and concentrations of trace minerals such as zinc, manganese, copper, iron, and other compounds, with a focus on customers in North America. Our customers use these products to fortify the daily feed requirements of their livestock’s diets and maintain an optimal balance of trace elements in each animal. We ~~accounted~~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 specialty ingredients for use in the ~~acquisition~~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				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020
Animal Health
MFAs and other	$	78,530	$	82,670	$	238,810	$	249,659
Nutritional specialties		36,978		34,636		105,972		98,131
Vaccines		18,872		21,668		54,205		56,723
Total Animal Health	$	134,380	$	138,974	$	398,987	$	404,513
Mineral Nutrition		58,153		56,200		163,750		164,534
Performance Products		19,196		15,565		50,335		45,424
Total	$	211,729	$	210,739	$	613,072	$	614,471

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net Sales by Region


	Three Months				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020
United States	$	129,370	$	126,826	$	370,446	$	368,230
Latin America and Canada		37,386		40,284		115,808		119,730
Europe, Middle East and Africa		27,802		31,958		84,959		83,311
Asia Pacific		17,171		11,670		41,859		43,200
Total	$	211,729	$	210,739	$	613,072	$	614,471

Net sales by region are based on country of destination.

Deferred revenue was $3,815 and $4,570 as ~~a business combination in accordance with ASC 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. Net assets acquired included accounts receivable, inventories, property, plantof March 31, 2021, and ~~equipment, intangible assets, goodwill, accounts payable, accrued~~June 30, 2020, respectively. Accrued expenses and other ~~liabilities. Goodwill~~current liabilities included $1,325 and $1,109 of the total deferred revenue as of March 31, 2021, and June 30, 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 sales prices of the individual products or services.

Our customer payment terms generally range from 30 to 120 days globally and do not ~~deductible~~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 ~~income tax purposes. We may further refine~~accounts receivable is approximately 60 days after the ~~determination~~revenue is recognized.

Interest Expense and Depreciation and Amortization


	Three Months				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020
Interest expense, net
Term loan	$	1,857	$	1,888	$	5,796	$	5,967
Revolving credit facility		938		1,400		3,017		4,361
Amortization of debt issuance costs		221		220		662		662
Other		65		153		191		441
Interest expense		3,081		3,661		9,666		11,431
Interest income		(148)		(398)		(709)		(1,382)
	$	2,933	$	3,263	$	8,957	$	10,049

	Three Months				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020
Depreciation and amortization
Depreciation of property, plant and equipment	$	5,763	$	5,824	$	17,479	$	17,395
Amortization of intangible assets		2,155		2,325		6,563		6,659
Amortization of other assets		—		99		0		123
	$	7,918	$	8,248	$	24,042	$	24,177

Table of ~~certain assets and liabilities during the measurement period. The business is included in the Animal Health segment.~~Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of
December 31,
2017

June 30,
2017

Goodwill roll-forward
Balance at beginning of period $ 23,982 $ 21,121
Purchase price allocation adjustment — 2,861
Acquisition 5,642 —
Balance at end of period $ 29,624 $ 23,982

4. Balance Sheets—Additional Information


	March 31,		June 30,
As of	2021		2020
Inventories
Raw materials	$	61,457	$	73,837
Work-in-process		11,587		8,881
Finished goods		133,214		113,941
	$	206,258	$	196,659


	March 31,		June 30,
As of	2021		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


	March 31,		June 30,
As of	2021		2020
Other assets
ROU operating lease assets	$	31,842	$	22,873
Deferred income taxes		8,245		11,430
Deposits		5,024		5,158
Insurance investments		5,891		5,801
Equity method investments		4,290		4,219
Fair value of derivative		2,705		—
Indemnification asset		0		3,000
Debt issuance costs		638		1,021
Other		7,363		6,976
	$	65,998	$	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 ~~$3,905~~$2,583 equity investment are currently ~~idled; we have~~idle. We concluded the investment is not ~~currently~~ impaired based on expected future operating cash flows ~~and/or~~and disposal value.


	March 31,		June 30,
As of	2021		2020
Accrued expenses and other current liabilities
Employee-related	$	30,823	$	25,825
Current operating lease liabilities		6,354		6,439
Commissions and rebates		6,545		5,782
Professional fees		6,284		5,766
Income and other taxes		3,466		3,821
Derivatives		5,325		5,757
Contingent consideration		4,840		—
Restructuring costs		1,135		2,314
Insurance-related		1,360		1,272
Other		16,519		15,421
	$	82,651	$	72,397

In connection with productivity and cost-saving initiatives in the Animal Health segment, we incurred business restructuring costs related to the termination of a contract manufacturing agreement and employee separation charges.

~~TABLE OF CONTENTS~~Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of
December 31,
2017

June 30,
2017

Accrued expenses and other current liabilities
Employee related $ 22,590 $ 26,553
Commissions and rebates 5,830 6,443
Insurance related 1,549 1,515
Professional fees 3,944 3,823
Income and other taxes 4,000 3,035
Other 15,086 11,283
$ 52,999 $ 52,652

As of
December 31,
2017

June 30,
2017

Accumulated other comprehensive income (loss)
Derivative instruments $ 1,788 $ 2,686
Foreign currency translation adjustment (45,328) (43,556)
Unrecognized net pension gains (losses) (17,833) (18,059)
(Provision) benefit for income taxes on derivative instruments (483) (1,553)
(Provision) benefit for incomes taxes on long-term intercompany investments 8,166 8,166
(Provision) benefit for income taxes on pension gains (losses) (3,195) (3,121)
$ (56,885) $ (55,437)

The following table summarizes the activity of the restructuring liability during the nine months ended March 31, 2021:


Liability balance at June 30, 2020	$	2,860
Charges		0
Payments		(1,725)
Liability balance at March 31, 2021	$	1,135

As of March 31, 2021, $800 and $335 of the restructuring liability balance related to contract termination and employee separation costs, respectively.


	March 31,		June 30,
As of	2021		2020
Other liabilities
Long-term operating lease liabilities	$	27,007	$	17,276
Long-term and deferred income taxes		12,366		11,680
Supplemental retirement benefits, deferred compensation and other		8,463		8,067
International retirement plans		5,360		5,499
U.S. pension plan		1,349		3,563
Derivatives		261		7,691
Contingent consideration		0		4,840
Restructuring costs		0		546
Other long-term liabilities		8,613		11,239
	$	63,419	$	70,401


	March 31,		June 30,
As of	2021		2020
Accumulated other comprehensive income (loss)
Derivative instruments	$	(2,881)	$	(13,448)
Foreign currency translation adjustment		(108,083)		(103,738)
Unrecognized net pension losses		(22,155)		(22,571)
Benefit for income taxes on derivative instruments		615		3,256
Benefit for incomes taxes on long-term intercompany investments		8,166		8,166
Provision for income taxes on net pension losses		(2,154)		(2,050)
	$	(126,492)	$	(130,385)

5. Debt

Term Loans and Revolving Credit Facilities

~~Pursuant to a~~

2021 Credit Agreement – Subsequent Event

In April 2021, we entered into an amended and restated credit agreement (the ~~“Credit~~“2021 Credit Agreement”), under which we have a term A loan in an aggregate initial principal amount of $300,000 (the “2021 Term A Loan”) and a revolving credit facility ~~(the “Revolver”), where~~under which we can borrow up to $250,000, subject to the terms of the agreement (the “2021 Revolver” and together with the 2021 Term A Loan, the “2021 Credit Facilities”). The 2021 Credit Agreement amends and restates the credit agreement entered into in June 2017 (the “2017 Credit Agreement”). The 2021 Credit Facilities were used to refinance all of the Term A loans and revolving credit facility amounts outstanding under the 2017 Credit Agreement and to pay fees and expenses of the transaction. The 2021 Revolver contains a letter of credit facility. The 2021 Credit Facilities mature in April 2026. Refer to “Note 12 – Subsequent Event” for further information.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2017 Credit Agreement

At March 31, 2021, under the 2017 Credit Agreement, we had a term A loan with an aggregate initial principal amount of $250,000 (the ~~“Term~~“2017 Term A ~~Loan,”~~Loan”) and a revolving credit facility under which we could borrow up to $250,000, subject to the terms of the agreement (the “2017 Revolver” and together with the ~~Revolver,~~2017 Term A Loan, the ~~“Credit~~“2017 Credit Facilities”). The interest rate per annum applicable to the loans under the 2017 Credit Facilities ~~have~~was based on a 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 are~~rates were based on the First Lien Net Leverage Ratio, as defined in the 2017 Credit Agreement. The ~~libor~~LIBOR rate iswas subject to a floor of 0.00%.

The 2017 Credit Facilities ~~require,~~would have matured in June 2022.

The 2017 Credit Agreement required, among other things, ~~the maintenance of~~compliance with financial covenants that permitted: (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 2017 Credit Agreement contained an acceleration clause should an event of default (as defined in the ~~agreement governing the~~2017 Credit ~~Facilities)~~Agreement) occur. As of ~~December~~March 31, ~~2017,~~2021, we were in compliance with the ~~covenants of the Credit Facilities. The Credit Facilities mature on June 29, 2022.~~

financial covenants.

As of ~~December~~March 31, ~~2017,~~2021, we had ~~$71,000~~$176,000 in borrowings under the 2017 Revolver and had outstanding letters of credit of ~~$4,606,~~$2,709, leaving ~~$174,394~~$71,291 available for borrowings and letters of credit under the 2017 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 or less.~~

~~The weighted-average interest rates for the Revolver and Term A Loan were 3.01% and 3.29%, respectively, for the six months ended December 31, 2017.~~

~~TABLE OF CONTENTS~~

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

year.

In July 2017, we entered into an interest rate swap agreement on ~~$150 million~~$150,000 of notional principal that effectively converts the floating LIBOR ~~or base rate~~ 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 with~~in June 2022. We designated the ~~Credit Agreement. The~~ interest rate swap ~~has been designated~~ as a highly effective cash flow hedge. For additional details, see “—“Note 9 — 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 0.62%, plus the applicable rate. In July 2022, this agreement increases to a notional principal amount of $300,000 through June 2025, and effectively converts the floating LIBOR portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.62%, plus the applicable rate. We designated the interest rate swaps as highly effective cash flow hedges. For additional details, see “Note 9 — Derivatives.”

The 2017 and 2020 interest rate swap agreements will continue to remain in place on our interest obligations associated with the 2021 Credit Facilities.

As of March 31, 2021, the interest rates for the 2017 Revolver and the 2017 Term A Loan were 2.14% and 3.26%, respectively. The weighted-average interest rates for the 2017 Revolver were 2.25% and 3.44% for the nine months ended March 31, 2021 and 2020, respectively. The weighted-average interest rates for the 2017 Term A Loan were 3.36% and 3.45% for the nine months ended March 31, 2021 and 2020, respectively.

Long-Term Debt

As of
December 31,
2017

June 30,
2017

Term A Loan due June 2022 $ 246,875 $ 250,000
Capitalized lease obligations 166 —
247,041 250,000
Unamortized debt issuance costs and debt discount (1,673) (1,859)
245,368 248,141
Less: current maturities (9,458) (6,250)
$ 235,910 $ 241,891


	March 31,		June 30,
As of	2021		2020
2017 Term A Loan due June 2022	$	204,687	$	218,750
Unamortized debt issuance costs		(464)		(743)
		204,223		218,007
Less: current maturities		(23,437)		(18,750)
	$	180,786	$	199,257

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. Leases

Our lease portfolio consists of real estate, vehicles and equipment ROU assets, classified as operating leases. During the three months ended March 31, 2021, we amended and extended the lease agreement for our corporate office, increasing the value of our lease commitments. The remaining non-cancelable lease terms, inclusive of renewal options reasonably certain of exercise, range from one to 15 years.

The following table summarizes the ROU assets and the related lease liabilities recorded on the consolidated balance sheet:


	March 31,		June 30,
As of	2021		2020		Balance Sheet Classification
Assets:
Operating lease ROU assets	$	31,842	$	22,873	Other Assets

Liabilities:
Current portion		6,354		6,439	Accrued expenses and other current liabilities
Non-current portion		27,007		17,276	Other liabilities
Total operating lease liabilities	$	33,361	$	23,715


As of	March 31, 2021		June 30, 2020
Weighted average remaining lease term (in years) - ROU operating leases	8.61		6.49
Weighted average discount rate - ROU operating leases	4.07	%	4.40	%

The following table summarizes the composition of net lease expense:


	Three Months Ended				Nine Months Ended
	March 31,					March 31,
	2021		2020		2021		2020

Operating lease expense	$	1,919	$	1,885	$	5,901		5,647
Variable lease expense		317		361		928		992
Short-term lease expense		219		196		622		613
Total lease expense	$	2,455	$	2,442	$	7,451	$	7,252

The following table includes supplemental cash flow information:


	Nine Months Ended
	March 31,
	2021		2020
Operating cash flows used for ROU operating leases	$	6,131	$	5,529
Right of use assets obtained in exchange for new operating lease liabilities	$	13,882	$	8,591

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At March 31, 2021, maturities of future lease liabilities were:


For the Years Ending June 30,
2021	$	2,047
2022		7,047
2023		5,143
2024		4,101
2025		3,320
2026 and thereafter		18,357
Total lease payments		40,015
Less: interest		6,654
Total operating lease liabilities	$	33,361

There were no significant future payment obligations related to executed lease agreements for which the related lease had not yet commenced as of March 31, 2021. Our lease agreements do not contain any material restrictive covenants or residual guarantee provisions.

7. 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 ~~$409~~$372 and ~~$1,129~~$364 during the three ~~and six~~ months ended ~~December~~March 31, ~~2017,~~2021 and 2020, respectively, and ~~$445~~$1,297 and ~~$1,047~~$1,204 during the ~~three and six~~nine months ended ~~December~~March 31, ~~2016,~~2021 and 2020, respectively. Mr. Bendheim has sole authority to vote shares of our stock owned by BFI Co., LLC, an investment vehicle of the Bendheim family.

~~Employee Benefit Plans~~

The Company maintains a noncontributory defined benefit pension plan for all domestic nonunion employees employed on or prior to December 31, 2013, who meet certain requirements of age, length of service and hours worked per year. Plan benefits are based upon years of service and average compensation, as defined.

In July 2016, we amended the domestic noncontributory defined benefit pension plan to eliminate credit for future service and compensation increases, effective as of September 30, 2016. The amendment resulted in a curtailment of the pension plan. During the three months ended September 30, 2016, we recorded a pension curtailment gain of $6,822 in other comprehensive income and an offsetting reduction in the liability for pension benefits included in other liabilities.

During the three month ended December 31, 2016, we recognized a partial settlement of the pension plan, which resulted in a charge to the consolidated statements of operations of $1,702, which was recorded as a component of selling, general and administrative expenses.

~~Income Taxes~~

The United States government enacted comprehensive income tax legislation (the “Tax Act”) in December 2017. The Tax Act makes broad and complex changes to United States income tax law and includes numerous elements that affect the Company, including a reduced federal corporate income tax rate and changes to business-related exclusions, deductions and credits. The Tax Act also has consequences related to our international operations.

~~Our consolidated financial statements as of December 31, 2017, and for the three and six months then ended, reflect the estimated effects of the Tax Act, including:~~

•

~~a $2,450 provision for income taxes and reduction in deferred tax assets for the remeasurement of deferred tax assets and liabilities to reflect the reduced income tax rate;~~

~~TABLE OF CONTENTS~~

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

•

a $4,249 provision for income taxes and increase in current and long-term liabilities to reflect the one-time mandatory toll charge on the deemed repatriation of undistributed earnings of foreign subsidiaries;

•

an update to the provision for income taxes to reflect a statutory 28.1% weighted-average federal income tax rate and other elements of the Tax Act in effect for our fiscal year ending June 30, 2018. The statutory federal income tax rate will be 21.0% for our fiscal year beginning July 1, 2018.

We have recorded reasonable estimates of the effects of the Tax Act; however, we have not completed the analysis of all necessary information, including our assessment of a potential provision for Global Intangible Low-Taxed Income wherein taxes on certain foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. As such, we have recorded provisional amounts and may adjust such amounts as we complete our analysis. The final financial statement effects of the Tax Act may differ from the provisional amounts, possibly materially, due to, among other things, changes in interpretations, legislative action to address questions that arise because of the Tax Act, changes in accounting standards for income taxes or related interpretations, or any updates or changes to estimates we have utilized.

~~Our consolidated financial statements as of December 31, 2017, and for the three and six months then ended, also reflect the following discrete income tax related items:~~

•

~~a $527 provision for income taxes and a reduction in accumulated other comprehensive income (“AOCI”)~~

8. ~~The provision was necessary to eliminate the income taxes remaining in AOCI after all related foreign currency derivatives had matured and were completely cleared from AOCI;~~

•

~~a $1,000 provision for income taxes and a reduction in deferred tax assets for the remeasurement of deferred tax assets to reflect a reduced income tax rate in certain international jurisdictions.~~

•

a $387 net provision and a $2,359 benefit from the exercise of employee stock options for the three and six months ended December 31, 2017, respectively. The net provision from the exercise of employee stock options included a $460 provision to adjust the benefit recognized in the three months ended September 30, 2017, to the reduced income tax rate.

Commitments and Contingencies

Environmental

Our operations and properties are subject to extensive federal, state, local and foreign laws and regulations, including those governing pollution; protection of the environment; the use, management, and release of hazardous materials, substances and wastes; air emissions; greenhouse gas emissions; water use, supply and discharges; the investigation and remediation of contamination; the manufacture, distribution, and sale of regulated materials, including pesticides; the importing, exporting and transportation of products; and the health and safety of our employees (collectively, “Environmental Laws”). As such, the nature of our current and former operations exposes us to the risk of claims with respect to such matters, including fines, penalties, and remediation obligations that may be imposed by regulatory authorities.

Under certain circumstances, we might be required to curtail operations until a particular problem is remedied. Known costs and expenses under Environmental Laws incidental to ongoing operations, including the cost of litigation proceedings relating to environmental matters, are included within operating results. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under Environmental Laws or to investigate or remediate potential or actual contamination, and from time to time we establish reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under Environmental Laws and the ~~time~~ period during which such costs are likely to be incurred are difficult to predict.

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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~~on 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 ~~a facility in~~the Santa Fe Springs, California ~~operated by~~facility of our subsidiary, Phibro-Tech, Inc. ~~(“Phibro-Tech”~~("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 Chemical 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 nearby property owner has filed a complaint in~~ the ~~Superior Court~~members of the State of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for alleged contamination of groundwater underneath its property, and a group of companies that sent chemicals to the Omega Chemical Site for processing and recycling hasOPOG filed a complaint under ~~CERCLA, RCRA~~the Comprehensive Environmental Response, Compensation, and Liability Act and the ~~common law public nuisance doctrine~~Resource Conservation and Recovery Act in the United States District Court for the Central District of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for contribution toward past and future costs associated with the investigation and remediation of the groundwater plume affected by the Omega Chemical Site. Due to the ongoing nature of the EPA’s investigation, the preliminary stage of the ongoing litigation and Phibro-Tech’s dispute with the prior owner’s successor, at this time we cannot predict with any degree of certainty what, if any, liability Phibro-Tech or the other subsidiaries may ultimately have for investigation, remediation and the EPA oversight and response costs associated with the affected groundwater plume.

Based upon information available, to the extent such costs can be estimated with reasonable certainty, we estimated the cost for further investigation and remediation of identified soil and groundwater problems at operating sites, closed sites and third-party sites, and closure costs for closed sites, to be approximately ~~$6,866~~$4,305 and ~~$7,211 at December~~$5,254 as of March 31, ~~2017,~~2021, and June 30, ~~2017,~~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

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

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Claims and Litigation

PAHC and its subsidiaries are party to ~~a number of~~various 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 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.~~

9. 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 “—“Note 10 — Fair Value Measurements.”

~~The outstanding derivatives that are designated and effective as cash flow hedges as of December 31, 2017 were:~~

Instrument Hedge Notional
Amount at
December 31,
2017 Consolidated
Balance Sheet Fair value as of
December 31,
2017 June 30,
2017
Options Brazilian Real calls R$— Other current assets $ — $ 2,686
Swap Interest rate swap $150,000 Other assets $ 1,788 $ —

~~The following tables show the effects of derivatives on the consolidated statements of operations and other comprehensive income for the three and six months ended December 31, 2017 and 2016.~~

For the Three Months Ended December 31
Instrument Hedge Gain (Loss) recorded in OCI Gain (Loss) recognized in
consolidated statements of operations Consolidated Statement
of Operations Line
Item Total
2017 2016 Consolidated
Statement
of Operations 2017 2016 2017 2016
Options Brazilian
Real calls $ (1,781) $ 270 Cost of goods sold $ 517 $ (393) $ 138,957 $ 128,100
Swap Interest rate
swap $ 1,505 $ — Interest expense, net $ — $ — $ 3,050 $ 3,872

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

For the Six Months Ended December 31
Instrument Hedge Gain (Loss) recorded in OCI Gain (Loss) recognized in
consolidated statements of operations Consolidated Statement
of Operations Line
Item Total
2017 2016 Consolidated
Statement
of Operations 2017 2016 2017 2016
Options Brazilian Real calls $ (2,686) $ 304 Cost of goods sold $ 703 $ (1,528) $ 268,987 $ 255,088
Swap Interest rate
swap $ 1,788 $ — Interest expense, net $ — $ — $ 6,168 $ 7,779

The foreign currency derivatives generally had a maturity of two years or less; no foreign currency derivatives were outstanding as of December 31, 2017. The foreign currency derivatives were intended to hedge cash flows related to the purchase of inventory. For the six months ended December 31, 2017, realized gains of $3,254 related to matured contracts were recorded as a component of inventory. We anticipate these gains will be recognized as an offset to cost of goods sold within the next twelve months. At June 30, 2017, net realized gains of $966 related to matured contracts were recorded as a component of inventory. We recognized $703 of these gains in cost of goods sold during the six months ended December 31, 2017, and anticipate we will recognize the remaining $263 of these gains in costs of goods sold in the three months ending March 31, 2018. We recognize gains (losses) related to these derivative instruments as a component of cost of goods sold at the time the hedged item is sold.

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 ~~or base rate~~ 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 with~~in June 2022. In March 2020, we entered into an interest rate swap agreement on an additional $150,000 of notional principal that effectively converts the ~~Credit Agreement.~~floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.62% 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 2025, and effectively converts the floating LIBOR portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.62% 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 ~~fair value~~individual option contracts mature monthly through February 2023. The forecasted inventory purchases are probable of occurring and the ~~interest rate swap agreement is recorded~~individual option contracts were designated as ~~an asset or liability with a corresponding amount included in accumulated~~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 March 31, 2021:


		Notional			Fair value as of
		Amount at		Consolidated	March 31,		June 30,
Instrument	Hedge	March 31, 2021		Balance Sheet	2021		2020
Options	Brazilian Real calls	R$	132,000	(1)	$	431	$	126
Options	Brazilian Real puts	R$	132,000	(1)	$	(2,710)	$	(3,900)
Swap	Interest rate swaps	$	300,000	(2)	$	(602)	$	(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 March 31, 2021, and June 30, 2020, accrued expenses and other current liabilities included net fair values of $2,018 and $2,477, respectively. As of March 31, 2021, and June 30, 2020, other liabilities included net fair values of $261 and $1,297, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(2)

We classify the current and noncurrent amounts associated with our interest rate swaps based on the expected timing of the cash flows. As of March 31, 2021, and June 30, 2020, accrued expenses and other current liabilities included net fair values of $3,307 and $3,280, respectively. As of March 31, 2021, other assets included net fair values of $2,705.As of June 30, 2020, other liabilities included net fair values of $6,394.

The following tables show the effects of derivatives on the consolidated statements of operations and other comprehensive income ~~(loss).~~

~~11.~~

(“OCI”) for the three and nine months ended March 31, 2021 and 2020.


											Consolidated Statement
						Gain (Loss) recognized in consolidated					of Operations line
For the Three Months Ended March 31		Gain (Loss) recorded in OCI				statements of operations					item total
						Consolidated
						Statement of
Instrument	Hedge	2021		2020		Operations	2021		2020		2021		2020
Options	Brazilian Real puts and calls	$	(836)	$	(3,945)	Cost of goods sold	$	(384)	$	(8)	$	142,564	$	141,188
Swap	Interest rate swap	$	6,585	$	(6,050)	Interest expense, net	$	(825)	$	59	$	2,933	$	3,263


											Consolidated Statement
						Gain (Loss) recognized in					of Operations line
For the Nine Months Ended March 31		Gain (Loss) recorded in OCI				consolidated statements of operations					item total
						Consolidated
						Statement
Instrument	Hedge	2021		2020		of Operations	2021		2020		2021		2020
Options	Brazilian Real puts and calls	$	1,495	$	(3,886)	Cost of goods sold	$	(521)	$	(116)	$	411,523	$	418,153
Swap	Interest rate swap	$	9,072	$	(6,113)	Interest expense, net	$	(2,466)	$	228	$	8,957	$	10,049

We recognize gains (losses) related to foreign currency derivatives as a component of cost of goods sold at the time the hedged item is sold. Realized net losses of $1,826 related to matured contracts were recorded as a component of inventory as of March 31, 2021. We anticipate the net losses included in inventory will be recognized in cost of goods sold within the next twelve months.

10. Fair Value Measurements

Short-term investments

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 ~~the~~these items.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Contingent Consideration on Acquisitions

We determine the fair value of contingent consideration on acquisitions based on contractual terms, our current forecast of performance factors related to the acquired business and an applicable discount rate.

Debt

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

Derivatives

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

Non-financial assets

Our non-financial assets, which primarily consist of goodwill, other intangible assets, property and ~~interest rate curves.~~

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

Fair Value of Assets (Liabilities)

As of December 31, 2017 June 30, 2017
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Short-term investments $ 27,000 $ — $ — $ — $ — $ —
Derivatives asset $ — $ — $ — $ — $ 2,686 $ —
Interest rate swap $ — $ 1,788 $ — $ — $ — $ —
Contingent consideration on
acquisitions $ — $ — $ (8,079) $ — $ — $ (7,644)

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


	March 31, 2021						June 30, 2020
As of	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Short-term investments	$	44,000	$	—	$	—	$	55,000	$	0	$	0
Foreign currency derivatives	$	—	$	(2,279)	$	—	$	0	$	(3,774)	$	0
Interest rate swaps	$	—	$	(602)	$	—	$	0	$	(9,674)	$	0
Contingent consideration on acquisitions	$	—	$	—	$	(4,840)	$	0	$	0	$	(4,840)

There were 0 transfers between levels during the periods presented.

The ~~table below provides a summary of~~contingent consideration on acquisitions is the ~~changes~~minimum amount payable in accordance with the ~~fair value of Level 3 assets (liabilities):~~


~~Balance, June 30, 2017~~	$	~~(7,644~~)
~~Acquisition-related accrued interest~~		~~(505~~)
~~Payment~~		70
~~Balance, December 31, 2017~~	$	~~(8,079~~)

~~12.~~

acquisition agreement for Osprey.

11. Business Segments

The Animal Health segment manufactures and markets a broad range of products for food animals, including poultry, swine, cattle, dairy and aquaculture. The business includes net sales of medicated feed additives and other related products, nutritional specialty products and vaccines. The Mineral Nutrition segment manufactures and markets a broad range of trace minerals for food animals. The Performance Products segment manufactures and markets a variety of products for use in the personal care, automotive, industrial chemical and chemical catalyst industries.

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. ~~Corporate assets include cash and cash equivalents, certain debt issue costs, income tax related assets and certain other assets.~~

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 Six Months
For the Periods Ended December 31 2017 2016 2017 2016
Net sales
Animal Health $ 132,845 $ 123,673 $ 261,686 $ 248,174
Mineral Nutrition 59,616 56,699 111,689 108,291
Performance Products 13,415 11,226 25,913 23,120
Total segments $ 205,876 $ 191,598 $ 399,288 $ 379,585
Depreciation and amortization
Animal Health $ 5,265 $ 5,011 $ 10,519 $ 9,909
Mineral Nutrition 584 542 1,169 1,084
Performance Products 259 235 505 453
Total segments $ 6,108 $ 5,788 $ 12,193 $ 11,446
Adjusted EBITDA
Animal Health $ 35,036 $ 34,609 $ 68,778 $ 67,228
Mineral Nutrition 5,614 4,741 9,330 8,729
Performance Products 264 260 512 1,002
Total segments $ 40,914 $ 39,610 $ 78,620 $ 76,959

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

Three Months Six Months
For the Periods Ended December 31 2017 2016 2017 2016
Reconciliation of income before income taxes to Adjusted EBITDA
Income before income taxes $ 21,211 $ 19,304 $ 40,155 $ 36,876
Interest expense, net 3,050 3,872 6,168 7,779
Depreciation and amortization – Total segments 6,108 5,788 12,193 11,446
Depreciation and amortization – Corporate 523 656 1,082 1,316
Corporate costs 8,436 8,416 16,025 15,940
Acquisition-related cost of goods sold 1,422 — 1,671 —
Acquisition-related accrued compensation 487 420 924 840
Acquisition-related transaction costs — — 400 1,274
Pension settlement cost — 1,702 — 1,702
Foreign currency (gains) losses, net (323) (548) 2 (214)
Adjusted EBITDA – Total segments $ 40,914 $ 39,610 $ 78,620 $ 76,959

As of
December 31,
2017

June 30,
2017

Identifiable assets
Animal Health $ 465,058 $ 442,521
Mineral Nutrition 63,407 55,184
Performance Products 23,541 23,681
Total segments 552,006 521,386
Corporate 111,124 102,011
Total $ 663,130 $ 623,397


	Three Months				Nine Months
For the Periods Ended March 31	2021		2020		2021		2020
Net sales
Animal Health	$	134,380	$	138,974	$	398,987	$	404,513
Mineral Nutrition		58,153		56,200		163,750		164,534
Performance Products		19,196		15,565		50,335		45,424
Total segments	$	211,729	$	210,739	$	613,072	$	614,471

Depreciation and amortization
Animal Health	$	6,457	$	6,665	$	19,476	$	19,760
Mineral Nutrition		646		629		2,042		1,871
Performance Products		416		509		1,284		1,303
Total segments	$	7,519	$	7,803	$	22,802	$	22,934

Adjusted EBITDA
Animal Health	$	30,962	$	34,635	$	94,412	$	93,534
Mineral Nutrition		5,232		4,055		12,464		11,214
Performance Products		2,929		1,506		7,167		3,815
Total segments	$	39,123	$	40,196	$	114,043	$	108,563
Reconciliation of income before income taxes to Adjusted EBITDA
Income before income taxes	$	17,782	$	18,664	$	50,343	$	39,131
Interest expense, net		2,933		3,263		8,957		10,049
Depreciation and amortization – Total segments		7,519		7,803		22,802		22,934
Depreciation and amortization – Corporate		399		445		1,240		1,243
Corporate costs		11,073		10,064		33,162		30,283
Stock-based compensation		—		565		1,129		1,694
Restructuring costs		—		0		—		425
Acquisition-related cost of goods sold		—		0		—		280
Acquisition-related transaction costs		—		0		—		462
Acquisition-related other		—		0		—		167
Foreign currency (gains) losses, net		(583)		(608)		(3,590)		1,895
Adjusted EBITDA – Total segments	$	39,123	$	40,196	$	114,043	$	108,563


	March 31,		June 30,
	2021		2020
Identifiable assets
Animal Health	$	565,958	$	560,663
Mineral Nutrition		70,269		65,686
Performance Products		35,291		31,016
Total segments		671,518		657,365
Corporate		133,499		126,735
Total	$	805,017	$	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 $3,905 and $3,719 as of December 31, 2017 and June 30, 2017, respectively. The Performance Products segment includes an investment in an equity method investee of $624 and $516 as of December 31, 2017 and June 30, 2017, respectively. Corporate assets include cash and cash equivalents, ~~certain~~short-term investments, debt issuance costs, income ~~tax related~~tax-related assets and certain other assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12. Subsequent Event

In April 2021, we entered into the 2021 Credit Agreement under which we have the 2021 Term A Loan in an aggregate initial principal amount of $300,000 and the 2021 Revolver under which we can borrow up to $250,000, subject to the terms of the agreement. The 2021 Credit Agreement amends and restates the 2017 Credit Agreement. The 2021 Credit Facilities were used to refinance the outstanding 2017 Term A Loan and 2017 Revolver balances and to pay fees and expenses of the transaction. The 2021 Revolver contains a letter of credit facility.

The 2021 Credit Facilities mature in April 2026. The 2021 Term A Loan is repayable in quarterly installments as set forth below, with the balance payable at maturity.


Payment Date	Quarterly Installment
June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022	$	1,875
June 30, 2022, September 30, 2022, December 31, 2022, March 31, 2023	$	3,750
June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024	$	3,750
June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025	$	5,625
June 30, 2025, September 30, 2025, December 31, 2025, March 31, 2026	$	7,500

Borrowings under the 2021 Credit Facilities bear interest at rates based on the First Lien Net Leverage Ratio, as defined in the 2021 Credit Agreement. The interest rate per annum applicable to the loans under the Credit Facilities will be based on a fluctuating rate of interest equal to the sum of an applicable rate and, at the Company’s election from time to time, either (1) a base rate determined by reference to the highest of (a) the “prime rate” as publicly announced from time to time (b) the federal funds effective rate plus 0.50% and (c) one-month LIBOR plus 1.00%, or (2) a Eurocurrency rate determined by reference to LIBOR with a term as selected by the Company, of one day or one, three or six months (or twelve months or any shorter amount of time if consented to by all of the lenders under the applicable loan). The Credit Facilities have applicable rates equal to (x) 1.00%, in the case of base rate loans, and 2.00%, in the case of LIBOR loans, if the First Lien Net Leverage Ratio is greater than or equal to 3.50:1.00, (y) 0.75%, in the case of base rate loans, and 1.75%, in the case of LIBOR loans, if the 2021 First Lien Net Leverage Ratio is less 3.50:1.00 but greater than or equal to 2.25:1.00, and (z) 0.50%, in the case of base rate loans, and 1.50%, in the case of LIBOR loans, if the First Lien Net Leverage Ratio is less than 2.25:1.00.

The applicable rates under the 2021 Credit Agreement compare with the 2017 Credit Agreement as follows:


First Lien Net	2021 Credit Agreement			2017 Credit Agreement
Leverage Ratio	Applicable rates*			Applicable rates*
	Base Rate loans	LIBOR loans		Base Rate loans	LIBOR loans
≥3.50:1.00	1.00%	2.00%	≥3.00:1.00	1.00%	2.00%
≥2.25:1.00 and <3.50:1.00	0.75%	1.75%	≥2.25:1.00 and <3.00:1.00	0.75%	1.75%
<2.25:1.00	0.50%	1.50%	<2.25:1.00	0.50%	1.50%

* Range of applicable rates, depending upon the First Lien Net Leverage ratio

The Company must pay a quarterly commitment fee based upon the product of (i) the applicable rate as described below and (ii) the actual daily amount by which the aggregate revolving commitments exceed the sum of (A) the outstanding revolving credit loans under the 2021 Revolver and (B) obligations associated with any outstanding letters of credit in the applicable quarterly period. The Company also must pay the letter of credit issuer fees based upon the amount available to be drawn under such letters of credit.

The applicable rate under the Credit Facilities with respect to the commitment fee described in the immediately preceding paragraph is equal to (x) 0.30% if the First Lien Net Leverage Ratio is greater than or equal to 3.50:1.00, (y) 0.25% if the First Lien Net Leverage Ratio is less 3.50:1.00 but greater than or equal to 2.25:1.00, and (z) 0.20% if the First Lien Net Leverage Ratio is less than 2.25:1.00.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The 2021 Credit Agreement is subject to substantially the same affirmative and negative covenants and events of default as the 2017 Credit Agreement, subject to certain exceptions and thresholds. The 2021 Credit Facilities are secured by substantially the same collateral as the collateral that secured the obligations under the 2017 Credit Agreement, subject to certain exceptions and thresholds.

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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. ~~We also~~In addition to animal health and mineral nutrition products, we manufacture and market specific ingredients for use in the personal care, ~~automotive,~~ industrial chemical and chemical catalyst industries.

~~Trends~~

Effects of the COVID-19 pandemic

The global food and ~~uncertainties~~

~~Our~~animal production industry has experienced demand disruption, production impacts, price declines and currency volatility in international markets due to the COVID-19 pandemic. The response to the global outbreak of COVID-19 continues to evolve. Governmental authorities continue to implement measures to contain virus outbreaks, such as travel bans, quarantines, shelter-in-place orders, site closures and business ~~depends heavily~~shutdowns. Although vaccines are now available, distribution efforts vary widely country-by-country and state-by-state. The pandemic may have significant economic impacts on ~~a healthy~~customers, suppliers and ~~growing livestock industry. Some~~markets. New information may continue to emerge concerning COVID-19 and the actions required to contain or treat it may affect the duration and severity of the economic impact. We believe the global food and animal production industry is returning to stability, but the potential impact of COVID-19 continues to evolve and future industry outlooks remain uncertain.

Phibro is an integral participant in the ~~public perceive~~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 have experienced 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 or above constant levels. We continue to monitor sales trends, cash flow and liquidity.

The uncertainties surrounding the COVID-19 pandemic remain fluid. We are unable to predict the supply, distribution or effectiveness of COVID-19 vaccines and hence the impact on the economies where we manufacture and sell our products. While we continue to adapt our operations and mitigate the risks ~~to human health related to~~and challenges posed by COVID-19, the ~~consumption~~demand for our products will be dependent upon economic conditions and the ability of ~~food derived from animals that utilize certain~~our customers and end users of our products ~~including certain~~to operate their businesses and production facilities. Our business and 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 confidence the nature and timing of when any of these events may occur and the effects COVID-19 will have on our ~~MFA products. In particular, there is increased focus, primarily in~~business, our consolidated results and the ~~United States, on~~broader economic environment going forward. We will continue to evaluate the ~~use of medically important antimicrobials, as defined by the FDA. Medically important antimicrobials (“MIAs”) include classes that are prescribed in animal~~nature and ~~human health and are listed in the Appendix~~extent of the FDA-CVM Guidance for Industry (GFI) 152. Our products that contain virginiamycin, oxytetracycline or neomycin have previously been classified by the FDA as medically important antimicrobials. This may lead to a decline in the demand foreffects of COVID-19 on our business, consolidated results of operations, financial condition, and ~~production of food products derived from animals that utilize our MIA products~~liquidity. For additional considerations and in turn, demand for our MIA products. Livestock producers may experience decreased demand for their products or reputational harm as a result of evolving consumer views of nutrition and health-related concerns, animal rights, and other concerns. Any reputational harm to the livestock industry may also extend to companies in related industries, including us. In addition, campaigns by interest groups, activists and others with respect to perceived risks associated with ~~the use~~COVID-19 on our business, please refer to “Risk Factors” in Item 1A. of our ~~products in animals, including position statements by livestock producers~~Annual Report.

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Trends and their customers based on non-use of certain medicated products in livestock production, whether or not scientifically-supported, could affect public perceptions and reduce the use of our products. Those adverse consumer views related to the use of one or more of our products in animals could have a material adverse effect on our financial condition and results of operations.

Our sales in the United States of products classified by the FDA as medically important antimicrobials were approximately $16 million and $23 million for the twelve months ended December 31, 2017 and June 30, 2017, respectively.

~~Our business is subject to product registration and authorization regulations. Changes in the regulations could have a material impact on our business.~~ uncertainties

In April 2016, the ~~FDA~~Food and Drug Administration ("FDA") began initial steps to withdraw approval of ~~Mecadox (carbadox)~~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. ~~This initial action by~~The NOOH process provided Phibro with an opportunity to defend the ~~FDA does not prohibit the sale or use~~safety of ~~Mecadox in the United States. In July 2016, we submitted our data, analyses and information~~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 ~~we believe~~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 ~~continued safe use of Mecadox. The timing~~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 ~~FDA’s response~~Commissioner that the agency continue the NOOH process it started in 2016 and proceed with a hearing to ~~our submission~~review the substantial body of data supporting the safety of carbadox. There is ~~not subject to a predetermined deadline. Should~~no defined timeline for the conclusion of this matter.Should we be unable to successfully defend the safety of the product, the loss of ~~Mecadox~~carbadox sales would have ~~a negative~~an adverse effect on ~~the~~our financial condition and results of ~~our~~ operations.

~~Our sales in the United States~~ Sales of ~~Mecadox were approximately $13 million and $14 million~~carbadox for the twelve months ended ~~December~~March 31, ~~2017 and June 30, 2017, respectively.~~2021, were $19 million.

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~~Recent Developments~~

~~Our consolidated financial statements as of December 31, 2017, and for the three and six months then ended, reflect the estimated effects of the Tax Act, including:~~

•

~~a $2.5 million provision for income taxes and reduction in deferred tax assets for the remeasurement of deferred tax assets and liabilities to reflect the reduced income tax rate;~~

•

a $4.2 million provision for income taxes and increase in current and long-term liabilities to reflect the one-time mandatory toll charge on the deemed repatriation of undistributed earnings of foreign subsidiaries;

•

~~Our consolidated financial statements as of December 31, 2017, and for the three and six months then ended, also reflect the following discrete income tax related items:~~

•

a $0.5 million provision for income taxes and a reduction in accumulated other comprehensive income (“AOCI”). The provision was necessary to eliminate the income taxes remaining in AOCI after all related foreign currency derivatives had matured and were completely cleared from AOCI;

•

a $1.0 million provision for income taxes and a reduction in deferred tax assets for the remeasurement of deferred tax assets to reflect a reduced income tax rate in certain international jurisdictions

•

a $0.4 million net provision and a $2.4 million benefit from the exercise of employee stock options for the three and six months ended December 31, 2017, respectively. The net provision from the exercise of employee stock options included a $0.5 million provision to adjust the benefit recognized in the three months ended September 30,2017, to reduced income tax rate.

~~The effective income tax rate for the six months ended December 31, 2017 would have been 28.3% without these discrete items.~~

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Analysis of the consolidated statements of operations

Summary Results of Operations

Three Months Six Months
For the Periods Ended December 31 2017 2016 Change 2017 2016 Change
(in thousands, except per share amounts and percentages)
Net sales $ 205,876 $ 191,598 $ 14,278
7%
$ 399,288 $ 379,585 $ 19,703
5%

Gross profit 66,919 63,498 3,421
5%
130,301 124,497 5,804
5%

Selling, general and administrative expenses 42,981 40,870 2,111
5%
83,976 80,056 3,920
5%

Operating income 23,938 22,628 1,310
6%
46,325 44,441 1,884
4%

Interest expense, net 3,050 3,872 (822)
(21)%
6,168 7,779 (1,611)
(21)%

Foreign currency (gains) losses, net (323) (548) 225 * 2 (214) 216 *
Income before income taxes 21,211 19,304 1,907
10%
40,155 36,876 3,279
9%

Provision (benefit) for income taxes 14,179 5,887 8,292
141%
17,231 11,282 5,949
53%

Net income $ 7,032 $ 13,417 $ (6,385)
(48)%
$ 22,924 $ 25,594 $ (2,670)
(10)%

Net income per share
basic $ 0.17 $ 0.34 $ (0.17) $ 0.57 $ 0.65 $ (0.08)
diluted $ 0.17 $ 0.34 $ (0.17) $ 0.57 $ 0.64 $ (0.07)
Weighted average number of shares outstanding
basic 40,186 39,411 40,065 39,409
diluted 40,364 40,002 40,329 39,954
Ratio to net sales
Gross profit 32.5% 33.1% 32.6% 32.8%
Selling, general and administrative expenses 20.9% 21.3% 21.0% 21.1%
Operating income 11.6% 11.8% 11.6% 11.7%
Income before income taxes 10.3% 10.1% 10.1% 9.7%
Net income 3.4% 7.0% 5.7% 6.7%
Effective tax rate 66.8% 30.5% 42.9% 30.6%


	Three Months										Nine Months
For the Periods Ended March 31	2021			2020			Change				2021			2020			Change

	(in thousands, except per share amounts and percentages)
Net sales	$	211,729		$	210,739		$	990	0	%	$	613,072		$	614,471		$	(1,399)	(0)	%
Gross profit		69,165			69,551			(386)	(1)	%		201,549			196,318			5,231	3	%
Selling, general and administrative expenses		49,033			48,232			801	2	%		145,839			145,243			596	0	%
Operating income		20,132			21,319			(1,187)	(6)	%		55,710			51,075			4,635	9	%
Interest expense, net		2,933			3,263			(330)	(10)	%		8,957			10,049			(1,092)	(11)	%
Foreign currency (gains) losses, net		(583)			(608)			25	*			(3,590)			1,895			(5,485)	*
Income before income taxes		17,782			18,664			(882)	(5)	%		50,343			39,131			11,212	29	%
Provision for income taxes		5,621			5,163			458	9	%		13,079			11,221			1,858	17	%
Net income	$	12,161		$	13,501		$	(1,340)	(10)	%	$	37,264		$	27,910		$	9,354	34	%

Net income per share
basic	$	0.30		$	0.33		$	(0.03)			$	0.92		$	0.69		$	0.23
diluted	$	0.30		$	0.33		$	(0.03)			$	0.92		$	0.69		$	0.23

Weighted average number of shares outstanding
basic		40,483			40,454							40,463			40,454
diluted		40,504			40,504							40,504			40,504

Ratio to net sales
Gross profit		32.7	%		33.0	%						32.9	%		31.9	%
Selling, general and administrative expenses		23.2	%		22.9	%						23.8	%		23.6	%
Operating income		9.5	%		10.1	%						9.1	%		8.3	%
Income before income taxes		8.4	%		8.9	%						8.2	%		6.4	%
Net income		5.7	%		6.4	%						6.1	%		4.5	%
Effective tax rate		31.6	%		27.7	%						26.0	%		28.7	%

Certain amounts and percentages may reflect rounding adjustments.

~~Calculation not meaningful~~

*	Calculation not meaningful

Net sales, Adjusted EBITDA and reconciliation of GAAP net income to Adjusted EBITDA

We report Net sales and Adjusted EBITDA by segment to understand the operating performance of each segment. This enables us to monitor changes in net sales, costs and other actionable operating metrics at the segment level. See “—General description of non-GAAP financial ~~measures” for descriptions~~measures.”

Table of ~~EBITDA and Adjusted EBITDA.~~

Contents

~~TABLE OF CONTENTS~~

Segment net sales and Adjusted EBITDA:

Three Months Six Months
For the Periods Ended December 31 2017 2016 Change 2017 2016 Change
(in thousands, except percentages)
Net sales
MFAs and other $ 82,018 $ 77,475 $ 4,543
6%
$ 161,621 $ 160,894 $ 727
0%

Nutritional specialties 32,623 29,247 3,376
12%
63,400 55,551 7,849
14%

Vaccines 18,204 16,951 1,253
7%
36,665 31,729 4,936
16%

Animal Health 132,845 123,673 9,172
7%
261,686 248,174 13,512
5%

Mineral Nutrition 59,616 56,699 2,917
5%
111,689 108,291 3,398
3%

Performance Products 13,415 11,226 2,189
19%
25,913 23,120 2,793
12%

Total $ 205,876 $ 191,598 $ 14,278
7%
$ 399,288 $ 379,585 $ 19,703
5%

Adjusted EBITDA
Animal Health $ 35,036 $ 34,609 $ 427
1%
$ 68,778 $ 67,228 $ 1,550
2%

Mineral Nutrition 5,614 4,741 873
18%
9,330 8,729 601
7%

Performance Products 264 260 4
2%
512 1,002 (490)
(49)%

Corporate (8,436) (8,416) (20) * (16,025) (15,940) (85) *
Total $ 32,478 $ 31,194 $ 1,284
4%
$ 62,595 $ 61,019 $ 1,576
3%

Adjusted EBITDA ratio to segment net sales
Animal Health 26.4% 28.0% 26.3% 27.1%
Mineral Nutrition 9.4% 8.4% 8.4% 8.1%
Performance Products 2.0% 2.3% 2.0% 4.3%
Corporate (1)
(4.1)% (4.4)% (4.0)% (4.2)%
Total (1)
15.8% 16.3% 15.7% 16.1%


	Three Months										Nine Months
For the Periods Ended March 31	2021			2020			Change				2021			2020			Change

	(in thousands, except percentages)
Net sales
MFAs and other	$	78,530		$	82,670		$	(4,140)	(5)	%	$	238,810		$	249,659		$	(10,849)	(4)	%
Nutritional specialties		36,978			34,636			2,342	7	%		105,972			98,131			7,841	8	%
Vaccines		18,872			21,668			(2,796)	(13)	%		54,205			56,723			(2,518)	(4)	%
Animal Health		134,380			138,974			(4,594)	(3)	%		398,987			404,513			(5,526)	(1)	%
Mineral Nutrition		58,153			56,200			1,953	3	%		163,750			164,534			(784)	(0)	%
Performance Products		19,196			15,565			3,631	23	%		50,335			45,424			4,911	11	%
Total	$	211,729		$	210,739		$	990	0	%	$	613,072		$	614,471		$	(1,399)	(0)	%

Adjusted EBITDA
Animal Health	$	30,962		$	34,635		$	(3,673)	(11)	%	$	94,412		$	93,534		$	878	1	%
Mineral Nutrition		5,232			4,055			1,177	29	%		12,464			11,214			1,250	11	%
Performance Products		2,929			1,506			1,423	94	%		7,167			3,815			3,352	88	%
Corporate		(11,073)			(10,064)			(1,009)	10	%		(33,162)			(30,283)			(2,879)	10	%
Total	$	28,050		$	30,132		$	(2,082)	(7)	%	$	80,881		$	78,280		$	2,601	3	%

Adjusted EBITDA ratio to segment net sales
Animal Health		23.0	%		24.9	%						23.7	%		23.1	%
Mineral Nutrition		9.0	%		7.2	%						7.6	%		6.8	%
Performance Products		15.3	%		9.7	%						14.2	%		8.4	%
Corporate⁽¹⁾		(5.2)	%		(4.8)	%						(5.4)	%		(4.9)	%
Total⁽¹⁾		13.2	%		14.3	%						13.2	%		12.7	%

(1)	Reflects ratio to total net sales

~~(1)~~

~~reflects ratio to total net sales~~

The table below sets forth a reconciliation of net income, as reported under GAAP, to Adjusted EBITDA:

Three Months Six Months
For the Periods Ended December 31 2017 2016 Change 2017 2016 Change
(in thousands, except percentages)
Net income $ 7,032 $ 13,417 $ (6,385)
(48)%
$ 22,924 $ 25,594 $ (2,670)
(10)%

Interest expense, net 3,050 3,872 (822)
(21)%
6,168 7,779 (1,611)
(21)%

Provision (benefit) for income taxes 14,179 5,887 8,292
141%
17,231 11,282 5,949
53%

Depreciation and amortization 6,631 6,444 187
3%
13,275 12,762 513
4%

EBITDA 30,892 29,620 1,272
4%
59,598 57,417 2,181
4%

Acquisition-related cost of goods
sold 1,422 — 1,422 * 1,671 — 1,671 *
Acquisition-related accrued compensation 487 420 67
16%
924 840 84
10%

Acquisition-related transaction costs — — — * 400 1,274 (874)
(69)%

Pension settlement cost — 1,702 (1,702) * — 1,702 (1,702) *
Foreign currency (gains) losses, net (323) (548) 225 * 2 (214) 216 *
Adjusted EBITDA $ 32,478 $ 31,194 $ 1,284
4%
$ 62,595 $ 61,019 $ 1,576
3%


	Three Months								Nine Months
For the Periods Ended March 31	2021		2020		Change				2021		2020		Change

	(in thousands, except percentages)
Net income	$	12,161	$	13,501	$	(1,340)	(10)	%	$	37,264	$	27,910	$	9,354	34	%
Interest expense, net		2,933		3,263		(330)	(10)	%		8,957		10,049		(1,092)	(11)	%
Provision for income taxes		5,621		5,163		458	9	%		13,079		11,221		1,858	17	%
Depreciation and amortization		7,918		8,248		(330)	(4)	%		24,042		24,177		(135)	(1)	%
EBITDA		28,633		30,175		(1,542)	(5)	%		83,342		73,357		9,985	14	%
Stock-based compensation		—		565		(565)	*			1,129		1,694		(565)	(33)	%
Restructuring costs		—		—		—	*			—		425		(425)	*
Acquisition-related cost of goods sold		—		—		—	*			—		280		(280)	*
Acquisition-related transaction costs		—		—		—	*			—		462		(462)	*
Acquisition-related other, net		—		—		—	*			—		167		(167)	*
Foreign currency (gains) losses, net		(583)		(608)		25	*			(3,590)		1,895		(5,485)	*
Adjusted EBITDA	$	28,050	$	30,132	$	(2,082)	(7)	%	$	80,881	$	78,280	$	2,601	3	%

Certain amounts ~~and percentages~~ may reflect rounding adjustments.

Calculation not meaningful

Table of Contents

~~TABLE OF CONTENTS~~

Comparison of three months ended ~~December~~March 31, ~~2017~~2021 and ~~2016~~

2020

Net sales

Net sales of ~~$205.9~~$211.7 million for the three months ended ~~December~~March 31, ~~2017,~~2021, increased ~~$14.3~~$1.0 million, or less than 1%, as compared to the three months ended March 31, 2020. Animal Health decreased $4.6 million, while Mineral Nutrition and Performance Products increased $2.0 million and $3.6 million, respectively.

Animal Health

Net sales of $134.4 million for the three months ended March 31, 2021, declined $4.6 million, or 3%. Net sales of MFAs and other decreased $4.1 million, or 5%, driven by lower international demand, primarily poultry products in the Latin America region, as well as timing of certain domestic customer orders. Net sales of nutritional specialty products increased $2.3 million, or 7%, principally due to international volume growth in dairy products. Net sales of vaccines declined $2.8 million, or 13%, as challenging economic conditions in Eastern Europe more than offset domestic volume growth and increased demand in the Asia Pacific region.

Mineral Nutrition

Net sales of $58.2 million for the three months ended March 31, 2021, increased $2.0 million, or 3%, driven by increased average selling prices. The increase in average selling prices is correlated with the movement of the underlying raw material costs.

Performance Products

Net sales of $19.2 million for the three months ended March 31, 2021, increased $3.6 million, or 23%. The increase was driven by strong demand for copper-based products coupled with favorable product pricing correlated with underlying raw material costs.

Gross profit

Gross profit of $69.2 million for the three months ended March 31, 2021, decreased $0.4 million, or 1%, as compared to the three months ended March 31, 2020. Gross margin decreased 30 basis points to 32.7% of net sales for the three months ended March 31, 2021, as compared to 33.0% for the three months ended March 31, 2020.

Animal Health gross profit decreased $3.2 million due to lower sales and unfavorable product mix. Mineral Nutrition gross profit increased $1.2 million, driven primarily by favorable product mix. Performance Products gross profit increased $1.6 million driven by volumes and favorable product mix.

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) of $49.0 million for the three months ended March 31, 2021, increased $0.8 million, or 2%, as compared to the three months ended March 31, 2020. SG&A for the three months ended March 31, 2020, included $0.6 million of stock-based compensation. Excluding these costs, SG&A increased $1.4 million, or 3%.

Animal Health SG&A increased $0.3 million, due to investments in market expansion initiatives in certain international regions, partially offset by decreased marketing and sales team travel costs driven by COVID-19 limitations. Mineral Nutrition and Performance Products SG&A were comparable to the prior year. Corporate SG&A increased $1.0 million due to investments in strategic initiatives and incremental performance-related compensation costs, partially offset by a decline in travel costs driven by COVID-19 limitations.

Interest expense, net

Interest expense, net of $2.9 million for the three months ended March 31, 2021, decreased $0.3 million, or 10%, as compared to the three months ended March 31, 2020. Interest expense, net decreased primarily due to favorable variable borrowing rates, partially offset by reduced interest income from short-term investments.

Table of Contents

Foreign currency gains, net

Foreign currency gains, net were $0.6 million for the three months ended March 31, 2021 and 2020.

Provision for income taxes

The provision for income taxes was $5.6 million and $5.2 million for the three months ended March 31, 2021 and 2020, respectively. The effective income tax rate was 31.6% and 27.7% for the three months ended March 31, 2021 and 2020, respectively. The provision for income taxes during the three months ended March 31, 2021, included a $0.6 million expense related to a detailed deferred tax analysis of property, plant, and equipment and intangible assets. The effective income tax rate, without this expense, would have been 27.9% for the three months ended March 31, 2021.

Net income

Net income of $12.2 million for the three months ended March 31, 2021, decreased $1.3 million, as compared to net income of $13.5 million for the three months ended March 31, 2020. Operating income declined $1.2 million, driven by lower gross profit and increased SG&A expenses. The decrease in gross profit and the overall gross margin was primarily driven by lower volume and unfavorable product mix in the Animal Health segment, partially offset by increased gross profit in the Mineral Nutrition and Performance Products segments. SG&A expenses increased due to investments in strategic initiatives and incremental performance-related compensation costs, partially offset by a decline in travel costs driven by COVID-19 limitations. Interest expense was lower by $0.3 million, while income tax expense increased $0.5 million.

Adjusted EBITDA

Adjusted EBITDA of $28.1 million for the three months ended March 31, 2021, declined $2.1 million, or 7%, as compared to the three months ended ~~December~~March 31, ~~2016.~~2020. Animal Health Adjusted EBITDA decreased $3.7 million on lower sales and gross profit and increased SG&A costs. Mineral Nutrition ~~and~~Adjusted EBITDA increased $1.2 million, driven by increased gross profit on favorable product mix. Performance Products ~~grew $9.2~~Adjusted EBITDA increased $1.4 million ~~$2.9~~driven by increased gross profit. Corporate expenses increased $1.0 million, primarily due to investments in strategic initiatives and ~~$2.2 million, respectively.~~

~~Animal Health~~

incremental performance-related compensation costs, partially offset by a decline in travel costs driven by COVID-19 limitations.

Comparison of nine months ended March 31, 2021 and 2020

Net sales

Net sales of ~~$132.8~~$613.1 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017, grew $9.2~~2021, decreased $1.4 million, or ~~7%. The growth was primarily due~~less than 1%, as compared to ~~volume increases across all product groups within~~ the ~~segment. Nutritional specialty products grew $3.4~~nine months ended March 31, 2020. Animal Health and Mineral Nutrition declined $5.5 million and $0.8 million, respectively. Performance Products increased $4.9 million.

Animal Health

Net sales of $399.0 million for the nine months ended March 31, 2021, declined $5.5 million, or 12%, primarily due to volume growth of our products for the dairy and poultry industries in the United States and by penetration into various international countries. Vaccines grew $1.3 million, or 7%, primarily due to volume growth in international markets; domestic growth was moderate due to reduced disease pressure. MFAs and other grew $4.5 million or 6%1%. International net sales of MFAs and other increased $8.7 million due to growth across most regions, notably due to additional penetration in the cattle sector, and included the benefit of a recent acquisition. Domestic netNet sales of MFAs and other declined ~~$4.2~~$10.8 million, or 4%, due to ~~$2.1 million~~reduced demand in China following regulatory changes effective January 1, 2020, and lower volume in Latin America, partially offset by net sales ~~of medically important antimicrobials~~growth in other products and ~~due to unfavorable timing of certain customer orders. We believe~~regions, including domestic ~~sales of medically important antimicrobials have stabilized at current levels.~~

~~Mineral Nutrition~~

swine. Net sales of ~~$59.6 million increased $2.9~~nutritional specialty products grew $7.8 million, or 5%8%, ~~for the three months ended December 31, 2017. The increased revenue was~~ due to ~~favorable product mix, plus higher average selling prices resulting from underlying raw material commodity price increases.~~

~~Performance Products~~

~~Net sales of $13.4 million increased $2.2 million, or 19%, for the three months ended December 31, 2017, due to higher average selling prices of copper-based products~~international and ~~higher volumes of copper-based and personal care~~domestic volume growth in dairy products, partially offset by lower sales in domestic poultry. Net sales of vaccines declined $2.5 million, or 4%, as challenging economic conditions in Eastern Europe more than offset domestic volume growth and increased demand in the Asia Pacific region.

Mineral Nutrition

Net sales of $163.8 million for the nine months ended March 31, 2021, decreased $0.8 million, or less than 1%. Lower overall average selling prices were partially offset by increased unit volumes. The decline in average selling prices is correlated with the movement of ~~personal care~~the underlying raw material costs.

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Performance Products

Net sales of $50.3 million for the nine months ended March 31, 2021, increased $4.9 million, or 11%, driven by increased volumes of copper-based products.

Gross profit

Gross profit of ~~$66.9~~$201.5 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017,~~2021, increased ~~$3.4~~$5.2 million, or 5%3%, as compared to the ~~three~~nine months ended ~~December~~March 31, ~~2016.~~2020. Gross ~~profit decreased~~margin increased 100 basis points to ~~32.5%~~32.9% of net sales for the ~~three~~nine months ended ~~December~~March 31, ~~2017,~~2021, as compared to ~~33.1%~~31.9% for the ~~three~~nine months ended ~~December~~March 31, ~~2016.~~2020. The ~~three~~nine months ended ~~December~~March 31, ~~2017,~~2020, included ~~$1.4~~$0.3 million of acquisition-related cost of goods sold. ~~Excluding the effects of the acquisition-related cost of goods sold,~~

Animal Health gross profit increased ~~$3.9~~$0.5 million, due to ~~volume growth, higher average selling prices on selected~~increased volumes of nutritional specialty products and favorable production costs, primarily related to foreign currency movements. These increases were partially offset by lower ~~unit costs from improved operating efficiencies.~~volumes of MFAs and other and vaccine products and unfavorable product mix. Mineral Nutrition gross profit increased ~~$0.9~~$1.1 million, ~~due to~~driven by favorable raw material costs and product mix, ~~and higher average selling prices,~~ partially offset by ~~higher raw material costs.~~declines in average selling prices. Performance Products gross profit ~~was equal to the prior year as higher average selling prices of copper-based products and higher volumes of copper-based and personal care products were offset~~increased $3.3 million, driven by higher ~~products costs of copper-based products.~~

volume coupled with decreases in raw material and production costs.

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) of ~~$43.0~~$145.8 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017,~~2021, increased ~~$2.1~~$0.6 million, or 5%less than 1%, as compared to the ~~three~~nine months ended ~~December~~March 31, ~~2016.~~2020. SG&A for the ~~three~~nine months ended ~~December~~March 31, ~~2016,~~2021 included $1.1 million of stock-based compensation. SG&A for the nine months ended March 31, 2020, included $1.7 million inof stock-based compensation, $0.4 million of restructuring costs, ~~relating to the partial settlement~~$0.5 million of ~~the pension plan.~~acquisition-related transaction costs and $0.2 million of other acquisition-related costs. Excluding these costs, SG&A increased ~~$3.8~~$2.3 million, or ~~10%~~2%.

Animal Health SG&A ~~increased $3.8~~decreased $0.6 million ~~compared~~primarily due to the ~~prior year,~~favorable effects of foreign currency exchange and decreased marketing and sales team travel costs driven by COVID-19 limitations. These expense declines were partially offset by increased professional fees to support the continued use of carbadox and investments in ~~product and organization development. A recent acquisition also contributed to the Animal Health SG&A increase.~~market expansion initiatives in certain international regions. Mineral Nutrition and Performance Products SG&A were comparable to the prior year. Corporate expenses increased ~~less than $0.1~~$2.9 million, ~~each. Corporate was level with last year,~~ driven by investments in strategic initiatives, as ~~reduced pension~~well as incremental costs for performance-related compensation, professional fees and information technology. These cost increases were partially offset ~~increases~~by lower travel expenses driven by COVID-19 limitations. The stock-based compensation, restructuring costs, acquisition-related transaction costs and other acquisition-related costs resulted in ~~other expenses.~~

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a net $1.7 million decrease to SG&A.

Interest expense, net

Interest expense, net of ~~$3.1~~$9.0 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017,~~2021, decreased ~~$0.8~~$1.1 million, or ~~21%~~11%, as compared to the ~~three~~nine months ended ~~December~~March 31, ~~2016.~~2020. Interest expense, net decreased ~~$1.0 million compared to the prior year,~~ primarily due to favorable variable interest rates, partially offset by higher levels of debt outstanding and lower interest ~~rates in the new Credit Facilities completed in June 2017. Interest~~ income ~~decreased $0.2 million due to less interest income on deposits in foreign jurisdictions.~~

from short-term investments.

Foreign currency (gains) losses, net

Foreign currency ~~(gains) losses,~~gains, net for the ~~three~~nine months ended ~~December~~March 31, ~~2017, amounted to net gains of $0.3~~2021, were $3.6 million, as compared to ~~$0.5~~net losses of $1.9 million ~~in net gains~~ for the ~~three~~nine months ended ~~December~~March 31, ~~2016.~~2020. Foreign currency ~~losses in the three months ended December 31, 2017, were~~gains primarily ~~due to~~arose from intercompany balances, driven by the movement of the ~~Brazilian,~~Mexican, South African, Turkish and ~~Mexican~~Brazilian currencies relative to the U.S. dollar. ~~Foreign currency gains and losses primarily arise from intercompany balances.~~

Provision ~~(benefit)~~ for income taxes

The provision for income taxes was ~~$14.2~~$13.1 million and ~~$5.9~~$11.2 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017~~2021 and ~~2016,~~2020, respectively. The effective income tax ~~rates~~rate was 26.0% and 28.7% for ~~these periods were 66.8%~~the nine months ended March 31, 2021 and ~~30.5%,~~2020, respectively. The provision for income taxes during the nine months ended March 31, 2021, included (i) a $1.5 million benefit for the ~~three months~~years ended ~~December 31, 2017 included the following discrete items:~~

•

~~a $2.5 million provision~~June 30, 2020 and 2019 related to final regulations issued in July 2020 for the ~~remeasurement~~Global Intangible Low-Taxed Income (“GILTI”) tax, (ii) an $0.8 million benefit related to exchange rate differences on intercompany dividends, (iii) a $0.6 million benefit for the reversal

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of an uncertain tax position and (iv) a $0.6 million expense related to a detailed deferred tax ~~assets~~analysis of property, plant, and ~~liabilities to reflect the reduced income tax rate;~~

•

~~a $4.2 million provision to reflect the mandatory toll charge on the deemed repatriation of undistributed earnings of foreign subsidiaries;~~

•

~~a $0.5 million provision to eliminate the income taxes remaining in AOCI after all related foreign currency derivatives had matured~~equipment and ~~were completely cleared from AOCI;~~

•

~~a $1.0 million provision for the remeasurement of deferred tax assets to reflect a reduced income tax rate in certain international jurisdictions;~~

•

a $0.4 million net provision from the exercise of employee stock options, including a $0.5 million provision to adjust the benefit recognized in the three months ended September 30, 2017, to the reduced income tax rate.

intangible assets. The effective income tax rate, ~~for the three months ended December 31, 2017,~~without these items, would have been ~~26.2% without these discrete items. This effective rate~~30.3% for the ~~three~~nine months ended ~~December~~March 31, ~~2017, included the benefit of adjusting the year-to-date income tax provision to reflect the reduced statutory federal income tax rate.~~

2021.

Net income

Net income of ~~$7.0~~$37.3 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017, decreased $6.4~~2021, increased $9.4 million, as compared to net income of ~~$13.4~~$27.9 million for the ~~three~~nine months ended ~~December~~March 31, ~~2016.~~2020. The ~~decrease~~increase was primarily driven by higher operating income of $4.6 million, lower interest expense of $1.1 million and increased foreign currency gains of $5.5 million, partially offset by a ~~result of the factors described above, primarily due to a $8.3~~$1.9 million increase ~~in income tax expense.~~

~~Adjusted EBITDA~~

~~Adjusted EBITDA of $32.5 million for the three months ended December 31, 2017, increased $1.3 million, or 4%, as compared~~ to the ~~three months ended December 31, 2016. Animal Health Adjusted EBITDA increased $0.4~~provision for income taxes. The increase in operating income was driven by a $5.2 million ~~or 1%, due to sales growth and increased~~increase in gross profit, partially offset by increased SG~~&A. Mineral Nutrition~~ &A costs of $0.6 million.

Adjusted EBITDA

Adjusted EBITDA increased $0.9 million, or 18%, due to favorable product mix and higher average selling prices, partially offset by higher raw material costs. Performance Products Adjusted EBITDA was similar to the prior year as higher volumes and selling prices were offset by higher product costs. Corporate expenses were consistent with prior year as increases in various expenses were offset by reduced pension costs.

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~~Comparison~~ of ~~six months ended December 31, 2017 and 2016~~

~~Net sales~~

~~Net sales of $399.3~~$80.9 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2021, increased ~~$19.7 million, or 5%, as compared to the six months ended December 31, 2016. Animal Health, Mineral Nutrition and Performance Products grew $13.5 million, $3.4 million and $2.8 million, respectively.~~

~~Animal Health~~

Net sales of $261.7 million for the six months ended December 31, 2017, grew $13.5 million, or 5%. The growth was primarily due to volume increases in the nutritional specialty and vaccine product groups within the segment. Nutritional specialty products grew $7.8 million, or 14%, primarily due to volume growth of our products for the poultry and dairy industries in the United States and various international countries. Vaccines grew $4.9 million, or 16%, primarily due to volume growth in international markets, domestic growth was moderate due to reduced disease pressure. MFAs and other grew $0.7 million or less than 1%. International net sales of MFAs and other increased $15.4 million due to growth across most regions, notably due to additional penetration in the cattle sector, and included the benefit of a recent acquisition. Domestic net sales of MFAs and other declined $14.7 million due to $6.3 million lower sales of medically important antimicrobials and due to unfavorable timing of certain customer orders. We believe domestic sales of medically important antimicrobials have stabilized at current levels.

~~Mineral Nutrition~~

Net sales of $111.7 million increased $3.4 million, or 3%, for the six months ended December 31, 2017. The increased revenue was primarily due to favorable product mix, plus higher average selling prices resulting from underlying raw material commodity price increases.

~~Performance Products~~

Net sales of $25.9 million increased $2.8 million, or 12%, for the six months ended December 31, 2017, due to higher volumes of copper-based and personal care products, as well as higher average selling prices of copper-based products.

~~Gross profit~~

Gross profit of $130.3 million for the six months ended December 31, 2017, increased $5.8 million, or 5%, as compared to the six months ended December 31, 2016. Gross profit decreased to 32.6% of net sales for the six months ended December 31, 2017, as compared to 32.8% for the six months ended December 31, 2016. The six months ended December 31, 2017, included $1.7 million of acquisition-related cost of goods sold. Excluding the effects of the acquisition-related cost of goods sold, Animal Health gross profit increased $7.1 million due to volume growth and higher average selling prices in nutritional specialties and vaccines, as well as lower unit costs from improved operating efficiencies. Mineral Nutrition gross profit increased $0.7 million due to favorable product mix and higher average selling prices, partially offset by higher raw material costs. Performance Products gross profit decreased $0.3 million due to higher product costs of copper-based products, partially offset by higher average selling prices of copper-based products.

~~Selling, general and administrative expenses~~

SG&A of $84.0 million for the six months ended December 31, 2017, increased $3.9 million, or 5%, as compared to the six months ended December 31, 2016. SG&A for the six months ended December 31, 2017 and 2016, included $0.4 million and $1.3 million, in acquisition-related transaction costs, respectively. SG&A for the six months ended December 31, 2016, included $1.7 million in costs relating to the partial settlement of the pension plan. Excluding these costs, SG&A increased $6.5 million or 8%.

Animal Health SG&A increased $6.2 million as compared to the prior year, driven by investments in product and organization development. A recent acquisition also contributed to the Animal Health SG&A increase. Mineral Nutrition and Performance Products SG&A increased $0.2 million and

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$0.2 million, respectively. Excluding acquisition-related transaction costs and the pension settlement cost from the prior year, Corporate SG&A decreased $0.1 million, as reduced pension costs offset increases in other expenses.

~~Interest expense, net~~

Interest expense, net of $6.2 million for the six months ended December 31, 2017, decreased $1.6 million, or 21%, as compared to the six months ended December 31, 2016. Interest expense decreased $2.2 million compared to the prior year, primarily due to lower interest rates in the new Credit Facilities completed in June 2017. Interest income decreased $0.6 million due to less interest income on deposits in foreign jurisdictions.

~~Foreign currency (gains) losses, net~~

Foreign currency (gains) losses, net for the six months ended December 31, 2017, amounted to net losses of less than $0.1 million, as compared to $0.2 million in net gains for the six months ended December 31, 2016. Foreign currency losses in the six months ended December 31, 2017, were primarily due to the movement of the Brazilian, South African and Mexican currencies relative to the U.S. dollar. Foreign currency gains and losses primarily arise from intercompany balances.

~~Provision (benefit) for income taxes~~

The provision for income taxes was $17.2 million and $11.3 million for the six months ended December 31, 2017 and 2016, respectively. The effective income tax rates for these periods were 42.9% and 30.6%, respectively. The provision for income taxes for the six months ended December 31, 2017 included the following discrete items:

•

~~a $2.5 million provision for the remeasurement of deferred tax assets and liabilities to reflect the reduced income tax rate;~~

•

~~a $4.2 million provision to reflect the mandatory toll charge imposed by the Tax Act on the deemed repatriation of undistributed earnings of foreign subsidiaries;~~

•

~~a $0.5 million provision to eliminate the income taxes remaining in AOCI after all related foreign currency derivatives had matured and were completely cleared from AOCI;~~

•

~~a $1.0 million provision for the remeasurement of deferred tax assets to reflect a reduced income tax rate in certain international jurisdictions;~~

•

a $2.4 million net benefit from the exercise of employee stock options, including a $0.5 million provision to adjust the benefit recognized in the three months ended September 30, 2017, to the reduced income tax rate.

~~The effective income tax rate for the six months ended December 31, 2017 would have been 28.3% without these discrete items.~~

~~Net income~~

Net income of $22.9 million for the six months ended December 31, 2017, decreased $2.7 million, as compared to net income of $25.6 million for the six months ended December 31, 2016. The decrease was a result of the factors described above, primarily due to a $5.9 million increase in income tax expense.

~~Adjusted EBITDA~~

~~Adjusted EBITDA of $62.6 million for the six months ended December 31, 2017, increased $1.6~~$2.6 million, or 3%, as compared to the ~~six~~nine months ended ~~December~~March 31, ~~2016.~~2020. Animal Health Adjusted EBITDA increased ~~$1.6~~$0.9 million, ~~or 2%, due to sales growth and~~driven by increased gross profit ~~partially offset by increased~~and lower SG~~&A.~~&A expenses. Mineral Nutrition ~~Adjusted EBITDA increased $0.6 million, or 7%, due to favorable mix~~

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and ~~higher average selling prices, partially offset by higher raw material costs.~~ Performance Products Adjusted EBITDA ~~decreased~~increased $1.3 million and $3.4 million, respectively, on higher gross profit. Corporate expenses increased $2.9 million driven by ~~$0.5 million, due to higher product~~investments in strategic initiatives as well as incremental costs for performance-related compensation, professional fees and information technology. These cost increases were partially offset by ~~higher average selling prices. Corporate~~lower travel expenses ~~increased $0.1 million as reduced pension costs were offset~~driven by ~~increases in other expenses.~~

~~Pension Plan and Retirement Savings Plan Changes~~

In July 2016, we amended our domestic noncontributory defined benefit pension plan to eliminate credit for future service and compensation increases, effective as of September 30, 2016. The amendment resulted in a curtailment of the pension plan. During the three months ended September 30, 2016, we recorded a pension curtailment gain of $6.8 million in other comprehensive income and an offsetting reduction in the liability for pension benefits included in other liabilities. We also modified the 401(k) retirement savings plan effective October 1, 2016, to include, for all domestic employees, a non-elective Company contribution of 3% of compensation and an additional discretionary contribution of up to 4% of compensation, depending on the employee’s age and years of service.

During the three months ended December 31, 2016, we recognized a partial settlement of the pension plan, which resulted in a charge to the consolidated statement of operations of $1.7 million, which we recorded as a component of SG&A.

COVID-19 limitations.

Analysis of financial condition, liquidity and capital resources

Net increase (decrease) in cash and cash equivalents was:


	Nine Months
For the Periods Ended March 31	2021		2020		Change

	(in thousands)
Cash provided (used) by:
Operating activities	$	45,236	$	55,471	$	(10,235)
Investing activities		(11,390)		(110,857)		99,467
Financing activities		(21,632)		25,951		(47,583)
Effect of exchange-rate changes on cash and cash equivalents		546		(1,390)		1,936
Net increase/(decrease) in cash and cash equivalents	$	12,760	$	(30,825)	$	43,585

Six Months
For the Periods December 31 2017 2016 Change
(in thousands)
Cash provided by/(used in):
Operating activities $ 37,093 $ 47,733 $ (10,640)
Investing activities (51,567) (10,765) (40,802)
Financing activities (1,544) (31,048) 29,504
Effect of exchange-rate changes on cash and cash equivalents 120 (305) 425
Net increase/(decrease) in cash and cash equivalents $ (15,898) $ 5,615 $ (21,513)

Certain amounts may reflect rounding adjustments.

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Net cash provided (used) by operating activities was comprised of:

Six Months
For the Periods December 31 2017 2016 Change
(in thousands)
EBITDA $ 59,598 $ 57,417 $ 2,181
Adjustments
Acquisition-related cost of goods sold 1,671 — 1,671
Acquisition-related accrued compensation 924 840 84
Acquisition-related transaction costs 400 1,274 (874)
Pension settlement cost — 1,702 (1,702)
Foreign currency (gains) losses, net 2 (214) 216
Interest paid (5,595) (7,651) 2,056
Income taxes paid (9,708) (6,305) (3,403)
Changes in operating assets and liabilities and other items (9,799) 1,944 (11,743)
Cash used for acquisition-related transaction costs (400) (1,274) 874
Net cash provided (used) by operating activities $ 37,093 $ 47,733 $ (10,640)


	Nine Months
For the Periods Ended March 31	2021		2020		Change

	(in thousands)
EBITDA	$	83,342	$	73,357	$	9,985
Adjustments:
Stock-based compensation		1,129		1,694		(565)
Restructuring costs		—		425
Acquisition-related cost of goods sold		—		280		(280)
Acquisition-related transaction costs		—		462		(462)
Acquisition other, net		—		167
Foreign currency (gains) losses, net		(3,590)		1,895		(5,485)
Interest paid, net		(8,123)		(9,171)		1,048
Income taxes paid		(14,335)		(15,045)		710
Changes in operating assets and liabilities and other items		(13,187)		1,407		(14,594)
Net cash provided by operating activities	$	45,236	$	55,471	$	(10,235)

Certain amounts may reflect rounding adjustments.

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Operating activities

~~Net~~

Operating activities provided $45.2 million of net cash ~~provided by operating activities was $37.1 million~~ for the ~~six~~nine months ended ~~December~~March 31, ~~2017.~~2021. Cash provided by net income ~~adjusted for the effect of~~and non-cash ~~charges,~~items, including depreciation and amortization, was ~~partially offset by $9.8 million of cash~~$56.2 million. Cash used in the ordinary course of business for changes in operating assets and liabilities and other ~~items. Increased inventories~~items was $11.0 million. Accounts receivable used ~~$10.8~~$8.4 million of cash due to ~~the~~increased domestic sales and timing of collections, partially offset by lower sales ~~purchases~~ and favorable collections in international regions. Cash used for inventory was $8.1 million. Inventory increases were primarily due to forecasted future demand and internal production schedules. For certain products, we are maintaining safety stocks to mitigate potential disruptions in production. ~~Accounts receivable~~Other assets and accounts payable used ~~$5.1~~$1.0 million and $0.8 million of cash, respectively. Prepaid expenses and other current assets provided $3.7 million of cash due to ~~the~~ timing of ~~sales~~domestic payments. Accrued expenses and ~~collections in international regions. A $7.5~~other liabilities provided cash of $3.6 million ~~source of cash from increased accounts payable was primarily related~~due to ~~the~~ timing of ~~inventory purchases. Seasonality was a significant reason~~payments for employee-related liabilities, partially offset by payments made for environmental remediation procedures.

Investing activities

Investing activities used $11.4 million of net cash for the ~~increases in inventories and accounts payable.~~

~~Investing activities~~

~~Net cash used in investing activities was $51.6 million for the six~~nine months ended ~~December~~March 31, ~~2017. We invested $27.0~~2021. Capital expenditures were $22.2 million ~~in short-term investments. We used $8.9 million for capital expenditures~~ as we continued to invest in ~~our existing asset base and for~~expanding production capacity ~~expansion~~ and productivity improvements. WeNet proceeds from maturities of short-term investments were $11.0 million.

Financing activities

Financing activities used ~~$15.0~~$21.6 million of net cash for the ~~acquisition of a business. Other investing activities used $0.7 million of cash.~~

~~Financing activities~~

~~Net cash used by financing activities was $1.5 million for the six~~nine months ended ~~December~~March 31, ~~2017.~~2021. Net borrowings on our Revolver provided ~~$6.0~~$7.0 million. We ~~received $3.7 million from the issuance of common shares related to the exercise of employee stock options. We~~ paid ~~$8.0~~$14.6 million in dividends to holders of our Class A and Class B common stock. We paid ~~$3.2~~$14.1 million in scheduled debt and other requirements.

Liquidity and capital resources

In April 2021, we entered into an amended and restated credit agreement (the “2021 Credit Agreement”) under which we have a term A loan in an aggregate initial principal amount of $300 million (the “2021 Term A Loan”) and a revolving credit facility under which we can borrow up to $250 million, subject to the terms of the agreement (the “2021 Revolver” and together with the 2021 Term A Loan, the “2021 Credit Facilities”). The 2021 Credit Agreement amends and restates the credit agreement entered into in June 2017 (the “2017 Credit Agreement”). The 2021 Credit Facilities were used to refinance all of the Term A loans and revolving credit facility amounts outstanding under the 2017 Credit Agreement and to pay fees and expenses of the transaction. The 2021

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Revolver contains a letter of credit facility. The 2021 Credit Facilities mature in April 2026. Refer to “Note 12 – Subsequent Event” for further information.

We believe our cash on hand, ~~our~~ operating cash ~~flows~~flow and ~~our~~ financing arrangements, including the availability of borrowings under the 2021 Revolver and foreign credit lines, will be sufficient to support our ~~future~~ongoing cash needs. ~~Our operating plan projects~~We are aware of the current and potential future effects of COVID-19 on the financial markets. We expect adequate liquidity ~~throughout~~for at least the ~~year.~~next twelve months. However, we can provide no assurance that our liquidity and capital resources will be adequate for future funding requirements. We believe we will be able to comply with the terms of the covenants under the 2021 Credit Facilities and foreign credit lines based on our operating plan. In the event of adverse operating results and/or violation of covenants under the facilities, there can be no assurance we would be able to obtain waivers or amendments. Other risks to our meeting future funding requirements include global economic conditions and macroeconomic, business and financial disruptions that could ~~arise.~~arise, including those caused by COVID-19. There can be no assurance that a challenging economic environment or an economic downturn would not affect our liquidity or our ability to obtain future ~~financing.~~financing or fund operations or investment opportunities. In addition, our debt covenants may restrict our ability to invest.

Certain relevant measures of our liquidity and capital resources follow:

As of
December 31,
2017

June 30,
2017
Change
(in thousands, except ratios)
Cash and cash equivalents and short-term investments $ 67,185 $ 56,083 $ 11,102
Working capital 211,484 198,036 13,448
Ratio of current assets to current liabilities 2.80:1 2.81:1


	March 31,		June 30,
As of	2021		2020

	(in thousands, except ratios)
Cash and cash equivalents and short-term investments	$	93,103	$	91,343
Working capital		233,161		222,006
Ratio of current assets to current liabilities		2.60:1		2.60:1

We define working capital as total current assets (excluding cash and cash equivalents and short-term investments) less total current liabilities (excluding current portion of long-term debt). We calculate the ratio of current assets to current liabilities based on this definition.

~~At December~~

As of March 31, ~~2017,~~2021, we had ~~$71.0~~$176.0 million in outstanding borrowings under the ~~Revolver. We~~2017 Revolver and had outstanding letters of credit and other commitments of ~~$4.6~~$2.7 million, leaving ~~$174.4~~$71.3 million available for borrowings and letters of credit.

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We currently intend to pay quarterly dividends ~~of $0.10 per share, representing $16.1 million annually~~ on our Class A and Class B common stock, subject to approval from the Board of Directors. WeOur Board of Directors declared ~~and paid~~ a cash dividend of ~~$0.10~~$0.12 per share on Class A and Class B common stock, ~~during the three months ended December 31, 2017. On February 5, 2018,~~payable on June 23, 2021. 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 ~~declared a cash dividend of $0.10 per share on each share~~deems relevant. Additionally, the terms of our ~~Class A~~current and ~~Class B common stock outstanding on the record date~~any future agreements governing our indebtedness could limit our ability to pay dividends or make other distributions.

As of March ~~7, 2018, payable on March 28, 2018.~~

~~At December~~ 31, ~~2017,~~2021, our cash and cash equivalents and short-term investments included ~~$64.9~~$92.6 million held by our international subsidiaries. There are no restrictions on cash distributions to PAHC from our international subsidiaries.

Contractual obligations

During the three months ended March 31, 2021, we amended and extended the lease agreement for our corporate office, increasing the value of our lease commitments. For the nine months ended March 31, 2021, the total right of use assets obtained in exchange for new operating lease liabilities were $13.9 million. As of ~~December~~our March 31, ~~2017, there~~2021, our total lease commitment value was $40.0 million.

In April 2021, we entered into the 2021 Credit Agreement. Refer to “Note 12 – Subsequent Event” for further information.

There were no other 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, 2017.~~Report.

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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.

~~General description of non-GAAP financial measures~~

Adjusted EBITDA

Adjusted EBITDA is an alternative view of performance used by management as our primary operating measure, and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. We report Adjusted EBITDA to portray the results of our operations prior to considering certain income statement elements. We have defined EBITDA as net income (loss) plus (i) interest expense, net, (ii) provision for income taxes or less benefit for income taxes, and (iii) depreciation and amortization. We have defined Adjusted EBITDA as EBITDA plus (a) (income) loss from, and disposal of, discontinued operations, (b) other expense or less other income, as separately reported on our consolidated statements of operations, including foreign currency gains and losses, and ~~loss on extinguishment of debt, and~~ (c) certain items that we consider to be unusual, non-operational or non-recurring. The Adjusted EBITDA measure is not, and should not be viewed as, a substitute for GAAP reported net income.

The Adjusted EBITDA measure is an important internal measurement for us. We measure our overall performance on this basis in conjunction with other performance metrics. The following are examples of how our Adjusted EBITDA measure is utilized:

●

senior management receives a monthly analysis of our operating results that is prepared on an Adjusted EBITDA basis;

●

our annual budgets are prepared on an Adjusted EBITDA basis; and

●

other goal setting and performance measurements are prepared on an Adjusted EBITDA basis.

•

~~senior management receives a monthly analysis of our operating results that is prepared on an Adjusted EBITDA basis;~~

•

~~our annual budgets are prepared on an Adjusted EBITDA basis; and~~

•

~~other goal setting and performance measurements are prepared on an Adjusted EBITDA basis.~~

Despite the importance of this measure to management in goal setting and performance measurement, Adjusted EBITDA is a non-GAAP financial measure that has no standardized meaning prescribed by GAAP and, therefore, has limits in its usefulness to investors. Because of its non-standardized definition, Adjusted EBITDA, unlike GAAP net income, may not be comparable to the calculation of similar measures of other companies. Adjusted EBITDA is presented to permit investors to more fully understand how management assesses performance.

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We also recognize that, as an internal measure of performance, the Adjusted EBITDA measure has limitations, and we do not restrict our performance management process solely to this metric. A limitation of the Adjusted EBITDA measure is that it provides a view of our operations without including all events during a period, such as the depreciation of property, plant and equipment or amortization of purchased intangibles, and does not provide a comparable view of our performance to other companies.

Certain significant items

Adjusted EBITDA is calculated prior to considering certain items. We evaluate such items on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual or non-operational nature. Unusual, in this context, may represent items that are not part of our ongoing ~~business;~~business and items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis. ~~An example~~

We consider acquisition-related activities and business restructuring costs related to productivity and cost-saving initiatives, including employee separation costs, to be unusual items that we do not expect to occur as part of ~~an unusual item is the loss~~our normal business on ~~extinguishment of debt incurred in fiscal year 2017.~~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.

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New accounting standards

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

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, 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 uncertain. The pandemic may affect our future sales, expenses, reserves and allowances, manufacturing operations and employee-related costs. The pandemic may have significant economic impacts on our customers, suppliers and markets where we compete and operate. New information may continue to 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 December 31, 2017, there have been no material changes to ~~any of the critical accounting policies contained therein.~~

those estimates in future periods.

Forward-Looking Statements

This ~~report~~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 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;

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●

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;

●

the risk of work stoppages; and

●

other factors as described in “Risk Factors” in Item 1A. of our Annual Report.

•

~~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;~~

•

~~the impact of current and future laws and regulatory changes;~~

•

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

•

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

•

~~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 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;~~

•

~~the risks of product liability claims, legal proceedings and general litigation expenses;~~

•

~~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 the Annual Report.~~

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of

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Financial Condition and Results of ~~Operations” in the Annual Report.~~Operations.” All forward-looking statements are expressly qualified in

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their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

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 ~~also utilize, on a limited basis, certain commodity derivatives, primarily on copper used in manufacturing processes, to hedge the cost of anticipated purchase or supply requirements. 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, ~~and commodity prices,~~ 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 ~~December~~March 31, ~~2017,~~2021, 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, 2017.~~

~~Management’s~~Report.

Material Weakness Remediation ~~Plan~~

Efforts

We ~~are~~continue to make further progress in ~~the process of~~ implementing ~~a broad range of~~ changes to our internal ~~control~~controls over financial reporting to remediate the material weaknesses ~~that existed~~described in "Item 9A. Controls and Procedures" in the Annual Report.

During the quarter ended September 30, 2020, we 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 needed to be made.

We continue to execute further steps in our remediation plan by enhancing and supplementing the finance team through an increased number of compliance-focused roles, reassigning responsibilities, and adding additional resources with an appropriate level of knowledge and experience commensurate with our financial reporting requirements. During the quarter ended March 31, 2021, we hired a Vice President, Global Tax and a Manager of Internal Controls in North America, as well as appointed managers to oversee Sarbanes-Oxley (“SOX”) compliance in each of ~~June 30, 2017.~~ our key regions, reporting to our VP of Finance and Internal Controls, in order to better align our resources to our financial reporting requirements and strengthen, monitor and support our remediation efforts.

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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, reported, and appropriately authorized and ~~approved. Also,~~approved across our key business cycles. During the quarter ended March 31, 2021, and with the oversight of our Board of Directors, we enhanced our delegation of authority and established new management authorization levels. We also initiated a global SOX awareness program, featuring the Chief Executive Officer of the Company and other key members of management to continue to emphasize the importance of SOX and the related compliance procedures for our company as part of the overall training and education element of our remediation plan.

Our efforts include ensuring access to ~~ensure maintenance of~~key financial systems and records is restricted to appropriate users and the appropriate level of segregation of duties ~~includes restricting~~is maintained. During the quarter ended March 31, 2021, and in accordance with our remediation plan, we have finalized the design and implementation of user access tocontrols and segregation of duties monitoring controls and made continued improvements by reducing the number of segregation of duties conflicts within our key financial systems and ~~records~~evaluated mitigating controls. We continue to ~~appropriate users. We are determining the extent it is necessary~~evaluate opportunities to limit access by and modify responsibilities of certain ~~personnel, as well as designing~~personnel.

We are committed to maintaining a strong control environment and ~~implementing additional user access controls and compensating~~

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~~controls. We will~~believe that these remediation efforts represent continued improvements in our control environment. As we continue to ~~build on~~evaluate and take actions to improve our internal control over financial reporting, we may determine it is necessary to take additional actions to address control deficiencies or modify certain of the ~~progress~~remediation measures. While we have made progress in accordance with our remediation ~~plan.~~plan, the material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We cannot yet 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~~controls over financial reporting will be effective as a result of these efforts.

Changes in Internal Control over Financial Reporting

~~There have been~~

Other than the changes discussed above in connection with the changes designed and implemented as a result of our remediation plan of the previously identified material weaknesses, there were no changes ~~in internal control over financial reporting during the three months ended December 31, 2017,~~ that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~

reporting during the quarter ended March 31, 2021.

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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.~~

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Item 4.

Mine Safety Disclosures

Not applicable.

~~None.~~

Item 5.

Other Information

None.

~~None.~~

~~Item~~

Exhibits


		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
	~~February 5, 2018~~
May 6, 2021	By:		~~By:~~		/s/ Jack C. Bendheim
		Jack C. Bendheim
		Chairman, President and Chief Executive Officer
	~~February 5, 2018~~
May 6, 2021	By:		~~By:~~		/s/ ~~Richard G. Johnson~~ Damian Finio
~~Richard G. Johnson~~		Damian Finio
		Chief Financial Officer

	Three Months						Six Months
For the Periods Ended December 31	2017			2016			2017			2016
	(unaudited) (in thousands, except per share amounts)
Net sales		$	205,876		$	191,598		$	399,288		$	379,585
Cost of goods sold			138,957			128,100			268,987			255,088
Gross profit			66,919			63,498			130,301			124,497
Selling, general and administrative expenses			42,981			40,870			83,976			80,056
Operating income			23,938			22,628			46,325			44,441
Interest expense, net			3,050			3,872			6,168			7,779
Foreign currency (gains) losses, net			(323)			(548)			2			(214)
Income before income taxes			21,211			19,304			40,155			36,876
Provision (benefit) for income taxes			14,179			5,887			17,231			11,282
Net income		$	7,032		$	13,417		$	22,924		$	25,594
Net income per share
basic		$	0.17		$	0.34		$	0.57		$	0.65
diluted		$	0.17		$	0.34		$	0.57		$	0.64
Weighted average common shares outstanding
basic			40,186			39,411			40,065			39,409
diluted			40,364			40,002			40,329			39,954
Dividends per share		$	0.10		$	0.10		$	0.20		$	0.20

As of	December 31, 2017			June 30, 2017
	(unaudited) (in thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents		$	40,185		$	56,083
Short-term investments			27,000			—
Accounts receivable, net			132,242			125,847
Inventories, net			173,613			161,233
Other current assets			23,407			20,502
Total current assets			396,447			363,665
Property, plant and equipment, net			127,940			127,351
Intangibles, net			56,454			54,602
Goodwill			29,624			23,982
Other assets			52,665			53,797
Total assets		$	663,130		$	623,397
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt		$	9,458		$	6,250
Accounts payable			64,779			56,894
Accrued expenses and other current liabilities			52,999			52,652
Total current liabilities			127,236			115,796
Revolving credit facility			71,000			65,000
Long-term debt			235,910			241,891
Other liabilities			60,659			49,553
Total liabilities			494,805			472,240
Commitments and contingencies (Note 9)
Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 19,585,889 and 19,249,132 shares issued and outstanding at December 31, 2017, and June 30, 2017, respectively; 30,000,000 Class B shares authorized, 20,602,836 and 20,626,836 shares issued and outstanding at December 31, 2017, and June 30, 2017, respectively			4			4
Preferred stock, par value $0.0001 per share; 16,000,000 shares authorized, no shares issued and outstanding			—			—
Paid-in capital			127,540			123,840
Retained earnings			97,666			82,750
Accumulated other comprehensive income (loss)			(56,885)			(55,437)
Total stockholders’ equity			168,325			151,157
Total liabilities and stockholders’ equity		$	663,130		$	623,397

For the Three Months Ended December 31
Instrument	Hedge	Gain (Loss) recorded in OCI						Gain (Loss) recognized in consolidated statements of operations							Consolidated Statement of Operations Line Item Total
Instrument	Hedge	2017			2016			Consolidated Statement of Operations	2017			2016			2017			2016
Options	Brazilian Real calls		$	(1,781)		$	270	Cost of goods sold		$	517		$	(393)		$	138,957		$	128,100
Swap	Interest rate swap		$	1,505		$	—	Interest expense, net		$	—		$	—		$	3,050		$	3,872

For the Six Months Ended December 31
Instrument	Hedge	Gain (Loss) recorded in OCI						Gain (Loss) recognized in consolidated statements of operations							Consolidated Statement of Operations Line Item Total
Instrument	Hedge	2017			2016			Consolidated Statement of Operations	2017			2016			2017			2016
Options	Brazilian Real calls		$	(2,686)		$	304	Cost of goods sold		$	703		$	(1,528)		$	268,987		$	255,088
Swap	Interest rate swap		$	1,788		$	—	Interest expense, net		$	—		$	—		$	6,168		$	7,779

As of	December 31, 2017									June 30, 2017
	Level 1			Level 2			Level 3			Level 1			Level 2			Level 3
Short-term investments		$	27,000		$	—		$	—		$	—		$	—		$	—
Derivatives asset		$	—		$	—		$	—		$	—		$	2,686		$	—
Interest rate swap		$	—		$	1,788		$	—		$	—		$	—		$	—
Contingent consideration on acquisitions		$	—		$	—		$	(8,079)		$	—		$	—		$	(7,644)

	Six Months
For the Periods December 31	2017			2016			Change
	(in thousands)
Cash provided by/(used in):
Operating activities		$	37,093		$	47,733		$	(10,640)
Investing activities			(51,567)			(10,765)			(40,802)
Financing activities			(1,544)			(31,048)			29,504
Effect of exchange-rate changes on cash and cash equivalents			120			(305)			425
Net increase/(decrease) in cash and cash equivalents		$	(15,898)		$	5,615		$	(21,513)