Company Quick10K Filing
Quick10K
Phibro Animal Health
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$33.60 40 $1,360
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
8-K 2019-02-06 Earnings, Other Events, Exhibits
8-K 2018-11-05 Earnings, Shareholder Vote, Exhibits
8-K 2018-11-05 Other Events, Exhibits
8-K 2018-08-27 Earnings, Exhibits
8-K 2018-07-31 Enter Agreement
8-K 2018-07-30 Other Events, Exhibits
ETFC E Trade Financial 12,210
MLCO Melco Resorts & Entertainment 11,920
PPC Pilgrims Pride 6,090
SWN Southwestern Energy 2,480
TKOI Telkonet 0
RBOI Results Based Outsourcing 0
TRKK Orbital Tracking 0
IMKT Ingles Markets 0
PHII PHI 0
NMTC Neuroone Medical Technologies 0
PAHC 2018-12-31
Part I-Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
EX-31.1 tv511757-exh31x1.htm
EX-31.2 tv511757-exh31x2.htm
EX-32.1 tv511757-exh32x1.htm
EX-32.2 tv511757-exh32x2.htm

Phibro Animal Health Earnings 2018-12-31

PAHC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv511757-10q.htm FORM 10-Q tv511757-10q - none - 5.576386s
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
For the quarterly period ended December 31, 2018
OR

TRANSITION REPORT PURSUANT TO SECTION 13 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-36410
Phibro Animal Health Corporation
(Exact name of registrant as specified in its charter)
Delaware
13-1840497
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Glenpointe Centre East, 3rd Floor
300 Frank W. Burr Boulevard, Suite 21
Teaneck, New Jersey
(Address of Principal Executive Offices)
07666-6712
(Zip Code)
(201) 329-7300
(Registrant’s telephone number, including area code)
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 30, 2019, there were 20,283,777 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 20,166,034 shares of the registrant’s Class B common stock, par value $0.0001 per share, outstanding.

PHIBRO ANIMAL HEALTH CORPORATION
TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
3
3
4
5
6
7
20
33
33
PART II—OTHER INFORMATION
34
34
34
34
34
34
35
36
2

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
2018
2017
2018
2017
(unaudited)
(in thousands, except per share amounts)
Net sales
$ 218,223 $ 205,876 $ 418,376 $ 399,288
Cost of goods sold
149,579 138,957 283,927 268,987
Gross profit
68,644 66,919 134,449 130,301
Selling, general and administrative expenses
42,938 42,981 85,890 83,976
Operating income
25,706 23,938 48,559 46,325
Interest expense, net
3,015 3,050 5,798 6,168
Foreign currency (gains) losses, net
2,617 (323) (18) 2
Income before income taxes
20,074 21,211 42,779 40,155
Provision for income taxes
5,326 14,179 11,717 17,231
Net income
$ 14,748 $ 7,032 $ 31,062 $ 22,924
Net income per share
basic
$ 0.37 $ 0.17 $ 0.77 $ 0.57
diluted
$ 0.36 $ 0.17 $ 0.77 $ 0.57
Weighted average common shares outstanding
basic
40,383 40,186 40,376 40,065
diluted
40,523 40,364 40,523 40,329
The accompanying notes are an integral part of these consolidated financial statements
3

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months
Six Months
For the Periods Ended December 31
2018
2017
2018
2017
(unaudited)
(in thousands)
Net income
$ 14,748 $ 7,032 $ 31,062 $ 22,924
Change in fair value of derivative instruments
(2,243) (276) (1,702) (898)
Foreign currency translation adjustment
4,163 (5,005) (3,519) (1,772)
Unrecognized net pension gains (losses)
124 95 232 226
(Provision) benefit for income taxes
527 809 365 996
Other comprehensive income (loss)
2,571 (4,377) (4,624) (1,448)
Comprehensive income
$ 17,319 $ 2,655 $ 26,438 $ 21,476
The accompanying notes are an integral part of these consolidated financial statements
4

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
December 31,
2018
June 30,
2018
(unaudited)
(in thousands, except share
and per share amounts)
ASSETS
Cash and cash equivalents
$ 31,336 $ 29,168
Short-term investments
49,000 50,000
Accounts receivable, net
144,050 135,742
Inventories, net
193,099 178,170
Other current assets
23,605 22,381
Total current assets
441,090 415,461
Property, plant and equipment, net
132,711 130,108
Intangibles, net
50,509 51,978
Goodwill
27,348 27,348
Other assets
45,634 46,784
Total assets
$ 697,292 $ 671,679
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$ 12,577 $ 12,579
Accounts payable
65,095 59,498
Accrued expenses and other current liabilities
58,157 71,144
Total current liabilities
135,829 143,221
Revolving credit facility
88,000 70,000
Long-term debt
223,699 229,802
Other liabilities
44,540 43,702
Total liabilities
492,068 486,725
Commitments and contingencies (Note 8)
Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 20,220,534 and 19,992,204 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively; 30,000,000 Class B shares authorized, 20,166,034 and 20,365,504 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively
4 4
Preferred stock, par value $0.0001 per share; 16,000,000 shares authorized, no shares issued and outstanding
Paid-in capital
131,343 129,873
Retained earnings
154,984 131,560
Accumulated other comprehensive income (loss)
(81,107) (76,483)
Total stockholders’ equity
205,224 184,954
Total liabilities and stockholders’ equity
$ 697,292 $ 671,679
The accompanying notes are an integral part of these consolidated financial statements
5

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
For the Periods Ended December 31
2018
2017
(unaudited)
(in thousands)
OPERATING ACTIVITIES
Net income
$ 31,062 $ 22,924
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization
13,532 13,275
Amortization of debt issuance costs and debt discount
441 441
Stock-based compensation
1,129
Acquisition-related cost of goods sold
1,671
Acquisition-related accrued compensation
924
Acquisition-related accrued interest
505
Deferred income taxes
135 5,725
Foreign currency (gains) losses, net
12 11
Other
(1,071) 418
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable, net
(8,906) (5,075)
Inventories, net
(16,278) (10,845)
Other current assets
(3,616) (4,751)
Other assets
866 664
Accounts payable
5,169 7,473
Accrued expenses and other liabilities
(5,839) 3,733
Net cash provided (used) by operating activities
16,636 37,093
INVESTING ACTIVITIES
Purchases of short-term investments
(10,000) (27,000)
Maturities of short-term investments
11,000
Capital expenditures
(12,117) (8,851)
Business acquisitions
(9,838) (15,000)
Other, net
27 (716)
Net cash provided (used) by investing activities
(20,928) (51,567)
FINANCING ACTIVITIES
Revolving credit facility borrowings
103,000 109,870
Revolving credit facility repayments
(85,000) (103,870)
Payments of long-term debt, capital leases and other
(6,359) (3,236)
Issuance of acquisition note payable
3,775
Proceeds from common shares issued
341 3,700
Dividends paid
(8,883) (8,008)
Net cash provided (used) by financing activities
6,874 (1,544)
Effect of exchange rate changes on cash
(414) 120
Net increase (decrease) in cash and cash equivalents
2,168 (15,898)
Cash and cash equivalents at beginning of period
29,168 56,083
Cash and cash equivalents at end of period
$ 31,336 $ 40,185
The accompanying notes are an integral part of these consolidated financial statements
6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
1.
Description of Business
Phibro Animal Health Corporation (“Phibro” or “PAHC”) and its subsidiaries (together, the “Company”) is a diversified global developer, manufacturer and marketer of a broad range of animal health and mineral nutrition products for food animals including poultry, swine, cattle, dairy and aquaculture. The Company is also a manufacturer and marketer of performance products for use in the personal care, industrial chemical and chemical catalyst industries. Unless otherwise indicated or the context requires otherwise, references in this report to “we,” “our,” “us,” and similar expressions refer to Phibro and its subsidiaries.
The unaudited consolidated financial information for the three and six months ended December 31, 2018 and 2017, 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, 2018 (the “Annual Report”), filed with the Securities and Exchange Commission on August 27, 2018 (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, 2018, 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 consolidated financial statements include the accounts of Phibro and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated in the consolidated financial statements. The decision whether or not to consolidate an entity requires consideration of majority voting interests, as well as effective control over the entity.
2.
Summary of Significant Accounting Policies and New Accounting Standards
Our significant accounting policies are described in the notes to the consolidated financial statements included in our Annual Report. We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), effective July 1, 2018. See “New Accounting Standards” and “Statements of Operations—Additional Information.” As of December 31, 2018, there have been no other material changes to our significant accounting policies
Revenue Recognition
We recognize revenue from product sales when control of the products has transferred to the customer, typically when title and risk of loss transfer to the customer. Certain of our businesses have terms where control of the underlying products transfers to the customer on shipment, while others have terms where control transfers to the customer on delivery.
Revenue reflects the total consideration to which we expect to be entitled, in exchange for delivery of products or services, net of variable consideration. Variable consideration includes customer programs and incentive offerings, including pricing arrangements, rebates and other volume-based incentives. We record reductions to revenue for estimated variable consideration at the time we record the sale. Our estimates for variable consideration primarily use the most-likely amount method. Such estimates are generally based on contractual terms and historical experience, and are adjusted to reflect future expectations as new information becomes available. Historically, we have not had significant adjustments to our estimates of customer incentives. Sales returns and product recalls have been insignificant and infrequent due to the nature of the products we sell.
7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net sales include shipping and handling fees billed to customers. The associated costs are
considered fulfillment activities, not additional promised services to the customer, and are included in costs of goods sold in the consolidated statements of operations when the related revenue is recognized. Net sales exclude value-added and other taxes based on sales.
Net Income per Share, Weighted Average Shares and Dividends per Share
Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period.
Diluted net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period after giving effect to potential dilutive common shares resulting from the assumed exercise of stock options and vesting of restricted stock units. All common share equivalents were included in the calculation of diluted net income per share for all periods presented.
Three Months
Six Months
For the Periods Ended December 31
2018
2017
2018
2017
Net income
$ 14,748 $ 7,032 $ 31,062 $ 22,924
Weighted average number of shares – basic
40,383 40,186 40,376 40,065
Dilutive effect of stock options and restricted stock units
140 178 147 264
Weighted average number of shares – diluted
40,523 40,364 40,523 40,329
Net income per share
basic
$ 0.37 $ 0.17 $ 0.77 $ 0.57
diluted
$ 0.36 $ 0.17 $ 0.77 $ 0.57
Dividends per share
$ 0.12 $ 0.10 $ 0.22 $ 0.20
New Accounting Standards
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, modifies existing disclosure requirements for defined benefit pension and other postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020 and must be applied on a retrospective basis. We continue to evaluate the effect of adoption of this guidance on our consolidated financial statements.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, modifies existing disclosure requirements for fair value measurement. This ASU is effective for fiscal years beginning after December 15, 2019. We continue to evaluate the effect of adoption of this guidance on our consolidated financial statements.
ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, allows reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects related to adjustments resulting from the United States Tax Cuts and Jobs Act. This ASU is effective for annual reporting periods beginning after December 15, 2018. We do not expect adoption of this guidance to have a material effect on our consolidated financial statements.
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. We adopted this guidance during the three months ended September 30, 2018, and it did not have a material effect on our consolidated financial statements.
8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 and its amendments are effective for our consolidated financial statements beginning July 1, 2019. The new standard requires a modified retrospective method. We expect the adoption of this guidance will increase the assets and liabilities reported on our consolidated balance sheet. We continue to evaluate the effects of this guidance.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606), establishes principles for the recognition of revenue from contracts with customers. The underlying principle is to identify the performance obligations of a contract, allocate the revenue to each performance obligation and then to recognize revenue when the company satisfies a specific performance obligation of the contract. We adopted ASU 2014-09 and its amendments effective July 1, 2018, using the modified retrospective method. Comparative prior period amounts were not restated and continue to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material effect on reported net sales or retained earnings.
The total cumulative effect of initial adoption of the new standard resulted in the following changes to our consolidated balance sheet:
As of July 1, 2018
Effect of
Adoption
Post-adoption
Other current assets
$ 2,100 $ 24,481
Other assets
2,325 49,109
Accrued expenses and other current liabilities
343 71,487
Other liabilities
2,837 46,539
Retained earnings
$ 1,245 $ 132,805
The current year effect of the adoption of the new standard resulted in the following changes to our consolidated balance sheet and consolidated statement of operations:
As of December 31. 2018
Effect of
adoption
As reported
Other current assets
$ 100 $ 23,605
Other assets
125 45,634
Other liabilities
(108) 44,540
Retained earnings
$ 333 $ 154,984
Three Months
Six Months
For the Periods Ended December 31, 2018
Effect of
adoption
As reported
Effect of
adoption
As reported
Net sales
$ 198 $ 218,223 $ 396 $ 418,376
Provision for income taxes
32 5,326 63 11,717
Net income
$ 166 $ 14,748 $ 333 $ 31,062
For changes to our policy resulting from the adoption of ASU 2014-09, see “—Summary of Significant Accounting Policies and New Accounting Standards—Revenue Recognition.” See “Statements of Operations—Additional Information” for our disclosures regarding disaggregated revenue, deferred revenue and customer payment terms.
9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3.
Statements of Operations—Additional Information
Disaggregated revenue, deferred revenue and customer payment terms
We develop, manufacture and market products for a broad range of food animals including poultry, swine, beef and dairy cattle and aquaculture. The products help prevent, control and treat diseases, enhance nutrition to help improve health and contribute to balanced mineral nutrition. The animal health and mineral nutrition products are sold either directly to integrated poultry, swine and cattle integrators or through commercial animal feed manufacturers, wholesalers and distributors. The animal health industry and demand for many of the animal health products in a particular region are affected by changing disease pressures and by weather conditions, as product usage follows varying weather patterns and seasons. Our operations are primarily focused in regions where the majority of livestock production is consolidated in large commercial farms.
We have a diversified portfolio of products that are classified within our three business segments—Animal Health, Mineral Nutrition and Performance Products. Each segment has its own dedicated management and sales team.
Animal Health
The Animal Health business develops, manufactures and markets products in three main categories:

MFAs and Other:   The MFAs and other business primarily consists 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 also manufacture and distribute autogenous vaccine products and market adjuvants to vaccine manufacturers. We have developed an innovative and proprietary delivery platform for vaccines.
Mineral Nutrition
The Mineral Nutrition business is comprised of formulations and concentrations of trace minerals such as zinc, manganese, copper, iron and other compounds, with a focus on customers in North America. The customers use these products to fortify the daily feed requirements of their livestock’s diets and maintain an optimal balance of trace elements in each animal. Mineral nutrition products are manufactured and marketed for a broad range of food animals including poultry, swine and beef and dairy cattle.
Performance Products
The Performance Products business manufactures and markets a number of specialty ingredients for use in the personal care, industrial chemical and chemical catalyst industries, predominantly in the United States.
10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present our revenues disaggregated by major product category and geographic region:
Net Sales by Product Type
Three Months
Six Months
For the Periods Ended December 31
2018
2017
2018
2017
Animal Health
MFAs and other
$ 93,054 $ 82,018 $ 180,058 $ 161,621
Nutritional specialties
29,460 32,623 56,430 63,400
Vaccines
17,048 18,204 34,263 36,665
Total Animal Health
$ 139,562 $ 132,845 $ 270,751 $ 261,686
Mineral Nutrition
62,319 59,616 117,157 111,689
Performance Products
16,342 13,415 30,468 25,913
Total
$ 218,223 $ 205,876 $ 418,376 $ 399,288
Net Sales by Region
Three Months
Six Months
For the Periods Ended December 31
2018
2017
2018
2017
United States
$ 127,750 $ 129,379 $ 243,842 $ 242,548
Latin America and Canada
39,316 36,126 77,575 68,452
Europe, Middle East and Africa
26,181 27,672 51,040 53,054
Asia Pacific
24,976 12,699 45,919 35,234
Total
$ 218,223 $ 205,876 $ 418,376 $ 399,288
Net sales by region are based on country of destination.
Total deferred revenue was $6,416 and $4,530 as of December 31, 2018 and June 30, 2018, respectively. Accrued expenses and other current liabilities included $1,471 and $508 of the total deferred revenue as of December 31, 2018 and June 30, 2018, 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 include any significant financing components. Payment terms vary based on industry and business practices within the regions in which we operate. Our average worldwide collection period for accounts receivable is approximately 60 days after the revenue is recognized.
11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Interest expense and Depreciation and amortization
Three Months
Six Months
For the Periods Ended December 31
2018
2017
2018
2017
Interest expense, net
Term loan
$ 2,202 $ 2,110 $ 4,314 $ 4,143
Revolving credit facility
920 739 1,667 1,420
Amortization of debt issuance costs and debt discount
220 220 441 441
Acquisition-related accrued interest
252 505
Other
120 2 283 241
Interest expense
3,462 3,323 6,705 6,750
Interest (income)
(447) (273) (907) (582)
$ 3,015 $ 3,050 $ 5,798 $ 6,168
Depreciation and amortization
Depreciation of property, plant and equipment
$ 5,308 $ 5,222 $ 10,496 $ 10,405
Amortization of intangible assets
1,521 1,397 3,012 2,846
Amortization of other assets
12 12 24 24
$ 6,841 $ 6,631 $ 13,532 $ 13,275
4.
Balance Sheets—Additional Information
As of
December 31,
2018
June 30,
2018
Inventories
Raw materials
$ 80,649 $ 62,373
Work-in-process
14,907 14,731
Finished goods
97,543 101,066
$ 193,099 $ 178,170
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 $3,141 equity investment are currently idled; we have concluded the investment is not currently impaired, based on expected future operating cash flows and/or disposal value.
As of
December 31,
2018
June 30,
2018
Accrued expenses and other current liabilities
Employee related
$ 21,282 $ 27,333
Commissions and rebates
7,510 7,341
Insurance-related
1,563 1,168
Professional fees
4,599 4,350
Income and other taxes
4,122 3,610
Acquisition-related consideration
3,928 12,845
Other
15,153 14,497
$ 58,157 $ 71,144
12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In July 2018, we accelerated the closing date and completed the purchase of intellectual property and certain other assets comprising the MJ Biologics, Inc. (“MJB”) business relating to animal vaccines. The Company and MJB had originally agreed to the purchase business combination in January 2015, with a contemplated final closing date in January 2021. The final amount due, net of previously paid amounts, was $12,775, including $9,000 paid in July 2018 and $3,775 paid in January 2019.
As of
December 31,
2018
June 30,
2018
Accumulated other comprehensive income (loss)
Derivative instruments
$ 3,284 $ 4,986
Foreign currency translation adjustment
(70,617) (67,098)
Unrecognized net pension gains (losses)
(17,981) (18,213)
(Provision) benefit for income taxes on derivative instruments
(818) (1,241)
(Provision) benefit for income taxes on long-term intercompany investments
8,166 8,166
(Provision) benefit for income taxes on pension gains (losses)
(3,141) (3,083)
$ (81,107) $ (76,483)
5.
Debt
Term Loans and Revolving Credit Facilities
Pursuant to a credit agreement (the “Credit Agreement”), we have a revolving credit facility (the “Revolver”), where we can borrow up to $250,000, subject to the terms of the agreement, and a term A loan with an aggregate initial principal amount of  $250,000 (the “Term A Loan,” and together with the Revolver, the “Credit Facilities”). The Credit Facilities have applicable margins 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 based on the First Lien Net Leverage Ratio, as defined in the Credit Agreement. The LIBOR rate is subject to a floor of 0.00%. The Credit Facilities mature on June 29, 2022.
The Credit Facilities require, among other things, the maintenance of  (i) a maximum First Lien Net Leverage Ratio and (ii) a minimum consolidated interest coverage ratio, each calculated on a trailing four quarter basis, and contain an acceleration clause should an event of default (as defined in the agreement governing the Credit Facilities) occur. As of December 31, 2018, we were in compliance with the covenants of the Credit Facilities.
As of December 31, 2018, we had $88,000 in borrowings under the Revolver and had outstanding letters of credit of  $4,191, leaving $157,809 available for borrowings and letters of credit under the Revolver. We obtain letters of credit in connection with certain regulatory and insurance obligations, inventory purchases and other contractual obligations. The terms of these letters of credit are one year or less.
As of December 31, 2018, the interest rates for the Revolver and the Term A Loan were 4.00% and 3.58%, respectively. The weighted-average interest rates for the outstanding revolving credit facilities were 3.71% and 3.01% for the six months ended December 31, 2018 and 2017, respectively. The weighted-average interest rates for the term loans were 3.47% and 3.29% for the six months ended December 31, 2018 and 2017, respectively.
In July 2017, we entered into an interest rate swap agreement on $150 million 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 the Credit Agreement. The interest rate swap has been designated as a highly effective cash flow hedge. For additional details, see “—Derivatives.”
13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-Term Debt
As of
December 31,
2018
June 30,
2018
Term A Loan due June 2022
$ 237,500 $ 243,750
Capitalized lease obligations
77 118
237,577 243,868
Unamortized debt issuance costs and debt discount
(1,301) (1,487)
236,276 242,381
Less: current maturities
(12,577) (12,579)
$ 223,699 $ 229,802
6.
Related Party Transactions
Certain relatives of Jack C. Bendheim, our Chairman, President and Chief Executive Officer, provided services to us as employees or consultants and received aggregate compensation and benefits of approximately $430 and $409 during the three months ended December 31, 2018 and 2017, respectively, and $1,213 and $1,129 during the six months ended December 31, 2018 and 2017, respectively. Mr. Bendheim has sole authority to vote shares of our stock owned by BFI Co., LLC, an investment vehicle of the Bendheim family.
7.
Income Taxes
In December 2017, the United States government enacted comprehensive income tax legislation (the “Tax Act”). The Tax Act makes broad and complex changes to United States income tax law and includes numerous elements that affect the Company, including a reduced federal corporate income tax rate from 35% to 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings and changes to business-related exclusions, deductions and credits. The Tax Act also has consequences related to our international operations.
We have elected to record Global Intangible Low-Taxed Income (GILTI) aspects of the comprehensive U.S. income tax legislation as a current period expense. The provision for income taxes for the three and six months ended December 31, 2018, included $315 and $672 of expense, respectively, from the effects of GILTI.
During the three months ended December 31, 2018, we completed our analysis and accounting for the Tax Act and recorded a $715 reduction in the provision for income taxes, related to the previously recorded one-time mandatory toll charge on the deemed repatriation of undistributed earnings of foreign subsidiaries.
8.
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
14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
facilities to meet existing or new requirements under Environmental Laws or to investigate or remediate potential or actual contamination and from time to time we establish reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under Environmental Laws and the time period during which such costs are likely to be incurred are difficult to predict.
While we believe that our operations are currently in material compliance with Environmental Laws, we have, from time to time, received notices of violation from governmental authorities, and have been involved in civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring efforts to address contamination associated with historic operations of the sites. We devote considerable resources to complying with Environmental Laws and managing environmental liabilities. We have developed programs to identify requirements under, and maintain compliance with Environmental Laws; however, we cannot predict with certainty the effect of increased and more stringent regulation on our operations, future capital expenditure requirements, or the cost of compliance.
The nature of our current and former operations exposes us to the risk of claims with respect to environmental matters and we cannot assure we will not incur material costs and liabilities in connection with such claims. Based upon our experience to date, we believe that the future cost of compliance with existing Environmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.
The United States Environmental Protection Agency (the “EPA”) is investigating and planning for the remediation of offsite contaminated groundwater that has migrated from the Omega Chemical Corporation Superfund Site (“Omega Chemical Site”), which is upgradient of Phibro-Tech’s Santa Fe Springs, California facility. The EPA has named Phibro-Tech and certain other subsidiaries of PAHC as potentially responsible parties (“PRPs”) due to groundwater contamination from Phibro-Tech’s Santa Fe Springs facility that has allegedly commingled with contaminated groundwater from the Omega Chemical Site. In September 2012, the EPA notified approximately 140 PRPs, including Phibro-Tech and the other subsidiaries, that they have been identified as potentially responsible for remedial action for the groundwater plume affected by the Omega Chemical Site and for EPA oversight and response costs. Phibro-Tech contends that any groundwater contamination at its site is localized and due to historical operations that pre-date Phibro-Tech and/or contaminated groundwater that has migrated from upgradient properties. In addition, a successor to a prior owner of the Phibro-Tech site has asserted that PAHC and Phibro-Tech are obligated to provide indemnification for its potential liability and defense costs relating to the groundwater plume affected by the Omega Chemical Site. Phibro-Tech has vigorously contested this position and has asserted that the successor to the prior owner is required to indemnify Phibro-Tech for its potential liability and defense costs. Furthermore, a group of companies that sent chemicals to the Omega Chemical Site for processing and recycling has filed a complaint under CERCLA and RCRA in the United States District Court for the Central District of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for contribution toward past and future costs associated with the investigation and remediation of the groundwater plume affected by the Omega Chemical Site. Due to the ongoing nature of the EPA’s investigation, the preliminary stage of the ongoing litigation and Phibro-Tech’s dispute with the prior owner’s successor, at this time we cannot predict with any degree of certainty what, if any, liability Phibro-Tech or the other subsidiaries may ultimately have for investigation, remediation and the EPA oversight and response costs associated with the affected groundwater plume.
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 $6,598 and $6,833 at December 31, 2018 and June 30, 2018, 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
15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 is liable for environmental or other claims made against one or more of our other subsidiaries or for which any of such other subsidiaries may ultimately be responsible.
Claims and Litigation
PAHC and its subsidiaries are party to a number of claims and lawsuits arising out of the normal course of business including product liabilities, payment disputes and governmental regulation. Certain of these actions seek damages in various amounts. In many cases, our insurance policies will cover such claims. 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.
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 as an asset or liability with a corresponding amount recorded in accumulated other comprehensive income (loss).
We routinely assess whether the derivatives used to hedge transactions are effective. If we determine a derivative ceases to be an effective hedge, we discontinue hedge accounting in the period of the assessment for that derivative, and immediately recognize any unrealized gains or losses related to the fair value of that derivative in the consolidated statements of operations.
We record derivatives at fair value in the consolidated balance sheets. For additional details regarding fair value, see “—Fair Value Measurements.”
We entered into an interest rate swap agreement on $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 the Credit Agreement. The forecasted transactions are probable of occurring, and the interest rate swap has been designated as a highly effective cash flow hedge.
We entered into foreign currency option contracts to hedge cash flows related to monthly inventory purchases. The individual option contracts mature monthly through June 2020. The forecasted inventory purchases are probable of occurring and the individual option contracts were designated as highly effective cash flow hedges.
The following table summarizes the outstanding derivatives that are designated and effective as cash flow hedges as of December 31, 2018:
Instrument
Hedge
Notional
Amount at
December 31,
2018
Consolidated
Balance Sheet
Fair value as of
December 31,
2018
June 30,
2018
Options
Brazilian Real calls
R$75,000
(1) $ 551 $ 71
Options
Brazilian Real puts
R$75,000
(1) $ (146) $
Swap
Interest rate swap
$150,000
Other assets
$ 2,972 $ 5,078
(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. The net fair values of  $405 and $71 were included in other current assets as of December 31, 2018 and June 30, 2018, respectively.
16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables show the effects of derivatives on the consolidated statements of operations and other comprehensive income for the three and six months ended December 31, 2018 and 2017.
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
2018
2017
Consolidated
Statement
of Operations
2018
2017
2018
2017
Options
Brazilian Real puts and calls $ 513 $ (1,781) Cost of goods sold $ $ 517 $ 149,579 $ 138,957
Swap
Interest rate swap $ (2,756) $ 1,505
Interest expense, net
$ $ $ 3,015 $ 3,050
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
2018
2017
Consolidated
Statement
of Operations
2018
2017
2018
2017
Options
Brazilian Real puts and calls $ 404 $ (2,686) Cost of goods sold $ 1,084 $ 703 $ 283,927 $ 268,987
Swap
Interest rate swap $ (2,106) $ 1,788
Interest expense, net
$ $ $ 5,798 $ 6,168
We recognize gains (losses) related to these foreign currency derivatives as a component of cost of goods sold at the time the hedged item is sold. Realized net gains of $1,084 related to matured contracts were recorded as a component of inventory as of June 30, 2018 and were fully recognized as an offset to costs of goods sold during the three months ended September 30, 2018.
10.
Fair Value Measurements
Short-term investments
As of December 31, 2018, 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.
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, and interest rate curves.
Fair Value of Assets (Liabilities)
As of
December 31, 2018
June 30, 2018
Level 1
Level 2
Level 1
Level 2
Short-term investments
$ 49,000 $ $ 50,000 $
Derivatives asset (liability)
$ $ 405 $ $ 71
Interest rate swap
$ $ 2,972 $ $ 5,078
There were no Level 3 fair value measurements as of the periods presented.
17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11.
Business Segments
We evaluate performance and allocate resources based on the Animal Health, Mineral Nutrition and Performance Products segments. Certain of our costs and assets are not directly attributable to these segments and we refer to these items as Corporate. We do not allocate Corporate costs or assets to the segments because they are not used to evaluate the segments’ operating results or financial position. Corporate costs include certain costs related to executive management, business technology, legal, finance, human resources and business development. 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.
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
2018
2017
2018
2017
Net sales
Animal Health
$ 139,562 $ 132,845 $ 270,751 $ 261,686
Mineral Nutrition
62,319 59,616 117,157 111,689
Performance Products
16,342 13,415 30,468 25,913
Total segments
$ 218,223 $ 205,876 $ 418,376 $ 399,288
Depreciation and amortization
Animal Health
$ 5,493 $ 5,265 $ 10,849 $ 10,519
Mineral Nutrition
616 584 1,213 1,169
Performance Products
279 259 552 505
Total segments
$ 6,388 $ 6,108 $ 12,614 $ 12,193
Adjusted EBITDA
Animal Health
$ 35,925 $ 35,036 $ 71,641 $ 68,778
Mineral Nutrition
4,084 5,614 6,647 9,330
Performance Products
1,514 264 2,230 512
Total segments
$ 41,523 $ 40,914 $ 80,518 $ 78,620
18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Three Months
Six Months
For the Periods Ended December 31
2018
2017
2018
2017
Reconciliation of income before income taxes to Adjusted EBITDA
Income before income taxes
$ 20,074 $ 21,211 $ 42,779 $ 40,155
Interest expense, net
3,015 3,050 5,798 6,168
Depreciation and amortization – Total segments
6,388 6,108 12,614 12,193
Depreciation and amortization – Corporate
453 523 918 1,082
Corporate costs
9,918 8,436 18,804 16,025
Stock-based
compensation
564 1,129
Acquisition-related cost of goods sold
1,422 1,671
Acquisition-related accrued compensation
487 924
Acquisition-related transaction costs
400
Other, net
(1,506) (1,506)
Foreign currency (gains) losses, net
2,617 (323) (18) 2
Adjusted EBITDA – Total segments
$ 41,523 $ 40,914 $ 80,518 $ 78,620
As of
December 31,
2018
June 30,
2018
Identifiable assets
Animal Health
$ 472,534 $ 455,704
Mineral Nutrition
77,351 69,779
Performance Products
32,430 24,040
Total segments
582,315 549,523
Corporate
114,977 122,156
Total
$ 697,292 $ 671,679
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  $3,141 and $3,432 as of December 31, 2018 and June 30, 2018, respectively. The Performance Products segment includes an investment in an equity method investee of  $629 and $437 as of December 31, 2018 and June 30, 2018, respectively. Corporate assets include cash and cash equivalents, short-term investments, certain debt issuance costs, income tax related assets and certain other assets.
19

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 products for a broad range of food animals including poultry, swine, beef and dairy cattle and aquaculture. Our products help prevent, control and treat diseases, enhance nutrition to help improve health and performance and contribute to balanced mineral nutrition. In addition to animal health and mineral nutrition products, we manufacture and market specific ingredients for use in the personal care, industrial chemical and chemical catalyst industries.
20

Analysis of the consolidated statements of operations
Summary Results of Operations
Three Months
Six Months
For the Periods Ended December 31
2018
2017
Change
2018
2017
Change
(in thousands, except per share amounts and percentages)
Net sales
$ 218,223 $ 205,876 $ 12,347
6%
$ 418,376 $ 399,288 $ 19,088
5%
Gross profit
68,644 66,919 1,725
3%
134,449 130,301 4,148
3%
Selling, general and administrative
expenses
42,938 42,981 (43)
(0)%
85,890 83,976 1,914
2%
Operating income
25,706 23,938 1,768
7%
48,559 46,325 2,234
5%
Interest expense, net
3,015 3,050 (35)
(1)%
5,798 6,168 (370)
(6)%
Foreign currency (gains) losses,
net 
2,617 (323) 2,940
*
(18) 2 (20)
*
Income before income taxes
20,074 21,211 (1,137)
(5)%
42,779 40,155 2,624
7%
Provision for income taxes 
5,326 14,179 (8,853)
(62)%
11,717 17,231 (5,514)
(32)%
Net income
$ 14,748 $ 7,032 $ 7,716
110%
$ 31,062 $ 22,924 $ 8,138
35%
Net income per share
basic
$ 0.37 $ 0.17 $ 0.20 $ 0.77 $ 0.57 $ 0.20
diluted
$ 0.36 $ 0.17 $ 0.19 $ 0.77 $ 0.57 $ 0.20
Weighted average number of shares outstanding
basic
40,383 40,186 40,376 40,065
diluted
40,523 40,364 40,523 40,329
Ratio to net sales
Gross profit
31.5%
32.5%
32.1%
32.6%
Selling, general and administrative expenses
19.7%
20.9%
20.5%
21.0%
Operating income
11.8%
11.6%
11.6%
11.6%
Income before income taxes
9.2%
10.3%
10.2%
10.1%
Net income
6.8%
3.4%
7.4%
5.7%
Effective tax rate
26.5%
66.8%
27.4%
42.9%
Certain amounts and percentages may reflect rounding adjustments.
*
Calculation not meaningful
21

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.”
Segment net sales and Adjusted EBITDA:
Three Months
Six Months
For the Periods Ended December 31
2018
2017
Change
2018
2017
Change
(in thousands, except percentages)
Net sales
MFAs and other
$ 93,054 $ 82,018 $ 11,036
13%
$ 180,058 $ 161,621 $ 18,437
11%
Nutritional specialties
29,460 32,623 (3,163)
(10)%
56,430 63,400 (6,970)
(11)%
Vaccines
17,048 18,204 (1,156)
(6)%
34,263 36,665 (2,402)
(7)%
Animal Health
139,562 132,845 6,717
5%
270,751 261,686 9,065
3%
Mineral Nutrition
62,319 59,616 2,703
5%
117,157 111,689 5,468
5%
Performance Products
16,342 13,415 2,927
22%
30,468 25,913 4,555
18%
Total
$ 218,223 $ 205,876 $ 12,347
6%
$ 418,376 $ 399,288 $ 19,088
5%
Adjusted EBITDA
Animal Health
$ 35,925 $ 35,036 $ 889
3%
$ 71,641 $ 68,778 $ 2,863
4%
Mineral Nutrition
4,084 5,614 (1,530)
(27)%
6,647 9,330 (2,683)
(29)%
Performance Products
1,514 264 1,250
*
2,230 512 1,718
*
Corporate
(9,918) (8,436) (1,482)
*
(18,804) (16,025) (2,779)
*
Total
$ 31,605 $ 32,478 $ (873)
(3)%
$ 61,714 $ 62,595 $ (881)
(1)%
Adjusted EBITDA ratio to segment net sales
Animal Health
25.7%
26.4%
26.5%
26.3%
Mineral Nutrition
6.6%
9.4%
5.7%
8.4%
Performance Products
9.3%
2.0%
7.3%
2.0%
Corporate(1)
(4.5)%
(4.1)%
(4.5)%
(4.0)%
Total(1)
14.5%
15.8%
14.8%
15.7%
(1)
reflects ratio to total net sales
22

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
2018
2017
Change
2018
2017
Change
(in thousands, except percentages)
Net income
$ 14,748 $ 7,032 $ 7,716
110%
$ 31,062 $ 22,924 $ 8,138
35%
Interest expense, net
3,015 3,050 (35)
(1)%
5,798 6,168 (370)
(6)%
Provision for income taxes
5,326 14,179 (8,853)
(62)%
11,717 17,231 (5,514)
(32)%
Depreciation and amortization
6,841 6,631 210
3%
13,532 13,275 257
2%
EBITDA
29,930 30,892 (962)
(3)%
62,109 59,598 2,511
4%
Stock-based compensation
564 564
*
1,129 1,129
*
Acquisition-related cost of goods sold 
1,422 (1,422)
*
1,671 (1,671)
*
Acquisition-related accrued compensation
487 (487)
*
924 (924)
*
Acquisition-related transaction
cost
*
400 (400)
*
Other, net
(1,506) (1,506)
*
(1,506) (1,506)
*
Foreign currency (gains) losses, net
2,617 (323) 2,940
*
(18) 2 (20)
*
Adjusted EBITDA
$ 31,605 $ 32,478 $ (873)
(3)%
$ 61,714 $ 62,595 $ (881)
(1)%
Certain amounts and percentages may reflect rounding adjustments.
*
Calculation not meaningful
Comparison of three months ended December 31, 2018 and 2017
Net sales
Net sales of $218.2 million for the three months ended December 31, 2018, increased $12.3 million, or 6%, as compared to the three months ended December 31, 2017. Animal Health, Mineral Nutrition and Performance Products grew $6.7 million, $2.7 million and $2.9 million, respectively.
Animal Health
Net sales of $139.6 million for the three months ended December 31, 2018, increased $6.7 million, or 5%. Net sales of MFAs and other increased $11.0 million, or 13%, driven by continued international volume growth, particularly in the Asia Pacific and Latin America regions. Reduced selling prices in certain countries due to unfavorable exchange rate movements partially offset the international growth. Net sales of domestic MFAs and other declined slightly from the prior year. Net sales of nutritional specialty products declined by $3.2 million, or 10%, due to volume declines from continued negative dairy industry conditions and reduced demand from poultry customers. Net sales of vaccines declined $1.2 million, or 6%, due to turbulent economic conditions in certain international countries and the loss of a domestic distribution arrangement; volume growth in other international markets partially offset the reductions.
Mineral Nutrition
Net sales of $62.3 million for the three months ended December 31, 2018, increased $2.7 million, or 5%. Higher average selling prices, plus increased volumes, were the drivers of the increase. Our selling prices of mineral nutrition products generally move in direct correlation with the underlying commodity costs.
Performance Products
Net sales of $16.3 million for the three months ended December 31, 2018, increased $2.9 million, or 22%, due to volume growth of copper-based and personal care products.
23

Gross profit
Gross profit of $68.6 million for the three months ended December 31, 2018, increased $1.7 million, or 3%, as compared to the three months ended December 31, 2017. Gross profit decreased to 31.5% of net sales for the three months ended December 31, 2018, as compared to 32.5% for the three months ended December 31, 2017. Gross profit for the three months ended December 31, 2017 included $1.4 million of acquisition-related cost of goods sold.
Animal Health gross profit increased $0.8 million due to volume growth of MFAs and other, mostly offset by volume declines in the nutritional specialty and vaccine categories and increased vaccine manufacturing costs. Mineral Nutrition gross profit decreased $1.5 million, primarily due to unfavorable product mix and constrained pricing in a competitive environment. Performance Products gross profit increased $1.0 million, primarily due to volume growth. Gross profit increased $1.4 million due to acquisition-related cost of goods sold included in the three months ended December 31, 2017.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) of $42.9 million for the three months ended December 31, 2018, was approximately equal to the three months ended December 31, 2017. SG&A for the three months ended December 31, 2018, included $0.6 million of stock-based compensation and a $1.5 million benefit from the cancellation of a certain business arrangement. SG&A for the three months ended December 31, 2017, included $0.5 million in acquisition-related compensation costs. Excluding the effects of these costs, SG&A increased $1.4 million, or 3%.
Animal Health, Mineral Nutrition and Performance Products SG&A were each little changed from the prior year. Corporate costs increased $1.4 million due to increased business development expenses. The stock-based compensation, cancellation of the business arrangement and acquisition-related compensation costs resulted in a $1.4 million reduction in SG&A.
Interest expense, net
Interest expense, net of $3.0 million for the three months ended December 31, 2018, was approximately equal to the three months ended December 31, 2017.
Foreign currency (gains) losses, net
Foreign currency (gains) losses, net for the three months ended December 31, 2018, amounted to net losses of $2.6 million, as compared to $0.3 million in net gains for the three months ended December 31, 2017. Foreign currency net losses for the three months ended December 31, 2018, were primarily due to the movement of the Turkish and Brazilian currencies relative to the U.S. dollar. Foreign currency gains and losses primarily arose from cash and intercompany balances.
Provision for income taxes
The provision for income taxes was $5.3 million and $14.2 million for the three months ended December 31, 2018 and 2017, respectively. The effective income tax rate was 26.5% and 66.8% for the three months ended December 31, 2018 and 2017, respectively. The provision for income taxes for the three months ended December 31, 2018 included a $0.7 million benefit from an adjustment to the previously recorded mandatory toll charge on deemed repatriation of undistributed earnings of foreign subsidiaries and a $0.1 million benefit from the exercise of employee stock options. The effective income tax rate, without these benefits, would have been 30.5% for the three months ended December 31, 2018, including a $0.3 million provision for the U.S. federal Global Intangible Low-Taxed Income (GILTI) aspects of the comprehensive U.S. income tax legislation. The effective income tax rate reflects the statutory 21% U.S. federal income tax rate.
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The effective income tax rate for the three months ended December 31, 2017, would have been 26.2% without the discrete items listed below. This effective rate for the three months ended December 31, 2017, included the benefit of adjusting the year-to-date income tax provision to reflect the statutory 28.1% weighted-average U.S. federal income tax rate. The provision for income taxes for the three months ended December 31, 2017, included the effects of the Tax Act and other discrete items:

a $2.5 million provision for the remeasurement of deferred tax assets and liabilities to reflect the reduced U.S. federal 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 accumulated other comprehensive income (“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 $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.
Net income
Net income of $14.8 million for the three months ended December 31, 2018, increased $7.7 million, as compared to net income of $7.0 million for the three months ended December 31, 2017. A $2.9 million increase in foreign currency losses offset a $1.8 million improvement in operating income, resulting in a $1.1 million decrease in income before income taxes. The provision for income taxes decreased by $8.9 million, primarily because the three months ended December 31, 2017 included additional expense from the initial application of the comprehensive U.S. income tax legislation and other discrete items.
Adjusted EBITDA
Adjusted EBITDA of $31.6 million for the three months ended December 31, 2018, decreased $0.9 million or 3%, as compared to the three months ended December 31, 2017. Mineral Nutrition Adjusted EBITDA decreased $1.5 million, or 27%, due to the effect of unfavorable product mix and constrained pricing in a competitive environment. Corporate expenses increased $1.5 million due to increased business development expenses. Performance Products and Animal Health Adjusted EBITDA increased $1.2 million and $0.9 million, respectively, due to sales growth and increased gross profit.
Comparison of six months ended December 31, 2018 and 2017
Net sales
Net sales of $418.4 million for the six months ended December 31, 2018, increased $19.1 million, or 5%, as compared to the six months ended December 31, 2017. Animal Health, Mineral Nutrition and Performance Products grew $9.1 million, $5.5 million and $4.5 million, respectively.
Animal Health
Net sales of $270.8 million for the six months ended December 31, 2018, increased $9.1 million, or 3%. Net sales of MFAs and other increased $18.4 million, or 11%, driven by continued international volume growth, particularly in the Asia Pacific and Latin America regions. Reduced selling prices in certain countries due to unfavorable exchange rate movements partially offset the international growth. Net sales of domestic MFAs and other were approximately equal to the prior year. Net sales of nutritional specialty products declined by $7.0 million, or 11%, primarily due to volume declines from the continued negative
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dairy industry conditions and reduced demand from poultry customers. Net sales of vaccines declined $2.4 million, or 7%, due to turbulent economic conditions in certain international countries and the loss of a domestic distribution arrangement; volume growth in other international markets partially offset the reductions.
Mineral Nutrition
Net sales of  $117.2 million for the six months ended December 31, 2018, increased $5.5 million, or 5%. Higher average selling prices were the primary driver of the increased revenue, while volumes were approximately level with the prior year. Our selling prices of mineral nutrition products generally move in direct correlation with the underlying commodity costs.
Performance Products
Net sales of $30.5 million for the six months ended December 31, 2018, increased $4.5 million, or 18%, due to volume growth of copper-based products, coupled with higher average selling prices of certain industrial chemical products.
Gross profit
Gross profit of $134.4 million for the six months ended December 31, 2018, increased $4.1 million, or 3%, as compared to the six months ended December 31, 2017. Gross profit decreased to 32.1% of net sales for the six months ended December 31, 2018, as compared to 32.6% for the six months ended December 31, 2017. Gross profit for the six months ended December 31, 2017 included $1.7 million of acquisition-related cost of goods sold.
Animal Health gross profit increased $3.8 million due to volume growth and favorable unit costs and product mix in MFAs and other, partially offset by volume declines in both the nutritional specialty and vaccine categories and increased vaccine manufacturing costs. Mineral Nutrition gross profit decreased $2.7 million, primarily due to unfavorable product mix and constrained pricing in a competitive environment. Performance Products gross profit increased $1.4 million, primarily due to volume growth. Gross profit increased $1.7 million due to acquisition-related cost of goods sold included in the three months ended December 31, 2017.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) of $85.9 million for the six months ended December 31, 2018, increased $1.9 million, or 2%, as compared to the six months ended December 31, 2017. SG&A for the six months ended December 31, 2018, included $1.1 million of stock-based compensation and a $1.5 million benefit from the cancellation of a certain business arrangement. SG&A for the six months ended December 31, 2017, included $0.4 million in acquisition-related transaction costs and $0.9 million in acquisition-related compensation costs. Excluding the effects of these costs, SG&A increased $3.6 million, or 4%.
Animal Health SG&A increased $1.3 million, driven by sales force expansion and increased investments in marketing and product development. Mineral Nutrition and Performance Products SG&A were each little changed from the prior year. Corporate costs increased $2.6 million due to higher business development expenses and professional fees. The stock-based compensation, cancellation of the business arrangement, acquisition-related transaction costs and acquisition-related compensation costs resulted in a $1.7 million reduction in SG&A.
Interest expense, net
Interest expense, net of $5.8 million for the six months ended December 31, 2018, decreased $0.4 million, or 6%, as compared to the six months ended December 31, 2017, primarily due to increased interest earnings on short-term investments.
Foreign currency (gains) losses, net
Foreign currency (gains) losses, net were insignificant for the six-month periods ended December 31, 2018 and 2017.
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Provision for income taxes
The provision for income taxes was $11.7 million and $17.2 million for the six months ended December 31, 2018 and 2017, respectively. The effective income tax rate was 27.4% and 42.9% for the six months ended December 31, 2018 and 2017, respectively. The provision for income taxes for the six months ended December 31, 2018 included a $0.7 million benefit from an adjustment to the previously recorded mandatory toll charge on deemed repatriation of undistributed earnings of foreign subsidiaries and a $0.2 million benefit from the exercise of employee stock options . The effective income tax rate, without these benefits, would have been 29.6% for the six months ended December 31, 2018, including a $0.7 million provision for the U.S. federal Global Intangible Low-Taxed Income (GILTI) aspects of the comprehensive U.S. income tax legislation. The effective income tax rate reflects the statutory 21% U.S. federal income tax rate.
The effective income tax rate for the six months ended December 31, 2017, would have been 28.3% without the discrete items listed below. The provision for income taxes for the six months ended December 31, 2017 included the effects of the Tax Act and other 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 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 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.
Net income
Net income of $31.1 million for the six months ended December 31, 2018, increased $8.1 million, as compared to net income of $22.9 million for the six months ended December 31, 2017. Increased operating income of $2.2 million and lower interest expense of $0.4 million resulted in a $2.6 million increase in income before income taxes. The provision for income taxes decreased by $5.5 million, primarily because the six months ended December 31, 2017 included additional expense from the initial application of the comprehensive U.S. income tax legislation and other discrete items.
Adjusted EBITDA
Adjusted EBITDA of  $61.7 million for the six months ended December 31, 2018, decreased $0.9 million, or 1% as compared to the six months ended December 31, 2017. Animal Health Adjusted EBITDA increased $2.9 million, or 4%, due to sales growth and increased gross profit, partially offset by increased SG&A for investments in organization and business development. Mineral Nutrition Adjusted EBITDA decreased $2.7 million, or 29%, due to the effect of unfavorable product mix and constrained pricing in a competitive environment. Performance Products Adjusted EBITDA increased $1.7 million, primarily due to sales growth and increased gross profit. Corporate expenses increased $2.8 million due to higher business development expenses and professional fees.
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Analysis of financial condition, liquidity and capital resources
Net increase (decrease) in cash and cash equivalents was:
Six Months
For the Periods Ended December 31
2018
2017
Change
(in thousands)
Cash provided by/(used in):
Operating activities
$ 16,636 $ 37,093 $ (20,457)
Investing activities
(20,928) (51,567) 30,639
Financing activities
6,874 (1,544) 8,418
Effect of exchange-rate changes on cash
and cash equivalents
(414) 120 (534)
Net increase/(decrease) in cash and cash equivalents
$ 2,168 $ (15,898) $ 18,066
Certain amounts may reflect rounding adjustments.
Net cash provided (used) by operating activities was comprised of:
Six Months
For the Periods Ended December 31
2018
2017
Change
(in thousands)
EBITDA
$ 62,109 $ 59,598 $ 2,511
Adjustments
Stock-based compensation
1,129 1,129
Acquisition-related cost of goods sold
1,671 (1,671)
Acquisition-related accrued compensation
924 (924)
Acquisition-related transaction costs
400 (400)