Phibro Animal Health Corporation
PHIBRO ANIMAL HEALTH CORP (Form: 10-K, Received: 09/18/2014 13:23:45)
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
  • ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2014
OR
  • TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______ to______
Commission File Number: 001-36410
 
Phibro Animal Health Corporation
(Exact name of registrant as specified in its charter)
 
 
Delaware
13-1840497
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
Glenpointe Centre East, 3 rd 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)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Class A Common Stock, $0.0001 par value per share
(Title of each class)
NASDAQ Stock Market
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of Securities Act.  Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒
The registrant completed the initial public offering of its Class A common stock on April 16, 2014. There was no public market for the registrant’s Class A common stock or Class B common stock as of December 31, 2013, the last business day of the registrant’s most recently completed second fiscal quarter. The registrant has no non-voting common stock.
As of September 9, 2014, there were 17,442,953 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 21,512,275 shares of the registrant’s Class B common stock, par value $0.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s Proxy Statement for the 2014 Annual Meeting of Shareholders to be held on November 10, 2014 (hereinafter referred to as the “2014 Proxy Statement”) are incorporated herein by reference in Part III of this Annual Report on Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended June 30, 2014.
 
 

PHIBRO ANIMAL HEALTH CORPORATION
   
TABLE OF CONTENTS
 
Page
PART I
PART II
PART III
PART IV

Forward-Looking Statements.
This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “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:
  • 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;
  • perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products could cause a decline in the sales of those products;
  • our 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 this Annual Report on Form 10-K.
While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 (“Section 404”) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), (ii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (iii) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have taken , and plan to continue to take , advantage of some or all of these exemptions. If we do continue to take advantage of any of these exemptions, we do not know if some investors will find our Class A common stock less attractive as a result. If some investors find our Class A common stock less attractive, there may be a less active trading market for our Class A common stock and our stock price may be more volatile. We have elected to forego the extended transition period for complying with new or revised accounting standards that emerging growth companies are permitted to take advantage of pursuant to Section 107 of the JOBS Act .
Pursuant to Section 102 of the JOBS Act, our 2014 Proxy Statement will provide reduced executive compensation disclosure.
We could remain an emerging growth company for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Market, Ranking and Other Industry Data
Unless otherwise indicated, information contained in this report concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from Vetnosis Limited (“Vetnosis”), a research and consulting firm specializing in global animal health and veterinary medicine, and management estimates. Vetnosis is a leading provider of research products, commercial information and analysis of the global animal health sector. The information from Vetnosis contained in this report was not prepared by Vetnosis on our behalf. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. We believe these estimates are reasonable as of the date of this report, or if an earlier date is specified, as of such earlier date. However, this information may prove to be inaccurate because of the method by which we obtained some of the data for our estimates or because this information is subject to change and cannot always be verified due to limits on the availability and reliability of independent sources, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. In addition, purchasing patterns and consumer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth in this report, and estimates and beliefs based on such data, may not be reliable.
Trademarks, Service Marks and Trade Names
The following trademarks and service marks used throughout this report belong to, are licensed to, or are otherwise used by us in our business: Stafac ® ; Eskalin ; V-Max ® ; Terramycin ® ; Neo-Terramycin ® ; Neo-TM ; TM-50 ® ; TM-100 ; Mecadox ® ; Nicarb ® ; Boviprol ; Bloat Guard ® ; Aviax ® ; Aviax II ; Aviax Plus ; Coxistac ; Posistac ; Banminth ® ; Cerditac ; Cerdimix ; Rumatel ® ; OmniGen-AF ® ; Animate ® ; Procreatin 7 ® ; NutrafitoPlus ; Chromax ® ; Provia 6086 ; SRP ® ; Safmannan ® ; Biosaf ® ; AB20 ® ; Lactrol ® ; and TAbic ® .

PART I
Item 1.   Business
Overview
Phibro Animal Health Corporation is a leading global diversified animal health and mineral nutrition company. For nearly 40 years we have been committed to providing livestock producers with value-based products and solutions to help them maintain and enhance the health and productivity of their animals and meet the growing demand for animal protein. Our sales, marketing and technical support organization of approximately 225 employees sells more than 1,200 product presentations in over 65 countries to approximately 2,900 customers. 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.
Our products include:
  • Animal health products such as antibacterials, anticoccidials and vaccines, which help prevent and manage infectious disease in livestock and therefore improve food safety, and nutritional specialty products, which aid the continued health of livestock by enhancing nutrition to help improve health and performance.
  • Mineral nutrition products, which fortify the animal’s diet and help maintain optimal health.
We have focused our efforts in regions where the majority of livestock production is consolidated in large commercial farms such as the United States, Brazil, China, Russia, Mexico, Australia, Turkey, Israel, Canada and Europe and we believe we are well positioned to further accelerate our growth with our established network of sales, marketing and distribution professionals in emerging markets in Latin America, Asia Pacific, Europe and Africa.
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.
Unless otherwise indicated or the context requires otherwise, references in this report to “we,” “our,” “us,” “the Company,” “Phibro,” “PAHC” and similar expression refer to Phibro Animal Health Corporation and its subsidiaries.
Initial Public Offering and Refinancing
On April 16, 2014, we completed the initial public offering (“IPO”) of 14,657,200 shares of Class A common stock (including the exercise of the underwriters’ over-allotment option) at a price to the public of $15.00 per share. In connection with the IPO, we issued and sold 8,333,333 shares of Class A common stock and Mayflower Limited Partnership (“Mayflower”), a limited partnership that is managed by 3i Investments plc and advised by 3i Corporation, and whose sole limited partner is 3i Group plc, the ultimate parent company of both 3i Investments plc and 3i Corporation, sold 6,323,867 shares of Class A common stock including 1,911,808 shares of Class A common stock pursuant to the exercise of the underwriters’ over-allotment option.
As of the date of this Annual Report on Form 10-K, BFI Co., LLC (“BFI”), an investment vehicle of the Bendheim family, is our controlling stockholder and owns 21,512,275 shares of our Class B common stock, which includes shares of our Class B common stock issued pursuant to the automatic exercise of a warrant on August 1, 2014. BFI owns 100% of our outstanding Class B common stock, which represents approximately 55.2% of our total outstanding equity interests and 92.5% of the combined voting power of all classes of our outstanding common stock. Prior to the IPO, BFI owned 70.1% of our total outstanding equity interests. As of the date of this Annual Report on Form 10-K, Mayflower owns 2,785,753 shares of our Class A common stock. Mayflower owns approximately 16.0% of our outstanding Class A common stock, which represents approximately 7.2% of our total outstanding equity interests and 1.2% of the combined voting power of all classes of our outstanding common stock. Prior to the IPO, Mayflower owned 29.9% of our total outstanding equity interests.

Our Class A common stock trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol “PAHC.” Our Class B common stock is not listed or traded on any stock exchange.
Concurrently with the IPO, Phibro, together with certain of its subsidiaries acting as guarantors, entered into a Credit Agreement with Bank of America, N.A., as Administrative Agent, Collateral Agent and L/C Issuer and each lender from time to time party thereto. Under the Credit Agreement, the Lenders agreed to extend credit to the Company in the form of (i) a Term B loan in an aggregate principal amount equal to $290.0 million (the “Term B Loan”) and (ii) a revolving credit facility in an aggregate principal amount of $100.0 million (the “Revolving Credit Facility,” and together with the Term B Loan, the “Credit Facilities”). The Revolving Credit Facility was undrawn at closing and at June 30, 2014, and contains a letter of credit facility.
Business Segments
We manage our business in three segments—Animal Health, Mineral Nutrition and Performance Products—each with its own dedicated management and sales team, for enhanced focus and accountability. Net sales by segments, species and regions were:
 
Segments
Change
Percentage of total
For the Years Ended June 30
2014
2013
2012
2014 / 2013
2013 / 2012
2014
2013
2012
( $ in millions)
Animal Health
$
431
$
385
$
375
$
46
12
%
$
10
3
%
62
%
59
%
57
%
Mineral Nutrition
202
203
210
(1
)
(1
)%
(7
)
(3
)%
29
%
31
%
32
%
Performance Products
59
65
69
(6
)
(9
)%
(4
)
(6
)%
9
%
10
%
11
%
Total
$
692
$
653
$
654
$
39
6
%
$
(1
)
(0
)%
 
Species
Change
Percentage of total
For the Years Ended June 30
2014
2013
2012
2014 / 2013
2013 / 2012
2014
2013
2012
( $ in millions)
Poultry
$
284
$
261
$
252
$
23
9
%
$
9
4
%
41
%
40
%
39
%
Swine
90
91
93
(1
)
(1
)%
(2
)
(2
)%
13
%
14
%
14
%
Dairy
120
102
104
18
18
%
(2
)
(2
)%
17
%
16
%
16
%
Cattle
83
75
70
8
11
%
5
7
%
12
%
11
%
11
%
Other (1)
115
124
135
(9
)
(7
)%
(11
)
(8
)%
17
%
19
%
21
%
Total
$
692
$
653
$
654
$
39
6
%
$
(1
)
(0
)%
 
Regions (2)
Change
Percentage of total
For the Years Ended June 30
2014
2013
2012
2014 / 2013
2013 / 2012
2014
2013
2012
( $ in millions)
U.S. & Canada
$
445
$
437
$
434
$
8
2
%
$
3
1
%
64
%
67
%
66
%
Brazil and Latin America
92
73
70
19
26
%
3
4
%
13
%
11
%
11
%
China & Asia Pacific
62
53
56
9
17
%
(3
)
(5
)%
9
%
8
%
9
%
Israel & Other
93
90
94
3
3
%
(4
)
(4
)%
13
%
14
%
14
%
Total
$
692
$
653
$
654
$
39
6
%
$
(1
)
(0
)%
 
(1)
  • Other includes the Performance Products segment, Mineral Nutrition sales to pet food and fertilizer manufacturers and sales to the ethanol industry
(2)
  • Net Sales by region are based on country of destination
Certain amounts and percentages may reflect rounding adjustments .

Adjusted EBITDA by segment was: 
 
Adjusted EBITDA
Change
Percentage of total (1)
For the Years Ended June 30
2014
2013
2012
2014 / 2013
2013 / 2012
2014
2013
2012
( $ in millions)
Animal Health
$
100
$
83
$
70
$
17
21
%
$
13
18
%
86
%
85
%
80
%
Mineral Nutrition
12
12
13
(0
)
(4
)%
(1
)
(7
)%
10
%
12
%
15
%
Performance Products
5
3
5
2
58
%
(2
)
(43
)%
4
%
3
%
6
%
Corporate
(26
)
(22
)
(22
)
(4
)
*
(0
)
*
Total
$
91
$
76
$
67
$
15
20
%
$
9
13
%
 
(1)
  • Before unallocated corporate costs
Net identifiable assets by segment were:
 
Net Identifiable Assets
Change
Percentage of total
As of June 30
2014
2013
2012
2014 / 2013
2013 / 2012
2014
2013
2012
( $ in millions)
Animal Health
$
361
$
329
$
269
$
32
10
%
$
60
23
%
77
%
69
%
61
%
Mineral Nutrition
58
65
63
(7
)
(11
)%
2
2
%
12
%
14
%
14
%
Performance Products
23
21
23
2
10
%
(2
)
(8
)%
5
%
4
%
5
%
Corporate
30
59
86
(29
)
(49
)%
(27
)
(31
)%
6
%
12
%
19
%
Total
$
472
$
474
$
441
$
(2
)
(0
)%
$
33
8
%
Certain amounts and percentages may reflect rounding adjustments .
Animal Health
Our Animal Health business develops, manufactures and markets more than 550 product presentations, including:
  • antibacterials, which inhibit the growth of pathogenic bacteria that cause bacterial infections in animals; anticoccidials, which inhibit the growth of coccidia (parasites) that damage the intestinal tract of animals; and related products (MFAs and Other);
  • nutritional specialty products, which enhance nutrition to help improve health and performance (Nutritional Specialties); and
  • vaccines, which cause an increase in antibody levels against a specific virus or bacterium, thus preventing infection from that viral or bacterial antigen (Vaccines).
Our animal health products help our customers prevent, control and treat diseases and enhance nutrition to help improve health and performance, enabling our customers to more efficiently produce high-quality, wholesome animal protein products for human consumption. We develop, manufacture and market animal health product s for a broad range of food animals including poultry, swine, beef and dairy cattle and aquaculture . We provide technical and product support directly to our customers to ensure the optimal use of our products. The animal health industry and demand for many of our animal health products in a particular region are affected by changing disease pressures and by weather conditions, as usage of our products follows varying weather patterns and seasons. As a result, we may experience regional and seasonal fluctuations in our animal health segment. Animal Health net sales by product group and regions were:
 
Product Groups
Change
Percentage of total
For the Years Ended June 30
2014
2013
2012
2014 / 2013
2013 / 2012
2014
2013
2012
( $ in millions)
MFAs and other
$
327
$
304
$
291
$
23
8
%
$
13
5
%
76
%
79
%
77
%
Nutritional Specialties
63
52
48
11
21
%
5
10
%
15
%
14
%
13
%
Vaccines
41
29
37
12
44
%
(8
)
(22
)%
10
%
7
%
10
%
Animal Health
$
431
$
385
$
375
$
46
12
%
$
10
3
%

 
Regions (1)
Change
Percentage of total
For the Years Ended June 30
2014
2013
2012
2014 / 2013
2013 / 2012
2014