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PHIBRO ANIMAL HEALTH CORP - Quarter Report: 2006 March (Form 10-Q)

FORM 10-Q
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended March 31, 2006
 
or
 
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-64641
Phibro Animal Health Corporation
(Exact name of registrant as specified in its charter)
     
New York
  13-1840497
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
65 Challenger Road,
Ridgefield Park, New Jersey
(Address of principal executive offices)
  07660
(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 þ          No o
      Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o          Accelerated filer o          Non-accelerated filer þ
      Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ
      The number of shares outstanding of the Registrant’s Common Stock as of May 9, 2006: 24,488.50
Class A Common Stock, $.10 par value: 12,600.00
Class B Common Stock, $.10 par value: 11,888.50
 
 


 

PHIBRO ANIMAL HEALTH CORPORATION
TABLE OF CONTENTS
         
        Page
         
 PART I FINANCIAL INFORMATION
   Condensed Consolidated Financial Statements (Unaudited)   3
     Condensed Consolidated Balance Sheets   4
     Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)   5
     Condensed Consolidated Statements of Changes in Stockholders’ Deficit   6
     Condensed Consolidated Statements of Cash Flows   7
     Notes to Condensed Consolidated Financial Statements   8
   Management’s Discussion and Analysis of Financial Condition and Results of Operations   28
   Quantitative and Qualitative Disclosures About Market Risk   37
   Controls and Procedures   37
 
 PART II OTHER INFORMATION
   Legal Proceedings   38
   Other Information   38
   Exhibits   38
 SIGNATURES   39
 EX-10.27.7: AMENDMENT NO. 7 TO THE LOAN AND SECURITY AGREEMENT
 EX-31.1: CERTIFICATION
 EX-31.2: CERTIFICATION
 EX-31.3: CERTIFICATION
 EX-32: CERTIFICATIONS

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      This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference are discussed in the Company’s Annual Report on Form 10-K for its fiscal year ended June 30, 2005 and/or throughout this Form 10-Q and in particular in Item 2 of Part I of this Form 10-Q under the caption “Certain Factors Affecting Future Operating Results.” Unless the context otherwise requires, references in this report to the “Company” or to “we” or “our” refer to Phibro Animal Health Corporation and/or one or more of its subsidiaries, as applicable.
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
                     
    March 31,   June 30,
    2006   2005
         
    (Unaudited)
    (In thousands)
ASSETS
Current assets
               
 
Cash and cash equivalents
  $ 9,752     $ 13,001  
 
Accounts receivable, net
    60,009       56,417  
 
Inventories
    93,911       96,621  
 
Prepaid expenses and other current assets
    10,832       12,787  
             
   
Total current assets
    174,504       178,826  
Property, plant and equipment, net
    48,972       49,960  
Intangibles, net
    9,096       10,201  
Other assets
    11,234       14,070  
             
   
Total assets
  $ 243,806     $ 253,057  
             
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
               
 
Loans payable to banks
  $     $ 8,038  
 
Current portion of long-term debt
    223       1,625  
 
Accounts payable
    38,781       36,537  
 
Accrued expenses and other current liabilities
    53,985       53,815  
             
   
Total current liabilities
    92,989       100,015  
Long-term debt
    176,451       176,501  
Other liabilities
    23,231       21,465  
             
   
Total liabilities
    292,671       297,981  
             
Commitments and contingencies
               
Stockholders’ deficit
               
 
Preferred stock
    521       521  
 
Common stock
    2       2  
 
Paid-in capital
    27,260       27,260  
 
Accumulated deficit
    (80,544 )     (74,379 )
 
Accumulated other comprehensive income
               
   
Gain on derivative instruments, net of income taxes
    79       123  
   
Cumulative foreign currency translation adjustment, net of income taxes
    3,817       1,549  
             
   
Total stockholders’ deficit
    (48,865 )     (44,924 )
             
   
Total liabilities and stockholders’ deficit
  $ 243,806     $ 253,057  
             
See notes to unaudited condensed consolidated financial statements

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
                                   
    Three Months Ended   Nine Months Ended
    March 31,   March 31,
         
    2006   2005   2006   2005
                 
    (Unaudited)
    (In thousands)
Net sales
  $ 100,905     $ 90,255     $ 293,211     $ 269,169  
Cost of goods sold (includes Belgium Plant Transactions costs of $975 and $4,372 for the three months ended March 31, 2006 and 2005, respectively, and $10,211 and $13,908 for the nine months ended March 31, 2006 and 2005, respectively)
    76,442       71,504       229,343       214,682  
                         
 
Gross profit
    24,463       18,751       63,868       54,487  
Selling, general and administrative expenses
    17,527       17,019       49,372       49,771  
                         
 
Operating income
    6,936       1,732       14,496       4,716  
Interest expense
    6,726       6,757       19,183       18,656  
Interest (income)
    (53 )     (19 )     (259 )     (77 )
Other (income) expense, net
    31       77       (2,561 )     (691 )
                         
 
Income (loss) from continuing operations before income taxes
    232       (5,083 )     (1,867 )     (13,172 )
Provision for income taxes
    1,591       773       4,298       699  
                         
 
(Loss) from continuing operations
    (1,359 )     (5,856 )     (6,165 )     (13,871 )
Income from discontinued operations, net of income taxes
          272             575  
                         
 
Net (loss)
    (1,359 )     (5,584 )     (6,165 )     (13,296 )
Other comprehensive income (loss):
                               
 
Change in derivative instruments, net of income taxes
    76       (27 )     (44 )     295  
 
Change in foreign currency translation adjustment, net of income taxes
    2,482       (1,207 )     2,268       7,104  
                         
 
Comprehensive income (loss)
  $ 1,199     $ (6,818 )   $ (3,941 )   $ (5,897 )
                         
 
Net (loss)
    (1,359 )     (5,584 )     (6,165 )     (13,296 )
Excess of the reduction of Series B and C preferred stock over total assets divested and costs and liabilities incurred on the Prince Transactions
          4,000             4,973  
Dividends and equity value adjustment on Series C preferred stock
          (3,582 )           (1,723 )
                         
 
Net (loss) attributable to common stockholders
  $ (1,359 )   $ (5,166 )   $ (6,165 )   $ (10,046 )
                         
See notes to unaudited condensed consolidated financial statements

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three Months and Nine Months Ended March 31, 2006
                                                           
                    Accumulated    
    Preferred   Common Stock           Other    
    Stock       Paid-in   Accumulated   Comprehensive    
    Series A   Class A   Class B   Capital   Deficit   Income (Loss)   Total
                             
    (Unaudited)
    (In thousands)
Balance as of June 30, 2005
  $ 521     $ 1     $ 1     $ 27,260     $ (74,379 )   $ 1,672     $ (44,924 )
 
Change in derivative instruments, net of income taxes
                                            100       100  
 
Change in foreign currency translation adjustment, net of income taxes
                                            2,040       2,040  
 
Net (loss)
                                    (2,791 )             (2,791 )
                                           
Balance as of September 30, 2005
  $ 521     $ 1     $ 1     $ 27,260     $ (77,170 )   $ 3,812     $ (45,575 )
                                           
 
Change in derivative instruments, net of income taxes
                                            (220 )     (220 )
 
Change in foreign currency translation adjustment, net of income taxes
                                            (2,254 )     (2,254 )
 
Net (loss)
                                    (2,015 )             (2,015 )
                                           
Balance as of December 31, 2005
  $ 521     $ 1     $ 1     $ 27,260     $ (79,185 )   $ 1,338     $ (50,064 )
                                           
 
Change in derivative instruments, net of income taxes
                                            76       76  
 
Change in foreign currency translation adjustment, net of income taxes
                                            2,482       2,482  
 
Net (loss)
                                    (1,359 )             (1,359 )
                                           
Balance as of March 31, 2006
  $ 521     $ 1     $ 1     $ 27,260     $ (80,544 )   $ 3,896     $ (48,865 )
                                           
See notes to unaudited condensed consolidated financial statements

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       
    Nine Months Ended
    March 31,
     
    2006   2005
         
    (Unaudited)
    (In thousands)
OPERATING ACTIVITIES
               
 
Net (loss)
  $ (6,165 )   $ (13,296 )
 
Adjustment for discontinued operations
          (575 )
             
 
(Loss) from continuing operations
    (6,165 )     (13,871 )
 
Adjustments to reconcile (loss) from continuing operations to net cash provided (used) by operating activities:
               
   
Depreciation and amortization (includes accelerated depreciation from the Belgium Plant Transactions of $4,533 and $3,628 for the nine months ended March 31, 2006 and 2005, respectively)
    11,849       11,586  
   
Amortization of deferred financing costs
    2,486       2,130  
   
Deferred income taxes
    (424 )     (202 )
   
Net gain from sales of assets
    (464 )     (789 )
   
Effects of changes in foreign currency
    (226 )     (760 )
   
Other
    (428 )     430  
   
Changes in operating assets and liabilities:
               
     
Accounts receivable
    (4,041 )     4,460  
     
Inventories
    4,006       (16,378 )
     
Prepaid expenses and other current assets
    2,845       1,647  
     
Other assets
    121       (618 )
     
Accounts payable
    2,173       (11,378 )
     
Accrued expenses and other liabilities
    (1,984 )     9,120  
     
Accrued expenses: non-completed transaction
          (3,970 )
     
Accrued expenses: Belgium Plant Transactions
    (1,608 )     10,280  
 
Cash provided (used) by discontinued operations
          808  
             
   
Net cash provided (used) by operating activities
    8,140       (7,505 )
             
INVESTING ACTIVITIES
               
 
Capital expenditures
    (11,244 )     (5,098 )
 
Proceeds from Belgium Plant Transactions
    7,997        
 
Proceeds from sales of assets
    1,934       1,353  
 
Other investing
    (106 )     (119 )
 
Discontinued operations
          (93 )
             
   
Net cash (used) by investing activities
    (1,419 )     (3,957 )
             
FINANCING ACTIVITIES
               
 
Net increase (decrease) in book overdrafts
    (27 )     1,930  
 
Net (decrease) in short-term debt
    (8,038 )     (7,049 )
 
Proceeds from long-term debt
          24,292  
 
Payments of long-term debt and capital leases
    (2,005 )     (3,913 )
 
Proceeds from capital contribution by PAHC Holdings Corporation
          26,400  
 
Redemption of Series C preferred stock
          (26,400 )
 
Debt financing costs
          (2,027 )
             
   
Net cash provided (used) by financing activities
    (10,070 )     13,233  
             
Effect of exchange rate changes on cash
    100       66  
             
   
Net increase (decrease) in cash and cash equivalents
    (3,249 )     1,837  
Cash and cash equivalents at beginning of period
    13,001       5,568  
             
Cash and cash equivalents at end of period
  $ 9,752     $ 7,405  
             
Supplemental Cash Flow Information
               
 
Interest paid
  $ 11,552     $ 10,431  
 
Income taxes paid
    2,814       1,130  
 
Capital lease additions
    522        
See notes to unaudited condensed consolidated financial statements

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
1. General
Principles of Consolidation and Basis of Presentation
      In the opinion of Phibro Animal Health Corporation (the “Company” or “PAHC”), the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly its financial position at March 31, 2006 and its results of operations and cash flows for the three months and nine months ended March 31, 2006 and 2005. The financial results for any interim period are not necessarily indicative of results for the full year. The Company presents its financial statements on the basis of its fiscal year ending June 30. All references to 2007, 2006 and 2005 refer to the fiscal year ended June 30 of that year.
      The Company is a wholly-owned subsidiary of PAHC Holdings Corporation, which was formed in February 2005.
      The condensed consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.
      The Company consolidates the financial statements of Koffolk (1949) Ltd. (Israel) (“Koffolk”) and Planalquimica Industrial Ltda. (Brazil) (“Planalquimica”) on the basis of their March 31 fiscal year-ends to facilitate the timely inclusion of such entities in the Company’s consolidated financial reporting. The condensed consolidated financial statements include Koffolk’s and Planalquimica’s financial position as of December 31, 2005 and their results of operations and cash flows for the three months and nine months ended December 31, 2005 and 2004.
      The condensed consolidated balance sheet as of June 30, 2005 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Additionally it should be noted the accompanying condensed consolidated financial statements and notes thereto have been prepared in accordance with accounting standards appropriate for interim financial statements. While the Company believes the disclosures presented are adequate to make the information herein not misleading, these financial statements should be read in conjunction with the audited consolidated financial statements as found in the Company’s annual report filed on Form 10-K for the year ended June 30, 2005.
Risks, Uncertainties and Liquidity
      The Company’s ability to fund its operating plan relies upon the continued availability of borrowing under the domestic senior credit facility. The Company believes that it will be able to comply with the terms of its covenants under the domestic senior credit facility based on its forecasted operating plan. In the event of adverse operating results and/or violation of covenants under this facility, there can be no assurance that the Company would be able to obtain waivers or amendments on favorable terms, if at all. The Company’s 2006 operating plan projects adequate liquidity throughout the year, with periods of reduced availability around the dates of the semi-annual interest payments due December 1 and June 1 related to PAHC’s 13% Senior Secured Notes due 2007 and PAHC’s 97/8 % Senior Subordinated Notes due 2008. The Company is pursuing additional cost reduction activities, working capital improvement plans, and sales of non-strategic assets to provide additional liquidity. The Company also has availability under foreign credit lines that would be available as needed. There can be no assurance the Company will be successful in any of the above-noted actions.
      The use of antibiotics in medicated feed additives is a subject of legislative and regulatory interest. The issue of potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
restrictions on the use of antibiotics in food-producing animals. The sale of feed additives containing antibiotics is a material portion of the Company’s business. Should regulatory or other developments result in further restrictions on the sale of such products, it could have a material adverse impact on the Company’s financial position, results of operations and cash flows.
      The testing, manufacturing, and marketing of certain products are subject to extensive regulation by numerous government authorities in the United States and other countries.
      The Company has significant assets located outside of the United States, and a significant portion of the Company’s sales and earnings are attributable to operations conducted abroad.
      The Company has assets located in Israel and a portion of its sales and earnings are attributable to operations conducted in Israel. The Company is affected by social, political and economic conditions affecting Israel, and any major hostilities involving Israel as well as the Middle East or curtailment of trade between Israel and its current trading partners, either as a result of hostilities or otherwise, could have a material adverse effect on the Company.
      The Company’s operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediation of contaminated soil and groundwater, the manufacture, sale and use of pesticides and the health and safety of employees. As such, the nature of the Company’s current and former operations and those of its subsidiaries exposes the Company and its subsidiaries to the risk of claims with respect to such matters.
New Accounting Pronouncements
      The Company adopted the following new accounting pronouncements in 2006:
        Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment to Accounting Research Bulletin No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated “. . .under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . .”. SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal”. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 30, 2005 and the provisions of this statement shall be applied prospectively. The adoption of SFAS No. 151 did not impact the Company’s financial statements.
 
        Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of this statement shall be applied prospectively. The adoption of SFAS No. 153 did not impact the Company’s financial statements.

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The Company will adopt the following new accounting pronouncement in 2006:
        FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN No. 47”). FIN No. 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations (“ARO”)” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Thus, the timing and/or method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional ARO if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional ARO should be recognized when incurred; generally upon acquisition, construction, or development and/or through the normal operation of the asset. Uncertainty about the timing and/or method of settlement of a conditional ARO should be factored into the measurement of the liability when sufficient information exists. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an ARO. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company anticipates that the adoption of FIN No. 47 will not result in a material impact on the Company’s financial statements.

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Balance Sheet Information
                 
    As of
     
    March 31, 2006   June 30, 2005
         
Accounts receivable, net
               
Trade accounts receivable
  $ 58,325     $ 54,178  
Less: allowance for doubtful accounts
    1,307       1,372  
             
Trade accounts receivable, net
    57,018       52,806  
Other receivables
    2,991       3,611  
             
Total
  $ 60,009     $ 56,417  
             
Inventories
               
Raw materials
  $ 19,816     $ 23,703  
Work-in-process
    869       434  
Finished goods
    73,226       72,484  
             
Total
  $ 93,911     $ 96,621  
             
Property, plant and equipment, net
               
Land
  $ 4,225     $ 6,250  
Buildings and improvements
    21,472       25,967  
Machinery and equipment
    101,129       108,762  
             
      126,826       140,979  
Less: accumulated depreciation
    77,854       91,019  
             
Total
  $ 48,972     $ 49,960  
             
Intangibles, net
               
Cost
  $ 14,918     $ 14,907  
Less: accumulated amortization
    5,822       4,706  
             
Total
  $ 9,096     $ 10,201  
             
      Resulting from the Belgium Plant Transactions discussed below, as of November 30, 2005, the Company removed $1,896 of land, $6,103 of buildings and improvements, $16,301 of machinery and equipment and $22,182 of accumulated depreciation from property, plant and equipment, net on the condensed consolidated balance sheet.
      Amortization expense for intangibles was $370 and $375 for the three months ended March 31, 2006 and 2005, respectively, and $1,113 and $1,121 for the nine months ended March 31, 2006 and 2005, respectively.
3. Belgium Plant Transactions
      On November 30, 2005, Phibro Animal Health SA (“PAH Belgium”) sold to GlaxoSmithKline Biologicals (“GSK”) substantially all of PAH Belgium’s facilities in Rixensart, Belgium (the “Belgium Plant”). The sale (the “Belgium Plant Transactions”) included the following elements (U.S. dollar amounts at the March 31, 2006 exchange rate except where otherwise indicated): (i) the transfer of substantially all of the land and buildings and certain equipment of PAH Belgium at the Belgium Plant, as well as the industrial activities and intellectual property relating to certain solvent technology of PAH Belgium for a purchase price of EUR 6,200 ($7,310 at the November 30, 2005 exchange rate), paid at closing; (ii) the transfer to GSK of a

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majority of the employees of the Belgium Plant and the corresponding responsibility for statutory severance obligations; (iii) GSK agreed to be responsible for cleaning-up, by demolition or otherwise, certain buildings not to be used by it, but for PAH Belgium to reimburse GSK up to a maximum of EUR 700 ($849) for such cleaning-up costs; (iv) in recognition of the benefits to PAHC from the proposed transaction, PAH Belgium agreed to pay to GSK EUR 1,500 ($1,821) within six months from the closing date, EUR 1,500 ($1,821) within eighteen months from the closing date, EUR 1,500 ($1,821) within thirty months from the closing date, and EUR 500 ($607) within forty-two months from the closing date; (v) PAH Belgium sold certain excess land for its own account; (vi) PAH Belgium was responsible for certain plant closure costs and legally required severance indemnities in connection with workforce reductions; and (vii) PAH Belgium retained certain equipment at the Belgium Plant, and has transferred or will transfer such equipment, together with other assets and rights related to the production of virginiamycin, to Phibro Saude Animal Internacional Ltda. (“PAH Brazil”) which owns a facility in Guarulhos, Brazil or in connection with alternative production arrangements.
      The Dutch Notes (as defined below) and related guarantees were collateralized by a mortgage on the Belgium Plant which was released in connection with the sale of the Belgium Plant to GSK.
      As a result of the Belgium Plant Transactions, the Company depreciated the Belgium Plant to its estimated salvage value, recorded expense of early-retirement and severance programs for those employees not transferred to GSK, other transaction-related expenses, a curtailment gain on the Belgium pension plan and a gain on the sales of the Belgium Plant and excess land. Other transaction-related expenses were primarily related to employee retention agreements, plant dismantling and decommissioning, plant shutdown, and site demolition costs payable to GSK.
      The following table includes the amounts of these charges and gains.
                                                 
    Belgium Plant Transactions Costs
     
    Twelve       Nine    
    Months   Three Months Ended   Months    
    Ended       Ended    
    June 30,   September 30,   December 31,   March 31,   March 31,   Cumulative
    2005   2005   2005   2006   2006   Total
                         
Incremental depreciation
  $ 7,467     $ 2,747     $ 1,786     $     $ 4,533     $ 12,000  
Employee termination expenses
    12,808       287       699             986       13,794  
Other transaction-related expenses
    1,916       979       3,759       975       5,713       7,629  
Net (gain) on the curtailment and settlement of the pension plan
                (432 )           (432 )     (432 )
(Gain) on the sale of the Belgium Plant and excess land
          (510 )     (79 )           (589 )     (589 )
                                     
    $ 22,191     $ 3,503     $ 5,733     $ 975     $ 10,211     $ 32,402  
                                     
      All costs and gains of the Belgium Plant Transactions are included in cost of goods sold on the condensed consolidated statements of operations and comprehensive income (loss) in the periods as described in the table above.
      As of March 31, 2006, accrued expenses and other long term liabilities on the condensed consolidated balance sheet included $6,919 payable to GSK and $10,333 payable for employee termination and other transaction-related expenses.
      The Company expects to record in future periods an estimated additional $800 of other transaction-related expenses, primarily for plant dismantling and decommissioning, primarily during the remainder of 2006.

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      In anticipation of transferring production of virginiamycin from the Belgium Plant to an alternative production location, the Company increased inventory levels of virginiamycin until the Belgium Plant sale in November 2005 to ensure adequate supplies during the transfer period. Virginiamycin inventories were approximately $33,400 at March 31, 2006 and $38,800 at June 30, 2005.
4. Discontinued Operations
      The Company divested Wychem Ltd. (U.K.) (“Wychem”) during 2005. Wychem has been classified as a discontinued operation. The condensed consolidated financial statements have been revised to report separately the operating results, financial position and cash flows of the discontinued operation.
      Operating results of Wychem were:
                 
    Three Months   Nine Months
    Ended   Ended
    March 31, 2005   March 31, 2005
         
Net sales
  $ 1,487     $ 3,908  
Cost of goods sold
    924       2,590  
Selling, general and administrative expenses
    174       511  
Other expense
    5       6  
             
Income before income taxes
    384       801  
Provision for income taxes
    112       226  
             
Income from operations
  $ 272     $ 575  
             
Depreciation and amortization
  $ 105     $ 309  
             
5. Debt
Loans Payable to Banks
      At March 31, 2006, PAHC had no amounts borrowed under its domestic senior credit facility, and had $17,500 of borrowings available under the working capital facility that is provided under its domestic senior credit facility.
      On October 28, 2005, PAHC amended its domestic senior credit facility in connection with, among other things, yearly determination of certain financial covenants to: (i) amend the EBITDA definition to exclude charges and expenses related to the sale of the Belgium Plant in an aggregate amount not to exceed $33,200 for purposes of calculating a certain financial covenant; (ii) establish the Minimum Domestic EBITDA for the 12 month periods ended July 31, 2005 through June 30, 2006 at $17,500 for purposes of calculating a certain financial covenant; (iii) establish the Consolidated Minimum EBITDA for the 12 month periods ended July 31, 2005 through June 30, 2006 at $32,000 for purposes of calculating a certain financial covenant; and (iv) amend the maximum aggregate amount of borrowing available under the working capital and letter of credit facilities from $32,500 to $35,000. The amount of aggregate borrowings available under the working capital facility remained unchanged at $17,500.
      As of March 31, 2006, PAHC was in compliance with the financial covenants of its domestic senior credit facility, as amended. The domestic senior credit facility requires, among other things, the maintenance of certain levels of trailing consolidated and domestic EBITDA (earnings before interest, taxes, depreciation and amortization) calculated on a monthly basis, and an acceleration clause should an event of default (as defined in the agreement) occur. In addition, there are certain restrictions on additional borrowings, additional liens on PAHC’s assets, guarantees, dividend payments, redemption or purchase of PAHC’s stock, sale of subsidiaries’ stock, disposition of assets, investments, and mergers and acquisitions.

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      PAHC’s domestic senior credit facility contains a lock-box requirement and a material adverse change clause should an event of default (as defined in the agreement) occur. Accordingly, the amounts outstanding have been classified as short-term and are included in loans payable to banks on the condensed consolidated balance sheet.
Long-Term Debt
                 
    As of
     
    March 31, 2006   June 30, 2005
         
Senior secured notes due December 1, 2007
  $ 127,491     $ 127,491  
Senior subordinated notes due June 1, 2008
    48,029       48,029  
Foreign bank loans
    701       2,606  
Capitalized lease obligations and other
    453        
             
      176,674       178,126  
Less: current maturities
    223       1,625  
             
    $ 176,451     $ 176,501  
             
      Koffolk has aggregate credit lines available for borrowing and letters of credit of $10,500. At March 31, 2006, Koffolk had $9,082 available under these credit lines.
6. Employee Benefit Plans
      PAHC and its domestic subsidiaries maintain noncontributory defined benefit pension plans for all eligible domestic nonunion employees who meet certain requirements of age, length of service and hours worked per year. The Company’s Belgium subsidiary maintains a defined contribution and defined benefit plan for eligible employees.

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      Components of net periodic pension expense were:
                                 
    Three Months   Nine Months
    Ended March 31,   Ended March 31,
         
    2006   2005   2006   2005
                 
Domestic Pension Expense
                               
Service cost — benefits earned during the period
  $ 394     $ 291     $ 1,201     $ 915  
Interest cost on benefit obligation
    246       228       765       707  
Expected return on plan assets
    (233 )     (218 )     (727 )     (676 )
Amortization of initial unrecognized net transition (asset)
          (1 )           (3 )
Amortization of prior service cost
    (34 )     (35 )     (108 )     (107 )
Amortization of net actuarial loss
    36             106        
                         
Net periodic pension expense — domestic
  $ 409     $ 265     $ 1,237     $ 836  
                         
Belgium Pension Expense
                               
Service cost — benefits earned during the period
  $ 73     $ 131     $ 288     $ 367  
Interest cost on benefit obligation
    168       105       386       314  
Expected return on plan assets
    (128 )     (84 )     (290 )     (263 )
Amortization of prior service cost
    4             5        
Amortization of net actuarial loss
          6       18       7  
Curtailment benefit
                (508 )      
Settlement charges
                76        
                         
Net periodic pension (benefit) expense — Belgium
  $ 117     $ 158     $ (25 )   $ 425  
                         
      The reduction of participants in the Belgium pension plan by transfer of employees to GSK, an early retirement program and terminations resulted in a curtailment benefit of $508.
      The Company transferred Belgium plan assets of $3,186 and related liabilities to GSK which resulted in a settlement loss of $76.
      The approximate funded status of the Belgium plan was:
                 
    As of March 31,   As of June 30,
    2006   2005
         
Benefit obligation
  $ 6,465     $ 11,264  
Fair value of plan assets
    5,031       7,408  
             
Funded status of the plan
    (1,434 )     (3,856 )
Unrecognized net actuarial loss and prior service cost
    255       2,002  
             
(Accrued) pension liability
    (1,179 )     (1,854 )
             
7. Contingencies
Litigation
      On or about April 17, 1997, C.P. Chemicals, Inc., a subsidiary (“CP”), and PAHC were served with a complaint filed by Chevron U.S.A. Inc. (“Chevron”) in the United States District Court for the District of New Jersey, alleging that the operations of CP at its Sewaren plant affected adjoining property owned by Chevron and alleging that PAHC, as the parent of CP, is also responsible to Chevron. In July 2002, a phased settlement agreement was reached and a Consent Order entered by the Court. The Consent Order provided

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for a period of due diligence investigation of the property owned by Chevron and upon completion of the review of the results of the investigation, a decision was to be made whether to opt out of the settlement or proceed. Negotiations with Chevron regarding its allocation of responsibility and associated costs under the Consent Order reached an impasse and it became necessary for PAHC and another defendant, Vulcan Materials Company (“Vulcan”), to opt out of the settlement on April 21, 2005. Since then, settlement negotiations have continued and the parties are in the process of memorializing the terms of a revised settlement. The Court will reopen the case if a revised settlement is not finalized.
      As proposed, CP, PAHC and Vulcan, through an acquisition entity known as NFE, LLC (“NFE”), would acquire a portion of the property. NFE will then proceed with the remediation of the acquired property. Vulcan will pay a share of the remediation costs. Vulcan’s share has not yet been determined. Another defendant will also make a contribution toward the remediation costs to be incurred by NFE in an amount that has not yet been determined but which is estimated to be approximately $175. Chevron will retain title to a portion of the property and will also retain responsibility for further investigation and remediation of certain identified environmental conditions on the property. In addition, Chevron will also be required to complete any necessary remediation in a certain area of the property. While the costs and liabilities cannot be estimated with any degree of certainty at this time, the Company believes that insurance recoveries will be available to offset most of those costs.
      The Company’s subsidiary, Phibro-Tech, Inc. (“Phibro-Tech”), was named in 1993 as a potentially responsible party (“PRP”) in connection with an action commenced under the Federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) by the United States Environmental Protection Agency (the “EPA”), involving a former third-party fertilizer manufacturing site in Jericho, South Carolina. An agreement has been reached under which such subsidiary agreed to contribute up to $900 of the first series of contributions of all remaining responsible PRPs (of which $691 has been paid as of March 31, 2006) and up to $1,200 of additional contingent contributions, the payment of which is considered to be remote, and otherwise subject to the PRPs’ right to dispute additional costs. Some recovery from insurance and other sources is expected.
      The Company and its subsidiaries are party to a number of claims and lawsuits arising out of the normal course of business including product liabilities and governmental regulation. Certain of these actions seek damages in various amounts. In most cases, such claims are covered by insurance. The Company believes that none of the claims or pending lawsuits, either individually or in the aggregate, will have a material adverse effect on its financial position or results of operations.
Environmental Remediation
      The Company’s operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediation of contaminated soil and groundwater, the manufacture, sale and use of pesticides and the health and safety of employees. As such, the nature of the Company’s current and former operations and those of its subsidiaries exposes the Company and its subsidiaries to the risk of claims with respect to such matters. Under certain circumstances, the Company or any of its subsidiaries might be required to curtail operations until a particular problem is remedied. Known costs and expenses under environmental laws incidental to ongoing operations are generally included within operating results. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under environmental laws or to investigate or remediate potential or actual contamination and from time to time the Company establishes reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under environmental laws and the time period during which such costs are likely to be incurred are difficult to predict.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The Company’s subsidiaries have, from time to time, implemented procedures at their facilities designed to respond to obligations to comply with environmental laws. The Company believes that its operations are currently in material compliance with such environmental laws, although at various sites its subsidiaries are engaged in continuing investigation, remediation and/or monitoring efforts to address contamination associated with their historic operations.
      Israel’s Ministry of the Environment has imposed revised business license terms on Koffolk’s Ramat Hovav manufacturing facilities. The Company has taken steps to contest the revised terms and can not currently estimate the costs or the timing of the final resolution of the issue.
      The nature of the Company’s and its subsidiaries’ current and former operations exposes the Company and its subsidiaries to the risk of claims with respect to environmental matters and the Company cannot assure it will not incur material costs and liabilities in connection with such claims. Based upon its experience to date, the Company believes that the future cost of compliance with existing environmental laws, and liability for known environmental claims pursuant to such environmental laws, will not have a material adverse effect on the Company’s financial position.
      Based upon information available, the Company estimates the cost of litigation proceedings described above and the cost of 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 $2,494 at March 31, 2006, which is included in current and long-term liabilities on the condensed consolidated balance sheet (approximately $2,743 at June 30, 2005).
8. Business Segments
      The Company’s reportable segments are Animal Health and Nutrition, Industrial Chemicals and Distribution. Reportable segments have been determined primarily on the basis of the nature of products and services and certain similar operating units have been aggregated. The Company’s Animal Health and Nutrition segment manufactures and markets more than 500 formulations and concentrations of medicated feed additives and nutritional feed additives including antibiotics, antibacterials, anticoccidials, anthelmintics, trace minerals, vitamins, vitamin premixes and other animal health and nutrition products. The Industrial Chemicals segment manufactures and markets a number of chemicals for use in the pressure-treated wood, chemical catalyst, semiconductor, automotive and aerospace industries, and copper-based fungicides. The Distribution segment markets and distributes a variety of industrial, specialty and fine organic chemicals and intermediates produced primarily by third parties. Intersegment sales and transfers were not significant. The following segment data includes information only for continuing operations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                                   
    Three Months Ended   Nine Months Ended
    March 31,   March 31,
         
    2006   2005   2006   2005
                 
Net Sales
                               
 
Animal Health & Nutrition
  $ 79,733     $ 68,405     $ 233,471     $ 203,699  
 
Industrial Chemicals
    10,264       13,412       31,992       40,047  
 
Distribution
    10,908       8,438       27,748       25,423  
 
Corporate
                       
                         
    $ 100,905     $ 90,255     $ 293,211     $ 269,169  
                         
Operating Income
                               
 
Animal Health & Nutrition
  $ 9,671     $ 3,157     $ 20,045     $ 8,856  
 
Industrial Chemicals
    (35 )     1,371       2,078       3,541  
 
Distribution
    1,705       1,158       4,366       3,414  
 
Corporate
    (4,405 )     (3,954 )     (11,993 )     (11,095 )
                         
    $ 6,936     $ 1,732     $ 14,496     $ 4,716  
                         
Depreciation and Amortization
                               
 
Animal Health & Nutrition
  $ 1,469     $ 5,303     $ 10,148     $ 10,203  
 
Industrial Chemicals
    668       374       1,466       1,190  
 
Distribution
    6       6       18       14  
 
Corporate
    70       63       217       179  
                         
    $ 2,213     $ 5,746     $ 11,849     $ 11,586  
                         
                   
    As of   As of
    March 31,   June 30,
    2006   2005
         
Identifiable Assets
               
 
Animal Health & Nutrition
  $ 195,538     $ 204,799  
 
Industrial Chemicals
    21,522       21,473  
 
Distribution
    9,680       8,092  
 
Corporate
    17,066       18,693  
             
    $ 243,806     $ 253,057  
             
      The Animal Health and Nutrition segment includes Belgium Plant Transactions costs as follows:
                                 
    Three Months Ended   Nine Months Ended
    March 31,   March 31,
         
    2006   2005   2006   2005
                 
Depreciation expense
  $     $ 3,095     $ 4,533     $ 3,628  
Employee termination and other transaction-related expenses
    975       1,277       5,678       10,280  
                         
    $ 975     $ 4,372     $ 10,211     $ 13,908  
                         

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9. Consolidating Financial Statements
      The units of Senior Secured Notes due 2007, consisting of notes issued by PAHC (the “U.S. Notes”) and notes issued by Philipp Brothers Netherlands III B.V., an indirect wholly-owned subsidiary of PAHC (the “Dutch Issuer”, and such notes issued by it the “Dutch Notes”), are guaranteed by certain subsidiaries. PAHC and its U.S. subsidiaries (“U.S. Guarantor Subsidiaries”), excluding PMC Quincy, Inc. (“PMC”), Prince Mfg., LLC and Mineral Resource Technologies, Inc. (“MRT”) (the “Unrestricted Subsidiaries”, as defined in the Indenture), fully and unconditionally guarantee all of the Senior Secured Notes due 2007 on a joint and several basis. In addition, the Dutch Issuer’s subsidiaries, presently consisting of Phibro Animal Health SA (the “Belgium Guarantor”), fully and unconditionally guarantee the Dutch Notes. The Dutch Issuer and the Belgium Guarantor do not guarantee the U.S. Notes. Other foreign subsidiaries (“Non-Guarantor Subsidiaries”) do not presently guarantee the Senior Secured Notes due 2007. The U.S. Guarantor Subsidiaries include all domestic subsidiaries of PAHC other than the Unrestricted Subsidiaries and include: C.P. Chemicals, Inc.; Phibro-Tech, Inc.; Prince Agriproducts, Inc.; Phibrochem, Inc.; Phibro Chemicals, Inc.; Western Magnesium Corp.; Phibro Animal Health Holdings, Inc.; and Phibro Animal Health U.S., Inc.
      The Senior Subordinated Notes due 2008, issued by PAHC, are guaranteed by certain subsidiaries. PAHC’s U.S. subsidiaries, including the U.S. Guarantor Subsidiaries and the Unrestricted Subsidiaries, fully and unconditionally guarantee the Senior Subordinated Notes due 2008 on a joint and several basis. The Dutch Issuer, Belgium Guarantor and Non-Guarantor Subsidiaries do not presently guarantee the Senior Subordinated Notes due 2008. The U.S. Guarantor Subsidiaries and Unrestricted Subsidiaries include all domestic subsidiaries of PAHC including: C.P. Chemicals, Inc.; Phibro-Tech, Inc.; Prince Agriproducts, Inc.; PMC; Prince Mfg., LLC; MRT (until it was divested); Phibrochem, Inc.; Phibro Chemicals, Inc.; Western Magnesium Corp.; Phibro Animal Health Holdings, Inc.; and Phibro Animal Health U.S., Inc.
      The following consolidating financial data summarizes the assets, liabilities and results of operations and cash flows of PAHC, the Unrestricted Subsidiaries, U.S. Guarantor Subsidiaries, Dutch Issuer, Belgium Guarantor and Non-Guarantor Subsidiaries. The Unrestricted Subsidiaries, U.S. Guarantor Subsidiaries, Dutch Issuer, Belgium Guarantor and Non-Guarantor Subsidiaries are directly or indirectly wholly owned as to voting stock by PAHC.
      Investments in subsidiaries are accounted for by PAHC using the equity method. Income tax expense (benefit) is allocated among the consolidating entities based upon taxable income (loss) by jurisdiction within each group. The principal consolidation adjustments are to eliminate investments in subsidiaries and intercompany balances and transactions.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 2006
                                                             
        U.S. Guarantor   Dutch   Belgium   Non-Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
ASSETS
Current assets
                                                       
 
Cash and cash equivalents
  $ 567     $ 844     $ 81     $ 484     $ 7,776     $     $ 9,752  
 
Accounts receivable, net
    4,183       27,443             2,884       25,499             60,009  
 
Inventory
    2,984       35,298             22,346       33,283             93,911  
 
Prepaid expenses and other
    3,030       445       7       1,003       6,347             10,832  
                                           
   
Total current assets
    10,764       64,030       88       26,717       72,905             174,504  
                                           
Property, plant & equipment, net
    1,031       11,554             467       35,920             48,972  
Intangibles, net
          3,508             1,182       4,406             9,096  
Other assets
    9,617       721                   896             11,234  
Investment in subsidiaries
    103,088             (24,724 )           (1,007 )     (77,357 )      
Intercompany
    10,775       103,298       30,847       (1,764 )     (20,818 )     (122,338 )      
                                           
   
Total assets
  $ 135,275     $ 183,111     $ 6,211     $ 26,602     $ 92,302     $ (199,695 )   $ 243,806  
                                           
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
                                                       
 
Loan payable to banks
  $     $     $     $     $     $     $  
 
Current portion of long-term debt
                            223             223  
 
Accounts payable
    1,950       23,067             644       13,120             38,781  
 
Accrued expenses and other
    19,469       8,108       1,021       11,796       13,591             53,985  
                                           
   
Total current liabilities
    21,419       31,175       1,021       12,440       26,934             92,989  
                                           
Long-term debt
    151,236             24,284             931             176,451  
Other liabilities
    11,485       5,461             4,900       1,385             23,231  
Intercompany debt
          26,581       5,654       33,986       56,117       (122,338 )      
                                           
   
Total liabilities
    184,140       63,217       30,959       51,326       85,367       (122,338 )     292,671  
                                           
Stockholders’ equity (deficit)
                                                       
 
Preferred stock
    521                                     521  
 
Common stock
    2       33                         (33 )     2  
 
Paid-in capital
    27,260       108,383       21       52       (21 )     (108,435 )     27,260  
 
Retained earnings (accumulated deficit)
    (80,544 )     11,738       (28,696 )     (28,703 )     6,727       38,934       (80,544 )
 
Accumulated other comprehensive income (loss)
                                                       
   
Gain on derivative instruments, net of income taxes
    79       79                         (79 )     79  
   
Cumulative currency
translation adjustment,
net of income taxes
    3,817       (339 )     3,927       3,927       229       (7,744 )     3,817  
                                           
   
Total stockholders’ equity (deficit)
    (48,865 )     119,894       (24,748 )     (24,724 )     6,935       (77,357 )     (48,865 )
                                           
   
Total liabilities and stockholders’ equity (deficit)
  $ 135,275     $ 183,111     $ 6,211     $ 26,602     $ 92,302     $ (199,695 )   $ 243,806  
                                           

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Three Months Ended March 31, 2006
                                                           
        U.S. Guarantor   Dutch   Belgium   Non-Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
Net sales
  $ 8,654     $ 61,887     $     $ 2,240     $ 28,124     $     $ 100,905  
Net sales — intercompany
    265                   3,837       2,863       (6,965 )      
Cost of goods sold (includes Belgium Plant Transactions costs of $975)
    6,523       46,518             5,788       24,578       (6,965 )     76,442  
                                           
 
Gross profit
    2,396       15,369             289       6,409             24,463  
Selling, general and administrative expenses
    5,398       7,637       7       766       3,719             17,527  
                                           
 
Operating income (loss)
    (3,002 )     7,732       (7 )     (477 )     2,690             6,936  
Interest expense
    5,593             789       66       278             6,726  
Interest (income)
    (10 )     (15 )                 (28 )           (53 )
Other (income) expense, net
          598             (227 )     (340 )           31  
Intercompany interest and other
    (6,053 )     5,133       (796 )     1,096       620              
(Profit) loss relating to subsidiaries
    (1,579 )           1,412                   167        
                                           
 
Income (loss) before income taxes
    (953 )     2,016       (1,412 )     (1,412 )     2,160       (167 )     232  
Provision for income taxes
    406       145                   1,040             1,591  
                                           
 
Net income (loss)
  $ (1,359 )   $ 1,871     $ (1,412 )   $ (1,412 )   $ 1,120     $ (167 )   $ (1,359 )
                                           

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Nine Months Ended March 31, 2006
                                                           
        U.S. Guarantor   Dutch   Belgium   Non-Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
Net sales
  $ 23,080     $ 177,603     $     $ 9,208     $ 83,320     $     $ 293,211  
Net sales — intercompany
    380       48             24,068       8,527       (33,023 )      
Cost of goods sold (includes Belgium Plant Transactions costs of $10,211)
    16,801       134,066             35,387       76,112       (33,023 )     229,343  
                                           
 
Gross profit
    6,659       43,585             (2,111 )     15,735             63,868  
Selling, general and administrative expenses
    15,053       20,903       46       1,888       11,482             49,372  
                                           
 
Operating income (loss)
    (8,394 )     22,682       (46 )     (3,999 )     4,253             14,496  
Interest expense
    16,754             2,367       115       (53 )           19,183  
Interest (income)
    (78 )     (24 )                 (157 )           (259 )
Other (income) expense, net
    1       347       (2 )     (171 )     (2,736 )           (2,561 )
Intercompany interest and other
    (18,430 )     15,388       (2,390 )     3,287       2,145              
(Profit) loss relating to subsidiaries
    (1,442 )           7,230                   (5,788 )      
                                           
 
Income (loss) before income taxes
    (5,199 )     6,971       (7,251 )     (7,230 )     5,054       5,788       (1,867 )
Provision for income taxes
    966       421                   2,911             4,298  
                                           
 
Net income (loss)
  $ (6,165 )   $ 6,550     $ (7,251 )   $ (7,230 )   $ 2,143     $ 5,788     $ (6,165 )
                                           

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended March 31, 2006
                                                               
        U.S.           Non-        
        Guarantor   Dutch   Belgium   Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
OPERATING ACTIVITIES
                                                       
 
Net income (loss)
  $ (6,165 )   $ 6,550     $ (7,251 )   $ (7,230 )   $ 2,143     $ 5,788     $ (6,165 )
 
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
                                                       
   
Depreciation and amortization (includes accelerated depreciation from the Belgium Plant Transactions of $4,533)
    217       2,407             5,712       3,513             11,849  
   
Amortization of deferred financing costs
    2,486                                     2,486  
   
Deferred income taxes
                            (424 )           (424 )
   
Net gain from sales of assets
          200             (589 )     (75 )           (464 )
   
Effects of changes in foreign currency
          68             162       (456 )           (226 )
   
Other
    13       3             (432 )     (12 )           (428 )
   
Changes in operating assets and liabilities:
                                                       
     
Accounts receivable
    (1,000 )     (3,410 )           1,185       (816 )           (4,041 )
     
Inventory
    (315 )     865             7,414       (3,958 )           4,006  
     
Prepaid expenses and other
    1,280       350       (7 )     757       465             2,845  
     
Other assets
    295       (174 )                             121  
     
Accounts payable
    267       2,758             (2,719 )     1,867             2,173  
     
Accrued expenses and other
    3,494       (1,237 )     804       (3,573 )     (1,472 )           (1,984 )
     
Accrued expenses: Belgium Plant Transactions
                      (1,608 )                 (1,608 )
     
Intercompany
    5,681       (9,332 )     6,518       (6,768 )     9,689       (5,788 )      
                                           
   
Net cash provided (used) by operating activities
    6,253       (952 )     64       (7,689 )     10,464             8,140  
                                           
INVESTING ACTIVITIES
                                                       
 
Capital expenditures
    (70 )     (1,619 )           (112 )     (9,443 )           (11,244 )
 
Proceeds from Belgium Plant Transactions
                      7,997                   7,997  
 
Proceeds from sale of assets
          1,655             42       237             1,934  
 
Other investing
    (106 )                                   (106 )
                                           
   
Net cash provided (used) by investing activities
    (176 )     36             7,927       (9,206 )           (1,419 )
                                           
FINANCING ACTIVITIES
                                                       
 
Net (decrease) in book overdrafts
          (27 )                             (27 )
 
Net (decrease) in short-term debt
    (8,000 )                       (38 )           (8,038 )
 
Payments of long-term debt
                            (2,005 )           (2,005 )
                                           
   
Net cash provided (used) by financing activities
    (8,000 )     (27 )                 (2,043 )           (10,070 )
                                           
Effect of exchange rate changes on cash
                      (9 )     109               100  
                                           
Net increase (decrease) in cash and cash equivalents
    (1,923 )     (943 )     64       229       (676 )           (3,249 )
Cash and cash equivalents at beginning of period
    2,490       1,787       17       255       8,452             13,001  
                                           
Cash and cash equivalents at end of period
  $ 567     $ 844     $ 81     $ 484     $ 7,776     $     $ 9,752  
                                           

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2005
                                                             
        U.S.           Non-        
        Guarantor   Dutch   Belgium   Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
ASSETS
Current assets
                                                       
 
Cash and cash equivalents
  $ 2,490     $ 1,787     $ 17     $ 255     $ 8,452     $     $ 13,001  
 
Accounts receivable, net
    3,377       25,762             4,784       22,494             56,417  
 
Inventory
    2,669       36,289             29,691       27,972             96,621  
 
Prepaid expenses and other
    4,118       921             1,203       6,545             12,787  
                                           
   
Total current assets
    12,654       64,759       17       35,933       65,463             178,826  
                                           
Property, plant & equipment, net
    1,178       13,564             8,122       27,096             49,960  
Intangibles, net
          3,827             1,339       5,035             10,201  
Other assets
    12,303       796                   971             14,070  
Investment in subsidiaries
    101,464             (17,469 )                 (83,995 )      
Intercompany
    9,384       93,463       31,103       (1,427 )     (14,325 )     (118,198 )      
                                           
   
Total assets
  $ 136,983     $ 176,409     $ 13,651     $ 43,967     $ 84,240     $ (202,193 )   $ 253,057  
                                           
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
                                                       
 
Loan payable to banks
  $ 8,000     $     $     $     $ 38     $     $ 8,038  
 
Current portion of long-term debt
                            1,625             1,625  
 
Accounts payable
    1,683       20,327             3,320       11,207             36,537  
 
Accrued expenses and other
    10,910       9,222       248       21,195       12,240             53,815  
                                           
   
Total current liabilities
    20,593       29,549       248       24,515       25,110             100,015  
                                           
Long-term debt
    151,236             24,284             981             176,501  
Other liabilities
    10,078       5,364             1,856       4,167             21,465  
Intercompany debt
          28,047       6,591       35,065       48,495       (118,198 )      
                                           
   
Total liabilities
    181,907       62,960       31,123       61,436       78,753       (118,198 )     297,981  
                                           
Stockholders’ equity (deficit)
                                                       
 
Preferred stock
    521                                     521  
 
Common stock
    2       33                         (33 )     2  
 
Paid-in capital
    27,260       108,383       21       52       1,537       (109,993 )     27,260  
 
Retained earnings (accumulated deficit)
    (74,379 )     5,188       (21,445 )     (21,473 )     6,074       31,656       (74,379 )
 
Accumulated other comprehensive income (loss)
                                                       
   
Gain on derivative instruments, net of income taxes
    123       123                         (123 )     123  
   
Cumulative currency translation adjustment, net of income taxes
    1,549       (278 )     3,952       3,952       (2,124 )     (5,502 )     1,549  
                                           
   
Total stockholders’ equity (deficit)
    (44,924 )     113,449       (17,472 )     (17,469 )     5,487       (83,995 )     (44,924 )
                                           
   
Total liabilities and stockholders’ equity (deficit)
  $ 136,983     $ 176,409     $ 13,651     $ 43,967     $ 84,240     $ (202,193 )   $ 253,057  
                                           

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Three Months Ended March 31, 2005
                                                             
        U.S. Guarantor   Dutch   Belgium   Non-Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
Net sales
  $ 6,769     $ 54,591     $     $ 3,328     $ 25,567     $     $ 90,255  
Net sales — intercompany
    44                   9,787       2,115       (11,946 )      
Cost of goods sold (includes Belgium Transactions costs of $4,372)
    4,876       40,751             14,492       23,331       (11,946 )     71,504  
                                           
 
Gross profit
    1,937       13,840             (1,377 )     4,351             18,751  
Selling, general and administrative expenses
    4,929       7,520       8       736       3,826             17,019  
                                           
 
Operating income (loss)
    (2,992 )     6,320       (8 )     (2,113 )     525             1,732  
Interest expense
    5,779             652       15       311             6,757  
Interest (income)
    (3 )                       (16 )           (19 )
Other (income) expense, net
          587             301       (811 )           77  
Intercompany interest and other
    (6,847 )     5,176       (797 )     1,095       1,373              
Loss relating to subsidiaries
    3,755             3,505                   (7,260 )      
                                           
 
Income (loss) from continuing operations before income taxes
    (5,676 )     557       (3,368 )     (3,524 )     (332 )     7,260       (5,083 )
Provision (benefit) for income taxes
    180       171             (19 )     441             773  
                                           
 
Income (loss) from continuing operations
    (5,856 )     386       (3,368 )     (3,505 )     (773 )     7,260       (5,856 )
Income from discontinued operations, net of income taxes
                            272             272  
Profit relating to discontinued operations
    272                               (272 )      
                                           
   
Net income (loss)
  $ (5,584 )   $ 386     $ (3,368 )   $ (3,505 )   $ (501 )   $ 6,988     $ (5,584 )
                                           

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Nine Months Ended March 31, 2005
                                                             
        U.S.           Non-        
        Guarantor   Dutch   Belgium   Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
Net sales
  $ 20,165     $ 167,837     $     $ 7,556     $ 73,611     $     $ 269,169  
Net sales — intercompany
    137       131             20,447       5,534       (26,249 )      
Cost of goods sold (includes Belgium Plant Transactions costs of $13,908)
    14,840       125,433             35,276       65,382       (26,249 )     214,682  
                                           
 
Gross profit
    5,462       42,535             (7,273 )     13,763             54,487  
Selling, general and administrative expenses
    14,197       21,555       14       2,102       11,903             49,771  
                                           
 
Operating income (loss)
    (8,735 )     20,980       (14 )     (9,375 )     1,860             4,716  
Interest expense
    15,980             1,951       38       687             18,656  
Interest (income)
    (5 )     (4 )                 (68 )           (77 )
Other (income) expense, net
    4       213             90       (998 )           (691 )
Intercompany interest and other
    (20,781 )     15,562       (2,113 )     2,976       4,356              
Loss relating to subsidiaries
    9,244             11,009                   (20,253 )      
                                           
 
Income (loss) from continuing operations before income taxes
    (13,177 )     5,209       (10,861 )     (12,479 )     (2,117 )     20,253       (13,172 )
Provision (benefit) for income taxes
    694       470             (1,470 )     1,005             699  
                                           
 
Income (loss) from continuing operations
    (13,871 )     4,739       (10,861 )     (11,009 )     (3,122 )     20,253       (13,871 )
Income from discontinued operations, net of income taxes
                            575             575  
Profit relating to discontinued operations
    575                               (575 )      
                                           
   
Net income (loss)
  $ (13,296 )   $ 4,739     $ (10,861 )   $ (11,009 )   $ (2,547 )   $ 19,678     $ (13,296 )
                                           

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended March 31, 2005
                                                               
        U.S.           Non-        
        Guarantor   Dutch   Belgium   Guarantor   Consolidation   PAHC
    PAHC   Subsidiaries   Issuer   Guarantor   Subsidiaries   Adjustments   Consolidated
                             
OPERATING ACTIVITIES
                                                       
 
Net income (loss)
  $ (13,296 )   $ 4,739     $ (10,861 )   $ (11,009 )   $ (2,547 )   $ 19,678     $ (13,296 )
 
Adjustment for discontinued operations
    (575 )                       (575 )     575       (575 )
                                           
 
Income (loss) from continuing operations
    (13,871 )     4,739       (10,861 )     (11,009 )     (3,122 )     20,253       (13,871 )
 
Adjustments to reconcile income (loss) from continuing operations to net cash provided (used) by operating activities:
                                                       
   
Depreciation and amortization (includes accelerated depreciation from the Belgium Plant Transactions of $3,628)
    179       2,113             5,880       3,414             11,586  
   
Amortization of deferred financing costs
    2,130                                     2,130  
   
Deferred income taxes
                            (202 )           (202 )
   
Net gain from sales of assets
          (777 )                 (12 )           (789 )
   
Effects of changes in foreign currency
          (554 )           (87 )     (119 )           (760 )
   
Other
    289       37                   104             430  
   
Changes in operating assets and liabilities:
                                                       
     
Accounts receivable
    (392 )     2,066             (575 )     3,361             4,460  
     
Inventory
    (428 )     2,772             (9,857 )     (8,865 )           (16,378 )
     
Prepaid expenses and other
    1,656       631             (1,277 )     637             1,647  
     
Other assets
    (2 )     (241 )                 (375 )           (618 )
     
Accounts payable
    (1,610 )     (8,573 )           (152 )     (1,043 )           (11,378 )
     
Accrued expenses and other
    4,707       1,285       650       237       2,241             9,120  
     
Accrued expenses: non-completed transaction
    (3,970 )                                   (3,970 )
     
Accrued expenses: Belgium Plant Transactions
                      10,280                   10,280  
     
Intercompany
    2,274       (4,843 )     5,926       7,605       9,291       (20,253 )      
 
Cash provided by discontinued operations
                            808             808  
                                           
   
Net cash provided (used) by operating activities
    (9,038 )     (1,345 )     (4,285 )     1,045       6,118             (7,505 )
                                           
INVESTING ACTIVITIES
                                                       
 
Capital expenditures
    (909 )     (1,626 )           (726 )     (1,837 )           (5,098 )
 
Proceeds from sale of assets
          1,320                   33             1,353  
 
Other investing
    (119 )                 (154 )     154             (119 )
 
Discontinued operations
                            (93 )           (93 )
                                           
   
Net cash (used) by investing activities
    (1,028 )     (306 )           (880 )     (1,743 )           (3,957 )
                                           
FINANCING ACTIVITIES
                                                       
 
Net increase in book overdraft
          1,930                               1,930  
 
Net increase (decrease) in short-term debt
    (7,083 )                       34             (7,049 )
 
Proceeds from long-term debt
    19,107             4,284             901             24,292  
 
Payments of long-term debt
          (103 )                 (3,810 )           (3,913 )
 
Proceeds from capital contribution from PAHC Holdings Corporation
    26,400                                     26,400  
 
Redemption of Series C preferred stock
    (26,400 )                                   (26,400 )
 
Debt financing costs
    (2,027 )                                   (2,027 )
                                           
   
Net cash provided (used) by financing activities
    9,997       1,827       4,284             (2,875 )           13,233  
                                           
Effect of exchange rate changes on cash
          8             16       42             66  
                                           
Net increase (decrease) in cash and cash equivalents
    (69 )     184       (1 )     181       1,542             1,837  
Cash and cash equivalents at beginning of period
    136       801       17       212       4,402             5,568  
                                           
Cash and cash equivalents at end of period
  $ 67     $ 985     $ 16     $ 393     $ 5,944     $     $ 7,405  
                                           

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
      This information should be read in conjunction with the condensed consolidated financial statements and related notes contained in this Report. Phibro Animal Health Corporation (the “Company” or “PAHC”) presents its annual consolidated financial statements on the basis of its fiscal year ending June 30.
General
      The Company is a leading diversified global manufacturer and marketer of a broad range of animal health and nutrition products, specifically medicated feed additives (MFAs) and nutritional feed additives (NFAs), which are sold throughout the world predominantly to the poultry, swine and cattle markets. MFAs are used preventatively and therapeutically in animal feed to produce healthy livestock. The Company believes it is the third largest manufacturer and marketer of MFAs in the world, and that certain of its MFA products have leading positions in the marketplace. The Company is also a specialty chemicals manufacturer and marketer, serving primarily the United States pressure-treated wood and chemical industries. The Company has several proprietary products, and many of the Company’s products provide critical performance attributes to customers’ products, while representing a relatively small percentage of total end-product cost.
Belgium Plant Transactions
      On November 30, 2005, Phibro Animal Health SA (“PAH Belgium”) sold to GlaxoSmithKline Biologicals (“GSK”) substantially all of PAH Belgium’s facilities in Rixensart, Belgium (the “Belgium Plant”). The sale (the “Belgium Plant Transactions”) included the following elements (U.S. dollar amounts at the March 31, 2006 exchange rate except where otherwise indicated): (i) the transfer of substantially all of the land and buildings and certain equipment of PAH Belgium at the Belgium Plant, as well as the industrial activities and intellectual property relating to certain solvent technology of PAH Belgium for a purchase price of EUR 6.2 million ($7.3 million at the November 30, 2005 exchange rate), paid at closing; (ii) the transfer to GSK of a majority of the employees of the Belgium Plant and the corresponding responsibility for statutory severance obligations; (iii) GSK agreed to be responsible for cleaning-up, by demolition or otherwise, certain buildings not to be used by it, but for PAH Belgium to reimburse GSK up to a maximum of EUR 0.7 million ($0.8 million) for such cleaning-up costs; (iv) in recognition of the benefits to PAHC from the proposed transaction, PAH Belgium agreed to pay to GSK EUR 1.5 million ($1.8 million) within six months from the closing date, EUR 1.5 million ($1.8 million) within eighteen months from the closing date, EUR 1.5 million ($1.8 million) within thirty months from the closing date, and EUR 0.5 million ($0.6 million) within forty-two months from the closing date; (v) PAH Belgium sold certain excess land for its own account; (vi) PAH Belgium was responsible for certain plant closure costs and legally required severance indemnities in connection with workforce reductions; and (vii) PAH Belgium retained certain equipment at the Belgium Plant, and has transferred or will transfer such equipment, together with other assets and rights related to the production of virginiamycin, to Phibro Saude Animal Internacional Ltda. (“PAH Brazil”) which owns a facility in Guarulhos, Brazil or in connection with alternative production arrangements.
      The Dutch Notes (as defined below) and related guarantees were collateralized by a mortgage on the Belgium Plant which was released in connection with the sale of the Belgium Plant to GSK.
      As a result of the Belgium Plant Transactions, the Company depreciated the Belgium Plant to its estimated salvage value, recorded expense of early-retirement and severance programs for those employees not transferred to GSK, other transaction-related expenses, a curtailment gain on the Belgium pension plan and a gain on the sales of the Belgium Plant and excess land. Other transaction-related expenses were primarily related to employee retention agreements, plant dismantling and decommissioning, plant shutdown, and site demolition costs payable to GSK.

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      The following table includes the amounts (in thousands) of these charges and gains.
                                                 
    Belgium Plant Transactions Costs
     
    Twelve       Nine    
    Months   Three Months Ended   Months    
    Ended       Ended    
    June 30,   September 30,   December 31,   March 31,   March 31,   Cumulative
    2005   2005   2005   2006   2006   Total
                         
Incremental depreciation
  $ 7,467     $ 2,747     $ 1,786     $     $ 4,533     $ 12,000  
Employee termination expenses
    12,808       287       699             986       13,794  
Other transaction-related expenses
    1,916       979       3,759       975       5,713       7,629  
Net (gain) on the curtailment and settlement of the pension plan
                (432 )           (432 )     (432 )
(Gain) on the sale of the Belgium Plant and excess land
          (510 )     (79 )           (589 )     (589 )
                                     
    $ 22,191     $ 3,503     $ 5,733     $ 975     $ 10,211     $ 32,402  
                                     
      All costs and gains of the Belgium Plant Transactions are included in cost of goods sold on the Company’s condensed consolidated statements of operations and comprehensive income (loss) in the periods as described in the table above.
      As of March 31, 2006, accrued expenses and other long term liabilities on the Company’s condensed consolidated balance sheet included $6.9 million payable to GSK and $10.3 million payable for employee termination and other transaction-related expenses.
      The Company expects to record in future periods an estimated additional $0.8 million of other transaction-related expenses, primarily for plant dismantling and decommissioning, primarily during the remainder of 2006.
      In anticipation of transferring production of virginiamycin from the Belgium Plant to an alternative production location, the Company increased inventory levels of virginiamycin until the Belgium Plant sale in November 2005 to ensure adequate supplies during the transfer period. Virginiamycin inventories were approximately $33.4 million at March 31, 2006 and $38.8 million at June 30, 2005.
Risks and Uncertainties
      The Company’s ability to fund its operating plan depends upon the continued availability of borrowing under its domestic senior credit facility. The Company believes that it will be able to comply with the terms of its covenants under the domestic senior credit facility based on its forecasted operating plan. In the event of adverse operating results and/or violation of covenants under this facility, there can be no assurance that the Company would be able to obtain waivers or amendments on favorable terms, if at all. The Company’s 2006 operating plan projects adequate liquidity throughout the year, with periods of reduced availability around the dates of the semi-annual interest payments due December 1 and June 1 related to PAHC’s 13% Senior Secured Notes due 2007 and PAHC’s 97/8 % Senior Subordinated Notes due 2008. The Company is pursuing additional cost reduction activities, working capital improvement plans, and sales of non-strategic assets to provide additional liquidity. The Company also has availability under foreign credit lines that would be available as needed. There can be no assurance the Company will be successful in any of the above-noted actions.
      The use of antibiotics in medicated feed additives is a subject of legislative and regulatory interest. The issue of potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government

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restrictions on the use of antibiotics in food-producing animals. The sale of feed additives containing antibiotics is a material portion of the Company’s business. Should regulatory or other developments result in further restrictions on the sale of such products, it could have a material adverse impact on the Company’s financial position, results of operations and cash flows.
      The testing, manufacturing, and marketing of certain of the Company’s products are subject to extensive regulation by numerous government authorities in the United States and other countries.
      The Company has significant assets located outside of the United States, and a significant portion of the Company’s sales and earnings are attributable to operations conducted abroad.
      The Company has assets located in Israel and a portion of its sales and earnings are attributable to operations conducted in Israel. The Company is affected by social, political and economic conditions affecting Israel, and any major hostilities involving Israel as well as the Middle East or curtailment of trade between Israel and its current trading partners, either as a result of hostilities or otherwise, could have a material adverse effect on the Company.
      The Company’s operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediation of contaminated soil and groundwater, the manufacture, sale and use of pesticides and the health and safety of employees. As such, the nature of the Company’s current and former operations and those of its subsidiaries exposes the Company and its subsidiaries to the risk of claims with respect to such matters.
Summary Consolidated Results of Continuing Operations
                                 
    Three Months Ended   Nine Months Ended
    March 31,   March 31,
         
    2006   2005   2006   2005
                 
    (In thousands)
Net sales
  $ 100,905     $ 90,255     $ 293,211     $ 269,169  
Belgium plant transaction costs
    975       4,372       10,211       13,908  
Gross profit
    24,463       18,751       63,868       54,487  
Selling, general and administrative
    17,527       17,019       49,372       49,771  
Operating income
    6,936       1,732       14,496       4,716  
Interest expense, net
    6,673       6,738       18,924       18,579  
Other (income) expense, net
    31       77       (2,561 )     (691 )
Provision for income taxes
    1,591       773       4,298       699  
Loss from continuing operations
  $ (1,359 )   $ (5,856 )   $ (6,165 )   $ (13,871 )
Comparison of Three Months Ended March 31, 2006 and 2005
      Net Sales of $100.9 million increased $10.7 million, or 12%. Animal Health and Nutrition sales of $79.7 million grew $11.3 million, or 17%, due to volume increases and also higher average selling prices for NFAs related to cost increases. Specialty Chemical Group (comprised of the Industrial Chemicals and Distribution segments) sales of $21.2 million decreased $0.6 million due to lower unit volumes offset in part by higher average selling prices.
      Gross Profit of $24.5 million increased $5.7 million, to 24.2% of net sales. The Belgium Plant Transactions costs for the three months ended March 31, 2006 and 2005 were $1.0 million and $4.4 million, respectively. Excluding these charges, Animal Health and Nutrition gross profit improved due to increased unit volume, favorable product mix and higher average selling prices offset in part by higher unit costs. The Specialty Chemical Group’s gross profit decreased from last year due to lower sales of wood treatment

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products and lower production levels in the Industrial Chemicals segment offset in part by increased sales of higher margin products in the Distribution segment.
      Selling, General and Administrative Expenses of $17.5 million increased $0.5 million. Expenses increased over the prior year due to higher salary costs offset in part by reduced registration trials and reduced advertising and promotional expenditures.
      Operating Income of $6.9 million increased $5.2 million from last year. Belgium Plant Transaction costs were $1.0 million and $4.4 million, respectively, generating $3.4 million of the income increase. Operating income, excluding the Belgium Plant Transactions, increased by $3.1 million in Animal Health and Nutrition primarily due to improved margins from higher unit volumes. Specialty Chemical Group operating income decreased $0.9 million due to lower sales of wood treatment products and lower production levels in the Industrial Chemicals segment offset in part by higher margins in the Distribution segment. Corporate expenses increased by $0.4 million which partially offset the operating improvements.
      Interest Expense, Net of $6.7 million was slightly below the prior year due to a lower net effective interest rate as overall debt levels approximated the prior year.
      Other (Income) Expense, Net principally reflects foreign currency transaction net (gains) losses related to short-term inter-company balances and foreign currency translation (gains) losses.
      Income Taxes of $1.6 million were recorded on a consolidated pre-tax income of $0.2 million. The tax rate reflects income tax provisions in profitable foreign jurisdictions and for state income taxes. A provision for U.S. federal income taxes has not been recorded due to the utilization of net operating loss carryforwards. The Company has recorded valuation allowances related to substantially all deferred tax assets. The Company will continue to evaluate the likelihood of recoverability of these deferred tax assets based upon actual and expected operating performance.
Comparison of Nine Months Ended March 31, 2006 and 2005
      Net Sales of $293.2 million increased $24.0 million, or 9%. Animal Health and Nutrition sales of $233.5 million grew $29.8 million, or 15%, due to volume increases and also higher average selling prices for NFAs related to cost increases. Specialty Chemical Group (comprised of the Industrial Chemicals and Distribution segments) sales of $59.7 million decreased $5.7 million due to lower unit volumes offset in part by higher average selling prices.
      Gross Profit of $63.9 million increased $9.4 million, to 21.8% of net sales. The Belgium Plant Transactions costs for the nine months ended March 31, 2006 and 2005 were $10.2 million and $13.9 million, respectively. Excluding these charges, Animal Health and Nutrition gross profit improved due to increased unit volume, favorable product mix and higher average selling prices offset in part by higher unit costs. The Specialty Chemical Group’s gross profit decreased over last year due to lower sales of wood treatment products in the Industrial Chemicals segment offset in part by increased sales of higher margin products in the Distribution segment.
      Selling, General and Administrative Expenses of $49.4 million decreased $0.4 million. Expenses decreased from the prior year due to reduced advertising and promotional expenditures and registration trials offset in part by higher salary costs.
      Operating Income of $14.5 million increased $9.8 million from last year. Belgium Plant Transaction costs were $10.2 million and $13.9 million, respectively , generating $3.7 million of the income increase. Operating income, excluding the Belgium Plant Transactions, increased by $7.5 million in Animal Health and Nutrition primarily due to improved margins from higher unit volumes and lower selling, general and administrative expenses. Specialty Chemical Group operating income decreased $0.5 million due to lower sales of wood treatment products in the Industrial Chemicals segment offset in part by sales of higher margin products in the Distribution segment. Corporate expenses increased by $0.9 million which partially offset the operating improvements.

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      Interest Expense, Net of $18.9 million increased $0.3 million from last year, primarily due to lower short-term borrowing levels offset in part by higher borrowing levels associated with the issuance of additional Senior Secured Notes and increased amortization of deferred financing costs. Interest expense was also reduced by the reversal of $0.6 million of accrued interest related to an excise tax assessment resolved in the Company’s favor in the period.
      Other (Income) Expense, Net principally reflects foreign currency transaction net (gains) losses related to short-term inter-company balances and foreign currency translation (gains) losses. During 2005, the Company received a favorable ruling on an excise tax assessment and reversed $2.0 million previously accrued.
      Income Taxes of $4.3 million were recorded on a consolidated pre-tax loss of $1.9 million. The tax rate reflects income tax provisions in profitable foreign jurisdictions and for state income taxes. A provision for U.S. federal income taxes has not been recorded due to the utilization of net operating loss carryforwards. The Company has recorded valuation allowances related to substantially all deferred tax assets. The Company will continue to evaluate the likelihood of recoverability of these deferred tax assets based upon actual and expected operating performance.
Operating Segments
      The Animal Health and Nutrition segment manufactures and markets MFAs and NFAs to the poultry, swine and cattle markets, and includes the operations of the Phibro Animal Health business unit, Prince Agriproducts, Koffolk and Planalquimica. The Industrial Chemicals segment, through its Phibro-Tech subsidiary, manufacturers and markets specialty chemicals for use in the pressure treated wood and chemical industries and also includes contract manufacturing of crop protection chemicals. The Distribution segment markets a variety of specialty chemicals, and includes PhibroChem and Ferro operations.
                                   
    Three Months Ended   Nine Months Ended
    March 31,   March 31,
         
    2006   2005   2006   2005
                 
    (In thousands)
Net Sales
                               
Animal Health & Nutrition
  $ 79,733     $ 68,405     $ 233,471     $ 203,699  
Industrial Chemicals
    10,264       13,412       31,992       40,047  
Distribution
    10,908       8,438       27,748       25,423  
                         
Total
  $ 100,905     $ 90,255     $ 293,211     $ 269,169  
                         
Operating Income
                               
Animal Health & Nutrition
                               
 
Excluding Belgium Plant Transactions
  $ 10,646     $ 7,529     $ 30,256     $ 22,764  
 
Belgium Plant Transactions
    (975 )     (4,372 )     (10,211 )     (13,908 )
                         
 
Total
    9,671       3,157       20,045       8,856  
Industrial Chemicals
    (35 )     1,371       2,078       3,541  
Distribution
    1,705       1,158       4,366       3,414  
Corporate expenses and adjustments
    (4,405 )     (3,954 )     (11,993 )     (11,095 )
                         
Total
  $ 6,936     $ 1,732     $ 14,496     $ 4,716  
                         
Operating Segments Comparison of Three Months Ended March 31, 2006 and 2005
Animal Health and Nutrition
      Net Sales of $79.7 million increased $11.3 million, or 17%. MFA net sales increased by $5.1 million. Revenues were higher for all product types, including antibiotics, antibacterials and anticoccidials. The increase in MFA revenues was primarily due to higher unit volumes. NFA net sales increased by $6.3 million

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principally due to overall higher average selling prices (which offset cost increases) and improved sales of higher margin products.
      Operating Income of $9.7 million increased $6.5 million from last year. Operating income, excluding the Belgium Plant Transactions costs, increased $3.1 million due to higher unit volumes and average selling prices which were partially offset by higher unit costs. Selling, general and administrative expenses approximated the prior period. Higher salary costs were offset by reduced registration trials and reduced advertising and promotional expenditures.
Specialty Chemicals
      Industrial Chemicals net sales of $10.3 million decreased $3.1 million, or 24%. Sales of copper-related products to the wood treatment markets were below last year, but were partially offset by higher sales of other specialty copper products arising from capacity expansion. Revenues for contract manufacturing decreased due to lower unit volumes offset in part by higher average selling prices. Operating income of break-even decreased by $1.4 million from last year due to lower unit volumes. The Company has reduced the work force and operating levels at our Sumter, South Carolina facility to mitigate these sales volume declines.
      Distribution net sales of $10.9 million increased $2.5 million, or 29%. Higher domestic unit volumes and higher average selling prices were offset in part by lower sales volumes in Europe. Distribution operating income of $1.7 million increased $0.5 million over the prior year as increased sales of higher margin products offset unit volume declines.
Operating Segments Comparison of Nine Months Ended March 31, 2006 and 2005
Animal Health and Nutrition
      Net Sales of $233.5 million increased $29.8 million, or 15%. MFA net sales increased by $16.0 million. Revenues were higher for all product types, including antibiotics, antibacterials and anticoccidials. The increase in MFA revenues was primarily due to higher unit volumes. NFA net sales increased by $13.8 million principally due to overall higher average selling prices (which offset cost increases) and improved sales of higher margin products.
      Operating Income of $20.0 million increased $11.2 million from last year. Operating income, excluding Belgium Plant Transaction costs, increased $7.5 million due to higher unit volumes and average selling prices which were partially offset by higher unit costs. Lower selling, general and administrative expenses due to reduced registration trials and reduced advertising and promotional expenditures were offset by higher salary and related costs.
Specialty Chemicals
      Industrial Chemicals net sales of $32.0 million decreased $8.1 million, or 20%. Sales of copper-related products to the wood treatment markets were below last year, but were partially offset by higher sales of other specialty copper products arising from capacity expansion. Revenues for contract manufacturing decreased due to lower unit volumes offset in part by higher average selling prices. Operating income of $2.1 million decreased by $1.5 million from last year due to lower unit volumes. The Company reduced the work-force and operating levels at our Sumter, South Carolina facility to mitigate these sales volume declines.
      Distribution net sales of $27.7 million increased $2.3 million, or 9%. Higher domestic unit volumes and higher average selling prices were offset in part by lower sales volumes in Europe. Distribution operating income of $4.4 million improved $1.0 million due to increased sales of higher margin products.
Discontinued Operations
      The Company divested Wychem Ltd. (U.K.) (“Wychem”) during 2005. Wychem has been classified as a discontinued operation. The condensed consolidated financial statements have been revised to report separately the operating results, financial position and cash flows of the discontinued operation.

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      Operating results of Wychem were:
                 
    Three Months Ended   Nine Months Ended
    March 31, 2005   March 31, 2005
         
    (In thousands)
Net sales
  $ 1,487     $ 3,908  
Cost of goods sold
    924       2,590  
Selling, general and administrative expenses
    174       511  
Other expense
    5       6  
             
Income before income taxes
    384       801  
Provision for income taxes
    112       226  
             
Income from operations
  $ 272     $ 575  
             
Depreciation and amortization
  $ 105     $ 309  
             
Liquidity and Capital Resources
      Net Cash Provided (Used) by Operating Activities. Cash provided (used) by operations for the nine months ended March 31, 2006 and 2005 was $8.1 million and ($7.5) million, respectively. Cash provided by operations increased due to improved operating performance and working capital improvements, primarily in the reduction of Animal Health and Nutrition inventories. These improvements were offset in part by payments related to the Belgium Plant Transactions. The Company increased its levels of virginiamycin inventory until the Belgium Plant sale in November 2005 to support the transition of production to PAH Brazil. Inventory levels are expected to decline during the remainder of the year.
      Net Cash Provided (Used) by Investing Activities. Net cash provided (used) by investing activities for the nine months ended March 31, 2006 and 2005 was ($1.4) million and ($4.0) million, respectively. Capital expenditures of $11.2 million and $5.1 million for 2006 and 2005, respectively, were for expansion of production capacity in Brazil in 2006, for maintaining the Company’s existing asset base and for environmental, health and safety projects. The Belgium Plant Transactions provided funds of $8.0 million during 2006. Sales of assets provided funds of $1.9 million and $1.4 million in 2006 and 2005, respectively.
      Net Cash Provided (Used) by Financing Activities. Net cash provided (used) by financing activities for the nine months ended March 31, 2006 and 2005 was ($10.1) million and $13.2 million, respectively. The decrease in short-term debt is due to the reduction of the senior credit facility. Payments of long-term debt reflect the repayments of Koffolk borrowings. Proceeds from long-term debt reflect the borrowings of Koffolk and the issuance of additional senior secured indebtedness in December 2004.
      Working Capital and Capital Expenditures. Working capital as of March 31, 2006 was $81.5 million compared to $78.8 million at June 30, 2005, an increase of $2.7 million. The increase in working capital primarily was due to reduced short-term debt levels resulting from the proceeds of the Belgium Plant Transactions.
      The Company anticipates spending approximately $15.0 million for capital expenditures in 2006, primarily for expansion of virginiamycin production capacity at the Brazil facility and to cover the Company’s asset replacement needs, to improve processes, and for environmental and regulatory compliance, subject to the availability of funds.
      Liquidity. At March 31, 2006, PAHC had no amounts borrowed under its domestic senior credit facility and PAHC had $17.5 million of borrowings available under the working capital facility that is provided under its domestic senior credit facility. At March 31, 2006 PAHC had $15.9 million of letters of credit outstanding under its domestic senior credit facility. In addition, a foreign subsidiary also had availability totaling $9.1 million under its loan agreements.
      On October 28, 2005, PAHC amended its domestic senior credit facility in connection with, among other things, yearly determination of certain financial covenants to: (i) amend the EBITDA definition to exclude

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charges and expenses related to the sale of the Belgium Plant in an aggregate amount not to exceed $33.2 million for purposes of calculating a certain financial covenant; (ii) establish the Minimum Domestic EBITDA for the 12 month periods ended July 31, 2005 through June 30, 2006 at $17.5 million for purposes of calculating a certain financial covenant; (iii) establish the Consolidated Minimum EBITDA for the twelve month periods ended July 31, 2005 through June 30, 2006 at $32.0 million for purposes of calculating a certain financial covenant; and (iv) amend the maximum aggregate amount of borrowing available under the working capital and letter of credit facilities from $32.5 million to $35.0 million. The amount of aggregate borrowings available under the working capital facility remained unchanged at $17.5 million.
      As of March 31, 2006, PAHC was in compliance with the financial covenants of its domestic senior credit facility, as amended. The domestic senior credit facility requires, among other things, the maintenance of certain levels of trailing consolidated and domestic EBITDA (earnings before interest, taxes, depreciation and amortization) calculated on a monthly basis, and an acceleration clause should an event of default (as defined in the agreement) occur. In addition, there are certain restrictions on additional borrowings, additional liens on PAHC’s assets, guarantees, dividend payments, redemption or purchase of PAHC’s stock, sale of subsidiaries’ stock, disposition of assets, investments, and mergers and acquisitions.
      The domestic senior credit facility contains a lock-box requirement and a material adverse change clause should an event of default (as defined in the agreement) occur. Accordingly, the amounts outstanding have been classified as short-term and are included in loans payable to banks in the condensed consolidated balance sheet.
      The Company’s ability to fund its operating plan depends upon the continued availability of borrowing under its domestic senior credit facility. The Company believes that it will be able to comply with the terms of its covenants under the domestic senior credit facility based on its forecasted operating plan. In the event of adverse operating results and/or violation of covenants under this facility, there can be no assurance that the Company would be able to obtain waivers or amendments on favorable terms, if at all. The Company’s 2006 operating plan projects adequate liquidity throughout the year, with periods of reduced availability around the dates of the semi-annual interest payments due December 1 and June 1 related to PAHC’s 13% Senior Secured Notes due 2007 and PAHC’s 97/8 % Senior Subordinated Notes due 2008. The Company is pursuing additional cost reduction activities, working capital improvement plans, and sales of non-strategic assets to provide additional liquidity. The Company also has availability under foreign credit lines that would be available as needed. There can be no assurance the Company will be successful in any of the above-noted actions.
      The Company’s contractual obligations at March 31, 2006 become due as follows:
                                           
    Within 1 Year   Over 1 to 3 Years   Over 3 to 5 Years   Over 5 Years   Total
                     
    (In thousands)
Loans payable to banks
  $     $     $     $     $  
Long-term debt (including current portion)
    223       176,451                   176,674  
Interest payments
    21,954       18,247                   40,201  
Lease commitments
    1,407       2,352       1,682       1,078       6,519  
Acquisition of rights
    350       550                   900  
Employee termination payments relating to the Belgium Plant Transactions
    10,333                         10,333  
Payments to GSK relating to the Belgium
                                       
 
Plant Transactions
    2,670       3,642       607             6,919  
                               
 
Total contractual obligations
  $ 36,937     $ 201,242     $ 2,289     $ 1,078     $ 241,546  
                               
      A significant portion of the Company’s debt becomes due in December 2007 and June 2008. The Company anticipates that it will refinance these obligations prior to maturity.

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Critical Accounting Policies
      Critical accounting policies are those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
      Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period they are determined to be necessary. Actual results could differ from those estimates. The accounting policies and related risk described in our Annual Report on Form 10-K for the year ended June 30, 2005 are those that depend most heavily on these judgments and estimates. As of March 31, 2006 there have been no material changes to any of the critical accounting policies contained therein.
New Accounting Pronouncements
      The Financial Accounting Standards Board has released new and revised standards. These standards will be adopted by the Company during 2006 and 2007 and are discussed in the notes to condensed consolidated financial statements included in this Report.
Quantitative and Qualitative Disclosure About Market Risk
      In the normal course of operations, the Company is exposed to market risks arising from adverse changes in interest rates, foreign currency exchange rates, and commodity prices. As a result, future earnings, cash flows and fair values of assets and liabilities are subject to uncertainty. The Company uses, from time to time, foreign currency forward contracts as a means of hedging exposure to foreign currency risks. The Company also utilizes, on a limited basis, certain commodity derivatives, primarily on copper used in its manufacturing processes, to hedge the cost of its anticipated purchase requirements. The Company does not utilize derivative instruments for trading purposes. The Company does not hedge its exposure to market risks in a manner that completely eliminates the effects of changing market conditions on earnings, cash flows and fair values. The Company monitors the financial stability and credit standing of its major counterparties.
      For financial market risks related to changes in interest rates, foreign currency exchange rates and commodity prices, reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure about Market Risk, in our annual report on Form 10-K for the fiscal year ended June 30, 2005 and to Notes 2 and 19 to our Consolidated Financial Statements included therein.
Certain Factors Affecting Future Operating Results
Forward-Looking Statements
      This Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend,” or similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.
      Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available

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information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:
  •  our substantial leverage and potential inability to service our debt
 
  •  our dependence on distributions from our subsidiaries
 
  •  risks associated with our international operations and significant foreign assets
 
  •  our dependence on our Israeli operations
 
  •  competition in each of our markets
 
  •  potential environmental liability
 
  •  potential legislation affecting the use of medicated feed additives
 
  •  extensive regulation by numerous government authorities in the United States and other countries
 
  •  our reliance on the continued operation and sufficiency of our manufacturing facilities, including the transition of virginiamycin production to our Brazil facility
 
  •  our reliance upon unpatented trade secrets
 
  •  the risks of legal proceedings and general litigation expenses
 
  •  potential operating hazards and uninsured risks
 
  •  the risk of work stoppages
 
  •  our dependence on key personnel
      See also the discussion under “Risks, Uncertainties and Liquidity” in Note 1 of our Condensed Consolidated Financial Statements included in this Report.
      In addition, the issue of the potential for increased bacterial resistance to certain antibiotics used in certain food producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government restrictions on the use of antibiotics in these food producing animals. The sale of feed additives containing antibiotics is a material portion of our business. Should regulatory or other developments result in further restrictions on the sale of such products, it could have a material adverse impact on our financial position, results of operations and cash flows.
      We believe the forward-looking statements in this Report are reasonable; however, no undue reliance should be placed on any forward-looking statements, as they are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
      Information regarding quantitative and qualitative disclosures about market risk is set forth in Part I Item 2 of this Form 10-Q.
Item 4. Controls and Procedures
      (a) Based upon an evaluation, under the supervision and with the participation of our Principal Executive Officers and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, they have concluded that, as of the end of the period covered by this

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Report, our disclosure controls and procedures, as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, are effective.
      (b) As of the end of the period covered by this Report there have been no changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
      It should be noted that any system of internal controls, however well designed and operated, can provide only reasonable, but not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions, regardless of how remote.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
      See Note 7 to the Condensed Consolidated Financial Statements.
Item 5. Other Information
      On March 8, 2006, Mr. Richard C. Rosenzweig joined the Company as Senior Vice President, General Counsel. Mr. Rosenzweig is expected to be elected Secretary by the Board of Directors in the near future.
Item 6. Exhibits
         
Exhibit No.   Description
     
  10.27.7     Amendment Number Seven dated April 18, 2006 to Loan and Security Agreement dated October 21, 2003, by and among, the lenders identified on the signature pages thereto, Wells Fargo Foothill, Inc., and Registrant, and each of Registrant’s Subsidiaries identified on the signature pages thereto.
  31.1     Certification of Gerald K. Carlson, Chief Executive Officer, required by Rule 15d-14(a) of the Act.
  31.2     Certification of Jack C. Bendheim, Chairman of the Board, required by Rule 15d-14(a) of the Act.
  31.3     Certification of Richard G. Johnson, Chief Financial Officer, required by Rule 15d-14(a) of the Act.
  32     Section 1350 Certifications of Phibro Animal Health Corporation.

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SIGNATURES
      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  PHIBRO ANIMAL HEALTH CORPORATION
  By:  /s/ JACK C. BENDHEIM
 
 
  Jack C. Bendheim
  Chairman of the Board
Date: May 15, 2006
  By:  /s/ GERALD K. CARLSON
 
 
  Gerald K. Carlson
  Chief Executive Officer
Date: May 15, 2006
  By:  /s/ RICHARD G. JOHNSON
 
 
  Richard G. Johnson
  Chief Financial Officer
  (Principal Financial Officer and
  Principal Accounting Officer)
Date: May 15, 2006

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Exhibit Index
         
Exhibit No.   Description
     
  10.27.7     Amendment Number Seven dated April 18, 2006 to Loan and Security Agreement dated October 21, 2003, by and among, the lenders identified on the signature pages thereto, Wells Fargo Foothill, Inc., and Registrant, and each of Registrant’s Subsidiaries identified on the signature pages thereto.
  31.1     Certification of Gerald K. Carlson, Chief Executive Officer, required by Rule 15d-14(a) of the Act.
  31.2     Certification of Jack C. Bendheim, Chairman of the Board, required by Rule 15d-14(a) of the Act.
  31.3     Certification of Richard G. Johnson, Chief Financial Officer, required by Rule 15d-14(a) of the Act.
  32     Section 1350 Certifications of Phibro Animal Health Corporation.

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