SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996 Commission file
number 0-4217
ACETO CORPORATION
(Exact name of registrant as specified in its charter)
New York 11-1720520
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
One Hollow Lane, Lake Success, NY 11042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(516) 627-6000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
(Title of Class)
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 X No____
Indicate the number of shares outstanding of each of the
issuer's class of common stock, as of the close of the
period covered by this report.
Common Stock - 5,025,463
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For Three Months Ended
Sept. 30th
1996 1995
Net sales $ 39,184 $ 40,389
Cost of sales 34,805 35,629
Gross profit 4,379 4,760
Selling, general and administrative
expenses (note 6) 3,864 3,199
Operating profit 515 1,561
Other income (deductions):
Interest expense (29) (40)
Interest and other income (note 5) 468 398
439 358
Income before income taxes 954 1,919
Provision for income taxes 443 757
Net income $ 511 $ 1,162
Net income per common and common
equivalent share $ 0.10 $ 0.22
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Sept. 30th June 30th
1996 1996
Assets
Current assets:
Cash and cash equivalents $ 6,070 $ 5,380
Short-term investments 10,505 10,595
Receivables:
Trade, less allowance for doubtful accounts:
(Sept. $232; June $207) 24,834 24,739
Other 680 590
25,514 25,329
Inventories 24,234 30,156
Prepaid expenses 67 104
Deferred income tax benefit 1,125 1,125
Property held for sale 590 595
Total current assets 68,105 73,284
Long-term investments 13,165 12,737
Long-term notes receivable 785 790
Equipment at cost 1,331 1,346
Less accumulated depreciation and
amortization 1,020 1,046
311 300
Other assets 191 191
Total assets $ 82,557 $ 87,302
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
(Unaudited)
Sept. 30th June 30th
1996 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 662 $ 1,002
Current installments on long-term debt 500 250
Accounts payable 2,307 3,047
Accrued merchandise purchases 8,806 11,202
Accrued compensation 2,983 3,330
Accrued environmental liabilities (note 6) 1,570 790
Other accrued expenses 1,935 2,055
Income taxes payable 809 701
Total current liabilities 19,572 22,377
Long-term debt, excluding current installments 750 1,000
Deferred income taxes 14 14
Redeemable preferred stock 750 750
Shareholders' equity (note 2):
Common stock,$.01 par value per share;
Authorized 10,000 shares;
Issued: Sept., 6001 shares; June, 60 60
6,001 shares; outstanding: Sept.,
5,025 shares; June, 5,188 shares
Capital in excess of par value 57,387 57,387
Retained earnings 17,156 16,646
74,603 74,093
Less:
Cost of common stock held in treasury;
Sept., 976 shares; June, 813 shares 13,132 10,932
Total shareholders' equity 61,471 63,161
Total liabilities and shareholders' equity $ 82,557 $ 87,302
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
September 30th
1996 1995
Operating activities:
Net income $ 511 $ 1,162
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 40 65
Effect of market value over original
option price for options exercised 3 9
Increase in allowance for doubtful accounts 25 8
Changes in operating assets and liabilities:
Increase in investments - trading securitis (227) (109)
Decrease(increase)in trade accounts receivable (120) 2,618
Decrease(increase)in other receivables (90) 595
Decrease in inventories 5,922 674
Decrease in prepaid expenses 37 46
Decrease in notes receivable 5 9
Increase (decrease) in drafts and
acceptances payable (340) 111
Increase in current installments on
long-term debt 250 250
Decrease in accounts payable (740) (342)
Decrease in accrued merchandise purchases (2,396) (1,591)
Decrease in accured compensation (347) (403)
Increase(decrease) in environmental
liabilities 780 (36)
Decrease in other accrued expenses (120) (278)
Increase(decrease)in income taxes payable 108 (252)
Net cash provided by operating activities 3,301 2,536
Investing activities:
Purchases of investments - held-to-maturity (4,686) (1,504)
Proceeds from investments - held-to-maturity 4,575 394
Purchases of equipment (46) (2)
Net cash used in investing activities (157) (1,112)
Financing activities:
Payments of long-term debt (250) (250)
Proceeds from exercise of stock options 8 24
Payments for purchases of treasury stock (2,212) (435)
Net cash used in financing activities (2,454) (661)
Net increase in cash and cash equivalents 690 763
Cash and cash equivalents at beginning of period 5,380 1,644
Cash and cash equivalents at end of period $ 6,070 $ 2,407
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except amounts and par value per share)
Note 1:
The consolidated balance sheet as of September 30 and June
30, 1996 and the consolidated statements of income and cash
flows for the three months ended September 30, 1996 and 1995
have been prepared in accordance with generally accepted
accounting principles by the Company without audit. In the
opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly
the financial position, results of operations and changes in
cash flows for all periods presented have been made.
Interim results are not necessarily indicative of results
expected for the full year.
These financial statements do not include all disclosures
associated with annual statements. Accordingly, these
statements should be read in conjunction with the Company's
financial statements and notes thereto contained in the
Company's Form 10-K for the year ended June 30, 1996.
Note 2: Income per Common Share
Income per common and common equivalent share is determined
based on the weighted average number of common and common
equivalent shares outstanding. Weighted average common
shares outstanding for the quarters ended Sept. 30, 1996 and
1995, were 5,159,000 and 4,866,000 and included common stock
equivalents of 53,000 and 48,000, respectively. Shares
issuable upon the assumed conversion of preferred stock were
excluded from the computation since they were not dilutive
during these three month periods.
Note 3: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the three
months ended September 30, 1996 and 1995 was as follows:
1996 1995
Interest $ 29 $ 40
Income taxes 1,614 1,004
Note 4: Marketable Investment Securities
Investments at September 30, 1996 and 1995 consisted of U.S.
Treasury, corporate debt and equity securities, and
municipal obligations. The Company classifies its
investments as either trading or held-to-maturity
securities. Trading securities are bought and held
principally for the purpose of selling them in the short
term. Held-to-maturity are those securities in which the
Company has the ability and intent to hold until maturity.
Trading securities are recorded at their fair market value
and are classified as short-term investments. Unrealized
gains and losses on trading securities are included in
earnings. Dividend and interest income are recognized when
earned. Held-to-maturity securities are recorded at cost
and are adjusted for the amortization or accretion of
premiums or discounts over the life of the related security.
The cost of held-to-maturity securities approximates their
fair market value.
At September 30, and June 30, 1996, short-term investments
included $3,094 and $2,866 trading securities, respectively,
and $7,411 and $7,729 held-to-maturity securities, respectively.
Note 5: Interest and Other Income
For Three Months
Ended
September 30
1996 1995
Interest on investments $ 415 $ 379
Net gain (loss) on sale
of investments (3) 5
Miscellaneous other
income 56 14
$ 468 $ 398
Note 6: It is the Company's policy to accrue and charge
against earnings environmental cleanup costs at the time it
is determined that a liability has been incurred and the
amount of that liability can be reasonably estimated. On
October 11, 1996 the Company received a report from its
environmental consultant revising the estimate of the
ultimate cost of remediation at the site of its closed
Arsynco, Inc. manufacturing facility. As a result, the
Company accrued and charged to operations an additional
$800. As of September 30, 1996 the balance of the current
liability was $1,570.
During the quarter ended September 30, 1996, the Company
settled for $225 a complaint by the U.S. Department of
Justice sent to the Company on February 10, 1995. The
complaint alleged violation of the Resource Conservation and
Recovery Act (RCRA) by Pfaltz & Bauer, a then wholly owned
subsidiary located in Waterbury, CT. This subsidiary was
sold in June 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Company's ability to generate cash from operations,
which totaled $3.3 million for the three months ended
September 30, 1996, is considered adequate to cover both
short-term and long-term liquidity. In addition, the
Company had cash and both short and long term investments
which totaled $29.7 million and $28.7 million at September
30 and June 30, 1996, respectively. All of these
investments are highly liquid. The Company also has
sufficient lines of credit available should any additional
funds be required.
Working capital decreased slightly, to $48.5 million at
September 30, 1996 from $50.9 million at June 30, 1996. The
repurchase of 164,000 shares of the Company's common stock
for $2.2 million was the primary factor causing the
decrease. Inventory levels decreased significantly, from
$30.2 million at June 30, 1996 to $24.2 million at September
30, 1996, and accrued purchases payable decreased $2.4
million during the same period. These decreases were due
primarily to the timing of merchandise purchases and were
not the result of a change in the trend of business.
The Company accrued an additional liability for
environmental remediation at its closed manufacturing
facility in Carlstadt, NJ of $800,000, after receiving a
revised estimate of the ultimate cost of such remediation.
The Company does not expect any significant environmental
expenditures at any other site.
RESULTS OF OPERATIONS:
Net sales decreased 3% to $39.2 million in the three months
ended September 30, 1996 compared with the same period in
the prior year. While the overall sales levels remained
relatively constant, sales of industrial chemicals and
pharmaceutical intermediates showed substantial increases
while bulk pharmaceuticals and dye and pigment intermediates
had corresponding decreases. Volume decreased by 6%; a
change in the mix of products sold toward higher priced
products accounted for the greater decrease in volumes than
sales dollars.
Gross profit margins decreased to 11.2% from 11.8% for the
three months ended September 30, 1996 compared with 1995.
The decrease can be primarily attributed to increased
competition and reduced demand for certain dye and pigment
intermediates.
Selling, general and administrative expenses increased
$665,000, or 21% compared to the same period last year.
Included in these expenses was the aforementioned $800,000
increase in environmental remediation liability, as well as
a $225,000 settlement of a complaint by the U.S. Department
of Justice, alleging violation of the Resource Conservation
and Recovery Act (RCRA) by the Company's former subsidiary,
Pfaltz & Bauer, Inc., which was sold on June 19, 1996.
Selling, general and administrative expenses at the Pfaltz &
Bauer location, which totaled $285,000 for the September
1995 quarter, did not exist for the September 1996 quarter
because of the sale, somewhat offsetting the increases mentioned
above. Certain other corporate selling, general and administrative
expenses, such as compensation and related expenses,
telecommunications, bank charges and general office expenses showed
decreases, while the only expense showing a significant increase was
consulting expense, which related to an agreement with the Company's
former President.
Other income increased to 468,000 for the three months ended
September 30, 1996 compared with $398,000 for the same
period last year. In conjunction with the aforementioned
sale of a subsidiary, inventory was transferred to the new
ownership. The Company will receive a portion of the
proceeds of the sale of this inventory for a period of up to
three years. During this quarter, the income from these
sales amounted to $43,000. Higher levels of cash available
for investment, leading to higher interest income, accounted
for the balance of the increase.
A significant portion of the $225,000 settlement is not tax
deductible. This led to an increase in the effective tax
rate for the September 1996 quarter to 46.4% from 39.4% for
the September 1995 quarter. The rate for the September 1995
quarter approximates the Company's traditional level.
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.
ACETO CORPORATION
DATE November 6, 1996 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial
Officer
DATE November 6, 1996 BY (signed) / by Arnold Frankel
Arnold Frankel, Chief Executive
Officer
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