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, 1997 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 - 4,486,386
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Sept. 30 June 30
1997 1997
Assets
Current assets:
Cash and cash equivalents $ 2,210 $ 4,142
Short-term investments 10,425 10,013
Receivables:
Trade, less allowance for doubtful accounts:
(Sept. $227; June $219) 24,991 24,627
Other 1,368 1,363
26,359 25,990
Inventory 27,209 31,210
Prepaid expenses 299 240
Deferred income tax benefit 1,267 1,267
Property held for sale 507 512
Total current assets 68,276 73,374
Long-term investments 9,210 11,212
Long-term notes receivable 937 948
Property and equipment:
Computers 708 674
Furniture and fixtures 576 573
Automobilies 160 178
1,444 1,425
Less accumulated depreciation 1,125 1,125
319 300
Other assets 304 311
Total assets $ 79,046 $ 86,145
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
(Unaudited)
Sept. 30 June 30
1997 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 544 $ 743
Current installments on long-term debt 500 250
Accounts payable 2,494 3,939
Accrued merchandise purchases 7,494 11,720
Accrued compensation 2,737 3,455
Accrued environmental remediation 1,380 1,387
Accrued income taxes 1,301 943
Other accrued expenses 1,994 2,010
Total current liabilities 18,444 24,447
Long-term debt, excluding current installments 250 500
Deferred income taxes 14 14
Redeemable preferred stock 750 750
Shareholders' equity:
Common stock,$.01 par value per share;
Authorized 10,000 shares;
Issued: Sept., 6001 shares; June, 60 60
6,001 shares; Outstanding: Sept.,
4,486 shares; June, 4,654 shares
Capital in excess of par value 57,412 57,381
Retained earnings 22,613 21,079
80,085 78,520
Less:
Cost of common stock held in treasury;
Sept., 1,515 shares; June, 1,347 shares 20,497 18,086
Total shareholders' equity 59,588 60,434
Commitments and contingencies
Total liabilities and shareholders' equity $ 79,046 $ 86,145
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
Sept. 30
1997 1996
Net sales $ 43,764 $ 39,184
Cost of sales 38,595 34,805
Gross profit 5,169 4,379
Selling, general and administrative
expenses 3,139 3,864
Operating profit 2,030 515
Other income (expense):
Interest expense (17) (29)
Interest and other income 487 468
470 439
Income before income taxes 2,500 954
Provision for income taxes 967 443
Net income $ 1,533 $ 511
Net income per common and common
equivalent share $ 0.33 $ 0.10
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
September 30
1997 1996
Operating activities:
Net income $ 1,533 $ 511
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 45 40
Gain on sale of assets (8) -
Effect of market value over original
option price for options exercised 26 3
Increase in provision for doubtful accounts 8 25
Changes in operating assets and liabilities:
Increase in investments - trading securities (159) (227)
Increase in trade accounts receivable (372) (120)
Increase in other receivables (5) (90)
Decrease in inventories 4,001 5,922
Decrease (increase) in prepaid expenses (59) 37
Decrease in long-term notes receivable 11 5
Decrease in other assets 7 -
Decrease in drafts and acceptances payable (199) (340)
Increase in current installments on
long-term debt 250 250
Decrease in accounts payable (1,445) (740)
Decrease in accrued merchandise purchases (4,226) (2,396)
Decrease in accrued compensation (718) (347)
Increase(decrease) in accrued environmental
remediation (7) 780
Increase in income taxes payable 358 108
Decrease in other accrued expenses (16) (120)
Net cash provided by (used in) operating activities (975) 3,301
Investing activities:
Purchases of investments - held-to-maturity (1,207) (4,686)
Proceeds from investments - held-to-maturity 2,955 4,575
Purchases of property and equipment (60) (46)
Proceeds from sale of property 10 -
Net cash provided by (used in) investing activities 1,698 (157)
Financing activities:
Payments of long-term debt (250) (250)
Proceeds from exercise of stock options 79 8
Payments for purchases of treasury stock (2,484) (2,212)
Net cash used in financing activities (2,655) (2,454)
Net increase(decrease) in cash and cash equivalents (1,932) 690
Cash and cash equivalents at beginning of period 4,142 5,380
Cash and cash equivalents at end of period $ 2,210 $ 6,070
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
Unaudited
Note 1:
The consolidated financial statements of Aceto Corporation
and subsidiaries included herein have been prepared by the
Company and reflects all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows
for all periods presented. Interim results are not
necessarily indicative of results which may be achieved for
the full year.
These financial statements do not include all disclosures
associated with financial statements prepared in accordance
with generally accepted accounting principles. 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, 1997.
Note 2: Income per Common and Common Equivalent Share
Income per common and common equivalent share is determined
based on the weighted average number of common and common
equivalent shares outstanding for the period. Weighted
average common shares outstanding for the quarters ended
Sept. 30, 1997 and 1996, were 4,602,000 and 5,159,000 and
included common stock equivalents of 95,000 and 53,000,
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, 1997 and 1996 was as follows:
1997 1996
Interest $ 17 $ 29
Income taxes 593 1,614
Note 4: Marketable Investment Securities
Investments at September 30, 1997 and 1996 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, 1997, short-term investments
included $3,462 and $3,303 trading securities, and $6,963
and $6,710 held-to-maturity securities, respectively.
Note 5: Interest and Other Income
For Three Months
Ended
September 30
1997 1996
Interest on investments $ 364 $ 415
Net gain (loss) on
investments 74 (3)
Miscellaneous other
income 49 56
$ 487 $ 468
Note 6: It is the policy of the Company to accrue and
charge against earnings environmental remediation costs at
the time it is determined that a liability has been incurred
and the amount of that liability can be reasonably
estimated. During fiscal 1993 the Company announced the
closing of its manufacturing subsidiary located in
Carlstadt, NJ. At the same time an environmental consultant
was engaged by the Company to determine the extent of
contamination on the site and develop a plan of remediation.
Based on the initial estimates from the Consultant a
liability was established in fiscal 1993 for $1,500. During
fiscal 1997 after additional testing was completed, the
Company received a revised estimate from the Consultant. As
a result, the Company reported an additional liability of
$800 in the quarter ended September 30, 1996. At September
30, 1997 the remaining liability was $1,400. The Company
believes it is possible that such amount may not be
sufficient to cover future environmental remdiation but does
not believe there will be a material adverse effect on the
financial position or liquidity of the Company. However,
depending upon the amount and timing of any required
remediation over and above the liability established, it is
possible that the Company's future results could be
materially affected in a particular reporting period. Other
than the aforementioned remediation, the Company is not
aware of any material environmental liabilities.
Item 2. 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 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 $21.8 million and
$25.4 million at September 30 and June 30, 1997,
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 increased slightly, to $49.8 million at
September 30, 1997 from $48.9 million at June 30, 1997.
Inventory levels decreased significantly to $27.2 million at
September 30, 1997 from $31.2 million at June 30, 1997,
while accounts payable and accrued purchases payable
decreased $5.7 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 reduction of cash and cash equivalents was
due primarily to the repurchase of 175,000 shares of the
Company's common stock for $2.5 million.
RESULTS OF OPERATIONS:
Net sales increased 12% to $43.8 million in the three months
ended September 30, 1997 compared with the same period in
the prior year. Increased sales of dye and pigment
intermediates, agricultural chemicals and pharmaceutical
intermediates somewhat offset by a decline in sales to the
generic pharmaceutical industry accounted for the increase.
Volume increased by 23%; the aforementioned increase in
sales of dye and pigment intermediates, which tend to be
lower priced, accounted for the greater increase in volume
than sales dollars.
Gross profit margins increased to 11.8% from 11.2% for the
three months ended September 30, 1997 compared with the same
period last year. Increased sales of certain higher margin
agricultural chemicals accounted for virtually all the
increase.
Selling, general and administrative expenses decreased
$725,000, or 19% compared to the same period last year.
Selling expenses and consulting fees both increased by
$100,000 compared to the same period last year. This was
more than offset by an $800,000 charge for environmental
remediation, as well as a $225,000 settlement of a
violation, both recorded during the quarter ended September
30, 1996.
Other income increased to 487,000 for the three months ended
September 30, 1997 from $468,000 for the same period last
year. Gains on trading securities due to fair market
valuation increased by $80,000 which was mostly offset by
lower interest income due to lower levels of cash available
for investment.
The effective tax rate decreased to 38.7% for the three
months ended September 30, 1997 from 46.4% for the same
period last year. A significant portion of the
aforementioned $225,000 settlement was not tax deductible
which caused an unusually high tax rate during the quarter
ended September 30, 1996.
IMPACT OF NEW ACCOUNTING STANDARDS.
The Financial Accounting Standards Board has issued
Statement 128, "Earnings per Share" ("Statement 128").
Statement 128 establishes standards for computing and
presenting earnings per share ("EPS"). The statement
simplifies the standards for computing EPS and makes them
comparable to international EPS standards. The provisions
of Statement 128 are effective for financial statements
issued for periods ending after December 15, 1997, including
interim periods. The statement does not permit early
application and requires restatement of all prior period EPS
data presented. Adoption of Statement 128 will not
materially affect the Company's consolidated financial
position, results of operations, or previously reported EPS
data.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K. During the three months
ended September 30, 1997 the Company did not file any
reports on Form 8-K.
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, 1997 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial
Officer
DATE November 6, 1997 BY (signed) / by Leonard S. Schwartz
Leonard S. Schwartz,Chief Executive
Officer
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