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 March 31, 1998 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 - 6,742,118
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Mar. 31st June 30th
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 4,542 $ 4,142
Short-term investments 11,178 10,013
Receivables:
Trade, less allowance for doubtful accounts:
(Mar. $298; June $219) 29,943 24,627
Other 347 1,363
30,290 25,990
Inventories 27,653 31,210
Prepaid expenses 258 240
Deferred income tax benefit 1,267 1,267
Property held for sale 498 512
Total current assets 75,686 73,374
Long-term investments 5,993 11,212
Long-term notes receivable 915 948
Property and equipment:
Computers 809 674
Furniture and fixtures 588 573
Automobiles 176 178
1,573 1,425
Less accumulated depreciation 1,190 1,125
383 300
Other assets 289 311
Total assets $ 83,266 $ 86,145
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
(Unaudited)
Mar. 31st June 30th
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 537 $ 743
Current installments on long-term debt 500 250
Accounts payable 3,507 3,939
Accrued merchandise purchases 8,261 11,720
Accrued compensation 2,481 3,455
Accrued environmental remediation 1,378 1,387
Accrued income taxes 1,062 943
Other accrued expenses 1,885 2,010
Total current liabilities 19,611 24,447
Long-term debt, excluding current installments - 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: Mar., 9,001 shares; June, 90 60
6,001 shares; outstanding: Mar.,
6,742 shares; June, 4,654 shares
Capital in excess of par value 57,533 57,381
Retained earnings 25,859 21,079
83,482 78,520
Less:
Cost of common stock held in treasury;
Mar., 2,259 shares; June, 1,347 shares 20,591 18,086
Total shareholders' equity 62,891 60,434
Commitments and contingencies
Total liabilities and shareholders' equity $ 83,266 $ 86,145
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For Nine Months Ended
March 31st
1998 1997
Net sales $134,889 $122,396
Cost of sales 118,501 107,273
Gross profit 16,388 15,123
Selling, general and administrative
expenses 9,286 9,806
Operating profit 7,102 5,317
Other income (expense):
Interest expense (47) (84)
Interest and other income 1,516 1,728
1,469 1,644
Income before income taxes 8,571 6,961
Provision for income taxes 2,952 2,713
Net income $ 5,619 $ 4,248
Net income per common share:
Basic $ 0.83 $ 0.56
Diluted 0.80 0.56
Weighted average shares outstanding:
Basic 6,735 7,482
Diluted 6,983 7,651
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For Three Months Ended
March 31st
1998 1997
Net sales $ 50,453 $ 47,361
Cost of sales 44,763 41,549
Gross profit 5,690 5,812
Selling, general and administrative
expenses 3,172 3,192
Operating profit 2,518 2,620
Other income (expense):
Interest expense (12) (26)
Interest and other income 580 712
568 686
Income before income taxes 3,086 3,306
Provision for income taxes 974 1,231
Net income $ 2,112 $ 2,075
Net income per common share:
Basic $ 0.31 $ 0.28
Diluted 0.30 0.28
Weighted average shares outstanding
Basic 6,731 7,346
Diluted 6,989 7,513
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
March 31st.
1998 1997
Operating activities:
Net income $ 5,619 $ 4,248
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 149 130
Gain on sale of assets - (198)
Effect of market value over original
option price for options exercised 204 33
Provision for doubtful accounts 79 43
Changes in operating assets and liabilities:
Decrease (increase) in investments -
trading securities (91) 50
Increase in trade accounts receivable (5,395) (4,028)
Decrease (increase) in other receivables 1,016 (1,293)
Decrease in inventories 3,557 3,797
Decrease (increase) in prepaid expenses (18) 47
Decrease (increase)in long-term notes receivable 33 (151)
Decrease in other assets 22 -
Decrease in deferred tax benefit - 206
Decrease in drafts and acceptances payable (206) (594)
Increase in current installments on long-term debt 250 250
Increase (decrease) in accounts payable (432) 3,548
Increase (decrease )in accrued merchandise
purchases (3,459) 1,026
Increase (decrease) in accrued compensation (974) 31
Increase (decrease)in environmental remediation (9) 634
Increase in income taxes payable 119 89
Decrease in other accrued expenses (125) (327)
Net cash provided by operating activities 339 7,541
Investing activities:
Purchases of investments - held-to-maturity 5,828 (5,802)
Proceeds from investments - held-to-maturity (1,683) 5,619
Purchases of property and equipment (218) (78)
Proceeds from sale of property - 258
Net cash provided by (used in) investing activities 3,927 (3)
Financing activities:
Payments of long-term debt (500) (500)
Payments of cash dividends (840) (922)
Proceeds from exercise of stock options 390 97
Payments for purchases of treasury stock (2,916) (4,835)
Net cash used in financing activities (3,866) (6,160)
Net increase in cash and cash equivalents 400 1,378
Cash and cash equivalents at beginning of period 4,142 5,380
Cash and cash equivalents at end of period $ 4,542 $ 6,758
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except amounts and par value per share)
Note 1:
The consolidated financial statements of Aceto Corporation
and subsidiaries included herein have been prepared by the
Company and reflect 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: Common Stock Split
On March 18, 1998, the Board of Directors authorized a three
for two stock split effected in the form of a stock
dividend, which was payable April 13, 1998, to shareholders
of record on March 30, 1998. In accounting for the stock
split, an amount equal to the par value of the common shares
issued was transferred from additional paid in capital to
common stock. This transfer has been reflected on the
consolidated balance sheet as of March 31, 1998. The share
amounts presented in the consolidated balance sheet as of
June 30, 1997 reflect the actual share amounts issued and
outstanding at June 30, 1997. Par value remains unchanged
at $.01 as well as the authorized shares of 10,000. All
historical weighted average share and net income per share
amounts have been restated to reflect the stock split.
Note 3: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the nine
months ended March 31, 1998 and 1997 were as follows:
1998 1997
Interest $ 47 $ 85
Income taxes 2,704 3,684
Note 4: Marketable Investment Securities
Investments at March 31, 1998 and 1997 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 approximated their
fair market value.
Short-term investments consisted of $3,394 and $3,303
trading securities and $7,784 and $6,710 held-to-maturity
securities at March 31, 1998 and June 30, 1997,
respectively.
Note 5: Interest and Other Income
For Nine Months For Three Months
Ended Ended
March 31 March 31
1998 1997 1998 1997
Interest on investments $1,006 $1,281 $ 325 $ 443
Net gain on investments 107 66 23 19
Miscellaneous other income 403 381 232 250
$1,516 $1,728 $ 580 $ 712
Note 6: Environmental Remediation
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 March 31, 1998 the remaining
liability was $1,378. 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.
Note 7: Net Earnings per Common Share
Effective December 31, 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." In accordance with the requirements
of SFAS No. 128, net earnings per common share amounts
("basic EPS") were computed by dividing net earnings after
deducting preferred stock dividends on the Company's $2.50
cumulative redeemable preferred stock by the weighted
average number of common shares outstanding and excluded any
potential dilution. Net earnings per common share amounts --
assuming dilution ("diluted EPS") were computed by
reflecting potential dilution from the exercise of stock
options and conversion of preferred stock. SFAS No. 128
requires the presentation of both basic EPS and diluted EPS
on the face of the income statement. Earnings per share
amounts for the same prior-year periods have been restated
to conform with the provisions of SFAS No. 128.
A reconciliation between the numerators and denominators of
the basic and diluted EPS computation for net earnings was
as follows:
NINE MONTHS ENDED
MARCH 31, 1998
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
Net earnings $5,619
Preferred stock dividends (35)
BASIC EPS
Net earnings attributable
to common stock 5,584 6,735 $0.83
EFFECT OF DILUTIVE
SECURITIES
Stock options - 109
Convertible preferred stock 35 139
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $5,619 6,983 $0.80
THREE MONTHS ENDED
MARCH 31, 1998
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
Net earnings $2,112
Preferred stock dividends -
BASIC EPS
Net earnings attributable
to common stock 2,112 6,731 $0.31
EFFECT OF DILUTIVE
SECURITIES
Stock options - 119
Convertible preferred stock - 139
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $2,112 6,989 $0.30
NINE MONTHS ENDED
MARCH 31, 1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
Net earnings $4,248
Preferred stock dividends (35)
BASIC EPS
Net earnings attributable
to common stock 4,213 7,482 $0.56
EFFECT OF DILUTIVE
SECURITIES
Stock options - 30
Convertible preferred stock 35 139
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $4,248 7,651 $0.56
THREE MONTHS ENDED
MARCH 31, 1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
Net earnings $2,075
Preferred stock dividends -
BASIC EPS
Net earnings attributable
to common stock 2,075 7,346 $0.28
EFFECT OF DILUTIVE
SECURITIES
Stock options - 27
Convertible preferred stock - 139
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $2,075 7,512 $0.28
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-
term and long-term investments which totaled $21.7 million
and $25.4 million at March 31, 1998 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.
Some components of working capital had significant changes
during the nine month period. Inventory decreased $3.5 million
to $27.7 millon at March 31, 1998 from $31.2 million at June 30,
1997. This resulted in a decrease of $4.1 million in the
total of drafts and acceptances, accounts payable and
accrued purchases payable 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. Receivables increased by $4.3 million to $30.3
million at March 31, 1998 from $26.0 million at June 30,
1997 due to higher sales in March 1998 compared to June
1997. Cash and cash equivalents, short-term investments and
long-term investments decreased by a total of $3.7 million
to $21.7 million at March 31, 1998 from $25.4 million at
June 30, 1997. The decrease was due primarily to the
repurchase of 198,000 shares of the Company's common stock
(prior to the three for two stock split) for $2.9 million.
Accrued compensation was $2.5 million at March 31, 1998
compared to $3.5 million at June 30, 1997. The retirement
of three senior executives on June 30, 1997 was the primary
reason for the decrease.
The Company announced a 3 for 2 stock split on March 18,
1998 with a record date of March 30, 1998, paid April 13,
1998.
RESULTS OF OPERATIONS:
Net sales increased by 10.2% and 6.5% for the nine and three
months ended March 31, 1998, respectively, compared to the
same periods last year. For the nine months, increases in sales
of color intermediates and non-generic pharmaceutical products,
especially a new product introduced in fiscal 1997, somewhat
offset by decreases in sales of agrochemicals and bulk
generic pharmaceuticals, accounted for the increase. For
the three months, the significant sales of the aforementioned
new pharmaceutical product, tempered by a decline in agrochemicals
sales, resulted in the increase.
Volume increased by 15.9% and 3.3%, respectively, for the
same periods over the prior year. Price erosion in some of
our product lines, especially color intermediates and
certain industrial chemicals, offset by increased sales of
the higher-priced pharmaceutical product previously
mentioned, accounted for the greater increase in volume than
sales for the nine months. For the three months, the
slight difference between the sales increase and the volume
increase can be attributed to the mix of products sold
during the quarter.
Gross margins as a percentage of sales decreased to 12.1%
and 11.3% for the nine and three months ended March 31, 1998
compared with 12.4% and 12.3% for the same periods in the
prior year. The decreases can be attributed to increased
freight and warehousing costs, in addition to the significant
sales of the pharmaceutical product referred to
earlier, which is lower margin business. The greater
decrease for the three months is because sales of the
aforementioned product accounted for a greater percentage of
corporate sales in the three month period than the nine
month period.
Selling, general and administrative expenses for the nine
months ended March 31, 1998 decreased by $520,000 or 5.3%
compared to the same period last year. Selling expenses
increased by $388,000 to $1,037,000 from $649,000. This was
the result of an increase in the cost of business travel
along with the continued development of our international
sales activities. Consulting fees increased by $280,000
primarily due to consulting agreements with recently retired
senior executives. In addition, there were modest increases
in office and telephone expense. In spite of these
increases, an $800,000 charge for environmental remediation,
as well as a $225,000 settlement of a violation, both
recorded during the nine months ended March 31, 1997, caused
the decrease in expenses this year. Lower compensation, in
addition to a decrease in medical and business insurance
expense contributed to the decrease.
For the three months ended March 31, 1998 there was a slight
decrease in selling, general and administrative expenses
compared to the same period last year. Increases in selling
expenses, consulting fees and bank fees were more than
offset by decreases in compensation expense and in the cost
of medical and business insurance.
Other income decreased to $1,516,000 and $580,000 for the
nine and three months ended March 31, 1998 from $1,728,000
and $712,000 for the same periods last year. Lower cash
available for investments due to the Company's stock
repurchase program, along with lower interest rates, caused
a significant decrease in interest income on investments.
This was partially offset by an increase in profits from
valuation of securities when comparing the nine month
periods.
The effective tax rate decreased to 34.4% and 31.6% for the
nine and three months ended March 31, 1998 from 39.0% and
37.2% for the same periods last year. The aforementioned
settlement of a violation, of which a significant portion
was not deductible for tax purposes, increased the tax rate
for the nine months ended March 31, 1997. Significant
payments from the Company's non-qualified retirement plan,
which are deductible for tax purposes on the date of
distribution, caused an unusually low tax rate for the nine
and three months ended March 31, 1998.
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 March 31, 1998 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 May 1, 1998 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial
Officer
DATE May 1, 1998 BY (signed) / by Leonard S. Schwartz
Leonard S. Schwartz, President
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