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, 2001 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 - 6,526,549
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, June 30,
2001 2000
ASSETS
Current assets:
Cash and cash equivalents $ 21,863 $ 2,811
Short-term investments 1,047 2,153
Receivables:
Trade, less allowance for doubtful accounts:
(March, $761; June, $239) 42,228 25,257
Other 1,998 2,651
44,226 27,908
Inventory 39,062 38,453
Prepaid expenses 1,080 622
Deferred income tax benefit, net 1,080 1,436
Property held for sale 456 456
Total current assets 108,814 73,839
Long-term investments 369 7,263
Long-term notes receivable 829 895
Property and equipment:
Machinery and equipment 782 712
Leasehold improvements 1,046 872
Computer equipment 1,897 1,293
Furniture and fixtures 806 803
Automobiles 119 136
4,650 3,816
Less accumulated depreciation and amortization 2,598 2,527
2,052 1,289
Goodwill, less accumulated amortization 11,190 4,467
(March, $667; June, $388)
Other assets 296 328
Total assets $123,550 $ 88,081
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
March 31, June 30,
2001 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 591 $ 464
Short term bank loans 8,966 -
Notes payable - acquisition 4,626 -
Due to Schweizerhall Holding AG 8,987 -
Current installments on long-term
liabilities 752 642
Accounts payable 9,218 2,788
Accrued merchandise purchases 8,263 12,021
Accrued compensation 3,246 3,171
Accrued environmental remediation 1,297 1,312
Accrued income taxes 1,151 1,147
Other accrued expenses 4,312 2,024
Total current liabilities 51,409 23,569
Long-term liabilities, excluding current
installments 1,188 908
Shareholders' equity:
Common stock,$.01 par value per share;
Authorized 20,000 shares;
Issued: 9,001 shares; 90 90
outstanding: March, 6,526 shares;
June, 6,034 shares
Capital in excess of par value 56,375 57,054
Retained earnings 38,830 35,697
95,295 92,841
Less:
Cost of common stock held in treasury;
March, 2,475 shares; June, 2,967
shares 24,342 29,237
Total shareholders' equity 70,953 63,604
Commitments and contingencies
Total liabilities and shareholders'
equity $123,550 $ 88,081
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Nine Months Ended
March 31
2001 2000
Net sales $121,765 $141,548
Cost of sales 102,137 121,832
Gross profit 19,628 19,716
Selling, general and administrative
expenses 14,136 12,883
Operating profit 5,492 6,833
Other income (expense):
Interest expense (2) (29)
Interest and other income 883 796
881 767
Income before income taxes 6,373 7,600
Provision for income taxes 2,350 2,986
Net income $ 4,023 $ 4,614
Net income per common share:
Basic $ 0.67 $ 0.74
Diluted 0.67 0.73
Weighted average shares outstanding:
Basic 5,992 6,211
Diluted 6,021 6,358
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
March 31
2001 2000
Net sales $ 43,205 $ 55,476
Cost of sales 35,769 47,140
Gross profit 7,436 8,336
Selling, general and administrative
expenses 4,663 5,008
Operating profit 2,773 3,328
Other income (expense):
Interest expense - (19)
Interest and other income 275 75
275 56
Income before income taxes 3,048 3,384
Provision for income taxes 1,095 1,313
Net income $ 1,953 $ 2,071
Net income per common share:
Basic $ 0.33 $ 0.34
Diluted 0.33 0.33
Weighted average shares outstanding:
Basic 5,966 6,165
Diluted 5,980 6,228
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended
March 31
2001 2000
Cash flows from operating activities:
Net income $ 4,023 $ 4,614
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 648 451
Gain on sale of assets - (21)
Provision (recovery) for doubtful accounts (33) 86
Deferred tax (benefit) provision 145 (167)
Changes in assets and liabilities,
net of effects of acquisitions:
Investments - trading securities (41) 3,442
Trade accounts receivable (2,757) (4,871)
Other receivables 1,341 (2,268)
Inventory 3,727 4,111
Prepaid expenses (12) 37
Other assets 32 19
Drafts and acceptances payable 127 (66)
Accounts payable 144 (866)
Accrued merchandise purchases (3,757) 565
Accrued compensation 35 943
Accrued environmental remediation (15) (11)
Accrued income taxes 4 567
Other accrued expenses 312 (86)
Net cash provided by operating activities 3,923 6,479
Investing activities:
Purchases of investments - held-to-maturity (36) (5,306)
Proceeds from sale of investments
held-to-maturity 8,077 14,771
Payments received on notes receivable 66 57
Purchases of property and equipment (637) (604)
Proceeds from sale of property - 21
Payments received from Schweizerhall Holding AG 7,162 -
Payments for acquisitions, net of cash acquired 2,611 (6,995)
Net cash provided by investing activities 17,243 1,944
Financing activities:
Payments of long-term debt (166) -
Proceeds from exercise of stock options 182 204
Payments for purchases of treasury stock (1,332) (4,935)
Issuance of treasury stock to employees 92 79
Payments of cash dividends (890) (953)
Net cash used in financing activities (2,114) (5,605)
Net increase in cash and cash equivalents 19,052 2,818
Cash and cash equivalents at beginning of period 2,811 3,991
Cash and cash equivalents at end of period $21,863 $ 6,809
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Unaudited
Note 1: Basis of Presentation
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 consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States of
America. Accordingly, these statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto
contained in the Company's Form 10-K for the year ended June 30, 2000.
Note 2: Business Acquisitions
a) On March 26, 2001, the Company acquired the distribution business of
the Schweizerhall Pharma division of Schweizerhall Holding AG, a
Switzerland corporation (Schweizerhall Pharma). Schweizerhall, Inc., a
New Jersey corporation, and a wholly owned subsidiary of Schweizerhall
Holding AG sold to the Company the assets relating to its Pharmaceutical
Ingredients business, and Chemische Fabrik Schweizerhall, a Switzerland
corporation, and a wholly owned subsidiary of Schweizerhall Holding AG
sold to the Company all of the issued and outstanding shares of its
following subsidiaries: Schweizerhall GmbH; Schweizerhall Pharma
International GmbH; Schweizerhall Fine Chem International GmbH;
Schweizerhall France S.A.; Schweizerhall Holding Benelux B.V.;
Schweizerhall Pharma Ltd; and Schweizerhall Pte. Ltd.
Schweizerhall Pharma's distribution business is an international
pharmaceutical distribution business with offices located in: Hamburg,
Germany; Wormereveer, The Netherlands (a suburb of Amsterdam); Paris,
France; Piscataway, New Jersey; Singapore; Mumbai, India; and Hong Kong.
Its principal activities are the supply of Active Pharmaceutical
Ingredients and Advanced Intermediates.
The purchase price for Schweizerhall Pharma aggregated $21,922 and
consisted of 600 shares of the Company's Common Stock, the assumption of
$10,742 of Schweizerhall Holding AG debt, $1,002 in cash, the issuance
of notes of $4,626 and direct acquisition costs of $377. The quoted
market price of the Company's common stock on March 26, 2001, of $8.625,
was used to approximate the fair value of the 600 shares issued, which
amounted to $5,175. The shares issued are restricted from being traded
on the open market for two years. The Company has not yet determined an
appropriate adjustment, if any, to the quoted market price considering
the restriction on the shares. In connection with the closing of the
acquisition the Company assumed certain debt of Schweizerhall Holding AG
in excess of the amount of the purchase price. As a result at closing,
Schweizerhall Holding AG paid $7,162 to the Company. Subsequent to
March 31, 2001 the Company paid Schweizerhall Holding AG $8,987 and was
released from a portion of the debt assumed at closing.
The acquisition was accounted for as a purchase and, accordingly, the
cost of the acquisition was preliminarily allocated to the assets
acquired, based upon their estimated fair values at the date of
acquisition. The allocation of the purchase price is pending the final
determination of certain acquired balances, including accounts
receivable, accounts payable, deferred tax amounts and identifiable
intangibles, if any. In addition, the Company is assessing whether
it may exit certain activities of the combined company, and as such has
not yet made any estimate of additional liabilities that may be
recorded.
The results of operations of Schweizerhall Pharma for the period from
March 26, 2001 through March 31, 2001 have not been included in the
accompanying consolidated statements of income as they were not
material.
The excess of cost over the fair value of assets acquired (goodwill)
preliminarily amounted to $5,873. The goodwill is being amortized on a
straight-line basis over a period of twenty years.
The purchase agreement provides for two additional payments pertaining
to inventory and tax savings. Any additional payments made in connection
with inventory will be allocated to the additional inventory purchased
or goodwill, as appropriate, at the time the additional payment is made.
Any payments made in connection with the tax savings adjustment will be
recorded as additional goodwill.
Pro forma results of operations were not provided as the information
needed to prepare such pro formas was not yet available.
b) On January 18, 2000, the Company purchased certain assets of
Schweizerhall, Inc. (Schweizerhall) for a purchase price of $6,345. The
acquisition was accounted for as a purchase. The allocation of the cost
of the acquisition to the assets acquired has been completed. The
excess of cost over the fair value of assets acquired amounted to
$2,285. The goodwill is being amortized on a straight-line basis over a
period of twenty years. The assets acquired consisted of inventory and
a non-competition agreement. The results of operations of Schweizerhall
have been included in the accompanying consolidated statements of income
from the date of acquisition. Pro forma results of operations were not
provided as their effect on the consolidated results of operations were
not material.
c) On October 19, 1999 the Company purchased certain assets of Magnum
Research Corp. (Magnum) for a purchase price of $1,150. Of the purchase
price $650 was paid at closing, $167 was paid in October 2000 in
accordance with the purchase agreement and the balance is scheduled to
be paid in equal installments of $167 in October 2001 and 2002 (the
October payments). The October payments are subject to downward
adjustment in the event Magnum's net sales, as defined in the purchase
agreement, are less than a specified amount. In the event the
October payments are adjusted downward such adjustments will be recorded
as reductions to goodwill.
The acquisition was accounted for as a purchase and, accordingly, the
cost of the acquisition was allocated to the assets acquired, based upon
their estimated fair values. The excess of cost over the fair value of
assets acquired amounted to $1,093. The goodwill is being amortized on
a straight line basis over a period of twenty years. The assets
acquired consisted primarily of inventory.
The results of operations of Magnum have been included in the
accompanying consolidated statements of income from the date of
acquisition. Proforma results of operations were not provided as their
effect on the consolidated results of operations were not material.
Note 3: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the nine months ended
March 31, 2001 and 2000 was as follows:
2001 2000
Interest $ 1 $ 20
Income taxes 2,190 2,624
Non-Cash Transactions:
In connection with the acquisition of Schweizerhall Pharma in March
2001, the Company assumed debt of $10,742 and issued 600 common shares
from treasury stock at an average cost of $9.84 each.
In connection with the settlement of arbitration (note 10) the Company
recorded a reduction to long term liabilities and goodwill for $360.
In connection with the acquisition of Magnum in October 1999, the
Company recorded $500 of amounts due the previous owner as a liability.
Note 4: Segment Information
The Company has six reportable segments which are organized by products:
(1) Agrochemicals, whose products include herbicides, fungicides and
insecticides, as well as a sprout inhibitor for potatoes, (2) Industrial
Chemicals, whose products include a variety of specialty chemicals used
in adhesives, coatings, food, fragrance, cosmetics and many other areas,
(3) Organic Intermediates and Colorants, whose products include dye and
pigment intermediates used in the color-producing industries like
textiles, inks, paper and coatings, as well as intermediates used in
production of agrochemicals, (4) Pharmaceutical Biochemicals and
Nutritionals products, which include the active ingredients for
generic pharmaceuticals, vitamins and nutritional supplements, (5)
Pharmaceutical Intermediates and Custom Manufacturing products, used in
preparation of pharmaceuticals, primarily by major ethical drug
companies and (6) Institutional Sanitary Supplies and Other, whose
products include cleaning solutions, fragrances and deodorants used by
commercial and industrial establishments. The Company does not allocate
assets by segments as they are not provided to the chief operating
decision maker. The Company evaluates performance of the segments based
on gross profit. Summarized financial information for each of the
segments for the three and nine months ended March 31, 2001 and 2000
follows:
Nine Months Ended March 31, 2001 and 2000
Agri- Indust Organic Pharma Pharma Other(1) Consolid
Chems Chems Intermed Biochem Intermed Totals
2001
Net
sales $10,199 $38,365 $35,544 $26,360 $7,271 $4,026 $121,765
Gross
profit 3,761 6,997 4,738 5,443 1,164 1,540 23,643
Unallo-
cated
cost of
sales(2) 4,015
Net gross
profit $ 19,628
2000
Net
sales $ 7,630 37,381 36,014 27,014 30,076 3,433 $141,548
Gross
profit 2,628 6,823 5,283 4,821 2,190 1,162 22,907
Unallo-
cated
cost of
sales(2) 3,191
Net gross
profit $ 19,716
Three Months Ended March 31, 2001 and 2000
Agri- Indust Organic Pharma Pharma Other(1) Consolid
Chems Chems Intermed Biochem Intermed Totals
2001
Net
sales $4,792 $13,857 $12,472 $8,565 $2,037 $1,482 $43,205
Gross
profit 1,460 2,341 1,674 2,000 729 642 8,846
Unallo-
cated
cost of
sales(2) 1,410
Net gross
profit $ 7,436
2000
Net
sales $4,741 12,828 12,618 11,975 11,995 1,319 $55,476
Gross
profit 1,735 2,548 1,832 2,009 874 625 9,623
Unallo-
cated
cost of
sales(2) 1,287
Net gross
profit $ 8,336
(1) Represents the Institutional Sanitary Supplies and Other segment.
(2) Represents freight and storage costs that are not allocated to a
segment.
Foreign segment disclosures that became applicable as a result of the
recent acquisition
of Schweizerhall Pharma are presented below.
Long-Lived Assets
2001 2000
United States 4,155 3,816
Germany 260 -
Holland 141 -
France 63 -
Singapore 27 -
China 4 -
4,650 3,816
Note 5: Interest and Other Income
Interest and other income earned during the nine and three months ended
March 31, 2001 and 2000 was comprised of the following:
Nine Months Three Months
Ended Ended
March 31, March 31,
2001 2000 2001 2000
Dividends $ 94 $ 35 $ 75 $ 7
Interest 449 692 161 159
Net gain (loss) on investments 39 (333) (49) (189)
Net gain on sale of assets - 21 - 11
Royalty income 225 331 75 73
Miscellaneous 76 50 13 14
$ 883 $ 796 $ 275 $ 75
Note 6: Net Income per Common Share
A reconciliation between the numerators and denominators of the basic
and diluted income per share computation for net income follows:
Nine Months Three Months
Ended Ended
March 31, March 31,
2001 2000 2001 2000
Net income $ 4,023 $ 4,614 $ 1,953 $ 2,071
Preferred stock dividend - (29) - -
Net income available for common
shareholders 4,023 4,585 1,953 2,071
Weighted average common shares 5,992 6,211 5,966 6,165
Effect of dilutive securities:
Stock options 29 76 14 63
Convertible preferred stock - 71 - -
Weighted average common and
potential common shares
outstanding 6,021 6,358 5,980 6,228
Basic income per share $ 0.67 $ 0.74 $ 0.33 $ 0.34
Diluted income per share 0.67 0.73 0.33 0.33
For the three months ended March 31, 2001, December 31, 2000, September
30, 2000, March 31, 2000, December 31, 1999 and September 30, 1999,
employee stock options of 550, 287, 233, 233, 240 and 220 shares were
not included in the net income per share calculation because their
effect would have been antidilutive.
Note 7: Accounting for Derivatives and Hedging Activities
Effective July 1, 2000, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") which establishes
new accounting and reporting guidelines for derivative instruments and
hedging activities. SFAS No. 133 requires the recognition of all
derivative financial instruments as either assets or liabilities in the
statement of financial condition and measurement of those instruments at
fair value. Changes in the fair values of those derivatives will be
reported in earnings or other comprehensive income depending on the
designation of the derivative and whether it qualifies for hedge
accounting. The accounting for gains and losses associated with changes
in the fair value of a derivative and the effect on the consolidated
financial statements will depend on its hedge designation and whether
the hedge is highly effective in achieving offsetting changes in the
fair value or cash flows of the asset or liability hedged. Under the
provisions of SFAS No. 133, the method that will be used for assessing
the effectiveness of a hedging derivative, as well as the measurement
approach for determining the ineffective aspects of the hedge, must be
established at the inception of the hedged instrument.
Designation is established at the inception of a derivative, but
redesignation is permitted. For derivatives designated as fair value
hedges, changes in fair value are recognized in earnings. If the fair
value hedge is fully effective, the change in fair value of the hedged
item attributable to the hedged risk, is adjusted to fair value and is
recognized in earnings.
The Company operates internationally, therefore its earnings, cash flows
and financial positions are exposed to foreign currency risk from
foreign currency denominated receivables and payables. These items are
denominated in various foreign currencies, including Euros, British
Pounds, Yen, and Deutsche Marks.
Management believes it is prudent to minimize the risk caused by foreign
currency fluctuation. Management minimizes the risk by hedging the
majority of all foreign currency obligations by purchasing future
foreign currency contracts (futures) with one of our financial
institutions. Futures are traded on regulated U.S. and international
exchanges and represent commitments to purchase or sell a particular
foreign currency at a future date and at a specific price. Since
futures are purchased for the exact amount of foreign currency needed to
pay for specific purchase orders, the Company feels that it eliminates
all risks relating to foreign currency fluctuation. The Company takes
delivery of all futures, which have been designated as fair value hedges
under SFAS 133, to pay suppliers in the appropriate currency. The
difference between the fair value and nominal amounts of the foreign
currency contracts and the related commitments have been recorded as an
asset with a corresponding liability in the accompanying consolidated
balance sheet at March 31, 2001 in the amount of $84. The hedge
contracts flow through cost of goods sold in the consolidated statement
of income. Senior management and members of the financial department
continually monitor foreign currency risks and the use of this
derivative instrument.
Note 8: Comprehensive Income
The Company has no items of other comprehensive income, therefore there
is no difference between the Company's comprehensive income and net
income.
Note 9: Supplier Arrangement
In October 2000, a large supplier of the Company terminated its long
standing arrangement. At the time of the notice of termination the
Company had confirmed purchase orders from the supplier and confirmed
sales orders from customers. The Company believes that it has fulfilled
all its obligations associated with the arrangement and as such recorded
in net sales a sales commission for lost profits of approximately $904
and a reduction to cost of sales of approximately $264 to cover losses
incurred on foreign currency hedging of these purchase orders. During
the third quarter ended March 31, 2001 the Company received advice from
legal counsel indicating that they are entitled to compensation for any
losses incurred as well as the sales commission.
Note 10: Settlement of Arbitration
Subsequent to March 31, 2001 the Company received a decision from the
arbitrators regarding the claims made by the Company and previous owner
of CDC Products Corp. (CDC). The decision denied all claims made
against the Company by the previous owner and reduced the purchase price
of CDC by $360. As a result the Company recorded the reduction of the
outstanding liability owed to the previous owner by $360 and recorded a
reduction to goodwill for the same amount on the accompanying balance
sheet as of March 31, 2001.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
On March 26, 2001 the Company invested $21.9 million, which included
600,000 shares of common stock from treasury valued at $5.2 million,
$4.6 million in notes, $1.0 million in cash, the assumption of debt for
$10.7 million and direct acquisition costs of $377,000 to acquire the
distribution business of the Schweizerhall Pharma division of
Schweizerhall Holding AG. In connection with this acquisition the
Company liquidated certain of its investments. The acquired companies
have an existing credit facility with a european financial institution.
This credit facility provides the Company with 12.0 million Euros
(approximately $10.7 million) which was fully utilized as of March 31,
2001.
In addition to the funds used for the acquisition, the Company paid $1.3
million, during the nine months ended March 31, 2001, in a continuation
of its stock repurchase program. The increase in accounts receivable
was primarily due to extended payment terms for sales by the
Agricultural segment to meet competition. The changes in inventory,
accounts payable and accrued merchandise purchases can be attributed
mostly to the timing of merchandise purchases.
The Company believes that its financial condition is strong and that its
cash, other liquid assets, operating cash flows, access to equity
capital markets, taken together, provide adequate resources to fund
ongoing operating expenditures related to the expansion of existing
business.
RESULTS OF OPERATIONS:
The Company acquired certain assets of Magnum Research Corp. and
Schweizerhall Inc. in October 1999 and January 2000, respectively. The
results of operations relating to these acquisitions are included in the
consolidated statement of income from the respective dates of the
acquisitions. On March 26, 2001, the Company acquired the distribution
business of Schweizerhall Pharma division of Schweizerhall Holding AG.
The results of operations of Schweizerhall Pharma for the period from
March 26, 2001 through March 31, 2001 have not been included in the
following consolidated statements of income as they were not material.
Net Sales By Segment
Nine Months Ended March 31
Segment 2001 2000
$ thousand % oftotal $ thousand % oftotal
Agrochemicals 10,199 8.4 7,630 5.4
Industrial
Chemicals 38,365 31.5 37,381 26.4
Organic
Intermediates
& Colorants 35,544 29.2 36,014 25.4
Pharmaceutical
Biochemicals &
Nutritionals 26,360 21.6 27,014 19.1
Pharmaceutical
Intermediates
& Custom Mfg. 7,271 6.0 30,076 21.3
Institutional
Sanitary
Supplies and
Other 4,026 3.3 3,433 2.4
TOTAL NET
SALES 121,765 100.0 141,548 100.0
Gross Profit By Segment
Nine Months Ended March 31
Segment 2001 2000
$ thousand % of total $ thousand % of total
Agrochemicals 3,761 15.9 2,628 11.5
Industrial
Chemicals 6,997 29.6 6,823 29.8
Organic
Intermediates
& Colorants 4,738 20.1 5,283 23.1
Pharmaceutical
Biochemicals &
Nutritionals 5,443 23.0 4,821 21.0
Pharmaceutical
Intermediates
& Custom Mfg. 1,164 4.9 2,190 9.5
Institutional
Sanitary
Supplies and
Other 1,540 6.5 1,162 5.1
TOTAL GROSS
PROFIT BEFORE
FREIGHT AND
STORAGE COSTS 23,643 100.0 22,907 100.0
Net Sales By Segment
Three Months Ended March 31
Segment 2001 2000
$ thousand % of total $ thousand % of total
Agrochemicals 4,792 11.1 4,741 8.6
Industrial
Chemicals 13,857 32.1 12,828 23.1
Organic
Intermediates
& Colorants 12,472 28.9 12,618 22.7
Pharmaceutical
Biochemicals &
Nutritionals 8,565 19.8 11,975 21.6
Pharmaceutical
Intermediates
& Custom Mfg. 2,037 4.7 11,995 21.6
Institutional
Sanitary
Supplies and
Other 1,482 3.4 1,319 2.4
TOTAL NET
SALES 43,205 100.0 55,476 100.0
Gross Profit By Segment
Three Months Ended March 31
Segment 2001 2000
$ thousand % of total $ thousand % of total
Agrochemicals 1,460 16.5 1,735 18.0
Industrial
Chemicals 2,341 26.5 2,548 26.5
Organic
Intermediates
& Colorants 1,674 18.9 1,832 19.0
Pharmaceutical
Biochemicals &
Nutritionals 2,000 22.6 2,009 20.9
Pharmaceutical
Intermediates
& Custom Mfg. 729 8.2 874 9.1
Institutional
Sanitary
Supplies and
Other 642 7.3 625 6.5
TOTAL GROSS
PROFIT BEFORE
FREIGHT AND
STORAGE COSTS 8,846 100.0 9,623 100.0
Sales and Gross Profit
Sales decreased 14% for the nine months ended March 31, 2001 compared
with the same period last year.
In October 2000, the Company and the Company's largest supplier
terminated their supply arrangement regarding pharmaceutical products,
while continuing to supply certain industrial chemicals. This supplier
accounted for approximately 18% and 21% of the Company's sales and
purchases in fiscal 2000, respectively. The loss of sales of this
supplier's products was the primary cause of the decline in sales.
Sales of the Pharmaceutical Intermediates and Custom Manufacturing
segment fell 76%. The above mentioned supplier was the principal
supplier to this segment and the sales decrease is directly related.
Sales of Agrochemicals increased 34% due to increased sales of several
products, and the Institutional Sanitary Supplies and Other segment
showed an increase of 17%, due to a general increase in demand as well
as the inclusion of Magnum Research Corporation, purchased in October
1999, for the entire period.
Sales of the other segments were basically unchanged.
Gross profit by segment before freight and storage costs for the entire
corporation increased 3% for the nine months.
The Pharmaceutical Intermediates and Custom Manufacturing and
Pharmaceutical Biochemicals and Nutritionals segments benefited from a
sales commission earned with the aforementioned major supplier relating
to profits on open orders at the time of termination of the
relationship. This caused both segments to show substantially better
results in gross profit than sales - a 13% increase for the
Pharmaceutical Biochemicals and Nutritionals segment and a 47% decrease
for the Pharmaceutical Intermediates and Custom Manufacturing segment.
The Institutional Sanitary Supplies and Other segment rose 33%. Sales
of Magnum Research Corporation products have a very high gross profit
margin; again, the inclusion of these sales for the entire period was
the reason for the greater increase in gross profit than sales.
Sales for the three months ended March 31, 2001 declined 22% compared
with the comparable period in the prior year. As in the nine months,
the decline was caused primarily by the loss of sales relating to the
aforementioned supplier, though the effects were somewhat greater
because the entire period was affected.
The Pharmaceutical Intermediates and Custom Manufacturing segment and
the Pharmaceutical Biochemical and Nutritional segment showed sales
decreases of 83% and 28%, respectively, a direct result of the
terminated supply arrangement, though sales of nutriceuticals also
showed a 30% decline, caused by lower sales prices. The lower sales
prices are a result of increased competition.
The Industrial Chemicals segment and the Institutional Sanitary Supplies
and Other segment showed increases of 8% and 12%, respectively, both
caused by a general increase in demand on their product lines. The
other segments were basically unchanged.
Gross profit by segment before freight and storage costs for the three
months decreased 8%. The significantly smaller decrease in gross profit
than sales was related to the previously mentioned sales commissions
earned from a former major supplier. The Pharmaceutical Intermediates
and Custom Manufacturing segment showed a gross profit decline of only
17% compared with a sales decline of 83%. Likewise, the gross margin of
the Pharmaceutical Biochemical and Nutritional segment were essentially
flat, compared with a sales decline of 28%.
The remaining segments recorded a decreased performance in gross margin
than sales. The Industrial Chemicals segment decreased 8%, on sales
increase of 8%. The Organic Intermediates and Colorants sector
decreased 9%, basically on flat sales. The Agrochemicals sector
decreased 16%. All of these decreases are due to the mix of products
sold during the quarter.
Selling, general and administrative expenses for the nine months ended
March 31, 2001 increased by $1,253,000 or 10% compared to the same
period last year. A majority of the increase can be attributed to the
Schweizerhall acquisition in January 2000. These additional expenses
were related to an increase in personnel and an expansion of our office
facility. The relocation of CDC in July 2000 into their new and larger
facility accounted for the balance of the increase. Many of CDC's
operating expenses increased significantly including rent, real estate
taxes, utilities, salaries, fringe benefits, liability insurance,
selling expenses, advertising and depreciation.
For the three month comparable periods expenses actually declined.
Although there were significant increases in CDC expenses as previously
discussed in the nine month comparison, the effect of the Schweizerhall
acquisition was present in both three month periods. Decreases in
compensation and legal expenses in addition to the closure of our German
office more than offset the increase in CDC expenses.
The total of interest and other income was virtually unchanged for the
nine month comparable periods although there were some significant
changes in the components. Interest income decreased by 35% to $449,000
from $692,000. Lower cash available for investment, primarily due to
recent acquisitions and working capital to support these new
acquisitions in addition to the Company's stock repurchase program,
accounted for the decline in interest income.
For the three months ended March 31, 2001, the Company received a
dividend from a foreign investment. In addition, the loss on
investments was $49,000 compared to $189,000 for the same period last
year. These two factors resulted in an increase in other income to
$275,000 from $75,000 in the prior year.
The effective tax rates decreased to 36.9% and 35.9% for the nine months
and three months ended March 31, 2001 from 39.3% and 38.8% for the same
periods last year.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements". SAB No. 101 provides the SEC staff's views in
applying generally accepted accounting principles to revenue recognition
in the financial statements. SAB No. 101B delayed the implementation
date for registrants to adopt the accounting guidance contained in SAB
No. 101 by no later than the fourth fiscal quarter of the fiscal year
beginning after December 15, 1999. Applying the accounting guidance of
SAB No. 101 will not have a material effect on its financial position or
results of operations.
In September 2000, the Emerging Issues Task Force (EITF) issued EITF 00-
10, "Accounting for Shipping and Handling Fees and Costs". EITF 00-10
requires that all amounts billed to a customer in a sale transaction
related to shipping and handling, if any, represent revenues earned for
goods provided and should be classified as revenue, and costs incurred
by the seller for shipping and handling can be classified as either cost
of goods sold or as an operating expense with disclosure. EITF 00-10 is
required to be adopted no later than the fourth fiscal quarter of the
fiscal year beginning after December 15, 1999. A reclassification of
revenue recorded for shipping and handling will be recorded upon the
adoption of EITF-00-10. Management anticipates that the
reclassification will be approximately $275,000 for the nine months
ended March 31, 2001.
MARKET RISK
The Company maintains foreign currency contracts solely to hedge open
purchase commitments. It has established policies, procedures and
internal processes governing the management of this hedging to reduce
market risks inherent in foreign exchange. Also, the Company has
interest rate exposure relating to short and long term investments and
minimal exposure in the equity markets. Any change in these markets
would not materially affect the consolidated financial position, results
of operations or cash flows of the Company.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
relating to such matters as anticipated financial performance and
business prospects. When used in this Quarterly Report, the words
"anticipates," "expects," "may," "intend" and similar expressions are
intended to be among the statements that identify forward-looking
statements. From time to time, the Company may also publish forward-
looking statements. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a
variety of factors, including, but not limited to, foreign currency
risks, political instability, changes in foreign laws, regulations and
tariffs, new technologies, competition, customer and vendor
relationships, seasonality, inventory obsolescence and inventory
availability, could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements.
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 14, 2001 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial
Officer
DATE May 14, 2001 BY (signed) / by Leonard S. Schwartz
Leonard S. Schwartz, President