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, 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 - 5,208,904
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Nine Months Ended
March 31st
1996 1995
Net sales $139,901 $120,969
Cost of sales 121,693 103,456
Gross profit 18,208 17,513
Selling, general and administrative
expenses 10,104 9,713
Operating profit 8,104 7,800
Other income net of interest expense 1,091 1,130
Income before income taxes 9,195 8,930
Provision for income taxes 3,576 3,443
Net income $ 5,619 $ 5,487
Net income per common share and
common equivalent share: $ 1.05 $ 0.97
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Three Months Ended
March 31st
1996 1995
Net sales $ 52,218 $46,509
Cost of sales 45,365 39,545
Gross profit 6,853 6,964
Selling, general and administrative
expenses 3,396 3,203
Operating profit 3,457 3,761
Other income net of interest expense 304 464
Income before income taxes 3,761 4,225
Provision for income taxes 1,468 1,635
Net income $ 2,293 $ 2,590
Net income per common and
common equivalent share $ 0.43 $ 0.46
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Mar. 31st June 30th
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 4,041 $ 1,644
Short-term investments 8,943 9,669
Receivables:
Trade, less allowance for doubtful accounts:
(March $227; June $204) 33,046 26,092
Other 205 1,161
33,251 27,253
Inventories 27,407 30,963
Prepaid expenses 138 227
Deferred income tax benefit 1,542 1,542
Property held for sale 601 619
Total current assets 75,923 71,917
Long-term investments 11,983 12,813
Long-term notes receivable 166 188
Property and equipment, at cost:
Land 140 140
Buildings and building improvements 886 886
Equipment 1,601 1,587
2,627 2,613
Less accumulated depreciation and
amortization 1,758 1,606
869 1,007
Other assets 191 191
Total assets $ 89,132 $ 86,116
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
Mar. 31st June 30th
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 791 $ 929
Current installments on long-term debt 500 250
Accounts payable 6,363 2,580
Accrued merchandise purchases 8,328 11,355
Accrued compensation 3,929 3,593
Accrued plant shut-down costs 859 985
Other accrued expenses 1,905 2,255
Income taxes payable 1,430 1,681
Total current liabilities 24,105 23,628
Long-term debt, excluding current installments 1,000 1,500
Deferred income taxes 175 24
Redeemable preferred stock (note 4) 821 821
Shareholders' equity (note 3):
Common stock,$.01 par value per share;
Authorized 10,000 shares;
Issued: Mar., 6,001 shares; June, 60 55
5,530 shares; outstanding: Mar.,
5,209 shares; June, 4,840 shares
Capital in excess of par value 57,425 50,168
Retained earnings 16,081 18,747
73,566 68,970
Less:
Cost of common stock held in treasury;
Mar., 792 shares; June, 690 shares 10,535 8,827
Total shareholders' equity 63,031 60,143
Total liabilities and shareholders' equity $ 89,132 $ 86,116
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
Mar. 31st.
1996 1995
Operating activities:
Net income $ 5,619 $ 5,487
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 199 220
Effect of market value over original
option price for options exercised 118 240
Increase in provision for
losses on accounts receivable 23 45
Changes in operating assets and liabilities:
Decrease in investments - trading securities 2,868 1,003
Increase in trade accounts receivable (6,977) (6,150)
Decrease in other receivables 956 413
Decrease(increase)in inventories 3,556 (1,449)
Decrease in prepaid expenses 89 393
Decrease in notes receivable 22 21
Decrease in deferred tax benefit - 371
Increase(decrease)in drafts and acceptances
payable (138) 22
Increase in current installments on long-term
debt 250 250
Increase in accounts payable 3,783 1,021
Increase in accrued compensation 336 353
Decrease in accrued merchandise purchases (3,027) (522)
Decrease in accrued plant shut-down costs (126) (714)
Decrease in other accrued expenses (350) (112)
Decrease in current taxes payable (251) (189)
Increase in deferred taxes payable 151 -
Net cash provided by operating activities 7,101 703
Investing activities:
Purchases of investments - held-to-maturity (4,081) (5,784)
Proceeds from investments - held-to-maturity 2,769 3,678
Purchases of equipment (42) (120)
Net cash used in investing activities (1,354) (2,226)
Financing activities:
Payments of long-term debt (500) (500)
Payments of cash dividends (977) (940)
Proceeds from exercise of stock options 159 158
Payments for purchases of treasury stock (2,031) (739)
Net cash used in financing activities (3,349) (2,021)
Net increase(decrease)in cash and cash equivalents 2,398 (3,544)
Cash and cash equivalents at beginning of period 1,643 5,122
Cash and cash equivalents at end of period $ 4,041 $ 1,578
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:
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements included all
adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial
position at March 31, 1995 and June 30, 1995 and the results
of operations and statements of cash flows for the nine
months ended March 31, 1996 and March 31, 1995. The results
are not necessarily indicative of those to be expected for
the full fiscal year.
Note 2: Interest and Other Income
For Nine Months For Three Months
Ended Ended
March 31 March 31
1996 1995 1996 1995
Dividends $ 9 $ 15 $ - $ 4
Interest on investments 1,097 1,154 347 394
Net gain (loss) on
investments 31 (17) (25) 39
Miscellaneous other
income 70 127 16 73
$1,207 $1,279 $ 338 $ 510
Note 3: Income per Common Share
Income per common share is determined based on the weighted
average number of common and common equivalent shares
outstanding (primary 5,277 and 5,575 fully diluted, 5,381
and 5,682 for the quarters ended March 31,1996 and March 31,
1995, respectively; primary 5,304 and 5,581 fully diluted,
5,410 and 5,686 for the nine months ended March 31, 1996 and
March 31, 1995, respectively). Fully diluted income per
share calculations also include the shares issuable upon
conversion of preferred stock, if dilutive.
Note 4: Redeemable Preferred Stock
The Company has 2,000,000 authorized shares of convertible
preferred stock with a par value of $2.50 per share. The
stock is redeemable at the option of either the holder or
issuer at par. Redeemable preferred stock outstanding at
March 31, 1996 and June 30, 1995 consists of the following:
Shares Par Value
Second series 28,316 $ 71
Third series 100,000 250
Fourth series 40,000 100
Fifth series 40,000 100
Sixth series 40,000 100
Seventh series 40,000 100
Eighth series 40,000 100
$ 821
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The second, third, fourth, fifth, sixth, seventh and eighth
series of preferred stock are convertible beginning on the
date of issue into the Company's common stock at ratios of
8.4, 6.4, 6.4, 5.1, 6.0, 6.0 and 4.2 shares of preferred
stock to 1 share of common stock, respectively, subject to
antidilution provisions. The second, third and sixth series
pay 10%, the fourth and fifth series pay 8%, the seventh
series pays 9.5% and the eighth series pays 9% annual
cumulative cash dividends on par value. All series have
voting rights. In the event of liquidation of the Company,
all series share ratably in the remaining proceeds.
Note 5: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the nine
months ended March 31, 1996 and 1995 are as follows:
1996 1995
Interest $ 116 $ 150
Income taxes 3,569 3,152
Note 6: Investments
Investments at March 31, 1996 and 1995 consist of U.S.
Treasury, corporate debt and equity securities. The Company
adopted the provision of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investment in Debt
and Equity Securities as of July 1, 1994. Under Statement
115, the Company classifies its debt and marketable equity
securities as either trading or held-to-maturity securities.
Trading securities are bought and held principally for the
purpose of selling them in the near 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 fair value. Unrealized
holding 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, adjusted for the amortization or accretion of premiums
or discounts over the life of the related security.
At March 31, 1996, short-term investments consisted of
$2,964 trading securities and $5,979 held-to-maturity
securities.
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. At March 31, 1996 and June 30, 1995 cash and
short-term investments totaled $13.0 million and $11.3
million and working capital was $51.8 million and $48.3
million, respectively. In addition, the Company had liquid
long-term investments of $12.0 million at March 31, 1996 and
$12.8 million at June 30, 1995.
The total of cash and cash equivalents, short-term and long-
term investments was $25.0 million compared to $24.1 million
at March 31, 1996 and June 30, 1995, respectively. The
increase of $.9 million can be attributed to cash provided
from operations, much of which was offset by the purchase of
treasury stock, payment of a cash dividend and the scheduled
payment of long-term debt.
The increase in receivables to $33.3 million at March 31,
1996 from $27.3 million at June 30, 1995 was mostly due to
significantly higher sales during the quarter and month
ended March 31, 1996 compared to the quarter and month ended
June 30, 1995. In addition, the granting of extended
payment terms for sales of some of our agricultural products
to meet competition added to the higher receivable balance
at March 31, 1996.
The combined total of accounts payable and accrued
merchandise purchases of $14.7 million at March 31, 1996 is
slightly higher than the $13.9 million at June 30, 1995.
This higher balance and the variations in the two individual
accounts can be attributed to the timing of payments for
merchandise purchases.
RESULTS OF OPERATIONS:
Net sales increased by 16% and 12% during the nine and three
months ended March 31, 1996 compared to the same periods
last year. Higher sales of bulk pharmaceuticals,
pharmaceutical intermediates and industrial chemicals
accounted for the significant increases in both the nine and
three month periods.
Although sales increases were significant, gross margins
declined to 13.0% and 13.1% for the nine and three months
ended March 31, 1996 compared to 14.5% and 15.0% for the
same periods last year. Increased competition in many of
our business areas accounted for most of the erosion in
margins.
Selling, general and administrative expenses were modestly
higher during both the nine and three month periods ended
March 31, 1996 compared to the same periods last year.
There were no significant increases in any particular
category of expense but somewhat higher compensation and
legal costs in addition to an increase in selling expenses
accounted for the overall higher level of expenses. The
increases were partially offset by reductions in the cost of
liability insurance and telecommunications.
Other income, which is predominantly interest on investments
decreased to $1.2 million and $.3 million from $1.3 million
and $.5 million for the nine and three months ended March
31, 1996 compared to March 31, 1995. Lower investment rates
accounted for most of the decline in both periods although a
decrease in commission income was also a contributing
factor.
The effective tax rates for the three and nine month periods
ranged from 38.6% to 39.0% and approximated the Company's
traditional levels.
Item 1: Legal Proceedings
On February 10, 1995, the U.S. Department of Justice sent a
letter and a draft complaint to Pfaltz & Bauer, Inc., a
wholly owned subsidiary of Aceto Corporation. This event
was reported on Form 10-Q, Item 5. Other Information, for
the quarter ended March 31, 1995. On February 23, 1996, the
complaint was filed in the federal District Court in
Connecticut, United States v. Pfaltz & Bauer, Inc., no.
396CV00305/PCD (D. Conn.). The complaint alleges that
Pfaltz & Bauer had violated the Resource Conservation and
Recovery Act (RCRA) with respect to the storage of certain
hazardous wastes at Pfaltz & Bauer's Waterbury, Connecticut
facility in 1991 - 1993, and seeks civil penalties. Pfaltz
& Bauer believes that it has defenses to the allegations in
the complaint and substantial arguments that would in the
opinion of management, mitigate against the assessment of
material penalties. Pfaltz & Bauer is negotiating with the
government in an attempt to settle this matter.
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 2, 1996 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial Officer
DATE May 2, 1996 BY (signed) / by Arnold Frankel
Arnold Frankel, Chief Executive Officer