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 December 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 - 4,927,001
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Six Months Ended
Dec.31st
1996 1995
Net sales $ 75,034 $ 87,683
Cost of sales 65,724 76,328
Gross profit 9,310 11,355
Selling, general and administrative
expenses (note 6) 6,613 6,708
Operating profit 2,697 4,647
Other income net of interest
expense (note 5) 959 788
Income before income taxes 3,656 5,435
Provision for income taxes 1,483 2,108
Net income $ 2,173 $ 3,327
Net income per common and
common equivalent share: $ 0.42 $ 0.62
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
Dec. 31st
1996 1995
Net sales $ 35,850 $ 47,294
Cost of sales 30,919 40,699
Gross profit 4,931 6,595
Selling, general and administrative
expenses 2,750 3,509
Operating profit 2,181 3,086
Other income net of interest
expense (note 5) 520 430
Income before income taxes 2,701 3,516
Provision for income taxes 1,039 1,351
Net income $ 1,662 $ 2,165
Net income per common and
common equivalent share: $ 0.33 $ 0.40
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Dec. 31st June 30th
1996 1996
ASSETS
Current assets:
Cash and cash equivalents $ 5,434 $ 5,380
Short-term investments (note 4) 11,606 10,595
Receivables:
Trade, less allowance for doubtful accounts:
(Dec. $237; June $207) 21,984 24,739
Other 566 590
22,550 25,329
Inventories 24,863 30,156
Prepaid expenses 79 104
Deferred income tax benefit 1,125 1,125
Property held for sale 582 595
Total current assets 66,239 73,284
Long-term investments 12,144 12,737
Long-term notes receivable 776 790
Equipment at cost 1,320 1,346
Less accumulated depreciation and
amortization 1,040 1,046
280 300
Other assets 191 191
Total assets $ 79,630 $ 87,302
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
Dec. 31st June 30th
1996 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 712 $ 1,002
Current installments on long-term debt 250 250
Accounts payable 2,185 3,047
Accrued merchandise purchases 6,745 11,202
Accrued compensation 3,323 3,330
Accrued environmental liabilities (note 6) 1,526 790
Other accrued expenses 2,097 2,055
Income taxes payable 385 701
Total current liabilities 17,223 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: Dec., 6,001 shares; June, 60 60
6,001 shares; outstanding: Dec.,
4,927 shares; June, 5,188 shares
Capital in excess of par value 57,378 57,387
Retained earnings 17,897 16,646
75,335 74,093
Less:
Cost of common stock held in treasury;
Dec.,1,074 shares; June, 813 shares 14,442 10,932
Total shareholders' equity 60,893 63,161
Total liabilities and shareholders' equity $ 79,630 $ 87,302
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
Dec. 31st.
1996 1995
Operating activities:
Net income $ 2,173 $ 3,327
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 85 132
Effect of market value over original
option price for options exercised 30 32
Increase in allowance for doubtful accounts 30 30
Changes in operating assets and liabilities:
Decrease (increase) in investments -
trading securities (281) 2,723
Decrease (increase) in trade accounts
receivable 2,725 (4,301)
Decrease in other receivables 24 732
Decrease in inventories 5,293 1,023
Decrease (increase) in prepaid expenses 25 (928)
Decrease in notes receivable 14 15
Decrease in drafts and acceptances payable (290) (282)
Increase (decrease) in accounts payable (862) 1,659
Decrease in accrued merchandise purchases (4,457) (724)
Increase(decrease)in accrued compensation (7) 369
Increase(decrease)in environmental liabilities 736 (84)
Increase(decrease)in other accrued expenses 42 (417)
Decrease in income taxes payable (316) (790)
Net cash provided by operating activities 4,964 2,516
Investing activities:
Purchases of investments - held-to-maturity (4,715) (2,724)
Proceeds from investments - held-to-maturity 4,579 2,375
Purchases of equipment (53) (9)
Net cash used in investing activities (189) (358)
Financing activities:
Payments of long-term debt (250) (250)
Payments of cash dividends (922) (38)
Proceeds from exercise of stock options 87 77
Payments for purchases of treasury stock (3,636) (2,031)
Net cash used in financing activities (4,721) (2,242)
Net increase (decrease) in cash and cash equivalents 54 (84)
Cash and cash equivalents at beginning of period 5,380 1,644
Cash and cash equivalents at end of period $ 5,434 $ 1,560
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 December 31, 1996 and
the consolidated statements of income and cash flows for the
six months ended December 31, 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 December 31, 1996
and 1995 were 5,005,000 and 5,282,000 and included common
stock equivalents of 46,000 and 52,000, respectively.
Weighted average common shares outstanding for the six
months ended December 31, 1996 and 1995, were 5,082,000 and
5,317,000 and included common stock equivalents of 50,000
and 50,000, respectively. Shares issuable upon the assumed
conversion of preferred stock were excluded from the
computations since they were not dilutive during the three
and six month periods.
Note 3: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the six
months ended December 31, 1996 and 1995 are as follows:
1996 1995
Interest $ 57 $ 81
Income taxes 3,055 2,871
Note 4: Marketable Investment Securities
Investments at December 31, 1996 and 1995 consist 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.
Short-term investments consisted of $3,147 and $2,866
trading securities and $8,459 and $7,729 held-to-maturity
securities at December 31, 1996 and 1995, respectively.
Note 5: Interest and Other Income
For Six Months For Three Months
Ended Ended
December 31 December 31
1996 1995 1996 1995
Dividends $ 9 $ 9 $ 9 $ 9
Interest on investments 838 750 423 371
Net gain on investments 47 57 50 52
Miscellaneous other
income 123 53 67 39
$1,017 $ 869 $ 549 $ 471
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 December 31, 1996 the balance of the current
liability was $1,526.
During the six months ended December 31, 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.
Both of the above items were recorded in the first quarter
of fiscal June 30, 1997.
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 December 31, 1996 and June 30, 1996 cash and
short-term investments totaled $17.0 million and $16.0
million and working capital was $49.0 million and $50.9
million, respectively. In addition, the Company had liquid
long-term investments of $12.1 million at December 31, 1996
and $12.7 million at June 30, 1996.
The total of cash and cash equivalents, short-term and long-
term investments increased slightly to $29.2 million at
December 31, 1996 from $28.7 million at June 30, 1996.
Although cash provided by operating activities for the six
months ended December 31, 1996 totaled $5.0 million, it was
mostly offset by cash used in financing activities for the
purchase of 272,000 shares of treasury stock at a cost of
$3.6 million and cash dividends paid of $900,000.
The decrease in trade receivables to $22.0 million at
December 31, 1996 from $24.7 million at June 30, 1996 can be
primarily attributed to lower sales during the month ended
December 31, 1996 compared to June 30, 1996. The decrease
in inventory to $24.9 million at December 31, 1996 from
$30.2 million at June 30, 1996 and the decrease in drafts
payable, accounts payable and accrued merchandise purchases
to $9.6 million at December 31, 1996 from $15.3 million at
June 30, 1996 is due primarily to the timing of merchandise
purchases and were not the result of a change in the trend
of business. The decrease in income taxes payable to
$400,000 at December 31, 1996 compared to $700,000 at June
30, 1996 related to the timing of estimated tax payments and
lower profits.
RESULTS OF OPERATIONS:
Net sales decreased by 14% and 24% during the six and three
months ended December 31, 1996 compared to the same periods
last year. Lower sales of bulk pharmaceuticals,
pharmaceutical intermediates and agricultural chemicals
accounted for the significant decrease in both periods.
Volume decreased 10% and 14% for the six and three months
ended December 31, 1996 compared to the same periods last
year. The decrease in sales of bulk pharmaceuticals and
pharmaceutical intermediates, which tend to be higher
priced, as well as price erosion in dyestuff and pigment
intermediates, accounted for the greater decrease in sales
than volume for both periods.
Gross margins as a percentage of sales declined to 12.4% and
13.7% for the six and three months ended December 31, 1996
from 13.0% and 13.9% for the same periods last year. The
decrease can be primarily attributed to increased
competition in the dyestuff and pigment intermediates
business.
Selling, general and administrative expenses for the six
months ended December 31, 1996 decreased by $95,000 or 1%
compared to the same period last year. An increase of
$800,000 in the amount accrued for environmental remediation
as well as a $225,000 settlement of a complaint by the U.S.
Department of Justice were offset by a decrease in the
amount accrued for additional compensation of $500,000 and
the elimination of selling, general and administrative
expenses of $655,000 from the Company's Pfaltz and Bauer,
Inc. subsidiary which was sold June 19, 1996. Selling,
general and administrative expenses for the three months
ended December 31, 1996 decreased by $759,000, or 21%,
compared to the same period last year. During this period,
the aforementioned decreases in additional compensation and
selling, general and administrative expenses at Pfaltz &
Bauer, Inc. accounted for $450,000 and $330,000,
respectively.
Other income increased to $1,017,000 and $549,000 for the
six and three months ended December 31, 1996 from $869,000
and $471,000 for the same periods last year. In conjunction
with the aforementioned sale of a subsidiary, inventory was
transferred to the new ownership and the Company will
receive a portion of the proceeds of the sale of this
inventory for a period of up to three years. This totaled
$90,000 and $47,000 for the six and three months ended
December 31, 1996. Slightly higher cash balances accounted
for a small increase in interest income.
The increase in the effective tax rate for the six months
ended December 31, 1996 to 40.5% from 38.8% compared to the
same period last year was due to the aforementioned
settlement of $225,000, of which a significant portion was
not deductible for tax purposes. The effective tax rate for
the three months ended December 31, 1996 and 1995 equaled
38.4% which approximates the Company's traditional level.
Item 4: Submission of Matters to a Vote of Security Holders
During the period covered by this report, at an annual
meeting of stockholders held on December 5, 1996, the matter
of the election of nine directors to hold office until the
next annual meeting of stockholders or until their
successors are elected and qualified, was submitted to a
vote of security-holders, through the solicitation of
proxies pursuant to Regulation 14 under the Securities Act
of 1933, as amended.
The nominees for directors were: Arnold Frankel; Robert E.
Parsont; Samuel I. Hendler; Anthony Baldi; Thomas Brunner;
Donald Horowitz; Leonard Schwartz; Stephen M. Goldstein; and
Robert A. Wiesen. The election of said nominees was
uncontested.
The following tabulation shows with respect to each such
nominee the number of votes cast for, against or withheld, the
number of abstentions and broker non-votes:
VOTES
VOTES AGAINST OR BROKER
NOMINEE FOR WITHHELD ABSTENTIONS NON-VOTES
Arnold Frankel 4,698,846 4,433 10,304 -
Robert E. Parsont 4,691,990 11,289 10,304 -
Samuel I. Hendler 4,698,618 4,661 10,304 -
Anthony Baldi 4,698,259 5,020 10,304 -
Thomas Brunner 4,698,846 4,433 10,304 -
Donald Horowitz 4,698,846 4,433 10,304 -
Leonard Schwartz 4,698,846 4,433 10,304 -
Stephen M. Goldstein 4,690,372 12,907 10,304 -
Robert A. Wiesen 4,693,583 9,696 10,304 -
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 February 7, 1997 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial
Officer
DATE February 7, 1997 BY (signed) / by Leonard S. Schwartz
Leonard S. Schwartz, Chief Operating
Officer