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, 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 - 4,473,657
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Dec. 31st June 30th
1997 1997
ASSETS
Current assets:
Cash and cash equivalents $ 2,534 $ 4,142
Short-term investments 10,471 10,013
Receivables:
Trade, less allowance for doubtful accounts:
(Dec. $259; June $219) 23,511 24,627
Other 898 1,363
24,409 25,990
Inventories 29,697 31,210
Prepaid expenses 223 240
Deferred income tax benefit 1,267 1,267
Property held for sale 503 512
Total current assets 69,104 73,374
Long-term investments 8,189 11,212
Long-term notes receivable 926 948
Property and equipment:
Computers 798 674
Furniture and fixtures 580 573
Automobiles 146 178
1,524 1,425
Less accumulated depreciation 1,144 1,125
380 300
Other assets 296 311
Total assets $ 78,895 $ 86,145
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
(Unaudited)
Dec. 31st June 30th
1997 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 375 $ 743
Current installments on long-term debt 250 250
Accounts payable 3,465 3,939
Accrued merchandise purchases 6,433 11,720
Accrued compensation 3,004 3,455
Accrued environmental remediation 1,378 1,387
Accrued income taxes 619 943
Other accrued expenses 1,921 2,010
Total current liabilities 17,445 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: Dec., 6,001 shares; June, 60 60
6,001 shares; outstanding: Dec.,
4,474 shares; June, 4,654 shares
Capital in excess of par value 57,446 57,381
Retained earnings 23,746 21,079
81,252 78,520
Less:
Cost of common stock held in treasury;
Dec.,1,527 shares; June, 1,347 shares 20,816 18,086
Total shareholders' equity 60,436 60,434
Commitments and contingencies
Total liabilities and shareholders' equity $ 78,895 $ 86,145
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For Six Months Ended
Dec. 31st
1997 1996
Net sales $ 84,435 $ 75,034
Cost of sales 73,737 65,724
Gross profit 10,698 9,310
Selling, general and administrative
expenses 6,114 6,613
Operating profit 4,584 2,697
Other income (expense):
Interest expense (35) (58)
Interest and other income 936 1,017
901 959
Income before income taxes 5,485 3,656
Provision for income taxes 1,978 1,483
Net income $ 3,507 $ 2,173
Net income per common share:
Basic $ 0.77 $ 0.42
Diluted 0.75 0.42
Weighted average shares outstanding:
Basic 4,491 5,032
Diluted 4,649 5,145
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For Three Months Ended
Dec. 31st
1997 1996
Net sales $ 40,671 $ 35,850
Cost of sales 35,142 30,919
Gross profit 5,529 4,931
Selling, general and administrative
expenses 2,975 2,750
Operating profit 2,554 2,181
Other income (expense):
Interest expense (18) (29)
Interest and other income 449 549
431 520
Income before income taxes 2,985 2,701
Provision for income taxes 1,011 1,039
Net income $ 1,974 $ 1,662
Net income per common share:
Basic $ 0.43 $ 0.33
Diluted 0.43 0.33
Weighted average shares outstanding:
Basic 4,474 4,959
Diluted 4,643 5,070
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For Six Months Ended
Dec. 31st
1997 1996
Operating activities:
Net income $ 3,507 $ 2,173
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 94 85
Effect of market value over original
option price for options exercised 77 30
Increase in provision for doubtful accounts 40 30
Changes in operating assets and liabilities:
Increase in investments - trading securities (169) (281)
Decrease in trade accounts receivable 1,076 2,725
Decrease in other receivables 465 24
Decrease in inventories 1,513 5,293
Decrease in prepaid expenses 17 25
Decrease in long-term notes receivable 22 14
Decrease in other assets 15 -
Decrease in drafts and acceptances payable (368) (290)
Decrease in accounts payable (474) (862)
Decrease in accrued merchandise purchases (5,287) (4,457)
Decrease in accrued compensation (451) (7)
Increase (decrease) in environmental remediation (9) 736
Decrease in accrued income taxes payable (324) (316)
Increase (decrease) in other accrued expenses (89) 42
Net cash provided by (used in) operating activities (345) 4,964
Investing activities:
Purchases of investments - held-to-maturity (1,351) (4,715)
Proceeds from investments - held-to-maturity 4,085 4,579
Purchases of property and equipment (164) (53)
Net cash provided by (used in) investing activities 2,570 (189)
Financing activities:
Payments of long-term debt (250) (250)
Payments of cash dividends (840) (922)
Proceeds from exercise of stock options 173 87
Payments for purchases of treasury stock (2,916) (3,636)
Net cash used in financing activities (3,833) (4,721)
Net increase (decrease) in cash and cash equivalents (1,608) 54
Cash and cash equivalents at beginning of period 4,142 5,380
Cash and cash equivalents at end of period $ 2,534 $ 5,434
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 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: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the six
months ended December 31, 1997 and 1996 was as follows:
1997 1996
Interest $ 35 $ 57
Income taxes 2,249 3,055
Note 3: Marketable Investment Securities
Investments at December 31, 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.
Short-term investments consisted of $3,472 and $3,303
trading securities and $6,999 and $6,710 held-to-maturity
securities at December 31, 1997 and June 30, 1997, respectively.
Note 4: Interest and Other Income
For Six Months For Three Months
Ended Ended
December 31 December 31
1997 1996 1997 1996
Interest on investments $ 681 $ 838 $ 317 $ 423
Net gain on investments 84 47 10 50
Miscellaneous other
income 171 132 122 76
$ 936 $1,017 $ 449 $ 549
Note 5: 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 December
31, 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.
Note 6: Net Earnings per Common Share
For the periods ended 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 is as
follows:
SIX MONTHS ENDED
DECEMBER 31, 1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net earnings $3,507
Preferred stock dividends (35)
BASIC EPS
Net earnings attributable
to common stock 3,472 4,491 $0.77
EFFECT OF DILUTIVE
SECURITIES
Stock options - 65
Convertible preferred stock 35 93
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $3,507 4,649 $0.75
THREE MONTHS ENDED
DECEMBER 31, 1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net earnings $1,974
Preferred stock dividends (35)
BASIC EPS
Net earnings attributable
to common stock 1,939 4,474 $0.43
EFFECT OF DILUTIVE
SECURITIES
Stock options - 76
Convertible preferred stock 35 93
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $1,974 4,643 $0.43
SIX MONTHS ENDED
DECEMBER 31, 1996
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net earnings $2,173
Preferred stock dividends (35)
BASIC EPS
Net earnings attributable
to common stock 2,138 5,032 $0.42
EFFECT OF DILUTIVE
SECURITIES
Stock options - 20
Convertible preferred stock 35 93
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $2,173 5,145 $0.42
THREE MONTHS ENDED
DECEMBER 31, 1996
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net earnings $1,662
Preferred stock dividends (35)
BASIC EPS
Net earnings attributable
to common stock 1,627 4,959 $0.33
EFFECT OF DILUTIVE
SECURITIES
Stock options - 18
Convertible preferred stock 35 93
DILUTED EPS
Net earnings attributable to
common stock, assumed option
exercises and conversion of
preferred stock $1,662 5,070 $0.33
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 $21.2 million and
$25.4 million at December 31 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 to $51.7 million at December 31,
1997 from $48.9 million at June 30, 1997. Drafts and
acceptances, accounts payable and accrued purchases payable
decreased significantly by $6.1 million at December 31, 1997
compared to June 30, 1997. This decrease and other minor
changes in the components of working capital were due
primarily to the timing of merchandise purchases and were
not the result of a change in the trend of business. The
decrease in cash and cash equivalents and long term
investments was due primarily to the repurchase of 198,000
shares of the Company's common stock for $2.9 million.
RESULTS OF OPERATIONS:
Net sales increased by 13% for both the six and three months
ended December 31, 1997 compared to the same periods last
year. Stronger sales of intermediates for the color
producing industries, agricultural chemicals and
pharmaceutical intermediates, offset somewhat by a decline
in sales to the generic pharmaceutical industry, accounted
for the increase in both periods. This continued a trend
begun in the fourth quarter of fiscal 1997. Volume
increased by 24% and 25%, respectively, for the same periods
over the prior year. Price erosion in certain of our
product lines, especially color intermediates, combined with
the increased sales occurring primarily in product areas
that tend to be lower priced, accounted for the greater
increase in volume than sales for both periods.
Gross margins as a percentage of sales remained virtually
unchanged at 12.7% and 13.6% for the six months and three
months ended December 31, 1997, compared with 12.4% and
13.8% for the same periods a year earlier. The small
increase in the six months can be attributed to a general
softening of the cost of chemicals, offset somewhat by
increased freight and warehousing costs.
Selling, general and administrative expenses for the six
months ended December 31, 1997 decreased by $500,000 or 8%
compared to the same period last year. Significant
increases in selling expenses and consulting fees along with
modest increases in office expense, telephone and other
expenses this year were 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. For the three months ended December
31, 1997 there was an increase of $225,000, or 8%, compared to
the same period last year. The aforementioned increases in
selling expenses and consulting fees accounted for most of
this change.
Other income decreased to $936,000 and $449,000 for the six
and three months ended December 31, 1997 from $1,017,000 and
$549,000 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 for
both periods.
The effective tax rate decreased to 36.1% and 33.9% for the
six months and three months ended December 31, 1997 from
40.6% and 38.5% 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 six months ended December 31,
1996. A significant payment from the Company's non-
qualified retirement plan, which is deductible for tax
purposes on the date of distribution, caused an unusually
low tax rate for the six months and three months ended
December 31, 1997.
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 4, 1997, the matter
of the election of ten 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;
Robert A. Wiesen and Richard Amitrano. 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 3,887,807 5,675 273,470 -
Robert E. Parsont 3,854,259 39,223 273,470 -
Samuel I. Hendler 3,885,373 8,109 273,470 -
Anthony Baldi 3,863,445 30,037 273,470 -
Thomas Brunner 3,863,445 30,037 273,470 -
Donald Horowitz 3,847,345 46,137 273,470 -
Leonard Schwartz 3,885,075 8,407 273,470 -
Stephen M. Goldstein 3,873,811 19,671 273,470 -
Robert A. Wiesen 3,854,753 38,729 273,470 -
Richard Amitrano 3,863,445 30,037 273,470 -
In addition, at the same annual meeting, management
submitted for ratification by the stockholders an amendment
to the Corporation's 1980 Stock Option Plan. This
amendment, among other things, increases by 250,000 the
number of shares of the Corporation's common stock with
respect to which stock options may be granted, and extends
the termination date of the Plan to September 19, 2005. It
was adopted, approved, ratified and confirmed.
The tabulation was as follows:
VOTES VOTES VOTES BROKER
FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
3,157,480 534,664 0 222,248 252,560
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
December 31, 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 February 6, 1997 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial
Officer
DATE February 6, 1997 BY (signed) / by Leonard S. Schwartz
Leonard S. Schwartz, Chief Executive
Officer