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 SEPTEMBER 30, 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 - 6,703,362
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Sept. 30 June 30
1998 1998
ASSETS
Current assets:
Cash and cash equivalents $ 6,441 $ 9,178
Short-term investments 11,647 11,862
Receivables:
Trade, less allowance for doubtful accounts:
(Sept. $227; June $219) 22,412 23,986
Other 1,285 1,502
23,697 25,488
Inventory 25,485 26,783
Prepaid expenses 259 233
Deferred income tax benefit 754 754
Property held for sale 469 493
Total current assets 68,752 74,791
Long-term investments 12,840 8,025
Long-term notes receivable 1,048 902
Property and equipment:
Computers 849 812
Furniture and fixtures 604 599
Automobiles 158 158
1,611 1,569
Less accumulated depreciation 1,237 1,189
374 380
Other assets 274 281
Total assets $ 83,288 $ 84,379
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
(Unaudited)
Sept. 30 June 30
1998 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 328 $ 549
Current installments on long-term debt 250 250
Accounts payable 2,594 2,195
Accrued merchandise purchases 8,181 10,905
Accrued compensation 2,230 2,549
Accrued environmental remediation 1,371 1,378
Accrued income taxes 894 716
Other accrued expenses 2,382 1,826
Total current liabilities 18,230 20,368
Redeemable preferred stock
$2.50 par value per share;
Authorized 2,000 shares;
issued and outstanding:
300 shares 750 750
Shareholders' equity:
Common stock,$.01 par value per share;
Authorized 10,000 shares;
Issued: Sept., 9,001 shares; June, 90 90
9,001 shares; Outstanding: Sept.,
6,703 shares; June, 6,699 shares
Capital in excess of par value 57,617 57,531
Retained earnings 27,907 26,888
85,614 84,509
Less:
Cost of common stock held in treasury;
Sept., 2,298 shares; June, 2,302 shares 21,306 21,248
Total shareholders' equity 64,308 63,261
Commitments and contingencies
Total liabilities and shareholders' equity $ 83,288 $ 84,379
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
SEPT. 30
1998 1997
Net sales $ 36,365 $43,764
Cost of sales 32,013 38,595
Gross profit 4,352 5,169
Selling, general and administrative
expenses 3,281 3,139
Operating profit 1,071 2,030
Other income (expense):
Interest expense (7) (17)
Interest and other income 654 487
647 470
Income before income taxes 1,718 2,500
Provision for income taxes 700 967
Net income $ 1,018 $ 1,533
Net income per common share:
Basic $ 0.15 $ 0.23
Diluted 0.15 0.22
Weighted average shares outstanding:
Basic 6,690 6,761
Diluted 6,959 6,983
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
September 30
1998 1997
Operating activities:
Net income $ 1,018 $ 1,533
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 54 45
Gain on sale of assets (163) (8)
Stock distribution to employees 273 -
Effect of market value over original
option price for options exercised - 26
Provision for doubtful accounts 8 8
Changes in:
Investments - trading securities (164) (159)
Trade accounts receivable 1,566 (372)
Other receivables 217 (5)
Inventory 1,298 4,001
Prepaid expenses (26) (59)
Other assets 7 7
Drafts and acceptances payable (221) (199)
Current installment on long-term debt - 250
Accounts payable 399 (1,445)
Accrued merchandise purchases (2,724) (4,226)
Accrued compensation (319) (718)
Accrued environmental remediation (7) (7)
Accrued income taxes 178 358
Other accrued expenses 556 (16)
Net cash provided by (used in) operating activities 1,950 ( 986)
Investing activities:
Purchases of investments - held-to-maturity (8,534) (1,207)
Proceeds from investments - held-to-maturity 4,098 2,955
Changes in notes receivable (146) 11
Purchases of property and equipment (43) (60)
Proceeds from sale of property 183 10
Net cash provided by (used in) investing activities (4,442) 1,709
Financing activities:
Payments of long-term debt - (250)
Proceeds from exercise of stock options - 79
Payments for purchases of treasury stock (245) (2,484)
Net cash used in financing activities (245) (2,655)
Net increase (decrease) in cash and cash equivalents (2,737) (1,932)
Cash and cash equivalents at beginning of period 9,178 4,142
Cash and cash equivalents at end of period $ 6,441 $ 2,210
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
Unaudited
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 consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
generally accepted accounting principles. 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,
1998.
Note 2: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the three months ended September
30, 1998 and 1997 was as follows:
1998 1997
Interest $ 8 $ 17
Income taxes 522 593
Note 3: Interest and Other Income
For Three Months
Ended
SEPTEMBER 30
1998 1997
Interest on investments $ 391 $ 364
Net gain on investments 47 74
Miscellaneous other income 216 49
$ 654 $ 487
Note 4: Net Income per Common Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("Statement 128").
In accordance with the requirements of Statement 128, net income per common
share amounts ("basic EPS") were computed by dividing net income 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 income 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. Statement 128 requires the presentation of both basic EPS
and diluted EPS on the face of the income statement. Income per share amounts
for the same prior-year periods have been restated to conform with the
provisions of Statement 128.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computation for net income was as follows:
THREE MONTHS ENDED
SEPTEMBER 30, 1998
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
Net income $1,018
Preferred stock dividends -
BASIC EPS
Net income attributable
to common stock 1,018 6,690 $0.15
EFFECT OF DILUTIVE
SECURITIES
Stock options - 130
Convertible preferred stock - 139
DILUTED EPS
Net income attributable to
common stock, assumed option
exercises and conversion of
preferred stock $1,018 6,959 $0.15
THREE MONTHS ENDED
SEPTEMBER 30, 1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
Net income $1,533
Preferred stock dividends -
BASIC EPS
Net income attributable
to common stock 1,533 6,761 $0.23
EFFECT OF DILUTIVE
SECURITIES
Stock options - 83
Convertible preferred stock - 139
DILUTED EPS
Net income attributable to
common stock, assumed option
exercises and conversion of
preferred stock $1,533 6,983 $0.22
Item 2. 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 $30.9 million and
$29.1 million at September 30 and June 30, 1998, 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 decreased to $50.5 million at September 30, 1998 from $54.4
million at June 30, 1998. Receivables decreased to $23.7 million at September
30, 1998 from $25.5 million at June 30, 1998. Inventory also decreased
slightly to $25.5 million from $26.8 million comparing the same periods. The
total of drafts payable, accounts payable and accrued merchandise purchases
decreased $2.5 million at September 30, 1998 compared to June 30, 1998. This
was primarily due to the timing of merchandise purchases and was not the result
of a change in the trend of business. The reduction of cash and cash
equivalents was due to a shift to long-term investments.
RESULTS OF OPERATIONS:
Net sales decreased 17% to $36.4 million in the three months ended September
30, 1998 compared with the same period in the prior year. Decreased sales of
dye and pigment intermediates and the elimination from the Company's product
line of two high priced, low profit items accounted for the decrease. Volume
decreased by 15%; the lower decrease in volume than sales was due to the
aforementioned elimination of two products.
Gross profit margins increased slightly to 12.0% in the quarter ended September
30, 1998 compared with the 11.8% for the same period last year. The
aforementioned elimination of sales of two products accounted for this
increase.
Selling, general and administrative expenses increased $142,000, or 5% compared
to the same period last year. Salaries, fringe benefits, selling expenses,
legal costs, consulting fees and telephone expenses all increased, somewhat
offset by a decrease in incentive compensation.
Other income increased to 654,000 for the three months ended September 30, 1998
from $487,000 for the same period last year. Interest on investments increased
7%, due to the increase in long-term investments. Commission income increased
$150,000 due to royalties received by one of the Company's subsidiaries. A
slight decrease in gains on marketable securities somewhat offset these
increases.
The effective tax rate increased to 40.7% for the three months ended September
30, 1998 from 38.7% for the same period last year. In comparing these periods,
the effective tax rates are in the range of the Company's traditional level.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("Statement
130"), which is effective for fiscal years beginning after December 15, 1997.
Statement 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Effective July 1, 1998, the Company has adopted the
provisions of Statement 130. The adoption of this statement did not have any
impact on its financial position or results of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("Statement 131"). Statement 131 established standards to
report information about operating segments and related discussions about
products and services, geographic areas and major customers. Statement 131 is
effective for financial statements for fiscal years beginning after December
15, 1997. This statement permits early application and requires restatement
for all prior periods. Statement 131 is not required to be applied to interim
financial statements in the initial year of adoption. Management believes that
the adoption of this statement will not have any impact on previously reported
information.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("Statement 133"). Statement 133 established accounting and
reporting standards for derivative instruments embedded in other contracts, and
for hedging activities. Statement 133 is effective for all quarters of fiscal
years beginning after June 15, 1999. Early application of all the provisions
of this statement is encouraged but is permitted only as of the beginning of
any fiscal quarter that begins after issuance of this statement. Management of
the Company does not believe that the implementation of statement 133 will have
a significant impact on its financial position or results of operations.
YEAR 2000 DISCLOSURE
During fiscal 1998, the Company determined that it needed to modify or replace
significant portions of its customized software so that its information systems
will function properly with respect to dates in the year 2000 and beyond. In
addition, the Company is in the process of assessing all the third party
hardware and software it uses for Year 2000 compliance. The Company also has
initiated discussions with its significant suppliers, customers, and financial
institutions to ascertain that those parties have appropriate plans to
remediate Year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
properly remediate their computer systems. The Company's Year 2000 team
includes both internal and external staff. The team's activities are designed
to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported. The Company has commenced testing
its major computer systems and anticipates its information systems
transformation for Year 2000 compliance will be completed in early calendar
1999. While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be converted
on a timely basis. The Company believes it unlikely that there will be a
material effect on the Company.
The Company estimates that its total cost of its Year 2000 initiative will be
approximately $100,000.
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. As of September 30, 1998, the exposure to these market risks
is not considered material.
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
September 30, 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 NOVEMBER 12, 1998 BY (SIGNED) / BY DONALD HOROWITZ
Donald Horowitz, Chief Financial
Officer
DATE NOVEMBER 12, 1998 BY (SIGNED) / BY LEONARD S. SCHWARTZ
Leonard S. Schwartz,Chief Executive
Officer