SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
Commission file number 0-4217
ACETO CORPORATION
-------------------------------------------------------
(Exact name of the company as specified in its charter)
New York 11-1720520
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
One Hollow Lane, Suite 201
Lake Success, New York 11042
---------------------- -----
(Address of principal (Zip Code)
executive offices)
Company'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 per share
-------------------------------------------------------------
(Title of Class)
-------------------------------
[Cover page 1 of 2 pages]
Indicate by check mark whether the company (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 company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
6,503,707
The aggregate market value of the voting stock of the Company held by
non-affiliates of the Company as of September 21, 2001 was $47,693,071.
Documents incorporated by reference: The information required in
response to Part III of Form 10-K is hereby incorporated by reference to the
specified portions of the Company's proxy statement for the Annual Meeting of
Shareholders to be held on December 6, 2001.
[Cover page 2 of 2 pages]
ACETO CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2001
TABLE OF CONTENTS
Item Number Description Page
----------- ----------- ----
PART I.
Item 1. Business............................................................................ 1
Item 2. Properties.......................................................................... 5
Item 3. Legal Proceedings................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders................................. 6
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................................. 7
Item 6. Selected Financial Data............................................................. 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk................................................................................ 13
Item 8. Financial Statements and Supplementary Data......................................... 13
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.......................................................................... 14
PART III.
Item 10. Directors and Executive Officers of the Company..................................... 14
Item 11. Executive Compensation.............................................................. 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................................................... 14
Item 13. Certain Relationships and Related Transactions...................................... 14
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K................................................................................. 14
Signatures.......................................................................... 42
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
THIS ANNUAL REPORT ON FORM 10-K AND THE INFORMATION INCORPORATED BY REFERENCE
MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE COMPANY INTENDS THE
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED
FINANCIAL POSITION AND OPERATING RESULTS, ITS BUSINESS STRATEGY, ITS FINANCING
PLANS AND THE OUTCOME OF ANY CONTINGENCIES ARE FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT ESTIMATES AND PROJECTIONS ABOUT
OUR INDUSTRY AND OUR BUSINESS. WORDS SUCH AS "ANTICIPATES," "EXPECTS,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," OR VARIATIONS OF SUCH
WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SET FORTH OR IMPLIED BY ANY FORWARD LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS INCLUDE,
BUT ARE NOT LIMITED TO: THE INABILITY TO MANAGE OUR RECENT RAPID GROWTH,
UNFORESEEN ENVIRONMENTAL LIABILITIES AND THE UNCERTAIN MILITARY, POLITICAL AND
ECONOMIC CONDITIONS IN THE WORLD. THESE RISKS ARE DETAILED IN PART I, ITEM 1
"RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE PUBLICLY THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS
MAY BE REQUIRED BY LAW.
PART I
ITEM 1. BUSINESS
Aceto Corporation (the Company), was incorporated in 1947 in the State of New
York. The Company is primarily engaged in the marketing, sale and distribution
of pharmaceutical, fine and industrial chemicals used principally in the
agricultural, color producing, pharmaceutical, nutraceutical and surface coating
industries. The Company sells approximately 1,000 chemicals used in these and
other related industries.
RECENT ACQUISITIONS
On March 26, 2001, the Company acquired (i)the distribution business of the
Schweizerhall Pharma division of Schweizerhall Holding AG, a Switzerland
corporation and (ii) certain assets relating to the Pharmaceutical Ingredients
business of Schweizerhall, Inc., a New Jersey corporation, and a wholly owned
subsidiary of Schweizerhall Holding AG (collectively, "Schweizerhall Pharma").
Schweizerhall Pharma's distribution business is an international pharmaceutical
distribution business with offices located in: Hamburg, Germany; Wormerveer, 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 products sold by Schweizerhall Pharma are in the Pharmaceuticals,
Biochemicals & Nutraceuticals and Pharmaceutical Intermediates and Custom
Manufacturing segments sold by the Company; therefore there is no change in the
types of products sold or the methods of distribution.
1
The purchase price for Schweizerhall Pharma aggregated $22,709,000 and consisted
of 600,000 shares of the Company's Common Stock $.01 par value (Common Stock),
the assumption of $8,966,000 of Schweizerhall Holding AG debt, $2,778,000 in
cash, the issuance of notes of $4,626,000 and direct acquisition costs of
$1,164,000. The quoted market price of the Common Stock on March 26, 2001,
$8.625, was used to approximate the fair value of the 600,000 shares issued,
which amounted to $5,175,000. The shares issued are restricted from being traded
on the open market for two years. 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 $7,162,000 to the Company. Subsequent to March 31,
2001 the Company paid Schweizerhall Holding AG $8,987,000 and was released from
a portion of the debt assumed at closing.
REPORTABLE SEGMENTS
The Company is organized into six reportable segments, organized by product: (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 the production of agrochemicals, (4) Pharmaceuticals,
Biochemicals & Nutritionals products, which include the active ingredients for
generic pharmaceuticals, vitamins and nutritional supplements, (5)
Pharmaceutical Intermediates & Custom Manufacturing products, used in
preparation of pharmaceuticals, primarily by major ethical drug companies and
(6) Institutional Sanitary Supplies & Other, whose products include cleaning
solutions, fragrances and deodorants used by commercial and industrial
establishments. The Company does not allocate assets by segment.
Information concerning revenue and profit attributable to each of the Company's
business segments is found in Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Part IV, Item
14, Note 16 of "Notes to Consolidated Financial Statements," of this Form 10-K,
which information is incorporated by reference into this Part I, Item 1.
PRODUCTS AND CUSTOMERS
During the fiscal years ended June 30, 2001 and 2000, approximately 30% and 40%,
respectively, of the Company's purchases of chemicals came from Europe and
approximately 55% and 45%, respectively, from Asia.
The Company's customers are located primarily in the United States, though sales
are made worldwide. The customers include a wide range of companies in the
chemical and pharmaceutical industries, and range from small trading companies
to Fortune 500 corporations. During fiscal 2001 and 2000, 75% and 86% of sales,
respectively, were in the United States.
The sales outside the United States totaled $43,942,000. Approximately 80% of
these international sales were in Mexico, Brazil, Singapore, Canada, Germany,
France, United Kingdom and The Netherlands.
The chemical industry is highly competitive. The Company competes by offering
high quality products produced around the world by both large and small
manufacturers at attractive prices. The Company has the ability, based on its
long relationship with many suppliers as well as its sourcing offices in China
and India, to offer products manufactured
2
at a facility that is appropriate for that product. For the most part, the
Company stores its inventory of chemicals in public warehouses strategically
located throughout the United States, Europe and Singapore, and can therefore
fill orders rapidly from inventory. The Company has developed ready access to
key purchasing, research and technical executives of both its customers and
suppliers and has the ability to obtain quick decisions, when necessary, because
of such access. The Company does not consider itself to be a significant factor
in the chemical industry taken as a whole.
Total long-lived assets in the United States were $1,986,000 and $1,289,000 as
of June 30, 2001 and 2000, respectively. Total long-lived assets outside the
United States were $553,000 and -0- at June 30, 2001 and 2000, respectively.
No single product accounted for as much as 10% of net sales in fiscal 2001 or
2000. One of the Company's pharmaceutical products accounted for 15% of net
sales in fiscal 1999. No single customer accounted for as much as 10% of net
sales in fiscal 2001 or 2000. One of the Company's former customers, DuPont
Pharmaceutical Company, accounted for 16% of net sales in fiscal 1999. One of
the Company's suppliers accounted for 21% and 29% of total purchases in fiscal
2000 and 1999, respectively. No supplier accounted for as much as 10% of
purchases in fiscal 2001.
The Company holds no patents, trademarks, licenses, franchises or concessions
which it considers to be material to its operations.
Sales of certain of the Company's chemicals are higher in the last six months of
the fiscal year. For the most part, the Company warehouses the products that it
sells and fills orders from inventory. The Company does not have and has not
experienced a material amount of backlogs.
A subsidiary of the Company, Aceto Agricultural Chemicals Corp., markets certain
agricultural chemicals and contracts for the manufacture of other agricultural
chemicals which are subject to the Federal Insecticide, Fungicide and
Rodenticide Act (FIFRA). FIFRA requires that test data be provided to the
Environmental Protection Agency (EPA) to register, obtain and maintain approved
labels for pesticide products. The EPA requires that follow-on registrants of
these products compensate the initial registrant for the cost of producing the
necessary test data on a basis prescribed in the FIFRA regulations. Follow-on
registrants do not themselves generate or contract for the data. However, when
FIFRA requirements mandate the generation of new test data to enable all
registrants to continue marketing a pesticide product, often both the initial
and follow-on registrants establish a task force to jointly undertake the
testing effort. The Company is presently a member of three such task force
groups. The Company may be required to make additional payments in the future.
Compliance with Federal, State and local regulations which have been enacted or
adopted regarding the discharge of materials into the environment has not had a
material effect on the capital expenditures and competitive position of the
Company. During fiscal 1993, the Company announced the closing of its
manufacturing subsidiary located in Carlstadt, New Jersey. 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 of $1,500,000 was recorded in
fiscal 1993.
During fiscal 1997, however, after additional testing was completed, the Company
received a revised estimate from the consultant. As a result, the Company
recorded an additional liability of $800,000. At June 30, 2001 and 2000, the
remaining liability was $1,292,000 and 1,312,000,
3
respectively. The Company believes it is possible that such amount may not be
sufficient to cover future environmental remediation but does not believe any
additional amount will cause a material adverse effect on the overall financial
position or liquidity of the Company. However, any remediation required above
the liability established could materially affect the Company's results in a
particular reporting period. Other than the remediation associated with the
Carlstadt, New Jersey facility, the Company is not aware of any material
environmental liabilities.
At June 30, 2001, the Company employed approximately 240 persons, none of whom
were covered by a collective bargaining agreement.
RISK FACTORS
IF WE ARE UNABLE TO MANAGE OUR RECENT RAPID GROWTH, OUR FINANCIAL CONDITION AND
OPERATING RESULTS MAY BE ADVERSELY AFFECTED.
We have made four significant acquisitions since November 1998 and may expand
our current operations through additional acquisitions. A failure to effectively
manage this growth may adversely affect our business and financial condition.
As a result of these recent acquisitions, we have experienced significant
revenue growth and have expanded the number of our employees and the geographic
scope of our operations. Our operations now represent the full spectrum of
chemical sales and distribution. This rapid growth has placed, and will continue
to place, significant demands on our management, technical and other resources.
Additionally, the successful expansion of our operations will depend on our
ability to secure adequate sources of specialty chemicals on commercially
reasonable terms and attract and retain skilled management. We can give no
assurance, however, that we will be able to manage this growth successfully.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OUR COMPETITORS, MANY OF WHOM HAVE
A GREATER MARKET PRESENCE AND GREATER RESOURCES THAN US, WE WILL NOT BE ABLE TO
INCREASE OUR REVENUES AND OPERATE PROFITABLY.
The worldwide chemical market is intensely competitive and we can give no
assurance that we will be able to compete successfully against our competitors.
We face competition from global and regional distributors of chemical products,
many of whom are large chemical manufacturers as well as distributors. Our
ability to increase our revenues and operate profitably is directly related to
our ability to compete with these competitors. Many of these companies have
substantially greater resources than us, including financial, marketing and
distribution resources.
UNFORSEEN ENVIRONMENTAL LIABILITIES AND/OR COSTS ASSOCIATED WITH COMPLIANCE WITH
ENVIRONMENTAL LAWS WOULD HAVE A NEGATIVE EFFECT ON OUR FINANCIAL PERFORMANCE.
Our operations, the distribution of chemical products, are subject to federal,
state, local and foreign environmental laws and regulations. Many of these laws
and regulations provide for substantial remediation costs in the event of
discharges of contaminants and fines and criminal sanctions for violations. If
existing environmental regulations are changed, or additional laws or
regulations are passed, the cost of complying with those laws may be
substantial.
Although it is our policy to comply with all environmental laws and regulations
and we believe that we currently are in substantial
4
compliance with all such laws and regulations, we cannot assure you that we will
not incur material environmental liabilities or that compliance with such laws
will not require material capital expenditures by us. Such liabilities and/or
costs could adversely affect our financial condition.
THE UNCERTAIN MILITARY, TERRORIST, POLITICAL AND ECONOMIC CONDITIONS IN
THE WORLD COULD MATERIALLY DISRUPT OUR BUSINESS.
In fiscal year 2001, approximately 25% of our revenues were attributable to
operations conducted abroad and to export sales. We expect this percentage to
increase in fiscal year 2002 due to our recent acquisition of the foreign
operations of Schweizerhall Pharma. The recent terrorist attacks in the United
States and the escalation of military actions in other countries could
materially disrupt our business.
In addition, in certain countries where we currently operate, export, intend to
operate or intend to expand our operations, we could be subject to other
political, military and economic uncertainties, including labor unrest,
restrictions on transfers of funds and unexpected changes in regulatory
environments.
WE MAY FACE UNINSURED LIABILITIES INHERENT IN THE CHEMICAL INDUSTRY.
Our operations are subject to risks inherent in the chemical industry, such as
explosions, fires, chemical spills or releases, pollution and other
environmental risks. We maintain general liability insurance and property and
business interruption insurance with coverage limits we believe are adequate.
However, it is possible that liabilities for pollution and other damages arising
from a major occurrence could exceed our insurance coverage or policy limits or
that such insurance may not be available at reasonable rates in the future. Any
such liabilities, which could arise due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and other
environmental damage and suspension of our operations, could have a material
adverse effect on us.
BECAUSE OUR BUSINESS IS AFFECTED BY CHANGES IN CURRENCY MARKETS,
FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES MAY ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.
A portion of our revenues is denominated in currencies other than the U.S.
dollar because certain of our foreign subsidiaries operate in their local
currencies. Accordingly, our results of operations and financial condition may
be adversely affected by fluctuations in the exchange rates between such
currencies and the U.S. dollar. Moreover, we may incur significant costs in
connection with conversions between currencies.
ITEM 2. PROPERTIES
The Company's general headquarters and main sales office occupy approximately
26,000 square feet of leased space in a modern office building in Lake Success,
New York. The lease expires in April 2011.
Two of the Company's subsidiaries, in the sanitary supply business, occupy
44,000 square feet of leased space in an industrial park in New Hyde Park, New
York. The lease expires in November 2009.
The Company's former manufacturing facility is located on an 11-acre parcel in
Carlstadt, New Jersey, owned by the Company. This parcel contains one building
with approximately 5,000 square feet of office space. The property is held for
sale.
5
The Company recently assumed the leases of additional offices in Waldshut,
Germany; Hamburg, Germany; Wormerveer, The Netherlands; Paris, France; Singapore
and Mumbai, India as part of the Schweizerhall Pharma acquisition. The offices
are used for sales and administrative purposes. The Company believes that its
properties are generally well maintained, in good condition and adequate for its
present needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted for a formal vote of the shareholders during the
fourth quarter of the fiscal year covered by this Report.
6
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is traded in the National Market System of NASDAQ
(Symbol: ACET) and was quoted at prices* ranging as follows:
FISCAL 2001 HIGH LOW
First Quarter $11.688 $ 9.125
Second Quarter 10.188 7.625
Third Quarter 9.063 8.063
Fourth Quarter 10.020 8.290
FISCAL 2000 HIGH LOW
First Quarter $12.375 $10.500
Second Quarter 12.094 10.000
Third Quarter 11.563 8.125
Fourth Quarter 11.188 7.750
*Represents high and low prices for actual transactions.
A cash dividend of $0.16 per common share was paid in June 2001. Cash dividends
of $0.15 per common share were paid in January 2001, June 2000 and January 2000.
As of September 21, 2001, there were approximately 700 holders of record of the
Company's common stock.
Shares held by the nominee of the Depository Trust Company, the country's
principal central depository, were approximately 5,200,000 shares and counted as
owned by one holder. Additional individual holdings in street name result in a
sizable number of beneficial owners represented on our records as owned by
various banks and stockbrokers.
7
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
YEARS ENDED JUNE 30 2001 2000 1999 1998 1997
------------------------- ---- ---- ---- ---- ----
Net sales $178,154 (1) $185,308 $169,725 $183,356 $169,888
Net income 4,245 6,344 6,091 7,557 6,228 (2)(3)
Net income per $ 0.69 $ 1.01 $ 0.90 $ 1.08 $ 0.82 (2)(3)
common share -
diluted (4)
Total assets 105,173 88,081 86,159 84,379 86,145
Working capital 55,259 50,270 49,459 54,423 48,927
Long-term 671 908 925 - 500
liabilities
Redeemable preferred - - 750 750 750
stock
Shareholders' equity 69,203 63,604 63,982 63,261 60,434
Number of common 6,504 6,035 6,416 6,699 6,981
shares outstanding
at year end (4)
Book value per $ 10.64 $ 10.54 $ 9.97 $ 9.44 $ 8.66
common share (4)
Cash dividends per $ 0.31 $ 0.30 $ 0.26 $ 0.25 $ 0.24
common share (4)
(1) Includes the acquisition of the Schweizerhall Pharma distribution
business on March 26, 2001 as more fully described in Item 1.
(2) Includes an after-tax charge of $187 ($.03/share)in final settlement of
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 a then wholly owned subsidiary
in Waterbury, CT. This subsidiary was sold on June 19, 1996.
(3) Includes an after-tax charge of $480 ($.06/share)to cover a revised
estimate for remediation of the Company's former manufacturing site in
Carlstadt, NJ.
(4) Adjusted for stock split and dividend, as appropriate.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
THIS ANNUAL REPORT ON FORM 10-K AND THE INFORMATION INCORPORATED BY REFERENCE
MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE COMPANY INTENDS THE
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED
FINANCIAL POSITION AND OPERATING RESULTS, ITS BUSINESS STRATEGY, ITS FINANCING
PLANS AND THE OUTCOME OF ANY CONTINGENCIES ARE FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT ESTIMATES AND PROJECTIONS ABOUT
OUR INDUSTRY AND OUR BUSINESS. WORDS SUCH AS "ANTICIPATES," "EXPECTS,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SET FORTH OR IMPLIED BY ANY FORWARD LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS INCLUDE,
BUT ARE NOT LIMITED TO: THE INABILITY TO MANAGE OUR RECENT RAPID GROWTH,
UNFORESEEN ENVIRONMENTAL LIABILITIES AND THE UNCERTAIN MILITARY, POLITICAL AND
ECONOMIC CONDITIONS IN THE WORLD. THESE RISKS ARE DETAILED IN PART I, ITEM 1
"RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE PUBLICLY THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS
MAY BE REQUIRED BY LAW.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 2001, the Company had $7.3 million in cash, $1.0 million in short
term investments, $8.9 million of short term bank loans and $2.3 million of
acquisition related debt. Working capital was $55.3 million at June 30, 2001.
On March 26, 2001 the Company invested $22.7 million, which included 600,000
shares of common stock from treasury valued at $5.2 million, $4.6 million in
notes, $2.7 million in cash, the assumption of debt for $9.0 million and
acquisition costs of $1.2 million 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 had an existing credit facility with a European financial institution.
This facility provides the Company with a line of credit of 12.5 million Euros
(approximately $10.6 million) of which $8.9 million was utilized as of June 30,
2001. The Company has $6.3 million of available credit under all its financing
arrangements as of June 30, 2001.
In addition to the funds used for the acquisition, the Company paid $1.6
million, during the year ended June 30, 2001, in a continuation of its stock
repurchase program. 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.
9
RESULTS OF OPERATIONS:
Net Sales By Segment
(Dollars in Thousands)
Segment 2001 2000 1999
---- ---- ----
% of % of % of
Sales Total Sales Total Sales Total
----- ----- ----- ----- ----- -----
Agrochemicals $13,133 7.4 $11,417 6.2 $10,377 6.1
Industrial Chemicals
51,093 28.7 49,874 26.9 44,722 26.3
Organic Intermediates &
Colorants
46,809 26.3 49,861 26.9 38,946 22.9
Pharmaceuticals,
Biochemicals & Nutritionals
47,736 26.8 35,448 19.1 28,272 16.7
Pharmaceutical
Intermediates & Custom Mfg.
13,401 7.5 33,202 17.9 44,255 26.1
Institutional Sanitary
Supplies & Other
5,982 3.3 5,506 3.0 3,153 1.9
-------- ----- ------- ----- -------- -----
TOTAL NET SALES
$178,154 100.0 $185,308 100.0 $169,725 100.0
======== ===== ======== ===== ======== =====
Gross Profit By Segment
(In Thousands)
Segment 2001 2000 1999
---- ---- ----
Gross % of Gross % of Gross % of
Profit Total Profit Total Profit Total
------ ----- ------ ----- ------ -----
Agrochemicals $4,943 14.5 $3,930 12.2 $3,740 14.1
Industrial Chemicals
9,320 27.4 9,183 28.8 7,703 29.3
Organic Intermediates &
Colorants
6,209 18.3 7,308 22.8 5,397 20.5
Pharmaceuticals,
Biochemicals & Nutritionals
9,270 27.3 6,336 19.7 4,769 18.3
Pharmaceutical
Intermediates & Custom Mfg.
2,678 7.9 2,657 8.4 3,331 12.5
Institutional Sanitary
Supplies & Other
1,562 4.6 2,602 8.1 1,354 5.3
------- ----- ------- ----- ------- -----
TOTAL GROSS
PROFIT BY
SEGMENT
$33,982 100.0 $32,016 100.0 $26,294 100.0
UNALLOCATED COST OF SALES
5,365 4,812 3,555
------- ------- -------
NET GROSS PROFIT
$28,617 $27,204 $22,739
======= ======= =======
10
SALES AND GROSS PROFIT
In fiscal 2001 compared with 2000, net sales decreased 4%. Although the overall
sales decrease was relatively small, several of the segments showed significant
changes.
The acquisition of Schweizerhall Pharma, which closed March 26, 2001, accounted
for $17,798,000 or 10% of net sales for the year of which $13,319,000 was in the
Pharmaceuticals, Biochemicals & Nutritionals segment. The contribution of this
acquisition, offset somewhat by the loss of sales resulting from the termination
of a supply agreement with a major supplier, resulted in this segment's 35%
increase, to $47,736,000, from $35,448,000. Sales under the supply agreement
with the major supplier that was terminated accounted for approximately $15.0
million of sales in 2000.
The balance of the sales resulting from that acquisition, $4,479,000, were in
the Pharmaceutical Intermediates & Custom Manufacturing segment. This segment
had an overall decrease of $19,801,000 to $13,401,000 or 60%. The major supplier
referred to earlier was the principal supplier to this segment and the sales
decrease excluding the new sales from the Schweizerhall Pharma acquisition is
directly related.
The Organic Intermediates & Colorants segment experienced a 6% decrease in
sales, to $46,809,000 from $49,861,000. Dyes and pigment intermediates showed
across the board decreases due to a general weakening of demand. This was offset
somewhat by sales of pigments and agricultural intermediates, two relatively new
areas, which showed significant growth from the continuing development of new
products.
Sales of the Agrochemicals segment also increased to $13,133,000 from
$11,417,000, or 15%. This was due primarily to increased sales of two products,
with all other products remaining relatively flat.
The other two segments, Industrial Chemicals and Institutional Sanitary Supplies
& Other, were basically unchanged.
Gross profit by segment before freight and storage costs for the entire
corporation for the year increased 6% for the year to $33,982,000 from
$32,016,000.
Unallocated cost of sales, primarily storage and certain freight costs,
increased 11% to $5,365,000 from $4,812,000. The inclusion of Schweizerhall
Pharma for the fourth quarter, fuel surcharges on domestic freight and increased
goods in warehouses as a result of the acquisitions accounted for the increase.
Therefore, since the percent increase in unallocated cost of sales was greater
than the increase in total gross profit by segment, net gross profit increased
by a slightly lesser percentage.
The Pharmaceutical Intermediates & Custom Manufacturing segment benefited from a
sales commission earned with the aforementioned major supplier relating to
profits on open orders at the time of termination. This, coupled with the gross
profit of $832,000 relating to sales of this segment resulting from the
Schweizerhall Pharma acquisition, at substantially higher gross margins than the
lost sales, resulted in gross margins being virtually unchanged, in spite of the
sales decrease.
The profit margins on sales from the Schweizerhall Pharma acquisition in the
Pharmaceuticals, Biochemicals and Nutritional segment of $1,976,000 were within
that segment's normal range. This segment also benefited from the sales
commission
11
earned relating to the previously mentioned major supplier. This accounts for
the somewhat larger percentage increase in gross profit than sales.
Gross profits in the Agrochemicals sector increased 26%, greater than the 15%
increase in sales. Increased sales of higher profit products, combined with a
decrease in certain product reregistration costs, caused this.
The Organic Intermediates & Colorants sector showed a greater percentage
decrease in gross profit than sales. This was caused by increased competition.
The Industrial Chemicals segment was virtually unchanged, the same as in sales.
Lastly, gross profits in the Institutional Sanitary Supplies and Other segment
fell 40% caused by a shift in product mix towards lower profit products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased by $4,730,000 to
$22,761,000 in fiscal 2001 compared to $18,031,000 in fiscal 2000. The
acquisition and inclusion of the Schweizerhall Pharma business as of March 26,
2001 accounted for $1,900,000 of the increase. Costs related to the acquisition
and assimilation of the acquired business in addition to the related
amortization of goodwill and intangible assets also contributed to the overall
increase. Fiscal 2001 includes a non-recurring employee separation charge of
$994,000. Selling expenses increased due to an increased presence in China and
the promotional expenses related to our recent acquisitions. Compensation
related costs also increased as new positions were added to support the growth
and expansion of the Company.
Selling, general and administrative expenses increased by $2.7 million to $18.0
million in fiscal 2000 compared to $15.3 million in fiscal 1999. The inclusion
of CDC and Magnum in the consolidated financial statements accounted for $1.5
million of this increase. Additional costs relating to the January 2000
Schweizerhall acquisition accounted for a large portion of the remaining
increase. Compensation expense and fringe benefits increased due to routine
annual increases. Selling expenses increased due to our expanding China office
and expenses relating to the increase in personnel from our recent acquisitions.
Bank charges increased significantly due to an informal compensating balance
agreement. A significant increase in legal fees was due to an ongoing
arbitration with the former owner of CDC. Offsetting some of these increases was
a decrease in bad debt expense.
INTEREST EXPENSE AND OTHER INCOME
Interest expense was $296,000, $11,000 and $18,000 in fiscal 2001, 2000 and
1999, respectively. Interest expense increased $285,000 in fiscal 2001 as a
result of the short term loans assumed in connection with the acquisition of the
Schweizerhall Pharma business. Interest expense was flat in fiscal 2000 as
compared to fiscal 1999.
Interest and other income increased by $157,000 to $1,226,000 in fiscal 2001
compared to $1,069,000 in fiscal 2000. The increase in income was attributable
to the incremental amounts realized by the Schweizerhall Pharma business during
the fourth quarter.
Interest and other income decreased by $1,288,000 to $1,069,000 in fiscal 2000
compared to $2,357,000 in fiscal 1999. Lower cash available for investments
during fiscal year 2000 due to the Company's continuing stock repurchase
program, along with acquisitions, caused a significant decrease in interest
income on investments. In addition, a loss on marketable securities in fiscal
2000 compared to a gain in fiscal 1999, accounted for $350,000 of this decrease.
Royalty income decreased $315,000 in comparing these two periods due to a
decrease in sales of an agricultural product sold in Europe.
TAX RATES
The effective tax rates were 37.4%, 38.0% and 37.5% in fiscal 2001, 2000 and
1999, respectively. The effective tax rates differ from the federal statutory
tax rate of 34% primarily due to state income taxes.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
12
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and
SFAS 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the
purchase method of accounting be used for all future business combinations and
specifies criteria intangible assets acquired in a business combination must
meet to be recognized and reported apart from goodwill. SFAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS 142. Amortization expense relating to goodwill was
$275,000 and $193,000 for the years ended June 30, 2001 and 2000, respectively.
SFAS 142 will also require that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives, and reviewed for
impairment in accordance with SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The Company is
considering whether it will early adopt the provisions of SFAS 141 and SFAS 142
as of July 1, 2001.
Upon adoption the Company will evaluate its existing intangible assets and
goodwill that were acquired in prior purchase business combinations, and make
any necessary reclassifications in order to conform with the new criteria in
SFAS 141 for recognition apart from goodwill. The Company will be required to
reassess the useful lives and residual values of all intangible assets acquired,
and make any necessary amortization period adjustments. In addition, the Company
will be required to test goodwill and, to the extent an intangible asset is
identified as having an indefinite useful life, the intangible asset for
impairment in accordance with SFAS 142. Any impairment loss will be measured as
of the date of adoption and recognized as the cumulative effect of a change in
accounting principle. As of June 30, 2001 the Company had unamortized goodwill
in the amount of $10,367,000 and unamortized identifiable intangible assets in
the amount of $356,000.
Because of the extensive effort needed to comply with adopting SFAS 141 and 142,
it is not practicable to reasonably estimate the impact of adopting these
statements on the Company's consolidated financial statements as of the date of
this report, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.
ITEM 7A. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item 8 are set forth at the end of
this report. The following is the applicable supplementary data:
The following is a summary of the unaudited quarterly results of operations for
the years ended June 30, 2001 and 2000.
QUARTERLY FINANCIAL DATA (Unaudited)
(In thousands except per share amounts)
Year Ended June 30, 2001
Quarter Ended
Sept.30,2000 Dec.31,2000 Mar.31,2001 June 30,2001
------------ ----------- ----------- ------------
Net sales $41,051 $37,750 $43,317 $56,036
Gross profit 5,869 6,323 7,436 8,989
Net income 929 1,141 1,953 222
13
Net income per
common share
- diluted 0.15 0.19 0.33 0.03
Year Ended June 30, 2000
Quarter Ended
Sept.30,1999 Dec.31,1999 Mar.31,2000 June 30,2000
------------ ----------- ----------- ------------
Net sales $37,935 $48,347 $55,621 $43,405
Gross profit 5,555 5,825 8,336 7,488
Net income 1,214 1,329 2,071 1,730
Net income per
common share
- diluted 0.19 0.21 0.33 0.28
Net income per common share calculation for each of the quarters is based on
weighted average number of shares outstanding in each period. Therefore, the sum
of the quarters in a year does not necessarily equal the year's net income per
common share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company's proxy statement relating to the annual meeting of the
Company's shareholders to be held on December 6, 2001, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K (the Proxy Statement), is hereby incorporated by reference.
Based solely on its review of the copies of such forms received by it,
the Company believes that during the fiscal year covered by this Form 10-K all
filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
The Company's Proxy Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company's Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a The Financial Statements listed in the Index to Consolidated Financial
Statements are filed as part of this report.
(b) The Company filed a current report on Form 8-K on April 4, 2001, to
report the Schweizerhall Pharma acquisition.
The Company filed a current report on Form 8-K on August 15, 2001 to
report the resignation of Richard Amitrano, a director. The Company
14
amended that report on Form 8-K/A on August 17, 2001 to provide further
information.
The Company filed a current report on Form 8-K/A on September 27, 2001
to provide the financial statements relating to the Schweizerhall
Pharma acquisition.
(c) Exhibits
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 4(a)(iii) to Registration Statement No. 2-70623 on Form S-8
(S-8 2-70623)).
3.2 Certificate of Amendment dated November 21, 1985 to Restated
Certificate of Incorporation (incorporated by reference to Exhibit
3(ii) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1986).
3.3 By-laws(incorporated by reference to Exhibit 3(iii)(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1998).
10.1 Profit Sharing Plan, as amended and restated effective July 1, 1989
(incorporated by reference to Exhibit 10(iii)(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995).
10.2 401(k) Plan, effective August 1, 1997, (incorporated by reference to
Exhibit 10 (iii) to the Company's Annual Report on Form 10-K for the
year ended June 30, 1998).
10.3 Supplemental Executive Retirement Plan, effective June 30, 1985, as
amended and restated, effective July 1, 1992 (incorporated by
reference to Exhibit 10(iv)(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993).
10.4 Aceto Corporation Stock Option Plan (as Amended and Restated
effective as of September 19, 1990) (and as further Amended
effective June 9, 1992) (incorporated by reference to Exhibit
10(v)(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992).
10.5 1998 Aceto Corporation Omnibus Equity Award Plan (incorporated by
reference to Exhibit 10(v) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1999).
10.6 Lease between Aceto Corporation and M. Parisi & Son Construction
15
Co., Inc. for office space at One Hollow Lane, Lake Success, NY
dated April 28, 2000 (incorporated by reference to Exhibit 10(vi) to
the Company's Annual Report Form 10-K for the fiscal year ended June
30, 2000).
10.7 Lease between Aceto Corporation and M. Parisi & Son Construction
Co., Inc. for office space at One Hollow Lane, Lake Success, NY
dated April 28, 2000 (incorporated by reference to Exhibit 10(vi)(b)
to the Company's Annual Report on Form 10-K for the year ended June
30, 2000).
10.8 Lease between CDC Products Corp. and Seaboard Estates for
manufacturing and office space at 1801 Falmouth Avenue, New Hyde
Park, NY dated October 31, 1999 (incorporated by reference to
Exhibit 10(vi)(c) to the Company's Annual Report on Form 10-K for
the year ended June 30, 2000).
10.9 Stock Purchase Agreement among Windham Family Limited Partnership,
Peter H. Kliegman, CDC Products Corp. and Aceto Corporation
(incorporated by reference to Exhibit 10(vii) to the Company's
Annual Report on Form 10-K for the year ended June 30, 1999).
10.10 Asset Purchase Agreement among Magnum Research Corporation, CDC
Products Corp., Roy Gross and Aceto Corporation (incorporated by
reference to Exhibit 10 (viii) to the Company's Annual Report on
Form 10-K for the year ended June 30, 2000).
10.11 Asset Purchase Agreement between Schweizerhall, Inc. and Aceto
Corporation (incorporated by reference to Exhibit 10(ix) to the
Company's Annual Report on Form 10-K for the year ended June 30,
2000).
10.12 Purchase and Sale Agreement among Schweizerhall Holding AG,
Chemische Fabrik Schweizerhall, Schweizerhall, Inc., Aceto
Corporation and Aceto Holding B.V., I.O. (incorporated by reference
to Exhibit 2.1 to the Company's report on Form 8-K dated April 4,
2001).
10.13* Loan Guarantee between Aceto Corporation and subsidiaries and
Deutsche Bank AG dated March 22, 2001.
21* Subsidiaries of the Company.
23* Consent of KPMG LLP.
------------------
*Filed herewith
16
ACETO CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated financial statements:
Consolidated balance sheets as of June 30, 2001 and 2000
Consolidated statements of income for the years ended June 30,
2001, 2000 and 1999
Consolidated statements of cash flows for the years ended June
30, 2001, 2000 and 1999
Consolidated statements of shareholders' equity and comprehensive
income for the years ended June 30, 2001, 2000 and 1999
Notes to consolidated financial statements
Schedules:
II - Valuation and qualifying accounts
All other schedules are omitted because they are not required or the
information required is given in the consolidated financial statements
or notes thereto.
17
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Aceto Corporation:
We have audited the accompanying consolidated balance sheets of Aceto
Corporation and subsidiaries as of June 30, 2001 and 2000, and the related
consolidated statements of income, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended June
30, 2001. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aceto Corporation
and subsidiaries as of June 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2001 in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Melville, New York /s/KPMG LLP
September 26, 2001
18
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED JUNE 30, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
2001 2000
---- ----
ASSETS
Current assets:
Cash $ 7,310 $ 2,811
Short-term investments 988 2,153
Receivables:
Trade, less allowance for
doubtful accounts:
2001, $316; 2000, $239 38,285 25,257
Other 3,215 2,651
------ ------
41,500 27,908
Inventory 37,818 38,453
Prepaid expenses 686 622
Deferred income tax benefit, net 1,773 1,436
Property held for sale 483 456
------ ------
Total current assets 90,558 73,839
Long-term investments 369 7,263
Long-term notes receivable 794 895
Property and equipment:
Machinery and equipment 953 712
Leasehold improvements 1,093 872
Computer equipment 1,378 1,293
Furniture and fixtures 983 803
Automobiles 264 136
------ ------
4,671 3,816
Less accumulated depreciation and
amortization 2,132 2,527
------ ------
2,539 1,289
Goodwill, less accumulated amortization: 10,367 4,467
2001, $544; 2000, $269
Other assets 546 328
------ ------
Total Assets $105,173 $88,081
======= ======
See accompanying notes to consolidated financial statements.
19
2001 2000
---- ----
(In thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 1,533 $ 464
Short-term bank loans 8,864 -
Notes payable - acquisition 2,313 -
Current installments
on long-term liabilities 397 642
Accounts payable 10,529 2,788
Accrued merchandise purchases 1,626 12,021
Accrued compensation 2,913 3,171
Accrued environmental remediation 1,292 1,312
Accrued income taxes 519 1,147
Other accrued expenses 5,313 2,024
------ ------
Total current liabilities 35,299 23,569
Long-term liabilities, excluding
current installments 671 908
Commitments and Contingencies (Note 18)
Shareholders' equity:
Common stock, $.01 par value;
authorized 20,000,000 shares
issued 9,001,290 shares
outstanding 2001, 6,503,707 shares
outstanding 2000, 6,034,717 shares 90 90
Capital in excess of par value 56,416 57,054
Retained earnings 38,006 35,697
Treasury stock, at cost:
2001, 2,497,583 shares
2000, 2,966,573 shares (24,545) (29,237)
Accumulated other comprehensive loss (764) -
------ ------
Total shareholders' equity 69,203 63,604
------- ------
Total Liabilities and Shareholders' Equity $105,173 $ 88,081
======= ======
See accompanying notes to consolidated financial statements.
20
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 1999
---- ---- ----
Net sales $178,154 $185,308 $169,725
Cost of sales 149,537 158,104 146,986
------- ------- -------
Gross profit 28,617 27,204 22,739
Selling, general and
administrative expenses 22,761 18,031 15,328
------- ------- -------
Operating profit 5,856 9,173 7,411
Other income (expense):
Interest expense (296) (11) (18)
Interest and other income 1,226 1,069 2,357
------- ------- -------
930 1,058 2,339
------- ------- -------
Income before income taxes 6,786 10,231 9,750
Income taxes:
Federal:
Current 2,417 3,544 3,634
Deferred (287) (212) (369)
State and local:
Current 332 592 459
Deferred (50) (37) (65)
Foreign:
Current 129 - -
---- ----- -------
2,541 3,887 3,659
------ ------ -------
Net income $ 4,245 $ 6,344 $ 6,091
===== ===== =====
Net income per common share:
Basic $ 0.69 $ 1.02 $ 0.92
Diluted 0.69 1.01 0.90
Weighted average shares outstanding:
Basic 6,122 6,188 6,543
Diluted 6,148 6,308 6,788
See accompanying notes to consolidated financial statements.
21
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(IN THOUSANDS)
2001 2000 1999
---- ---- ----
Operating activities:
Net income $4,245 $6,344 $6,091
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 909 574 355
Gain on sale of assets - (24) (178)
Provision for doubtful accounts 307 19 213
Foreign currency translation adjustment (764) - -
Deferred tax provision (benefit) (337) (248) (434)
Changes in assets and liabilities,
net of effect of the acquisitions:
Investments - trading securities (53) 3,399 (258)
Trade accounts receivable 575 797 (1,877)
Other receivables 143 (1,709) 568
Inventory 6,280 (3,505) (2,481)
Prepaid expenses 383 (382) 56
Other assets (29) 73 12
Drafts & acceptances payable 1,069 (285) 201
Accounts payable 1,455 (184) 501
Accrued merchandise purchases (10,395) 2,575 (1,458)
Accrued compensation (298) 602 20
Accrued environmental remediation (20) (11) (55)
Accrued income taxes (840) 253 296
Other accrued expenses and long
term liabilities (222) (308) 205
------ ------ ------
Net cash provided by operating activities 2,408 7,980 1,777
----- ------ ------
Investing activities:
Purchases of investments--held-to-maturity - (8,337) (10,703)
Proceeds from investments--held-to-maturity 8,112 14,802 11,568
Issuance of notes receivable - - (159)
Payments received on notes receivable 82 81 85
Purchases of property and equipment (1,305) (1,091) (138)
Proceeds from sale of property - 10 183
Acquisition of businesses, net of
cash acquired 1,205 (6,996) (2,111)
----- ------- -------
Net cash provided by (used in)
investing activities 8,094 (1,531) (1,275)
----- ------- -------
Financing activities:
Payments of long-term liabilities (531) - (250)
Proceeds from exercise of stock options 332 204 137
Payments for purchases of treasury stock (1,642) (6,088) (4,252)
Issuance of treasury stock to employees 189 127 431
Payments of cash dividends (1,936) (1,872) (1,755)
Payments of bank loans (102) - -
Payments of notes payable (2,313) - -
------- ------- -------
Net cash provided by (used in) financing
Activities (6,003) (7,629) (5,689)
------ ------ ------
Net increase (decrease) in cash and
cash equivalents 4,499 (1,180) (5,187)
Cash and cash equivalents at beginning of year 2,811 3,991 9,178
----- ------ -----
Cash at end of year $7,310 $2,811 $3,991
===== ===== =====
See accompanying notes to consolidated financial statements.
22
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock Accumulated
------------ Capital in Treasury Stock Comprehensive
Shares Par Value Excess of Retained -------------- Other
Issued ($.01) Par Value Earnings Shares Amount Loss Total
------ ------- ---------- -------- ------ ------ ---------- -----
Balance at June 30, 1998 9,001,290 $90 $57,531 $26,888 (2,302,383) $(21,248) $ - $63,261
------------------------------------------------------------------------------------------------------------------------------------
Net income - 6,091 - 6,091
Stock issued pursuant to employee
incentive plans - 117 - 33,391 312 - 429
Cash dividends:
Common stock ($0.26 per share) - - - (1,685) - - (1,685)
Preferred stock - - - (70) - - (70)
Exercise of stock options - (60) - 23,111 219 - 159
Tax benefit from exercise of
stock options - - 49 - - - 49
Treasury stock purchases - - - (339,450) (4,252) - (4,252)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 9,001,290 90 57,637 31,224 (2,585,331) (24,969) - 63,982
Net income - - - 6,344 - - - 6,344
Stock issued pursuant to employee
incentive plans - 6 - 12,371 121 - 127
Cash dividends:
Common stock ($0.30 per share) - - - (1,842) - - - (1,842)
Preferred stock - - - (29) - - - (29)
Conversion of preferred stock
to common stock - (616) - 139,314 1,367 - 751
Exercise of stock options - (99) - 33,572 331 - 232
Tax benefit from exercise of
stock options - - 61 - - -- - 61
Treasury stock purchases - - - - (566,499) (6,087) - (6,087)
Lapsed stock options 65 65
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 9,001,290 90 57,054 35,697 (2,966,573) (29,237) - 63,604
Net income - - - 4,245 - - - 4,245
Other comprehensive income (loss):
Foreign currency translation
adjustments (764) (764)
-----
Comprehensive income 3,481
-----
Stock issued pursuant to employee
incentive plans - - (12) - 20,479 201 - 189
Cash dividends:
Common stock ($0.31 per share) - - - (1,936) - - - (1,936)
Exercise of stock options - - 14 - 23,250 229 - 243
Tax benefit from exercise of
stock option plans - - 9 - - - - 9
Treasury stock purchases - - - - (174,739) (1,642) - (1,642)
Lapsed stock options 80 80
Shares issued in connection with
acquisition (729) - 600,000 5,904 - 5,175
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001 9,001,290 $90 $56,416 $38,006 (2,497,583) $(24,545) $(764) $69,203
====================================================================================================================================
See accompanying notes to consolidated financial statements.
23
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS
Aceto Corporation and subsidiaries (the Company) is primarily engaged in the
marketing of pharmaceutical, fine and industrial chemicals used principally in
the agricultural, color producing, pharmaceutical and surface coating
industries. Most of the chemicals distributed by the Company are purchased
abroad. The Company's customers are located throughout the United States and
other countries including Mexico, Brazil, Singapore, Canada, Germany, France,
United Kingdom and The Netherlands.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions are eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. There were no cash
equivalents at June 30, 2001, 2000 or 1999.
INVESTMENTS
The Company classifies investments in marketable securities as trading,
available-for-sale or held-to-maturity at the time of purchase and periodically
re-evaluates such classifications. Trading securities are carried at fair value,
with unrealized holding gains and losses included in earnings. 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.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and are reported as a separate component of accumulated
other comprehensive income until realized. In determining realized gains and
losses, the cost of securities sold is based on the specific identification
method. Interest and dividends on the investments are accrued at the balance
sheet date.
INVENTORY
Inventories are valued at the lower of cost or market. Cost is determined using
the first in, first out (FIFO) basis.
ENVIRONMENTAL REMEDIATION
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and can be reasonably estimated. Such
accruals are adjusted as further information develops or circumstances change.
STOCK OPTIONS
On July 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 also allows
entities to continue to
24
apply the provisions of Accounting Principles Board (APB) 25 and provide pro
forma net income and pro forma net income per share disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS 123 had
been applied. The Company has elected to continue to apply the provisions of APB
25 and provide the pro forma disclosure provisions of SFAS 123.
REVENUE RECOGNITION
Sales are recorded when products are shipped.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Such costs were
approximately $121 for the year ended June 30, 2001. There were no such costs
incurred during the years ended June 30, 2000 and 1999.
NET INCOME PER COMMON SHARE
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.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using straight
line, sum-of-the-years digits and declining balance methods. The estimated
useful lives as follows:
Years
-----
Machinery and Equipment 10
Computer Equipment 5
Furniture and fixtures 10
Automobiles 3
Leasehold improvements are amortized over the shorter of the life of the asset
or the lease term.
GOODWILL
Goodwill is amortized on a straight-line basis over a twenty-year period. The
recoverability of goodwill is assessed by determining whether the carrying
amount can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of the goodwill acquired will be impacted if estimated future
operating cash flows are not achieved.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
25
Property held for sale, which includes land and buildings, is stated at cost.
Impairment, if any, is recognized if the estimated fair value less costs to sell
is lower than the carrying value.
ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
Effective July 1, 2000, the Company adopted the provisions of SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes new accounting and reporting guidelines for derivative instruments
and hedging activities. SFAS 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 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, Deutsche Marks, French
Francs, Singapore Dollars and Dutch Gilders.
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 June 30, 2001 in the amount of $51.
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.
FOREIGN CURRENCY
The functional currency of the Company's foreign subsidiaries is the applicable
local currency. The translation of the applicable foreign currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts and cash
flows using average rates of exchange prevailing during the year. Adjustments
resulting from the translation of foreign currency financial statements are
accumulated in a separate component of stockholders' equity.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 1999 consolidated
financial statements to conform to the 2001 presentation.
In fiscal 2001, the Company adopted the provisions of the Financial Accounting
Standards Board's Emerging Issue Task Force (EITF) Issue No. 00-10. "Accounting
for Shipping and Handling Fees and Costs," which requires the Company to report
all
26
amounts billed to a customer related to shipping and handling as revenue. The
Company includes all costs incurred for shipping and handling as cost of sales.
The Company has reclassified such billed amounts, which were previously netted
in cost of sales, to net sales. As a result of this reclassification, net sales
and cost of goods sold were increased by $519 and $536 for the years ended June
30, 2000 and 1999, respectively.
(3) BUSINESS ACQUISITIONS
(a) On March 26, 2001, the Company acquired (i)the distribution business of the
Schweizerhall Pharma division of Schweizerhall Holding AG, a Switzerland
corporation and (ii) certain assets relating to the Pharmaceutical Ingredients
business of Schweizerhall, Inc., a New Jersey corporation, and a wholly owned
subsidiary of Schweizerhall Holding AG (collectively, "Schweizerhall Pharma").
Schweizerhall Pharma's distribution business is an international pharmaceutical
distribution business with offices located in: Hamburg, Germany; Wormerveer, 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 $22,709 and consisted of
600 shares of the Company's Common Stock, the assumption of $8,966 of
Schweizerhall Holding AG debt, $2,778 in cash, the issuance of notes of $4,626
and acquisition costs of $1,164. 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. 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 notes payable of $4,626 issued at closing bear interest at 3%. Principal and
interest are payable monthly. Monthly principal payments are determined by the
lesser of the outstanding principal balance or the book value of certain
inventory (as defined in the note agreement) sold in the preceding month. Any
unpaid amounts are due in full on March 31, 2002. Amounts outstanding under the
notes were $2,313 as of June 30, 2001.
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 and accounts payable.
The results of operations of Schweizerhall Pharma for the period from March 26,
2001 through June 30, 2001 have been included in the accompanying consolidated
statements of income.
The excess of cost over the fair value of assets acquired (goodwill)
preliminarily amounted to $6,525. The goodwill is being amortized on a
straight-line basis over a period of twenty years. Amortization of goodwill
amounted to $84 for the year ended June 30, 2001. The non-competition agreements
are valued at $300 and are being amortized over three years, the term of the
non-competition agreements.
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.
In connection with the March 26, 2001 Schweizerhall Pharma acquisition, the
Company recorded liabilities for employee severance and for operating lease
payments as a result of exit plans formulated as of the acquisition date. The
severance accrual relates to involuntary termination of administration and
middle management personnel from the acquired operations. The operating lease
payment relates to equipment and
27
facilities leases assumed by the Company. Amounts accrued represent management's
estimate of the cost to exit the equipment and facilities leases, including
lease payments and termination costs, net of recoverable amounts.
The changes in exit plan liabilities during the year ended June 30, 2001 are as
follows:
Severance Lease
Liability Liability Total
--------- --------- -----
Balance July 1, 2000 $ - $ - $ -
Reserve established in 2001 563 110 673
Utilized in 2001 (paid) (457) (71) (528)
---- ---- ----
Balance June 30, 2001 $ 106 $ 39 $ 145
==== ==== ====
The following unaudited condensed pro forma financial information of the Company
for the years ended June 30, 2001 and 2000 includes the consolidated results of
operations of the Company as if the acquisition of Schweizerhall had occurred on
July 1, 1999:
(unaudited)
2001 2000
---- ----
Net revenue $238,963 $282,019
Net earnings 1,334 1,201
Net earnings per diluted share 0.20 0.17
The pro forma information for the period ended June 30, 2000 includes the
historical results of Schweizerhall Pharma for the twelve months ended September
30, 2000.
The unaudited condensed pro forma financial information includes adjustments to
the Company's historical results to reflect incremental amortization of goodwill
and the non-competition agreement, reduced interest income generated from cash
that was used for acquisition, additional interest expense and income tax
adjustments. The unaudited pro forma consolidated financial statements do not
purport to be indicative of the operating results of financial position that
would have been achieved had the acquisition taken place on the date indicated
or the results that may be obtained in the future.
b) On January 18, 2000, the Company purchased certain assets of Schweizerhall,
Inc. (Schweizerhall) for $6,345 in cash. The acquisition was accounted for as a
purchase and, accordingly, the cost of the acquisition was initially allocated
to the assets acquired, based upon their estimated fair values at the date of
acquisition. The allocation of the purchase price has been completed. The excess
of cost over the fair value of assets acquired amounted to $975 and is being
treated as goodwill. Amortization of goodwill amounted to $49 and $22 for the
years ended June 30, 2001 and 2000, respectively. The assets acquired consisted
of inventory and a non-competition agreement. The non-competition agreement
valued at $120 is being amortized on a straight-line basis over three years. The
results of operations of Schweizerhall have been included in the accompanying
consolidated statement 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 and the balance is scheduled to be paid in equal installments of
$167 in October 2000, 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 October 2000 payment was made as scheduled without
an adjustment.
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 and is being treated as goodwill. Amortization of goodwill amounted to
$55 and $39 for the years ended June 30, 2001 and 2000. The assets acquired
consisted
28
primarily of inventory. The results of operations of Magnum 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.
d) On November 24, 1998 the Company purchased all the capital stock of CDC
Products Corp. (CDC) for a purchase price of $2,801. Of the purchase price,
$2,111 was paid at closing and the balance of $690 was scheduled to be paid in
semi-annual installments through August 2002. The amounts owed to the previous
owner were subject to a dispute between the Company and the previous owner (see
note 19). The dispute was brought before the American Arbitration Association
which resulted in a $360 reduction in the outstanding liability owed to the
previous owner. The Company has recorded as a liability on the consolidated
balance sheet as of June 30, 2001, three remaining payments totaling $335 due
through August 2002. The adjustment arising from the dispute was recorded as a
reduction to goodwill.
The acquisition was accounted for as a purchase and, accordingly, the cost of
the acquisition was allocated to the net assets acquired, based upon their
estimated fair values. The excess of cost over the fair value of net assets
acquired amounted to $2,282, after the aforementioned arbitration settlement,
and is being treated as goodwill. Amortization of goodwill amounted to $87, $132
and $76 for the years ended June 30, 2001, 2000 and 1999, respectively. The
assets acquired consisted primarily of inventory, accounts receivable and fixed
assets. The results of operations of CDC 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. In connection with the acquisition, the
Company entered into a three year non-competition agreement, which value was
estimated to be $75. The non-competition agreement is being amortized on a
straight-line basis over three years.
(4) INVESTMENTS
A summary of trading securities, classified as short-term, follows:
June 30, 2001 June 30, 2000
------------- -------------
Cost Cost
Fair Value Basis Fair Value Basis
---------- ----- ---------- -----
Corporate securities $ 988 $ 593 $ 934 $ 593
The change in the net unrealized holding gains (losses) on trading securities
was $53, $(92) and $17 for fiscal 2001, 2000 and 1999, respectively.
A summary of held-to-maturity securities as of June 30, 2001 and 2000 follows:
June 30, 2001
-------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost or Cost Gains Losses Value
------------ ---------- ---------- -----
Held-to-maturity securities:
Short-term investments:
Corporate securities $ - $ - $ - $ -
Municipal obligations - - - -
Long-term investments:
Corporate securities - - - -
Municipal obligations 369 - - 369
29
June 30, 2000
-------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost or Cost Gains Losses Value
------------ ---------- ---------- -----
Held-to-maturity securities:
Short-term investments:
Corporate securities $ 996 $ - $ 2 $ 994
Municipal obligations 223 - 6 217
Long-term investments:
Corporate securities 6,894 - 56 6,838
Municipal obligations 369 - - 369
The contractual maturities on the long-term investments range between one and
three years. During fiscal 2001 the Company sold $7,900 of held-to-maturity
securities before their maturity date and realized a gain of $40. The proceeds
from the sale of these securities were used in the acquisition of the
Schweizerhall Pharma business (see note 3).
(5) INVENTORY
Inventory consists of the following:
June 30
-------
2001 2000
---- ----
Finished goods $37,287 $38,010
Work in process 180 125
Raw materials 351 318
------ ------
Total $37,818 $38,453
====== ======
(6) NOTES RECEIVABLE
The Company currently holds five notes receivable with outstanding balances
aggregating $901 and $983 at June 30, 2001 and 2000, respectively, which have
arisen from sales of property. The notes are either secured by a first mortgage
on the real property sold or collateralized by a security interest in the asset
sold. The notes range in length from seven to twenty-five years and pay interest
at either a fixed or variable rate. The fixed rates on three notes are 8.00%,
9.25% and 9.50%. The variable rates on the other two notes, which are based on
either 1% or 2.5% over prime, were 7.75% and 9.25% at June 30, 2001 and 10.5%
and 12.00% at June 30, 2000. Included in current assets are notes receivable due
within one year totaling $107 and $88 at June 30, 2001 and 2000, respectively.
(7) ENVIRONMENTAL REMEDIATION
During fiscal 1993 the Company announced the closing of its manufacturing
subsidiary located in Carlstadt, New Jersey. 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 of $1,500 was established in fiscal 1993.
During fiscal 1997, however, after additional testing was completed, the Company
received a revised estimate from the consultant. As a result, the Company
recorded an additional liability of $800. At June 30, 2001 and 2000, the
remaining liability was $1,292 and 1,312, respectively. The Company believes it
is possible that such amount may not be sufficient to cover future environmental
remediation but does not believe any additional amount will cause a material
adverse effect on the overall financial position or liquidity of the Company.
However, any remediation required above the liability established could
materially affect the Company's results in a particular reporting period. Other
than the remediation associated with the Carlstadt, New Jersey facility, the
Company is not aware of any material environmental liabilities.
30
(8) FINANCING ARRANGEMENTS
At June 30, 2001 Company had available three lines of credit with financial
institutions totaling $22,100. The Company entered into two of the agreements
totaling $10,600 with foreign banks as part of the Schweizerhall Pharma
acquisition. The Company has issued a cross corporate guarantee to the foreign
banks. Short term loans under these agreements bear interest at LIBOR plus
0.75%, which was 4.59% at June 30, 2001.
The Company utilized $8,864 in short-term loans and $6,943 in letters of credit
leaving an unused facility of $6,293 at June 30, 2001. The Company had no
short-term loans and open letters of credit of $3,400 at June 30, 2000. The
weighted average interest rate on short-term loans outstanding as of June 30,
2001 was 6.1% Amounts outstanding at June 30, 2001 are due on demand and as such
have been recorded as a current liability in the accompanying consolidated
balance sheet.
The Company maintains compensating balances under informal agreements with its
domestic banks.
(9) 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:
2001 2000 1999
---- ---- ----
Net income $ 4,245 $ 6,344 $ 6,091
Preferred stock dividends - (29) (70)
----- ----- -----
Net income available for common
shareholders 4,245 6,315 6,021
===== ===== =====
Weighted average common shares (basic) 6,122 6,188 6,543
Effect of dilutive securities:
Stock options 26 68 106
Convertible preferred stock - 52 139
----- ----- -----
Weighted average common and
potential common shares
outstanding (diluted) 6,148 6,308 6,788
===== ===== =====
Basic income per share $ 0.69 $ 1.02 $ 0.92
Diluted income per share 0.69 1.01 0.90
Employee stock options of 233, 287, 550 and 529 for the first, second, third and
fourth quarters, respectively, of fiscal 2001 and 220, 240, 233 and 233 for the
first, second, third and fourth quarters, respectively, of fiscal 2000 were not
included in the net income per common share calculation because their effect
would have been anti-dilutive.
(10) REDEEMABLE PREFERRED STOCK
On November 15, 1999 the Aceto Corporation Profit Sharing Plan (the holder of
the redeemable preferred stock) converted all of the preferred stock to 139
shares of common stock. The Company purchased the shares on November 15, 1999,
at $11.1562 per share which was the market price of the common stock on such
date. The total amount paid to the Aceto Corporation Profit Sharing Plan
amounted to approximately $1,555.
(11) STOCK BASED COMPENSATION PLANS
In December 1998, the Company adopted the Aceto Corporation 1998 Omnibus Equity
Award Plan (1998 Plan). In accordance with the 1998 Plan the Company's Board of
Directors (Board) may grant up to 500 shares of common stock in the form of
stock options or restricted stock to eligible participants. The exercise price
per share, determined by the Board, for options granted cannot be less than the
fair market value of the stock on the date of grant. The options vest as
determined by the Board and expire no later than ten years from the date of
grant. Restricted stock may be granted to an eligible participant in lieu of a
portion of any annual cash bonus earned by such participant. Such award may have
a premium in shares greater than the portion of bonus paid in restricted stock.
The award vests ratably over a period of years as determined by the Board. The
premium vests when the award is fully vested, provided that the participant is
in the employ of the Company when vesting occurs. Under the 1998 Plan, there
were 167 and 242 shares of common stock available for grant as either options or
restricted stock at June 30, 2001 and 2000, respectively.
31
Under the terms of the Company's 1980 Stock Option Plan (1980 Plan), options may
be issued to officers and key employees. The exercise price per share can be
greater or less than the market value of the stock on the date of grant. The
options vest either immediately or over a period of years as determined by the
Board of Directors and expire no later than five or ten years from the date they
are fully vested. Under the 1980 Plan, options to purchase 382 and 342 shares of
common stock were available for grant at June 30, 2001 and 2000, respectively.
The Board does not intend to issue additional options from this Plan.
The following tabulations summarize the shares of common stock under option for
both plans at June 30, 2001, 2000 and 1999, and the activity with respect to
options for the respective years then ended:
Shares Weighted average
subject to exercise price
Option Per Share
------ ---------
Balance at June 30, 1998 542 $ 8.44
Granted 211 12.50
Exercised (23) 5.84
Forfeited (12) 12.52
-------------------------------------------------------------------
Balance at June 30, 1999 718 $ 9.65
Granted 20 11.75
Exercised (33) 6.06
Forfeited (37) 8.58
-------------------------------------------------------------------
Balance at June 30, 2000 668 $ 9.95
Granted 70 9.63
Exercised (23) 7.81
Forfeited/lapsed (69) 10.04
-------------------------------------------------------------------
Balance at June 30, 2001 646 $ 9.99
Options exercisable at June 30, 2001, 2000 and 1999 were 375, 358 and 283,
respectively. The weighted average exercise price for options exercisable at
June 30, 2001, 2000 and 1999 was $10.08, $9.47 and $8.35, respectively. At June
30, 2001, outstanding options had expiration dates ranging from December 31,
2001 to December 31, 2015.
Under the 1980 Plan, during the period options become exercisable, compensation
is charged to operations for the excess of fair market value over the option
price at the date of grant. Such charges to operations were $13, $91 and $108 in
fiscal 2001, 2000 and 1999, respectively. Under the 1998 Plan, compensation is
recorded for the value of restricted stock granted. There were 19, 12 and 33
shares of restricted stock granted during fiscal 2001, 2000 and 1999,
respectively. Such charges to operations were $253, $181 and $428 in fiscal
2001, 2000 and 1999, respectively.
Summarized information about stock options outstanding and exercisable at June
30, 2001 was as follows:
Outstanding Exercisable
Exercise Number of Average Average Number of Average
Price Range Shares Life(1) Price(2) Shares Price(2)
----------- ------ ------- -------- ------ --------
$ 7- 8.99 117 2.2 $ 7.90 110 $ 7.85
9-11.99 322 10.2 9.14 126 9.30
12.00-13.00 207 7.0 12.49 139 12.56
(1) Weighted average contractual life remaining, in years.
(2) Weighted average exercise price.
The per share weighted average fair value of stock options granted during 2001,
2000 and 1999 was $2.22, $3.13 and $3.10, respectively, on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
Risk-free
Date of Expected Expected interest Dividend
Grant volatility(%) life(years) rate(%) yield(%)
-----------------------------------------------------------------------
2001
----
10/25/00 20 7.5 5.681 3.08
12/17/00 20 7.5 5.307 3.29
3/27/01 20 7.5 5.009 3.48
32
4/05/01 20 7.5 4.971 3.53
5/08/01 20 7.5 5.242 3.45
2000
12/2/99 20 7.5 6.25 2.67
1999
12/10/98 20 7.5 4.53 2.08
The Company applies Accounting Principles Board No. 25 in accounting for its
stock option grants and, accordingly, no compensation cost has been recognized
in the financial statements for its stock options which have an exercise price
equal to or greater than the fair value of the stock on the date of the grant.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:
2001 2000 1999
---- ---- ----
Net income:
As reported $4,245 $6,344 $6,091
Pro forma 3,884 6,043 5,808
Income per share-basic:
As reported $ 0.69 $ 1.02 $0.92
Pro forma 0.63 0.97 0.88
Income per share-diluted:
As reported $ 0.69 $ 1.01 $ 0.90
Pro forma 0.63 0.96 0.86
Pro forma net income reflects only options granted beginning in fiscal 1996.
Therefore, the full impact of calculating compensation costs for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation costs are reflected over the options' vesting period
and compensation cost for options granted prior to July 1, 1995 is not
considered.
(12) INTEREST AND OTHER INCOME
Interest and other income earned during fiscal 2001, 2000 and 1999 were
comprised of the following:
2001 2000 1999
---- ---- ----
Dividends $ 128 $ 152 $ 142
Interest 468 889 1,375
Net gain (loss) on investments 53 (290) 62
Net gain on sale of assets - 20 16
Royalty income 354 224 539
Miscellaneous 223 74 223
----- ----- -----
$1,226 $1,069 $2,357
===== ===== =====
(13) INCOME TAXES
The components of income before the provision for income taxes are as follows:
2001 2000 1999
---- ---- ----
Domestic operations $6,503 $10,231 $9,750
Foreign operations 283 - -
----- ----- -----
$6,786 $10,231 $9,750
===== ====== =====
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at June 30, 2001 and 2000 are presented below:
2001 2000
---- ----
Deferred tax assets:
Accrued environmental remediation
liabilities not currently
deductible $ 517 $ 525
Accrued retirement plan 339 469
Accrued compensation 573 196
33
Additional costs inventoried for
tax purposes 211 206
Allowance for doubtful accounts
receivable 129 80
Differences in depreciation of
property and equipment 52 14
Net operating loss carry forwards 4,720 -
----- -----
Total gross deferred tax assets 6,541 1,490
Valuation allowances (4,704) -
----- -----
Total net deferred tax assets 1,837 1,490
----- -----
Deferred tax liabilities:
Unrealized gain on investments 21 54
Goodwill 27 -
Other 16 -
----- -----
Total gross deferred tax
liabilities 64 54
----- -----
Net deferred tax assets $1,773 $1,436
===== =====
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In order to fully realize
the net deferred tax asset recognized at June 30, 2001, the Company will need to
generate future domestic taxable income of approximately $4,742. Domestic
taxable income for fiscal 2001 and 2000 was approximately $7,111 and $9,800,
respectively.
Based upon the level of historical taxable income and projections for taxable
income over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences.
Reconciliation of the statutory Federal income tax rate and the effective tax
rate for the fiscal years ended June 30, 2001, 2000 and 1999 follows:
2001 2000 1999
---- ---- ----
Federal statutory tax rate 34.0% 34.0% 34.0%
State and local taxes, net
of Federal income tax
benefit 4.0 3.6 2.7
Other (0.6) 0.4 0.8
----- ----- -----
Effective tax rate 37.4% 38.0% 37.5%
===== ===== =====
At June 30, 2001, the Company had net operating loss carry forwards for foreign
income tax purposes of approximately $12,000 which are available to offset
future foreign taxable income, if any, certain of which will expire through the
year 2006 and others which have no expiration date.
(14) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes during fiscal 2001, 2000 and 1999 was as
follows:
2001 2000 1999
---- ---- ----
Interest paid $ 248 $ 21 $ 18
Income taxes paid 3,642 3,920 3,841
In connection with the acquisition of Schweizerhall Pharma in March 2001, the
Company assumed debt of $8,966, issued $4,626 of notes payable and issued 600
common shares from treasury stock at an average cost of $9.84 each.
In connection with the settlement of arbitration (note 19) the Company recorded
a reduction to long term liabilities and goodwill for $360.
34
In connection with the acquisitions of CDC and Magnum, the Company recorded
$1,050 and $500 of amounts due to the previous owners as liabilities.
In July 1998, the Company received a note in the amount of $170 in connection
with the sale of buildings and land.
(15) RETIREMENT PLANS
The Company has retirement plans in which employees are eligible to participate.
The Company's annual contribution per employee, which is at management's
discretion, is based on a percentage of the employee's compensation. The
Company's provisions for contributions amounted to $864, $789 and $725 in fiscal
2001, 2000 and 1999, respectively.
(16) 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 segment. The Company
evaluates performance of the segments based on gross profit.
35
Foreign segment disclosures that became applicable as a result of the recent
acquisition of Schweizerhall Pharma are presented below.
Net Sales Gross Profit Long-lived Assets
--------- ------------ -----------------
2001 2000 1999 2001 2000 1999 2001 2000
---- ---- ---- ---- ---- ---- ---- ----
United States $161,741 $185,308 $169,725 $26,356 $27,204 $22,739 $1,986 $1,289
Germany 6,103 - - 1,005 - - 318 -
The Netherlands 1,576 - - 359 - - 126 -
France 3,685 - - 357 - - 71 -
Singapore 5,266 - - 540 - - 38 -
Intersegment (217) - - - - - - -
------- ------- ------- ------ ------ ------ ----- -----
Total $178,154 $185,308 $169,725 $28,617 $27,204 $22,739 $2,539 $1,289
======= ======= ======= ====== ====== ====== ===== =====
36
Institutional
Organic Pharmaceuticals, Pharmaceutical Sanitary
Agro- Industrial Intermediates Biochemicals & Intermediates & Supplies Consolidated
chemicals Chemicals & Colorants Nutritionals Custom Mfg & Other Totals
2001
----
Net sales $13,133 51,093 46,809 47,736 13,401 5,982 $178,154
Gross Profit $ 4,943 9,320 6,209 9,270 2,678 1,562 $ 33,982
Unallocated
cost of sales(1) 5,365
-----
Net gross
profit $ 28,617
======
2000
----
Net sales $11,417 49,874 49,861 35,448 33,202 5,506 $185,308
Gross Profit $ 3,930 9,183 7,308 6,336 2,657 2,602 32,016
Unallocated
cost of sales(1) 4,812
-----
Net gross
profit $ 27,204
======
1999
----
Net sales $10,377 44,722 38,946 28,272 44,255 3,153 $169,725
Gross Profit $ 3,740 7,703 5,397 4,769 3,331 1,354 $ 26,294
Unallocated
cost of sales(1) 3,555
-----
Net gross
profit $ 22,739
======
(1) Represents freight and storage costs that are not allocated to a segment.
37
(17) FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
At June 30, 2001 and 2000 the Company had future foreign exchange contracts that
have a notional amount of $679 and $5,600, respectively. The contracts have
varying maturities extending to October 2002. At June 30, 2001 and 2000 the
Company had not hedged open purchase commitments of approximately $271 and $500,
respectively. For fiscal 2001, 2000 and 1999, gains and losses on foreign
currency transactions, including terminated hedges that occurred prior to the
transaction date, were not material.
The Company is exposed to credit losses in the event of non-performance by the
financial institutions, who are the counter parties, on its future foreign
currency contracts. The Company anticipates, however, that the financial
institutions will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral to support financial
instruments, but monitors the credit standing of the financial institution.
OFF-BALANCE SHEET RISK
Commercial letters of credit are issued by the Company during the ordinary
course of business through major domestic banks as requested by certain
suppliers. The Company had open letters of credit of approximately $6,493 and
$3,400 as of June 30, 2001 and 2000, respectively. The terms of these letters of
credit are all less than one year. No material loss is anticipated due to
non-performance by the counter parties to these agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of all financial instruments classified as a current asset
or current liability are deemed to approximate fair value because of the short
maturity of these instruments. The fair value of foreign currency contracts
(used for hedging purposes) was estimated by obtaining quotes from brokers and
the difference between the fair value and contract value was not material. The
difference between the fair value of long-term financial instruments and their
carrying value at both June 30, 2001 and 2000 was not material. The fair value
of the Company's notes receivable was based upon current rates offered for
similar financial instruments to the Company.
BUSINESS AND CREDIT CONCENTRATION
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of trade receivables. The Company's
customers are dispersed across many industries and are located throughout the
United States as well as in Mexico, Brazil, Singapore, Canada, Germany, United
Kingdom, The Netherlands and others. The Company estimates an allowance for
doubtful accounts based upon the credit worthiness of its customers as well as
general economic conditions. Consequently, an adverse change in those factors
could affect the Company's estimate of this allowance. The Company as a policy
does not require collateral from its customers. At June 30, 2001, there was no
significant net trade accounts receivables concentration. At June 30, 2000, five
customers accounted for 15% of net trade accounts receivable. At June 30, 2001
and 2000, the top five customers accounted for 14% and 21%, respectively, of net
sales.
No single product accounted for as much as 10% of net sales in fiscal 2001 or
2000. One of the Company's pharmaceutical products accounted for 15% of net
sales in fiscal 1999. One of the Company's suppliers accounted for 21% and 29%
of total purchases in fiscal 2000 and 1999, respectively. No supplier accounted
for as much as 10% of total purchases in fiscal 2001.
The Company maintains operations located outside of the United States. Net
assets located in Europe and Asia approximate $5,700 and $1,100, respectively at
June 30, 2001.
38
(18) COMMITMENTS AND CONTINGENCIES
(a) A subsidiary of the Company markets certain agricultural chemicals which are
subject to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). FIFRA
requires that test data be provided to the Environmental Protection Agency (EPA)
to register, obtain and maintain approved labels for pesticide products. The EPA
requires that follow-on registrants of these products compensate the initial
registrant for the cost of producing the necessary test data on a basis
prescribed in the FIFRA regulations. Follow-on registrants do not themselves
generate or contract for the data. However, when FIFRA requirements mandate the
generation of new test data to enable all registrants to continue marketing a
pesticide product, often both the initial and follow-on registrants establish a
task force to jointly undertake the testing effort. The Company is presently a
member of three such task force groups and may be required to make additional
payments in the future.
(b) The Company and its subsidiaries are subject to various claims which have
arisen in the normal course of business. The impact of the final resolution of
these matters on the Company's results of operations or liquidity in a
particular reporting period is not known. Management is of the opinion, however,
that the ultimate outcome of such matters will not have a material adverse
effect upon the Company's financial condition or liquidity.
(c) The Company currently leases office facilities in the United States, The
Netherlands, Germany, France and Singapore. In addition, a subsidiary leases a
manufacturing facility under an operating lease expiring December 2009. At June
30, 2001, the future minimum lease payments in the aggregate and for each of the
five succeeding years are as follows:
Fiscal Year Amount
----------- ------
2002 $ 1,318
2003 1,188
2004 1,085
2005 1,059
2006 1,089
Thereafter 6,202
------
$11,941
======
Total rental expense amounted to approximately $983, $871 and $638 for fiscal
2001, 2000 and 1999, respectively.
(19) SETTLEMENT OF ARBITRATION
During the fourth quarter of fiscal 2001, the Company received a decision from
the arbitrators regarding the claims made by the Company and previous owner of
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.
(20) 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. These amounts were offset against amounts owed to the supplier by the
Company. 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.
39
(21) SUBSEQUENT EVENTS
Subsequent to June 30, 2001, the Company received $1,571 from the previous
owners of Schweizerhall Pharma in settlement of certain acquired balances. The
Company will record this as a reduction to goodwill.
40
Schedule II
ACETO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 2001, 2000 and 1999
(dollars in thousands)
Charged
Balance at to costs Charged Balance
beginning and to other at end
Description of year expenses accounts Deductions of year
----------- ---------- -------- -------- ----------- -------
Year ended June 30, 2001:
Allowance for doubtful
accounts $ 239 $307 - $230(a) $ 316
=== === === ===
Year ended June 30, 2000:
Allowance for doubtful
accounts $ 219 141 - 121(a) $ 239
=== === === ===
Year ended June 30, 1999:
Allowance for doubtful
accounts $ 219 213 - 213(a) $ 219
=== === === ===
(a) Specific accounts written off as uncollectible, net of recoveries.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ACETO CORPORATION
(Company)
By /s/ Leonard S. Schwartz /s/ Douglas Roth
----------------------- ------------------
Leonard S. Schwartz Douglas Roth
Chairman, President Secretary/Treasurer and
and Chief Executive Officer Chief Financial Officer
Date: September 27, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Leonard S. Schwartz Chairman, President and 9-27-01
----------------------- Chief Executive Officer
Leonard S. Schwartz
/s/Stanley Fischer Director 9-27-01
-----------------------
Stanley Fischer
/s/ Samuel I. Hendler Director 9-27-01
-----------------------
Samuel I. Hendler
/s/ Robert Wiesen Director 9-27-01
-----------------------
Robert Wiesen
/s/ John H. Schlesinger Director 9-27-01
----------------------
John H. Schlesinger
42
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 4(a)(iii) to Registration Statement No. 2-70623 on Form S-8
(S-8 2-70623)).
3.2 Certificate of Amendment dated November 21, 1985 to Restated
Certificate of Incorporation (incorporated by reference to Exhibit
3(ii) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1986).
3.3 By-laws(incorporated by reference to Exhibit 3(iii)(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1998).
10.1 Profit Sharing Plan, as amended and restated effective July 1, 1989
(incorporated by reference to Exhibit 10(iii)(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995).
10.2 401(k) Plan, effective August 1, 1997, (incorporated by reference to
Exhibit 10 (iii) to the Company's Annual Report on Form 10-K for the
year ended June 30, 1998).
10.3 Supplemental Executive Retirement Plan, effective June 30, 1985, as
amended and restated, effective July 1, 1992 (incorporated by
reference to Exhibit 10(iv)(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993).
10.4 Aceto Corporation Stock Option Plan (as Amended and Restated
effective as of September 19, 1990) (and as further Amended
effective June 9, 1992) (incorporated by reference to Exhibit
10(v)(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992).
10.5 1998 Aceto Corporation Omnibus Equity Award Plan (incorporated by
reference to Exhibit 10(v) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1999).
10.6 Lease between Aceto Corporation and M. Parisi & Son Construction
Co., Inc. for office space at One Hollow Lane, Lake Success, NY
dated April 28, 2000 (incorporated by reference to Exhibit 10(vi) to
the Company's Annual Report Form 10-K for the fiscal year ended June
30, 2000).
10.7 Lease between Aceto Corporation and M. Parisi & Son Construction
Co., Inc. for office space at One Hollow Lane, Lake Success, NY
dated April 28, 2000 (incorporated by reference to Exhibit
43
10(vi)(b) to the Company's Annual Report on Form 10-K for the year
ended June 30, 2000).
10.8 Lease between CDC Products Corp. and Seaboard Estates for
manufacturing and office space at 1801 Falmouth Avenue, New Hyde
Park, NY dated October 31, 1999 (incorporated by reference to
Exhibit 10(vi)(c) to the Company's Annual Report on Form 10-K for
the year ended June 30, 2000).
10.9 Stock Purchase Agreement among Windham Family Limited Partnership,
Peter H. Kliegman, CDC Products Corp. and Aceto Corporation
(incorporated by reference to Exhibit 10(vii) to the Company's
Annual Report on Form 10-K for the year ended June 30, 1999).
10.10 Asset Purchase Agreement among Magnum Research Corporation, CDC
Products Corp., Roy Gross and Aceto Corporation (incorporated by
reference to Exhibit 10 (viii) to the Company's Annual Report on
Form 10-K for the year ended June 30, 2000).
10.11 Asset Purchase Agreement between Schweizerhall, Inc. and Aceto
Corporation (incorporated by reference to Exhibit 10(ix) to the
Company's Annual Report on Form 10-K for the year ended June 30,
2000).
10.12 Purchase and Sale Agreement among Schweizerhall Holding AG,
Chemische Fabrik Schweizerhall, Schweizerhall, Inc., Aceto
Corporation and Aceto Holding B.V., I.O. (incorporated by reference
to Exhibit 2.1_to the Company's report on Form 8-K dated April 4,
2001).
10.13* Loan Guarantee between Aceto Corporation and subsidiaries and
Deutsche Bank AG dated March 22, 2001.
21* Subsidiaries of the Company.
23* Consent of KPMG LLP.
------------------
*Filed herewith
44