-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QBzOq/YRibbhH0rMqYqiNdSvehXGuY65FZOtu85L0sVDlo1+H+mcJ0nfaMy5YCUJ hPWAyW0FQJhHDlnrIYa/Iw== 0000002034-99-000002.txt : 19990212 0000002034-99-000002.hdr.sgml : 19990212 ACCESSION NUMBER: 0000002034-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACETO CORP CENTRAL INDEX KEY: 0000002034 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CHEMICALS & ALLIED PRODUCTS [5160] IRS NUMBER: 111720520 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04217 FILM NUMBER: 99529811 BUSINESS ADDRESS: STREET 1: ONE HOLLOW LANE CITY: LAKE SUCCESS STATE: NY ZIP: 11042 BUSINESS PHONE: 5166276000 MAIL ADDRESS: STREET 1: ONE HOLLOW LANE CITY: LAKE SUCCESS STATE: NY ZIP: 11042 FORMER COMPANY: FORMER CONFORMED NAME: ACETO CHEMICAL CO INC DATE OF NAME CHANGE: 19851203 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended DECEMBER 31, 1998 Commission file number 0-4217 ACETO CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 11-1720520 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) ONE HOLLOW LANE, LAKE SUCCESS, NY 11042 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 627-6000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 (Title of Class) Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the close of the period covered by this report. Common Stock - 6,543,451 Page 1 of 16 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ACETO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) Dec. 31 June 30 1998 1998 ASSETS Current assets: Cash and cash equivalents $ 505 $ 9,178 Short-term investments 9,775 11,862 Receivables: Trade, less allowance for doubtful accounts: (Dec., $234; June, $219) 26,708 23,986 Other 1,038 1,502 27,746 25,488 Inventory 24,449 26,783 Prepaid expenses 270 233 Deferred income tax benefit 754 754 Property held for sale 464 493 Total current assets 63,963 74,791 Long-term investments 13,784 8,025 Long-term notes receivable 1,033 902 Property and equipment: Machinery and equipment 750 - Computers 1,061 812 Furniture and fixtures 825 599 Automobiles 158 158 2,794 1,569 Less accumulated depreciation 2,177 1,189 617 380 Goodwill, less accumulated amortization 2,582 - (Dec., $8; June, $0) Other assets 339 281 Total assets $ 82,318 $ 84,379 See accompanying notes to consolidated financial statements. Page 2 of 16 ACETO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except par value) (Unaudited) Dec. 31 June 30 1998 1998 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Drafts and acceptances payable $ 486 $ 549 Current installments on long-term debt - 250 Accounts payable 1,347 2,195 Accrued merchandise purchases 8,416 10,905 Accrued compensation 2,174 2,549 Accrued environmental remediation 1,357 1,378 Accrued income taxes 802 716 Other accrued expenses 2,515 1,826 Total current liabilities 17,097 20,368 Long-term liabilities 1,086 - Redeemable preferred stock $2.50 par value per share; Authorized 2,000 shares; issued and outstanding: 300 shares 750 750 Shareholders' equity: Common stock,$.01 par value per share; Authorized: Dec., 20,000 shares; June, 10,000 shares Issued: Dec., 9,001 shares; June, 90 90 9,001 shares; outstanding: Dec., 6,543 shares; June, 6,699 shares Capital in excess of par value 57,616 57,531 Retained earnings 28,948 26,888 86,654 84,509 Less: Cost of common stock held in treasury; Dec.,2,458 shares; June, 2,302 shares 23,269 21,248 Total shareholders' equity 63,385 63,261 Commitments and contingencies Total liabilities and shareholders' equity $ 82,318 $ 84,379 See accompanying notes to consolidated financial statements. Page 3 of 16 ACETO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Six Months Ended DEC. 31 1998 1997 Net sales $ 82,463 $ 84,435 Cost of sales 72,039 73,737 Gross profit 10,424 10,698 Selling, general and administrative expenses 6,822 6,114 Operating profit 3,602 4,584 Other income (expense): Interest expense (15) (35) Interest and other income 1,263 936 1,248 901 Income before income taxes 4,850 5,485 Provision for income taxes 1,906 1,978 Net income $ 2,944 $ 3,507 Net income per common share: Basic $ 0.44 $ 0.52 Diluted 0.43 0.50 Weighted average shares outstanding: Basic 6,640 6,736 Diluted 6,905 6,974 See accompanying notes to consolidated financial statements. Page 4 of 16 ACETO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended DEC. 31 1998 1997 Net sales $ 46,098 $ 40,671 Cost of sales 40,026 35,143 Gross profit 6,072 5,528 Selling, general and administrative expenses 3,541 2,974 Operating profit 2,531 2,554 Other income (expense): Interest expense (8) (18) Interest and other income 609 449 601 431 Income before income taxes 3,132 2,985 Provision for income taxes 1,206 1,011 Net income $ 1,926 $ 1,974 Net income per common share: Basic $ 0.29 $ 0.29 Diluted 0.28 0.28 Weighted average shares outstanding: Basic 6,590 6,712 Diluted 6,846 6,965 See accompanying notes to consolidated financial statements. Page 5 of 16 ACETO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended DEC. 31 1998 1997 Operating activities: Net income $ 2,944 $ 3,507 Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effects from the purchase of CDC Products Corp.: Depreciation 105 94 Gain on sale of assets (163) - Effect of market value over original option price for options exercised 61 77 Provision for doubtful accounts 15 40 Changes in: Investments - trading securities (243) (169) Trade accounts receivable (2,123) 1,076 Other receivables 464 465 Inventory 2,334 1,513 Prepaid expenses (37) 17 Other assets (58) 15 Drafts and acceptances payable (63) (368) Accounts payable (848) (474) Accrued merchandise purchases (2,489) (5,287) Accrued compensation (375) (451) Accrued environmental remediation (21) (9) Accrued income taxes 86 (324) Other accrued expenses 689 (89) Net cash provided by (used in) operating activities 278 (367) Investing activities: Purchases of investments - held-to-maturity (8,535) (1,351) Proceeds from investments - held-to-maturity 5,105 4,085 Issuance of notes receivable (159) - Payments received on notes receivable 28 22 Purchases of property and equipment (331) (164) Proceeds from sale of property 183 - Payments for purchase of CDC Products Corp. (2,111) - Net cash provided by (used in) investing activities (5,820) 2,592 Financing activities: Payments of long-term debt (250) (250) Proceeds from exercise of stock options 115 173 Payments for purchases of treasury stock (2,384) (2,916) Issuance of treasury stock to employees 273 - Payments of cash dividends (885) (840) Net cash used in financing activities (3,131) (3,833) Net decrease in cash and cash equivalents (8,673) (1,608) Cash and cash equivalents at beginning of period 9,178 4,142 Cash and cash equivalents at end of period $ 505 $ 2,534 See accompanying notes to consolidated financial statements. Page 6 of 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except amounts and par value per share) Note 1: Basis of Presentation The consolidated financial statements of Aceto Corporation and subsidiaries (the Company) included herein have been prepared by the Company and are unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for all periods presented. Interim results are not necessarily indicative of results which may be achieved for the full year. These consolidated financial statements do not include all disclosures associated with consolidated financial statements prepared in accordance with generally accepted accounting principles. Accordingly, these statements should be read in conjunction with the Company's consolidated financial statements and notes thereto contained in the Company's Form 10-K for the year ended June 30, 1998. Note 2: Business Acquisition On November 24, 1998 the Company purchased all the capital stock of CDC Products Corp. ("CDC") for a purchase price of $3,161. Of the purchase price, $2,111 was payable at closing, the balance of $1,050 will be paid in equal consecutive installments of $125 in January 2000, 2001 and 2002 and $225 in August 2000, 2001 and 2002. The payments to be made in August 2000, 2001 and 2002 are subject to downward adjustment in the event certain earnings, as defined in the purchase agreement, are not achieved. In the event the August payments are adjusted downward such adjustments will be recorded as reductions 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 $2,590 and is being amortized on a straight-line basis over a twenty-year period. The results of operations of CDC have been included in the accompanying consolidated statements of income from the date of acquisition. Proforma results of operations have not been provided as their effect on the consolidated results of operations would not be material. In connection with the acquisition the Company entered into a 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. Note 3: Capital Stock On December 10, 1998, the shareholders approved a proposal to amend the Company's Certificate of Incorporation to increase the amount of authorized common stock to 20,000,000. Page 7 of 16 Note 4: Supplemental Cash Flow Information Cash paid for interest and income taxes during the six months ended December 31, 1998 and 1997 was as follows: 1998 1997 Interest $ 15 $ 35 Income taxes 1,780 2,249 Note 5: Interest and Other Income Six Months Three Months Ended Ended DECEMBER 31 DECEMBER 31 1998 1997 1998 1997 Interest on investments $ 792 $ 681 $ 401 $ 317 Net gain (loss)on investments 21 84 (26) 10 Miscellaneous other income 450 171 234 122 $1,263 $ 936 $ 609 $ 449 Note 6: Net Income per Common Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement 128"). A reconciliation between the numerators and denominators of the basic and diluted earnings per share computation is as follows: Six Months Ended DECEMBER 31, 1998 Income Shares Per Share (NUMERATOR) (DENOMINATOR) AMOUNTS Net income $2,944 Preferred stock dividends (35) Basic earnings per share Net earnings attributable to common stock 2,909 6,640 $0.44 Effect of dilutive securities Stock options - 126 Convertible preferred stock 35 139 Diluted earnings per share Net earnings attributable to common stock, assumed option exercises and conversion of preferred stock $2,944 6,905 $0.43 Page 8 of 16 Six Months Ended DECEMBER 31, 1997 Income Shares Per Share (NUMERATOR) (DENOMINATOR) AMOUNTS Net income $3,507 Preferred stock dividends (35) Basic earnings per share Net earnings attributable to common stock 3,472 6,736 $0.52 Effect of dilutive securities Stock options - 99 Convertible preferred stock 35 139 Diluted earnings per share Net earnings attributable to common stock, assumed option exercises and conversion of preferred stock $3,507 6,974 $0.50 Three Months Ended DECEMBER 31, 1998 Income Shares Per Share (NUMERATOR) (DENOMINATOR) AMOUNTS Net income $1,926 Preferred stock dividends (35) Basoc earmomgs per share Net earnings attributable to common stock 1,891 6,590 $0.29 Effect of dilutive securities Stock options - 117 Convertible preferred stock 35 139 Diluted earnings per share Net earnings attributable to common stock, assumed option exercises and conversion of preferred stock $1,926 6,846 $0.28 Page 9 of 16 Three Months Ended DECEMBER 31, 1997 Income Shares Per Share (NUMERATOR) (DENOMINATOR) AMOUNTS Net income $1,974 Preferred stock dividends (35) Basic earnings per share Net earnings attributable to common stock 1,939 6,712 $0.29 Effect of dilutive securities Stock options - 114 Convertible preferred stock 35 139 Diluted earnings per share Net earnings attributable to common stock, assumed option exercises and conversion of preferred stock $1,974 6,965 $0.28 Page 10 of 16 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES: The Company's ability to generate cash from operations is considered adequate to cover both short-term and long-term liquidity. In addition, the Company had cash and both short and long term investments which totaled $24.1 million and $29.1 million at December 31 and June 30, 1998, respectively. All of these investments are highly liquid. The Company also has sufficient lines of credit available should any additional funds be required. Working capital decreased by $7.5 million to $46.9 million at December 31, 1998 from $54.4 million at June 30, 1998. The decrease of $10.8 million in cash and cash equivalents and short term investments was the result of the following three initiatives: The Company continued its stock repurchase program and purchased 195,000 shares of common stock for $2.4 million. It also acquired 100% of the outstanding stock of CDC Products Corp. which required an initial cash outlay of $2.1 million. Lastly, long-term investments increased by $5.8 million, taking advantage of more beneficial investment rates. The increase in trade accounts receivable was due to the timing of sales and accounts receivable collections. The decrease in inventory of $2.3 million was a result of an increase in direct shipments to customers and an attempt to reduce inventory levels because of a general decrease in chemical prices. Drafts and acceptances, accounts payable and accrued purchases payable decreased by $3.4 million at December 31, 1998 compared to June 30, 1998. This decrease was due primarily to the timing of merchandise purchases and the aforementioned reduction in inventory. RESULTS OF OPERATIONS: Net sales decreased by 2% for the six months and increased by 13% for the three months ended December 31, 1998 compared to the same periods last year. For the six months, strong sales of a pharmaceutical product introduced in 1997 partially offset decreases in sales of intermediates to the color producing industries and the discontinuation of sales of two relatively high volume, low profit items. For the three months, the increase can be attributed to the sales of the aforementioned pharmaceutical product. Volume decreased by 10% for the six month period; reduced sales of colorants which tend to be lower priced, offset by increased sales of pharmaceuticals, which are higher priced, accounted for the greater decrease in volume than sales. For the three month period, volume decreased 6%. The same factors as the six months caused the disparity between sales and volume, but the effect was magnified during the shorter period. Gross profit margins for both the six and three months decreased slightly; from 12.7% to 12.6% for the six months and 13.6% to 13.2% for the three months. This can be attributed to the increased sales of certain low margin pharmaceutical products and increased competition in nutritional supplements, offset somewhat by savings in freight and warehousing costs and improved margins in agricultural chemicals. Page 11 of 16 Selling, general and administrative expenses for the six months ended December 31, 1998 increased by $708,000 or 12% compared to the same period last year. The inclusion of CDC Products Corp. in the consolidated financial statements accounted for $200,000 of this increase. Compensation and fringe benefit increases and a significant increase in legal fees accounted for a majority of the balance. For the three months there was an increase of $566,000, or 19%, compared to the same period last year. The same factors as the six months caused the increase but the effects were more pronounced as the aforementioned $200,000 of CDC expenses were all in the second quarter. These increases were somewhat offset by decreases in telephone, selling expenses and consulting fees. Interest and other income increased to $1,263,000 and $609,000 for the six and three months ended December 31, 1998 from $936,000 and $449,000 for the same periods last year. During both periods, interest on investments increased significantly due to the increase in funds available for investment along with a slight increase in dividend income. Royalty income increased $300,000 and $150,000 for the six and three months ended December 31, 1998, respectively, compared to the same periods last year, due to the timing of the recording of this income by one of the Company's subsidiaries. Partially offsetting these gains was a decrease in gains on marketable securities. The effective tax rate increased to 39.3% and 38.5% for the six months and three months ended December 31, 1998 from 36.1% and 33.9% for the same periods last year. A significant payment from the Company's non-qualified retirement plan, which was deducted for tax purposes on the date of distribution, caused an unusually low tax rate for the six and three months ended December 31, 1997. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("Statement 130"), which is effective for fiscal years beginning after December 15, 1997. Statement 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Effective July 1, 1998, the Company has adopted the provisions of Statement 130. The adoption of this statement did not have any impact on its financial position or results of operations. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("Statement 131"). Statement 131 established standards to report information about operating segments and related discussions about products and services, geographic areas and major customers. Statement 131 is effective for financial statements for fiscal years beginning after December 15, 1997. This statement permits early application and requires restatement for all prior periods. Statement 131 is not required to be applied to interim financial statements in the initial year of adoption. Management believes that the adoption of this statement will not have a material impact on previously reported information. Page 12 of 16 The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"). Statement 133 established accounting and reporting standards for derivative instruments embedded in other contracts, and for hedging activities. Statement 133 is effective for all quarters of fiscal years beginning after June 15, 1999. Early application of all the provisions of this statement is encouraged but is permitted only as of the beginning of any fiscal quarter that begins after issuance of this statement. Management of the Company does not believe that the implementation of Statement 133 will have a significant impact on its financial position or results of operations. YEAR 2000 DISCLOSURE During fiscal 1998, the Company determined that it needed to modify or replace significant portions of its customized software so that its information systems will function properly with respect to dates in the year 2000 and beyond. In addition, the Company is in the process of assessing all the third party hardware and software it uses for Year 2000 compliance. The Company also has initiated discussions with its significant suppliers, customers, and financial institutions to ascertain that those parties have appropriate plans to remediate Year 2000 issues where their systems interface with the Company's systems or otherwise impact its operations. The Company is assessing the extent to which its operations are vulnerable should those organizations fail to properly remediate their computer systems. The Company's Year 2000 team includes both internal and external staff. The team's activities are designed to ensure that there is no adverse effect on the Company's core business operations and that transactions with customers, suppliers, and financial institutions are fully supported. The Company has commenced testing its major computer systems and anticipates its information systems transformation for Year 2000 compliance will be completed in early calendar 1999. While the Company believes its planning efforts are adequate to address its Year 2000 concerns, there can be no guarantee that the systems of other companies on which the Company's systems and operations rely will be converted on a timely basis. The Company believes it unlikely that there will be a material effect on the Company. The Company estimates that its total cost of its Year 2000 initiative will be approximately $100,000. MARKET RISK The Company maintains foreign currency contracts solely to hedge open purchase commitments. It has established policies, procedures and internal processes governing the management of this hedging to reduce market risks inherent in foreign exchange. As of December 31, 1998, the exposure to these market risks is not considered material. Page 13 of 16 Item 4: Submission of Matters to a Vote of Security Holders During the period covered by this report, at an annual meeting of stockholders held on December 10, 1998, stockholders were asked to vote on three proposals through the solicitation of proxies pursuant to Regulation 14 under the Securities Act of 1933, as amended. The results of those votes are printed below. Proposal 1: Election of Directors At the meeting, eight directors were elected, each to serve until the next Annual Meeting of Stockholders or until their successors are elected and qualified. VOTES VOTES AGAINST OR BROKER NOMINEE FOR WITHHELD ABSTENTIONS NON-VOTES Samuel I. Hendler 5,843,533 10,250 38,334 - Anthony Baldi 5,731,258 122,525 38,334 - Thomas Brunner 5,841,705 12,078 38,334 - Donald Horowitz 5,844,258 9,525 38,334 - Leonard Schwartz 5,843,140 10,643 38,334 - Stephen M. Goldstein 5,838,028 15,755 38,334 - Robert A. Wiesen 5,837,961 15,822 38,334 - Richard Amitrano 5,811,660 42,123 38,334 - Proposal 2. Approve Amendment to the Company's Certificate of Incorporation to Increase the Number of Authorized Shares of Common Stock to 20 Million. VOTES VOTES VOTES BROKER FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES 5,646,288 184,045 0 530 0 Proposal 3. Approve the Aceto Corporation 1998 Omnibus Equity Award Plan. VOTES VOTES VOTES BROKER FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES 3,376,292 1,098,388 0 225,996 1,191,441 All three proposals were approved. Page 14 of 16 PART II. OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits - Exhibit 27. Financial Data Schedule (b) Reports on Form 8-K. During the three months ended December 31, 1998 the Company did not file any reports on Form 8-K. Page 15 of 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACETO CORPORATION DATE: FEBRUARY 10, 1999 BY (SIGNED)/ BY DONALD HOROWITZ Donald Horowitz, Chief Financial Officer DATE: FEBRUARY 10, 1999 BY (SIGNED)/ BY LEONARD S. SCHWARTZ Leonard S. Schwartz, Chief Executive Officer Page 16 of 16 EX-27 2
5 1000 6-MOS JUN-30-1999 DEC-31-1998 505 9775 26942 234 24448 63963 2793 2177 82318 17097 0 90 0 750 63385 82318 82463 82463 72039 72039 0 0 15 4850 1906 2944 0 0 0 2944 .44 .43
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