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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, 1997
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 11042
Lake Success, New York
(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:
Title of each class Name of each exchange
on which registered
None
____________________________________________________________
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01
_______________________________________________________
(Title of Class)
_______________________________________________________
(Title of Class)
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. [ ]
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. 4,654,491
The aggregate market value of the voting stock of the
company held by non-affiliates of the company as of September 2,
1997 was $74,853,082.
Documents incorporated by reference: The Company's
Proxy Statement for the annual meeting of the Company's
shareholders to be held on December 4, 1997. (See Part III
herein).
PART I
Item 1. Business
The Company, which was incorporated in 1947, is primarily
engaged in the marketing of fine and industrial chemicals used
principally in the agricultural, color producing, pharmaceutical
and surface coating industries. The Company sells over 600
chemicals used in these and other fields.
Most of the chemicals distributed by the Company are
purchased abroad mainly for sale throughout the United
States; to a minor extent, some chemicals are sold abroad.
During the fiscal year ended June 30, 1997
approximately 50% of the Company's purchases of chemicals
came from Europe and approximately 35% from Asia.
There were no significant changes in the kinds of
products sold by the Company or in the markets served or
methods of distribution used by it.
The chemical industry is highly competitive. Most of
the chemicals that the Company sells are in competition with
the products of chemical manufacturers, including the
largest chemical companies, who have substantially greater
resources than the Company. However, in the Company's
opinion, based on reports from its customers and suppliers,
its competitive position is enhanced by the following: the
chemical products that it offers are prime quality products,
many produced by major chemical companies, some of whom are
the largest chemical companies in Europe and Asia, which
products are offered by the Company at attractive and
competitive prices. For the most part the Company
warehouses the inventories of the chemicals which it sells
at public warehouses strategically located throughout the
United States, 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 therefore one of its salient
competitive strengths is its ability to obtain quick
decisions, when necessary, because of such access. The
technical support and services that the Company provides to
its customers is also a strength. The Company does not
consider itself to be a significant factor in the chemical
industry taken as a whole.
During fiscal years ended June 30, 1997 and 1996, no
single chemical product accounted for as much as 10% of the
Company's consolidated revenues; and no sales to any one
customer accounted for as much as 10% of the Company's
sales. During the fiscal year ended June 30, 1995, one bulk
pharmaceutical chemical product accounted for 10% of the
Company's consolidated revenues and sales of said product to
Baker Norton Pharmaceuticals, Inc. accounted for 10% of the
Company's sales.
During fiscal years ended June 30, 1997, 1996 and 1995,
one of the Company's suppliers accounted for 22%, 25% and
20% of total purchases, respectively.
Certain of the chemicals purchased by the Company are
supplied to it on an exclusive basis, including the
aforementioned bulk pharmaceutical product. Based on its
relationships with its vendors, the Company believes its
vendors will continue to supply such chemicals on an
exclusive basis.
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. It, therefore, does not
consider information concerning backlogs to be applicable.
A subsidiary of the Company 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
Evironmental 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 two such task
force groups. The Company estimates the cost of test data
at the time it is first required, which estimates are
amortized over a period of up to five years, updated
annually; and are included in cost of sales.
Liability under FIFRA would arise if the Company failed
to compensate the initial registrant for the cost of
producing the necessary test data. Since the Company
markets no pesticide products which are not registered, and
compensates initial registrants for the cost of producing test
data, it believes it does not subject itself to contingent
liabilities in such regard.
Compliance with Federal, State and local provisions
which have been enacted or adopted regulating the discharge
of materials into the environment will have no 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 was established in fiscal 1993 for
$1.5 million. During fiscal 1997, 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 in the quarter ended
September 30, 1996. At June 30, 1997 the remaining
liability was $1.4 million. The company believes it is
possible that such amount may not be sufficient to cover
future environmental remediation but does not believe there
will be a material adverse effect on the financial position
or liquidity of the company. However, depending on the
amount and timing of any required remediation over and above
the liability established, it is possible that the company's
future results could be materially affected in a particular
reporting period. Other than the aforementioned
remediation, the company is not aware of any material
environmental liabilities.
At June 30, 1997, the Company employed approximately 75
persons, none of whom were covered by a collective
bargaining agreement.
Item 2. Properties
The Company's general headquarters and main sales
office occupy approximately 20,000 square feet of leased
space in a modern office building in Lake Success, New York.
The present lease expires in April 2001.
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.
The Company owns two parcels in Long Island City, New
York totaling 10,000 square feet. Both parcels are held for
sale.
In January, 1997 the Company sold a parcel it owned in
Long Island City, New York. This parcel was comprised of a
5,000 square foot building.
Item 3. Legal Proceedings.
(None)
Item 4. Submission of Matters to a Vote of Security Holders.
(None)
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 1997 HIGH LOW
First Quarter 15 3/4 12 1/4
Second Quarter 14 1/2 12 3/4
Third Quarter 14 1/2 12 1/2
Fourth Quarter 15 12 3/4
FISCAL 1996 HIGH LOW
First Quarter 14 3/8 13
Second Quarter 16 3/8 14 1/4
Third Quarter 17 1/2 15 1/4
Fourth Quarter 17 1/2 15
*The above prices represent high and low prices for actual
transactions.
A 10% stock dividend was paid in January 1996. The above
prices have been adjusted for this dividend, as appropriate.
Cash dividends of $0.18 per common share were paid in
January and June of both the fiscal years ended June 30,
1997 and 1996.
As of September 1, 1997, there were approximately 800
holders of record of the Company's Common Stock.
Item 6. Selected Financial Data
(In thousands, except per share amounts)
Years Ended June 30 1997 1996 1995 1994 1993
Net sales $169,387 $183,163 $164,783 $149,847 $155,267
Net income 6,228(1)(2) 7,154 7,756 6,994 1,899 (3)
Net income per 1.24(1)(2) 1.34 1.38 1.23 0.33 (3)
common and common
equivalent share (4)
Total assets 86,145 87,302 86,116 81,798 76,352
Working capital 48,927 50,907 48,289 43,606 41,998
Long-term debt 500 1,000 1,500 2,000 2,500
Redeemable 750 750 821 821 821
preferred stock
Shareholders' 60,434 63,161 60,143 56,846 51,901
equity
Number of common 4,654 5,188 5,324 5,506 5,526
shares outstanding
at year end (4)
Book value per $ 12.98 $ 12.17 $ 11.30 $ 10.32 $ 9.39
common share (4)
Cash dividends $ 0.36 $ 0.36 $ 0.36 $ 0.32 $ 0.28
declared per
common share
(1) Includes an after-tax charge of $187 ($.04/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.
(2) Includes an after-tax charge of $480 ($.09/share) to cover a
revised estimate for remediation of the Company's former
manufacturing site in Carlstadt, NJ.
(3) Includes an after-tax charge of $4.8 million ($0.85/share) to
cover plant shut-down costs.
(4) Adjusted for stock dividends, as appropriate.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES.
The Company's primary source of liquidity is cash
provided from operating activities; $5.6 million in fiscal
1997 and $12.4 million in fiscal 1996. Cash and short-term
investments totaled $14.2 and $16.0 million and working
capital was $48.9 and $50.9 million at June 30, 1997 and
1996, respectively. In addition, the Company's long-term
investments totaled $11.2 and $12.7 million for the same
periods. These investments are highly liquid and can be
used for working capital if needed. The Company has
sufficient lines of credit available with banks, should any
additional funds be required.
The Company's stock buyback program resulted in the
repurchase of 552,000 shares for $7.4 million during fiscal
1997 and 171,000 shares for $2.6 million during fiscal 1996.
In June 1996 the Company discontinued operations and
sold certain assets of its subsidiary, Pfaltz & Bauer, Inc.
This closure, along with the prior closings of the Company's
two manufacturing facilities, has reduced the need for
capital expenditures.
The former site of Arsynco, Inc., one of the closed
manufacturing facilities, will require environmental
remediation. In October 1996 the Company's environmental
consultant completed its investigation of the property and
estimated a cost of $1.5 million to complete the
remediation. In the quarter ended September 30, 1996 the
Company increased the current environmental remediation
liability by $800,000 thereby adjusting the liability to the
revised estimate. In 1993 the Company initially recorded an
environmental liability of $1.5 million and through
September 30, 1996 had expended $800,000 for testing,
evaluation and remediation of the property.
Any funds required for additional stock buybacks,
capital expenditures or environmental remediation will be
funded by the aforementioned sources of liquidity.
RESULTS OF OPERATIONS.
In fiscal 1997, net sales decreased by 8%, to $169.4
million. Lower sales of agricultural chemicals and bulk
pharmaceuticals to the generic drug industry, partially
offset by increased sales of intermediates used in the
manufacture of dyes, pigments and pharmaceuticals accounted
for the decrease. The volume of products sold decreased by
6%, slightly less than the corresponding sales decrease.
While selling prices in general remained stable, the
decrease in sales of bulk pharmaceuticals, which tend to be
higher priced, accounted for this disparity. The increase
in net sales of 11%, to $183.2 million, in fiscal 1996
compared to 1995 was due to higher sales of specialty
chemical intermediates used in the manufacture of
pharmaceuticals, dietary supplements and industrial
chemicals. In fiscal 1996, selling prices were relatively
stable and volumes were only marginally higher than the
previous year.
Gross profit margins decreased to 12.6% in fiscal 1997
down from 13.0% in fiscal 1996 and 15.1% in fiscal 1995.
Increased competition in the dye and pigment intermediates
business was responsible for the decrease in 1997 from 1996.
The decrease in 1996 from 1995 was caused by increased
competition in many areas of business, as well as higher
sales of a marginally profitable herbicide in 1996.
Selling, general and administrative expenses were down
5% in fiscal 1997 compared to 1996. Several components
increased, including the cost of medical insurance, selling
expenses, legal expense and consulting fees. These
increases were more than offset by the elimination of
selling, general and administrative expenses of $1.3 million
from the Company's former Pfaltz & Bauer, Inc. subsidiary.
The decrease of 3% in fiscal 1996 compared to fiscal 1995
was due to decreases in insurance and telecommunications
costs, along with a non-recurring expense of $400,000 in
1995 relating to the preparation for sale of Pfaltz & Bauer,
Inc. These decreases were partially offset by increases in
compensation and selling expenses.
Interest expense, which primarily relates to long-term
debt, was $110,000, $157,000 and $196,000 in fiscal 1997,
1996 and 1995, respectively. The interest on long-term debt
continues to decline as scheduled payments reduce the
principal balance.
Other income increased to $2.5 million in fiscal 1997
compared to $1.5 million in fiscal 1996. There were many
factors that accounted for this $1.0 million increase. The
sale of property held by a subsidiary resulted in a $200,000
gain. In conjunction with the aforementioned sale of a
subsidiary in June of 1996, inventory was transferred to the
new ownership and the Company has received and will continue
to be entitled to a portion of the proceeds from the sale of
this inventory for a period of up to three years from the
date of transfer. This totaled $170,000 for the fiscal year
ended June 30, 1997. Also, relating to this transaction,
the Company earned approximately $70,000 in interest on two
notes. Royalty income increased by $100,000 and higher
average cash balances available for investment resulted in
an increase of $130,000 in interest income. During fiscal
1996 a loss of $250,000 was realized on the sale of certain
assets of Pfaltz & Bauer, Inc. The decrease in fiscal 1996
to $1.5 million from $1.8 million in fiscal 1995 was due to
the aforementioned loss of $250,000 in fiscal 1996, along
with slightly lower investment rates.
The effective tax rates were 38.9%, 39.4% and 38.5% in
fiscal 1997, 1996 and 1995, respectively. All three years
were not affected by any unusual tax circumstances and
approximated the Company's traditional effective tax rate.
IMPACT OF NEW ACCOUNTING STANDARDS.
The Financial Accounting Standards Board has issued
Statement 128, "Earnings per Share" ("Statement 128").
Statement 128 establishes standards for computing and
presenting earnings per share ("EPS"). The statement
simplifies the standards for computing EPS and makes them
comparable to international EPS standards. The provisions
of Statement 128 are effective for financial statements
issued for periods ending after December 15, 1997, including
interim periods. The statement does not permit early
application and requires restatement of all prior period EPS
data presented. Adoption of Statement 128 will not
materially affect the Company's consolidated financial
position, results of operations, or previously reported EPS
data.
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, 1997 and 1996.
QUARTERLY FINANCIAL DATA (Unaudited)
(In thousands except per share amounts)
Year ended June 30, 1997
Quarter Ended
Sept.30,1996 Dec.31,1996 Mar.31,1997 June 30,1997
Net sales $39,184 $35,850 $47,361 $46,992
Gross profit 4,379 4,931 5,812 6,211
Net income 511(1)(2) 1,662 2,075 1,981
Net income per common and
common equivalent share 0.10(1)(2) 0.33 0.42 0.41
Year ended June 30, 1996
Quarter Ended
Sept.30,1995 Dec.31,1995 Mar.31,1996 June 30,1996
Net sales $40,389 $47,29 $52,218 $43,261
Gross profit 4,760 6,595 6,853 5,666
Net income 1,162 2,165 2,293 1,535
Net income per common and
common equivalent share* 0.22 0.40 0.43 0.28
(1) Includes an after-tax charge of $187 ($.04/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.
(2) Includes an after-tax charge of $480 ($.09/share) to cover a
revised estimate for remediation of the Company's former
manufacturing site in Carlstadt, New Jersey.
* Adjusted for stock dividends, as appropriate.
Cost of sales during interim periods is determined by gross profit
rates based upon the mix of products sold during each quarter.
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
Company's proxy statement relating to the annual
meeting of the Company's shareholders to be held on December
4, 1997, 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) See Index to Consolidated Financial Statements and
Schedules included elsewhere herein.
(b) No reports on Form 8-K were filed during the three
months ended June 30, 1997.
(c) Exhibits
3(i) 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(ii) 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 ("1986 10-K")).
3(iii) By-laws (incorporated by reference to Exhibit
3(iii) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1981).
3(iii)(a) By-laws (incorporated by reference to Exhibit
1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1991).
3(iii)(b) By-laws (incorporated by reference to Exhibit
3(iii)b to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 ("1996 10-K")).
10(i) Note Agreement dated December 10, 1987 with the
Prudential Insurance Company of America (incorporated
by reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1987).
10(ii) Profit Sharing Plan, as amended and restated
effective July 1, 1984 (incorporated by reference to
Exhibit 10(ii) to 1986 10-K).
10(ii)(a) 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(iv) Excess Benefit Plan, effective June 30, 1985
(incorporated by reference to Exhibit 10(iv)
to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1985).
10(iv)(a) 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 ("1993 10-K")).
10(v) 1980 Stock Option Plan (incorporated by
reference to Item 4(a)(ii) of S-8 2-70623).
10(v)(a) 1980 Stock Option Plan (as amended and
restated effective as of September 19, 1990)
(incorporated by reference to exhibit
4(c) to Registration Statement No. 33-38679 on
Form S-8).
10(v)(b) 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(vi) Lease between Aceto Corporation and M. Parisi
& Son Construction Co., Inc. for office
space at One Hollow Lane, Lake Success, New York
dated May 24, 1990 (incorporated by reference to
Exhibit 10(vi) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1990).
10(vii) Arsynco, Inc. Severance Plan for employees
not covered by the Collective Bargaining
Agreement dated January 1993 (incorporated by reference
to Exhibit 10(vii) to 1993 10-K).
10(viii) Consulting agreement dated July 1, 1996 between the
Company and Robert E. Parsont (incorporated
by reference to Exhibit 10(viii) to 1996 10-K).
10(ix) Consulting agreement dated July 1, 1997
between the Company and Arnold J. Frankel.
21 Subsidiaries of the Company (incorporated by
reference to Exhibit 21 to 1993 10-K).
24 Consent of KPMG Peat Marwick LLP.
Exhibit 10(ix)
CONSULTING AGREEMENT
AGREEMENT DATED AS OF 7/1/97
BETWEEN ACETO CORP., A NEW YORK CORPORATION
(THE "COMPANY") AND ARNOLD J. FRANKEL (THE "CONSULTANT")
WHEREAS, Mr. Frankel retired from his position as Chairman
and C.E.O. of the Company on June 30, 1997; and
WHEREAS, the Company desires to retain his services as
Consultant, as an independent contractor and adviser to the
Company, and Consultant is willing to act in such capacity,
on the terms and conditions set forth herein:
NOW THEREFORE, in consideration of the promises and of the
mutual agreements set forth herein, the parties hereto agree
as follows:
1. Retention of Consultant. The Company hereby engages
Consultant, and Consultant hereby accepts such engagement
for a period of eighteen (18) months commencing on the date
hereof (the "Consulting Term"), subject to extension by the
written agreement of the parties and termination as set
forth in Section 8 below.
2. Services. (a) During the Consulting Term Consultant
shall render consulting and advisory services to the senior
executives of the Company.
(i) Consultant shall make himself available to the
Company for his services for up to 60 business days (as
hereinafter defined) during the Consulting Term at the
facilities of Aceto located at the principal offices of the
Company in Lake Success, NY or at such other locations as
the Company and Consultant may so agree.
For the purpose hereof the term business day shall mean
a weekday during the business hours of 9 a.m. to 5 p.m. or
any part thereof.
(ii) The Company may also utilize Consultant's services
by telephone and/or fax. Such time expended by Consultant
shall be recorded in a log and submitted to the Company
within 5 days after the end of each month, or as soon
thereafter as Consultant's personal travel schedule permits.
Such time, will be credited to Consultant's service
obligation to Company, using a formula where 8 such hours
shall be the equivalent of one business day.
(iii) Consultant agrees to remain on the Aceto
Board of Directors, if elected, for the entire Consulting
Term. Consultant fully intends to attend all Board meetings
during the Consulting Term, subject only to the provisions
of (b) below.
(b) The Company will give due consideration to the
convenience of Consultant in respect of the times and places
at which the Company shall request the performance of
Consultant's services hereunder. The failure or inability
of Consultant, by reason of temporary illness, reasonable
vacation time or other cause beyond his control, to respond
to any request made by the Company for his consulting
services hereunder shall not be deemed to constitute a
default on his part in the performance of his obligation to
render such services.
(c) Consultant shall perform advisory and consulting
services hereunder as an independent contractor, and not as
an employee, of the Company.
3. Consultant Fee. (a) As compensation for Consultant's
services specified above, the Company shall pay to
consultant a fee of $192,600, in installments of $10,700
for each month for 18 months during the term of this
Agreement. The fee payable hereunder shall be paid on the
15th of each month, whether or not the services of
Consultant shall have been rendered during that month. So
long as Consultant shall be willing and able to render his
services for the Consulting Term in accordance with the
provisions of this Agreement, the Company shall be required
to pay Consultant.
(b) In the event that Consultant renders service for
more than 60 business days, as defined in sections 2(a)(i)
and 2(a)(ii) above, Company shall pay Consultant an
additional fee at the rate of $3,000 per day. Such fees
shall be paid within 5 business days following the end of
the month in which Consultant shall have rendered such
additional services.
(c) As a member of the Board of Directors who is not
an employee of the Company, the Company will pay Consultant
the fee it deems appropriate for service on the Board by an
outside Director. As of this date, such fee is $7,500.
4. Expense Reimbursement. The Company will promptly
reimburse Consultant for all his travel expenses incurred in
connection with his services rendered pursuant to Sections
2(a)(i), 2(a)(ii) and 2(a)(iii) hereof and shall reimburse
Consultant for all other travel and other reasonable
expenses or disbursements incurred in rendering his
consulting services hereunder. For such purposes,
Consultant shall submit to the Company reports of such
expenses or disbursements. However, no reimbursement will
be paid for travel to the Company's offices, or facilities
in the Metropolitan NY-NJ area, if the Consultant resides
within 50 miles of the Company's office.
5. Confidentiality. The Consultant covenants and agrees
with the Company that he will not at any time, except in the
performance of his obligations to the Company hereunder or
with the prior written consent of the Company, directly or
indirectly, disclose any Confidential Information that he
has obtained or may obtain by reason of his past or present
association with the company or any of its subsidiaries and
affiliates. The term "Confidential Information" means any
information concerning or referring in any way to the
business of the Company disclosed to or acquired by the
Consultant through or as a consequence of the Consultant's
past or present association with the Company. For purposes
of this Agreement, Confidential Information consists of
information proprietary to the Company which is not
generally known to the public and which in the ordinary
course of business is maintained by the Company as
confidential. By way of example and without limitation,
Confidential Information consists of trade secrets, patents,
inventions, copyrights, techniques, designs, and other
technical information in any way concerning or referring to
scientific, technical or mechanical aspects of the Company's
products, concepts, processes, machines, engineering,
research and development. Confidential Information also
includes, without limitation, information in any way
concerning or referring to the Company's business methods,
business plans, forecasts and projections, operations,
organizational structure, finances, customers, pricing,
costing, marketing, purchasing, merchandising, employees or
their compensation, data processing, and all other
information designated by the Company as "confidential".
6. Non-Competition. The Consultant agrees that during the
term of this Agreement and for a period of two years
thereafter, the Consultant shall not: (i) conspire, plan or
otherwise agree to organize or develop any business or
entity that directly or indirectly competes with the
Company; (ii) directly or indirectly organize, own, manage,
operate or control any entity in direct or indirect
competition with the Company, provided, however, that
ownership by the Consultant of not more than 2% of the
outstanding stock of an entity in direct or indirect
competition with the Company shall not violate this clause;
(iii) divert or attempt to divert any business enjoyed or
solicited by the Company during the term of this Agreement;
(iv) solicit or attempt to solicit, directly or indirectly,
any of the Company's employees for any competitive service
or business; (v) seek or accept any employment or other work
with any company or other entity which competes with the
Company.
7. Notices. Any notice or other communication required or
which may be given hereunder shall be in writing and shall
be delivered personally or sent by registered mail, postage
prepaid, if to the Company to Aceto Corporation, One Hollow
Lane, Suite 201, Lake Success, New York 10042, Attention:
Leonard S. Schwartz, Chairman and if to Consultant, Arnold
J. Frankel, 535 East 86th Street, New York, NY 10028, or to
such other address as any party shall specify to the other
party in writing.
8. Termination.
(a) Death. In the event of the death of Consultant
during the Consulting Term, this Agreement shall terminate
as of the date of his death, without further liability of
any party, except in respect of liabilities incurred or
accrued up to and including the date of such termination.
(b) Permanent Disability. In the event the consultant
becomes physically or mentally disabled so that he is unable
to render the services required by this Agreement for a
period of six consecutive months, or for shorter periods
aggregating six months during any twelve month period, the
Company may at any time after the last day of the six
consecutive months of disability, or the day on which
shorter periods of disability equal an aggregate of six
months, terminate this Agreement by written notice to the
Consultant. Thereafter, there shall be no further liability
of any party, except in respect of liabilities incurred or
accrued up to and including the date of termination. The
Consultant will use his best efforts to cooperate with any
physician engaged by the Company to determine whether or not
a Permanent Disability exists.
(c) Cause. The Company may terminate this Agreement
for "cause" by written notice to the Consultant.
Thereafter, there shall be no further liability of any
party, except in respect of liabilities incurred or accrued
up to and including the date of termination. Cause shall
include, without limitation, intentional misconduct,
dishonesty and commission of a crime involving moral
turpitude.
9. Arbitration. Any dispute over the interpretation,
application or claimed violation of any term or provision of
this agreement may be submitted to arbitration upon the
written request of either party delivered to the other party
within ten (10) days of the date that the party seeking
arbitration knew or reasonably should have known of the
existence of the dispute. The arbitrator shall be selected
and the hearing shall be conducted under the auspices of and
pursuant to the rules of the American Arbitration
Association.
10. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of
New York.
11. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
personal representatives, successors and assigns; provided,
however, that this Agreement shall not be assignable by
either party without the prior written consent of the other
party.
12. Severability. If a court of competent jurisdiction
determines that any term or provision hereof is invalid or
unenforceable: (i) the remaining terms and provisions hereof
shall be unimpaired; and (ii) such court shall have the
authority to replace such invalid or unenforceable term or
provision with a term or provision that is valid and
enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.
13. Entire Agreement. This Agreement, contains the entire
agreement among the parties hereto with respect to the
matters set forth herein and therein, and supersedes and
revokes all prior oral or written agreements and
understandings with respect thereto. This Agreement may be
amended or terminated, and the terms and conditions hereof
may be waived, only by a written instrument signed by the
parties hereto.
ACETO CORPORATION
BY:/s/Leonard S. Schwartz
Leonard S. Schwartz
Chairman, Board of Directors
CONSULTANT
/s/Arnold J. Frankel
Arnold J. Frankel
Exhibit 24
Independent Auditors' Consent
The Board of Directors
Aceto Corporation:
We consent to incorporation by reference in the registration
statement (No. 33-38679) on Form S-8 of Aceto Corporation of
our report dated August 15, 1997, relating to the
consolidated balance sheets of Aceto Corporation and
subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and
cash flows for each of the years in the three-year period
ended June 30, 1997, and all related schedules, which report
appears in the June 30, 1997 annual report on Form 10-K of
Aceto Corporation.
KPMG PEAT MARWICK LLP
Jericho, New York
September 24, 1997
Pursuant to the requirements of Section 13 or 5 (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/Donald Horowitz
Leonard S. Schwartz Donald Horowitz
Chairman, President Secretary/Treasurer and
and Chief Executive Officer Chief Financial Officer
Date: September 24, 1997
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 9-24-97
Leonard S. Schwartz Chief Executive Officer
/s/Donald Horowitz Secretary/Treasurer, 9-24-97
Donald Horowitz Chief Financial Officer
and Director
/s/Anthony Baldi Director 9-24-97
Anthony Baldi
/s/Thomas Brunner Director 9-24-97
Thomas Brunner
/s/Samuel I. Hendler Director 9-24-97
Samuel I. Hendler
ACETO CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated financial statements:
Consolidated balance sheets as of June 30, 1997 and 1996
Consolidated statements of income for the years ended
June 30, 1997, 1996 and 1995
Consolidated statements of cash flows for the years
ended June 30, 1997, 1996 and 1995
Consolidated statements of shareholders' equity for the
years ended June 30, 1997, 1996 and 1995
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.
Independent Auditors' Report
The Board of Directors
Aceto Corporation:
We have audited the accompanying consolidated balance sheets
of Aceto Corporation and subsidiaries as of June 30, 1997
and 1996, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years
in the three-year period ended June 30, 1997. In connection
with our audits of the consolidated financial statements, we
also have audited the financial statement schedule II 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 and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the
three-year period ended June 30, 1997, in conformity with
generally accepted accounting principles. Also in our
opinion, the related financial statement schedule II, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jericho, New York
August 15, 1997
Aceto Corporation and Subsidiaries
Consolidated Balance Sheets
Years ended June 30, 1997 and 1996
Assets 1997 1996
(In thousands)
Current assets:
Cash and cash equivalents $ 4,142 $ 5,380
Short-term investments 10,013 10,595
Receivables:
Trade, less allowance for doubtful
accounts 1997,$219; 1996,$207 24,627 24,739
Other 1,363 590
25,990 25,329
Inventory 31,210 30,156
Prepaid expenses 240 104
Deferred income tax benefit 1,267 1,125
Property held for sale 512 595
Total current assets 73,374 73,284
Long-term investments 11,212 12,737
Long-term notes receivable 948 790
Property and equipment:
Computers 674 616
Furniture and fixtures 573 500
Automobiles 178 230
1,425 1,346
Less accumulated depreciation 1,125 1,046
300 300
Other assets 311 191
Total Assets $86,145 $87,302
See accompanying notes to consolidated financial statements.
Liabilities and Shareholders' Equity 1997 1996
(In thousands except par value)
Current liabilities:
Drafts and acceptances payable $ 743 $ 1,002
Current installments on long-term debt 250 250
Accounts payable 3,939 3,047
Accrued merchandise purchases 11,720 11,202
Accrued compensation 3,455 3,330
Accrued environmental remediation 1,387 790
Accrued income taxes 943 701
Other accrued expenses 2,010 2,055
Total current liabilities 24,447 22,377
Long-term debt, excluding current
installments 500 1,000
Deferred income taxes 14 14
Redeemable preferred stock 750 750
Shareholders' equity:
Common stock, $.01 par value per share;
Authorized 10,000 shares;
issued: 1997,6,001; 1996,6,001 60 60
outstanding: 1997,4,654; 1996,5,188
Capital in excess of par value 57,381 57,387
Retained earnings 21,079 16,646
78,520 74,093
Less:
Cost of common shares held in treasury;
1997, 1,347 shares; 1996, 813 shares 18,086 10,932
Total shareholders' equity 60,434 63,161
Commitments and contingencies
Total Liabilities and Shareholders' Equity $86,145 $87,302
Aceto Corporation and Subsidiaries
Consolidated Statements Of Income
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
(In thousands except per share amounts)
Net sales $169,387 $183,163 $164,783
Cost of sales 148,053 159,289 139,949
Gross profit 21,334 23,874 24,834
Selling, general and
administrative expenses 12,719(1) 13,430 13,847
Provision for environmental
remediation 800(2) - -
Operating profit 7,815 10,444 10,987
Other income (expense):
Interest expense (110) (157) (196)
Interest and other
income 2,496 1,522 1,824
2,386 1,365 1,628
Income before income taxes 10,201 11,809 12,615
Income taxes:
Federal:
Current 3,571 3,603 4,016
Deferred (121) 346 89
State and local:
Current 544 644 738
Deferred (21) 62 16
3,973 4,655 4,859
Net Income $ 6,228(1)(2) $ 7,154 $ 7,756
Net income per common and
common equivalent share: $ 1.24(1)(2) $ 1.34 $ 1.38
See accompanying notes to consolidated financial statements.
(1) Includes an after-tax charge of $187($.04/share), $225 pre-tax, 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.
(2) Includes an after-tax charge of $480($.09/share), $800 pre-tax, to
cover a revised estimate for remediation of the Company's former
manufacturing site in Carlstadt, NJ.
Aceto Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
(In thousands)
Operating activities:
Net income $6,228 $7,154 $7,756
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 179 265 299
Loss (gain) on sale of assets (198) 257 --
Stock distribution to employees -- 3 1
Effect of market value over original
option price for options exercised 59 144 272
Provision for doubtful accounts 12 3 28
Provision for (recovery of) deferred
income taxes (142) 407 104
Changes in operating assets and
liabilities:
Decrease (increase)in investments -
trading securities (437) 2,965 1,044
Decrease (increase) in trade accounts
receivable 100 1,350 (2,540)
Decrease (increase) in other receivables (773) 576 (406)
Decrease (increase) in inventory (1,054) 367 (4,350)
Decrease (increase) in prepaid expenses (136) 123 321
Decrease (increase) in long-term
notes receivable (158) 28 25
Increase in other assets (120) -- --
Increase (decrease) in drafts &
acceptances payable (259) 73 (421)
Increase (decrease) in accounts payable 892 467 (231)
Increase (decrease) in accrued
merchandise purchases 518 (153) 2,510
Increase (decrease)in accrued
compensation 125 (263) 270
Increase (decrease)in accrued
environmental remediation 597 (195) (685)
Increase (decrease) in accrued income
taxes 242 (980) (138)
Increase (decrease) in other accrued
expenses (45) (200) 222
Net cash provided by operating activities 5,630 12,391 4,081
Investing activities:
Purchases of investments-held-to-maturity (6,186) (7,653) (7,083)
Proceeds from investments-held-to-maturity 8,728 3,838 4,968
Purchases of property and equipment (155) (77) (212)
Proceeds from sale of property 259 92 --
Net cash provided by (used in) investing
activities 2,646 (3,800) (2,327)
Financing activities:
Payments of long-term debt (500) (500) (500)
Payments of cash dividends (1,795) (1,948) (1,851)
Proceeds from exercise of stock options 138 223 258
Payments for purchases of treasury stock (7,357) (2,630) (3,139)
Net cash used in financing activities (9,514) (4,855) (5,232)
Net increase (decrease) in cash and
cash equivalents (1,238) 3,736 (3,478)
Cash and cash equivalents at beginning of
year 5,380 1,644 5,122
Cash and cash equivalents at end of year $4,142 $5,380 $1,644
See accompanying notes to consolidated financial statements.
Aceto Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
Common
Common Capital in Stock
Stock Excess of Retained Held in
Issued Par Value Earnings Treasury Total
Balance at June 30, 1994 $55 $50,168 $12,842 $(6,219) $56,846
Net income - - 7,756 - 7,756
Stock distribution to
employees (100 shares) - - - 1 1
Cash dividends:
Common stock - - (1,774) - (1,774)
Preferred stock - - (77) - (77)
Exercise of stock options
(45,000 shares) - (136) - 530 394
Federal income tax benefit
from 1980 stock option
plan - 136 - - 136
Purchase of treasury stock
(211,000 shares) - - - (3,139) (3,139)
Balance at June 30, 1995 55 50,168 18,747 (8,827) 60,143
Net income - - 7,154 - 7,154
Stock distribution to
employees (175 shares) - 1 - 2 3
Stock dividend paid
(471,000 shares) 5 7,303 (7,313) - (5)
Cash dividends:
Common stock - - (1,869) - (1,869)
Preferred stock - - (73) - (73)
Exercise of stock options
(36,000 shares) - (159) - 400 241
Federal income tax benefit
from 1980 stock option
plan - 126 - - 126
Purchase of treasury stock
(171,000 shares) - - - (2,630) (2,630)
Conversion of redeemable
preferred stock
(11,000 shares) - (52) - 123 71
Balance at June 30, 1996 60 57,387 16,646 (10,932) 63,161
Net income - - 6,228 - 6,228
Cash dividends:
Common stock - - (1,725) - (1,725)
Preferred stock - - (70) - (70)
Exercise of stock options
(19,000 shares) - (46) - 203 157
Federal income tax benefit
from 1980 stock option
plan - 40 - 40
Purchase of treasury stock
(552,000 shares) - - - (7,357) (7,357)
Balance at June 30, 1997 $60 $57,381 $21,079 $(18,086) $60,434
See accompanying notes to consolidated financial statements.
Aceto Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996 and 1995
(Dollars in thousands except amounts and par value per share)
(1) Description of Business
The Company is primarily engaged in the marketing of 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 mainly for sale throughout
the United States; to a minor extent, some chemicals are
sold abroad.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of Aceto Corporation and all subsidiaries. All significant
intercompany accounts and transactions are eliminated in
consolidation.
Revenue Recognition
Revenue is recognized at the time goods are sold and shipped.
Inventory
Inventory consists of finished goods and is stated at the
lower of cost (principally on a specific identification
basis) or market (net realizable value).
Property and Equipment
Property and equipment are stated at cost. The Company
depreciates property and equipment using sum-of-the-years
and declining balance methods. The range of estimated
useful lives are as follows:
Computers 5 years
Furniture and fixtures 10 years
Automobiles 3 years
Property Held for Sale
Property held for sale is stated at cost. Buildings
included in the property held for sale are depreciated using
the straight-line method over twenty years. Impairment, if
any, is recognized if the estimated fair value less costs to
sell is lower than the carrying value.
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.
Income Per Common and Common Equivalent Share
Income per common and common equivalent share is determined
based on the weighted average number of common and common
equivalent shares outstanding for the period. Weighted
average common shares outstanding for fiscal years ended
June 30, 1997, 1996 and 1995 were 4,972,000, 5,299,000 and
5,545,000, respectively, after giving retroactive effect to
the 10% stock dividend paid in January 1996 and included
common stock equivalents of 46,000, 62,000 and 63,000,
respectively. Shares issuable upon the assumed conversion
of preferred stock were excluded from the computation since
they were not materially dilutive during the three year
period.
Cash and Cash Equivalents
There were no cash equivalents at June 30, 1997 and 1996.
The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash
equivalents.
Marketable Investment Securities
Investments at June 30, 1997 and 1996 consisted of U.S.
Treasury, corporate debt and equity securities, and
municipal obligations. The Company classifies its debt and
equity securities as either trading or held-to-maturity
securities. Trading securities are bought and held
principally for the purpose of selling them in the short
term. Held-to-maturity are those securities in which the
Company has the ability and intent to hold until maturity.
In determining realized gains and losses, the cost of
securities sold is based on the specific identification
method.
Trading securities were recorded at their fair market value
of $3,301 and $2,866 at June 30, 1997 and 1996,
respectively, and were classified as short-term investments.
Unrealized gains and losses on trading securities are
included in earnings. Dividend and interest income are
recognized when earned. Held-to-maturity securities are
recorded at cost and are adjusted for the amortization or
accretion of premiums or discounts over the life of the
related security. The cost of held-to-maturity securities
approximated their fair market value.
Held-to-maturity securities at June 30, 1997 and 1996
consisted of:
Due after
Due in one year
less than through
one year three years
1997 1996 1997 1996
U.S. Treasury securities $1,989 $1,994 $ 999 $ 1,967
Corporate debt securities 3,548 4,763 10,213 10,770
Municipal obligations 1,175 972 --- ---
$6,712 $7,729 $11,212 $12,737
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 immaterial (See note 11c).
The difference between the fair value of long-term financial
instruments and their carrying value at June 30, 1997 and
1996 was not material. The fair value of the Company's long-
term debt and notes receivable were based upon current rates
for similar financial instruments offered to the Company.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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.
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", on July 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be
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. Adoption of this statement did not have
a material impact on the Company's financial position,
results of operations or liquidity.
Stock Options
Prior to July 1, 1996 the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. As
such, compensation expense would be recorded on the date of
grant only if and to the extent that the current market
price of the underlying stock exceeded the exercise price.
On July 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"), 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, Statement 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in
the prior year and future years as if the fair-value-based
method defined in Statement 123 had been applied. The
Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure
provisions of Statement 123.
(3) Debt and Financing Arrangements
(a) Long-term debt outstanding at June 30, 1997 and 1996 was
as follows:
1997 1996
Note payable to the Prudential
Insurance Company of America
in equal semi-annual installments
of $250 maturing Jan. 1, 1999,
plus interest at 9.10% payable
quarterly. $ 750 $1,250
Less current installments 250 250
$ 500 $1,000
(b) The agreement underlying the long-term debt contains
certain defined restrictive covenants, including limitations
on corporate acquisitions and mergers and additional debt,
minimum working capital and debt/equity ratios and the
acquisition of the Company's stock.
(c) At June 30, 1997 and 1996 the Company had available two
lines of credit with financial institutions totaling
$13,000. The credit arrangements do not: (i) restrict
withdrawals of funds; (ii) have a formal requirement
relating to compensating balances for either credit utilized
or available; or (iii) provide for commitment fees.
However, there are informal arrangements under which the
Company maintains compensating balances. The compensating
balance arrangements at June 30, 1997 and for the year then
ended were satisfied by collected balances. There were no
short-term loans outstanding under the lines of credit at
any time during the three year period ended June 30, 1997.
The lines of credit can be withdrawn by the financial
institutions at any time.
(4) Income Taxes
The tax effects of temporary differences that give rise to a
significant portion of the deferred tax assets and
liabilities at June 30, 1997 and 1996 are presented below:
1997 1996
Deferred tax assets:
Accrued environmental remediation
liabilities not currently
deductible $ 555 $ 316
Accrued compensation 468 450
Additional costs inventoried for
tax purposes pursuant to the
Tax Reform Act of 1986 156 234
Allowance for doubtful accounts
receivable 88 83
Other -- 42
Net deferred tax asset $ 1,267 $ 1,125
Deferred tax liabilities:
Differences in depreciation
of property and equipment $ (14) $ (14)
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 deferred tax
asset, the Company will need to generate future taxable
income of approximately $3,300. Taxable income for the
years ended June 30, 1997 and 1996 was approximately $9,900
and $12,800, 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,
1997, 1996 and 1995 was as follows:
1997 1996 1995
Federal statutory tax rate 34.0% 34.0% 34.0%
State and local taxes, net
of Federal income tax
benefit 3.4 3.9 3.9
Other 1.5 1.5 0.6
Effective tax rate 38.9% 39.4% 38.5%
(5) Redeemable Preferred Stock
The Company has 2,000,000 authorized shares of redeemable
preferred stock with a par value of $2.50 per share. The
stock is redeemable at the option of either the holder or
issuer at par. All of the outstanding preferred stock is
held by the Aceto Corporation Profit Sharing Plan.
Redeemable preferred stock outstanding at both June 30, 1997
and 1996 consisted of the following:
Shares Par Value
Third series 100,000 $250
Fourth series 40,000 100
Fifth series 40,000 100
Sixth series 40,000 100
Seventh series 40,000 100
Eighth series 40,000 100
$750
The third, fourth, fifth, sixth, seventh and eighth series
of preferred stock are convertible beginning on the date of
issue into the Company's common stock at ratios of 6.4, 6.4,
5.1, 6.0, 6.0 and 4.2 shares of preferred stock to 1 share
of common stock, respectively, subject to antidilution
provisions. The third and sixth series pay 10%, the fourth
and fifth series pay 8%, the seventh series pays 9.5% and
the eighth series pays 9% annual cumulative cash dividends
on par value. All series have voting rights. In the event
of liquidation of the Company, all series share ratably in
the remaining proceeds.
On April 9, 1996 the Aceto Corporation Profit Sharing Plan
converted 28,000 shares of second series preferred stock of
Aceto Corporation into 11,000 shares of Aceto Corporation
common stock.
(6) Supplemental Cash Flow Information
Cash paid for interest and income taxes during the years
ended June 30, 1997, 1996 and 1995 was as follows:
1997 1996 1995
Interest $ 110 $ 156 $ 196
Income taxes 5,024 3,736 4,762
In June, 1997, the Company received a note in the amount of
$206 in connection with the sale of a building and land. In
June 1996, the Company received notes aggregating $635 in
connection with the sale of certain assets and real
property. (see note 10)
(7) Stock Option Plan
(a) Under the Company's 1980 stock option plan, the option
prices are determined by the Board of Directors and can be
greater or less than the market value of the stock on the
date the options are granted. These options become
exercisable in whole or in part, as determined by the Board
of Directors, beginning on the date of grant, and must be
exercised no later than five or ten years, depending on the
terms at the date of grant, after the date they become
exercisable.
Through June 30, 1997, options were granted to officers and
key employees who own less than 10% of the Company's stock.
At June 30, 1997, options to purchase 9,000 shares were
available for grant.
(b) The following tabulations summarize the shares of
common stock under option at June 30, 1997, 1996 and 1995 as
adjusted only for stock dividends, if any, occurring in that
year, and the activity with respect to options for the
respective years then ended.
Weighted
No. of average exercise
shares price per share
Shares under option
and exercisable:
June 30, 1997 152,000 $10.86
June 30, 1996 122,000 9.70
June 30, 1995 110,000 8.41
Shares under option
but not exercisable:
June 30, 1997 200,000 $12.77
June 30, 1996 106,000 11.67
June 30, 1995 -- --
Options granted during
years ended:
June 30, 1997 150,000 $13.39
June 30, 1996 146,000 11.91
June 30, 1995 13,000 12.50
Options exercised during
years ended:
June 30, 1997 19,000 $ 7.29
June 30, 1996 36,000 6.15
June 30, 1995 45,000 5.72
At June 30, 1997, the weighted average option price for the
352,000 option shares outstanding under the 1980 stock
option plan was $11.94 with expiration dates ranging from
December 31, 1997 to December 31, 2013. Options cancelled
during fiscal 1997 and 1996 were 8,000 and 1,000,
respectively. No options were cancelled during fiscal 1995.
(c) Under the Company's 1980 stock option plan, upon
exercise of options, the excess of the option price over the
par value is credited to capital in excess of par value.
When treasury stock is issued upon the exercise of options,
the difference between the option price and the cost of
treasury stock is recorded in capital in excess of par
value. Under the 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 $121, $128
and $86 in fiscal 1997, 1996 and 1995, respectively.
The per share weighted average fair value of stock options
granted during 1997 and 1996 was $4.34 and $5.78,
respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions:
Risk-free
Date Expected Expected interest Dividend
of grant volatility(%) life(years) rate(%) yield(%)
1997
1/24/97 20 5.0 6.19 2.62
6/05/97 20 13.4 6.52 2.67
1996
1/29/96 20 5.0 5.18 2.25
1/29/96 20 6.8 5.24 2.25
3/20/96 20 6.8 5.93 2.34
The Company applies APB Opinion 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 Statement No. 123, the Company's net income and income
per share would have been reduced to the pro forma amounts
indicated below:
1997 1996
Net income:
As reported $6,228 $7,154
Pro forma 6,145 6,943
Income per share:
As reported $ 1.24 $ 1.34
Pro forma 1.22 1.30
Summarized information about stock options outstanding and
exercisable at June 30, 1997 is as follows:
Outstanding Exercisable
Exercise
price Number Average Average Number Average
range of life(1) price(2) of price
shares shares (2)
$ 5-$10 36,000 2.0 $ 6.89 36,000 $ 6.89
$11-$15 316,000 8.5 $12.57 116,000 $12.22
(1)Weighted average contractual life remaining, in years.
(2)Weighted average exercise price.
(8) Interest and Other Income
Interest and other income earned during the fiscal years
ended June 30, 1997, 1996 and 1995 were comprised of the
following:
1997 1996 1995
Dividends $ 19 $ 14 $ 20
Interest 1,595 1,469 1,547
Net gain (loss)on investments 105 44 (5)
Net gain (loss)on sale of assets 198 (243) -
Royalty income 248 143 119
Misc. other income 331 95 143
$2,496 $1,522 $1,824
(9) Environmental Remediation
It is the policy of the Company to accrue and charge against
earnings environmental remediation costs at the time it is
determined that a liability has been incurred and the amount
of that liability can be reasonably estimated. During
fiscal 1993 the Company announced the closing of its
manufacturing subsidiary located in Carlstadt, 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 was
established in fiscal 1993 for $1,500. During fiscal 1997
after additional testing was completed, the Company received
a revised estimate from the consultant. As a result, the
Company recorded an additional liability of $800 in the
quarter ended September 30, 1996. At June 30, 1997 the
remaining liability was $1,400. The Company believes it is
possible that such amount may not be sufficient to cover
future environmental remediation but does not believe there
will be a material adverse effect on the financial position
or liquidity of the Company. However, depending on the
amount and timing of any required remediation over and above
the liability established, it is possible that the Company's
future results could be materially affected in a particular
reporting period. Other than the aforementioned
remediation, the Company is not aware of any material
environmental liabilities.
(10) Notes Receivable
In June, 1997 a subsidiary of the Company sold real property
and received a ten year note, payable monthly, in the amount
of $206, maturing in June 2007, bearing interest at 9.5%.
This note is secured by a first mortgage on the property.
In connection with this sale, the Company recorded a $198
gain.
In June 1996, the Company sold certain assets and real
property of its Pfaltz & Bauer, Inc. subsidiary for $726,
which included two notes receivable aggregating $635. One
note, in the amount of $460, matures in July 2021 and bears
interest at 9.25%. The other note, in the amount of $175,
matures in June 2003 and bears interest at prime plus 1%.
The note for $460 is payable monthly and is secured by a
first mortgage on the real property. The note for $175 is
payable quarterly beginning in June 1999 and is
collateralized by a security interest in the assets sold and
contract rights. In connection with this sale of assets,
the Company recorded a $247 loss.
In connection with the sale of assets, the Company agreed to
maintain $275 of unencumbered funds for a period of seven
years from the date of sale to secure the purchaser's rights
and the Company's obligations under the terms of the
agreement, including indemnification for certain
environmental matters, if any arise. The unencumbered
balance could be reduced to $100 if certain environmental
certifications were obtained. These certifications were
received in September, 1996 and, therefore, the unencumbered
balance was reduced accordingly. The payments on the notes
are also subject to the purchaser's rights of set off as
provided in the agreement which is identical to those
affecting the unencumbered funds.
The Company holds a ten-year note maturing in October 2003
in the amount of $256 secured by a first mortgage on the
real property it sold in September 1993. This note is
payable monthly with interest at prime plus 3% through
September 1996 and prime plus 2 1/2% for the balance of the
term.
(11) Profit-Sharing Plans
The Company has profit-sharing plans in which employees of
the parent company and subsidiaries are eligible to
participate. The Company's annual contribution per
employee, which is at management's discretion, is based on a
percentage of compensation paid. The Company's provisions
for profit sharing contribution amounted to $607, $664 and
$668 in fiscal 1997, 1996 and 1995, respectively.
(12) 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
companys of these products compensate the initial company
for the cost of producing the necessary test data on a basis
prescribed in the FIFRA regulations. Follow-on companys do
not themselves generate or contract for the data. However,
when FIFRA requirements mandate the generation of new test
data to enable all company's to continue marketing a pesticide
product, often both the initial and follow-on companys
establish a task force to jointly undertake the testing effort.
The Company is presently a member of two such task force groups.
The Company estimates the cost of test data at the time it is
first required, which estimates are amortized over a period
of up to five years, updated annually, and are included in
cost of sales.
Liability under FIFRA would arise if the Company marketed
pesticide products not registered under FIFRA, or failed to
compensate the initial company for the cost of producing the
necessary test data. Since the Company markets no pesticide
products which are not registered, and compensates initial
companys for the cost of producing test data, it believes it
does not subject itself to contingent liabilities in such
regard.
(b) The Company and its subsidiaries are subject to various
claims which have arisen in the normal course of their
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.
(c) The Company enters into foreign exchange contracts
entirely as hedges relating to foreign inventory purchase
commitments. These financial instruments are designed to
minimize exposure and reduce risk from exchange rate
fluctuations in the regular course of business. Gains and
losses on the foreign exchange contracts are reported as a
component of the related transaction. At June 30, 1997 the
Company had contracts maturing at various dates through
April 10, 1998 to purchase approximately $11,300 in foreign
currencies (primarily British Pounds, Belgian Francs, German
Marks and Japanese Yen).
(d) At June 30, 1997, the Company had non-negotiated letters
of credit to purchase merchandise of approximately $7,500,
which approximated the fair value of the merchandise.
(e) The Company currently leases an office facility under an
operating lease expiring April 2001. At June 30, 1997,
future minimum lease payments in the aggregate and for each
of the five succeeding years are as follows:
Fiscal year
ending
June 30 Amount
1998 $ 555
1999 555
2000 555
2001 440
2002 -
$2,105
Total rental expense relating to the current office facility
amounted to approximately $480 for each of the years in the
three-year period ended June 30, 1997.
(13) Segment Information
The Company's operations, which principally consist of the
marketing of chemicals, are considered to be one industry
segment as defined by Financial Accounting Standards Board
Statement No. 14.
(14) Business and Credit Concentrations
None of the Company's customers accounted for as much as 10%
of revenues in fiscal 1997 and 1996. One of the Company's
customers accounted for 10% of revenues in fiscal 1995. One
of the Company's suppliers accounted for 22%, 25% and 20% of
total purchases in fiscal 1997, 1996 and 1995, respectively.
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 primarily in the
United States. The Company estimates an allowance for
doubtful accounts based upon the creditworthiness of its
customers as well as general economic conditions.
Consequently, an adverse change in those factors could
affect the Company's estimate of its bad debts. The Company
as a policy does not require collateral from its customers,
however it maintains credit insurance covering certain non-
United States receivables.
Schedule II
ACETO CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended June 30, 1997, 1996 and 1995
Balance at Charged to Balance
beginning costs and Deduc- at end
Description of year expenses tions of year
Year ended June 30, 1997:
Allowance for doubtful
accounts $ 207,366 80,379 68,379(a) $ 219,366
Year ended June 30, 1996:
Allowance for doubtful
accounts $ 204,366 95,509 92,509(a) $ 207,366
Year ended June 30, 1995:
Allowance for doubtful
accounts $ 176,366 111,191 83,191(a) $ 204,366
(a) Specific accounts written off as uncollectible.