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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______.
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
--------------
Registrant's website address: www.aceto.com
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Not Applicable
--------------
(Former name, former address and former
fiscal year, if changed since last report)
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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
--- ---
The Registrant had 9,924,551 shares of common stock outstanding as of April 30,
2003.
ACETO CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2003 and
June 30, 2002
Consolidated Statements of Income - Nine Months
Ended March 31, 2003 and 2002
Consolidated Statements of Income - Three Months
Ended March 31, 2003 and 2002
Consolidated Statements of Cash Flows - Nine Months
Ended March 31, 2003 and 2002
Notes to Consolidated Financial Statements
Independent Accountants' Review Report
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
Index to Exhibits
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, June 30,
2003 2002
---- ----
ASSETS
- ------
Current assets:
Cash $ 16,164 $ 14,255
Short-term investments 737 1,320
Receivables:
Trade, less allowance for doubtful accounts:
(March, $940; June, $657) 44,725 42,417
Other 1,900 4,266
------ -------
46,625 46,683
Inventory 43,496 36,271
Prepaid expenses and other current assets 1,075 1,191
Deferred income tax benefit, net 521 521
Property held for sale 326 483
------ ------
Total current assets 108,944 100,724
Long-term notes receivable 1,044 691
Property and equipment:
Machinery and equipment 1,140 1,069
Leasehold improvements 1,142 1,143
Computer equipment & software 2,351 1,680
Furniture and fixtures 609 593
Automobiles 260 293
------ ------
5,502 4,778
Less accumulated depreciation and amortization 3,181 2,346
------ ------
2,321 2,432
Goodwill 7,948 9,821
Deferred income tax benefit, net 1,083 1,083
Other assets 659 952
------ ------
Total assets $121,999 $115,703
======= =======
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
March 31, June 30,
2003 2002
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Drafts and acceptances payable $ 1,334 $ 4,073
Short-term bank loans 5,959 7,336
Current installments on long-term
liabilities - 272
Accounts payable 16,346 14,326
Accrued merchandise purchases 4,691 4,196
Accrued compensation 3,972 2,799
Accrued environmental remediation 1,284 1,284
Accrued income taxes 1,684 1,582
Other accrued expenses 7,842 6,545
------- ------
Total current liabilities 43,112 42,413
Shareholders' equity:
Common stock,$.01 par value;
Authorized 20,000,000 shares;
Issued:
March, 12,292,684 shares;
June, 9,001,290 shares;
Outstanding:
March, 9,921,251 shares;
June, 6,533,969 shares 123 90
Capital in excess of par value 56,541 56,494
Retained earnings 44,881 40,863
Treasury stock, at cost:
March, 2,371,433 shares
June, 2,467,321 shares (23,311) (24,252)
Accumulated other comprehensive income 653 95
------ ------
Total shareholders' equity 78,887 73,290
------ ------
Commitments and contingencies
Total liabilities and shareholders' equity $121,999 $115,703
======= =======
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Nine Months Ended
March 31
--------
2003 2002
---- ----
Net sales $203,216 $164,600
Cost of sales 169,171 138,130
------- -------
Gross profit 34,045 26,470
Selling, general and administrative expenses 23,729 21,809
------- -------
Operating income 10,316 4,661
Other income (expense):
Interest expense (222) (301)
Interest and other income 226 351
------- -------
4 50
------- -------
Income before income taxes 10,320 4,711
Provision for income taxes 3,258 1,410
------- ------
Income before cumulative effect of
accounting change 7,062 3,301
Cumulative effect of accounting change 1,873 -
------- -------
Net income $ 5,189 $ 3,301
======= =======
Basic income per common share (a):
Net income before accounting change $ 0.72 $ 0.34
Cumulative effect of accounting change 0.19 -
------- -------
Net income $ 0.53 $ 0.34
======= =======
Diluted income per common share (a):
Net income before accounting change $ 0.71 $ 0.34
Cumulative effect of accounting change 0.19 -
------- -------
Net income $ 0.52 $ 0.34
======= =======
Weighted average shares outstanding (a):
Basic 9,856 9,774
Diluted 10,004 9,819
(a) The number of shares outstanding and the per share information have been
adjusted for a 3-for-2 split of the common stock, paid January 2, 2003.
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31
--------
2003 2002
---- ----
Net sales $ 70,561 $ 61,594
Cost of sales 58,767 51,837
------ ------
Gross profit 11,794 9,757
Selling, general and administrative
expenses 8,413 7,679
------ ------
Operating income 3,381 2,078
Other income (expense):
Interest expense (80) (92)
Interest and other income 229 12
------ ------
149 (80)
------ ------
Income before income taxes 3,530 1,998
Provision for income taxes 1,119 475
------ ------
Net income $ 2,411 $ 1,523
====== ======
Income per common share (a):
Basic $ 0.24 $ 0.16
====== ======
Diluted $ 0.24 $ 0.15
====== ======
Weighted average shares outstanding (a):
Basic 9,894 9,789
Diluted 10,168 9,842
(a) The number of shares outstanding and the per share information have been
adjusted for a 3-for-2 split of the common stock, paid January 2, 2003.
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
March 31
--------
2003 2002
---- ----
Operating activities:
Net income $ 5,189 $ 3,301
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change 1,873 -
Depreciation and amortization 760 1,187
Provision for doubtful accounts 403 284
Foreign currency translation adjustment 558 (60)
Gain on sale of assets (291) -
Income tax benefit on exercise of stock options 46 10
Changes in assets and liabilities:
Investments - trading securities 214 (10)
Trade accounts receivable (2,711) (4,280)
Other receivables 2,355 (651)
Inventory (7,225) 1,959
Prepaid expenses and other current assets 116 (93)
Other assets 59 (45)
Drafts and acceptances payable (2,739) 1,457
Accounts payable 2,020 410
Accrued merchandise purchases 495 1,055
Accrued compensation 1,173 415
Accrued environmental remediation - (8)
Accrued income taxes 102 856
Other accrued expenses and long
term liabilities 1,160 4,286
-------- --------
Net cash provided by operating activities 3,557 10,073
Investing activities:
Payments received on notes receivable 70 79
Proceeds from sale of property held for resale,
net of closing costs related to sale of property 173 -
Purchases of property and equipment (415) (386)
Proceeds from maturation of held-to-maturity investment 369 -
Acquisition of business, net of cash acquired - (563)
Proceeds from settlement of certain acquired
accounts receivable balances recorded in goodwill - 1,571
-------- --------
Net cash provided by investing activities 197 701
Financing activities:
Payments of short-term bank loans (1,377) (1,581)
Payments of current installments on long-term liabilities (272) -
Payments of cash dividends (1,138) (1,042)
Payments of long-term liabilities - (734)
Payments of notes payable - acquisition - (2,313)
Proceeds from exercise of stock options 864 239
Payments for purchases of treasury stock (39) (84)
Issuance of treasury stock to employees 117 129
-------- --------
Net cash used in financing activities (1,845) (5,386)
Net increase in cash 1,909 5,388
Cash at beginning of period 14,255 7,310
-------- --------
Cash at end of period $ 16,164 $ 12,698
======== ========
See accompanying notes to consolidated financial statements.
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements of Aceto Corporation ("the Company") and
its subsidiaries included herein have been prepared by the Company and reflect
all adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
all periods presented. Interim results are not necessarily indicative of results
which may be achieved for the full year.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses reported in those financial statements. These
judgments can be subjective and complex, and consequently actual results could
differ from those estimates and assumptions. The Company's most critical
accounting policies relate to revenue recognition; allowance for doubtful
accounts; inventory; goodwill and other intangible assets; and environmental
matters and other contingencies.
These consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America.
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 as of and for the year ended June 30, 2002.
NOTE 2: COMMON STOCK SPLIT
On December 5, 2002, the Board of Directors of the Company declared a 3-for-2
split of the common stock in the form of a 50 percent common stock dividend that
was paid January 2, 2003, to shareholders of record on December 18, 2002.
With respect to the Consolidated Balance Sheets, the effect of the split has
been recorded as of March 31, 2003. The Consolidated Balance Sheet at June 30,
2002 has not been restated.
With respect to the Consolidated Statements of Income, the net income per common
share amounts for each of the periods presented are based on the weighted
average number of common shares outstanding, adjusted to reflect the 3-for-2
common stock split.
NOTE 3: BUSINESS ACQUISITIONS
(a) On March 26, 2001, the Company acquired (i)the distribution business of the
Schweizerhall Pharma division of Schweizerhall Holding AG, a Switzerland
corporation and (ii) certain assets relating to the Pharmaceutical Ingredients
business of Schweizerhall, Inc., a New Jersey corporation, and a wholly owned
subsidiary of Schweizerhall Holding AG (collectively, "Schweizerhall Pharma").
Schweizerhall Pharma's distribution business is an international pharmaceutical
distribution business with offices located in: Hamburg, Germany; Wormerveer, The
Netherlands (a suburb of Amsterdam); Paris, France; Piscataway, New Jersey;
Singapore; Mumbai, India; and Hong Kong. Its principal activities are the supply
of Active Pharmaceutical Ingredients and Advanced Intermediates.
The total purchase price for the Schweizerhall Pharma acquisition was $25,980.
This amount consisted of 600 restricted shares of the Company's Common Stock,
the assumption of $8,966 of Schweizerhall Holding AG debt, $5,973 in cash, the
issuance of notes of $4,626 and acquisition costs of $1,240. The quoted market
price of the Common Stock on March 26, 2001 of $8.625 per share, was used to
approximate the fair value of the 600 shares issued, which amounted to $5,175.
In connection with the closing of the acquisition the Company assumed certain
debt of Schweizerhall Holding AG in excess of the amount of the purchase price.
As a result, at closing Schweizerhall Holding AG paid $7,162 to the Company.
Subsequent to March 31, 2001 the Company paid Schweizerhall Holding AG $8,987
and was released from a portion of the debt assumed at closing.
The notes payable of $4,626 issued at closing bear interest at 3%. Principal and
interest are payable monthly. Monthly principal payments are determined by the
lesser of the outstanding principal balance or the book value of certain
inventory (as defined in the note agreement) sold in the preceding month. These
notes were paid in full as of the quarter ended September 30, 2001.
The acquisition was accounted for as a purchase and, accordingly, the cost of
the acquisition was allocated to the assets acquired, based upon their estimated
fair values at the date of acquisition. The results of operations of
Schweizerhall Pharma have been included in the accompanying consolidated
statement of income from the date of acquisition. During the quarter ended
September 30, 2001, the Company received $1,571 from the previous owners of
Schweizerhall Pharma in settlement of certain accounts receivable balances,
which was recorded as a reduction to goodwill.
The excess of cost over the fair value of assets acquired (goodwill) amounted to
$6,558. Prior to the adoption of Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) (Note 10)
effective July 1, 2002, goodwill was amortized on a straight-line basis over a
period of twenty years. Amortization of goodwill related to the Schweizerhall
Pharma acquisition amounted to $243 for the nine months ended March 31, 2002. In
accordance with SFAS 142, there was no amortization of goodwill for the nine
months ended March 31, 2003. The non-competition agreements are valued at $300
and are being amortized over three years, the term of the non-competition
agreements. An intangible asset related to customer contracts is valued at $600
and is being amortized over five years. The allocation of the purchase price has
been completed.
The purchase agreement provides for two additional payments pertaining to
inventory and tax savings. An additional payment for $2,639 was made in May 2002
in connection with inventory which has been allocated to the additional
inventory purchased and which has been included in the cash paid of $5,973. Any
payments made in connection with the tax savings adjustment will be recorded as
additional goodwill.
In connection with the March 26, 2001 Schweizerhall Pharma acquisition, the
Company recorded liabilities for employee severance and for operating lease
payments as a result of exit plans formulated as of the acquisition date. The
severance accrual relates to involuntary termination of administration and
middle management personnel from the acquired operations. During the quarter
ended December 31, 2001, the Company refined its estimation of severance to
include certain additional administrative and middle management employees. The
operating lease payment relates to equipment and facilities leases assumed by
the Company. Additional goodwill recorded by the Company amounted to $519 and
$44 for employee severance and operating lease payments, respectively, as a
result of the Company's exit plans. Amounts accrued represent management's best
estimate of the cost to exit the equipment and facilities leases, including
lease payments and termination costs, net of recoverable amounts. All exit plan
liabilities were paid during fiscal 2002.
NOTE 4: SEGMENT INFORMATION
The Company, prior to fiscal 2002, was organized into six reportable segments,
organized by product. Effective for the fiscal year ended June 30, 2002, the two
segments formerly known as Industrial Chemicals and Organic Intermediates &
Colorants have been combined into a segment called Chemicals and Colorants. The
amounts previously reported for the two former segments have been combined and
reported as Chemicals and Colorants. Therefore, the Company's five reportable
segments, organized by product are as follows:
(1) Agrochemicals, whose products include herbicides, fungicides and
insecticides, as well as a sprout inhibitor for potatoes, (2) Chemicals and
Colorants, whose products include a variety of specialty chemicals used in
adhesives, coatings, food, fragrance, cosmetics and many other areas in addition
to dye and pigment intermediates used in the color-producing industries like
textiles, inks, paper and coatings, as well as intermediates used in the
production of agrochemicals; (3) Pharmaceuticals, Biochemicals & Nutritionals
products, which include the active ingredients for generic pharmaceuticals,
vitamins and nutritional supplements; (4) Pharmaceutical Intermediates & Custom
Manufacturing products, used in preparation of pharmaceuticals, primarily by
major ethical drug companies and (5) Institutional Sanitary Supplies & Other,
whose products include cleaning solutions, fragrances and deodorants used by
commercial and industrial establishments. The Company does not allocate assets
by segment. The Company's chief decision maker evaluates performance of the
segments based on net sales and gross profit. Summarized financial information
for each of the segments for the nine and three months ended March 31, 2003 and
2002 follows:
Nine Months Ended March 31, 2003 and 2002
Pharmaceuticals, Pharmaceutical Institutional Consolidated
Agro- Chemicals & Biochemicals & Intermediates & Sanitary Supplies & Totals
Chemicals Colorants Nutritionals Custom Mfg. Other
2003
Net sales $9,775 69,739 102,326 17,425 3,951 $203,216
Gross profit 2,691 10,293 19,665 2,566 1,664 36,879
Less: unallocated
cost of sales (1) 2,834
-------
Net gross profit $ 34,045
=======
2002
Net sales $9,922 65,572 70,101 15,219 3,786 $164,600
Gross profit 2,869 9,573 13,305 1,840 1,613 29,200
Less: unallocated
cost of sales (1) 2,730
-------
Net gross profit $ 26,470
=======
Three Months Ended March 31, 2003 and 2002
Pharmaceuticals, Pharmaceutical Institutional Consolidated
Agro- Chemicals & Biochemicals & Intermediates & Sanitary Supplies & Totals
Chemicals Colorants Nutritionals Custom Mfg. Other
2003
Net sales $3,901 24,590 34,203 6,603 1,264 $ 70,561
Gross profit 1,029 3,514 6,667 937 560 12,707
Less: unallocated
Cost of sales (1) 913
-------
Net gross profit $ 11,794
=======
2002
Net sales $3,541 24,914 26,333 5,485 1,321 $ 61,594
Gross profit 1,065 3,429 5,014 538 629 10,675
Less: unallocated
cost of sales (1) 918
-------
Net gross profit $ 9,757
=======
(1) Represents freight and storage costs that are not allocated to a segment.
Net sales, gross profit and long-lived assets by location as of and for the nine
months ended March 31, 2003 and 2002 were as follows:
Net Sales Gross Profit
--------- ------------
Nine Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
United States $136,492 $116,528 $ 22,947 $ 18,184
Germany 25,048 19,139 4,047 3,511
The Netherlands 6,272 4,571 1,595 1,136
France 7,684 9,617 1,226 1,053
Asia-Pacific 27,720 14,745 4,230 2,586
------- ------ ----- ------
Total $203,216 $164,600 $ 34,045 $ 26,470
======= ======= ====== ======
Long-Lived Assets, Net
----------------------
March 31, June 30,
2003 2002
---- ----
United States $1,564 $1,731
Germany 488 445
The Netherlands 116 130
France 66 91
Asia-Pacific 87 35
----- -----
Total $2,321 $2,432
===== =====
NOTE 5: INVENTORY
Inventory consists of the following:
March 31, June 30,
2003 2002
---- ----
Finished goods $43,069 $35,897
Work in process 57 134
Raw materials 370 240
------ ------
Total $43,496 $36,271
====== ======
NOTE 6: INCOME PER COMMON SHARE
A reconciliation between the numerators and denominators of the basic and
diluted income per common share computation for net income follows:
Nine Months Ended Three Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Income before cumulative effect
of accounting change $ 7,062 $ 3,301 $ 2,411 $ 1,523
Cumulative effect of accounting
change 1,873 - - -
---------- ------- ------- -------
Net income available for common
shareholders $ 5,189 $ 3,301 $ 2,411 $ 1,523
========== ======= ======= =======
Weighted average common shares
(basic)(a) 9,856 9,774 9,894 9,789
Effect of dilutive securities:
Stock options (a) 148 45 274 53
---------- ------- ------- -------
Weighted average common and
potential common shares
outstanding (diluted)(a) 10,004 9,819 10,168 9,842
========== ======= ======= =======
Basic income per common share(a):
Income before cumulative effect
of accounting change $ 0.72 $ 0.34 $ 0.24 $ 0.16
Cumulative effect of accounting
change 0.19 - - -
---------- ------- ------- -------
Net income $ 0.53 $ 0.34 $ 0.24 $ 0.16
========== ======= ======= =======
Diluted income per common share(a):
Income before cumulative effect
of accounting change $ 0.71 $ 0.34 $ 0.24 $ 0.15
Cumulative effect of accounting
change 0.19 - - -
---------- ------- ------- -------
Net income $ 0.52 $ 0.34 $ 0.24 $ 0.15
========== ======= ======= =======
(a) Share and per share information have been adjusted for a 3-for-2 split of
the common stock, paid January 2, 2003.
Employee stock options of 320 and 0 for the nine and three months ended March
31, 2003, respectively, were not included in the net income per common share
calculation because their effect would have been anti-dilutive. Employee stock
options of 375 and 286 for the nine and three months ended March 31, 2002,
respectively, were not included in the net income per common share calculation
because their effect would have been anti-dilutive.
At the annual meeting of shareholders of the Company held December 5, 2002, the
shareholders approved the Aceto Corporation 2002 Stock Option Plan (the "Plan")
under which options to purchase up to 750 shares of the Company's common stock
may be granted by the Company to officers, directors, employees and agents of
the Company. The exercise price per share shall be not less than the fair market
value of Aceto common stock on the date of grant and each option may not become
exercisable less than six months from the date it is granted.
In December 2002, the Company granted 470 options to employees and directors
under the Plan at an exercise price of $9.63 which was equal to the fair market
value of the common stock on the date of grant. 397 of these options vest in
full on the fifth anniversary of the date of grant subject, however, to
acceleration beginning after one year from the date of grant, if the publicly
traded price of the Company's common stock exceeds certain levels for a certain
number of trading days. The remaining 73 options vest on the first anniversary
of the date of grant. The options expire no later than ten years from the date
of grant. The share, option and per share information above have been adjusted
for a 3-for-2 split of the common stock, paid January 2, 2003.
NOTE 7: COMPREHENSIVE INCOME
The components of comprehensive income were as follows:
Nine Months Ended Three Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Comprehensive income:
Net income $ 5,189 $ 3,301 $ 2,411 $ 1,523
Foreign currency
translation adjustment 558 (60) 138 (104)
------- ------- ------- -------
Total $ 5,747 $ 3,241 $ 2,549 $ 1,419
======= ======= ======= =======
NOTE 8: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes during the nine months ended March 31,
2003 and 2002 was as follows:
2003 2002
---- ----
Interest paid $ 209 $ 329
Income taxes paid 3,029 902
Non-cash transactions:
During the quarter ended September 30, 2002 the Company entered into a mortgage
note in the amount of $412 for the sale of property held for sale.
NOTE 9: RECLASSIFICATIONS
Certain reclassifications have been made to the prior consolidated financial
statements to conform to the current presentation.
NOTE 10: BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 specifies criteria that intangible assets acquired in a
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 142
also requires that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives and reviewed for impairment in
accordance with SFAS No. 144.
The Company has adopted the provisions of SFAS Nos. 141 and 142 as of July 1,
2002. The Company has evaluated its existing goodwill that was acquired in prior
purchase business combinations and has determined that no adjustment or
reclassification to intangible assets at July 1, 2002 is required in order to
conform to the new criteria in SFAS 141 for recognition apart from goodwill.
As of March 31, 2003 and June 30, 2002, the Company had intangible assets
subject to amortization of $1,020 and $1,287, respectively, and related
accumulated amortization of $553 and $586, respectively, which pertained to
customer lists and covenants not to compete and have been included in other
assets on the accompanying consolidated balance sheets. Amortization expense for
intangible assets subject to amortization amounted to $186 and $249 for the nine
months ended March 31, 2003 and 2002, respectively. The estimated aggregate
amortization expense for intangible assets subject to amortization for each of
the succeeding years ended March 31, 2004 through March 31, 2006 are as follows:
2004: $221; 2005: $126; 2006: $120.
In accordance with SFAS 142, goodwill and intangible assets with indefinite
lives will no longer be amortized but instead will be measured for impairment at
least annually, or when events indicate that an impairment exists. Intangible
assets that are determined to have definite lives will continue to be amortized
over their useful lives.
As required by SFAS 142, the Company performed impairment tests on goodwill as
of July 1, 2002. As a result of the impairment tests, the Company recorded a
goodwill impairment charge of $1,873 which has been included as a cumulative
effect of an accounting change in the accompanying consolidated statement of
income for the nine months ended March 31, 2003. Under SFAS 142, goodwill
impairment exists if the net book value of a reporting unit exceeds its
estimated fair value. The Company estimated the fair value of its reporting
units by using a combination of discounted cash flow analyses and comparisons
with the market values of similar publicly-traded companies.
The Company's $1,873 impairment charge was related to the impairment of the
goodwill associated with CDC Products Corp. ("CDC"). CDC was acquired by the
Company during fiscal 1999. Due to an increase in competition from local
sanitary supply companies in the markets CDC operates in, recent operating
profits and cash flows were lower than expected. Based on that trend, the
earnings forecast for the next five years was revised. During the nine months
ended March 31, 2003, a goodwill impairment charge of $1,873 was recognized in
the CDC reporting unit. The fair value of that reporting unit was determined by
using a combination of discounted cash flow analyses and comparisons with the
market values of similar publicly-traded companies.
The following table displays a roll forward of the carrying amount of goodwill
for the nine months ended March 31, 2003, by business segment:
Institutional
Pharmaceuticals, Pharmaceutical Sanitary
Biochemicals & Intermediates & Supplies & Consolidated
Nutritionals Custom Mfg. Other Totals
------------ ----------- ----- ------
Balance at 6/30/02 $5,611 $1,392 $2,818 $9,821
Impairment losses - - (1,873) (1,873)
----- ----- ----- -----
Balance at 3/31/03 $5,611 $1,392 $ 945 $7,948
===== ===== ===== =====
Goodwill amortization for the nine and three months ended March 31, 2002 was
$407 and $128, respectively. The following table shows the results of operations
as if SFAS No. 142 was applied to prior periods:
Nine Months Ended Three Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Income before a cumulative effect
of a change in accounting
principle, as reported $ 7,062 $ 3,301 $ 2,411 $ 1,523
Add back: Goodwill amortization,
net of tax - 305 - 104
--------- --------- --------- ---------
Adjusted income before a cumulative
effect of a change in accounting
principle $ 7,062 $ 3,606 $ 2,411 $ 1,627
========= ========= ========= =========
Basic income per common share:
Income before a cumulative effect
of a change in accounting
principle, as reported $ 0.72 $ 0.34 $ 0.24 $ 0.16
Goodwill amortization,
net of tax - 0.03 - 0.01
--------- --------- --------- ---------
Adjusted income before a cumulative
effect of a change in accounting
principle $ 0.72 $ 0.37 $ 0.24 $ 0.17
========= ========= ========= =========
Diluted income per common share:
Income before a cumulative effect
of a change in accounting
principle, as reported $ 0.71 $ 0.34 $ 0.24 $ 0.15
Goodwill amortization,
net of tax - 0.03 - 0.01
--------- --------- --------- ---------
Adjusted income before a cumulative
effect of a change in accounting
principle $ 0.71 $ 0.37 $ 0.24 $ 0.16
========= ========= ========= =========
NOTE 11: EMPLOYEE STOCK-BASED COMPENSATION
As of March 31, 2003, the Company had established a number of share incentive
programs as discussed in more detail in our annual report on Form 10-K for the
year ended June 30, 2002. The Company applies the intrinsic value method as
outlined in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations in accounting for stock
options and share units granted under these programs. Under the intrinsic value
method, no compensation expense is recognized if the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant. Accordingly, no compensation cost has been recognized.
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", requires that the Company provide pro forma
information regarding net income and net income per common share as if
compensation cost for the Company's stock option programs had been determined in
accordance with the fair value method prescribed therein. The Company adopted
the disclosure portion of SFAS No. 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure" requiring quarterly SFAS No. 123 pro forma
disclosure. The following table illustrates the effect on net income and income
per common share as if the Company had measured the compensation cost for the
Company's stock option programs under the fair value method in each period
presented.
Nine Months Ended Three Months Ended
March 31 March 31
2003 2002 2003 2002
---- ---- ---- ----
Net income attributable
to common stock, as reported $5,189 $3,301 $2,411 $1,523
Deduct: Total stock-based
employee compensation expense
determined under fair value
method for all awards, net of
related tax effects (367) (167) (122) (60)
----- ----- ----- -----
Pro forma net income,
attributable to common stock $4,822 $3,134 $2,289 $1,463
===== ===== ===== =====
Income per common share:
Basic - as reported $ 0.53 $ 0.34 $ 0.24 $ 0.16
Basic - pro forma $ 0.49 $ 0.32 $ 0.23 $ 0.15
Diluted - as reported $ 0.52 $ 0.34 $ 0.24 $ 0.15
Diluted - pro forma $ 0.48 $ 0.32 $ 0.23 $ 0.15
NOTE 12: IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board ("FASB") issued No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146
will spread out the reporting of expenses related to restructurings initiated
after 2002, because commitment to a plan to exit an activity or dispose of
long-lived assets will no longer be enough to record a liability for the
anticipated costs. Instead, companies will record exit and disposal costs when
they are "incurred" and can be measured at fair value, and they will
subsequently adjust the recorded liability for changes in estimated cash flows.
The Company adopted the provisions of SFAS 146 as of January 1, 2003. The
adoption of this statement did not have a significant impact on the Company's
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure"("SFAS 148"). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation as originally
provided by SFAS No. 123 "Accounting for Stock-Based Compensation".
Additionally, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosure in both the annual and interim financial statements about
the method of accounting for stock-based compensation and the effect of the
method used on reported results. The transitional requirements of SFAS 148 are
effective for all financial statements for fiscal years ending after December
15, 2002. The Company adopted the disclosure portion of this statement for the
current fiscal quarter ended March 31, 2003. The application of the disclosure
portion of this standard will have no impact on our consolidated financial
position or results of operations. The FASB recently indicated that they will
require stock-based employee compensation to be recorded as a charge to earnings
pursuant to a standard they are currently deliberating, which they believe will
become effective on January 1, 2004. The Company will continue to monitor their
progress on the issuance of this standard as well as evaluate the Company's
position with respect to current guidance.
Independent Accountants' Review Report
The Board of Directors and Shareholders
Aceto Corporation
We have reviewed the condensed consolidated balance sheet of Aceto Corporation
and subsidiaries as of March 31, 2003, the related condensed consolidated
statements of income for the three-month and nine-month periods ended March 31,
2003 and 2002, and the related condensed consolidated statements of cash flows
for the nine-month periods ended March 31, 2003 and 2002. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 10 to the condensed consolidated financial statements,
Aceto Corporation and subsidiaries adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" as of July 1, 2002.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Aceto Corporation and subsidiaries as of June 30, 2002, and the related
consolidated statements of income, shareholders' equity and comprehensive income
(loss), and cash flows for the year then ended (not presented herein); and in
our report dated August 27, 2002, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of March 31, 2003, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG LLP
Melville, New York
May 15, 2003
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(in thousands, except per share amounts)
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
THIS QUARTERLY REPORT ON FORM 10-Q AND THE INFORMATION INCORPORATED BY REFERENCE
MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE COMPANY INTENDS THE
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED
FINANCIAL POSITION AND OPERATING RESULTS, ITS BUSINESS STRATEGY, ITS FINANCING
PLANS AND THE OUTCOME OF ANY CONTINGENCIES ARE FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT ESTIMATES AND PROJECTIONS ABOUT
OUR INDUSTRY AND OUR BUSINESS. WORDS SUCH AS "ANTICIPATES," "EXPECTS,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," OR VARIATIONS OF SUCH
WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SET FORTH OR IMPLIED BY ANY FORWARD LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS INCLUDE,
BUT ARE NOT LIMITED TO: THE INABILITY TO MANAGE OUR RECENT RAPID GROWTH,
UNFORESEEN ENVIRONMENTAL LIABILITIES AND THE UNCERTAIN MILITARY, POLITICAL AND
ECONOMIC CONDITIONS IN THE WORLD. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE
PUBLICLY THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHETHER AS A RESULT OF
NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS MAY BE REQUIRED BY LAW.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations is based on its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and assumptions that affect the amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. The Company evaluates its estimates on a regular basis,
including those related to bad debts, inventories, goodwill and intangible
assets, and environmental contingencies. The Company bases its estimates on
various factors including historical experience, consultation and advice from
third party subject matter experts and on various assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions and circumstances.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
The Company recognizes revenue from product sales at the time of shipment and
passage of title and risk of loss to the customer. Such revenues do not involve
difficult, subjective, or complex judgments. The Company does not offer product
warranties to its customers.
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments.
Allowances for doubtful accounts are based on historical experience and known
factors regarding specific customers and industries
in which the customers operate. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances would be required.
The Company writes down its inventories for estimated slow moving and obsolete
goods equal to the difference between the carrying cost of the inventory and the
estimated market value based upon assumptions about future demand and market
conditions. A significant sudden increase in the demand for the Company's
products could result in a short-term increase in the cost of inventory
purchases while a significant decrease in demand could result in an increase in
the amount of excess inventory quantities on-hand. Additionally, the Company's
estimates of future product demand may prove to be inaccurate, in which case the
Company may have understated or overstated the write-down required for excess
and obsolete inventory. In the future, if the Company's inventory is determined
to be overvalued, it would be required to recognize such costs in its cost of
goods sold at the time of such determination. Likewise, if the Company does not
properly estimate the lower of cost or market of its inventory and it is
therefore determined to be undervalued, it may have over-reported its cost of
goods sold in previous periods and would be required to recognize such
additional operating income at the time of sale. Therefore, although the Company
makes every effort to ensure the accuracy of its forecasts of future product
demand, any significant unanticipated changes in demand could have a significant
impact on the value of the Company's inventory and its reported operating
results.
Goodwill and other intangible assets consist of assets arising from acquisitions
which are being amortized on a straight-line basis. The realizability and period
of benefit of goodwill is evaluated periodically to assess recoverability and,
if necessary, impairment or adjustment of the period benefited would be
recognized. Aceto adopted Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets, effective July 1, 2002. Under SFAS
No. 142, goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed at least annually for impairment. In assessing the
recoverability of the Company's goodwill and other intangible assets, the
Company must make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
or their related assumptions change in the future, the Company may be required
to record impairment charges for these assets not previously recorded.
The Company establishes reserves for environmental matters and other
contingencies when it is probable that a liability has been incurred and the
amount of the liability is reasonably estimable. If the contingency is resolved
for an amount greater or less than has been accrued, or the Company's share of
the contingency increases or decreases, or other assumptions relevant to the
development of the estimate were to change, we would recognize an additional
expense or benefit in income in the period such determination was made.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2003 COMPARED TO NINE MONTHS ENDED MARCH 31, 2002
Net Sales By Segment
Nine Months Ended March 31
Segment 2003 2002
---- ----
% of % of
$ thousand total $ thousand total
---------- ----- ---------- -----
Agrochemicals $ 9,775 4.8% $ 9,922 6.0%
Chemicals & Colorants 69,739 34.3 65,572 39.8
Pharmaceuticals,
Biochemicals & Nutritionals 102,326 50.4 70,101 42.6
Pharmaceutical
Intermediates & Custom Mfg 17,425 8.6 15,219 9.3
Institutional Sanitary
Supplies & Other 3,951 1.9 3,786 2.3
---------- ------ ---------- -----
TOTAL NET SALES $ 203,216 100.0% $ 164,600 100.0%
========== ====== ========== =====
Gross Profit By Segment
Nine Months Ended March 31
Segment 2003 2002
---- ----
% of % of
$ thousand total $ thousand total
---------- ----- ---------- -----
Agrochemicals $ 2,691 7.3% $ 2,869 9.8%
Chemicals & Colorants 10,293 27.9 9,573 32.8
Pharmaceuticals,
Biochemicals & Nutritionals 19,665 53.3 13,305 45.6
Pharmaceutical
Intermediates & Custom Mfg 2,566 7.0 1,840 6.3
Institutional Sanitary
Supplies & Other 1,664 4.5 1,613 5.5
---------- ------ ---------- -----
TOTAL GROSS PROFIT BEFORE
FREIGHT AND STORAGE COSTS $ 36,879 100.0% $ 29,200 100.0%
====== =====
Unallocated Cost of Sales 2,834 2,730
---------- ---------
NET GROSS PROFIT $ 34,045 $ 26,470
========== =========
SALES AND GROSS PROFIT:
Net sales for the nine months ended March 31, 2003 increased $38,616 or 23.5%,
to $203,216 compared with $164,600 for the same period last year. The Company
reported particularly strong sales and gross profit for the nine months from its
Pharmaceuticals, Biochemicals and Nutritionals segment as explained below. In
addition, net sales for the nine months ended March 31, 2002 were negatively
impacted due to adverse economic ramifications which resulted from the tragic
events of September 11, 2001.
The Pharmaceuticals, Biochemicals and Nutritionals segment reported a
significant increase in sales and accounted for 83.4% of the overall increase.
This segment has achieved gains in market share and experienced strong demand
for certain Advanced Pharmaceutical Ingredients of products launched during the
first half of fiscal 2003. This segment's sales were $102,326 in the nine month
period versus $70,101 last year, an increase of $32,225 or 46.0%. A majority of
the increase resulted from the initial and follow up shipments of several
generic pharmaceutical products which are sold to companies who have been
developing these products for several years and have received recent approval to
market these products. The nutritionals and biochemicals business showed a 18.8%
increase in volume this year due to increased demand for products such as
nutritional supplements.
The Chemicals & Colorants segment achieved an increase in sales of $4,167 or
6.4%, to $69,739 in the first nine months as compared to $65,572 last year. The
increase is attributable to an increase in volume with one large customer and
some improved pricing in color intermediates which was somewhat offset by lost
sales from a former customer and continuing declines in sales volume related to
the pigment and dyestuff industries.
Pharmaceutical Intermediates & Custom Manufacturing reported sales of $17,425
for the nine months versus $15,219 last year, an increase of $2,206 or 14.5%.
The increase is mainly attributable to increased sales volume from an expanded
distribution agreement with a major supplier which allows for the sale of
additional products into new markets.
Agrochemicals sales were $9,775 in the first nine months compared to $9,922 last
year, a decrease of $147 or 1.5%. A restructuring of the Company's arrangement
with a third party, effective October 1, 2001, resulted in additional sales of
$739 during the quarter ended September 30, 2002. Excluding this, sales
decreased by $886 or 8.9%. The primary causes were a one-time sale of offgrade
material to one customer recorded in last year's first quarter and a decrease in
volume for several of the segment's main products.
Institutional Sanitary Supplies & Other sales were $3,951 versus $3,786 last
year, an increase of $165 or 4.4%. The improved sales were attributable to
identifying better sources of supply that have improved our competitive position
regarding pricing. During the end of last year's first quarter and throughout
the second quarter, this segment was also specifically disrupted by the after
effects on the economy from the terrorist attacks of September 11, 2001. Over
30% of this segment's customer base is in the New York metropolitan area.
Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) increased $7,679 or 26.3% to $36,879 from $29,200. The
Pharmaceuticals, Biochemicals and Nutritionals segment made the largest
contribution to the overall improvement since
it showed a significant increase in gross profit for the first nine months of
this year as compared to last year as it accounted for $6,360 or 82.8% of the
overall increase.
The gross profit resulting from the Pharmaceuticals, Biochemicals and
Nutritionals segment amounted to $19,665 or 19.2% this year versus $13,305 or
19.0% in the prior year's first nine months. Gross profit improvement was mainly
attributable to the sales of several generic pharmaceutical products as
described above in the sales comments. These products provided substantial
increases in gross profit dollars at a slightly higher gross margin rate. In
addition, nutritionals & biochemicals also saw gross profit increases this year
in dollars as a result of increased demand at similar margin rates.
The Chemicals & Colorants segment's gross profit of $10,293 increased $720 or
7.5% over last year's $9,573. Gross profit, as a percentage of sales, was flat
at 14.8% this year versus 14.6%. The current year's gross profit includes the
net of a negotiated settlement for lost gross margin regarding non-performance
of a sales contract and an estimate of a loss on the related purchase contract
in the amount of $450. The increase in gross profit excluding this favorable
settlement would have been only $270 or 2.8%. The gross profit rate for this
year would have been 14.3% excluding the settlement which is lower than the
gross profit rate in the prior year of 14.6%. The decrease in gross margin and
the increase in gross profit dollars, is primarily a result of increased sales
volume from one large customer at lower gross margins than realized in last
year's nine months for this segment.
In the Pharmaceutical Intermediates and Custom Manufacturing segment, the gross
profit amounted to $2,566 or 14.7% this year versus $1,840 or 12.1% last year.
The increase in gross profits were mainly attributable to the increased volume
from an expanded distribution agreement with a major supplier for new products
in both existing and new markets. The higher margin rates for the current period
as compared to last year's nine months were a result of product mix.
The Agrochemicals segment reported a decrease in gross profit of $178 or 6.2% to
$2,691 in the nine months ended March 31, 2003 versus $2,869 last year. The
decrease in gross profit dollars resulted from a 1.5% decrease in sales as
described above, increased packaging costs and overall product mix. Gross margin
was 27.5% this quarter versus 28.9% last year. Product mix and an increase in
packaging costs were the main reasons for the decline in gross margins.
Institutional Sanitary Supplies and Other gross profit was $1,664 or 42.1% for
the nine months versus $1,613 or 42.6% last year. The increase in gross profit
dollars is mainly a result of a 4.4% increase in sales. Higher raw materials
costs and overall product mix were reasons for the lower margins this year.
Unallocated cost of sales increased to $2,834 from $2,730, or 3.8%. The higher
costs were mainly a result of increased sales and shipments to customers and
higher amounts of inventory in warehouses.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses ("SG&A")increased $1,920 or 8.8% to
$23,729 for the nine months ended March 31, 2003 from $21,809 in last year's
period. As a percentage of sales, SG&A decreased to 11.7% in the first nine
months of fiscal 2003 versus 13.2% for the comparable period in fiscal 2002.
SG&A increased primarily due to rising business insurance costs, increased
selling expenses, overall increases in employee wages, incentive compensation
and fringe benefit costs. The Company sold property held for sale in July 2002
and realized a net gain on the sale of $291. This gain reduced the overall SG&A
expenses and lowered its SG&A as a percentage of sales. SG&A, as a percentage of
sales, excluding this transaction would have been 11.8% versus 13.2% last year.
SG&A grew at a slower rate (8.8%) than sales (23.5%) over
the current year's nine months which resulted in the decrease in SG&A as a
percentage of sales.
OPERATING INCOME
For the nine months ended March 31, 2003 the operating income was $10,316
compared to $4,661, an increase of $5,655 or 121.3%. This increase was primarily
due to the overall increase in gross profit of $7,575, with the main
contribution of $6,360 coming from the Pharmaceuticals, Biochemicals and
Nutritionals segment which was partially offset by higher SG&A expenses of
$1,920.
INTEREST EXPENSE AND OTHER INCOME
Interest expense for the first nine months was $222 versus $301 in the prior
year. The decrease of $79 or 26.2% was attributable to the lower levels of
short-term bank loans and acquisition debt arising from the Schweizerhall Pharma
acquisition and lower average interest rates. This year the aggregate of
short-term bank loans and acquisition debt were $7,336 at June 30, 2002 and
$5,959 at March 31, 2003. During last year's nine months, the total balance of
this debt was reduced from $11,177 at June 30, 2001 to $7,283 at March 31, 2002
through debt payments totaling $3,894.
Interest and other income decreased to $226 for the nine months ended March 31,
2003 compared to $351 last year. The overall reduction in income of $125 is
partly attributable to a loss on marketable securities of $214 this year
compared to a gain of $10 during the same period last year. This was offset by
an increase in interest income of $130 for this year's nine months due to higher
average balances in interest bearing accounts and increased finance charges
received from a major customer.
PROVISION FOR INCOME TAXES
The effective tax rate increased to 31.6% for the nine months ended
March 31, 2003 from 29.9% for the same period last year. The
increase in the effective tax rate is a reflection of a higher tax rate in both
US and foreign tax jurisdictions compared to the prior year.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
The nine month period ended March 31, 2003 includes a one-time charge of $1,873,
or $0.19 per diluted share, attributable to the cumulative effect of adopting
SFAS No. 142, "Goodwill and Other Intangible Assets". The Company's $1,873
one-time charge was related to the impairment of the goodwill associated with
CDC Products Corp. ("CDC"). The one-time charge for CDC was primarily due to
recent operating profits and cash flows being lower than expected due to
increased competition from local sanitary supply companies in the markets CDC
operates.
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Net Sales By Segment
Three Months Ended March 31
Segment 2003 2002
---- ----
% of % of
$ thousand total $ thousand total
---------- ----- ---------- -----
Agrochemicals $ 3,901 5.5% $ 3,541 5.7%
Chemicals & Colorants 24,590 34.8 24,914 40.4
Pharmaceuticals,
Biochemicals & Nutritionals 34,203 48.5 26,333 42.8
Pharmaceutical
Intermediates & Custom Mfg. 6,603 9.4 5,485 8.9
Institutional Sanitary
Supplies & Other 1,264 1.8 1,321 2.2
---------- ----- ---------- -----
TOTAL NET SALES $ 70,561 100.0% $ 61,594 100.0%
========== ====== ========== ======
Gross Profit By Segment
Three Months Ended March 31
Segment 2003 2002
---- ----
% of % of
$ thousand total $ thousand total
---------- ----- ---------- -----
Agrochemicals $ 1,029 8.1% $ 1,065 10.0%
Chemicals &
Colorants 3,514 27.7 3,429 32.1
Pharmaceuticals,Biochemicals
& Nutritionals 6,667 52.5 5,014 47.0
Pharmaceutical
Intermediates & Custom Mfg. 937 7.4 538 5.0
Institutional Sanitary
Supplies & Other 560 4.3 629 5.9
---------- ----- ---------- -----
TOTAL GROSS PROFIT BEFORE
FREIGHT AND STORAGE COSTS $ 12,707 100.0% $ 10,675 100.0%
====== ======
Unallocated Cost of Sales 913 918
---------- ----------
NET GROSS PROFIT $ 11,794 $ 9,757
========== ==========
SALES AND GROSS PROFIT:
Net sales for the three months ended March 31, 2003 increased $8,967 or 14.6%,
to $70,561 compared with $61,594 for the same period last year. The Company
reported particularly strong sales for the current quarter from its
Pharmaceuticals, Biochemicals and Nutritionals segment as explained below. This
segment experienced strong demand for Active Pharmaceutical Ingredients ("APIs")
of products launched earlier in fiscal 2003. The Company did not introduce any
new APIs during the quarter ended March 31, 2003, however, there is a launch
currently underway to be reported in the fourth quarter. This product launch
represents our fourth during the current fiscal year.
The Pharmaceuticals, Biochemicals and Nutritionals segment reported a strong
increase in sales and accounted for 87.8% of the overall increase. This
segment's sales were $34,203 in the current quarter versus $26,333 last year, an
increase of $7,870 or 29.9%. During the current three months, a majority of the
increase resulted from the initial and follow up shipments of several generic
pharmaceutical products which are sold to companies who have been developing
these products for several years and have received recent approval to market
these products. The nutritionals and biochemicals business showed a 18.5%
increase in volume this year due to an increase in demand for products such as
nutritional supplements.
The Chemicals & Colorants segment showed a decrease in sales of $324 or 1.3%, to
$24,590 in the current quarter as compared to $24,914 last year. The decrease is
mainly attributable to lost sales from a former customer and continuing declines
in products related to the pigment and dyestuff industries, which was somewhat
offset by an increase in volume with one large customer and some improved
pricing in the color intermediates category.
Pharmaceutical Intermediates & Custom Manufacturing reported sales of $6,603 for
the third quarter versus $5,485 last year, an increase of $1,118 or 20.4%. The
increase is mainly attributable to an increase in sales volume pertaining to an
expanded distribution agreement with one major supplier which has enabled the
Company to enter new markets for existing products as well as the introduction
of new products for this supplier.
Agrochemicals sales were $3,901 in the current quarter compared to $3,541 last
year, an increase of $360 or 10.2%. The primary cause was an increase in the
demand for several products and the timing of shipments for certain other
products.
Institutional Sanitary Supplies & Other sales were $1,264 versus $1,321 last
year, a decrease of $57 or 4.3%. The reduced sales were attributable to a
decline in sales volume due to various factors occurring this quarter including
the delayed shipment of certain seasonal products due to severe weather in the
Northeast region.
Gross profit by segment before unallocated cost of sales (primarily storage and
certain freight costs) increased $2,032 or 19.0% to $12,707 from $10,675. The
Pharmaceuticals, Biochemicals and Nutritionals segment showed a strong increase
in gross profit in this year's third quarter as compared to last year since it
accounted for $1,653 or 81.3% of the overall increase.
The gross profit resulting from the Pharmaceuticals, Biochemicals and
Nutritionals segment increased $1,653 or 33.0% which amounted to $6,667 or 19.5%
this year versus $5,014 or 19.0% in the prior year's quarter. Gross profit
improvement was mainly attributable to the sales of several products as
described above in the sales comments. These products provided substantial
increases in gross profit dollars at a slightly lower gross margin rate. In
addition, nutritionals & biochemicals also saw a gross profit increase this year
in dollars as a result of increased demand at similar margin rates.
The Chemicals & Colorants segment's gross profit of $3,514 increased $85 or 2.5%
over last year's $3,429. Gross margin was up somewhat at 14.3% this year versus
13.8% last year. The increase in gross profit was mainly attributable to the
increased volume in the three months ended March 31, 2003 from one large
customer.
In the Pharmaceutical Intermediates and Custom Manufacturing segment, the gross
profit amounted to $937 or 14.2% this year versus $538 or 9.8% last year. Gross
profits increased mainly due to the higher sales volume from the expansion of
products and markets for distribution from a major supplier as explained above
in addition to higher margins as a result of changes in product mix between the
two periods.
The Agrochemicals segment reported a decrease in gross profit of $36 or 3.4% to
$1,029 in the quarter ended March 31, 2003 versus $1,065 last year. Gross profit
dollars decreased due to product mix. Gross margin decreased to 26.4% for the
current quarter versus 30.1% last year mainly due to changes in product mix.
Institutional Sanitary Supplies and Other gross profit decreased by 11.0% to
$560 or 44.3% this quarter versus $629 or 47.6% last year. Product mix and
higher raw materials costs in the current quarter were contributing factors to
the decrease in gross profit dollars and margins.
Unallocated cost of sales were flat at $913 this year from $918 in the quarter
ended March 31, 2002. A higher proportion of direct shipments to customers this
quarter helped to keep these costs at similar levels despite an increase in
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A")increased $734 or 9.6% to
$8,413 for the quarter ended March 31, 2003 from $7,679 in last year's third
quarter. As a percentage of sales, SG&A decreased to 11.9% in the third quarter
of fiscal 2003 versus 12.5% for the comparable period in fiscal 2002. SG&A
increased primarily due to increases in employee wages, incentive compensation
and related fringe benefits in addition to severance costs related to a
restructuring in the France offices.
OPERATING INCOME
For the quarter ended March 31, 2003 the operating income was $3,381 compared to
$2,078, an increase of $1,303 or 62.7%. This increase was primarily due to an
increase in gross profit of $2,037 mainly due to the contribution from the
Pharmaceuticals, Biochemicals and Nutritionals segment offset by higher SG&A
expenses of $734.
INTEREST EXPENSE AND OTHER INCOME
Interest expense for the current quarter was $80 versus $92 in the prior year.
The decrease of $12 or 13.0% was entirely attributable to the lower levels of
short-term bank loans and acquisition debt arising from the Schweizerhall Pharma
acquisition and lower interest rates.
Interest and other income was $229 for the quarter ended March 31, 2003 as
compared to $12 last year. The overall increase in income of $217 is mainly
attributable to this year's third quarter including $145 more of non-recurring
other income than in the prior year's third quarter. In addition, this year's
quarter had $41 more of finance charges from a major customer than the prior
year.
PROVISION FOR INCOME TAXES
The effective tax rate increased to 31.7% for the three months ended
March 31, 2003 from 23.8% for the same period last year. The
increase in the effective tax rate is a reflection of a higher tax rate in both
US and foreign tax jurisdictions compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 2003, the Company had $16,164 in cash, $737 in short-term
investments and $5,959 of short-term bank loans. Working capital was $65,832 at
March 31, 2003 versus $58,311 at June 30, 2002.
The Company's cash position at March 31, 2003 increased $1,909 from the June 30,
2002 level. Operating activities provided cash of $3,557, primarily from net
income of $5,189, a reduction in other receivables of $2,355 and increases in
other accrued expenses of $1,160, accounts payable of $2,020 and accrued
compensation of $1,173 partially offset by increases in inventory of $7,225 and
trade accounts receivable of $2,711 as well as a decrease in drafts and
acceptances payable of $2,739. Included in operating activities was also a
one-time charge of $1,873 attributable to the cumulative effect of an accounting
change related to the impairment of the goodwill associated with CDC.
Investing activities provided cash of $197, primarily from $173 of net cash
proceeds from the sale of property and proceeds from an investment held to
maturity of $369 which was partially offset by capital expenditures of $415.
Financing activities used cash of $1,845 primarily as a result of payments of
cash dividends of $1,138, payments of current installments of long-term
liabilities of $272 and short-term bank loans of $1,377, partially offset by
proceeds from the exercise of stock options of $864.
In connection with the acquisition of Schweizerhall Pharma in March 2001, the
acquired companies had existing credit facilities with two European financial
institutions. These facilities provide the Company with a line of credit of
14,500 Euros ($15,660) of which $5,959 was utilized as of March 31, 2003. The
Company is not subject to any financial covenants under these arrangements.
Additionally, in May 2002, the Company entered into a $15,000 revolving credit
agreement with a financial institution, which expires June 30, 2004. At March
31, 2003, the Company utilized $2,077 in letters of credit leaving an unused
facility of $12,923. Under the credit agreement, the Company may obtain credit
through direct borrowings and letters of credit. The obligations of the Company
under the credit agreement are guaranteed by certain of the Company's
subsidiaries and is secured by sixty-five percent of the capital of certain
non-domestic subsidiaries which the Company owns. There is no borrowing base on
the credit agreement. Interest under the credit agreement is at LIBOR plus
1.50%. The credit agreement contains several covenants requiring, among other
things, minimum levels of debt service and tangible net worth. The Company was
in compliance with all covenants at March 31, 2003.
The Company has no material financial commitments other than those under
operating lease agreements, letters of credit and unconditional purchase
obligations. The Company continually evaluates possible acquisitions of or
investments in businesses that are complementary to those of the Company, which
transactions may require the use of cash. The Company believes that its cash,
other liquid assets, operating cash flows, borrowing capacity and access to the
equity capital markets, taken together, provide adequate resources to fund
ongoing operating expenditures and the anticipated continuation of semi-annual
cash dividends. Further, the Company may obtain additional credit facilities to
enhance its liquidity.
The Company has certain contractual cash obligations and other commercial
commitments which will impact its short and long-term
liquidity. At March 31, 2003, the Company has no significant obligations for
capital expenditures. At March 31, 2003, contractual cash obligations and other
commercial commitments are as follows:
Payments Due and/or
Amount of Commitment
Expiration Per Period
---------------------
Less Than 1-3 4-5 After
Total 1 Year Years Years 5 Years
----- ------ ----- ----- -------
Long-term liabilities/
bank loan $ 5,959 $5,959 $ - $ - $ -
Operating leases 9,469 1,412 2,591 2,133 3,333
Commercial letters of credit 2,077 2,077 - - -
Standby letters of credit 115 115 - - -
Unconditional purchase
obligations 22,182 20,096 2,086 - -
------- ------- ------- ------ ------
Total $39,802 $29,659 $ 4,677 $2,133 $3,333
======= ======= ======= ====== ======
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board ("FASB") issued No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146
will spread out the reporting of expenses related to restructurings initiated
after 2002, because commitment to a plan to exit an activity or dispose of
long-lived assets will no longer be enough to record a liability for the
anticipated costs. Instead, companies will record exit and disposal costs when
they are "incurred" and can be measured at fair value, and they will
subsequently adjust the recorded liability for changes in estimated cash flows.
The Company adopted the provisions of SFAS 146 as of January 1, 2003. The
adoption of this statement did not have a significant impact on the Company's
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure"("SFAS 148"). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation as originally
provided by SFAS No. 123 "Accounting for Stock-Based Compensation".
Additionally, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosure in both the annual and interim financial statements about
the method of accounting for stock-based compensation and the effect of the
method used on reported results. The transitional requirements of SFAS 148 are
effective for all financial statements for fiscal years ending after December
15, 2002. The Company adopted the disclosure portion of this statement for the
current fiscal quarter ended March 31, 2003. The application of the disclosure
portion of this standard will have no impact on our consolidated financial
position or results of operations. The FASB recently indicated that they will
require stock-based employee compensation to be recorded as a charge to earnings
pursuant to a standard they are currently deliberating, which they believe will
become effective on January 1, 2004. The Company will continue to monitor their
progress on the issuance of this standard as well as evaluate the Company's
position with respect to current guidance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Sensitive Instruments
The market risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in market price,
foreign currency exchange rates and interest rates.
Market Price Risk
Short-term investments at March 31, 2003 of $737 which consists solely of
corporate securities and are recorded at fair value have exposure to price risk.
This risk is estimated as the potential loss in fair value resulting from a
hypothetical 10% adverse change in prices quoted by stock exchanges and amounts
to $74 as of March 31, 2003. Actual results may differ.
Foreign Currency Exchange Risk
In order to reduce the risk of foreign currency exchange rate fluctuations, the
Company hedges some of its transactions denominated in a currency other than the
functional currencies applicable to each of its various entities. The
instruments used for hedging are short term foreign currency contracts
(futures). The changes in market value of such contracts have a high correlation
to price changes in the currency of the related hedged transactions. At March
31, 2003, the Company had foreign currency contracts outstanding. The difference
between the fair market value of the foreign currency contracts and the related
commitments at inception and the fair market value of the contracts and the
related commitments at March 31, 2003 was $64. Intercompany transactions with
foreign subsidiaries are typically not hedged.
The Company is subject to risk from changes in foreign exchange rates for its
subsidiaries that use a foreign currency as their functional currency and are
translated into U.S. dollars. These changes result in cumulative translation
adjustments which are included in accumulated other comprehensive income. On
March 31, 2003, the Company had translation exposure to various foreign
currencies with the most significant being the Euro, Chinese Yuan Renminbi and
Singapore Dollars. The potential loss resulting from a hypothetical 10% adverse
change in quoted foreign currency exchange rates, as of March 31, 2003, amounts
to $1,809. Actual results may differ.
Interest Rate Risk
The Company is subject to market risk from exposure to changes in interest rates
based upon its financing, investing and cash management activities. The Company
utilizes a balanced mix of debt maturities along with both fixed-rate and
variable-rate debt to manage its exposure to changes in interest rates. The
Company's financial instrument holdings at year-end were analyzed to determine
their sensitivity to interest rate changes. In this sensitivity analysis, the
Company used the same change in interest rate for all maturities. All other
factors were held constant. If there were an adverse change in interest rates of
10%, the expected effect on net income related to our financial instruments
would be immaterial. However, there can be no assurances that interest rates
will not significantly affect its results of operations.
ITEM 4. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures within 90
days of the filing of this quarterly report. This evaluation was carried out
under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer. Based on this
evaluation, these officers have concluded that the design and operation of our
disclosure controls and procedures are effective. There were no significant
changes to our internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their evaluation.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
The Company is working closely with its corporate and securities lawyers to
ensure that it maintains compliance with the Sarbanes-Oxley Act of 2002, the SEC
regulations promulgated pursuant to that Act, and any related NASDAQ Stock
Market rules.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed on the Exhibit Index filed as part of this
Quarterly Report on Form 10-Q are incorporated herein by reference.
99.1 Certification by CEO Leonard S. Schwartz pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification by CFO Douglas Roth pursuant to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed or furnished during the quarter for
which this report on Form 10-Q is filed. On May 8, 2003 the Company
furnished a Form 8-K announcing the Company's financial results for the
quarter ended March 31, 2003 under "Item 9: Regulation FD Disclosure"
(Information furnished pursuant to Item 12, "Disclosure of Results of
Operations and Financial Condition"). Financial statements were included in
this Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACETO CORPORATION
DATE May 14, 2003 BY /s/ Douglas Roth
-------------------------- -------------------------------------
Douglas Roth, Chief Financial Officer
DATE May 14, 2003 BY /s/ Leonard S. Schwartz
-------------------------- ------------------------------------------
Leonard S. Schwartz, Chairman,
President And Chief Executive Officer
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Leonard S. Schwartz, Chairman, President and Chief Executive Officer of Aceto
Corporation, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Aceto Corporation
(the "Registrant");
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
Quarterly Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 14, 2003
/s/ Leonard S. Schwartz
-------------------------
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Douglas Roth, Chief Financial Officer of Aceto Corporation, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Aceto Corporation
(the "Registrant");
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
Quarterly Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 14, 2003
/s/ Douglas Roth
------------------
Chief Financial Officer
(Principal Financial Officer)
Aceto Corporation
Exhibit Index
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit Index Description
------------- -----------
99.1 Certification letter from Leonard S. Schwartz, Chairman,
President and Chief Executive Officer
99.2 Certification letter from Douglas Roth, Chief Financial
Officer