UNITED STATES
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, 2012
Commission file number 000-04217
ACETO CORPORATION
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
11-1720520
(I.R.S. Employer Identification
Number)
4 Tri Harbor Court, Port Washington, NY 11050
(Address of principal executive offices)
(516) 627-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
The NASDAQ Global Select Market
(Name of each exchange on which registered)
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes [ ] No [X]
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 has submitted electronically and posted on its corporate website, if any, every
interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).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 Registrant'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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [X]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the voting stock of the Company held by non-affiliates of the Company based on the closing
price of the common stock on December 31, 2011 as reported on the NASDAQ Global Select Market, was approximately
$174,851,865.
The Registrant has 27,080,397 shares of common stock outstanding as of September 4, 2012.
Documents incorporated by reference: The information required in response to Part III of this Annual Report on Form 10-K
is hereby incorporated by reference to the specified portions of the Registrant’s definitive proxy statement for the annual
meeting of shareholders.
2
ACETO CORPORATION AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2012
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
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PART I
CAUTIONARY STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains forward-looking statements as that term is defined in the federal securities laws.
The events described in forward-looking statements contained in this Annual Report on Form 10-K may not occur. Generally,
these statements relate to our business plans or strategies, projected or anticipated benefits or other consequences of our plans
or strategies, financing plans, projected or anticipated benefits from acquisitions that we may make, or projections involving
anticipated revenues, earnings or other aspects of our operating results or financial position, and the outcome of any
contingencies. Any such forward-looking statements are based on current expectations, estimates and projections of
management. We intend for these forward-looking statements to be covered by the safe-harbor provisions for forward-looking
statements. Words such as “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and
“continue,” and their opposites and similar expressions are intended to identify forward-looking statements. We caution you
that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and
other influences, many of which are beyond our control that may influence the accuracy of the statements and the projections
upon which the statements are based. Factors that may affect our results include, but are not limited to, the risks and
uncertainties discussed in Item 1A of this Annual Report on Form 10-K.
Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether
forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements
could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
In this Annual Report on Form 10-K, all dollar amounts are expressed in thousands, except share prices and per-share amounts.
NOTE REGARDING DOLLAR AMOUNTS
Item 1. Business
General
Aceto Corporation, together with its consolidated subsidiaries, are referred to herein collectively as “Aceto”, “the Company”,
“we”, “us”, and “our”, unless the context indicates otherwise. Aceto was incorporated in 1947 in the State of New York. We
are a global leader in the marketing, sales and distribution of pharmaceutical intermediates and active ingredients, finished
dosage form generics, nutraceutical products, agricultural protection products and specialty chemicals. Our business is
organized along product lines into three principal segments: Human Health, Pharmaceutical Ingredients and Performance
Chemicals. In fiscal 2012, we reconfigured and renamed our three business segments to more accurately reflect the scope of its
business activities. As such, we recasted the segment information as if the composition of our reportable segments had existed
in the prior periods presented.
We believe our main business strengths are sourcing, regulatory support, quality assurance and marketing and distribution.
With business operations in nine countries, we distribute more than 1,100 chemical compounds used principally as finished
products or raw materials in the pharmaceutical, nutraceutical, agricultural, coatings and industrial chemical consuming
industries. We believe that we are currently one of the largest merchant buyers of pharmaceutical and performance chemicals
for export from Asia, purchasing from over 500 different manufacturers in China and 200 manufacturers in India. No single
supplier accounted for as much as 10% of purchases in fiscal 2012 and 2011.
Strategic relationships with manufacturers of pharmaceutical, nutraceutical, agricultural and specialty chemical products in the
United States and internationally serve as a valuable resource to Aceto customers, enabling them to procure vital chemical
based products necessary for their diverse and complex applications. A strong global technical network differentiates Aceto
from commodity distribution companies. With regional managers in the United States, Europe and Asia, Aceto provides
regulatory support and quality assurance for customers and suppliers worldwide. Aceto’s regulatory network ensures that the
product quality is manufactured to applicable required standards and conforms to customer specifications for its intended end
use.
Our presence in China, Germany, France, the Netherlands, Singapore, India, Hong Kong, the United Kingdom and the United
States, along with strategically located warehouses worldwide, enable us to respond quickly to demands from customers
worldwide, assuring that a consistent, high-quality supply of pharmaceutical, nutraceutical, specialty chemicals and agricultural
protection products are readily accessible. We are able to offer our customers competitive pricing, continuity of supply, and
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quality control. We believe our 60 plus years of experience, our reputation for reliability and stability, and our long-term
relationships with suppliers have fostered loyalty among our customers.
We remain confident about our business prospects. We anticipate organic growth through our plans to introduce new products
for finished dosage form generic drugs, the further globalization of our nutraceutical business, the continued globalization of
our Performance Chemicals business, the expansion of our agricultural protection products by acquisition of product lines and
intellectual property, the continued enhancement of our sourcing operations in China and India, and the steady improvement of
our quality assurance and regulatory capabilities.
We believe our track record of continuous product introductions demonstrates our commitment to be recognized by the
worldwide generic pharmaceutical industry as an important, reliable supplier. Our plans involve seeking strategic acquisitions
that enhance our earnings and forming alliances with partners that add to our capabilities, when possible.
Other than product rights and license agreements for certain of our finished dosage form generic products which are part of our
Human Health business and U.S. Environmental Protection Agency (EPA) registrations for our Performance Chemicals, we
hold no patents, franchises or concessions that we consider material to our operations.
Information concerning revenue and gross profit attributable to each of our reportable segments and geographic information is
found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and in
Note 19 to the Consolidated Financial Statements, Part II, Item 8, “Financial Statements and Supplementary Data.”
Human Health
Products that fall within the Human Health segment include finished dosage form generic drugs and nutraceutical products. On
December 31, 2010, we acquired certain assets of Rising Pharmaceuticals, Inc. (“Rising”), a New Jersey based company that
markets and distributes generic prescription and over the counter pharmaceutical products to leading wholesalers, chain drug
stores, distributors, mass market merchandisers and others under its own label, throughout the United States. This acquisition
was a natural extension of our successful business model which will provide customers and suppliers additional opportunities
to penetrate the end user segment of the pharmaceutical market. With the Rising brand label, we have been able to expand our
direct involvement in the pharmaceutical distribution space through greater global awareness of our capabilities in the
marketing of pharmaceutical intermediates, active ingredients and the ultimate end-products, finished dosage form generics.
Aceto supplies the raw materials used in the production of nutritional and packaged dietary supplements, including vitamins,
amino acids, iron compounds and biochemicals used in pharmaceutical and nutritional preparations. Aceto’s identification of a
change in the attitudes of Europeans towards nutritional products led to the decision to globalize this business and create an
operating model to focus on it. This globally structured business has become the model for all of our business segments,
providing international reach and perspective for our customers.
Pharmaceutical Ingredients
The Pharmaceutical Ingredients segment has two product groups: Active Pharmaceutical Ingredients (APIs) and
Pharmaceutical Intermediates.
As the use of generic drugs has grown significantly over the years, Aceto’s presence in this market also increased dramatically,
both domestically and internationally. We supply APIs to all the major generic drug companies, who view Aceto as a valued
partner in their effort to develop and market generic drugs.
The process of introducing a new API from pipeline to market spans a number of years and begins with Aceto partnering with
a generic pharmaceutical manufacturer and jointly selecting an API, several years before the expiration of a composition of
matter patent, for future generisizing. We then identify the appropriate supplier, and concurrently utilizing our global technical
network, ensure they meet the highest standards of quality to comply with regulations. The generic pharmaceutical company
will submit the Abbreviated New Drug Application (ANDA) for U.S. Food and Drug Administration (FDA) approval or
European-equivalent approval. The introduction of the API to market occurs after all the development testing has been
completed and the ANDA or European-equivalent is approved and the patent expires or is deemed invalid. Aceto, at all times,
has a robust pipeline of APIs poised to reach commercial levels, both in the United States and Europe.
Aceto has long been a supplier of pharmaceutical intermediates, the complex chemical compounds that are the building blocks
used in producing APIs. These are the critical components of all drugs, whether they are already on the market or currently
undergoing clinical trials. Faced with significant economic pressures as well as ever-increasing regulatory barriers, the
innovative drug companies look to Aceto as a source for high quality intermediates. Utilizing our global sourcing, regulatory
5
support and quality assurance network, Aceto works with the large, global pharmaceutical companies, sourcing lower cost,
quality pharmaceutical intermediates that will meet the same high level standards that their current commercial products adhere
to.
According to an IMS Health press release on July 12, 2012, “Following several years of slowing growth, the global market for
medicines is poised to rebound from an expected low point of 3-4 percent growth in 2012 to 5-7 percent in 2016, according to a
new forecast issued by the IMS Institute for Healthcare Informatics. The report, The Global Use of Medicines: Outlook through
2016, found that annual global spending on medicines will rise from $956 billion in 2011 to nearly $1.2 trillion in 2016,
representing a compound annual growth rate of 3-6 percent. Growth in annual global spending is forecast to more than double
by 2016 to as much as $70 billion, up from a $30 billion pace this year, driven by volume increases in the pharmerging markets
and an uptick in spending in developed nations.”
Performance Chemicals
The Performance Chemicals segment includes specialty chemicals and agricultural protection products.
Aceto is a major supplier to many different industrial segments that require outstanding performance from chemical raw
materials and additives. We provide chemicals which make plastics, surface coatings, textiles, fuels and lubricants to perform
to their designed capabilities. These additive specialty products include antioxidants, photo initiators, catalysts, curatives,
brighteners and adhesion promoters.
Aceto is at the forefront as a supplier of chemicals to ecofriendly technologies. For example, we supply UV photo initiators
which allow inks and coatings to be cured by ultraviolet light instead of solvents, as well as curing agents and optical
brighteners for powder (non-solvent) coatings. These growing technologies are critical in protecting and enhancing the world’s
ecology.
We provide specialty chemicals for the food, beverage and fragrance industries. Aceto’s raw materials are also used in
sophisticated technology products, such as high-end electronic parts (circuit boards and computer chips) and binders for
specialized rocket fuels. Aceto is also a leader in the supply of diazos and couplers to the paper and film industries. Specific
end uses for these products include microfilm, blueprints and photo tooling of printed circuit boards.
We also provide organic intermediates and colorants. The color producing industry manufactures a wide assortment of
products and Aceto is the supplier of choice to these producers of “color.” From textiles and plastics to inks and paints, our
specialty colorant intermediates allow manufacturers to develop an endless rainbow of colorful possibilities.
According to a July 17, 2012 Federal Reserve Statistical Release, in the second quarter of calendar year 2012, the index for
consumer durables, which impacts the Specialty Chemicals business of the Performance Chemicals segment, grew at an annual
rate of 4.7%.
Aceto’s agricultural protection products include herbicides, fungicides and insecticides which control weed growth as well as
the spread of insects and microorganisms that can severely damage plant growth. The agricultural world is dependent on a
large variety of deterrent products and Aceto has become a valued partner to the global generic agricultural industry by
providing superior quality functional products. One of Aceto’s most widely used agricultural protection products is a sprout
inhibitor that extends the storage life of potatoes. We work with the large agrochemical distributors to provide alternate sources
for key products. Utilizing our global sourcing and regulatory capabilities, we identify and qualify manufacturers either
producing the product or with knowledge of the chemistry necessary to produce the product and then file an application with
the EPA for a product registration. Aceto has an ongoing working relationship with manufacturers in China and India to
determine which of the non-patented, or generic, agricultural protection products they produce can be effectively marketed in
the Western world.
Over the past several years, we have successfully brought numerous products to market. In addition, we have a strong pipeline,
which includes future additions to our product portfolio. The combination of our global sourcing and regulatory capabilities
makes the generic agricultural market a niche for us and we will continue to offer new product additions in this market as we
move forward. In the National Agricultural Statistics Services release dated June 29, 2012, the total crop acreage planted in
2012 increased by 3.4% to 326 million acres. The number of peanut acres planted in 2012 was up almost 34% from 2011
levels while sugarcane acreage harvested increased approximately 2.2% from 2011. In addition, the potato acreage harvested in
2012 was relatively consistent to the 2011 level.
6
Long-lived Assets
Long-lived assets by geographic region as of June 30, 2012, 2011, and 2010 were as follows:
United States
Europe
Asia-Pacific
Total
Long-lived assets
2012
$85,650
2,388
2,413
$90,451
2011
$90,955
2,779
2,644
$96,378
2010
$15,766
2,401
2,836
$21,003
Suppliers and Customers
During the fiscal years ended June 30, 2012 and 2011 approximately 69% and 70%, respectively, of our purchases were from
Asia and approximately 13% and 18%, respectively, were from Europe.
Our customers are primarily located throughout the United States, Europe and Asia. They include a wide range of companies
in the industrial chemical, agricultural, and human health and pharmaceutical industries, and range from small trading
companies to Fortune 500 companies. During fiscal years 2012 and 2011, sales made to customers in the United States totaled
$254,368 and $236,831, respectively. Sales made to customers outside the United States during fiscal years 2012 and 2011
totaled $190,020 and $175,597, respectively, of which, approximately 59% and 71%, respectively, were to customers located
in Europe. No single product or customer accounted for as much as 10% of net sales in fiscal years 2012, 2011 or 2010.
Competition
The Company operates in a highly competitive business environment. We compete by offering high-quality products produced
around the world by both large and small manufacturers at attractive prices. Because of our long standing relationships with
many suppliers as well as our sourcing operations in both China and India, we are able to ensure that any given product is
manufactured at a facility that can meet the regulatory requirements for that product. For the most part, we store our inventory
of chemicals in public warehouses strategically located throughout the United States, Europe, and Asia, and we can therefore
fill our customer orders on a timely basis. We have developed ready access to key purchasing, research, and technical
executives of our customers and suppliers. This allows us to ensure that when necessary, sourcing decisions can be made
quickly.
Environmental and Regulatory
We are subject to extensive regulation by federal, state and local agencies in the countries in which we do business. Of
particular importance is the FDA in the U.S. It has jurisdiction over testing, safety, effectiveness, manufacturing, labeling,
marketing, advertising and post-marketing surveillance of our Human Health products.
Certain of our products involve the use, storage and transportation of toxic and hazardous materials. The Company's
operations are subject to extensive laws and regulations relating to the storage, handling, transportation and discharge of
materials into the environment and the maintenance of safe working conditions. We have designed safety procedures to
comply with the standards prescribed by federal, state and local regulations.
A subsidiary of the Company markets certain agricultural protection products which are subject to the Federal Insecticide,
Fungicide and Rodenticide Act (FIFRA). FIFRA requires that test data be provided to the 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 that new test data be
generated 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 several such task force
groups, which requires payments for such memberships.
7
Employees
At June 30, 2012, we had 233 employees, none of whom were covered by a collective bargaining agreement.
Available information
We file annual, quarterly, and current reports, proxy statements, and other information with the U.S. Securities and Exchange
Commission. You may read and copy any document we file at the SEC’s public reference room at 100 F Street, NE,
Washington, D.C. 20549.
You may call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains a website that
contains annual, quarterly, and current reports, proxy statements, and other information that issuers (including Aceto) file
electronically with the SEC. The SEC’s website is www.sec.gov.
Our website is www.aceto.com. We make available free of charge through our Internet site, via a link to the SEC’s website at
www.sec.gov, our annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; Forms 3, 4 and
5 filed on behalf of our directors and executive officers; and any amendments to those reports and forms. We make these
filings available as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The
information on our website is not incorporated by reference into this Annual Report on Form 10-K.
Item 1A. Risk factors
You should carefully consider the following risk factors and other information included in this Annual Report on Form 10-K.
The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently
known to us or that we currently deem immaterial could also impair our business operations. If any of the following risk
factors occur, our reputation, business, financial condition, operating results and cash flows could be materially adversely
affected.
If we are unable to compete effectively with our competitors, many of which have greater market presence and resources than
us, our reputation, business, financial condition, operating results and cash flows could be materially adversely affected.
Our financial condition and operating results are directly related to our ability to compete in the intensely competitive global
chemical and pharmaceutical distribution markets. We face intense competition from global and regional distributors of
chemical and pharmaceutical products, many of which are large chemical and pharmaceutical manufacturers as well as
distributors. Many of these companies have substantially greater resources than us, including, among other things, greater
financial, marketing and distribution resources. We cannot assure you that we will be able to compete successfully with any of
these companies. In addition, increased competition could result in price reductions, reduced margins and loss of market share
for our products, all of which could materially adversely affect our reputation, business, financial condition, operating results
and cash flows.
Our distribution operations of APIs concentrate on generic products and therefore are subject to the risks of the generic
pharmaceutical industry.
The ability of our business to provide consistent, sequential quarterly growth is affected, in large part, by our participation in
the launch of new products by generic manufacturers and the subsequent advent and extent of competition encountered by
these products. This competition can result in significant and rapid declines in pricing with a corresponding decrease in net
sales. Our margins can also be materially adversely affected by the risks inherent to the generic industry.
Our pipeline of products in development may be subject to regulatory delays at the FDA. Delays in key products could have
material adverse effects on our reputation, business, financial position and results of operations.
Our future revenue growth and profitability are dependent upon our ability to introduce new products on a timely basis in
relation to our competitors’ product introductions. Our failure to do so successfully could materially adversely affect our
reputation, business, financial condition, operating results and cash flows. Many products require FDA approval or the
equivalent regulatory approvals in our overseas markets prior to being marketed. The process of obtaining FDA/regulatory
approval to market new and generic pharmaceutical products is rigorous, time-consuming, costly and largely unpredictable. We
may be unable to obtain requisite FDA approvals on a timely basis for new generic products.
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Dependence on a limited number of suppliers of Human Health and Pharmaceutical Ingredients products could lead to delays,
lost revenue or increased costs.
Our future operating results may depend substantially on our suppliers’ ability to timely provide Human Health and
Pharmaceutical Ingredients products in connection with ANDAs and such suppliers’ ability to supply us with these ingredients
or materials in sufficient volumes to meet our production requirements. A number of the ingredients or materials that we use
are available from only a single or limited number of qualified suppliers, and may be used across multiple product lines. If
there is a significant increase in demand for an ingredient or other material resulting in an inability to meet demand, if an
ingredient or material is otherwise in short supply or becomes wholly unavailable, or if a supplier has a quality issue, we may
experience delays or increased costs in obtaining that ingredient or material. If we are unable to obtain sufficient quantities of
ingredients or other necessary materials, we may experience production delays in our supply.
Each of the following could also interrupt the supply of, or increase the cost of, ingredients or other materials:
• an unwillingness of a supplier to supply ingredients or other materials to us;
• consolidation of key suppliers;
• failure of a key supplier’s business process;
• a key supplier’s inability to access credit necessary to operate its business; or
• failure of a key supplier to remain in business, to remain an independent supplier, or to adjust to market conditions.
Any interruption in the supply of or increase in the cost of ingredients or other materials provided by single or limited source
suppliers could have a material adverse effect on our reputation, business, financial condition, operating results and cash flows.
Healthcare reform and a reduction in the reimbursement levels by governmental authorities, HMOs, MCOs or other third-
party payors could materially adversely affect our business, financial condition, operating results and cash flows.
Third party payors increasingly challenge pricing of pharmaceutical products. The trend toward managed healthcare, the
growth of organizations such as HMOs and MCOs and legislative proposals to reform healthcare and government insurance
programs could significantly influence the purchase of pharmaceutical products, resulting in lower prices and a reduction in
product demand. Such cost containment measures and healthcare reform could affect our ability to sell our products and could
have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our revenue stream and related gross profit is difficult to predict.
Our revenue stream is difficult to predict because it is primarily generated as customers place orders and customers can change
their requirements or cancel orders. Many of our sales orders are short-term and could be cancelled at any time. As a result,
much of our revenue is not recurring from period to period, which contributes to the variability of our results from period to
period. In addition, certain of our products carry a higher gross margin than other products, particularly in the Human Health
segment. Reduced sales of these higher margin products could have a material adverse effect on our operating results. We
believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.
Changes to the industries and markets that Aceto serves could have a material adverse effect on our business, financial
condition, operating results and cash flows.
The business environment in which we operate remains challenging. Portions of our operations are subject to the same
business cycles as those experienced by automobile, housing, and durable goods manufacturers. Our demand is largely derived
from the demand for our customers’ products, which subjects us to uncertainties related to downturns in our customers’
business and unanticipated customer production shutdowns or curtailments. A material downturn in sales or gross profit due to
weak end-user markets and loss of customers could have a material adverse effect on our business, financial condition,
operating results and cash flows.
Our operating results could fluctuate in future quarters, which could adversely affect the trading price of our common stock.
Our operating results could fluctuate on a quarterly basis as a result of a number of factors, including, among other things, the
timing of contracts, orders, the delay or cancellation of a contract, and changes in government regulations. Any one of these
factors could have a significant impact on our quarterly results. In some quarters, our revenue and operating results could fall
below the expectations of securities analysts and investors, which would likely cause the trading price of our common stock to
decline.
9
We have significant inventories on hand.
The Company maintains significant inventories. Any significant unanticipated changes in future product demand or market
conditions, including, among other things, the current uncertainty in the global market, could materially adversely affect the
value of inventory and our business, financial condition, operating results and cash flows.
Failure to obtain products from outside manufacturers could adversely affect our ability to fulfill sales orders to our
customers.
We rely on outside manufacturers to supply products for resale to our customers. Manufacturing problems, including, among
other things, manufacturing delays caused by plant shutdowns, regulatory issues, damage or disruption to raw material supplies
due to weather, including, among other things, any potential effects of climate change, natural disaster or fire, could occur. If
such problems occur, we cannot assure that we will be able to deliver our products to our customers profitably or on time.
We could incur significant uninsured environmental and other liabilities inherent in the chemical /pharmaceutical distribution
industry that could materially adversely affect our business, financial condition, operating results and cash flows.
The business of distributing chemicals and pharmaceuticals is subject to regulation by numerous federal, state, local, and
foreign governmental authorities. These regulations impose liability for loss of life, damage to property and equipment,
pollution and other environmental damage that could occur in our business. Many of these regulations provide for substantial
fines and remediation costs in the event of chemical spills, explosions and pollution. While we believe that we are in
substantial compliance with all current laws and regulations, we can give no assurance that we will not incur material liabilities
that are not covered by insurance or exceed our insurance coverage or that such insurance will remain available on terms and at
rates acceptable to us. Additionally, if existing environmental and other regulations are changed, or additional laws or
regulations are passed, the cost of complying with those laws could be substantial, thereby materially adversely affecting our
business, financial condition, operating results and cash flows.
In fiscal years 2011, 2009, 2008 and 2007, the Company received letters from the Pulvair Site Group, a group of potentially
responsible parties (PRP Group) who are working with the State of Tennessee (the State) to remediate a contaminated property
in Tennessee called the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous substances to the site which
were released into the environment. The State had begun administrative proceedings against the members of the PRP Group
and Aceto with respect to the cleanup of the Pulvair site and the PRP Group has begun to undertake cleanup. The PRP Group is
seeking a settlement of approximately $1,700 from the Company for its share to remediate the site contamination. Although the
Company acknowledges that it shipped materials to the site for formulation over twenty years ago, the Company believes that
the evidence does not show that the hazardous materials sent by Aceto to the site have significantly contributed to the
contamination of the environment and thus believes that, at most, it is a de minimus contributor to the site contamination.
Accordingly, the Company believes that the settlement offer is unreasonable. The impact of the resolution of this matter on the
Company's results of operations in a particular reporting period is not known.
Our subsidiary, Arsynco, has environmental remediation obligations in connection with its former manufacturing facility in
Carlstadt, New Jersey. Estimates of how much it would cost to remediate environmental contamination at this site have
increased since the facility was closed in 1993. If the actual costs are significantly greater than estimated, it could have a
material adverse effect on our financial condition, operating results and cash flows.
In March 2006, Arsynco received notice from the EPA of its status as a PRP under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) for a site described as the Berry’s Creek Study Area. Arsynco is one
of over 150 PRPs which have potential liability for the required investigation and remediation of the site. The estimate of the
potential liability is not quantifiable for a number of reasons, including the difficulty in determining the extent of
contamination and the length of time remediation may require. In addition, any estimate of liability must also consider the
number of other PRPs and their financial strength. Based on prior practice in similar situations, it is possible that the State may
assert a claim for natural resource damages with respect to the Arsynco site itself, and either the federal government or the
State (or both) may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any such
claim with respect to Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has identified in
connection with that site. Any claim for natural resource damages with respect to the Arsynco site itself may also be asserted
against BASF, the former owners of the Arsynco property. Since an amount of the liability cannot be reasonably estimated at
this time, no accrual is recorded for these potential future costs. The impact of the resolution of this matter on the Company’s
results of operations in a particular reporting period is not known.
10
The distribution and sale of some of our products are subject to prior governmental approvals and thereafter ongoing
governmental regulation.
Our products are subject to laws administered by federal, state and foreign governments, including the Toxic Substances
Control Act and regulations requiring registration and approval of many of our products. More stringent restrictions could
make our products less desirable, which would adversely affect our revenues and profitability. Some of our products are
subject to the EPA registration and re-registration requirements, and are registered in accordance with FIFRA. Such
registration requirements are based, among other things, on data demonstrating that the product will not cause unreasonable
adverse effects on human health or the environment when used according to approved label directions. Governmental
regulatory authorities have required, and may require in the future, that certain scientific data requirements be performed on
our products and this may require us on our behalf or in joint efforts with other registrants to perform additional testing.
Responding to such requirements may cause delays in or the cessation of the sales of one or more of our products which would
adversely affect our profitability. We can provide no assurance that any testing approvals or registrations will be granted on a
timely basis, if at all, or that our resources will be adequate to meet the costs of regulatory compliance or that the economic
benefit of complying with the requirement will exceed our cost.
Incidents related to hazardous materials could materially adversely affect our reputation, business, financial condition,
operating results and cash flows.
Portions of our operations require the controlled use of hazardous materials. Although we are diligent in designing and
implementing safety procedures to comply with the standards prescribed by federal, state, and local regulations, the risk of
accidental contamination of property or injury to individuals from these materials cannot be completely eliminated. In the event
of such an incident, we could be liable for any damages that result, which could materially adversely affect our reputation,
business, financial condition, operating results and cash flows.
We are also continuing to expand our business in China and India, where environmental, health and safety regulations are still
early in their development. As a result, we cannot determine how these laws will be implemented and the impact of such
regulation on the Company.
Violations of cGMP and other government regulations could have a material adverse effect on our reputation, business,
financial condition and results of operations.
All facilities and manufacturing techniques used to manufacture pharmaceutical products for clinical use or for commercial
sale in the United States and other Aceto markets must be operated in conformity with current Good Manufacturing Practices
("cGMP") regulations as required by the FDA and other regulatory bodies. Our suppliers’ facilities are subject to scheduled
periodic regulatory and customer inspections to ensure compliance with cGMP and other requirements applicable to such
products. A finding that we or one or more of our suppliers had materially violated these requirements could result in one or
more regulatory sanctions, loss of a customer contract, disqualification of data for client submissions to regulatory authorities
and a mandated closing of our suppliers’ facilities, which in turn could have a material adverse effect on our reputation,
business, financial condition, operating results and cash flows.
Our business could give rise to product liability claims that are not covered by insurance or indemnity agreements or exceed
insurance policy or indemnity agreement limitations.
The marketing, distribution and use of chemical and pharmaceutical products involves substantial risk of product liability
claims. We could be held liable if any product we or our partners develop or distribute causes injury or is found otherwise
unsuitable during product testing, manufacturing, marketing or sale. A successful product liability claim that we have not
insured against, that exceeds our levels of insurance or that we are not indemnified for, may require us to pay a substantial
amount of damages. In the event that we are forced to pay such damages, this payment could have a material adverse effect on
our reputation, business, financial condition, operating results and cash flows.
We derive many of our products from China and changes in the political and economic policies of China’s government could
have a significant impact upon the business we may be able to conduct in China and our financial condition, operating results
and cash flows.
Our business operations could be materially adversely affected by the current and future political environment in China. China
has operated as a socialist state since the mid-1900s and is controlled by the Communist Party of China. The Chinese
government exerts substantial influence and control over the manner in which companies, such as ours, must conduct our
11
business activities in China. China has only permitted provincial and local economic autonomy and private economic activities
since 1988. The government of China has exercised and continues to exercise substantial control over virtually every sector of
the Chinese economy, through regulation and state ownership. Our ability to conduct business in China could be adversely
affected by changes in Chinese laws and regulations, including, among others, those relating to taxation, import and export
tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under its current leadership, the
government of China has been pursuing economic reform policies that encourage private economic activity and greater
economic decentralization. There is no assurance, however, that the government of China will continue to pursue these
policies, or that it will not significantly alter these policies from time to time without notice.
China’s laws and regulations governing our current business operations in China are sometimes vague and uncertain. Any
changes in such laws and regulations could materially adversely affect our business, financial condition, operating results and
cash flows.
China’s legal system is a civil law system based on written statutes, in which system decided legal cases have little value as
precedents unlike the common law system prevalent in the United States. There are substantial uncertainties regarding the
interpretation and application of China’s laws and regulations, including among others, the laws and regulations governing the
conduct of business in China, or the enforcement and performance of arrangements with customers and suppliers in the event
of the imposition of statutory liens, death, bankruptcy and criminal proceedings. The Chinese government has been developing
a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations
dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and
trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases
and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations
involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be
applied retroactively. We cannot predict what effect the interpretation of existing or new laws or regulations may have on our
business in China. If the relevant authorities find that we are in violation of China’s laws or regulations, they would have broad
discretion in dealing with such a violation, including, among other things: (i) levying fines and (ii) requiring that we
discontinue any portion or all of our business in China.
The promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may
adversely affect foreign businesses conducting business in China. However, the trend of legislation over the last 20 plus years
has significantly enhanced the protection of foreign businesses in China. There can be no assurance that a change in leadership,
social or political disruption, or unforeseen circumstances affecting China’s political, economic or social life, will not affect
China’s government’s ability to continue to support and pursue these reforms. Such a shift could have a material adverse effect
on our business and prospects.
Our ability to compete in certain markets we serve is dependent on our ability to continue to expand our capacity in certain
offshore locations. However, as our presence in these locations increases, we are exposed to risks inherent to these locations
which could materially adversely affect our business, financial condition, operating results and cash flows.
A significant portion of our outsourcing has been shifted to India. As such, we are exposed to the risks inherent to operating in
India including, among others, (1) a highly competitive labor market for skilled workers which may result in significant
increases in labor costs as well as shortages of qualified workers in the future, (2) the possibility that the U.S. federal
government or the European Union may enact legislation which may disincentivize customers from producing in their local
countries which would reduce the demand for the services we provide in India and could materially adversely affect our
business, financial condition, operating results and cash flows.
Fluctuations in foreign currency exchange rates could materially adversely affect our business, financial condition, operating
results and cash flows.
A substantial portion of our revenue is denominated in currencies other than the U.S. dollar because certain of our foreign
subsidiaries operate in their local currencies. Our business, financial condition, operating results and cash flows therefore could
be materially adversely affected by fluctuations in the exchange rate between foreign currencies and the U.S. dollar.
Failure to comply with U.S. or non-U.S. laws regulating trade, such as the U.S. Foreign Corrupt Practices Act, could result in
adverse consequences, including fines, criminal sanctions, or loss of access to markets.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits corporations and individuals from paying,
offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member,
political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an
12
official capacity. The FCPA also requires public companies to make and keep books and records that accurately and fairly
reflect their transactions and to devise and maintain an adequate system of internal accounting controls. While our employees
and agents are required to comply with these laws, we cannot assure you that our internal policies and procedures will always
protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. The occurrence or
allegation of these types of events could materially adversely affect our reputation, business, financial condition, operating
results and cash flows.
Tax legislation and assessments by various tax authorities could be materially different than the amounts we have provided for
in our consolidated financial statements.
We are regularly audited by federal, state, and foreign tax authorities. From time to time, these audits could result in proposed
assessments. While we believe that we have adequately provided for any such assessments, future settlements could be
materially different than we have provided for and thereby materially adversely affect our earnings and cash flows.
We operate in various tax jurisdictions, and although we believe that we have provided for income and other taxes in
accordance with the relevant regulations, if the applicable regulations were ultimately interpreted differently by a taxing
authority, we could be exposed to additional tax liabilities. Our effective tax rate is based on our expected geographic mix of
earnings, statutory rates, intercompany transfer pricing, and enacted tax rules. Significant judgment is required in determining
our effective tax rate and in evaluating our tax positions on a worldwide basis. We believe our tax positions, including, among
others, intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which we conduct our
business. It is possible that these positions may be challenged by jurisdictional tax authorities and could have a significant
impact on our effective tax rate. In addition, from time to time, various legislative initiatives could be proposed that could
adversely affect our tax positions. There can be no assurance that our effective tax rate will not be adversely affected by these
initiatives.
Changes in tax rules could adversely affect our future reported financial results or the way we conduct our business.
Our future reported financial results could be adversely affected if tax or accounting rules regarding unrepatriated earnings
change. The Obama administration announced several proposals to reform United States tax rules, including, among others,
proposals that could result in a reduction or elimination of the deferral of United States tax on our unrepatriated earnings,
potentially requiring those earnings to be taxed at the United States federal income tax rate.
Our business is subject to a number of global economic risks.
For a number of years, financial markets in the United States, Europe and Asia have been experiencing extreme disruption,
including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating
downgrades of certain investments and declining valuations of others. Governments have taken unprecedented actions
intending to address extreme market conditions that include severely restricted credit and declines in values of certain assets.
An economic downturn in the businesses or geographic areas in which we sell our products could reduce demand for our
products and result in a decrease in revenue that could have a negative impact on our results of operations. Continued volatility
and disruption of financial markets in the United States, Europe and Asia could limit our customers’ ability to obtain adequate
financing or credit to purchase our products or to pay for outstanding invoices owed to us or to maintain operations, and result
in a decrease in revenue or cash collections that could have a material adverse effect on our business, financial condition,
operating results and cash flows.
We have a significant amount of debt.
We have a $71,000 credit facility of which $42,000 was outstanding at June 30, 2012. This facility expires in December 2015.
If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the credit
facility, it will be in default. This current debt arrangement requires us to comply with several financial covenants. Our ability
to comply with these covenants may be affected by events beyond our control and could result in a default under our credit
facility, which could have a material adverse effect on our business, financial condition, operating results and cash flows.
Even if we are able to meet our debt service obligations, the amount of debt we have could adversely affect us by limiting our
ability to obtain any necessary financing in the future for working capital, dividend payments, capital expenditures, debt
service requirements, or other purposes. It also places us at a disadvantage relative to our competitors who have lower levels of
13
debt, while making us more vulnerable to a downturn in our business or the economy in general. It also requires us to use a
substantial portion of our cash to pay principal and interest on our debt, instead of investing those funds in the business.
Our acquisition strategy is subject to a number of inherent risks, including, among other things, the risk that our acquisitions
may not be successful.
We continually seek to expand our business through acquisitions of other companies that complement our own and through
joint ventures, licensing agreements and other arrangements. Any decision regarding strategic alternatives would be subject to
inherent risks, and we cannot guarantee that we will be able to identify the appropriate opportunities, successfully negotiate
economically beneficial terms, successfully integrate any acquired business, retain key employees, or achieve the anticipated
synergies or benefits of the strategic alternative selected. Acquisitions can require significant capital resources and divert our
management’s attention from our existing business. Additionally, we may issue additional shares in connection with a strategic
transaction, thereby diluting the holdings of our existing common shareholders, incur debt or assume liabilities, become subject
to litigation, or consume cash, thereby reducing the amount of cash available for other purposes.
Any acquisition that we make could result in a substantial charge to our earnings.
We have previously incurred charges to our earnings in connection with acquisitions, and may continue to experience charges
to our earnings for any acquisitions that we make, including, among other things, contingent consideration and impairment
charges. These costs may also include substantial severance and other closure costs associated with eliminating duplicate or
discontinued products, employees, operations and facilities. These charges could have a material adverse effect on our results
of operations and they could have a material adverse effect on the market price of our common stock.
The Company could be subject to goodwill impairment charges in the future.
Under U.S. generally accepted accounting principles (“GAAP”), we are required to evaluate goodwill for impairment at least
annually. If we determine that the fair value is less than the carrying value, an impairment loss will be recorded in our
statement of income. The determination of fair value is a highly subjective exercise and can produce significantly different
results based on the assumptions used and methodologies employed. If our projected long-term sales growth rate, profit
margins or terminal rate are considerably lower and/or the assumed weighted average cost of capital is considerably higher,
future testing may indicate impairment and we would have to record a non-cash goodwill impairment loss in our statement of
income.
Our information technology systems could fail to perform adequately or we may fail to adequately protect such information
technology systems against data corruption, cyber-based attacks, or network security breaches.
We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic
information. In particular, we depend on our information technology infrastructure to effectively manage its business data,
supply chain, logistics, accounting, and other business processes and electronic communications between our personnel and our
customers and suppliers. If we do not allocate and effectively manage the resources necessary to build and sustain an
appropriate technology infrastructure, our business, financial condition, operating results and cash flows therefore could be
materially adversely affected. In addition, security breaches or system failures of this infrastructure can create system
disruptions, shutdowns, or unauthorized disclosure of confidential information. If we are unable to prevent such breaches or
failures, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated
information.
Our potential liability arising from our commitment to indemnify our directors, officers and employees could materially
adversely affect our business, financial condition, operating results and cash flows.
We have committed in our bylaws to indemnify our directors, officers and employees against the reasonable expenses incurred
by these persons in connection with an action brought against them in such capacity, except in matters as to which they are
adjudged to have breached a duty to us. The maximum potential amount of future payments we could be required to make
under this provision is unlimited. While we have ”directors and officers” insurance policies that covers a portion of this
potential exposure, we could be adversely affected if we are required to pay damages or incur legal costs in connection with a
claim above our insurance limits.
14
Our business could be materially adversely affected by terrorist activities.
Our business depends on the free flow of products and services through the channels of commerce. Instability due to military,
terrorist, political and economic actions in other countries could materially disrupt our overseas operations and export sales. In
both fiscal years 2012 and 2011, approximately 43% of our revenues were attributable to operations conducted abroad and to
sales generated from the United States to foreign countries. In addition, in fiscal year 2012, approximately 69% and 13% of
our purchases came from Asia and Europe, respectively. In addition, in certain countries where we currently operate or export,
intend to operate or export, or intend to expand our operations; we could be subject to other political, military and economic
uncertainties, including, among other things, labor unrest, restrictions on transfers of funds and unexpected changes in
regulatory environments.
We rely heavily on key executives for our financial performance.
Our financial performance is highly dependent upon the efforts and abilities of our key executives. The loss of the services of
any of our key executives could therefore have a material adverse effect upon our financial position and operating results. We
do not maintain “key-man” insurance on any of our key executives.
Shortage of qualified and technical personnel in a competitive marketplace may prevent us from growing our business.
We may be unable to hire or retain qualified and technical employees. Despite the current unemployment rate, there is
substantial competition for highly skilled employees. If we fail to attract and retain key employees, our business could be
adversely impacted.
Litigation could harm our business and our management and financial resources.
Substantial, complex or extended litigation could cause us to incur large expenditures and could distract our management. For
example, lawsuits by employees, stockholders, collaborators, distributors, customers, or end-users of our products or services
could be very costly and substantially disrupt our business. Disputes from time to time with such companies or individuals are
not uncommon, and we cannot assure you that we will always be able to resolve such disputes out of court or on favorable
terms.
The market price of our stock could be volatile.
The market price of our common stock has been subject to volatility and may continue to be volatile in the future, due to a
variety of factors, including, among other things:
quarterly fluctuations in our operating income and earnings per share results
technological innovations or new product introductions by us or our competitors
economic conditions
tariffs, duties and other trade barriers including, among other things, anti-dumping duties
disputes concerning patents or proprietary rights
changes in earnings estimates and market growth rate projections by market research analysts
sales of common stock by existing security holders
loss of key personnel
securities class actions or other litigation
The market price for our common stock may also be affected by our ability to meet analysts' expectations. Any failure to meet
such expectations, even slightly, could have an adverse effect on the market price of our common stock. In addition, the stock
market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of
securities issued by many companies for reasons unrelated to the operating performance of these companies.
There are inherent uncertainties involved in estimates, judgments and assumptions used in preparing financial statements in
accordance with U.S. generally accepted accounting principles. Any changes in the estimates, judgments and assumptions we
use could have a material adverse effect on our business, financial condition, operating results and cash flows.
The consolidated financial statements included in the periodic reports we file with the SEC are prepared in accordance with
GAAP. Preparing financial statements in accordance with GAAP involves making estimates, judgments and assumptions that
15
affect reported amounts of assets, liabilities, revenues, expenses and income. Estimates, judgments and assumptions are
inherently subject to change, and any such changes could result in corresponding changes to the reported amounts.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have material
adverse effect on our business and stock price.
Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal controls over financial
reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal
controls over financial reporting in our Annual Report on Form 10-K . Section 404 also requires our independent registered
public accounting firm to report on our internal controls over financial reporting. If we fail to maintain the adequacy of our
internal controls, we cannot assure you that we will be able to conclude in the future that we have effective internal controls
over financial reporting. If we fail to maintain effective internal controls, we might be subject to sanctions or investigation by
regulatory authorities, such as the Securities and Exchange Commission or NASDAQ. Any such action could adversely affect
our financial results and the market price of our common stock and may also result in delayed filings with the Securities and
Exchange Commission.
Compliance with changing regulation of corporate governance and public disclosure could result in additional expenses.
Complying with changing laws, regulations and standards relating to corporate governance and public disclosure, including,
among others, the Sarbanes-Oxley Act of 2002 and new SEC regulations will require the Company to expend additional
resources. We are committed to maintaining the highest standards of corporate governance and public disclosure. As a result,
we may be required to continue to invest necessary resources to comply with evolving laws, regulations and standards, and this
investment could result in increased expenses and a diversion of management time and attention from revenue-generating
activities.
Item 1B. Unresolved Staff Comments
None.
16
Item 2. Properties
In March 2010, we purchased a building in Port Washington, New York, which is now the site of our global headquarters. We
moved our corporate offices into this new building in April 2011. Our global headquarters consists of approximately 48,000
gross square feet and is subject to a mortgage, which at June 30, 2012, had an outstanding balance of $3,765.
With the Rising acquisition on December 31, 2010, the Company leases approximately 41,000 gross square feet of office space
in Allendale, New Jersey. This lease expires in October 2017.
In November 2007, we purchased approximately 2,300 gross square meters of land along with 12,000 gross square feet of
office space in Mumbai, India.
Arsynco’s former manufacturing facility is located on a 12-acre parcel in Carlstadt, New Jersey, that it owns.
In November 2004, we purchased approximately 1,300 gross square meters of office space located in Shanghai, China for our
sales offices and investment purposes.
We also lease office space in Hamburg, Germany; Düsseldorf, Germany; Heemskerk, the Netherlands; Paris, France; Lyon,
France and Singapore. These offices are used for sales and administrative purposes.
We believe that our properties are generally well maintained, in good condition and adequate for our present needs.
Item 3. Legal Proceedings.
We are subject to various claims that have arisen in the normal course of business. We do not know what impact the final
resolution of these matters will have on our results of operations in a particular reporting period. We believe, however, that the
ultimate outcome of such matters will not have a material adverse effect on our financial condition or liquidity.
In fiscal years 2011, 2009, 2008 and 2007, the Company received letters from the Pulvair Site Group, a group of potentially
responsible parties (PRP Group) who are working with the State of Tennessee (the State) to remediate a contaminated property
in Tennessee called the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous substances to the site which
were released into the environment. The State had begun administrative proceedings against the members of the PRP Group
and Aceto with respect to the cleanup of the Pulvair site and the PRP Group has begun to undertake cleanup. The PRP Group is
seeking a settlement of approximately $1,700 from the Company for its share to remediate the site contamination. Although the
Company acknowledges that it shipped materials to the site for formulation over twenty years ago, the Company believes that
the evidence does not show that the hazardous materials sent by Aceto to the site have significantly contributed to the
contamination of the environment and thus believes that, at most, it is a de minimus contributor to the site contamination.
Accordingly, the Company believes that the settlement offer is unreasonable. The impact of the resolution of this matter on the
Company's results of operations in a particular reporting period is not known. However, management believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's financial condition or liquidity.
In March 2006, Arsynco received notice from the EPA of its status as a PRP under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) for a site described as the Berry’s Creek Study Area. Arsynco is one
of over 150 PRPs which have potential liability for the required investigation and remediation of the site. The estimate of the
potential liability is not quantifiable for a number of reasons, including the difficulty in determining the extent of
contamination and the length of time remediation may require. In addition, any estimate of liability must also consider the
number of other PRPs and their financial strength. Based on prior practice in similar situations, it is possible that the State may
assert a claim for natural resource damages with respect to the Arsynco site itself, and either the federal government or the
State (or both) may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any such
claim with respect to Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has identified in
connection with that site. Any claim for natural resource damages with respect to the Arsynco site itself may also be asserted
against BASF, the former owners of the Arsynco property. Since an amount of the liability cannot be reasonably estimated at
this time, no accrual is recorded for these potential future costs. The impact of the resolution of this matter on the Company’s
results of operations in a particular reporting period is not known. However, management believes that the ultimate outcome
of this matter will not have a material adverse effect on the Company’s financial condition or liquidity.
Item 4. Mine Safety Disclosures
Not Applicable.
17
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is traded on the NASDAQ Global Select Market using the symbol “ACET.” The following table states the
fiscal year 2012 and 2011 high and low sales prices of our common stock as reported by the NASDAQ Global Select Market
for the periods indicated.
FISCAL YEAR 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
FISCAL YEAR 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
HIGH
LOW
$6.83
7.14
9.63
9.99
$ 4.51
5.10
6.56
7.90
$7.10
9.23
9.47
8.18
$ 5.31
6.50
7.01
6.11
Cash dividends of $0.10 per common share were paid in January and June of fiscal 2012, fiscal 2011 and fiscal 2010. Our
revolving credit facility restricts the payment of cash dividends to $5,800 per fiscal year.
As of September 4, 2012, there were 404 holders of record of our common stock.
24,804 shares of our common stock were held by the nominee of the Depository Trust Company, the country's principal central
depository. For purposes of determining the number of owners of our common stock, those shares are considered to be owned
by one holder. Additional individual holdings in street name result in a sizable number of beneficial owners being represented
on our records as owned by various banks and stockbrokers.
The following table states certain information with respect to our equity compensation plans at June 30, 2012:
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of securities to
be issued upon exercise
of outstanding options
Weighted-average
exercise price of
outstanding options
Number of securities
remaining available for
future issuance under
equity compensation plans
1,815,000
-
1,815,000
$8.47
-
$8.47
741,000
-
741,000
18
Performance Graph
The following graph compares on a cumulative basis the yearly percentage change, assuming dividend reinvestment, over the
last five fiscal years in (a) the total shareholder return on our common stock with (b) the total return on the Standard & Poor’s
500 Index, (c) the total return on a published line-of-business index – the Dow Jones U.S. Chemicals Index and (d) the total
return of our Peer Group. We have decided to change our peer group comparison from the Dow Jones U.S. Chemicals Index to
a Peer Group of 17 companies selected by us, based on total revenues, nature of business, product offerings, customer base,
operational model and overall strategy. The peer group companies included: American Pacific Corp., American Vanguard
Corp., Balchem Corp., Calgon Carbon Corp., Cambrex Corp., DXP Enterprises Inc., Hawkins Inc., Innophos Holdings,
Innospec Inc., KMG Chemical Inc., Lawson Products, Myers Industries Inc., Nutraceutical International Corp., Prestige Brand
Holdings, Quaker Chemical Corp., Rogers Corp., and Usana Health Sciences Inc. We believe that the companies in the new
Peer Group are more comparable to Aceto than the combined companies included in the Dow Jones U.S. Chemicals Index.
Comparisons with both the Dow Jones U.S. Chemicals Index and the Peer Group are included in the following graph. Going
forward, we expect to include the Peer Group and not the Dow Jones U.S. Chemicals Index.
The following graph assumes that $100 had been invested in each of the Company, the Standard & Poor’s 500 Index, the Dow
Jones U.S. Chemicals Index and the Peer Group on June 30, 2007. The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
June 30, 2007
June 30, 2008
June 30, 2009
June 30, 2010
June 30, 2011
June 30, 2012
ASSUMES $100 INVESTED ON JUNE 30, 2007
ASSUMES DIVIDEND REINVESTMENT
FISCAL YEAR ENDING JUNE 30, 2012
Aceto Corporation
100
85
76
68
82
113
S&P 500 Index
100
87
64
73
96
101
Dow Jones U.S.
Chemicals
Peer Group
100
100
116
85
64
76
97 77
121
153
134
150
19
Item 6. Selected Financial Data
(In thousands, except per-share amounts)
Fiscal years ended June 30,
2012
2011
2010
2009
2008
Net sales
Operating income
Net income
At year end
Working capital
Total assets
Long-term liabilities (including
long-term debt)
Shareholders’ equity
Income per common share
$444,388
25,366
16,981
$412,428
16,550
8,968
$346,631
9,438
6,581
$322,646
11,893
8,629
$359,591
21,377
13,473
$118,328
299,280
$115,429
311,665
$120,924
231,851
$124,709
205,464
$128,786
222,243
57,636
168,003
67,658
160,821
17,578
139,644
16,959
141,568
16,836
140,409
Basic income per common share
from net income
Diluted income per common share
from net income
Cash dividends
$0.64
$0.63
$0.20
$0.35
$0.34
$0.20
$0.26
$0.26
$0.20
$0.35
$0.35
$0.20
$0.55
$0.54
$0.25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended
to provide the readers of our financial statements with a narrative discussion about our business. The MD&A is provided as a
supplement to and should be read in conjunction with our financial statements and the accompanying notes.
We are reporting a $31,960 increase in net sales and an $8,816 increase in operating income for fiscal 2012 from fiscal 2011.
Our net income increased to $16,981, or $0.63 per diluted share, an increase of $8,013 or 89.0% compared to fiscal year 2011.
Our financial position as of June 30, 2012, remains strong, as we had cash, cash equivalents and short-term investments of
$26,380, working capital of $118,328 and shareholders’ equity of $168,003.
Our business is separated into three principal segments: Human Health, Pharmaceutical Ingredients and Performance
Chemicals.
Products that fall within the Human Health segment include finished dosage form generic drugs and nutraceutical products. On
December 31, 2010, we acquired certain assets of Rising. This acquisition was a natural extension of our successful business
model which will provide customers and suppliers additional opportunities to penetrate the end user segment of the
pharmaceutical market. With the Rising brand label, we have been able to expand our direct involvement in the pharmaceutical
distribution space through greater global awareness of our capabilities in the marketing of pharmaceutical intermediates, active
ingredients and the ultimate end-products, finished dosage form generics.
Aceto supplies the raw materials used in the production of nutritional and packaged dietary supplements, including vitamins,
amino acids, iron compounds and biochemicals used in pharmaceutical and nutritional preparations. Aceto’s identification of a
change in the attitudes of Europeans towards nutritional products led to the decision to globalize this business and create an
operating model to focus on it. This globally structured business has become the model for all of our business segments,
providing international reach and perspective for our customers.
20
The Pharmaceutical Ingredients segment has two product groups: Active Pharmaceutical Ingredients (APIs) and
Pharmaceutical Intermediates.
As the use of generic drugs has grown significantly over the years, Aceto’s presence in this market also increased dramatically,
both domestically and internationally. We supply APIs to all the major generic drug companies, who view Aceto as a valued
partner in their effort to develop and market generic drugs.
The process of introducing a new API from pipeline to market spans a number of years and begins with Aceto partnering with
a generic pharmaceutical manufacturer and jointly selecting an API, several years before the expiration of a composition of
matter patent, for future generisizing. We then identify the appropriate supplier, and concurrently utilizing our global technical
network, ensure they meet the highest standards of quality to comply with regulations. The generic pharmaceutical company
will submit the ANDA for FDA approval or European-equivalent approval. The introduction of the API to market occurs after
all the development testing has been completed and the ANDA or European-equivalent is approved and the patent expires or is
deemed invalid. Aceto, at all times, has a robust pipeline of APIs poised to reach commercial levels, both in the United States
and Europe.
Aceto has long been a supplier of pharmaceutical intermediates, the complex chemical compounds that are the building blocks
used in producing APIs. These are the critical components of all drugs, whether they are already on the market or currently
undergoing clinical trials. Faced with significant economic pressures as well as ever-increasing regulatory barriers, the
innovative drug companies look to Aceto as a source for high quality intermediates. Utilizing our global sourcing, regulatory
support and quality assurance network, Aceto works with the large, global pharmaceutical companies, sourcing lower cost,
quality pharmaceutical intermediates that will meet the same high level standards that their current commercial products adhere
to.
The Performance Chemicals segment includes specialty chemicals and agricultural protection products.
Aceto is a major supplier to many different industrial segments that require outstanding performance from chemical raw
materials and additives. We provide chemicals which make plastics, surface coatings, textiles, fuels and lubricants perform to
their designed capabilities. These additive specialty products include antioxidants, photo initiators, catalysts, curatives,
brighteners and adhesion promoters.
Aceto is at the forefront as a supplier of chemicals to ecofriendly technologies, which are critical in protecting and enhancing
the world’s ecology.
We provide specialty chemicals for the food, beverage and fragrance industries. Aceto’s raw materials are also used in
sophisticated technology products, such as high-end electronic parts (circuit boards and computer chips) and binders for
specialized rocket fuels. Aceto is also a leader in the supply of diazos and couplers to the paper and film industries. Specific
end uses for these products include microfilm, blueprints and photo tooling of printed circuit boards.
We also provide organic intermediates and colorants. The color producing industry manufactures a wide assortment of
products and Aceto is the supplier of choice to these producers of “color.” From textiles and plastics to inks and paints, our
specialty colorant intermediates allow manufacturers to develop an endless rainbow of colorful possibilities.
Aceto’s agricultural protection products including herbicides, fungicides and insecticides which control weed growth as well as
the spread of insects and microorganisms that can severely damage plant growth. The agricultural world is dependent on a
large variety of deterrent products and Aceto has become a valued partner to the global generic agricultural industry by
providing superior quality functional products. One of Aceto’s most widely used agricultural protection products is a sprout
inhibitor that extends the storage life of potatoes. We work with the large agrochemical distributors to provide alternate sources
for key products. Utilizing our global sourcing and regulatory capabilities, we identify and qualify manufacturers either
producing the product or with knowledge of the chemistry necessary to produce the product and then file an application with
the EPA for a product registration. Aceto has an ongoing working relationship with manufacturers in China and India to
determine which of the non-patented, or generic, agricultural protection products they produce can be effectively marketed in
the Western world.
We believe our main business strengths are sourcing, regulatory support, quality assurance and marketing and distribution.
With business operations in nine countries, we distribute more than 1,100 chemical compounds used principally as finished
products or raw materials in the pharmaceutical, nutraceutical, agricultural, coatings and industrial chemical consuming
industries. We believe that we are currently one of the largest merchant buyers of pharmaceutical and performance chemicals
for export from Asia, purchasing from over 500 different manufacturers in China and 200 manufacturers in India.
21
In this MD&A, we explain our general financial condition and results of operations, including, among other things, the
following:
factors that affect our business
our earnings and costs in the periods presented
changes in earnings and costs between periods
sources of earnings
the impact of these factors on our overall financial condition
As you read this MD&A, refer to the accompanying consolidated statements of income, which present the results of our
operations for the three years ended June 30, 2012. We analyze and explain the differences between periods in the specific line
items of the consolidated statements of income.
Critical Accounting Estimates and Policies
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles. In preparing these
financial statements, we were required to make estimates and assumptions that affect the amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. We regularly evaluate our estimates including those
related to allowances for bad debts, inventories, goodwill and indefinite-life intangible assets, long-lived assets, environmental
and other contingencies, income taxes and stock-based compensation. We base our estimates on various factors, including
historical experience, advice from outside subject-matter experts, and various assumptions that we believe to be reasonable
under the circumstances, which together form the basis for our 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.
We believe the following critical accounting policies affected our more significant judgments and estimates used in preparing
these consolidated financial statements.
Revenue Recognition
We recognize revenue from sales of any product when it is shipped and title and risk of loss pass to the customer. We have no
acceptance or other post-shipment obligations and we do not offer product warranties or services to our customers.
Sales are recorded net of returns of damaged goods from customers, which historically have been immaterial, and sales
incentives offered to customers. Sales incentives include volume incentive rebates. We record volume incentive
rebates based on the underlying revenue transactions that result in progress by the customer in earning the rebate. In
addition, upon each sale, estimates of rebates, chargebacks, returns, government reimbursed rebates, and other
adjustments are made. These estimates are recorded as reductions to gross revenues, with corresponding adjustments to
either accounts receivable reserves or reserve for price concessions. We have the experience and access to relevant
information that we believe are necessary to reasonably estimate the amounts of such deductions from gross revenues.
We regularly review the information related to these estimates and adjust our reserves accordingly, if and when actual
experience differs from previous estimates.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts relating to estimated losses resulting from customers being unable to make
required payments. Allowances for doubtful accounts are based on historical experience and known factors regarding specific
customers and the industries in which those customers operate. If the financial condition of our customers were to deteriorate,
resulting in their ability to make payments being impaired, additional allowances would be required.
22
Royalty Income
We have royalty agreements on certain products where third party pharmaceutical and agricultural protection companies
market such products. We earn and collect royalty income based on percentages of net profits as defined in those agreements.
Royalty income is included in net sales in our Consolidated Statements of Income.
Partnered Products
We have various products which we have entered into collaborative arrangements with certain pharmaceutical companies. As a
result of these arrangements, we share profits on sales of these products, which are included in cost of sales. The shared profits
are settled on a quarterly basis.
Inventories
Inventories, which consist principally of finished goods, are stated at the lower of cost (first-in first-out method) or market. We
write down our inventories for estimated excess and obsolete goods by an amount 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 demand for our 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 excess inventory quantities on-hand. Additionally, we
may overestimate or underestimate the demand for our products which would result in our understating or overstating,
respectively, the write-down required for excess and obsolete inventory. Although we make every effort to ensure the accuracy
of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on
the value of our inventory and reported operating results.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets. Other
indefinite-lived intangible assets principally consist of trademarks. Goodwill and other indefinite-lived intangible assets are
not amortized.
In accordance with GAAP, we test goodwill and other indefinite-lived intangible assets for impairment on at least an annual
basis. To determine the fair value of these intangible assets, we use many assumptions and estimates that directly impact the
results of the testing. In making these assumptions and estimates, we use industry-accepted valuation models and appropriate
market participant assumptions that are reviewed and approved by various levels of management. If our estimates or our
related assumptions change in the future, we may be required to record impairment charges for these assets.
Long-Lived Assets
In accordance with GAAP, long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Identifiable intangible assets
principally consist of customer relationships, product rights and related intangibles, EPA registrations and related data, patent
license, and technology-based intangibles. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability of
assets held for sale is measured by comparing the carrying amount of the assets to their estimated fair value. 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.
Environmental and Other Contingencies
We establish accrued liabilities for environmental matters and other contingencies when it is probable that a liability has been
incurred and the amount of the liability can reasonably be estimated. If the contingency is resolved for an amount greater or
less than the accrual, or our 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 that the
determination was made.
23
Taxes
We account for income taxes in accordance with GAAP. GAAP establishes financial accounting and reporting standards for
the effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an
asset-and-liability approach to financial accounting and reporting of income taxes.
As of June 30, 2012, we had current net deferred tax assets of $948 and non-current net deferred tax assets of $4,711. These
net deferred tax assets have been recorded based on our projecting that we will have sufficient future earnings to realize these
assets, and the net deferred tax assets have been provided for at currently enacted income tax rates. If we determine that we
will not be able to realize a deferred tax asset, an adjustment to the deferred tax asset could result in a reduction of net income
at that time.
Deferred taxes have not been provided for on the majority of undistributed earnings of foreign subsidiaries since substantially
all of these earnings are expected to be permanently reinvested in our foreign operations. A deferred tax liability is recognized
when we expect that we will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or
sale of the investments. The Company intends to permanently reinvest any undistributed earnings and has no plan for further
repatriation. Determination of the amount of the unrecognized U.S. income tax liability on undistributed earnings is not
practical because of the complexities of the hypothetical calculation. In addition, unrecognized foreign tax credit
carryforwards would be available to reduce a portion of such U.S. tax liability.
Stock-based Compensation
In accordance with GAAP, we are required to record the fair value of stock-based compensation awards as an expense.
In order to determine the fair value of stock options on the date of grant, the Company uses the Black-Scholes option-pricing
model, including an estimate of forfeiture rates. Inherent in this model are assumptions related to expected stock-price
volatility, risk-free interest rate, expected life and dividend yield. The Company uses an expected stock-price volatility
assumption that is a combination of both historical volatility, calculated based on the daily closing prices of its common stock
over a period equal to the expected life of the option and implied volatility, utilizing market data of actively traded options on
Aceto’s common stock, which are obtained from public data sources. The Company believes that the historical volatility of the
price of its common stock over the expected life of the option is a reasonable indicator of the expected future volatility and that
implied volatility takes into consideration market expectations of how future volatility might differ from historical volatility.
Accordingly, the Company believes a combination of both historical and implied volatility provides the best estimate of the
future volatility of the market price of its common stock. The risk-free interest rate is based on U.S. Treasury issues with a term
equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, expected life
and forfeiture rates.
24
Results of Operations
Fiscal Year Ended June 30, 2012 Compared to Fiscal Year Ended June 30, 2011
Net Sales by Segment
Year ended June 30,
Segment
2012
2011
Net sales
% of
Total
Net sales
% of
Total
Comparison 2012
Over/(Under) 2011
%
Change
$
Change
Human Health
Pharmaceutical Ingredients
Performance Chemicals
$105,249
162,998
176,141
23.7%
36.7
39.6
$ 69,856
149,340
193,232
16.9%
36.2
46.9
$ 35,393
13,658
(17,091)
50.7%
9.1
(8.8)
Net sales
$444,388 100.0%
$412,428 100.0%
$ 31,960
7.7%
Gross Profit by Segment
Year ended June 30,
Segment
2012
Gross % of
Sales
Profit
2011
Gross
Profit
% of
Sales
Comparison 2012
Over/(Under) 2011
%
Change
$
Change
Human Health
Pharmaceutical Ingredients
Performance Chemicals
$29,932
25,472
26,628
28.4%
15.6
15.1
$15,534
23,897
26,407
22.2%
16.0
13.7
$14,398
1,575
221
92.7%
6.6
0.8
Gross profit
$82,032
18.5%
$65,838
16.0%
$ 16,194
24.6%
25
Net Sales
Net sales increased $31,960, or 7.7%, to $444,388 for the year ended June 30, 2012, compared with $412,428 for the prior
year. We reported sales increases in our Human Health and Pharmaceutical Ingredients business segments and a decrease in
our Performance Chemicals segment.
Human Health
Net sales for the Human Health segment increased by $35,393 for the year ended June 30, 2012, to $105,249, which
represents a 50.7% increase over net sales of $69,856 for the prior year due to $27,703 increase in sales of Rising products,
where there was only six months of sales in the prior year, due to the acquisition of this subsidiary in December 2010. This
increase in Human Health sales also relates to an increase in sales of domestic nutritional supplements of $4,869, due to new
business development from existing customers and new projects from our pipeline.
Pharmaceutical Ingredients
Net sales for the Pharmaceutical Ingredients segment increased by $13,658 for the year ended June 30, 2012, to $162,998,
which represents a 9.1% increase over net sales of $149,340 for the prior year. Overall, the domestic Pharmaceutical
Ingredient group had an increase of $7,695, when compared to the prior period. This increase in domestic Pharmaceutical
Ingredients sales is primarily related to an increase in sales of APIs due to the reorders of existing products. In addition, the
Pharmaceutical Ingredients segment saw an increase in sales from our international operations of $5,963 over the prior year,
particularly increases in sales of APIs and pharmaceutical intermediates sold abroad, which represent key components used
in the manufacture of certain drug products.
Performance Chemicals
Net sales for the Performance Chemicals segment were $176,141 for the year ended June 30, 2012, compared to $193,232 for
the prior year, representing a $17,091 or 8.8% decrease. Sales of our domestic specialty chemicals increased $9,160 over the
prior year, due primarily to a rise in sales of agricultural intermediates. Our specialty chemicals business consists of a variety
of products, customers and consuming markets, most of which is affected by current economic conditions. As previously
mentioned, the index for consumer durables, which impacts the specialty chemicals business grew at an annual rate of 4.7%.
This increase is offset by a decline of $5,768 in sales of specialty chemicals sold abroad, as well as a decline in agricultural
protection products sales of $20,482, primarily due to glyphosate. Our entry into this market had proven to be much more
challenging than had been expected. As previously indicated, our future participation in the glyphosate market will likely
only be on an opportunistic basis when our customers and Asian sourcing offers us an opportunity to be profitable and
competitive in the U.S. domestic market. The decrease in agricultural protection products sales is offset in part by an increase
in a wide-range insecticide that is used on various crops including cereals, citrus, cotton, grapes, ornamental grasses and
vegetables.
Gross Profit
Gross profit increased $16,194 to $82,032 (18.5% of net sales) for the year ended June 30, 2012, as compared to $65,838
(16.0% of net sales) for the prior year.
Human Health
Human Health’s gross profit of $29,932 for the year ended June 30, 2012 increased $14,398, or 92.7%, over the prior year.
The gross margin increased to 28.4% for the year ended June 30, 2012 compared to 22.2% for the prior year. The increase in
gross profit and gross margin in the Human Health segment primarily relates to Rising, certain assets of which we acquired
on December 31, 2010. In addition, increase in gross margin was related to a rise in gross margin on our nutraceutical
products due to product mix and increased prices in China on nutritional supplements which we were successful in passing
through to our customers.
26
Pharmaceutical Ingredients
Gross profit for the year ended June 30, 2012 for the Pharmaceutical Ingredients business increased by $1,575 or 6.6% over
the prior year. Gross margin of 15.6% was relatively consistent to gross margin of 16.0% for the prior year. The increase in
gross profit is due to increased sales volume of our domestic products.
Performance Chemicals
Gross profit for the year ended June 30, 2012 increased by $221, or 0.8%, over the prior year. Gross margin was 15.1% for
the year ended June 30, 2012 compared to 13.7% for the prior year. The increase in gross margin is attributable to our
previous discussion on glyphosate, of which gross margin in the prior year was lower than expected due to the difficult and
crowded market conditions surrounding this commodity type product. We also incurred decreased amortization expense
related to product registrations and related data filed with the United States Environmental Protection Agency as well as
payments to various task force groups.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) increased $7,378, or 15.0%, to $56,666 for the year ended June 30,
2012 compared to $49,288 for the prior year. As a percentage of sales, SG&A increased to 12.8% for the year ended June 30,
2012 versus 12.0% for the prior year. On December 31, 2010, we acquired certain assets of Rising, thus we now have a full
year of SG&A for this subsidiary, including amortization expense related to acquired intangible assets, compared to six
months in the prior year. In addition, we recorded during fiscal 2012 approximately $884 of one-time costs associated with
the separation of certain executive management employees, as well as $761 additional accrued contingent consideration
related to the Rising acquisition. We experienced additional accrued performance award expense and increased fringe
benefits and stock-based compensation expense due to increased financial performance. These increases in SG&A are offset
in part by $1,060 of transaction costs related to the Rising acquisition, which was recorded in fiscal 2011.
Operating Income
Fiscal 2012 operating income was $25,366 compared to $16,550 in the prior year, an increase of $8,816 or 53.3%. This
increase was due to the overall increase in gross profit of $16,194 partially offset by an increase in SG&A of $7,378 from the
prior year.
Interest Expense
Interest expense was $2,627 for the year ended June 30, 2012, an increase of $1,057 from the prior year. The increase is
primarily due to interest expense on the bank loans that were incurred to partially finance the acquisition of certain assets of
Rising. In the prior year, we had six months of interest expense related to this financing versus a full year in fiscal 2012.
Provision for Income Taxes
The effective tax rate for fiscal 2012 decreased to 31.4% from 47.1% for fiscal 2011. The decrease in the effective tax rate
was primarily due to an approximate $2,600 tax charge recorded in fiscal 2011 related to the repatriation of earnings from
certain foreign subsidiaries, in connection with our acquisition of Rising. The Company intends to permanently reinvest its
undistributed earnings and has no plan for further repatriation. In fiscal 2012, our effective tax rate was favorably impacted
by the reversal of approximately $529 of tax expense related to the final tax payment associated with the fiscal 2011
repatriation. Without these adjustments, the effective tax rate would be 33.5% and 31.8%, respectively, in fiscal years 2012
and 2011.
27
Results of Operations
Fiscal Year Ended June 30, 2011 Compared to Fiscal Year Ended June 30, 2010
Net Sales by Segment
Year ended June 30,
Segment
2011
2010
Net sales
% of
Total
Net sales
% of
Total
Comparison 2011
Over/(Under) 2010
%
Change
$
Change
Human Health
Pharmaceutical Ingredients
Performance Chemicals
$ 69,856
149,340
193,232
16.9%
36.2
46.9
$ 47,046
136,454
163,131
13.5%
39.4
47.1
$ 22,810
12,886
30,101
48.5%
9.4
18.5
Net sales
$412,428 100.0%
$346,631 100.0%
$ 65,797
19.0 %
Gross Profit by Segment
Year ended June 30,
Segment
2011
Gross % of
Sales
Profit
2010
Gross
Profit
% of
Sales
Comparison 2011
Over/(Under) 2010
%
Change
$
Change
Human Health
Pharmaceutical Ingredients
Performance Chemicals
$15,534
23,897
26,407
22.2%
16.0
13.7
$ 7,780
22,071
24,304
16.5%
16.2
14.9
$ 7,754
1,826
2,103
99.7%
8.3
8.7
Gross profit
$65,838
16.0%
$54,155
15.6%
$ 11,683
21.6%
28
Net Sales
Net sales increased $65,797, or 19.0%, to $412,428 for the year ended June 30, 2011, compared with $346,631 for the prior year. We
reported sales increases in all three of our business segments.
Human Health
Net sales for the Human Health segment increased by $22,810 for the year ended June 30, 2011, to $69,856, which represents a 48.5%
increase over net sales of $47,046 for the prior year. On December 31, 2010, we acquired certain assets of Rising, a New Jersey based
company that markets and distributes generic prescription and over the counter pharmaceutical products to leading wholesalers, chain
drug stores, distributors, mass market merchandisers and others under its own label, throughout the United States. We experienced
sales of these products of $18,057, where there was no comparable amount in the prior year. In addition, the Human Health segment
saw an increase in sales from our international operations over the prior year, particularly in Europe.
Pharmaceutical Ingredients
Net sales for the Pharmaceutical Ingredients segment increased by $12,886 for the year ended June 30, 2011, to $149,340, which
represents a 9.4% increase over net sales of $136,454 for the prior year, due primarily to an increase in sales from our international
operations, particularly in Europe.
Performance Chemicals
Net sales for the Performance Chemicals segment were $193,232 for the year ended June 30, 2011, compared to $163,131 for the
prior year, representing a $30,101 or 18.5% increase. Sales of our chemicals used in surface coatings increased $8,187 from the prior
year, as well as sales of agricultural, dye, pigment and miscellaneous intermediates which together increased $6,704. In addition,
sales of our polymer additives increased $3,254 from the prior year, as well as a rise in sales of dyes of $1,993 from the prior year.
These four increases represent increased demand in sectors that are affected by general economic conditions. In March 2010, we
acquired certain assets of Andrews Paper & Chemical, Co., Inc., a supplier of diazos and couplers to the paper, film, and electronics
industries. Since there was only four months of sales in the prior year versus a full year in 2011, we experienced a sales increase of
these products of $1,114. In addition, we experienced an increase in sales of performance chemicals from our international operations
of $1,781, primarily in France. $7,762 of the increase in Performance Chemicals relates to our Agricultural Protection products,
primarily glyphosate. However, our entry into this market has proven to be much more challenging than had been expected. The
increase in sales of Agricultural Protection products is also due in part to a wide-range insecticide that began selling in the third
quarter of 2011, which is used on various crops including cereals, citrus, cotton, grapes, ornamental grasses and vegetables and a new
herbicide that also began selling in the third quarter of fiscal 2011, which is used primarily on grass, to control broadleaf weeds and on
some crops, flowers and shrubs. In addition, the increase in sales of our Agricultural Protection Products business is due to a rise in
sales of an herbicide used on sugar cane.
Gross Profit
Gross profit increased $11,683 to $65,838 (16.0% of net sales) for the year ended June 30, 2011, as compared to $54,155 (15.6% of
net sales) for the prior year.
Human Health
Human Health’s gross profit of $15,534 for the year ended June 30, 2011 increased $7,754, or 99.7%, over the prior year. The gross
margin increased to 22.2% for the year ended June 30, 2011 compared to 16.5% for the prior year. The increase in gross profit and
gross margin in the Human Health segment primarily relates to Rising, certain assets of which we acquired on December 31, 2010.
29
Pharmaceutical Ingredients
Gross profit for the year ended June 30, 2011 for the Pharmaceutical Ingredients business increased by $1,826 or 8.3% over the prior
year. Gross margin of 16.0% was relatively consistent to gross margin of 16.2% for the prior year. The increase in gross profit is due
to increased sales volume in our international operations due predominantly to reorders of existing products.
Performance Chemicals
Gross profit for the year ended June 30, 2011 increased by $2,103, or 8.7%, over the prior year. Gross margin was 13.7% for the year
ended June 30, 2011 compared to 14.9% for the prior year. The increase in the gross profit is due primarily to increased gross profit
of $1,914 on sales of domestic specialty chemicals. The decrease in gross margin primarily relates to a decline in margin on products
sold by our international operations, due primarily to unfavorable product mix on certain specialty chemicals. Additionally, we have
experienced price increases from some of our Asian suppliers, primarily China, due to inflationary pressure. Most of these price
increases have been passed onto our customers, but not all. In addition, the decline in gross margin is attributable to the
commencement of significant sales of our glyphosate product in the third quarter of fiscal 2010, the gross margin on which was lower
than expected due to the difficult and crowded market conditions surrounding this commodity type product. We also recorded
increased amortization expense related to product registrations and related data filed with the United States Environmental Protection
Agency as well as payments to various task force groups.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) increased $4,571, or 10.2%, to $49,288 for the year ended June 30, 2011
compared to $44,717 for the prior year. As a percentage of sales, SG&A decreased to 12.0% for the year ended June 30, 2011 versus
12.9% for the prior year. On December 31, 2010, we acquired certain assets of Rising, thus we now have six months of SG&A for this
subsidiary, including amortization expense related to acquired intangible assets. We also incurred approximately $1,060 of transaction
costs related to this acquisition in the second quarter of fiscal 2011. These increases are offset by approximately $3,802 of one-time
costs associated with the separation of our former Chairman of the Board of Directors and CEO, which was recorded in the year ended
June 30, 2010, as well as an overall decline in costs, resulting from the rationalization project we undertook in fiscal 2010.
Operating Income
Fiscal 2011 operating income was $16,550 compared to $9,438 in the prior year, an increase of $7,112 or 75.4%. This increase was
due to the overall increase in gross profit of $11,683 partially offset by an increase in SG&A of $4,571 from the prior year.
Interest Expense
Interest expense was $1,570 for the year ended June 30, 2011, an increase of $1,340 from $230 in the prior year. The increase is
primarily due to interest expense on the bank loans that were incurred to partially finance the acquisition of certain assets of Rising.
Interest and Other Income, Net
Interest and other income net was $1,982 for the year ended June 30, 2011, which represents an increase of $987 over $995 in the
prior year mainly due to a decrease in foreign exchange losses and an increase in income related to a joint venture. The joint venture
income represents our investment in a corporate joint venture established for the purpose of selling a particular Agricultural Protection
product. Our initial investment was $6 in fiscal 2009, representing a 30% ownership and we account for this joint venture using the
equity method of accounting.
Provision for Income Taxes
The effective tax rate for fiscal 2011 increased to 47.1% from 35.5% for fiscal 2010. The increase in the effective tax rate was
primarily due to an approximate $2,600 tax charge related to the repatriation of earnings from certain foreign subsidiaries, in
connection with our acquisition of Rising. The Company intends to permanently reinvest these undistributed earnings and has no plan
for further repatriation.
30
Liquidity and Capital Resources
Cash Flows
At June 30, 2012, we had $24,862 in cash, of which $15,856 was outside the United States, $1,518 in short-term investments and
$45,765 in long-term debt (including the current portion). The $15,856 of cash held outside of the United States is fully accessible to
meet any liquidity needs of the countries in which Aceto operates. The majority of the cash located outside of the United States is held
by our European operations and can be transferred into the United States. Although these amounts are fully accessible, transferring
these amounts into the United States or any other countries could have certain tax consequences. A deferred tax liability will be
recognized when we expect that we will recover undistributed earnings of our foreign subsidiaries in a taxable manner, such as
through receipt of dividends or sale of the investments. The Company intends to permanently reinvest these undistributed earnings and
has no plan for further repatriation. A portion of our cash is held in operating accounts that are with third party financial institutions.
While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances
could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To
date, we have experienced no loss or lack of access to cash in our operating accounts.
Our cash position at June 30, 2012 decreased $3,802 from the amount at June 30, 2011. Operating activities for the year ended June
30, 2012 provided cash of $13,269 as compared to cash provided of $14,038 for the comparable 2011 period. The $13,269 was
comprised of $16,981 in net income, $5,707 derived from adjustments for non-cash items and a net $9,419 decrease from changes in
operating assets and liabilities. The non-cash items included $6,942 in depreciation and amortization expense, $1,598 of earnings on
an equity investment in a joint venture and $1,168 in non-cash stock compensation expense. Trade accounts receivable decreased
$5,711 during the year ended June 30, 2012 due to an improvement in days sales outstanding. Inventories increased by approximately
$9,926 due primarily to an increase in inventories on hand for Rising as this subsidiary has launched several new products and as such,
has built up stock for fiscal 2013 sales. In addition, our Netherlands subsidiary as well as our German subsidiaries for both nutritional
and pharmaceutical ingredients, have increased inventory on-hand due to anticipated first quarter sales. This rise in inventories is also
due to purchases of domestic specialty chemicals, as a result of a ramp-up in orders for products expected to be shipped in fiscal 2013
as well as overall improvement in consumer durables, which has a direct effect on this business. Other receivables decreased $1,446
due to payments received on royalties related to agricultural protection products as well as a decrease in value added taxes receivables
in our German subsidiaries. Accrued expenses and other liabilities decreased $5,834 due to a decline in advance payments from
customers.
Our cash position at June 30, 2011 decreased $2,186 from the amount at June 30, 2010. Operating activities for the year ended June
30, 2011 provided cash of $14,038 as compared to a use of cash of $15,499 for the comparable 2010 period. The $14,038 was
comprised of $8,968 in net income, $4,089 derived from adjustments for non-cash items and a net $981 increase from changes in
operating assets and liabilities. The non-cash items included $5,502 in depreciation and amortization expense, $1,624 of earnings on
an equity investment in a joint venture and $854 in non-cash stock compensation expense. Trade accounts receivable decreased $1,915
during the year ended June 30, 2011 due to an improvement in days sales outstanding. Inventories decreased by approximately $2,224
due primarily to the prior year in which the Company made advance purchases of Glyphosate, an Agricultural Protection Product, for
sales that occurred in the fiscal 2011 growing season. This decrease in inventories is offset in part by purchases of domestic Specialty
Chemicals, as a result of a ramp-up in orders for products that shipped in fiscal 2012 as well as overall improvement in consumer
durables, which has a direct affect on the Specialty Chemicals business. Other receivables decreased $7,659 due primarily to a
decrease in Value Added Tax (VAT) receivables in our European subsidiaries, primarily related to timing. Accounts payable increased
by $2,473 due to timing of payments processed at the end of the year. Accrued expenses and other liabilities decreased $13,465 during
the year ended June 30, 2011, due primarily to the decline in advance payments from customers and decrease in VAT for our foreign
subsidiaries, particularly Germany. Our cash position at June 30, 2010 decreased $26,911 from the amount at June 30, 2009.
Operating activities for the year ended June 30, 2010 used cash of $15,499 as compared to cash provided by operations of $22,511 for
the comparable 2009 period. The $15,499 was comprised of $6,581 in net income, $2,957 derived from adjustments for non-cash
items and a net $25,037 decrease from changes in operating assets and liabilities. Trade accounts receivable increased $30,853 during
the year ended June 30, 2010 due to an increase in sales during the fourth quarter of 2010 as compared to the fourth quarter of 2009.
Inventories and accounts payable increased by approximately $23,069 and $16,206, respectively, due primarily to Agricultural
Protection advance purchases of Glyphosate, for sales that occurred in the fiscal 2011 growing season. Inventories and accounts
payable have also increased related to purchases of domestic Specialty Chemicals, as a result of a ramp-up in orders for products
shipped in the first and second quarters of fiscal 2011, as well as overall improvement in the economy during fiscal 2010. Accrued
expenses and other liabilities increased $16,347 during the year ended June 30, 2010, due primarily to advance payments from
customers and an increase in Value Added Tax (VAT) for our foreign subsidiaries, particularly Germany.
Investing activities for the year ended June 30, 2012 used cash of $42 primarily related to purchases of investments, property and
equipment and intangible assets offset by sales of investments and distributions from a joint venture. We expect capital expenditures
to approximate $1,200 during fiscal 2013. Investing activities for the year ended June 30, 2011 used cash of $69,200 primarily related
31
to $64,211 payment for the net assets of Rising. In addition, $5,425 related to purchases of property and equipment and $2,053 for
intangible assets. Investing activities for the year ended June 30, 2010 used cash of $6,109 primarily related to purchases of property
and equipment of $3,960, payments of $4,058 for intangible assets and $413 for net assets of business acquired, offset by payments of
$1,025 received on notes receivable and $1,142 of distributions from a joint venture.
Financing activities for the year ended June 30, 2012 used cash of $15,295, primarily from $9,232 of bank loan repayments and the
payment of dividends of $5,331. In addition, the Company paid $1,500 of deferred consideration to the sellers of Rising. Financing
activities for the year ended June 30, 2011 provided cash of $49,974 primarily from $50,500 of bank loans and $3,947 of proceeds
from a mortgage, offset by the payment of dividends of $5,206. Financing activities for the year ended June 30, 2010 used cash of
$2,441, primarily from the payment of $5,067 of dividends, offset by $1,714 of proceeds from the exercise of stock options and $550
related to bank loans.
Credit Facilities
We have available credit facilities with certain foreign financial institutions. At June 30, 2012, the Company had available lines of
credit with foreign financial institutions totaling $8,378. We are not subject to any financial covenants under these arrangements.
On December 31, 2010, we entered into a new Credit Agreement (the “Credit Agreement”) with two domestic financial institutions.
The Credit Agreement terminated the Amended and Restated Credit Agreement, dated April 23, 2010. Aceto may borrow, repay and
reborrow during the period ending December 31, 2015, up to but not exceeding at any one time outstanding $40,000 (the “Revolving
Loans”). The Revolving Loans may be (i) Adjusted LIBOR Loans (as defined in the Credit Agreement), (ii) Alternate Base Rate
Loans (as defined in the Credit Agreement) or (iii) a combination thereof. As of June 30, 2012, we borrowed Revolving Loans
aggregating $11,000, which loans are Adjusted LIBOR Loans at an interest rate of 2.25% at June 30, 2012. The Credit Agreement
also allows for the borrowing up to $40,000 (the “Term Loan”). We borrowed a Term Loan of $40,000 on December 31, 2010. The
Term Loan interest may be payable as an (i) Adjusted LIBOR Loan, (ii) Alternate Base Rate Loan, or (iii) a combination thereof. As
of June 30, 2012, the remaining amount outstanding under the original amortizing Term Loan is $31,000 and is payable as an
Adjusted LIBOR Loan at an interest rate of 2.25% at June 30, 2012.
The Credit Agreement also provides that commercial letters of credit shall be issued to provide the primary payment mechanism in
connection with the purchase of any materials, goods or services by us in the ordinary course of business. At June 30, 2012, we had
utilized $42,199 in bank loans and letters of credit, leaving $28,801 of this facility unused. The terms of these letters of credit are all
less than one year. No material loss is anticipated due to non-performance by the counterparties to these agreements.
The Credit Agreement provides for a security interest in all of our personal property. The Credit Agreement contains several financial
covenants including, among other things, maintaining a minimum level of debt service. We are also subject to certain restrictive
covenants, including, among other things, covenants governing liens, limitations on indebtedness, limitations on cash dividends,
guarantees, sale of assets, sales of receivables, and loans and investments. We were in compliance with all covenants at June 30, 2012.
Pursuant to the requirements of the Credit Agreement, we are required to deliver Hedging Agreements (as defined in the Credit
Agreement) fixing the interest rate on not less than $20,000 of the Term Loan. Accordingly, in March 2011, we entered into an
interest rate swap for a notional amount of $20,000, which has been designated as a cash flow hedge. The expiration date of this
interest rate swap is December 31, 2015.
Working Capital Outlook
Working capital was $118,328 at June 30, 2012, versus $115,429 at June 30, 2011. The increase in working capital was primarily
attributable to the increase in net income. In March 2010, we purchased a building in Port Washington, New York, which is now the
site of our global headquarters. We moved our corporate offices into this new building in April 2011. On June 30, 2011, we entered
into a mortgage payable for $3,947 on this new corporate headquarters. This mortgage payable is secured by the land and building and
is being amortized over a period of 20 years. The mortgage payable bears interest at 5.92% and matures on June 30, 2021.
We continually evaluate possible acquisitions of or investments in businesses that are complementary to our own, and such
transactions may require the use of cash. In connection with our agricultural protection business, we plan to continue to acquire
product registrations and related data filed with the United States Environmental Protection Agency as well as payments to various
task force groups, which could approximate $2,822 over the next fiscal year.
In connection with Arsynco, the Company could pay out approximately $1,900 in fiscal 2013, related to the environmental
remediation obligation.
32
In accordance with the purchase agreement related to the Rising acquisition, $8,000 of deferred consideration is to be paid by Aceto
over a four year period with annual installments of $1,500 not later than fifty-six days following each of the first three anniversaries of
the closing date of the purchase and $3,500 not later than fifty-six days following the fourth anniversary of the closing date of the
purchase. Accordingly, $1,500 was paid by us in February 2012.
We believe that our 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, the repayment of our bank loans and the anticipated
continuation of cash dividends for the next twelve months.
Off-Balance Sheet Arrangements and Commitments and Contingencies
We have no material financial commitments other than those under bank borrowings, operating lease agreements, letters of credit and
unconditional purchase obligations. We have certain contractual cash obligations and other commercial commitments that will affect
our short and long-term liquidity. At June 30, 2012, we had no significant obligations for capital expenditures.
At June 30, 2012, contractual cash obligations and other commercial commitments were as follows:
Payments Due and/or
Amount of Commitment
(Expiration per Period)
Total
Less than
1 year
1-3
Years
4-5
Years
After
5 years
Long-term debt
obligations (a)
$45,765
$6,713
$18,394
$17,894
$ 2,764
Operating leases
5,136
1,439
2,126
1,266
305
Commercial letters of
credit
199
199
Standby letters of credit
998
998
Unconditional purchase
obligations
72,408
72,408
-
-
-
-
-
-
-
-
-
Total
$124,506
$ 81,757
$ 20,520
$19,160
$3,069
(a) Long-term debt obligations are comprised of various loans. Interest is not included in the above table as the majority of the
debt is variable in nature. As of June 30, 2012, interest on these variable loans was 2.25%.
Other significant commitments and contingencies include the following:
1. A subsidiary of the Company markets certain agricultural protection products which are subject to the Federal Insecticide,
Fungicide and Rodenticide Act (FIFRA). FIFRA requires that test data be provided to the 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 that new test
data be generated 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 several such
task force groups, which requires payments for such memberships. In addition, in connection with our agricultural protection
business, the Company plans to acquire product registrations and related data filed with the United States Environmental
Protection Agency to support such registrations and other supporting data for several products. The acquisition of these
product registrations and related data filed with the United States Environmental Protection Agency as well as payments to
33
various task force groups could approximate $2,822 through fiscal 2013, of which $242 has been accrued as of June 30,
2012.
2. We, together with our subsidiaries, are subject to pending and threatened legal proceedings that have arisen in the normal
course of business. We do not know how the final resolution of these matters will affect our results of operations in a
particular reporting period. Our management is of the opinion, however, that the ultimate outcome of such matters will not
have a material adverse effect upon our financial condition or liquidity.
3. The Company has environmental remediation obligations in connection with Arsynco, Inc. (Arsynco), a subsidiary formerly
involved in manufacturing chemicals located in Carlstadt, New Jersey, which was closed in 1993 and is currently held for
sale. Based on continued monitoring of the contamination at the site and the approved plan of remediation, the Company
received an estimate from an environmental consultant stating that the costs of remediation could be between $8,400 and
$10,200. Remediation has commenced in fiscal 2010, and as of June 30, 2012 and June 30, 2011, a liability of $7,566 and
$7,962, respectively, is included in the accompanying consolidated balance sheets for this matter. In accordance with GAAP,
management believes that the majority of costs incurred to remediate the site will be capitalized in preparing the property
which is currently classified as held for sale. An appraisal of the fair value of the property by a third-party appraiser supports
the assumption that the expected fair value after the remediation is in excess of the amount required to be capitalized.
However, these matters, if resolved in a manner different from those assumed in current estimates, could have a material
adverse effect on the Company’s financial condition, operating results and cash flows when resolved in a future reporting
period.
In connection with the environmental remediation obligation for Arsynco, in July 2009, the Company entered into a
settlement agreement with BASF Corporation (BASF), the former owners of the Arsynco property. In accordance with the
settlement agreement, BASF paid for a portion of the prior remediation costs and going forward, will co-remediate the
property with the Company. The contract states that BASF pay $550 related to past response costs and pay a proportionate
share of the future remediation costs. Accordingly, the Company had recorded a gain of $550 in fiscal 2009. This $550 gain
relates to the partial reimbursement of costs of approximately $1,200 that the Company had previously expensed. The
Company also recorded an additional receivable from BASF, with an offset against property held for sale, representing its
estimated portion of the future remediation costs. The balance of this receivable for future remediation costs as of June 30,
2012 and June 30, 2011 is $3,405 and $3,583, respectively, which is included in the accompanying consolidated balance
sheets.
4.
5.
In March 2006, Arsynco received notice from the EPA of its status as a PRP under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) for a site described as the Berry’s Creek Study Area. Arsynco is one
of over 150 PRPs which have potential liability for the required investigation and remediation of the site. The estimate of the
potential liability is not quantifiable for a number of reasons, including the difficulty in determining the extent of
contamination and the length of time remediation may require. In addition, any estimate of liability must also consider the
number of other PRPs and their financial strength. Based on prior practice in similar situations, it is possible that the State
may assert a claim for natural resource damages with respect to the Arsynco site itself, and either the federal government or
the State (or both) may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any
such claim with respect to Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site. Any claim for natural resource damages with respect to the Arsynco site itself may
also be asserted against BASF, the former owners of the Arsynco property. Since an amount of the liability cannot be
reasonably estimated at this time, no accrual is recorded for these potential future costs. The impact of the resolution of this
matter on the Company’s results of operations in a particular reporting period is not known. However, management believes
that the ultimate outcome of this matter will not have a material adverse effect on the Company’s financial condition or
liquidity.
In fiscal years 2011, 2009, 2008 and 2007, the Company received letters from the Pulvair Site Group, a group of potentially
responsible parties (PRP Group) who are working with the State of Tennessee (the State) to remediate a contaminated
property in Tennessee called the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous substances to the site
which were released into the environment. The State had begun administrative proceedings against the members of the PRP
Group and Aceto with respect to the cleanup of the Pulvair site and the PRP Group has begun to undertake cleanup. The PRP
Group is seeking a settlement of approximately $1,700 from the Company for its share to remediate the site contamination.
Although the Company acknowledges that it shipped materials to the site for formulation over twenty years ago, the
Company believes that the evidence does not show that the hazardous materials sent by Aceto to the site have significantly
contributed to the contamination of the environment and thus believes that, at most, it is a de minimus contributor to the site
contamination. Accordingly, the Company believes that the settlement offer is unreasonable. The impact of the resolution of
this matter on the Company's results of operations in a particular reporting period is not known. However, management
34
believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition
or liquidity.
Impact of New Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update (ASU) 2011-04, “Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which amends ASC 820, “Fair Value Measurement”.
ASU 2011-04 does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use
is already required or permitted by other standards within U.S. GAAP or International Financial Reporting Standards (IFRSs).
ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements. Additionally, ASU 2011-04 clarifies the FASB’s intent about the
application of existing fair value measurements. ASU 2011-04 became effective for the Company January 1, 2012. The
adoption of ASU 2011-04 did not have an impact on the Company’s consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income”, which eliminates the option to report other
comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the
total of comprehensive income, the components of net income and the components of other comprehensive income either in a single
continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued ASU 2011-12 “Comprehensive
Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” . ASU 2011-12 deferred certain aspects
of ASU 2011-05. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15,
2011. The Company will adopt this guidance in the first quarter of fiscal 2013. Early adoption of the new guidance is permitted and
full retrospective application is required. The adoption of ASU 2011-05 and the deferrals in ASU 2011-12 are not expected to have a
material impact on the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment”,
to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a
qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test.
Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for the Company in fiscal 2013 and earlier
adoption is permitted. The Company is currently assessing the impact that the provisions of this pronouncement will have on its
consolidated financial statements.
In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities”,
which requires companies to disclose information about financial instruments that have been offset and related arrangements to enable
users of its financial statements to understand the effect of those arrangements on its financial position. Companies will be required to
provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that
are offset. This update is effective for the Company in its first quarter of fiscal 2014 and will be applied retrospectively. The Company
does not believe adoption of this new guidance will have a significant impact on its consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard)” ,
which allows companies the option to perform a qualitative assessment to determine whether further impairment testing of indefinite-
lived intangible assets is necessary. Under this guidance, an entity is required to perform a quantitative impairment test if qualitative
factors indicate that it is more likely than not that indefinite-lived intangible assets are impaired. The qualitative factors are consistent
with the guidance established for goodwill impairment testing and include identifying and assessing events and circumstances that
would most significantly impact, individually or in the aggregate, the carrying value of the indefinite-lived intangible assets. The
revised standard is effective for the Company in fiscal 2014 and early adoption is permitted. The adoption of ASU 2012 -02 is not
expected to have a material impact on the Company’s consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Sensitive Instruments
The market risk inherent in our market-risk-sensitive instruments and positions is the potential loss arising from adverse changes in
investment market prices, foreign currency exchange-rates and interest rates.
35
Investment Market Price Risk
We had short-term investments of $1,518 at June 30, 2012. Those short-term investments consisted of time deposits. Time deposits
are short-term in nature and are accordingly valued at cost plus accrued interest, which approximates fair value.
Foreign Currency Exchange Risk
In order to reduce the risk of foreign currency exchange rate fluctuations, we hedge some of our transactions denominated in a
currency other than the functional currencies applicable to each of our 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 June 30, 2012, we had foreign currency contracts outstanding that had a notional
amount of $52,668. 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 June 30, 2012, was not material.
We are subject to risk from changes in foreign exchange rates for our 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 (loss). On June 30, 2012, we had translation exposure to various foreign currencies, with
the most significant being the Euro. The potential loss as of June 30, 2012, resulting from a hypothetical 10% adverse change in
quoted foreign currency exchange rates amounted to $9,618. Actual results may differ.
Interest Rate Risk
Due to our financing, investing and cash-management activities, we are subject to market risk from exposure to changes in interest
rates. We utilize a balanced mix of debt maturities along with both fixed-rate and variable-rate debt to manage our exposure to
changes in interest rates. Our financial instrument holdings at year-end were analyzed to determine their sensitivity to interest rate
changes. In this sensitivity analysis, we 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 our results of operations.
Pursuant to the requirements of the Credit Agreement, the Company is required to deliver Hedging Agreements (as defined in the
Credit Agreement) fixing the interest rate on not less than $20,000 of the Term Loan. Accordingly, in March 2011, the Company
entered into an interest rate swap for a notional amount of $20,000, which has been designated as a cash flow hedge. The expiration
date of this interest rate swap is December 31, 2015. The unrealized loss to date associated with this derivative, which is recorded in
accumulated other comprehensive income in the consolidated balance sheet at June 30, 2012, is $427. Aceto’s interest rate swap is
classified within Level 2 as the fair value of this hedge is primarily based on observable interest rates.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this Item 8 are set forth later in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed 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 rules and forms of
the Securities and Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information
required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure.
Our chief executive officer and chief financial officer, with assistance from other members of our management, have reviewed the
effectiveness of our disclosure controls and procedures as of June 30, 2012 and, based on their evaluation, have concluded that the
disclosure controls and procedures were effective.
36
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) during the three months ended June 30, 2012 that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is
defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our
principal executive and principal financial officers, we assessed, as of June 30, 2012, the effectiveness of our internal control over
financial reporting. This assessment was based on criteria established in the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment using those criteria,
management concluded that our internal control over financial reporting as of June 30, 2012, was effective.
Our internal control over financial reporting as of June 30, 2012, has been audited by BDO USA, LLP, an independent registered
public accounting firm, as stated in their report, which is included herein.
Internal control over financial reporting is defined as a process designed by, or under the supervision of, our principal executive and
principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, and includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in
accordance with U.S. generally accepted accounting principles and that our receipts and expenditures are being made only in
accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial statements.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can
provide absolute assurance that all control issues, if any, within a company have been detected.
37
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Aceto Corporation:
We have audited Aceto Corporation's internal control over financial reporting as of June 30, 2012, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). Aceto Corporation's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Aceto Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30,
2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Aceto Corporation as of June 30, 2012 and 2011, and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended June 30, 2012 and our
report dated September 7, 2012, expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Melville, New York
September 7, 2012
38
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with
respect to our annual meeting of shareholders.
Item 11. Executive Compensation
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with
respect to our annual meeting of shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with
respect to our annual meeting of shareholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with
respect to our annual meeting of shareholders.
Item 14. Principal Accountant Fees and Services
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with
respect to our annual meeting of shareholders.
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Report:
PART IV
(a) The financial statements listed in the Index to Consolidated Financial Statements are filed as part of this Annual Report on
Form 10-K. All financial statement schedules have been included in the Consolidated Financial Statements or Notes thereto.
(b) Exhibits
Exhibit Number
Description
2.1 Asset Purchase Agreement by and among Aceto Corporation, Sun Acquisition Corp.,
Rising Pharmaceuticals, Inc., Ronald Gold, and David B. Rosen, dated as of December 15,
2010 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated
December 20, 2010).
3.1 Restated Certificate of Incorporation, dated November 18, 1976 (incorporated by reference
to Exhibit 3.1 to the Company's quarterly report on Form 10-Q for the quarter ended
December 31, 2009).
39
3.2 Certificate of Amendment of Certificate of Incorporation, dated February 18, 1983
(incorporated by reference to Exhibit 3.2 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.3 Certificate of Amendment of Certificate of Incorporation, dated February 7, 1984
(incorporated by reference to Exhibit 3.3 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.4 Certificate of Amendment of Certificate of Incorporation, dated December 17, 1984
(incorporated by reference to Exhibit 3.4 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.5
Certificate of Amendment of Certificate of Incorporation, dated November 21, 1985
(incorporated by reference to Exhibit 3.5 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.6
Certificate of Amendment of Certificate of Incorporation, dated December 11, 1985
(incorporated by reference to Exhibit 3.6 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.7 Certificate of Amendment of Certificate of Incorporation, dated December 11, 1986
(incorporated by reference to Exhibit 3.7 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.8 Certificate of Amendment of Certificate of Incorporation, dated December 10, 1987
(incorporated by reference to Exhibit 3.8 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.9 Certificate of Amendment of Certificate of Incorporation, dated February 4, 1988
(incorporated by reference to Exhibit 3.9 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.10 Certificate of Amendment of Certificate of Incorporation, dated March 1, 1988
(incorporated by reference to Exhibit 3.10 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.11 Certificate of Amendment of Certificate of Incorporation, dated January 5, 1989
(incorporated by reference to Exhibit 3.11 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.12 Certificate of Amendment of Certificate of Incorporation, dated February 15, 1990
(incorporated by reference to Exhibit 3.12 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.13 Certificate of Change of Certificate of Incorporation, dated December 18, 1990
(incorporated by reference to Exhibit 3.13 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.14 Certificate of Amendment of Certificate of Incorporation, dated January 4, 1991
(incorporated by reference to Exhibit 3.14 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.15 Certificate of Amendment of Certificate of Incorporation, dated December 15, 1998
(incorporated by reference to Exhibit 3.15 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.16 Certificate of Amendment of Certificate of Incorporation, dated December 3, 2003
(incorporated by reference to Exhibit 3.16 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
40
3.17
Aceto Corporation By-Laws, adopted December 1, 2011 (incorporated by reference to
Exhibit 3.1 to our Current Report on Form 8-K dated December 5, 2011).
10.1 Aceto Corporation 401(k) Retirement Plan, as amended and restated as of July 1, 2002
(incorporated by reference to Exhibit 10.1 to the Company’s annual report on Form 10-K
for the fiscal year ended June 30, 2004 (File Number: 000-04217, Film Number:
041025874)).
10.2 Supplemental Executive Retirement Plan, as amended and restated effective June 30, 2004
and frozen as of December 31, 2004 (incorporated by reference to Exhibit 10.2 to the
Company’s annual report on Form 10-K for the fiscal year ended June 30, 2004 (File
Number: 000-04217, Film Number: 041025874)).
10.3 Aceto Corporation Stock Option Plan (as Amended and Restated effective as of September
19, 1990) (incorporated by reference to Exhibit 10.3 to the Company’s annual report on
Form 10-K for the fiscal year ended June 30, 2010).
10.4 1998 Omnibus Equity Award Plan (incorporated by reference to Exhibit 10(v) (c) to the
Company’s annual report on Form 10-K for the fiscal year ended June 30, 1999 (File
Number: 000-04217, Film Number: 99718824)).
10.5 2002 Stock Option Plan (incorporated by reference to Exhibit 4(i) to Registration Statement
No. 333-110653 on Form S-8).
10.6 Supplemental Executive Deferred Compensation Plan, effective March 14, 2005
(incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K
filed with the Securities and Exchange Commission on March 17, 2005 (File Number: 000-
04217, Film Number: 05688328)).
10.7 2007 Long-Term Performance Incentive Plan (incorporated by reference to Exhibit 4(i) to
Registration Statement No. 333-149586 on Form S-8).
10.8 Supplemental Executive Deferred Compensation Plan, amended and restated effective
December 8, 2008 (incorporated by reference to Exhibit 10.22 to the Company’s annual
report on Form 10-K for the year ended June 30, 2009).
10.9 Lease between Aceto Corporation and M. Parisi & Son Construction Co., Inc., dated April
28, 2000 (incorporated by reference to Exhibit 10(vi)(a) to the Company’s annual report on
Form 10-K for the fiscal year ended June 30, 2000 (File Number: 000-04217, Film Number:
730518)).
10.10 Lease between Aceto Corporation and M. Parisi & Son Construction Co., Inc., dated April
28, 2000 (incorporated by reference to Exhibit 10(vi)(b) to the Company’s annual report on
Form 10-K for the year ended June 30, 2000 (File Number: 000-04217, Film Number:
730518)).
10.11 Purchase and Sale Agreement among Schweizerhall Holding AG, Chemische Fabrik
Schweizerhall, Schweizerhall, Inc., Aceto Corporation and Aceto Holding B.V., I.O., dated
as of January 28, 2001 (incorporated by reference to Exhibit 2.1 to the Company’s current
report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2001
(File Number: 000-04217, Film Number: 1595350)).
10.12 Form of purchase agreement between Shanghai Zhongjin Real Estate Development
Company Limited and Aceto (Hong Kong) Limited, dated November 10, 2004
(incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q
for the quarter ended December 31, 2004 (File Number: 000-04217, Film Number:
41
05588472)).
10.13 Guarantee by Aceto Corporation and subsidiaries in favor of Deutsche Bank, AG, dated
March 22, 2001 (incorporated by reference to Exhibit 10.13 to the Company’s annual report
on Form 10-K for the year ended June 30, 2001 (File Number: 000-04217, Film Number:
1748270)).
10.14 Amended and Restated Credit Agreement among Aceto Corporation, Aceto Agricultural
Chemicals Corporation, CDC Products Corporation, Aceto Pharma Corp., Aceto Realty
LLC, Acci Realty Corp., Arsynco Inc. and JPMorgan Chase Bank, N.A., dated as of April
23, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s current report on
Form 8-K filed with the Securities and Exchange Commission on April 28, 2010).
10.15 Amended and Restated Revolving Credit Note made payable by Aceto Corporation, Aceto
Agricultural Chemicals Corporation, CDC Products Corporation, Aceto Pharma Corp.,
Aceto Realty LLC, Acci Realty Corp. and Arsynco Inc. to the order of JPMorgan Chase
Bank, N.A., dated April 23, 2010 (incorporated by reference to Exhibit 10.2 to the
Company’s current report on Form 8-K filed with the Securities and Exchange Commission
on April 28, 2010).
10.16 Reaffirmation Agreement by Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, Aceto Pharma Corp., Aceto Realty LLC, Acci
Realty Corp. and Arsynco Inc., dated as of April 23, 2010 (incorporated by reference to
Exhibit 10.3 to the Company’s current report on Form 8-K filed with the Securities and
Exchange Commission on April 28, 2010).
10.17 Employment Agreement between Aceto Corporation and Leonard S. Schwartz, dated as of
March 24, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s current report
on Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.18 Employment Agreement between Aceto Corporation and Douglas Roth, dated as of March
24, 2009 (incorporated by reference to Exhibit 10.2 to the Company’s current report on
Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.19 Employment Agreement between Aceto Corporation and Vincent Miata, dated as of March
24, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s current report on
Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.20 Employment Agreement between Aceto Corporation and Frank DeBenedittis, dated as of
March 24, 2009 (incorporated by reference to Exhibit 10.4 to the Company’s current report
on Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.21 Employment Agreement between Aceto Corporation and Michael Feinman, dated as of
March 24, 2009 (incorporated by reference to Exhibit 10.5 to the Company’s current report
on Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.22 Severance Agreement between Leonard S. Schwartz and Aceto Corporation, dated as of
December 9, 2009 (incorporated by reference to Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 2009).
10.23 Aceto Corporation, et al $40,000,000 Senior Secured Revolving Credit Facility,
$40,000,000 Senior Secured Term Loan Facility Commitment Letter (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K dated December 20, 2010).
10.24 Credit Agreement, dated as of December 31, 2010, by and among Aceto Corporation, Aceto
Agricultural Chemicals Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto
Pharma Corp., Arsynco Inc., Aceto Realty LLC, Sun Acquisition Corp. and JPMorgan
Chase Bank, N.A. as Administrative Agent and the Lenders (incorporated by reference to
42
Exhibit 10.1 to our Current Report on Form 8-K dated January 5, 2011).
10.25 First Amendment to Asset Purchase Agreement, dated as of December 31, 2010, by and
among Aceto Corporation, Sun Acquisition Corp., Rising Pharmaceuticals, Inc., Ronald
Gold and David B. Rosen (incorporated by reference to Exhibit 10.2 to our Current Report
on Form 8-K dated January 5, 2011).
10.26 Employment Agreement, dated as of October 12, 2010, between Aceto Corporation and
Albert L. Eilender (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K, dated October 18, 2010).
10.27 Employment Agreement, dated as of December 31, 2010, by and between Ronald Gold and
Sun Acquisition Corp. (incorporated by reference to Exhibit 10.5 to the Company's
quarterly report on Form 10-Q for the quarter ended December 31, 2010).
10.28 Employment Agreement, dated as of December 31, 2010, by and between David B. Rosen
and Sun Acquisition Corp. (incorporated by reference to Exhibit 10.6 to the Company's
quarterly report on Form 10-Q for the quarter ended December 31, 2010).
10.29
Aceto Corporation 2010 Equity Participation Plan (incorporated by reference to Appendix
A to our Definitive Proxy Statement on Schedule 14A filed on October 13, 2010).
10.30
Separation Agreement by and between Aceto Corporation and Vincent G. Miata
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated
November 17, 2011).
10.31 Employment Agreement, dated as of the 29th day of February, 2012, by and between Aceto
Corporation and Salvatore Guccione (incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K dated March 1, 2012).
10.32
Notice to Douglas A. Roth dated January 10, 2012 regarding non-renewal of employment
agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
dated January 17, 2012).
10.33
Notice to Frank DeBenedittis dated January 10, 2012 regarding non-renewal of employment
agreement (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K
dated January 17, 2012).
10.34
Notice to Michael Feinman dated January 10, 2012 regarding non-renewal of employment
agreement (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K
dated January 17, 2012).
10.35
Aceto Corporation Severance Policy (incorporated by reference to Exhibit 10.4 to our
Current Report on Form 8-K dated January 17, 2012).
10.36*
First Amendment to Aceto Corporation 2010 Equity Participation Plan (effective as of June
12, 2012).
10.37*
10.38*
Amendment, dated as of February 18, 2011 to the Credit Agreement, dated as of December
31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals Corporation,
CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp., Arsynco Inc., Aceto
Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A. as Administrative
Agent and the Lenders.
Amendment No. 2, dated as of March 15, 2011 to the Credit Agreement, dated as of
December 31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp.,
Arsynco Inc., Aceto Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A.
as Administrative Agent and the Lenders.
43
10.39*
10.40*
10.41*
Amendment No. 3, dated as of May 3, 2011 to the Credit Agreement, dated as of December
31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals Corporation,
CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp., Arsynco Inc., Aceto
Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A. as Administrative
Agent and the Lenders.
Amendment No. 4, dated as of June 29, 2011 to the Credit Agreement, dated as of
December 31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp.,
Arsynco Inc., Aceto Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A.
as Administrative Agent and the Lenders.
Amendment No. 5, dated as of June 28, 2012 to the Credit Agreement, dated as of
December 31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp.,
Arsynco Inc., Aceto Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A.
as Administrative Agent and the Lenders.
10.42
Change in Control Agreement by and between Aceto Corporation and Albert L. Eilender
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated July 3,
2012).
10.43
Change in Control Agreement by and between Aceto Corporation and Salvatore Guccione
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated July 3,
2012).
10.44
Change in Control Agreement by and between Aceto Corporation and Douglas Roth
(incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated July 3,
2012).
10.45
Change in Control Agreement by and between Aceto Corporation and Frank DeBenedittis
(incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K dated July 3,
2012).
10.46
Consulting Agreement by and between Aceto Corporation and Michael Feinman
(incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K dated July 3,
2012).
10.47*
Change in Control Agreement by and between Aceto Corporation and Charles Alaimo,
dated as of July 2, 2012.
10.48*
Change in Control Agreement by and between Aceto Corporation and Raymond Bartone,
dated as of July 2, 2012.
10.49*
Change in Control Agreement by and between Aceto Corporation and Steven Rogers dated
as of July 2, 2012.
10.50*
Change in Control Agreement by and between Aceto Corporation and Nicholas Shackley,
dated as of July 2, 2012.
10.51*
Change in Control Agreement by and between Aceto Corporation and Roger G. Weaving,
Jr., dated as of July 2, 2012.
21* Subsidiaries of the Company.
23* Consent of BDO USA, LLP.
31.1* Certifications of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
44
31.2* Certifications of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document
*Filed herewith
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and
otherwise are not subject to liability.
45
ACETO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated financial statements:
Consolidated balance sheets as of June 30, 2012 and 2011
Consolidated statements of income for the years ended June 30, 2012, 2011 and 2010
Consolidated statements of cash flows for the years ended June 30, 2012, 2011 and 2010
Consolidated statements of shareholders’ equity and comprehensive income for the years ended June 30, 2012, 2011
and 2010
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.
46
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Aceto Corporation
Port Washington, NY
We have audited the accompanying consolidated balance sheets of Aceto Corporation and subsidiaries as of June 30, 2012
and 2011 and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows
for each of the three years in the period ended June 30, 2012. In connection with our audits of the consolidated financial
statements, we have also audited the schedule as listed in the accompanying index. These consolidated financial statements
and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and schedule, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. 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 at June 30, 2012 and 2011, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2012, in conformity with accounting principles generally
accepted in the United States of America.
Also, in our opinion, the financial statement schedule 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.
We also have audited, in accordance with standards of the Public Company Accounting Oversight Board (United States),
Aceto Corporation and subsidiaries’ internal control over financial reporting as of June 30, 2012, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated September 7, 2012 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Melville, New York
September 7, 2012
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2012 AND 2011
(in thousands, except per-share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Investments
Trade receivables: less allowance for doubtful accounts (2012, $887;
2011; $682)
Other receivables
Inventory
Prepaid expenses and other current assets
Deferred income tax asset, net
Total current assets
Property and equipment, net
Property held for sale
Goodwill
Intangible assets, net
Deferred income tax asset, net
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued expenses
Deferred income tax liability
Total current liabilities
Long-term debt
Long-term liabilities
Environmental remediation liability
Deferred income tax liability
Total liabilities
Commitments and contingencies (Note 16)
Shareholders’ equity:
2012
2011
$ 24,862
1,518
$ 28,664
943
74,744
2,979
84,687
2,231
948
191,969
11,705
3,752
33,495
45,251
4,719
8,389
83,735
5,373
77,433
1,720
747
198,615
12,095
3,752
33,625
50,658
3,477
9,443
$ 299,280
$ 311,665
$ 6,713
42,007
24,921
-
73,641
$ 6,247
44,614
32,019
306
83,186
39,052
12,943
5,633
8
131,277
48,750
12,859
5,998
51
150,844
Common stock, $.01 par value, 40,000 shares authorized; 26,937 and 26,644
shares issued; 26,937 and 26,620 shares outstanding at June 30, 2012 and
2011, respectively
269
266
Capital in excess of par value
Retained earnings
Treasury stock, at cost, 0 and 24 shares at June 30, 2012 and 2011, respectively
Accumulated other comprehensive income
Total shareholders’ equity
64,071
102,344
-
1,319
168,003
62,329
90,713
(230)
7,743
160,821
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$299,280
$311,665
See accompanying notes to consolidated financial statements.
48
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other (expense) income:
Interest expense
Interest and other income, net
Income before income taxes
Provision for income taxes
Net income
2012
2011
2010
$444,388
362,356
82,032
56,666
25,366
(2,627)
2,001
(626)
24,740
7,759
$16,981
$412,428
346,590
65,838
49,288
16,550
(1,570)
1,982
412
16,962
7,994
$8,968
$346,631
292,476
54,155
44,717
9,438
(230)
995
765
10,203
3,622
$6,581
Basic income per common share
$ 0.64
$ 0.35
$ 0.26
Diluted income per common share
$ 0.63
$ 0.34
$ 0.26
Weighted average shares outstanding:
Basic
Diluted
26,587
26,812
25,906
26,098
24,979
25,224
See accompanying notes to consolidated financial statements.
49
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
2012
2011
2010
$ 16,981
$ 8,968
$ 6,581
Depreciation and amortization
Provision for doubtful accounts
Non-cash stock compensation
Non-cash inventory write-down
Unrealized gain on trading securities
Deferred income taxes
Earnings on equity investment in joint venture
Contingent consideration
Changes in assets and liabilities:
Trade receivables
Other receivables
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and other liabilities
Net cash provided by (used in) operating activities
Investing activities:
Payment for net assets of business acquired
Purchase of noncontrolling interest
Purchases of investments
Maturities of investments
Sales of investments
Distributions from joint venture
Payments received on notes receivable
Proceeds from sale of intangible assets
Payments for intangible assets
Purchases of property and equipment, net
Net cash used in investing activities
Financing activities:
Proceeds from exercise of stock options
Excess income tax benefit on stock option exercises and restricted stock
Payment of cash dividends
Payment of deferred consideration
Proceeds from mortgage
Borrowings of bank loans
Repayment of bank loans
Net cash (used in) provided by financing activities
6,942
211
1,168
-
-
(1,777)
(1,598)
761
5,711
1,446
(9,926)
(594)
756
(978)
(5,834)
13,269
-
-
(1,155)
-
475
1,712
350
400
(726)
(1,098)
(42)
620
148
(5,331)
(1,500)
-
-
(9,232)
(15,295)
5,502
172
854
-
(140)
(675)
(1,624)
-
1,915
7,659
2,224
500
(325)
2,473
(13,465)
14,038
(64,211)
-
(468)
-
-
1,807
750
400
(2,053)
(5,425)
(69,200)
616
117
(5,206)
-
3,947
65,050
(14,550)
49,974
2,796
257
1,043
859
(1)
(796)
(1,201)
-
(30,853)
(2,960)
(23,069)
(1,027)
319
16,206
16,347
(15,499)
(413)
(460)
-
215
-
1,142
1,025
400
(4,058)
(3,960)
(6,109)
1,714
362
(5,067)
-
-
550
-
(2,441)
Effect of foreign exchange rate changes on cash
(1,734)
3,002
(2,862)
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(3,802)
28,664
$ 24,862
(2,186)
30,850
$28,664
(26,911)
57,761
$30,850
See accompanying notes to consolidated financial statements.
50
ACETO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Common Stock
Shares
Amount
Capital in
Excess of
Par Value
Retained
Earnings
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
Income
Total
25,644
-
$256
-
$56,767
-
$85,450
6,581
(873)
-
$(8,430)
-
$7,525
-
$ 141,568
6,581
Balance at June 30, 2009
Net income
Other comprehensive income:
Foreign currency translation
Adjustments
Defined benefit plans, net of tax of $47
Comprehensive income:
Stock issued pursuant to employee stock
incentive plans
including
stock,
Issuance of
restricted
dividends and net of forfeitures
Dividends declared ($0.20 per share)
Share-based compensation
Exercise of stock options
Tax benefit from employee stock incentive
plans
Balance at June 30, 2010
Net income
Other comprehensive income:
Foreign currency translation
adjustments
Defined benefit plans, net of tax of $2
Change in fair value of interest rate swaps
Comprehensive income:
Stock issued pursuant to employee stock
incentive plans
including
stock,
restricted
Issuance of
dividends and net of forfeitures
Dividends declared ($0.20 per share)
Stock issued in connection with the Rising
acquisition
Share-based compensation
Exercise of stock options
Tax benefit from employee stock incentive
plans
Balance at June 30, 2011
Net income
Other comprehensive income:
Foreign currency translation
adjustments
Defined benefit plans, net of tax of $78
Change in fair value of interest rate swaps
Comprehensive income:
Stock issued pursuant to employee stock
incentive plans
including
stock,
Issuance of
restricted
dividends and net of forfeitures
Dividends declared ($0.20 per share)
Share-based compensation
Exercise of stock options
Tax benefit from employee stock incentive
-
-
-
-
-
-
1,000
-
-
-
26,644
-
-
-
-
8
118
-
-
167
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(30)
(642)
-
989
(3,760)
-
25,644
-
-
$256
-
362
$53,686
-
-
-
-
-
(5,073)
-
-
-
$86,958
8,968
-
-
-
-
-
(5,213)
-
-
-
-
-
10
67
-
-
567
-
-
99
648
-
-
5,474
-
(229)
-
-
($2,209)
-
-
-
-
99
931
-
-
-
949
(6,471)
(101)
(6,471)
(101)
9
-
-
-
-
-
-
$ 953
-
7,120
3
(333)
69
6
(5,073)
989
1,714
362
$139,644
8,968
7,120
3
( 333)
15,758
-
-
-
-
-
-
66
12
(5,213)
9,000
821
616
-
($230)
-
-
$ 7,743
-
117
$160,821
16,981
-
-
-
-
220
-
-
10
-
-
(6,164)
(166)
(94)
(6,164)
(166)
(94)
10,557
-
-
-
-
-
49
1
(5,350)
1,157
620
-
$ 1,319
148
$168,003
-
-
-
-
-
-
-
-
-
(33)
(919)
10
-
-
8,990
821
(333)
-
$266
-
117
$62,329
-
-
$90,713
16,981
-
-
-
-
1
-
-
2
-
-
-
49
(220)
-
1,157
608
-
-
-
-
-
(5,350)
-
-
-
-
-
11
96
-
-
-
98
-
(24)
-
-
-
-
-
23
-
-
1
-
-
plans
Balance at June 30, 2012
-
26,937
-
$269
148
$64,071
-
$102,344
See accompanying notes to consolidated financial statements.
51
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
(1) Description of Business
Aceto Corporation and subsidiaries (“Aceto” or the “Company”) is primarily engaged in the sourcing, regulatory support,
quality assurance, marketing, sales and distribution of pharmaceutical intermediates and active ingredients, finished dosage
form generics, nutraceutical products, agricultural protection products and specialty chemicals used principally as finished
products or raw materials in the pharmaceutical, nutraceutical, agricultural, coatings and industrial chemical consuming
industries.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All
significant inter-company balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses
reported in those financial statements and the disclosure of contingent assets and liabilities at the date of the 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 indefinite-life intangible assets; long-lived assets; environmental matters
and other contingencies; income taxes; and stock-based compensation.
Cash Equivalents
The Company considers all highly liquid debt instruments with original maturities at the time of purchase of three months or
less to be cash equivalents. Included in cash equivalents as of June 30, 2012 is $91 of restricted cash.
Investments
The Company classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of
purchase and periodically re-evaluates such classifications. Trading securities are carried at fair value, with unrealized
holding gains and losses included in earnings. Held-to-maturity securities are recorded at cost and are adjusted for the
amortization or accretion of premiums or discounts over the life of the related security. Unrealized holding gains and losses
on available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other
comprehensive income (loss) until realized. In determining realized gains and losses, the cost of securities sold is based on
the specific identification method. Interest and dividends on the investments are accrued at the balance sheet date.
Inventories
Inventories, which consist principally of finished goods, are stated at the lower of cost (first-in first-out method) or market.
The Company writes down its inventories for estimated excess and obsolete goods by an amount 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.
Environmental and Other Contingencies
The Company establishes accrued liabilities 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 the accrual, or the Company’s share of the contingency increases or decreases, or other
assumptions relevant to the development of the estimate were to change, the Company would recognize an additional
expense or benefit in the consolidated statements of income in the period such determination was made.
52
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Pension Benefits
In connection with certain historical acquisitions in Germany, the Company assumed defined benefit pension plans covering
certain employees who meet certain eligibility requirements. The net pension benefit obligations recorded and the related
periodic costs are based on, among other things, assumptions of the discount rate, estimated return on plan assets, salary
increases and the mortality of participants. The obligation for these claims and the related periodic costs are measured using
actuarial techniques and assumptions. Actuarial gains and losses are deferred and amortized over future periods. The
Company’s plans are funded in conformity with the funding requirements of applicable government regulations.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income as of June 30, 2012 and 2011 are as follows:
Cumulative foreign currency translation adjustments
Fair value of interest rate swaps
Defined benefit plans, net of tax
Total
2012
$ 1,810
(427)
(64)
$ 1,319
2011
$ 7,974
(333)
102
$ 7,743
The foreign currency translation adjustments for the year ended June 30, 2012 primarily relates to the fluctuation of the
conversion rate of the Euro. The currency translation adjustments are not adjusted for income taxes as they relate to indefinite
investments in non-US subsidiaries.
Common Stock
On September 8, 2011, the Board of Directors of the Company authorized the continuation of the Company’s stock
repurchase program, expiring in May 2014. Under the stock repurchase program, the Company is authorized to purchase up
to an additional 4,051 shares of common stock in open market or private transactions, at prices not to exceed the market
value of the common stock at the time of such purchase.
On September 6, 2012, the Company's board of directors declared a regular quarterly dividend of $0.055 per share to be
distributed on September 28, 2012 to shareholders of record as of September 17, 2012.
Stock Options
GAAP requires that all stock-based compensation be recognized as an expense in the financial statements and that such costs
be measured at the fair value of the award. GAAP also requires that excess tax benefits related to stock option exercises be
reflected as financing cash inflows.
In order to determine the fair value of stock options on the date of grant, the Company uses the Black-Scholes option-pricing
model, including an estimate of forfeiture rates. Inherent in this model are assumptions related to expected stock-price
volatility, risk-free interest rate, expected life and dividend yield. The Company uses an expected stock-price volatility
assumption that is a combination of both historical volatility, calculated based on the daily closing prices of its common stock
over a period equal to the expected life of the option and implied volatility, utilizing market data of actively traded options on
Aceto’s common stock, which are obtained from public data sources. The Company believes that the historical volatility of
the price of its common stock over the expected life of the option is a reasonable indicator of the expected future volatility
and that implied volatility takes into consideration market expectations of how future volatility might differ from historical
volatility. Accordingly, the Company believes a combination of both historical and implied volatility provides the best
estimate of the future volatility of the market price of its common stock. The risk-free interest rate is based on U.S. Treasury
issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend
yield, expected life and forfeiture rates.
53
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment and passage of title and risk of loss to the
customer. The Company has no acceptance or other post-shipment obligations and does not offer product warranties or
services to its customers.
Sales are recorded net of returns of damaged goods from customers, which historically have been immaterial, and
sales incentives offered to customers. Sales incentives include volume incentive rebates. The Company records
volume incentive rebates based on the underlying revenue transactions that result in progress by the customer in
earning the rebate. In addition, upon each sale, estimates of rebates, chargebacks, returns, government reimbursed
rebates, and other adjustments are made. These estimates are recorded as reductions to gross revenues, with
corresponding adjustments to either accounts receivable reserves or reserve for price concessions. Management has
the experience and access to relevant information that they believe are necessary to reasonably estimate the amounts
of such deductions from gross revenues. The Company regularly reviews the information related to these estimates
and adjust its reserves accordingly, if and when actual experience differs from previous estimates.
Shipping and Handling Fees and Costs
All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are
included in net sales. The costs incurred by the Company for shipping and handling are reported as a component of cost of
sales. Cost of sales also includes inbound freight, receiving, inspection, warehousing, distribution network, and customs and
duty costs.
Net Income Per Common Share
Basic income per common share is based on the weighted average number of common shares outstanding during the period.
Diluted income per common share includes the dilutive effect of potential common shares outstanding. The following table
sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding for the
fiscal years ended June 30, 2012, 2011 and 2010:
2012
2011
2010
Weighted average shares outstanding
26,587
25,906
24,979
Dilutive effect of stock options and
restricted stock awards and units
225
192
245
Diluted weighted average shares
outstanding
26,812
26,098
25,224
There were 1,340, 1,475 and 1,702 common equivalent shares outstanding as of June 30, 2012, 2011 and 2010, respectively
that were not included in the calculation of diluted income per common share because their effect would have been anti-
dilutive.
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
54
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight line method over the estimated useful lives of
the related asset. The Company allocates depreciation and amortization to cost of sales. Expenditures for improvements that
extend the useful life of an asset are capitalized. Ordinary repairs and maintenance are expensed as incurred. When assets
are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any
related gains or losses are included in income.
The components of property and equipment were as follows:
Machinery and equipment
Leasehold improvements
Computer equipment and software
Furniture and fixtures
Automobiles
Building
Land
Accumulated depreciation and amortization
June 30, 2012
$933
586
3,555
1,993
198
8,512
1,995
17,772
6,067
$ 11,705
June 30, 2011
$1,047
Estimated useful
life (years)
3-7
Shorter of asset life
or lease term
500
3-5
3,414
5-10
2,026
3
203
8,059
20
2,042 -
17,291
5,196
$ 12,095
Property held for sale represents land and land improvements of $3,752 at June 30, 2012 and 2011. See Note 8,
“Environmental Remediation” for further discussion on property held for sale
Depreciation and amortization of property and equipment amounted to $1,317, $1,034 and $798 for the years ended June 30,
2012, 2011, and 2010 respectively.
Goodwill and Other Intangibles
Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets.
Other intangible assets principally consist of customer relationships, license agreements, technology-based intangibles, EPA
registrations and related data, trademarks and product rights and related intangibles. Goodwill and other intangible assets
that have an indefinite life are not amortized.
In accordance with GAAP, the Company tests goodwill and other intangible assets for impairment on at least an annual basis.
Goodwill impairment exists if the net book value of a reporting unit exceeds its estimated fair value. The impairment testing
is performed in two steps: (i) the Company determines impairment by comparing the fair value of a reporting unit with its
carrying value, and (ii) if there is an impairment, the Company measures the amount of impairment loss by comparing the
implied fair value of goodwill with the carrying amount of that goodwill. To determine the fair value of these intangible
assets, the Company uses many assumptions and estimates using a market participant approach that directly impact the
results of the testing. In making these assumptions and estimates, the Company uses industry accepted valuation models and
set criteria that are reviewed and approved by various levels of management.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
55
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. Recoverability of assets held for sale is measured by comparing the carrying amount of the assets to
their estimated fair value. 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.
Accounting for Derivatives and Hedging Activities
The Company accounts for derivatives and hedging activities under the provisions of GAAP which establishes accounting
and reporting guidelines for derivative instruments and hedging activities. GAAP requires the recognition of all derivative
financial instruments as either assets or liabilities in the statement of financial condition and measurement of those
instruments at fair value. Changes in the fair values of those derivatives are reported in earnings or other comprehensive
income depending on the designation of the derivative and whether it qualifies for hedge accounting. The accounting for
gains and losses associated with changes in the fair value of a derivative and the effect on the consolidated financial
statements depends on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the
fair value or cash flows of the asset or liability hedged. The method that is used for assessing the effectiveness of a hedging
derivative, as well as the measurement approach for determining the ineffective aspects of the hedge, is established at the
inception of the hedged instrument.
The Company operates internationally, therefore its earnings, cash flows and financial positions are exposed to foreign
currency risk from foreign-currency-denominated receivables and payables, which, in the U.S., have been denominated in
various foreign currencies, including, among others, Euros, British Pounds, Japanese Yen, Singapore Dollars and Chinese
Renminbi and at certain foreign subsidiaries in U.S. dollars and other non-local currencies.
Management believes it is prudent to minimize the risk caused by foreign currency fluctuation. Management minimizes the
currency risk on its foreign currency receivables and payables by purchasing future foreign currency contracts (futures) with
one of its financial institutions. Futures are traded on regulated U.S. and international exchanges and represent commitments
to purchase or sell a particular foreign currency at a future date and at a specific price. Since futures are purchased for the
amount of the foreign currency receivable or for the amount of foreign currency needed to pay for specific purchase orders,
and the futures mature on the due date of the related foreign currency vendor invoices or customer receivables, the Company
believes that it eliminates risks relating to foreign currency fluctuation. The Company takes delivery of all futures to pay
suppliers in the appropriate currency. The gains or losses for the changes in the fair value of the foreign currency contracts
are recorded in cost of sales (sales) and offset the gains or losses associated with the impact of changes in foreign exchange
rates on trade payables (receivables) denominated in foreign currencies. Senior management and members of the financial
department continually monitor foreign currency risks and the use of this derivative instrument.
Pursuant to the requirements of the Credit Agreement, the Company is required to deliver Hedging Agreements (as defined in
the Credit Agreement) fixing the interest rate on not less than $20,000 of the Term Loan. Accordingly, in March 2011, the
Company entered into an interest rate swap for a notional amount of $20,000, which has been designated as a cash flow
hedge. The expiration date of this interest rate swap is December 31, 2015.
Foreign Currency
The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars in accordance with GAAP.
Where the functional currency of a foreign subsidiary is its local currency, balance sheet accounts are translated at the current
exchange rate and income statement items are translated at the average exchange rate for the period. Exchange gains or
losses resulting from the translation of financial statements of foreign operations are accumulated in other comprehensive
income. Where the local currency of a foreign subsidiary is not its functional currency, financial statements are translated at
either current or historical exchange rates, as appropriate.
56
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
(3) Business Combinations
On December 31, 2010, the Company acquired certain assets of Rising Pharmaceuticals, Inc. (“Rising”), a New Jersey based
company that markets and distributes generic prescription and over the counter pharmaceutical products to leading
wholesalers, chain drug stores, distributors, mass market merchandisers and others under its own label, throughout the United
States. This acquisition was an extension of the Company’s business model which will provide customers and suppliers
additional opportunities to penetrate the end user segment of the pharmaceutical market. With the Rising brand label, the
Company has been able to expand its direct involvement in the pharmaceutical distribution space through greater global
awareness of its capabilities in the marketing of pharmaceutical intermediates, active ingredients and the ultimate end-
products, finished dosage form generics.
The purchase was approximately $73,317 which was comprised of the issuance of 1,000 shares of Aceto common stock,
valued at $9,000, cash payment of approximately $58,817 and approximately $5,500 liability subsequently paid to Rising to
satisfy bulk sales tax obligation. The purchase agreement also calls for $8,000 of deferred consideration to be paid by Aceto
over a four year period with annual installments of $1,500 not later than fifty-six days following each of the first three
anniversaries of the Closing Date and $3,500 not later than fifty-six days following the fourth anniversary of the Closing
Date. In addition, the agreement provides for the payment of additional contingent consideration equal to one-half of the
three year cumulative Rising earnings before interest, taxes, deprecation and amortization in excess of $32,100, up to a
maximum of $6,000. As of June 30, 2012, the Company has accrued $1,779 related to this contingent consideration. In the
fourth quarter of fiscal 2012, the Company recorded additional contingent consideration of $761, which is included in selling,
general and administrative expenses in the accompanying Consolidated Statement of Income for the fiscal year ended June
30, 2012. Any necessary future adjustments to this amount will be recorded as an income statement charge at that time.
The acquisition was accounted for using the purchase method of accounting. The following table summarizes the allocation
of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of
December 31, 2010:
Cash and cash equivalents
Trade receivables
Inventory
Prepaid expenses and other current assets
Property and equipment
Goodwill
Intangible assets
Other assets
Total assets acquired
$ 106
7,729
2,348
700
682
31,739
43,200
29
86,533
Accounts payable
Accrued expenses
Long-term liabilities, including contingent consideration
501
5,115
7,600
Net assets acquired
$ 73,317
The fair values of the net assets acquired were determined using discounted cash flow analyses and estimates made by
management. The purchase price was allocated to intangible assets as follows: approximately $31,739 to goodwill, which is
nonamortizable under generally accepted accounting principles and is deductible for income tax purposes; approximately
$32,500 of product rights, amortizable over a period of seven to fourteen years; approximately $5,100 of license agreements,
amortizable over six years; approximately $3,900 of customer relationships, amortizable over eleven years; and
approximately $1,700 of trademarks, amortizable over a period of four years. Amortization of the acquired intangible assets
is deductible for income tax purposes. Goodwill acquired was allocated to the Human Health reportable segment.
57
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
For the period from December 31, 2010 to June 30, 2011, Rising’s net sales and income before income taxes was
approximately $18,057 and $1,158, respectively, which have been included in the consolidated statement of income for the
year ended June 30, 2011. The following represents unaudited pro forma operating results as if the operations of Rising had
been included in the Company's consolidated statements of operations as of July 1, 2009:
Year ended
June 30,
2011
2010
Net sales
Net income
Net income per common share
Diluted net income per common share
$432,810
12,788
$0.48
$0.48
$395,093
10,330
$0.40
$0.39
The pro forma financial information includes business combination accounting effects from the acquisition including
amortization charges from acquired intangible assets of approximately $4,300 for both periods presented, increase in interest
expense of approximately $1,800 for both periods presented associated with bank borrowings to fund the acquisition, reversal
of acquisition related transaction costs of approximately $1,100 and tax related effects in the year ended 2011. In addition,
the Company reversed approximately $2,600 of a tax charge related to the repatriation of earnings from certain foreign
subsidiaries to assist with the funding of the acquisition in the year ended 2011. The unaudited pro forma information as
presented above is for informational purposes only and is not indicative of the results of operations that would have been
achieved if the acquisition had taken place at the beginning of fiscal 2010.
(4) Investments
A summary of short-term investments was as follows:
Trading securities
Corporate equity securities
Held to Maturity Investments
Time deposits
June 30, 2012
June 30, 2011
Fair Value
Cost Basis
Fair Value
Cost Basis
$ -
$ -
$ 475
$ 14
1,518
$ 1,518
1,518
468
$ 943
468
The Company has classified all investments with maturity dates of greater than three months as current since it has the ability
to redeem them within the year and is available for current operations.
Unrealized gains on trading securities were $0, $140, and $1 for fiscal 2012, 2011 and 2010, respectively.
(5) Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion
between market participants at the measurement date. GAAP establishes a fair value hierarchy for those instruments
measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s
assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted market prices in active markets for identical assets or liabilities;
58
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 – Unobservable inputs that are not corroborated by market data.
On a recurring basis, Aceto measures at fair value certain financial assets and liabilities, which consist of cash equivalents,
investments and foreign currency contracts. The Company classifies cash equivalents and investments within Level 1 if
quoted prices are available in active markets. Level 1 assets include instruments valued based on quoted market prices in
active markets which generally include corporate equity securities publicly traded on major exchanges. Time deposits are
very short-term in nature and are accordingly valued at cost plus accrued interest, which approximates fair value, and are
classified within Level 2 of the valuation hierarchy. The Company uses foreign currency forward contracts (futures) to
minimize the risk caused by foreign currency fluctuation on its foreign currency receivables and payables by purchasing
futures with one of its financial institutions. Futures are traded on regulated U.S. and international exchanges and represent
commitments to purchase or sell a particular foreign currency at a future date and at a specific price. Aceto’s foreign
currency derivative contracts are classified within Level 2 as the fair value of these hedges is primarily based on observable
forward foreign exchange rates. At June 30, 2012 the Company had foreign currency contracts outstanding that had a
notional amount of $52,668. Unrealized (losses) gains on hedging activities for the years ended June 30, 2012, 2011, and
2010, amounted to ($560), $160 and ($981), respectively, and are included in interest and other income, net, in the
consolidated statements of income. The contracts have varying maturities of less than one year.
Pursuant to the requirements of the Credit Agreement, the Company is required to deliver Hedging Agreements (as defined in
the Credit Agreement) fixing the interest rate on not less than $20,000 of the Term Loan. Accordingly, in March 2011, the
Company entered into an interest rate swap for a notional amount of $20,000, which has been designated as a cash flow
hedge. The expiration date of this interest rate swap is December 31, 2015. The unrealized loss to date associated with this
derivative, which is recorded in accumulated other comprehensive income in the consolidated balance sheet at June 30, 2012,
is $427. The remaining balance of this derivative as of June 30, 2012 is $15,500. Aceto’s interest rate swap is classified
within Level 2 as the fair value of this hedge is primarily based on observable interest rates.
As of June 30, 2012, the Company had $1,779 of contingent consideration that was recorded at fair value in the Level 3
category, which related to the acquisition of Rising, which was completed in December 2010. The contingent consideration
was calculated using the present value of a probability weighted income approach. As of June 30, 2011, the Company had
$974 of contingent consideration that was recorded at fair value in the Level 3 category, which related to the acquisition of
Andrews Paper & Chemical, Co., Inc., which was completed during fiscal 2010 and the acquisition of Rising, which was
completed in December 2010. The contingent consideration was calculated using the present value of a probability weighted
income approach. The changes in contingent consideration relates to the settlement of $68 for Andrews Paper & Chemical,
Co., Inc., accrued interest expense of $112 for the Rising contingent consideration and additional contingent consideration of
$761 for the Rising acquisition, recorded in the fourth quarter of fiscal 2012.
During the fourth quarter of each year, the Company evaluates goodwill and indefinite-lived intangibles for impairment at the
reporting unit level using an undiscounted cash flow model using Level 3 inputs. Additionally, on a nonrecurring basis, the
Company uses fair value measures when analyzing asset impairment. Long-lived assets and certain identifiable intangible
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be
fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values
are reduced to estimated fair value. Measurements based on undiscounted cash flows are considered to be Level 3 inputs.
59
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
The following tables summarize the valuation of the Company’s financial assets and liabilities which were determined by
using the following inputs at June 30, 2012 and 2011:
Fair Value Measurements at June 30, 2012 Using
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
-
$ 814
-
1,518
-
-
Total
$ 814
1,518
-
138
-
138
-
-
-
661
427
-
-
661
427
-
$1,779
1,779
Cash equivalents:
Time deposits
Investments:
Time deposits
Foreign currency contracts-
assets (1)
Foreign currency contracts-
liabilities (2)
Derivative liability for interest
rate swap (3)
Contingent consideration (3)
(1)
(2)
(3)
Included in “Other receivables” in the accompanying Consolidated Balance Sheet as of June 30, 2012.
Included in “Accrued expenses” in the accompanying Consolidated Balance Sheet as of June 30, 2012.
Included in “Long-term liabilities” in the accompanying Consolidated Balance Sheet as of June 30, 2012.
Fair Value Measurements at June 30, 2011 Using
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents:
Time deposits
Investments:
Trading securities
Time deposits
Foreign currency contracts-
assets (4)
Foreign currency contracts-
liabilities (5)
Derivative liability for interest
rate swap (6)
Contingent consideration (7)
-
$ 467
-
468
547
352
333
$475
-
-
-
-
-
(4)
Included in “Other receivables” in the accompanying Consolidated Balance Sheet as of June 30, 2011.
60
-
$974
974
Total
$ 467
475
468
547
352
333
-
-
-
-
-
-
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
(5)
(6)
(7)
Included in “Accrued expenses” in the accompanying Consolidated Balance Sheet as of June 30, 2011.
Included in “Long-term liabilities” in the accompanying Consolidated Balance Sheet as of June 30, 2011.
$68 included in “Accrued expenses” and $906 included in Long-term liabilities in the accompanying Consolidated Balance Sheet as of June 30,
2011.
(6) Goodwill and Other Intangible Assets
As of June 30, 2012 and June 30, 2011, there was goodwill of $33,495 and $33,625, respectively, of which $31,739 relates to
the Rising acquisition, which is part of the Human Health reportable segment and the remainder relates to the Pharmaceutical
Ingredients reportable segment. In fiscal 2012, the change in goodwill is attributable to foreign currency exchange rates used
to translate the financial statements of foreign subsidiaries.
Intangible assets subject to amortization as of June 30, 2012 and 2011 were as follows:
June 30, 2012
Customer relationships
Trademarks
Product rights and related intangibles
License agreements
EPA registrations and related data
Technology-based intangibles
June 30, 2011
Customer relationships
Trademarks
Product rights and related intangibles
License agreements
EPA registrations and related data
Technology-based intangibles
Gross
Carrying
Value
Accumulated
Amortization
Net Book
Value
$ 7,226
1,700
33,221
5,938
11,535
155
$59,775
$ 3,435
729
4,105
1,789
5,285
52
$15,395
$ 3,791
971
29,116
4,149
6,250
103
$44,380
Gross
Carrying
Value
Accumulated
Amortization
Net Book
Value
$ 7,624
1,700
32,846
5,938
11,576
155
$59,839
$ 3,415
243
1,446
863
4,171
30
$10,168
$ 4,209
1,457
31,400
5,075
7,405
125
$49,671
Intangible assets with definitive useful lives are amortized using the straight-line method over their estimated useful lives.
The straight-line method is utilized as it best reflects the use of the asset. The estimated useful lives of customer relationships,
trademarks, product rights and related intangibles, license agreements, EPA registrations and related data and technology-
based intangibles are 7-11 years, 4 years, 3-14 years, 6-11 years, 10 years, and 7 years, respectively.
As of June 30, 2012 and June 30, 2011, the Company also had $871 and $987, respectively, of intangible assets pertaining to
trademarks which have indefinite lives and are not subject to amortization. The changes in trademarks with indefinite lives
and the change in the gross carrying value of customer relationships are attributable to foreign currency exchange rates used
to translate the financial statements of foreign subsidiaries.
61
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Amortization expense for intangible assets subject to amortization amounted to $5,625, $4,468 and $1,998 for the years
ended June 30, 2012, 2011 and 2010, respectively. The estimated aggregate amortization expense for intangible assets
subject to amortization for each of the succeeding years ended June 30, 2013 through June 30, 2018 are as follows: 2013:
$5,618; 2014: $5,618; 2015: $5,590; 2016: $5,532; 2017: $5,208 and 2018 and thereafter: $16,814.
(7) Accrued Expenses
The components of accrued expenses as of June 30, 2012 and 2011 were as follows:
Accrued compensation
Accrued environmental remediation costs-current portion
Customers advance payments
Reserve for price concessions
Other accrued expenses
2012
$ 6,043
1,933
58
5,633
11,254
$24,921
2011
$4,892
1,964
5,044
4,506
15,613
$32,019
Aceto does not generally require advance payments of its customers. The balance of customer advance payments as of June
30, 2011 primarily relates to one customer in which the Company required this customer to partially finance the inventory
costs of one of its agricultural protection products.
(8) Environmental Remediation
In fiscal years 2011, 2009, 2008 and 2007, the Company received letters from the Pulvair Site Group, a group of potentially
responsible parties (PRP Group) who are working with the State of Tennessee (the State) to remediate a contaminated
property in Tennessee called the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous substances to the site
which were released into the environment. The State had begun administrative proceedings against the members of the PRP
Group and Aceto with respect to the cleanup of the Pulvair site and the PRP Group has begun to undertake cleanup. The PRP
Group is seeking a settlement of approximately $1,700 from the Company for its share to remediate the site contamination.
Although the Company acknowledges that it shipped materials to the site for formulation over twenty years ago, the
Company believes that the evidence does not show that the hazardous materials sent by Aceto to the site have significantly
contributed to the contamination of the environment and thus believes that, at most, it is a de minimus contributor to the site
contamination. Accordingly, the Company believes that the settlement offer is unreasonable. The impact of the resolution of
this matter on the Company's results of operations in a particular reporting period is not known. However, management
believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition
or liquidity.
The Company has environmental remediation obligations in connection with Arsynco, Inc. (Arsynco), a subsidiary formerly
involved in manufacturing chemicals located in Carlstadt, New Jersey, which was closed in 1993 and is currently held for
sale. Based on continued monitoring of the contamination at the site and the approved plan of remediation, the Company
received an estimate from an environmental consultant stating that the costs of remediation could be between $8,400 and
$10,200. Remediation has commenced in fiscal 2010, and as of June 30, 2012 and June 30, 2011, a liability of $7,566 and
$7,962, respectively, is included in the accompanying consolidated balance sheets for this matter. In accordance with GAAP,
management believes that the majority of costs incurred to remediate the site will be capitalized in preparing the property
which is currently classified as held for sale. An appraisal of the fair value of the property by a third-party appraiser supports
the assumption that the expected fair value after the remediation is in excess of the amount required to be capitalized.
However, these matters, if resolved in a manner different from those assumed in current estimates, could have a material
adverse effect on the Company’s financial condition, operating results and cash flows when resolved in a future reporting
period.
In connection with the environmental remediation obligation for Arsynco, in July 2009, the Company entered into a
settlement agreement with BASF Corporation (BASF), the former owners of the Arsynco property. In accordance with the
settlement agreement, BASF paid for a portion of the prior remediation costs and going forward, will co-remediate the
property with the Company. The contract states that BASF pay $550 related to past response costs and pay a proportionate
share of the future remediation costs. Accordingly, the Company had recorded a gain of $550 in fiscal 2009. This $550 gain
62
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
relates to the partial reimbursement of costs of approximately $1,200 that the Company had previously expensed. The
Company also recorded an additional receivable from BASF, with an offset against property held for sale, representing its
estimated portion of the future remediation costs. The balance of this receivable for future remediation costs as of June 30,
2012 and June 30, 2011 is $3,405 and $3,583, respectively, which is included in the accompanying consolidated balance
sheets.
In March 2006, Arsynco received notice from the EPA of its status as a PRP under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) for a site described as the Berry’s Creek Study Area. Arsynco is one
of over 150 PRPs which have potential liability for the required investigation and remediation of the site. The estimate of the
potential liability is not quantifiable for a number of reasons, including the difficulty in determining the extent of
contamination and the length of time remediation may require. In addition, any estimate of liability must also consider the
number of other PRPs and their financial strength. Based on prior practice in similar situations, it is possible that the State
may assert a claim for natural resource damages with respect to the Arsynco site itself, and either the federal government or
the State (or both) may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any
such claim with respect to Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site. Any claim for natural resource damages with respect to the Arsynco site itself may
also be asserted against BASF, the former owners of the Arsynco property. Since an amount of the liability cannot be
reasonably estimated at this time, no accrual is recorded for these potential future costs. The impact of the resolution of this
matter on the Company’s results of operations in a particular reporting period is not known. However, management believes
that the ultimate outcome of this matter will not have a material adverse effect on the Company’s financial condition or
liquidity.
(9) Debt
Long-term debt
Revolving bank loans
Term bank loans
Mortgage
Less current portion
Credit Facilities
June 30,
2012
2011
$11,000
31,000
3,765
45,765
6,713
$39,052
$14,050
37,000
3,947
54,997
6,247
$48,750
On December 31, 2010, the Company entered into a new Credit Agreement (the “Credit Agreement”) with two domestic
financial institutions. The Credit Agreement terminated the Amended and Restated Credit Agreement, dated April 23, 2010.
Aceto may borrow, repay and reborrow during the period ending December 31, 2015, up to but not exceeding at any one time
outstanding $40,000 (the “Revolving Loans”). The Revolving Loans may be (i) Adjusted LIBOR Loans (as defined in the
Credit Agreement), (ii) Alternate Base Rate Loans (as defined in the Credit Agreement) or (iii) a combination thereof. As of
June 30, 2012, the Company borrowed Revolving Loans aggregating $11,000, which loans are Adjusted LIBOR Loans at an
interest rate of 2.25% at June 30, 2012. The Credit Agreement also allows for the borrowing up to $40,000 (the “Term
Loan”). The Company borrowed a Term Loan of $40,000 on December 31, 2010. The Term Loan interest may be payable as
an (i) Adjusted LIBOR Loan, (ii) Alternate Base Rate Loan, or (iii) a combination thereof. As of June 30, 2012, the
remaining amount outstanding under the original amortizing Term Loan is $31,000 and is payable as an Adjusted LIBOR
Loan at an interest rate of 2.25% at June 30, 2012. The Term Loan is payable as to principal in twenty (20) consecutive
quarterly installments, which commenced on March 31, 2011 and will continue on each June 30, September 30 and
December 31st thereafter, each in the amount set forth below opposite the applicable installment, provided that the final
payment on the Term Loan Maturity Date (as defined in the Credit Agreement) shall be in an amount equal to the then
outstanding unpaid principal amount of the Term Loan:
63
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Installment
Amount
1 through 8
9 through 12
13 through 16
17 through 20
$ 1,500
$ 1,750
$ 2,000
$ 3,250
As such, the Company has classified $6,500 of the Term Loan as short-term in the consolidated balance sheet at June 30,
2012. The Credit Agreement also provides that commercial letters of credit shall be issued to provide the primary payment
mechanism in connection with the purchase of any materials, goods or services by the Company in the ordinary course of
business. The Company had open letters of credit of approximately $199 and $145 as of June 30, 2012 and June 30, 2011,
respectively. The terms of these letters of credit are all less than one year. No material loss is anticipated due to non-
performance by the counterparties to these agreements.
The Credit Agreement provides for a security interest in all personal property of the Company. The Credit Agreement
contains several financial covenants including, among other things, maintaining a minimum level of debt service. The
Company is also subject to certain restrictive covenants, including, among other things, covenants governing liens,
limitations on indebtedness, limitations on cash dividends, guarantees, sale of assets, sales of receivables, and loans and
investments. The Company was in compliance with all covenants at June 30, 2012.
The Company has available lines of credit with foreign financial institutions. At June 30, 2012, the Company had available
lines of credit with foreign financial institutions totaling $8,378. In June 2011, the Company drew down $50 from these
lines of credit, leaving an available balance of $20,423. The Company has issued a cross corporate guarantee to the foreign
banks. Short term loans under these agreements bear interest at a fixed rate of 5.5% at June 30, 2012 and LIBOR plus 0.75%
in prior years, which was 0.94% and 1.10% at June 30, 2011 and 2010, respectively. The Company is not subject to any
financial covenants under these arrangements.
Under the above financing arrangements, the Company had $42,000 in bank loans and $199 in letters of credit leaving an
unused facility of $37,179 at June 30, 2012. At June 30, 2011 the Company had $51,050 in bank loans and $145 in letters of
credit leaving an unused facility of $49,278.
Mortgage
On June 30, 2011, the Company entered into a mortgage payable for $3,947 on its new corporate headquarters, in Port
Washington, New York. This mortgage payable is secured by the land and building and is being amortized over a period of
20 years. The mortgage payable bears interest at 5.92% and matures on June 30, 2021.
Maturity of Long-term Debt
Long-term debt matures by fiscal year as follows:
$ 6,713
2013
7,697
2014
10,697
2015
17,697
2016
197
2017
Thereafter
2,764
$45,765
64
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
(10) Stock Based Compensation Plans
At the annual meeting of shareholders of the Company, held on December 2, 2010, the Company’s shareholders approved the
Aceto Corporation 2010 Equity Participation Plan (“2010 Plan”). Under the 2010 Plan, grants of stock options, restricted
stock, restricted stock units, stock appreciation rights, and stock bonuses (collectively, “Stock Awards”) may be made to
employees, non-employee directors and consultants of the Company, including the chief executive officer, chief financial
officer and other named executive officers. The maximum number of shares of common stock of the Company that may be
issued pursuant to Stock Awards granted under the 2010 Plan will not exceed, in the aggregate, 2,000 shares.
At the annual meeting of shareholders of the Company held December 6, 2007, the shareholders approved the Aceto
Corporation 2007 Long-Term Performance Incentive Plan (2007 Plan). The Company has reserved 700 shares of common
stock for issuance under the 2007 Plan to the Company’s employees and non-employee directors. There are five types of
awards that may be granted under the 2007 Plan-options to purchase common stock, stock appreciation rights, restricted
stock, restricted stock units and performance incentive units.
In September 2002, the Company adopted the Aceto Corporation 2002 Stock Option Plan (2002 Plan), which was ratified by
the Company’s shareholders in December 2002. Under the 2002 Plan, restricted stock or options to purchase up to 1,688
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 not be less than the 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. Restricted stock may be
granted to an eligible participant in lieu of a portion of any annual cash bonus earned by such participant. Such award may
include additional shares of restricted stock (premium shares) greater than the portion of bonus paid in restricted stock. The
restricted stock award is vested at issuance and the restrictions lapse ratably over a period of years as determined by the
Board of Directors, generally three years. The premium shares vest when all the restrictions lapse, provided that the
participant remains employed by the Company at that time.
In fiscal years 2012 and 2011, the Company granted 217 and 240, stock options, respectively, to employees at an exercise
price equal to the market value of the common stock on the date of grant, determined in accordance with the 2010 Plan.
These options vest over three years and have a term of ten years from the date of grant.
As of June 30, 2012, there were 674, 39 and 28 shares of common stock available for grant under the 2010, 2007 and 2002
Plans, respectively.
In December 1998, the Company adopted the Aceto Corporation 1998 Omnibus Equity Award Plan (1998 Plan). The 1998
Plan expired in December 2008. Outstanding options survive the expiration of the 1998 Plan.
Under the terms of the Company’s 1980 Stock Option Plan, as amended (1980 Plan), options may be issued to officers and
key employees. The exercise price per share can be greater or less than the market value of the stock on the date of grant. The
1980 Plan expired in September 2005. Outstanding options survive the expiration of the 1980 Plan.
65
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
The following summarizes the shares of common stock under options for all plans at June 30, 2012, 2011 and 2010, and the
activity with respect to options for the respective years then ended:
Balance at June 30, 2009
Granted
Exercised
Forfeited (including cancelled options)
Balance at June 30, 2010
Granted
Exercised
Forfeited (including cancelled options)
Balance at June 30, 2011
Granted
Exercised
Forfeited (including cancelled options)
Balance at June 30, 2012
Options exercisable at June 30, 2012
Weighted average
exercise price per
share
$ 7.74
Shares subject to
option
-
2,903
-
3.02
(567)
(423)
10.59
1,913 $ 8.51
7.76
240
6.28
(98)
9.82
(96)
$ 8.46
1,959
6.10
217
4.33
(168)
9.68
(193)
$ 8.47
1,815
$ 8.87
1,472
Aggregate
Intrinsic
Value
$2,177
$1,390
The total intrinsic value of stock options exercised during the years ended June 30, 2012, 2011 and 2010 was approximately
$690, $178 and $1,373, respectively. At June 30, 2012, outstanding options had expiration dates ranging from December
2012 to December 2021.
Under the 2002 Plan and the 1998 Plan, compensation expense is recorded for the market value of the restricted stock awards
in the year the related bonus is earned and over the vesting period for the market value at the date of grant of the premium
shares granted. In fiscal 2012, 2011 and 2010, restricted stock awarded and premium shares vested of 8, 11, and 10 common
shares, respectively, were issued under employee incentive plans, which increased stockholders’ equity by $49, $66 and $69,
respectively. The related non-cash compensation expense related to the vesting of premium shares during the year was $11,
$33 and $54 in fiscal 2012, 2011 and 2010, respectively. Additionally, non-cash compensation expense of $333, $186 and
$360 was recorded in fiscal 2012, 2011 and 2010, respectively, relating to stock option grants, which is included in selling,
general and administrative expenses. Included in the years ended June 30, 2012 and June 30, 2011 stock-based compensation
expense for stock options was approximately $11 and $54, respectively, related to the modification of certain stock options.
As of June 30, 2012, the total unrecognized compensation cost related to option awards is $589.
The following summarizes the non-vested stock options at June 30, 2012 and the activity with respect to non-vested options
for the year ended June 30, 2012:
Non-vested at June 30, 2011
Granted
Vested
Forfeited
Non-vested at June 30, 2012
Shares
subject to
option
235
217
(79)
(30)
343
Weighted
average grant
date fair value
$2.88
2.07
2.88
2.74
$2.38
66
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
There were no stock options granted during fiscal 2010. The per-share weighted-average fair value of stock options granted
during 2012 and 2011 was $2.07 and $2.88, respectively, on the date of the grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
Expected life
Expected volatility
Risk-free interest rate
Dividend yield
2012
2011
5.7 years
48.1%
1.59%
3.24%
5.7 years
48.8%
1.95%
2.58%
During the year ended June 30, 2012, the Company granted 103 shares of restricted common stock to its employees that vest
over three years and 38 shares of restricted common stock to its non-employee directors, which vest over one year. In
addition, the Company also issued a target grant of 49 performance-vested restricted stock units, which grant could be as
much as 73 if certain performance criteria and market conditions are met. Performance-vested restricted stock units will cliff
vest 100% at the end of the third year following grant in accordance with the performance metrics set forth in the applicable
employee performance-vested restricted stock unit grant.
In December 2010, the Company granted 62 shares of restricted common stock to its employees that vest over three years. In
addition, the Company also issued a target grant of 62 performance-vested restricted stock units, which grant could be as
much as 93 if certain performance criteria are met. Performance-vested restricted stock units will cliff vest 100% at the end of
the third year following grant in accordance with the performance metrics set forth in the applicable employee performance-
vested restricted stock unit grant.
For the years ended June 30, 2012, 2011 and 2010, the Company recorded non-cash stock-based compensation expense of
approximately $824, $635, and $629, respectively, which is included in selling, general and administrative expenses, for
shares of restricted common stock and restricted stock units.
The remaining stock-based compensation expense for restricted stock awards and units is approximately $1,163 at June 30,
2012 and the related weighted average period over which it is expected that such unrecognized compensation cost will be
recognized is approximately 1.6 years.
A summary of restricted stock awards including restricted stock units as of June 30, 2012, is presented below:
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at June 30, 2012
Weighted
average grant
date fair value
$7.80
6.34
7.98
7.24
$6.76
Shares
170
195
(69)
(20)
276
67
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
(11) Interest and Other Income
Interest and other income during fiscal 2012, 2011 and 2010 was comprised of the following:
Dividends
Interest
Net gain on investments
Foreign government subsidies received
Joint venture equity earnings
Foreign currency (losses) gains
Miscellaneous income
2012
$ 139
184
-
41
1,598
(74)
113
$2,001
2011
$ 208
154
140
41
1,624
(215)
30
$1,982
2010
$ 123
258
1
28
1,201
(634)
18
$ 995
The Company’s joint venture earnings represent the Company’s investment in a corporate joint venture established for the
purpose of selling a particular agricultural protection product. The Company’s initial investment was $6 in fiscal 2009,
representing a 30% ownership and accounts for this joint venture using the equity method of accounting.
(12) Income Taxes
The components of income before the provision for income taxes are as follows:
Domestic operations
Foreign operations
2012
$ 16,418
8,322
$ 24,740
2011
$ 7,039
9,923
$ 16,962
2010
$ 3,581
6,622
$ 10,203
The components of the provision for income taxes are as follows:
Federal:
Current
Deferred
State and local:
Current
Deferred
Foreign:
Current
Deferred
2012
2011
2010
$6,533
(1,476)
$ 5,342
(561)
$ 2,101
(763)
716
(277)
634
(162)
314
(62)
2,287
(24)
$ 7,759
2,693
48
$ 7,994
2,003
29
$ 3,622
Income taxes payable, which is included in accrued expenses, was $800 and $1,240 at June 30, 2012 and 2011, respectively.
68
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at June 30, 2012 and 2011 are
presented below:
2012
2011
Deferred tax assets:
Accrued environmental remediation liabilities not
currently deductible
Accrued deferred compensation
Accrual for acquisition costs not currently deductible
Accrual for sales deductions not currently deductible
Additional inventoried costs for tax purposes
Allowance for doubtful accounts receivable
Depreciation and amortization
Accrual for payments to former senior management
and other personnel related costs
Contingent consideration
Domestic net operating loss carryforwards
Foreign net operating loss carryforwards
Total gross deferred tax assets
Valuation allowances
Deferred tax liabilities:
Foreign deferred tax liabilities
Unrealized gain on investments
Goodwill
Installment gain on sale of assets
Other
Total gross deferred tax liabilities
$ 302
2,429
337
1,528
255
134
1,438
159
489
200
965
8,236
(946)
7,290
(8)
-
(1,457)
-
(166)
(1,631)
$ 370
2,001
350
1,174
176
81
549
194
-
220
1,283
6,398
(1,019)
5,379
(357)
(178)
(622)
(136)
(219)
(1,512)
Net deferred tax assets
$ 5,659
$ 3,867
The following table shows the current and non current deferred tax assets (liabilities) at June 30, 2012 and 2011:
Current deferred tax assets, net
Non-current deferred tax assets, net
Current deferred tax liabilities
Non current deferred tax liabilities
Net deferred tax assets
2012
$ 948
4,719
-
( 8)
$ 5,659
2011
$ 747
3,477
(306)
(51)
$ 3,867
The net change in the total valuation allowance for the year ended June 30, 2012 was a decrease of $73. The net change in the
total valuation allowance for the year ended June 30, 2011 was an increase of $65. A valuation allowance is provided when
it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company has
established valuation allowances primarily for net operating loss carryforwards in certain foreign countries. 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 are not expected to be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which net operating loss carryforwards are utilizable and temporary
differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In order to fully realize the net deferred tax assets
recognized at June 30, 2012, the Company will need to generate future taxable income of approximately $14,900.
69
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
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. There can be no assurance, however, that the Company will generate any earnings or any specific
level of continuing earnings in the future. The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
Deferred taxes have not been provided for undistributed earnings of foreign subsidiaries amounting to approximately $81,400
at June 30, 2012 since substantially all of these earnings are expected to be permanently reinvested in foreign operations. A
deferred tax liability will be recognized when the Company expects that it will recover these undistributed earnings in a
taxable manner, such as through the receipt of dividends or sale of the investments. In connection with the Rising acquisition,
the Company repatriated approximately $15,000 of cash from certain foreign subsidiaries, resulting in a tax charge of
approximately $2,600 recorded during the year ended June 30, 2011. The Company intends to permanently reinvest these
undistributed earnings and has no plan for further repatriation. Determination of the amount of unrecognized deferred U.S.
income tax liabilities is not practical to calculate because of the complexity of this hypothetical calculation. In addition,
unrecognized foreign tax credit carryforwards would be available to reduce a portion of such U.S. tax liability.
We operate in various tax jurisdictions, and although we believe that we have provided for income and other taxes in
accordance with the relevant regulations, if the applicable regulations were ultimately interpreted differently by a taxing
authority, we may be exposed to additional tax liabilities.
A reconciliation of the statutory federal income tax rate and the effective tax rate for continuing operations for the fiscal years
ended June 30, 2012, 2011 and 2010 follows:
Federal statutory tax rate
State and local taxes, net of federal income tax
benefit
Decrease (increase) in valuation allowance
Foreign tax rate differential
Impact of repatriation of non-US earnings
Other
Effective tax rate
2012
35.0%
2011
35.0%
3.0
0.2
(3.0)
(2.1)
(1.7)
31.4%
2.4
(0.4)
(4.4)
15.3
(0.8)
47.1%
2010
34.0%
2.1
0.5
(3.1)
-
2.0
35.5%
At June 30, 2012, the Company had utilizable foreign net operating loss carryforwards of approximately $600 which are
available to offset future foreign taxable income and which have no expiration date.
There are no material unrecognized tax benefits included in the consolidated balance sheet that would, if recognized, have a
material effect on the Company’s effective tax rate. The Company is continuing its practice of recognizing interest and
penalties related to income tax matters in income tax expense. The total accrual for interest and penalties related to uncertain
tax positions was $0 June 30, 2012 and June 30, 2011. The Company did not recognize interest and penalties during the years
ended June 30, 2012 and June 30, 2011. The Company recognized interest and penalties of $5 related to income taxes during
the year ended June 30, 2010. The Company files U.S. federal, U.S. state, and foreign tax returns, and is generally no longer
subject to tax examinations for fiscal years prior to 2009 (in the case of certain foreign tax returns, fiscal year 2007).
70
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
(13) Supplemental Cash Flow Information
Cash paid for interest and income taxes during fiscal 2012, 2011 and 2010 was as follows:
Interest
Income taxes, net of refunds
2012
$2,628
$9,402
2011
$1,570
$8,307
2010
$ 230
$4,666
In connection with the acquisition of Rising, the Company issued shares of Aceto common stock with a fair market value of
$9,000, which is a non-cash item and is excluded from the Consolidated Statement of Cash Flows during the year ended June
30, 2011. The Company had non-cash items excluded from the Consolidated Statements of Cash Flows during the years
ended June 30, 2011 and 2010 of $400 and $2,189, respectively, related to data filed with the United States Environmental
Protection Agency.
(14) Retirement Plans
Defined Contribution Plans
The Company has defined contribution retirement plans in which certain employees are eligible to participate, including
deferred compensation plans (see below). The Company's annual contribution per employee, which is at management's
discretion, is based on a percentage of the employee’s compensation. The Company's provision for these defined contribution
plans amounted to $1,698, $1,168 and $1,052 in fiscal 2012, 2011 and 2010, respectively.
Defined Benefit Plans
The Company sponsors certain defined benefit pension plans covering certain employees of its German subsidiaries who
meet the plan’s eligibility requirements. The accrued pension liability as of June 30, 2012 was $1,138. The accrued pension
liability as of June 30, 2011 was $982. Net periodic pension costs, which consists principally of interest cost and service
cost was $51 in fiscal 2012, $54 in fiscal 2011 and $56 in fiscal 2010. The Company’s plans are funded in conformity with
the funding requirements of the applicable government regulations. An assumed weighted average discount rate of 4.1%,
5.3% and 5.2% and a compensation increase rate of 1.5%, 1.3% and 0.8% were used in determining the actuarial present
value of benefit obligations as of June 30, 2012, 2011 and 2010, respectively.
Deferred Compensation Plans
To comply with the requirements of the American Jobs Creation Act of 2004, as of December 2004, the Company froze its
non-qualified Supplemental Executive Retirement Plan (the Frozen Plan) and has not allowed any further deferrals or
contributions to the Frozen Plan after December 31, 2004. All of the earned benefits of the participants in the Frozen Plan as
of December 31, 2004, will be preserved under the existing plan provisions.
On March 14, 2005, the Company’s Board of Directors adopted the Aceto Corporation Supplemental Executive Deferred
Compensation Plan (the Plan). The Plan is a non-qualified deferred compensation plan intended to provide certain qualified
executives with supplemental benefits beyond the Company’s 401(k) plan, as well as to permit additional deferrals of a
portion of their compensation. The Plan is intended to comply with the provisions of section 409A of the Internal Revenue
Code of 1986, as amended, and is designed to provide comparable benefits to those under the Frozen Plan. Substantially all
compensation deferred under the Plan, as well as Company contributions, is held by the Company in a grantor trust, which is
considered an asset of the Company. The assets held by the grantor trust are in life insurance policies.
71
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
As of June 30, 2012, the Company recorded a liability under the Plans of $3,437 (of which $2,494 is included in long-term
liabilities and $943 is included in accrued expenses) and an asset (included in other assets) of $3,086, primarily representing
the cash surrender value of policies owned by the Company. As of June 30, 2011, the Company recorded a liability under the
Plans of $3,494 (of which $2,894 is included in long-term liabilities and $600 is included in accrued expenses) and an asset
(included in other assets) of $3,606, primarily representing the cash surrender value of policies owned by the Company.
(15) Financial Instruments
Derivative Financial Instruments
The Company is exposed to credit losses in the event of non-performance by the financial institutions, who are the
counterparties, on its future foreign currency contracts. The Company anticipates, however, that the financial institutions will
be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral to support financial
instruments, but monitors the credit standing of the financial institutions.
Off-Balance Sheet Risk
Commercial letters of credit are issued by the Company during the ordinary course of business through major banks as
requested by certain suppliers. The Company had open letters of credit of approximately $199 and $145 as of June 30, 2012
and 2011, respectively. The terms of these letters of credit are all less than one year. No material loss is anticipated due to
non-performance by the counterparties to these agreements.
Fair Value of Financial Instruments
The carrying values of all financial instruments classified as a current asset or current liability are deemed to approximate fair
value because of the short maturity of these instruments. The fair value of the Company’s notes receivable and accrued
expenses was based upon current rates offered for similar financial instruments to the Company. The Company believes that
borrowings outstanding under its long-term bank loans and mortgage approximate fair value because such borrowings bear
interest at current variable market rates.
Business and Credit Concentration
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade
receivables. The Company’s customers are dispersed across many industries and are located throughout the United States as
well as in Canada, France, Germany, Malaysia, the Netherlands, Switzerland, the United Kingdom, and other countries. 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 this
allowance. At June 30, 2011, one customer accounted for 12% of trade receivables.
No single product or customer accounted for as much as 10% of net sales in fiscal 2012, 2011 or 2010.
During the fiscal years ended June 30, 2012, 2011 and 2010, approximately 69%, 70% and 72%, respectively, of the
Company’s purchases came from Asia and approximately 13%, 18% and 18%, respectively, came from Europe.
The Company maintains operations located outside of the United States. Net assets located in Europe and Asia approximated
$48,606 and $42,369, respectively at June 30, 2012. Net assets located in Europe and Asia approximated $51,995 and
$40,782, respectively at June 30, 2011.
72
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
(16) Commitments, Contingencies and Other Matters
As of June 30, 2012, the Company has outstanding purchase obligations totaling $72,408 with suppliers to the Company’s
domestic and foreign operations to acquire certain products for resale to third party customers.
The Company and its subsidiaries are subject to various claims which have arisen in the normal course of business. The
impact of the final resolution of these matters on the Company’s results of operations in a particular reporting period is not
known. Management is of the opinion, however, that the ultimate outcome of such matters will not have a material adverse
effect upon the Company's financial condition or liquidity.
In fiscal years 2011, 2009, 2008 and 2007, the Company received letters from the Pulvair Site Group, a group of potentially
responsible parties (PRP Group) who are working with the State of Tennessee (the State) to remediate a contaminated
property in Tennessee called the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous substances to the site
which were released into the environment. The State had begun administrative proceedings against the members of the PRP
Group and Aceto with respect to the cleanup of the Pulvair site and the PRP Group has begun to undertake cleanup. The PRP
Group is seeking a settlement of approximately $1,700 from the Company for its share to remediate the site contamination.
Although the Company acknowledges that it shipped materials to the site for formulation over twenty years ago, the
Company believes that the evidence does not show that the hazardous materials sent by Aceto to the site have significantly
contributed to the contamination of the environment and thus believes that, at most, it is a de minimus contributor to the site
contamination. Accordingly, the Company believes that the settlement offer is unreasonable. The impact of the resolution of
this matter on the Company's results of operations in a particular reporting period is not known. However, management
believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition
or liquidity.
The Company has environmental remediation obligations in connection with Arsynco, Inc. (Arsynco), a subsidiary formerly
involved in manufacturing chemicals located in Carlstadt, New Jersey, which was closed in 1993 and is currently held for
sale. Based on continued monitoring of the contamination at the site and the approved plan of remediation, the Company
received an estimate from an environmental consultant stating that the costs of remediation could be between $8,400 and
$10,200. Remediation has commenced in fiscal 2010, and as of June 30, 2012 and June 30, 2011, a liability of $7,566 and
$7,962, respectively, is included in the accompanying consolidated balance sheets for this matter. In accordance with GAAP,
management believes that the majority of costs incurred to remediate the site will be capitalized in preparing the property
which is currently classified as held for sale. An appraisal of the fair value of the property by a third-party appraiser supports
the assumption that the expected fair value after the remediation is in excess of the amount required to be capitalized.
However, these matters, if resolved in a manner different from those assumed in current estimates, could have a material
adverse effect on the Company’s financial condition, operating results and cash flows when resolved in a future reporting
period.
In connection with the environmental remediation obligation for Arsynco, in July 2009, the Company entered into a
settlement agreement with BASF Corporation (BASF), the former owners of the Arsynco property. In accordance with the
settlement agreement, BASF paid for a portion of the prior remediation costs and going forward, will co-remediate the
property with the Company. The contract states that BASF pay $550 related to past response costs and pay a proportionate
share of the future remediation costs. Accordingly, the Company had recorded a gain of $550 in fiscal 2009. This $550 gain
relates to the partial reimbursement of costs of approximately $1,200 that the Company had previously expensed. The
Company also recorded an additional receivable from BASF, with an offset against property held for sale, representing its
estimated portion of the future remediation costs. The balance of this receivable for future remediation costs as of June 30,
2012 and June 30, 2011 is $3,405 and $3,583, respectively, which is included in the accompanying consolidated balance
sheets.
In March 2006, Arsynco received notice from the EPA of its status as a PRP under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) for a site described as the Berry’s Creek Study Area. Arsynco is one
of over 150 PRPs which have potential liability for the required investigation and remediation of the site. The estimate of the
potential liability is not quantifiable for a number of reasons, including the difficulty in determining the extent of
contamination and the length of time remediation may require. In addition, any estimate of liability must also consider the
73
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
number of other PRPs and their financial strength. Based on prior practice in similar situations, it is possible that the State
may assert a claim for natural resource damages with respect to the Arsynco site itself, and either the federal government or
the State (or both) may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any
such claim with respect to Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has
identified in connection with that site. Any claim for natural resource damages with respect to the Arsynco site itself may
also be asserted against BASF, the former owners of the Arsynco property. Since an amount of the liability cannot be
reasonably estimated at this time, no accrual is recorded for these potential future costs. The impact of the resolution of this
matter on the Company’s results of operations in a particular reporting period is not known. However, management believes
that the ultimate outcome of this matter will not have a material adverse effect on the Company’s financial condition or
liquidity.
A subsidiary of the Company markets certain agricultural protection products which are subject to the Federal Insecticide,
Fungicide and Rodenticide Act (FIFRA). FIFRA requires that test data be provided to the 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 that new test
data be generated 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 several such
task force groups, which requires payments for such memberships. In addition, in connection with our agricultural protection
business, the Company plans to acquire product registrations and related data filed with the United States Environmental
Protection Agency to support such registrations and other supporting data for several products. The acquisition of these
product registrations and related data filed with the United States Environmental Protection Agency as well as payments to
various task force groups could approximate $2,822 through fiscal 2013, of which $242 and $600 has been accrued as of June
30, 2012 and June 30, 2011, respectively.
The Company leases office facilities in the United States, the Netherlands, Germany, France and Singapore expiring at
various dates between December 2012 and December 2017.
At June 30, 2012, the future minimum lease payments for office facilities and equipment for each of the five succeeding
years and in the aggregate are as follows:
Fiscal year
2013
2014
2015
2016
2017
Thereafter
Amount
$1,439
1,234
892
633
633
305
$5,136
Total rental expense amounted to $992, $1,562 and $1,840 for fiscal 2012, 2011 and 2010, respectively.
(17) Related Party Transactions
The Company has purchased inventory and incurred product development costs from a company that is partially owned by
two of its executive officers. In addition, Aceto purchases product development costs from an affiliate of this company that is
partially owned by the two executive officers. Payments to these two related companies approximated $3,082 and $1,326 in
fiscals 2012 and 2011, respectively.
One director of the Company is affiliated with a law firm that served as legal counsel to the Company on various corporate
matters. During fiscal 2012, 2011 and 2010, the Company incurred legal fees of $3, $195 and $162, respectively, for services
rendered to the Company by this law firm. In addition, a former director under his capacity as a board member was affiliated
with a law firm that served as legal counsel to the Company on various corporate matters. During fiscal 2011 and 2010, the
74
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Company incurred legal fees of $32 and $243, respectively, for services rendered to the Company by this law firm. The
Company believes that the fees charged by both of these firms were at rates comparable to rates obtainable from other firms
for similar services. The Company does not expect to utilize the services of these law firms in the future.
During fiscal 2012 and 2011, the Company purchased inventory from its joint venture in the amount of $2,554 and $2,332,
respectively.
(18) Other Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update (ASU) 2011-04, “Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which amends ASC 820, “Fair
Value Measurement”. ASU 2011-04 does not extend the use of fair value accounting, but provides guidance on how it
should be applied where its use is already required or permitted by other standards within U.S. GAAP or International
Financial Reporting Standards (IFRSs). ASU 2011-04 changes the wording used to describe many requirements in
U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally,
ASU 2011-04 clarifies the FASB’s intent about the application of existing fair value measurements. ASU 2011-04
became effective for the Company January 1, 2012. The adoption of ASU 2011-04 did not have an impact on the
Company’s consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income”, which eliminates the option to
report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an
entity to present the total of comprehensive income, the components of net income and the components of other
comprehensive income either in a single continuous statement or in two separate but consecutive statements. This
pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In
December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05” . ASU 2011-12 deferred certain aspects of ASU 2011-05. The new guidance is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company will
adopt this guidance in the first quarter of fiscal 2013. Early adoption of the new guidance is permitted and full retrospective
application is required. The adoption of ASU 2011-05 and the deferrals in ASU 2011-12 are not expected to have a material
impact on the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for
Impairment”, to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity
to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit
is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-
step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective
for the Company in fiscal 2013 and earlier adoption is permitted. The Company is currently assessing the impact that the
provisions of this pronouncement will have on its consolidated financial statements.
In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and
Liabilities”, which requires companies to disclose information about financial instruments that have been offset and related
arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial
position. Companies will be required to provide both net (offset amounts) and gross information in the notes to the financial
statements for relevant assets and liabilities that are offset. This update is effective for the Company in its first quarter of
fiscal 2014 and will be applied retrospectively. The Company does not believe adoption of this new guidance will have a
significant impact on its consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment (the revised
standard)” , which allows companies the option to perform a qualitative assessment to determine whether further impairment
testing of indefinite-lived intangible assets is necessary. Under this guidance, an entity is required to perform a quantitative
impairment test if qualitative factors indicate that it is more likely than not that indefinite-lived intangible assets are impaired.
The qualitative factors are consistent with the guidance established for goodwill impairment testing and include identifying
and assessing events and circumstances that would most significantly impact, individually or in the aggregate, the carrying
value of the indefinite-lived intangible assets. The revised standard is effective for the Company in fiscal 2014 and early
75
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
adoption is permitted. The adoption of ASU 2012 -02 is not expected to have a material impact on the Company’s
consolidated financial statements.
(19) Segment Information
The Company's business is organized along product lines into three principal segments: Human Health, Pharmaceutical
Ingredients and Performance Chemicals. In fiscal 2012, the Company reconfigured and renamed its three business segments
to more accurately reflect the scope of its business activities. As such, the Company has recasted the segment information as
if the composition of its reportable segments had existed in the prior periods presented.
Human Health - includes finished dosage form generic drugs and nutraceutical products.
Pharmaceutical Ingredients – includes pharmaceutical intermediates and active pharmaceutical ingredients (APIs).
Performance Chemicals - The Performance Chemicals segment is made up of two product groups: Specialty Chemicals and
Agriculture Protection Products. Specialty chemicals includes a variety of chemicals which make plastics, surface coatings,
textiles, fuels and lubricants perform to their designed capabilities. Dye and pigment intermediates are used in the color-
producing industries such as textiles, inks, paper, and coatings. Organic intermediates are used in the production of
agrochemicals. In addition, Aceto is a supplier of diazos and couplers to the paper, film and electronics industries.
Agricultural Protection Products includes herbicides, fungicides and insecticides that control weed growth as well as control
the spread of insects and other microorganisms that can severely damage plant growth. The Agricultural Protection Products
segment also includes a sprout inhibitor for potatoes and an herbicide for sugar cane.
The Company's chief operating decision maker evaluates performance of the segments based on net sales, gross profit and
income before income taxes. Unallocated corporate amounts are deemed by the Company as administrative, oversight costs,
not managed by the segment managers. The Company does not allocate assets by segment because the chief operating
decision maker does not review the assets by segment to assess the segments' performance, as the assets are managed on an
entity-wide basis.
2012
Net sales
Gross profit
Income before income taxes
2011
Net sales
Gross profit
Income before income taxes
2010
Net sales
Gross profit
Income before income taxes
Human
Health
$105,249
29,932
11,683
Pharmaceutical
Ingredients
Performance
Chemicals
Unallocated
Corporate
Consolidated
Totals
$162,998
25,472
8,066
$ 176,141
26,628
10,570
$ -
-
(5,579)
$444,388
82,032
24,740
$ 69,856
15,534
2,898
$149,340
23,897
7,294
$ 47,046
7,780
982
$136,454
22,071
4,657
$193,232
26,407
10,198
$163,131
24,304
8,229
$ -
-
(3,428)
$412,428
65,838
16,962
$ -
-
(3,665)
$346,631
54,155
10,203
76
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2012, 2011 AND 2010
(in thousands, except per-share amounts)
Net sales and gross profit by source country for the years ended June 30, 2012, 2011 and 2010 were as follows:
United States
Germany
Netherlands
France
Asia-Pacific
Total
2012
$ 289,630
82,600
13,738
33,143
25,277
$ 444,388
Net Sales
2011
$ 260,686
78,044
15,451
32,718
25,529
$ 412,428
2010
$ 216,687
68,121
14,377
24,553
22,893
$ 346,631
2012
$ 58,733
14,303
1,706
3,885
3,405
$ 82,032
Gross Profit
2011
$ 42,472
14,353
1,712
3,560
3,741
$ 65,838
2010
$ 33,139
13,038
1,894
2,585
3,499
$ 54,155
Sales generated from the United States to foreign countries amounted to $37,892, $26,775 and $27,999 for the fiscal years
ended June 30, 2012, 2011 and 2010, respectively.
Long-lived assets by geographic region as of June 30, 2012 and June 30, 2011 were as follows:
United States
Europe
Asia-Pacific
Total
Long-lived assets
2011
2012
$90,955
$85,650
2,779
2,388
2,644
2,413
$96,378
$90,451
(20) Unaudited Quarterly Financial Data
The following is a summary of the unaudited quarterly results of operations for the years ended June 30, 2012 and 2011.
Fiscal year ended June 30, 2012
Net sales
Gross profit
Net income
For the quarter ended
September 30,
2011
$101,317
18,519
3,033
December 31,
2011
$110,707
20,644
4,588
March 31,
2012
$121,415
22,155
5,379
June 30,
2012
$ 110,949
20,714
3,981
Net income per diluted share
$ 0.11
$ 0.17
$ 0.20
$ 0.15
Fiscal year ended June 30, 2011
Net sales
Gross profit
Net income (loss)
September 30,
2010
$87,660
13,287
2,797
For the quarter ended
December 31,
2010 (1)
$85,683
13,123
(1,169)
March 31,
2011
$117,881
19,432
3,846
June 30,
2011
$ 121,204
19,996
3,494
Net income (loss) per diluted share
$ 0.11
$ (0.05)
$ 0.14
$ 0.13
The net income per common share calculation for each of the quarters is based on the weighted average number of shares
outstanding in each period. Therefore, the sum of the quarters in a year does not necessarily equal the year’s net income per
common share.
(1) Includes approximate $2,600 tax charge related to the repatriation of earnings from certain foreign subsidiaries, in connection with the
acquisition of Rising and approximately $1,060 of transaction costs related to this acquisition.
77
Schedule II
ACETO CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the years ended June 30, 2012, 2011 and 2010
(dollars in thousands)
Description
Year ended June 30, 2012
Allowance for doubtful accounts
Year ended June 30, 2011
Allowance for doubtful accounts
Year ended June 30, 2010
Allowance for doubtful accounts
Balance at
beginning of
year
Charged to
costs and
expenses
Charged to
other
accounts
Deductions
Balance at
end of year
$ 682
$ 211
$ 1,098
$ 172
$ 976
$ 257
-
-
-
$ 6(a)
$ 887
$ 588(a)
$ 682
$ 135(a)
$1,098
(a) Specific accounts written off as uncollectible.
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
By /s/ Albert L. Eilender
Albert L. Eilender
Chairman and Chief Executive Officer
Date: September 7, 2012
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
/s/ Albert L. Eilender
Albert L. Eilender
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/Douglas Roth
Douglas Roth
Assistant Secretary/Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date
09-07-12
09-07-12
/s/ Salvatore Guccione
Salvatore Guccione
/s/Robert Wiesen
Robert Wiesen
/s/Hans C. Noetzli
Hans C. Noetzli
/s/William N. Britton
William Britton
/s/ Richard P. Randall
Richard P. Randall
/s/ Natasha Giordano
Natasha Giordano
Chief Operating Officer, President and Director
09-07-12
Director
Director
Director
Director
Director
09-07-12
09-07-12
09-07-12
09-07-12
09-07-12
79
EXHIBIT INDEX
Exhibit Number
Description
2.1 Asset Purchase Agreement by and among Aceto Corporation, Sun Acquisition Corp.,
Rising Pharmaceuticals, Inc., Ronald Gold, and David B. Rosen, dated as of December 15,
2010 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated
December 20, 2010).
3.1 Restated Certificate of Incorporation, dated November 18, 1976 (incorporated by reference
to Exhibit 3.1 to the Company's quarterly report on Form 10-Q for the quarter ended
December 31, 2009).
3.2 Certificate of Amendment of Certificate of Incorporation, dated February 18, 1983
(incorporated by reference to Exhibit 3.2 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.3 Certificate of Amendment of Certificate of Incorporation, dated February 7, 1984
(incorporated by reference to Exhibit 3.3 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.4 Certificate of Amendment of Certificate of Incorporation, dated December 17, 1984
(incorporated by reference to Exhibit 3.4 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.5
Certificate of Amendment of Certificate of Incorporation, dated November 21, 1985
(incorporated by reference to Exhibit 3.5 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.6
Certificate of Amendment of Certificate of Incorporation, dated December 11, 1985
(incorporated by reference to Exhibit 3.6 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.7 Certificate of Amendment of Certificate of Incorporation, dated December 11, 1986
(incorporated by reference to Exhibit 3.7 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.8 Certificate of Amendment of Certificate of Incorporation, dated December 10, 1987
(incorporated by reference to Exhibit 3.8 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.9 Certificate of Amendment of Certificate of Incorporation, dated February 4, 1988
(incorporated by reference to Exhibit 3.9 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.10 Certificate of Amendment of Certificate of Incorporation, dated March 1, 1988
(incorporated by reference to Exhibit 3.10 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.11 Certificate of Amendment of Certificate of Incorporation, dated January 5, 1989
(incorporated by reference to Exhibit 3.11 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.12 Certificate of Amendment of Certificate of Incorporation, dated February 15, 1990
(incorporated by reference to Exhibit 3.12 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
80
3.13 Certificate of Change of Certificate of Incorporation, dated December 18, 1990
(incorporated by reference to Exhibit 3.13 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.14 Certificate of Amendment of Certificate of Incorporation, dated January 4, 1991
(incorporated by reference to Exhibit 3.14 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.15 Certificate of Amendment of Certificate of Incorporation, dated December 15, 1998
(incorporated by reference to Exhibit 3.15 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.16 Certificate of Amendment of Certificate of Incorporation, dated December 3, 2003
(incorporated by reference to Exhibit 3.16 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 2009).
3.17 Aceto Corporation By-Laws, adopted December 1, 2011 (incorporated by reference to
Exhibit 3.1 to our Current Report on Form 8-K dated December 5, 2011).
10.1 Aceto Corporation 401(k) Retirement Plan, as amended and restated as of July 1, 2002
(incorporated by reference to Exhibit 10.1 to the Company’s annual report on Form 10-K
for the fiscal year ended June 30, 2004 (File Number: 000-04217, Film Number:
041025874)).
10.2 Supplemental Executive Retirement Plan, as amended and restated effective June 30, 2004
and frozen as of December 31, 2004 (incorporated by reference to Exhibit 10.2 to the
Company’s annual report on Form 10-K for the fiscal year ended June 30, 2004 (File
Number: 000-04217, Film Number: 041025874)).
10.3 Aceto Corporation Stock Option Plan (as Amended and Restated effective as of September
19, 1990) (incorporated by reference to Exhibit 10.3 to the Company’s annual report on
Form 10-K for the fiscal year ended June 30, 2010).
10.4 1998 Omnibus Equity Award Plan (incorporated by reference to Exhibit 10(v) (c) to the
Company’s annual report on Form 10-K for the fiscal year ended June 30, 1999 (File
Number: 000-04217, Film Number: 99718824)).
10.5 2002 Stock Option Plan (incorporated by reference to Exhibit 4(i) to Registration Statement
No. 333-110653 on Form S-8).
10.6 Supplemental Executive Deferred Compensation Plan, effective March 14, 2005
(incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K
filed with the Securities and Exchange Commission on March 17, 2005 (File Number: 000-
04217, Film Number: 05688328)).
10.7 2007 Long-Term Performance Incentive Plan (incorporated by reference to Exhibit 4(i) to
Registration Statement No. 333-149586 on Form S-8).
10.8 Supplemental Executive Deferred Compensation Plan, amended and restated effective
December 8, 2008 (incorporated by reference to Exhibit 10.22 to the Company’s annual
report on Form 10-K for the year ended June 30, 2009).
10.9 Lease between Aceto Corporation and M. Parisi & Son Construction Co., Inc., dated April
28, 2000 (incorporated by reference to Exhibit 10(vi)(a) to the Company’s annual report on
Form 10-K for the fiscal year ended June 30, 2000 (File Number: 000-04217, Film Number:
730518)).
81
10.10 Lease between Aceto Corporation and M. Parisi & Son Construction Co., Inc., dated April
28, 2000 (incorporated by reference to Exhibit 10(vi)(b) to the Company’s annual report on
Form 10-K for the year ended June 30, 2000 (File Number: 000-04217, Film Number:
730518)).
10.11 Purchase and Sale Agreement among Schweizerhall Holding AG, Chemische Fabrik
Schweizerhall, Schweizerhall, Inc., Aceto Corporation and Aceto Holding B.V., I.O., dated
as of January 28, 2001 (incorporated by reference to Exhibit 2.1 to the Company’s current
report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2001
(File Number: 000-04217, Film Number: 1595350)).
10.12 Form of purchase agreement between Shanghai Zhongjin Real Estate Development
Company Limited and Aceto (Hong Kong) Limited, dated November 10, 2004
(incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q
for the quarter ended December 31, 2004 (File Number: 000-04217, Film Number:
05588472)).
10.13 Guarantee by Aceto Corporation and subsidiaries in favor of Deutsche Bank, AG, dated
March 22, 2001 (incorporated by reference to Exhibit 10.13 to the Company’s annual report
on Form 10-K for the year ended June 30, 2001 (File Number: 000-04217, Film Number:
1748270)).
10.14 Amended and Restated Credit Agreement among Aceto Corporation, Aceto Agricultural
Chemicals Corporation, CDC Products Corporation, Aceto Pharma Corp., Aceto Realty
LLC, Acci Realty Corp., Arsynco Inc. and JPMorgan Chase Bank, N.A., dated as of April
23, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s current report on
Form 8-K filed with the Securities and Exchange Commission on April 28, 2010).
10.15 Amended and Restated Revolving Credit Note made payable by Aceto Corporation, Aceto
Agricultural Chemicals Corporation, CDC Products Corporation, Aceto Pharma Corp.,
Aceto Realty LLC, Acci Realty Corp. and Arsynco Inc. to the order of JPMorgan Chase
Bank, N.A., dated April 23, 2010 (incorporated by reference to Exhibit 10.2 to the
Company’s current report on Form 8-K filed with the Securities and Exchange Commission
on April 28, 2010).
10.16 Reaffirmation Agreement by Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, Aceto Pharma Corp., Aceto Realty LLC, Acci
Realty Corp. and Arsynco Inc., dated as of April 23, 2010 (incorporated by reference to
Exhibit 10.3 to the Company’s current report on Form 8-K filed with the Securities and
Exchange Commission on April 28, 2010).
10.17 Employment Agreement between Aceto Corporation and Leonard S. Schwartz, dated as of
March 24, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s current report
on Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.18 Employment Agreement between Aceto Corporation and Douglas Roth, dated as of March
24, 2009 (incorporated by reference to Exhibit 10.2 to the Company’s current report on
Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.19 Employment Agreement between Aceto Corporation and Vincent Miata, dated as of March
24, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s current report on
Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.20 Employment Agreement between Aceto Corporation and Frank DeBenedittis, dated as of
March 24, 2009 (incorporated by reference to Exhibit 10.4 to the Company’s current report
82
on Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.21 Employment Agreement between Aceto Corporation and Michael Feinman, dated as of
March 24, 2009 (incorporated by reference to Exhibit 10.5 to the Company’s current report
on Form 8-K filed with the Securities and Exchange Commission on March 27, 2009).
10.22 Severance Agreement between Leonard S. Schwartz and Aceto Corporation, dated as of
December 9, 2009 (incorporated by reference to Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 2009).
10.23 Aceto Corporation, et al $40,000,000 Senior Secured Revolving Credit Facility,
$40,000,000 Senior Secured Term Loan Facility Commitment Letter (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K dated December 20, 2010).
10.24 Credit Agreement, dated as of December 31, 2010, by and among Aceto Corporation, Aceto
Agricultural Chemicals Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto
Pharma Corp., Arsynco Inc., Aceto Realty LLC, Sun Acquisition Corp. and JPMorgan
Chase Bank, N.A. as Administrative Agent and the Lenders (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K dated January 5, 2011).
10.25 First Amendment to Asset Purchase Agreement, dated as of December 31, 2010, by and
among Aceto Corporation, Sun Acquisition Corp., Rising Pharmaceuticals, Inc., Ronald
Gold and David B. Rosen (incorporated by reference to Exhibit 10.2 to our Current Report
on Form 8-K dated January 5, 2011).
10.26 Employment Agreement, dated as of October 12, 2010, between Aceto Corporation and
Albert L. Eilender (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K, dated October 18, 2010).
10.27 Employment Agreement, dated as of December 31, 2010, by and between Ronald Gold and
Sun Acquisition Corp. (incorporated by reference to Exhibit 10.5 to the Company's
quarterly report on Form 10-Q for the quarter ended December 31, 2010).
10.28 Employment Agreement, dated as of December 31, 2010, by and between David B. Rosen
and Sun Acquisition Corp. (incorporated by reference to Exhibit 10.6 to the Company's
quarterly report on Form 10-Q for the quarter ended December 31, 2010).
10.29
Aceto Corporation 2010 Equity Participation Plan (incorporated by reference to Appendix
A to our Definitive Proxy Statement on Schedule 14A filed on October 13, 2010).
10.30
Separation Agreement by and between Aceto Corporation and Vincent G. Miata
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated
November 17, 2011).
10.31 Employment Agreement, dated as of the 29th day of February, 2012, by and between Aceto
Corporation and Salvatore Guccione (incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K dated March 1, 2012).
10.32
Notice to Douglas A. Roth dated January 10, 2012 regarding non-renewal of employment
agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
dated January 17, 2012).
10.33
Notice to Frank DeBenedittis dated January 10, 2012 regarding non-renewal of employment
agreement (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K
dated January 17, 2012).
10.34
Notice to Michael Feinman dated January 10, 2012 regarding non-renewal of employment
83
agreement (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K
dated January 17, 2012).
10.35
Aceto Corporation Severance Policy (incorporated by reference to Exhibit 10.4 to our
Current Report on Form 8-K dated January 17, 2012).
10.36*
First Amendment to Aceto Corporation 2010 Equity Participation Plan (effective as of June
12, 2012).
10.37*
10.38*
10.39*
10.40*
10.41*
Amendment, dated as of February 18, 2011 to the Credit Agreement, dated as of December
31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals Corporation,
CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp., Arsynco Inc., Aceto
Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A. as Administrative
Agent and the Lenders.
Amendment No. 2, dated as of March 15, 2011 to the Credit Agreement, dated as of
December 31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp.,
Arsynco Inc., Aceto Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A.
as Administrative Agent and the Lenders.
Amendment No. 3, dated as of May 3, 2011 to the Credit Agreement, dated as of December
31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals Corporation,
CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp., Arsynco Inc., Aceto
Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A. as Administrative
Agent and the Lenders.
Amendment No. 4, dated as of June 29, 2011 to the Credit Agreement, dated as of
December 31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp.,
Arsynco Inc., Aceto Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A.
as Administrative Agent and the Lenders.
Amendment No. 5, dated as of June 28, 2012 to the Credit Agreement, dated as of
December 31, 2010, by and among Aceto Corporation, Aceto Agricultural Chemicals
Corporation, CDC Products Corporation, ACCI Realty Corp., Aceto Pharma Corp.,
Arsynco Inc., Aceto Realty LLC, Rising Pharmaceuticals. and JPMorgan Chase Bank, N.A.
as Administrative Agent and the Lenders.
10.42
Change in Control Agreement by and between Aceto Corporation and Albert L. Eilender
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated July 3,
2012).
10.43
Change in Control Agreement by and between Aceto Corporation and Salvatore Guccione
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated July 3,
2012).
10.44
Change in Control Agreement by and between Aceto Corporation and Douglas Roth
(incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K dated July 3,
2012).
10.45
Change in Control Agreement by and between Aceto Corporation and Frank DeBenedittis
(incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K dated July 3,
2012).
10.46
Consulting Agreement by and between Aceto Corporation and Michael Feinman
(incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K dated July 3,
2012).
84
10.47*
Change in Control Agreement by and between Aceto Corporation and Charles Alaimo,
dated as of July 2, 2012.
10.48*
Change in Control Agreement by and between Aceto Corporation and Raymond Bartone,
dated as of July 2, 2012.
10.49*
Change in Control Agreement by and between Aceto Corporation and Steven Rogers dated
as of July 2, 2012.
10.50*
Change in Control Agreement by and between Aceto Corporation and Nicholas Shackley,
dated as of July 2, 2012.
10.51*
Change in Control Agreement by and between Aceto Corporation and Roger G. Weaving,
Jr., dated as of July 2, 2012.
21* Subsidiaries of the Company.
23* Consent of BDO USA, LLP.
31.1* Certifications of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certifications of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document
*Filed herewith
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934 and otherwise are not subject to liability.
85