SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 26, 2001
ACETO CORPORATION
(Exact name of registrant as specified in charter)
New York 0-4217 11-1720520
(State or other (Commission File Number) IRS Employer
Jurisdiction of (Identification No.)
incorporation)
One Hollow Lane, Lake Success, New York 11042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 627-6000
(Former name or former address, if changed since last report.)
This Amendment No.1 to the Current Report on Form 8-K for March 26, 2001
(the "Report") of Aceto Corporation ("Aceto" or the "Registrant") is submitted
in order to provide the financial statements relating to the registrant's
acquisition of: (i) the distribution business of the Schweizerhall Pharma
division of Schweizerhall Holding AG, a Switzerland corporation ("Schweizerhall
Holding"); (ii) the assets relating to the pharmaceutical ingredients business
of Schweizerhall, Inc., a wholly owned subsidiary of Schweizerhall Holding; and
(iii) all of the issued and outstanding shares of certain subsidiaries of
Chemische Fabrik Schweizerhall, a wholly owned subsidiary of Schwizerhall
Holding (collectively, "The Schweizerhall Pharma Distribution Business") called
for under Item 7(a) of Form 8-K, and the Pro Forma Financial Information called
for under Item 7(b) of Form 8-K, all of which was unavailable at the time the
Registrant filed the Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired
See the index at Page F-1 of this report for the
historical financial statements of The Schweizerhall
Pharma Distribution Business as of and for the year
ended December 31, 2000.
(b) Pro Forma Financial Information
The pro forma financial information is subject to revision,
which could have a significant impact on total assets, total
liabilities, stockholders' equity and net income.
See the index at Page F-1 of this report for the unaudited
pro forma financial information of Aceto for the year ended
September 31, 2000 and the nine months ended March 31, 2001.
(c) Exhibits
23.1 Consent of KPMG Fides Peat
23.2 Consent of Rosenberg Rich Baker Berman & Company
ACETO CORPORATION
Index to Item 7(a) & (b)
Financial Statements and Pro Forma Financial Information
--------------------------------------------------------
Financial Statements of Acquired Business
The Schweizerhall Pharma Distribution Business:
Independent Auditors' Report - KPMG LLP Fides Peat...............F-1
Independent Auditors' Report - Rosenberg Rich
Baker Berman & Company...........................................F-2
Combined Balance Sheet as of December 31, 2000...................F-3
Combined Statement of Operations for the Year
Ended December 31, 2000..........................................F-4
Combined Statement of Cash Flows for the Year
Ended December 31, 2000..........................................F-5
Notes to Combined Financial Statements......... ......... .......F-6
Pro Forma Financial Information:
Introduction........................................... .........F-21
Pro Forma Consolidated Statements of Income for the Year ended
September 30, 2000 and the Nine Months ended March 31,
2001.............................................................F-22
Notes to Pro Forma Consolidated Financial
Statements. .....................................................F-24
Independent Auditors' Report
To the Board of Directors of
Aceto Corporation:
We have audited the combined balance sheet of The Schweizerhall Pharma
Distribution Business (comprised of the issued and outstanding shares of
Schweizerhall GmbH, Schweizerhall Pharma International GmbH, Schweizerhall Fine
Chem International GmbH, Schweizerhall France S.A., Schweizerhall Holding
Benelux B.V., International Pharmaceutical Chemicals B.V., Schweizerhall Pharma
Ltd., Schweizerhall Pte. Ltd. and certain assets relating to the Pharmaceutical
Ingredients Business of Schweizerhall, Inc.) of Schweizerhall Holding AG as of
December 31, 2000 and the related combined statements of operations and cash
flows for the year then ended. These combined financial statements are the
responsibility of Schweizerhall Holding AG and Aceto Corporation management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit. We did not audit the statement of certain assets and
operations of the Pharmaceutical Ingredients Business of Schweizerhall Inc., a
combined entity, which statements reflect total assets constituting 14% and
total revenues constituting 17% of the related combined totals. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for the Pharmaceutical
Ingredients Business of Schweizerhall Inc., is based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing standards
in Switzerland and the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the financial position of The Schweizerhall Pharma Distribution
Business as of December 31, 2000 and the results of their operations and their
cash flows for the year then ended in conformity with Swiss Accounting and
Reporting Recommendations (FER).
Swiss Accounting and Reporting Recommendations (FER) vary in certain significant
respects from generally accepted accounting principles in the United States. The
application of generally accepted accounting principles in the United States
would have affected net income for the year ended December 31, 2000 and business
equity as of December 31, 2000 to the extent summarized in Note 18 to the
combined financial statements.
/s/ KPMG Fides Peat
----------------------
KPMG Fides Peat
Zurich, Switzerland
September, 19 2001
F-1
Independent Auditors' Report
To the Shareholders and Board of Directors of
Schweizerhall, Inc.
We have audited the accompanying balance sheet of the Pharmaceutical Ingredients
Business of Schweizerhall, Inc. (the "Company") as of December 31, 2000 and the
related statements of income and cash flows for the year then ended which, as
described in the notes to the financial statements, have been prepared on the
basis of accounting principles generally accepted in Switzerland. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America and in Switzerland. U.S. standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Pharmaceutical Ingredients
Business of Schweizerhall, Inc. as of December 31, 2000, and the results of its
operations and cash flows for the year then ended in conformity with accounting
principles generally accepted in Switzerland.
Accounting principles generally accepted in Switzerland vary in certain
significant respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would not have affected results of operations for the year ended December
31, 2000 and net assets as of December 31, 2000.
/s/ Rosenberg Rich Baker Berman & Company
------------------------------------------
Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
July 24, 2001
F-2
The Schweizerhall Pharma Distribution Business
Combined Balance Sheet
December 31, 2000
(in thousands of United States dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 2,085
Trade accounts receivable, net 15,346
Other receivables 1,319
Financial receivables related parties (Note 12) 370
Inventories 9,214
Prepaid expenses 165
----------------
Total current assets 28,499
Non-current assets:
Property & equipment, net 698
Intangible assets 316
----------------
Total non-current assets 1,014
Total assets $29,513
================
LIABILITIES AND BUSINESS DEFICIENCY
Current liabilities:
Trade accounts payable $ 6,097
Short-term bank loans 6,188
Accrued expenses 2,758
Other current liabilities 5,211
----------------
Total current liabilities 20,254
Non-current liabilities:
Long-term debt related parties 9,722
Other long-term liabilities and provisions 512
----------------
Total non-current liabilities 10,234
Business deficiency: ( 975 )
----------------
Total liabilities and business deficiency $29,513
================
See accompanying notes to the combined financial statements
F-3
The Schweizerhall Pharma Distribution Business
Combined Statement of Operations
For the year ended December 31, 2000
(in thousands of United States dollars)
Sales $ 87,247
Commission income 770
Cost of goods sold ( 75,675 )
----------------
Gross profit 12,342
Selling, general and administrative expenses ( 12,179 )
Reversal of allowance for note receivable (Note 12) 843
Costs allocated by Schweizerhall Holding AG and affiliates ( 558 )
----------------
Operating expenses ( 11,894 )
Operating profit 448
Financial expense, net ( 845 )
Other non operating expense (Note 11) ( 1,493 )
Loss on reinstatement of BESSERUNGSCHEIN related
debt (Note 12) ( 1,119 )
----------------
Loss before taxes ( 3,009 )
Tax expense ( 1 )
----------------
Net loss $ ( 3,010 )
================
See accompanying notes to the combined financial statements
F-4
The Schweizerhall Pharma Distribution Business
Combined Statement of Cash Flows
For the year ended December 31, 2000
(in thousands of United States dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ ( 3,010 )
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation of fixed assets 348
Amortization on intangible assets 585
Net gain from sale of fixed assets ( 3 )
Exchange loss unrealized 43
Provision for deferred taxes 24
Increase (decrease) in cash resulting from changes in:
Trade and other accounts receivable ( 536 )
Trade and other accounts receivable, related parties 76
Inventories ( 185 )
Short-term liabilities 1,100
Short-term liabilities, related parties 474
Long-term provisions ( 19 )
---------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES ( 1,103 )
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in fixed assets ( 321 )
Proceeds from sale of fixed assets 8
Investments in intangible assets ( 33 )
Other 1
---------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES ( 345 )
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of third party debt ( 4,993 )
Borrowings of related party debt 4,108
Contribution from Seller 322
Other 221
---------------
NET CASH FLOWS USED IN FINANCING ACTIVITIES ( 342 )
---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 110
---------------
Net decrease in cash and cash equivalents ( 1,680 )
---------------
Cash and cash equivalents at beginning of period 3,765
---------------
Cash and cash equivalents at end of period 2,085
===============
See accompanying notes to the combined financial statements
F-5
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
On March 26, 2001, Aceto Corporation ("Aceto") acquired the distribution
business of the Schweizerhall Pharma division ("the Company" or "The
Schweizerhall Pharma Distribution Business") of Chemische Fabrik Schweizerhall
("the Seller"), a Switzerland corporation. In accordance with the related
Purchase and Sale Agreement, Aceto acquired the assets of the Pharmaceutical
Ingredients Business of Schweizerhall, Inc., a New Jersey corporation, and a
wholly owned subsidiary of Schweizerhall Holding AG, the ultimate parent company
of the Seller, and all of the of the issued and outstanding shares of the
following indirect wholly-owned subsidiaries of the Seller:
Schweizerhall GmbH, Lorrach, Germany
Schweizerhall Pharma International GmbH, Hamburg, Germany
Schweizerhall Fine Chem International GmbH, Hamburg, Germany
Schweizerhall France S.A., Paris, France
Schweizerhall Holding Benelux B.V., Baarn, The Netherlands
International Pharmaceutical Chemicals B.V., Wormerveer, The Netherlands
Schweizerhall Pte. Ltd., Singapore, Singapore
Schweizerhall Pharma Ltd., Kowloon, Hong Kong
The Company is engaged in the worldwide distribution of active pharmaceutical
ingredients and advanced intermediates for the pharmaceuticals industry.
The Seller does not account for the Schweizerhall Pharma Distribution Business
as a separate entity. Accordingly, the information included in the accompanying
combined financial statements has been obtained from the Schweizerhall Holding
AG's consolidated financial records. The accompanying combined financial
statements present the financial position and results of operations of the
Schweizerhall Pharma Distribution Business based upon the structure of the
transaction described above. The combined financial statements are prepared in
conformity with the Swiss Accounting and Reporting Recommendations Committee
guidelines ("FER").
The Seller provides various services to the Company including but not limited to
general management, human resources, data processing, financial, legal,
marketing, and research services. Expenses related to these services have been
allocated to the Company first on the basis of direct usage when identifiable,
with the remainder allocated on the basis of sales of the Company compared to
total sales of the Seller. In the opinion of management, these methods of
allocating indirect costs are reasonable, however, such costs do not necessarily
equal the costs that the Company would have incurred on a stand-alone basis.
F-6
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
PRINCIPLES OF COMBINATION
For purposes of combination, the financial statements are prepared using uniform
accounting and valuation principles and are summarized in the combined financial
statements according to the same combination rules. All significant intercompany
transactions and balances have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenues from the sale of products upon transfer of
title, when the risks and rewards of ownership have been transferred to the
customer, which generally occurs upon shipment of the products.
TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS
The reporting currency for the combined financial statements of the Company is
the United States dollar (US$). The assets and liabilities of entities whose
functional currency is other than the US$ are translated into the Company's
reporting currency using exchange rates in effect at the balance sheet date. The
statement of operations and cash flows of such entities are translated using the
average exchange rates prevailing during the year. Translation gains or losses
are accumulated as a component of business equity.
The results of foreign currency transactions, such as those resulting from the
settlement of foreign currency denominated receivables or payables, are included
in the Combined Statement of Operations.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
PROPERTY & EQUIPMENT
Property & Equipment are included in the combined balance sheet at historical
cost less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets as follows:
Machinery and equipment 3 to 10 years
Vehicles (cars) 3 to 4 years
Vehicles (trucks, trailers) 10 years
Maintenance and repairs are charged to operations as incurred and major
improvements are capitalized. The cost of assets retired or otherwise disposed
of is removed from the financial statements with any gain or loss realized upon
the sale or disposal charged or credited to operations.
F-7
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents excess costs of businesses acquired over the fair market
value of identifiable net assets at the date of acquisition. Goodwill is
amortized on a straight-line basis over 5 years. The carrying value of goodwill
is evaluated periodically in relation to the operating performance and future
undiscounted cash flows of the underlying businesses. At December 31, 2000,
goodwill was fully amortized. The cost of other intangibles acquired is
amortized on a straight-line basis over their estimated useful lives, typically
ranging from 3 to 10 years.
F-8
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
RECEIVABLES
Trade accounts receivable are recorded at the nominal value, taking into account
necessary allowances for doubtful accounts. The amount of the allowance depends
on the term of the accounts receivable, and the customer or country-specific
risks.
INVENTORIES
Inventories are valued at the lower of cost, using the first-in, first-out
method, or market.
TAXES
Each of the combined entities reports its operations separately in the income
tax return for its respective jurisdiction. This is the basis for the income tax
provision included in the Combined Statement of Operations. For the entity for
which assets were purchased, the Pharmaceutical Ingredients Business of
Schweizerhall, Inc., income tax expense has been determined as if the
Pharmaceutical Ingredients Business was a separate taxable entity.
Current income taxes are calculated based on taxable income of the period and
are accrued in the same periods as the revenues and expenses to which they
relate. Deferred taxes are accounted for by using the asset and liability
method. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial reporting and tax basis of
assets and liabilities and operating loss carryforwards. They are measured using
the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not the deferred tax assets
will be realizable.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses foreign currency derivatives to manage its currency risk.
Exposure to currency risk arises in the normal course of business. Derivative
financial instruments are used to reduce exposure to fluctuations in foreign
exchange rates. While these are subject to risk of market rates changing
subsequent to acquisition, such changes are generally offset by opposite effects
on the items being hedged.
Instruments used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values of hedge
instruments must be highly correlated with changes in market values of
underlying hedged items, but at inception of the hedge and over the life of the
hedged contract. Any derivative that either is not designated as a hedge, or is
so designed but is ineffective, is marked-to-market and recognized in earnings.
All derivative agreements that remain open as of the ending balance sheet date
are assumed in the ordinary course of business, and do not have a remaining
maturity exceeding 12 months. Accordingly, further disclosure is not required
under Swiss Accounting and Reporting Recommendations, FER 10 OFF-BALANCE-SHEET
TRANSACTIONS.
F-9
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
Forward foreign exchange contracts are the primary instrument used to manage
foreign exchange risk. Gains and losses on foreign currency hedges of existing
assets or liabilities are recognized in income consistent with the hedged item.
EMPLOYEE BENEFITS
Each of the Company's entities operates its own employee benefit plans. The
majority of the Company's 121 employees are covered by defined contribution
plans, for which contributions are expensed when incurred. A total of 11
employees are covered by defined benefit plans, for which periodic pension costs
are recognized as employees render the services necessary to earn pension
benefits. At December 31, 2000 the Company's defined benefit obligation under
such plans is $42.
USE OF ESTIMATES
The preparation of financial statements in accordance with FER requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, as well as disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 2000, consists of:
Trade receivables - third parties $17,258
Trade receivables - related parties 86
Allowance for doubtful accounts ( 1,998 )
----------------
Total $15,346
================
3. INVENTORIES
Inventories at December 31, 2000, consist of:
Raw materials $ 6,835
Finished goods 1,450
Other inventory 929
----------------
Total $ 9,214
================
F-10
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
4. PROPERTY & EQUIPMENT
Property & equipment at December 31, 2000, consist of:
MACHINERY
AND
EQUIPMENT VEHICLES TOTAL
------------------- ------------------ ---------------
NET CARRYING AMOUNT
JANUARY 1, 2000 $ 682 $ 79 $ 761
GROSS VALUES AT COST
Beginning of the period
January 1, 2000 3,040 334 3,374
Additions 228 93 321
Disposals ( 506 ) ( 110 ) ( 616 )
Currency translation adjustment ( 87 ) ( 17 ) ( 104 )
------------------- ------------------ ---------------
End of the period
December 31, 2000 2,675 300 2,975
ACCUMULATED DEPRECIATION
Beginning of the period
January 1, 2000 ( 2,358 ) ( 255 ) ( 2,613 )
Depreciation ( 295 ) ( 53 ) ( 348 )
Disposals 506 105 611
Currency translation adjustment 62 11 73
------------------- ------------------ ---------------
End of the period
December 31, 2000 ( 2,085 ) ( 192 ) ( 2,277 )
NET CARRYING AMOUNT DECEMBER 31, 2000 $ 590 $ 108 $ 698
=================== ================== ===============
F-11
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
5. INTANGIBLE ASSETS
Intangible assets at December 31, 2000, consist of:
Goodwill $ 2,305
Other intangible assets 794
Accumulated amortization ( 2,783 )
---------------
Total $ 316
===============
Amortization expense related to goodwill and other intangible assets for the
year ended December 31, 2000 was $585.
6. ACCOUNTS PAYABLE
Accounts payable at December 31, 2000, consist of:
Accounts payable - third parties $ 5,794
Accounts payable - related parties 303
---------------
Total $ 6,097
===============
7. OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 2000, consist of:
Short-term loans payable - third parties $ 22
Short-term loans payable - related parties 4,615
Accrued pension liability 42
Other payables 532
---------------
Total $ 5,211
===============
Included in the short-term loans payable related parties is the liability for
debt restructured under the BESSERUNGSCHEIN arrangements discussed in Note 12.
F-12
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
8. LONG-TERM DEBT RELATED PARTY
Long-term debt related party at December 31, 2000, consists of:
Floating rate loans:
Due to Schweizerhall Finanz Baar (with payments on
principle of $238 due each year until 2015) $ 3,472
Due to Schweizerhall Holding AG (due July 2003) 3,545
Due to Schweizerhall Holding AG 2,705
--------------
Total $ 9,722
==============
The loan due to Schweizerhall Finanz Baar bears interest at an annual rate equal
to the creditor's borrowing rate plus 0.25%. The loan due to Schweizerhall
Holding AG of $3,545, bears interest at an annual rate equal to the creditor's
borrowing rate plus 0.5%. The loan due to Schweizerhall Holding AG of $2,705 is
an interest free loan. Additionally, this loan does not have a specified due
date, and may be called by the creditor upon notice. The interest rates for the
loans at December 31, 2000, are 6%, 6% and 0%, respectively.
For the loan of $3,472 due to Schweizerhall Finanz Baar, the creditors have
waived interest due for the year ended December 31, 2000. Interest expense on
such loans of $208 has been recorded in the Company's Combined Statement of
Operations and accounted for as a capital contribution. See further discussion
in Note 14.
Additionally, the loan agreement related to the debt of $3,545 due to
Schweizerhall Holding AG contains a provision that allows the creditor to call
the amount due, with a notice of 30 days, through July 2001.
9. SALES
Sales for the year ended December 31, 2000, consist of:
Sales - third parties $86,215
Sales - related parties 1,032
--------------
Total $87,247
==============
F-13
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
10. FINANCIAL EXPENSE
Financial expense for the year ended December 31, 2000, consists of:
Interest income - third party $ 83
Interest income - related party 299
Interest expense - third party ( 868 )
Interest expense - related party ( 463 )
Exchange gains 118
Other financial expense ( 14 )
---------------
Total $ ( 845 )
===============
11. OTHER NON OPERATING EXPENSE
The majority of the Company's non operating expense relates to a loss
contingency. The Pharmaceutical Ingredients Business of Schweizerhall, Inc. is
currently involved in an investigation by the United States Attorney's Office
for the District of New Jersey as to possible violations of USCA Title 21
related to List I chemicals. The Company has been cooperating fully in the
investigation. A loss contingency in the amount of $1,500 has been provided for
in the financial statement for additional estimated costs, which may include
fines and penalties, in connection with this investigation. The unexpended loss
contingency, included in accrued expenses at December 31, 2000, is $1,461.
12. RELATED PARTY TRANSACTIONS
In 1997, the Company sold its fertilizer operations to management of those
operations in exchange for a note receivable. During 1999, due to concerns
related to its collectibility, the Company established an allowance for the full
amount of the note and recorded a charge of $843. During 2000, the Company
received a guarantee on the note receivable from Schweizerhall Holding AG,
effectively transferring the risk of collectibility of the note receivable to
the ultimate parent company of the Seller, and accordingly reversed the
allowance previously established of $843. With this guarantee, Schweizerhall
Holding AG, assumed the responsibility and is actively pursuing collection of
the note receivable.
During 2000, the Company recorded a related party receivable of $843 upon
receipt of the guarantee from Schweizerhall Holding AG, as the guarantee
transferred the Company's recourse to Schweizerhall Holding AG. Additionally,
Schweizerhall Holding AG paid $473 of the Company's debt to a financial
institution incurred as a result of the sale of the fertilizer operations to
reimburse the Company for a portion of the original note receivable. For
financial reporting purposes the liability resulting from the $473 payment
receipt has been offset with the related party receivable of $843, resulting in
a $370 financial receivable from related parties on the Combined Balance Sheet.
F-14
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
Commencing in 1990, in a series of debt restructurings, certain of the combined
entities entered into BESSERUNGSCHEIN agreements with one another and with the
Seller. Under the terms of these agreements, both the Seller and the combined
entities agreed to modify the terms of certain inter-company loans such that
repayment of both principal and interest on such loans would be payable only out
of future earnings of the borrowers. Such troubled debt restructurings are
accounted for as if the loans have been extinguished and included in income in
the accompanying financial statements from the date of the restructuring. If the
financial condition of the borrowers improves, principal and interest due under
the loan agreements are restored on the balance sheet to the extent of earnings.
Amounts restored are charged to earnings. During 2000, principal and interest of
$674 and $445, respectively, were restored on the balance sheet and charged to
earnings. Amounts payable related to these loans are classified as other current
liabilities detailed in Note 7. At December 31, 2000, approximately $10,712 and
$3,948 in principal and interest, respectively, were contingently payable to the
Seller.
13. TAXES
The income tax provisions for the year ended December 31, 2000, consist of:
Current taxes $ 23
Deferred taxes ( 24 )
-------------
Tax expense $ ( 1 )
=============
Deferred tax assets at December 31, 2000 consist of:
Operating losses $ 2,817
Other 71
-------------
Total deferred tax assets 2,888
Valuation allowance ( 2,888 )
--------------
Net deferred tax asset $ 0
==============
In assessing the valuation allowance of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences have become deductible.
The deferred tax expense of $24 is due to the reversal of a temporary difference
for the subsidiary Schweizerhall Pte. Ltd. At December 31, 1999, it was
determined that this amount would more likely than not be realizable. There are
no remaining deferred tax assets for this subsidiary as of December 31, 2000.
F-15
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
No tax benefits associated with the acquired assets of the Pharmaceutical
Ingredients Business of Schweizerhall, Inc. have been reflected in the combined
financial statements as the net operating losses will be utilized by the Seller
and no benefit will be allocated to the Company. Accordingly, no net operating
losses of the Pharmaceutical Ingredients Business of Schweizerhall, Inc. are
reflected in the deferred assets above.
F-16
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
14. BUSINESS DEFICIENCY
Changes in Business deficiency are summarized as follows:
RETAINED
EARNINGS (LOSS) FOREIGN
AND CURRENCY BUSINESS
CONTRIBUTED TRANSLATION EQUITY
CAPITAL ADJUSTMENT (DEFICIENCY)
------------------- ------------------ ------------------
Balance at December 31, 1999 $ 719 $ 682 $ 1,401
Net Loss ( 3,010 ) ( 3,010 )
Equity transactions 322 322
Currency translation adjustments 312 312
------------------- ------------------ ------------------
Balance at December 31, 2000 $ ( 1,969 ) $ 994 $ ( 975 )
=================== ================== ==================
The Seller provides various services to the Company as discussed in Note 1.
Expenses related to the these services have been allocated to the Company first
on the basis of direct usage when identifiable, with the remainder allocated on
the basis of sales of the Company compared to total sales of the Seller. Amounts
that were not charged for these services of $114 are recorded in the financial
statements as contribution to equity, and recognized as an expense in the
Combined Statement of Operations.
Additionally, as discussed in Note 8, interest expense amounts on a long-term
loan due to Schweizerhall Finanz Baar were waived for the year ended December
31, 2000. Interest expense on this loan of $208 has been recorded in the
Company's Combined Statement of Operations and accounted for as a capital
contribution.
15. CONTINGENT LIABILITIES
The Company is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Although occasional adverse decisions (or
settlements) may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on the financial position or
results of operations of the Company, except as described in Note 11 and 12.
16. OPERATING LEASES
The Company's lease commitments primarily relate to office facilities. At
December 31, 2000, lease commitments for operating leases having initial or
remaining non-cancelable lease terms in excess of one year are $1,246 that
expire over the next 5 years.
F-17
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
17. GEOGRAPHIC INFORMATION
For the year ended December 31, 2000 NET SALES
THIRD PARTIES
------------------
Europe $50,956
Americas 11,854
Asia 22,154
Other 1,251
------------------
Total $86,215
==================
18. FER TO U.S. GAAP RECONCILIATION
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN FER AND U.S. GAAP
The audited combined financial statements have been prepared and are presented
in accordance with FER which differs in certain significant respects from
generally accepted accounting principles in the United States (U.S. GAAP).
The following is a summary of significant adjustments to combined net income and
combined business deficiency for the Schweizerhall Pharma Distribution Business
which would be required if U.S. GAAP were applied instead of FER:
YEAR ENDED
DECEMBER 31,
2000
------------------
Combined net loss as reported
in the combined statement of $ ( 3,010 )
operations under FER
Adjustments to conform with U.S. GAAP:
Troubled debt restructuring 443
------------------
Combined net loss under U.S. GAAP $ ( 2,567 )
==================
F-18
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
YEAR ENDED
DECEMBER 31,
2000
-----------------
Combined business deficiency as
reported in the combined balance
sheet under FER $ ( 975 )
Adjustments to confirm with U.S. GAAP:
Troubled debt restructuring ( 14,660 )
-----------------
Combined business deficiency in accordance
with U.S. GAAP $( 15,635 )
=================
TROUBLED DEBT RESTRUCTURINGS
Under U.S. GAAP, a debtor in a troubled debt restructuring involving only a
modification of terms of a payable accounts for the effects of the restructuring
prospectively from the time of the restructuring, and does not change the
carrying amount of the payable at the time of the restructuring unless the
carrying amount of the payable at the time of the restructuring exceeds the
total future cash payments specified by the new terms. Debtors are required to
assume that principal and interest payable by the new terms contingent on
certain events or circumstances will have to be paid.
For the troubled debt restructuring adjustments under U.S. GAAP, the associated
deferred tax asset at the end of the period amounts to $5,864, with an equal
offsetting valuation allowance, leaving a net zero balance in the financial
statements. To the extent any benefit is realizable, 50% of such benefit will be
due and payable to the seller.
ADDITIONAL FER AND U.S. GAAP INFORMATION:
LONG-TERM DEBT
Under U.S. GAAP, long term debt with a provision that allows the creditor to
call the amount due within the next twelve months would be classified as a
short-term liability. Therefore, the loans of $3,545 and $2,705 due to
Schweizerhall Holding AG discussed in Note 8, would be classified as a
short-term liabilities for the purposes of presenting the financial statements
under U.S. GAAP. Such difference in presentation has no effect on net income or
business deficiency.
F-19
THE SCHWEIZERHALL PHARMA DISTRIBUTION BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(in thousands of United States dollars)
FINANCIAL RECEIVABLES RELATED PARTY
Under U.S. GAAP, the financial receivable related party discussed in Note 12
would be presented as a gross amount, with a short-term receivable of $843, and
a related party short-term liability of $473. Such difference in presentation
has no effect on net income or business deficiency.
OTHER NON OPERATING EXPENSE
Under U.S. GAAP, the $1,500 expense recognized as a result of the loss
contingency discussed in Note 11 would be presented as an operating expense in
the Combined Statement of Operations as of December 31, 2000. Such difference in
presentation has no effect on net income or business deficiency.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, as
well as disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
COMPREHENSIVE LOSS
U.S. GAAP requires the disclosure of comprehensive income which is net income
increased or decreased for translation differences as presented in Note 14. The
following presents the Group's comprehensive loss based upon FER for the year
ended December 31, 2000.
YEARS ENDED
DECEMBER 31,
2000
----------------------
Net loss in accordance with FER $ ( 3,010 )
Other comprehensive income:
Currency translation adjustment 312
----------------------
Comprehensive loss ( 2,698 )
======================
19. SUBSEQUENT EVENTS
As described in Note 1, Aceto acquired the Schweizerhall Pharma Distribution
Business on March 26, 2001. Intercompany amounts due to the Seller were settled
according to the provisions of the Purchase and Sale Agreement. Additionally,
the debt agreements between the Company and the Seller that were restructured
with the BESSERUNGSCHEIN arrangements, as discussed in Note 12, have been
assigned by the Seller to Aceto Corporation as of March 22, 2001.
F-20
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following pro forma combined financial statements were prepared to
illustrate the estimated effects of Aceto's acquisition of the Schweizerhall
Pharma Distribution Business ("Schweizerhall") accounted for under the purchase
method of accounting. The unaudited pro forma combined statement of income for
the year ended June 30, 2000 combines Aceto's historical results for the year
ended June 30, 2000 and Schweizerhall's historical results prepared in
accordance with accounting principles generally accepted in the United States
for the year ended September 30, 2000, giving the effect to the transactions as
if they occurred as of July 1, 1999, the first day of Aceto's most recently
completed year-end. The unaudited pro forma combined statement of income for the
nine months ended March 31, 2001 combines Aceto's historical results for the
nine months ended March 31,2001 and Schweizerhall's historical results prepared
in accordance with accounting principles, generally accepted in the United
States for the nine months ended March 31, 2001 also giving effect to the
transactions as if they occurred as of July 1, 2000, the most recently completed
year end of Schweizerhall was December 31, 2000.
The pro forma adjustments are based upon available information and certain
assumptions that Aceto believes are reasonable under the circumstances. The
unaudited pro forma combined financial statements do not purport to be
indicative of the operating results or financial position that would have been
achieved had the acquisition taken place on the date indicated or the results
that may be obtained in the future.
The pro forma combined statements are based on, and should be read in
conjunction with, the audited financial statements and the unaudited interim
financial statements, including the notes thereto, of Aceto as previously filed
and the Schweizerhall audited fiancial statements, included herein. The pro
forma adjustments related to the purchase price allocation and financing of the
Schweizerhall acquisition are preliminary and based on information obtained to
date that is subject to revision as additional information becomes available.
Any such revisions could have a significant impact on total assets, total
liabilities and stockholders' equity and net income.
F-21
ACETO CORPORATION
Unaudited Pro Forma Combined Statement of Income
For The Year Ended June 30, 2000
(In thousands, except per share amounts)
Aceto Schweizerhall
for the for the
year ended year ended
June 30, 2000 September 30, 2000 (A) Pro Forma
Historical Historical Adjustments Pro Forma
----------------- -------------------------- ----------------- -------------
Net sales $ 184,789 $ 96,711 $ 281,500
Cost of sales 157,585 83,016 240,601
----------------- -------------------------- ---------------- --------------
Gross profit 27,204 13,695 - 40,899
Selling, general and administrative expenses 18,031 15,241 426 B 33,698
Operating profit / (deficit) 9,173 (1,546) (426) 7,201
Other Income (expense)
Interest expense (11) (1,862) 416 C (2,289)
Interest and other income / (expense) 1,069 (567) (237) D 265
----------------- -------------------------- ---------------- --------------
1,058 (2,429) (653) (2,024)
Income (loss) before income taxes 10,231 (3,975) (1,079) 5,177
Income taxes 3,887 337 (248) E 3,970
----------------- -------------------------- ---------------- --------------
Net Income (loss) $ 6,344 $ (4,312) $ (831) $ 1,201
================= ========================== ================ ==============
Net Income per common share:
Basic $ 1.02 $ 0.18
Diluted 1.01 0.17
Weighted average shares outstanding:
Basic 6,188 6,788
Diluted 6,308 6,908
See the accompanying notes to the Pro Forma Combined Financial Statements
F-22
ACETO CORPORATION
Unaudited Pro Forma Combined Statement of Income
For The Nine Months Ended March 31, 2001
(In thousands, except per share amounts)
Aceto Schweizerhall
For the nine for the nine
months ended months ended
March 31, 2001 March 31, 2001 (A) Pro Forma
Historical Historical Adjustments Pro Forma
----------------- ---------------------- ----------------- -------------
Net sales $ 121,765 $ 60,809 $ 182,574
Cost of sales 102,137 52,216 154,353
----------------- ---------------------- ----------------- -------------
Gross profit 19,628 8,593 - 28,221
Selling, general and administrative expenses 14,136 10,701 320 B 25,157
Operating profit / (deficit) 5,492 (2,108) (320) 3,064
Other Income (expense)
Interest expense (2) (1,472) 312 C (1,786)
Interest and other income / (expense) 883 1,248 (177) D 1,954
----------------- ---------------------- ----------------- -------------
881 (224) (489) 168
Income (loss) before income taxes 6,373 (2,332) (809) 3,232
Income taxes 2,350 (44) (186) E 2,120
----------------- ---------------------- ----------------- -------------
Net Income (loss) $ 4,023 $ (2,288) $ (623) $ 1,112
================= ====================== ================= =============
Net Income per common share:
Basic $ 0.67 $ 0.17
Diluted 0.67 0.17
Weighted average shares outstanding:
Basic 5,992 6,592
Diluted 6,021 6,621
See the accompanying notes to the Pro Forma Combined Financial Statements
F-23
ACETO CORPORATION
Notes to Unaudited Pro Forma Combined Financial Statements
(In thousands, except per share amounts)
A. The financial statements of Schweizerhall for the year ended September 30,
2000 were derived by adding the three months ended December 31, 1999 to
Schweizerhall's year ended December 31, 2000, and removing the three months
ended December 31, 2000. The nine months ended March 31, 2001 includes
three months ended September 30, 2000, which was also included in the pro
forma income statement for the year ended September 30, 2000.
B. To reflect Aceto's amortization of goodwill on its acquisition of
Schweizerhall, which will be amortized over a twenty-year period and of the
non-compete over three years.
C. To reflect additional interest expense as a result of the notes issued to
purchase Schweizerhall.
D. To reflect loss of interest income generated from the cash that was used to
purchase the net assets of Schweizerhall.
E. Income tax benefit resulting from the pro forma decrease in taxable income.
Pro forma tax benefit differs from the expected tax benefit derived by
applying a federal statutory tax rate of 34% due to non-deductible goodwill
and state taxes.
A combined unaudited pro forma balance sheet was not included in this filing as
the acquisition was previously reported in the March 31, 2001 Form 10-Q of Aceto
in accordance with rule S-X Rule 11-02(c ). The purchase price for Schweizerhall
aggregated $22,709 and consisted of 600 shares of the Company's common stock,
the assumption of $8,966 of debt with a fixed interest rate of Libor plus 0.75%,
$2,778 in cash, the issuance of notes of $4,626 with a fixed interest rate of 3%
per annum and acquisition cost of $1,164. The effects of the acquisition that
were included in the previously filed 10Q have not materially changed from the
purchase accounting described below. The quoted market price of the Company's
common stock on March 26, 2001, of $8.625 was used to approximate the fair value
of the 600 shares issued, which amounted to $5,175. Identifiable intangibles
pertaining to non-competition agreements were valued at $300 and is being
amortized over three years. The Company recorded liabilities for employee
severance and for operating lease payments as a result of exit plans formulated
as of the acquisition date of $673 in accordance with the Emerging Issues Task
Force 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination". The excess of cost over fair value of assets acquired (goodwill)
preliminarily amounted to $6,525. The goodwill is being amortized on a
straight-line basis over a period of twenty years.
F-24
INDEX TO EXHIBITS
Filed Incorporated by Reference From
Exhibit Herewith Form Date Exhibit
23. Consent of Independent
Accountants
23.1 KPMG Fides Peat Yes
23.2 Rosenberg Rich Baker Berman & Company Yes