UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
the quarterly period ended March 31, 2009
 Commission
file number 000-04217
 
 ACETO
CORPORATION
 (Exact
name of registrant as specified in its charter)
 
 New York
                11-1720520(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification
Number)
 
 One Hollow Lane, Lake
Success, NY 11042
 (Address
of principal executive offices)
 
 (516)
627-6000
 (Registrant's
telephone number, including area code)
 
 www.aceto.com
 (Registrant’s
website address)
 
 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 xNo o
 
 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 oNo o
  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 o
                Accelerated
      filer xNon-accelerated
      filer o
                Smaller
      reporting company o
 
 Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 
 Yes oNo x
 
 The
Registrant has 24,768,745 shares of common stock outstanding as of May 5,
2009.
  
  ACETO
CORPORATION AND SUBSIDIARIES
 QUARTERLY
REPORT FOR THE PERIOD ENDED MARCH 31, 2009
 
 TABLE
OF CONTENTS
 
 
 
 PART
      I.FINANCIAL
      INFORMATION
                        3Item
      1.
                        Financial
      Statements
                        3Condensed
      Consolidated Balance Sheets – March 31, 2009 (unaudited) and June 30,
      2008
                        3Condensed
      Consolidated Statements of Income – Nine Months Ended March 31, 2009 and
      2008 (unaudited)
                        4Condensed
      Consolidated Statements of Income – Three Months Ended March 31, 2009 and
      2008 (unaudited)
                        5Condensed
      Consolidated Statements of Cash Flows – Nine Months Ended March 31, 2009
      and 2008 (unaudited)
                        6Notes
      to Condensed Consolidated Financial Statements (unaudited)
                        7Report
      of Independent Registered Public Accounting Firm
                        15Item
      2.
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        16Item
      3.
                        Quantitative
      and Qualitative Disclosures about Market Risk
                        26Item
      4.
                        Controls
      and Procedures
                        27PART
      II.OTHER
      INFORMATION
                        27Item
      1A.
                        Risk
      Factors
                        27Item
      6.
                        Exhibits
                        28Signatures
                        29Exhibits
 
 
 
 PART
I. FINANCIAL INFORMATION
 Item
1.  Financial Statements
 
 ACETO
      CORPORATION AND SUBSIDIARIES
                  CONDENSED
      CONSOLIDATED BALANCE SHEETS
                  (in
      thousands, except per-share amounts)March
      31,
                  2009
                
                
                June
      30,
                  2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                39,263
                
                
                $
                46,515Investments
                
                
                487
                
                
                
                548Trade
      receivables, less allowance for doubtfulaccounts
      (March, $1,007; June, $477)
                
                
                59,129
                
                
                
                68,220Other
      receivables
                
                
                7,910
                
                
                
                4,819Inventory
                
                
                63,572
                
                
                
                71,109Prepaid
      expenses and other current assets
                
                
                1,183
                
                
                
                817Deferred
      income tax asset, net
                
                
                1,797
                
                
                
                1,756Total
      current assets
                
                
                173,341
                
                
                
                193,784Long-term
      notes receivable
                
                
                -
                
                
                
                347Property
      and equipment, net
                
                
                4,213
                
                
                
                4,307Property
      held for sale
                
                
                6,978
                
                
                
                6,978Goodwill
                
                
                1,801
                
                
                
                1,987Intangible
      assets, net
                
                
                4,823
                
                
                
                5,421Deferred
      income tax asset, net
                
                
                1,786
                
                
                
                4,098Other
      assets
                
                
                5,488
                
                
                
                5,321TOTAL
      ASSETS
                
                $
                198,430
                
                
                $
                222,243LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                25,397
                
                
                $
                43,480Note
      payable – related party
                
                
                -
                
                
                
                500Accrued
      expenses
                
                
                16,865
                
                
                
                19,948Deferred
      income tax liability
                
                
                1,078
                
                
                
                1,070Total
      current liabilities
                
                
                43,340
                
                
                
                64,998Long-term
      liabilities
                
                
                7,049
                
                
                
                7,034Environmental
      remediation liability
                
                
                7,578
                
                
                
                7,578Deferred
      income tax liability
                
                
                444
                
                
                
                1,751Minority
      interest
                
                
                464
                
                
                
                473Total
      liabilities
                
                
                58,875
                
                
                
                81,834Commitments
      and contingencies (Note 8)Shareholders’
      equity:Common
      stock, $.01 par value, 40,000 shares authorized; 25,644 shares issued;
      24,766 and 24,446 shares outstanding at March 31, 2009 and June 30, 2008,
      respectively
                
                
                256
                
                
                
                256Capital
      in excess of par value
                
                
                56,431
                
                
                
                56,832Retained
      earnings
                
                
                86,880
                
                
                
                81,778Treasury
      stock, at cost, 878 and 1,198 shares at March 31, 2009 and June 30, 2008,
      respectively
                
                
                (8,482
                )
                
                
                (11,571
                )Accumulated
      other comprehensive income
                
                
                4,470
                
                
                
                13,114Total
      shareholders’ equity
                
                
                139,555
                
                
                
                140,409TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                
                $
                198,430
                
                
                $
                222,243
 
 See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.
 3
 
 ACETO
      CORPORATION AND SUBSIDIARIES
                      CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME
                      (unaudited
      and in thousands, except per-share amounts)Nine
      Months Ended
                      March
      31,2009
                    
                    
                    2008Net
      sales
                    
                    $
                    247,854
                    
                    
                    $
                    254,888Cost
      of sales
                    
                    
                    203,917
                    
                    
                    
                    211,803Gross
      profit
                    
                    
                    43,937
                    
                    
                    
                    43,085Selling,
      general and administrative expenses
                    
                    
                    32,921
                    
                    
                    
                    32,924Research
      and development expenses
                    
                    
                    153
                    
                    
                    
                    632Operating
      income
                    
                    
                    10,863
                    
                    
                    
                    9,529Other
      income (expense):Interest
      expense
                    
                    
                    (67
                    )
                    
                    
                    (63
                    )Interest
      and other income, net
                    
                    
                    465
                    
                    
                    
                    596398
                    
                    
                    
                    533Income
      before income taxes
                    
                    
                    11,261
                    
                    
                    
                    10,062Provision
      for income taxes
                    
                    
                    3,683
                    
                    
                    
                    4,566Net
      income
                    
                    $
                    7,578
                    
                    
                    $
                    5,496Net
      income per common share
                    
                    $
                    0.31
                    
                    
                    $
                    0.23Diluted
      net income per common share
                    
                    $
                    0.30
                    
                    
                    $
                    0.22Weighted
      average shares outstanding:Basic
                    
                    
                    24,457
                    
                    
                    
                    24,344Diluted
                    
                    
                    24,976
                    
                    
                    
                    24,806
 
 See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.
 4
 
 ACETO
      CORPORATION AND SUBSIDIARIES
                  CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME
                  (unaudited
      and in thousands, except per-share amounts)Three
      Months Ended
                  March
      31,2009
                
                
                2008Net
      sales
                
                $
                79,800
                
                
                $
                98,255Cost
      of sales
                
                
                66,545
                
                
                
                82,212Gross
      profit
                
                
                13,255
                
                
                
                16,043Selling,
      general and administrative expenses
                
                
                10,458
                
                
                
                11,560Research
      and development expenses
                
                
                -
                
                
                
                279Operating
      income
                
                
                2,797
                
                
                
                4,204Other
      (expense), income:Interest
      expense
                
                
                (5
                )
                
                
                (32
                )Interest
      and other (expense), income , net
                
                
                (263
                )
                
                
                610(268
                )
                
                
                578Income
      before income taxes
                
                
                2,529
                
                
                
                4,782Provision
      for income taxes
                
                
                594
                
                
                
                1,488Net
      income
                
                $
                1,935
                
                
                $
                3,294Net
      income per common share
                
                $
                0.08
                
                
                $
                0.14Diluted
      net income per common share
                
                $
                0.08
                
                
                $
                0.13Weighted
      average shares outstanding:Basic
                
                
                24,569
                
                
                
                24,348Diluted
                
                
                25,052
                
                
                
                24,745
 
 See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.
 5
  ACETO
      CORPORATION AND SUBSIDIARIES
                  CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  (unaudited
      and in thousands)Nine
      Months Ended
                  March
      31,2009
                
                
                2008Operating
      activities:Net
      income
                
                $
                7,578
                
                
                $
                5,496Adjustments
      to reconcile net income to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
                
                
                1,258
                
                
                
                1,935Provision
      for doubtful accounts
                
                
                520
                
                
                
                15Non-cash
      stock compensation
                
                
                1,174
                
                
                
                672Deferred
      income taxes
                
                
                972
                
                
                
                1,297Unrealized
      loss on trading securities
                
                
                254
                
                
                
                84Changes
      in assets and liabilities:Investments-trading
      securities
                
                
                -
                
                
                
                325Trade
      accounts receivable
                
                
                5,137
                
                
                
                (10,854
                )Other
      receivables
                
                
                (3,884
                )
                
                
                (580
                )Inventory
                
                
                4,499
                
                
                
                (295
                )Prepaid
      expenses and other current assets
                
                
                (407
                )
                
                
                88Other
      assets
                
                
                (266
                )
                
                
                (720
                )Accounts
      payable
                
                
                (16,534
                )
                
                
                1,224Other
      accrued expenses and liabilities
                
                
                (880
                )
                
                
                1,480Net
      cash (used in) provided by operating activities
                
                
                (579
                )
                
                
                167Investing
      activities:Payments
      received on notes receivable
                
                
                413
                
                
                
                73Purchases
      of property and equipment, net
                
                
                (376
                )
                
                
                (1,000
                )Purchases
      of investments
                
                
                (10,204
                )
                
                
                -Maturities
      of investments
                
                
                9,993
                
                
                
                1,000Sales
      of investments
                
                
                -
                
                
                
                500Purchase
      of intangible assets
                
                
                (420
                )
                
                
                (25
                )Net
      cash (used in) provided by investing activities
                
                
                (594
                )
                
                
                548Financing
      activities:Proceeds
      from exercise of stock options
                
                
                1,020
                
                
                
                74Excess
      tax benefit on stock option exercises and restricted stock
                
                
                161
                
                
                
                14Payment
      of cash dividends
                
                
                (2,476
                )
                
                
                (3,665
                )Payment
      of note payable-related party
                
                
                (500
                )
                
                
                -Payments
      of short-term bank loans
                
                
                -
                
                
                
                (25
                )Net
      cash used in financing activities
                
                
                (1,795
                )
                
                
                (3,602
                )Effect
      of exchange rate changes on cash
                
                
                (4,284
                )
                
                
                2,806Net
      decrease in cash
                
                
                (7,252
                )
                
                
                (81
                )Cash
      at beginning of period
                
                
                46,515
                
                
                
                32,320Cash
      at end of period
                
                $
                39,263
                
                
                $
                32,239
 
 See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.
 6
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
  (1)  Basis of
Presentation
 
 The
condensed consolidated financial statements of Aceto Corporation and
subsidiaries (“Aceto” or the “Company”) included herein have been prepared by
the Company and reflect all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for all periods presented.  Interim results
are not necessarily indicative of results which may be achieved for the full
year.
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses
reported in those financial statements.  These judgments can be
subjective and complex, and consequently actual results could differ from those
estimates and assumptions.  The Company’s most critical accounting
policies relate to revenue recognition; allowance for doubtful accounts;
inventories; goodwill and other indefinite-lived intangible assets; long-lived
assets; environmental and other contingencies; income taxes; and stock-based
compensation.
 
 These
condensed consolidated financial statements do not include all disclosures
associated with consolidated financial statements prepared in accordance with
U.S. generally accepted accounting principles.  Accordingly, these
statements should be read in conjunction with the Company’s consolidated
financial statements and notes thereto contained in the Company’s Form 10-K for
the year ended June 30, 2008.
 
 (2)  Goodwill
and Other Intangible Assets
 
 Goodwill
of $1,801 and $1,987 as of March 31, 2009 and June 30, 2008, relates to the
Health Sciences Segment.
 
 Changes
in goodwill are attributable to changes in foreign currency exchange rates used
to translate the financial statements of foreign subsidiaries with respect to
the Health Sciences Segment.
 
 (3)  Stock-Based
Compensation
 
 The
Company accounts for share-based compensation cost in accordance with Statement
of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based
Payment.”
 
 In
December 2008, the Company granted 222 options to employees at an exercise price
equal to the market value of the common stock on the date of
grant.  These options vest over one year and will expire ten years
from the date of grant.  Compensation expense of $724, as determined
using the Black-Scholes option pricing model, will be charged over the vesting
period for these options. In December 2007, the Company granted 239 options to
non-employee directors and employees at an exercise price equal to the market
value of the common stock on the date of grant.  These options vest
over one year and will expire ten years from the date of grant.  Total
compensation expense related to stock options for the nine months ended March
31, 2009 and 2008 was $545 and $364, respectively and $180 and $184 for the
three months ended March 31, 2009 and 2008, respectively.  As of March
31, 2009, the total unrecognized compensation cost related to option awards is
$480.
 
 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.  Expected stock-price volatility is based on the historical daily
price changes of the underlying stock which are obtained from public data
sources. 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.
The fair values of the options granted were estimated based on the following
weighted average assumptions:
 
 7
 
 ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 Nine
      months ended
                    March
      31,2009
                  
                  
                  2008Expected
      life
                  
                  5.6
      years
                  
                  
                  5.6
      yearsExpected
      volatility
                  
                  
                  48.0
                  %
                  
                  
                  46.0
                  %Risk-free
      interest rate
                  
                  
                  2.42
                  %
                  
                  
                  3.55
                  %Dividend
      yield
                  
                  
                  2.32
                  %
                  
                  
                  2.50
                  %
 
 In
December 2008, the Company granted 97 shares of restricted common stock and 23
restricted stock units. These shares of restricted common stock and restricted
stock units vest over three years.
 
 In
accordance with SFAS No. 123(R), the Company granted 41 shares of restricted
common stock and 3 restricted stock units in September 2008, whereby the service
inception date, which occurred in fiscal 2008, preceded the grant date, which
was in fiscal 2009. Since these shares of restricted common stock and restricted
stock units were issued in fiscal 2009, the Company recorded a liability as of
June 30, 2008 for such awards.  In December 2007, the Company granted
86 shares of restricted common stock and 20 restricted stock units.
 
 In
addition, in accordance with SFAS No. 123(R), compensation expense is recognized
on a straight-line basis over the employee's vesting period or to the employee's
retirement eligibility date, if earlier, for restricted stock
awards.   For the three and nine months ended March 31, 2009, the
Company recorded stock-based compensation expense of approximately $161 and
$582, respectively, related to restricted common stock and restricted stock
units, of which $246 of compensation expense related to retiree eligibility for
the nine months ended March 31, 2009.  As of March 31, 2009, the total
unrecognized compensation cost related to restricted stock awards is
$1,002.  For the three and nine months ended March 31, 2008, the
Company recorded stock-based compensation expense of approximately $64 and $263,
respectively, for shares of  restricted common stock and restricted
stock units.
 
 The
Company’s policy is to satisfy stock-based compensation awards with treasury
shares, to the extent available.
 
 (4)  Common Stock
 
 On May 7,
2009, the Company's board of directors declared a regular semi-annual cash
dividend of $0.10 per share to be distributed on June 26, 2009 to shareholders
of record as of June 15, 2009.
 
 On
December 4, 2008, the Company’s board of directors declared a regular
semi-annual cash dividend of $0.10 per share which was paid on January 13, 2009
to shareholders of record on December 19, 2008.
 
 (5)  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:
  Nine
      months ended
                          March
      31,
                        
                        
                        Three
      months ended
                          March
      31,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Weighted
      average shares outstanding
                        
                        
                        24,457
                        
                        
                        
                        24,344
                        
                        
                        
                        24,569
                        
                        
                        
                        24,348Dilutive
      effect of stock options and restricted stock awards and
    units
                        
                        
                        519
                        
                        
                        
                        462
                        
                        
                        
                        483
                        
                        
                        
                        397Diluted
      weighted average shares outstanding
                        
                        
                        24,976
                        
                        
                        
                        24,806
                        
                        
                        
                        25,052
                        
                        
                        
                        24,745
  8
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 There
were 1,607 and 1,465 common equivalent shares outstanding as of March 31, 2009
and 2008, respectively, that were not included in the calculation of diluted
income per common share for the nine months ended March 31, 2009 and 2008,
respectively, because their effect would have been
anti-dilutive.  There were 1,880 and 1,763 common shares outstanding
as of March 31, 2009 and 2008, respectively, that were not included in the
calculation of diluted income per common share for the three months ended March
31, 2009 and 2008, respectively, because their effect would have been
anti-dilutive.
 
 (6)  Comprehensive
Income
 
 Comprehensive
income (loss) consists of net income and other gains and losses affecting
shareholders’ equity that, under generally accepted accounting principles, are
excluded from net income.  The components of comprehensive income
(loss) were as follows:
 
 Nine
      months ended
                    March
      31,
                  
                  
                  Three
      months ended
                    March
      31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Comprehensive
      income (loss):Net
      income
                  
                  $
                  7,578
                  
                  
                  $
                  5,496
                  
                  
                  $
                  1,935
                  
                  
                  $
                  3,294Foreign
      currency translation  adjustment
                  
                  
                  (8,644
                  )
                  
                  
                  6,512
                  
                  
                  
                  (3,185
                  )
                  
                  
                  2,462Unrealized
      gain on available for sale securities
                  
                  
                  -
                  
                  
                  
                  42
                  
                  
                  
                  -
                  
                  
                  
                  5Change
      in fair value of cross currency interest rate swaps
                  
                  
                  -
                  
                  
                  
                  (20
                  )
                  
                  
                  -
                  
                  
                  
                  (32
                  )Total
                  
                  $
                  (1,066
                  )
                  
                  $
                  12,030
                  
                  
                  $
                  (1,250
                  )
                  
                  $
                  5,729
 
 The
financial statements of the Company’s foreign subsidiaries are translated into
U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation."
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.   The foreign currency translation adjustment for
the three and nine months ended March 31, 2009 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.
 
 (7)  Income
Taxes
 
 The
decrease in the net deferred income tax assets of $972 for the nine months ended
March 31, 2009, when compared to June 30, 2008, related to the reduction of
taxes payable due to the utilization of foreign net operating loss
carryforwards.
 
 The
decrease in the net deferred income tax assets of $1,297 for the nine months
ended March 31, 2008 related primarily to German tax reform which was enacted in
August 2007 that reduced the German corporate headline tax rate for businesses
from 40% to 30%, as well as implementing a cap on interest deductions and
tightening the tax basis for trade tax income. This tax rate reduction became
effective for tax years ending after January 1, 2008. Due to the reduction in
the overall German tax rate, the deferred income tax asset was revalued during
the month of enactment of the tax reform, which was in the first quarter of
fiscal 2008, and therefore was reduced by approximately $1,429, which is
reflected in the condensed consolidated financial statements for the nine months
ended March 31, 2008.
 
 9
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 
 (8)  Commitments
and Contingencies
 
 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 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 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’s
former manufacturing facility located in Carlstadt, New Jersey, which was closed
in 1993 and is currently held for sale.  Estimates of how much it
would cost to remediate environmental contamination at this site have increased
since the facility was closed in 1993.  During fiscal 2008, based on
continued monitoring of the contamination at the site and the current proposed
plan of remediation, the Company received an estimate from an environmental
consultant stating that the costs of remediation could be between $7,846 and
$9,574.  As of March 31, 2009 and June 30, 2008, a liability of $7,846
is included in the accompanying condensed consolidated balance
sheets.   The estimated cost of remediation is based upon a
current proposed remedial action work plan; however, if this work plan is
revised or not approved by either the State of New Jersey or the EPA, actual
costs could be significantly greater than the current estimate.  If
this matter is resolved in a manner different from those assumed in current
estimates, the resolution could have a material adverse effect on the Company’s
financial condition, operating results and cash flows.
 
 In
connection with the environmental remediation obligation for Arsynco, the
Company has asserted a claim against BASF Corporation (BASF), the former owners
of the Arsynco property. The Company alleges that BASF is liable for a portion
of the cost to remediate.  Settlement discussions with BASF are
on-going; however, since collection from BASF is uncertain at this time, no
asset has been recorded.
 
 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.
  10
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 A
subsidiary of the Company markets certain agricultural chemicals which are
subject to the Federal Insecticide, Fungicide and Rodenticide Act
(FIFRA).  FIFRA requires that test data be provided to the 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 and historically, our payments have
been in the range of $100 - $250 per year.  The Company may be
required to make additional payments in the future. In addition, in connection
with our crop 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
four 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 $9,700 over the next five
quarters.
 
 In June
2006, the Company negotiated a lease termination with its landlord for the
facility previously occupied by CDC and Magnum.  In connection with
the lease termination, the landlord and a third party entered into a long-term
lease for which the Company guaranteed the rental payments by the third party
through September 30, 2009.  As of March 31, 2009 and June 30, 2008,
the aggregate future rental payments of the third party that are guaranteed by
the Company are $154 and $382, respectively, and the fair value of this
guarantee is deemed to be insignificant.
 
 Commercial
letters of credit are issued by the Company in the ordinary course of business
through major domestic banks as requested by certain suppliers.  The
Company had open letters of credit of approximately $13 and $663 as of March 31,
2009 and June 30, 2008, 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.
 
 (9)
Fair Value Measurements
 
 The
Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS No. 157) on July
1, 2008. SFAS No. 157 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. The adoption of SFAS No. 157 did
not have any impact on the Company’s condensed consolidated financial
statements.  SFAS No. 157 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;Level
      2 –   Inputs other than Level 1 inputs that are either
      directly or indirectly observable; andLevel
      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 March 31, 2009,
the Company had foreign currency contracts outstanding that had a notional
amount of $33,049. Unrealized gains on hedging activities for the nine months
ended March 31, 2009 and 2008 was $251 and $160, respectively, and are included
in interest and other income, net, in the condensed consolidated statements of
income. The contracts have varying maturities of less than one
year.
  11
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
  The
following table summarizes the valuation of the Company’s investments and the
financial instruments which were determined by using the following inputs at
March 31, 2009:
 
 Fair Value Measurements at March 31, 2009
      UsingQuoted
      Prices
                                in
      Active
                                Markets
                                (Level
      1)
                              
                              
                              Significant
                                Other
                                Observable
                                Input
      (Level 2)
                              
                              
                              Significant
                                Unobservable
                                inputs
                                (Level
      3)
                              
                              
                              TotalCash
      equivalents:Time
      deposits
                              
                              
                              -
                              
                              
                              $
                              10,281
                              
                              
                              
                              -
                              
                              
                              $
                              10,281Investments:Trading
      securities
                              
                              $
                              294
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              294Time
      deposits
                              
                              
                              -
                              
                              
                              
                              193
                              
                              
                              
                              -
                              
                              
                              
                              193Foreign
      currency contracts-assets (1)
                              
                              
                              -
                              
                              
                              
                              478
                              
                              
                              
                              -
                              
                              
                              
                              478Foreign
      currency contracts-liabilities (2)
                              
                              
                              -
                              
                              
                              
                              223
                              
                              
                              
                              -
                              
                              
                              
                              223
 
 (1)
                Included
      in “Other receivables” in the accompanying Condensed Consolidated Balance
      Sheet as of March 31, 2009.(2)
                Included
      in “Accrued expenses” in the accompanying Condensed Consolidated Balance
      Sheet as of March 31, 2009.
 
 The
Company did not hold financial assets and liabilities which were recorded at
fair value in the Level 3 category as of March 31, 2009.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115” (SFAS No. 159). SFAS No. 159 allows companies the choice to
measure financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been elected will
be recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Company did
not elect to adopt the fair value option under SFAS 159 for its existing
instruments.
 
 (10)  Recent
Accounting Pronouncements
 
 Emerging
Issues Task Force (EITF) Issue No. 06-11, “Accounting for Income Tax Benefits of
Dividends on Share-Based Payment Awards” (EITF No. 06-11) became effective in
the first quarter of 2009.  EITF No. 06-11 requires that the tax
benefit received on dividends associated with share-based awards that are
charged to retained earnings should be recorded in additional paid-in-capital
(APIC) and included in the APIC pool of excess tax benefits available to absorb
potential future tax deficiencies on share-based payment awards.  The
adoption of EITF No. 06-11 did not have a material impact on the Company’s
consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS No. 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company must adopt these new requirements in its first
quarter of fiscal 2010.  The adoption of this statement will impact
the manner in which the Company presents noncontrolling interests, but will not
impact its consolidated financial position or results of
operations.
  12
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
 In
December 2007, the FASB approved the issuance of SFAS No. 141 (revised 2007)
“Business Combinations” (SFAS No. 141R). SFAS No. 141R establishes principles
and requirements for how the acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  The provisions for SFAS No. 141R are effective for
fiscal years beginning after December 15, 2008 and are applied prospectively to
business combinations completed on or after that date.  Early adoption
is not permitted. SFAS No. 141R is effective for the Company beginning in the
first quarter of fiscal 2010.  The Company is evaluating the impact of
SFAS No. 141R on its results of operations and financial condition.
 
 In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective
Date of FASB Statement No. 157” (FSP 157-2). FSP 157-2 delays the effective date
of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for
certain items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company is currently
assessing the impact of SFAS No. 157 on its condensed consolidated financial
statements for items within the scope of FSP 157-2, which will become effective
beginning with our first quarter of fiscal 2010.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities— An Amendment of FASB Statement No. 133” (SFAS No. 161).
SFAS No. 161 requires enhanced qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
became effective in the third quarter of 2009. The adoption of SFAS No. 161 did
not have a material impact on the Company’s consolidated financial
statements.
 
 In June
2008, the FASB issued Staff Position EITF No. 03-06-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” (FSP EITF 03-06-1). FSP EITF 03-06-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in SFAS No. 128, “Earnings per Share”. The Company will adopt
FSP EITF 03-06-1 effective July 1, 2009. The Company is currently assessing the
impact of FSP EITF 03-06-1 on its consolidated financial
statements.
 
 (11)  Segment
Information
  The
Company's business is organized along product lines into three principal
segments: Health Sciences, Chemicals & Colorants and Crop
Protection.
  Health Sciences - includes the
active ingredients for generic pharmaceuticals, vitamins, and nutritional
supplements, as well as products used in preparing pharmaceuticals, primarily by
major innovative drug companies, and biopharmaceuticals.
  Chemicals & Colorants -
includes a variety of specialty chemicals used in plastics, resins, adhesives,
coatings, food, flavor additives, fragrances, cosmetics, metal finishing,
electronics, air-conditioning systems and many other areas. 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.
  13
  ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)
   Crop Protection - 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 Crop Protection 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 and gross profit. 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.
 
 Nine
Months Ended March 31, 2009 and 2008:
 Health
                        Sciences
                      
                      
                      Chemicals
      &
                        Colorants
                      
                      
                      Crop
                        Protection
                      
                      
                      Consolidated
                        Totals2009Net
      sales
                      
                      $
                      143,863
                      
                      
                      $
                      91,236
                      
                      
                      $
                      12,755
                      
                      
                      $
                      247,854Gross
      profit
                      
                      
                      27,614
                      
                      
                      
                      13,088
                      
                      
                      
                      3,235
                      
                      
                      
                      43,9372008Net
      sales
                      
                      $
                      148,522
                      
                      
                      $
                      94,036
                      
                      
                      $
                      12,330
                      
                      
                      $
                      254,888Gross
      profit
                      
                      
                      27,420
                      
                      
                      
                      13,323
                      
                      
                      
                      2,342
                      
                      
                      
                      43,085
 
 Three
Months Ended March 31, 2009 and 2008:
 Health
                          Sciences
                        
                        
                        Chemicals
      &
                          Colorants
                        
                        
                        Crop
                          Protection
                        
                        
                        Consolidated
                          Totals2009Net
      sales
                        
                        $
                        44,549
                        
                        
                        $
                        29,410
                        
                        
                        $
                        5,841
                        
                        
                        $
                        79,800Gross
      profit
                        
                        
                        7,071
                        
                        
                        
                        4,388
                        
                        
                        
                        1,796
                        
                        
                        
                        13,2552008Net
      sales
                        
                        $
                        58,199
                        
                        
                        $
                        35,871
                        
                        
                        $
                        4,185
                        
                        
                        $
                        98,255Gross
      profit
                        
                        
                        9,963
                        
                        
                        
                        5,336
                        
                        
                        
                        744
                        
                        
                        
                        16,043
 
 14
 
 Report
of Independent Registered Public Accounting Firm
  
 Board of
Directors and Shareholders
 Aceto
Corporation
 
 We have
reviewed the condensed consolidated balance sheet of Aceto Corporation and
subsidiaries as of March 31, 2009 and the related condensed consolidated
statements of income for the three-month and nine-month periods ended March 31,
2009 and 2008, and the related condensed consolidated statements of cash flows
for the nine-month periods ended March 31, 2009 and 2008 included in the
accompanying Securities and Exchange Commission Form 10-Q for the period ended
March 31, 2009.  These interim financial statements are the
responsibility of the Company’s management.
 
 We
conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States).  A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters.  It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole.  Accordingly, we do not express such an
opinion.
 
 Based on
our review, we are not aware of any material modifications that should be made
to the condensed consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
 
 We have
previously audited, in accordance with standards of the Public Company
Accounting Oversight Board, the consolidated balance sheet of Aceto Corporation
and subsidiaries as of June 30, 2008, and the related consolidated statements of
income, shareholders’ equity and comprehensive income and cash flows for the
year then ended (not presented herein); and in our report dated September 4,
2008, we expressed an unqualified opinion on those consolidated financial
statements.  In our opinion, the information set forth in the
accompanying consolidated balance sheet as of June 30, 2008, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
 
 
 /s/ BDO
SEIDMAN, LLP
 
 Melville,
New York
 May 7,
2009
 
 15
 
 Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
 CAUTIONARY
STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
 
 This
Quarterly Report on Form 10-Q and the information incorporated by reference
includes “forward-looking statements” within the meaning of Section 21E of the
Securities Exchange Act of 1934.  We intend those forward
looking-statements to be covered by the safe harbor provisions for
forward-looking statements.  All statements regarding our expected
financial position and operating results, our business strategy, our financing
plans and the outcome of any contingencies are forward-looking
statements.  Any such forward-looking statements are based on current
expectations, estimates and projections about our industry and our
business.  Words such as “anticipates,” “expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” or variations of those words and similar
expressions are intended to identify such forward-looking
statements.  Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
set forth or implied by any forward-looking statements.  Factors that
could cause actual results to differ materially from forward-looking statements
include, but are not limited to, unforeseen environmental liabilities,
international military conflicts, the mix of products sold and their profit
margins, order cancellation or a reduction in orders from customers, competitive
product offerings and pricing actions, the availability and pricing of key raw
materials, dependence on key members of management, continued successful
integration of acquisitions, receipt of regulatory approvals, risks of entering
into new European markets, and economic and political conditions in the United
States and abroad.  We undertake no obligation to update any such
forward-looking statements, other than as required by law.
 
 NOTE
REGARDING DOLLAR AMOUNTS
 
 In this
quarterly report, all dollar amounts are expressed in thousands, except for
share prices and per-share amounts.
 
 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.
 
 Executive
Summary
 
 Our third
quarter and nine month results were impacted by the economic environment that we
operate in, which continues to be quite turbulent.  According to a
recent Federal Reserve statistical release, in March 2009, domestic
manufacturing output decreased 1.7%, and, for the quarter ended March 31, 2009,
domestic manufacturing output dropped at an annual rate of 22.5%.
 
 We are
reporting net sales of $247,854 for the nine months ended March 31, 2009, which
represents a 2.8% decrease from the $254,888 reported in the comparable prior
period.  Gross profit for the nine months ended March 31, 2009 was
$43,937 and our gross margin was 17.7% as compared to gross profit of $43,085
and gross margin of 16.9% in the comparable prior period.  Our
selling, general and administrative costs for the nine months ended March 31,
2009 was relatively flat at $32,921, when compared to $32,924 we reported in the
prior period.  Our net income increased to $7,578, or $0.30 per
diluted share, compared to $5,496, or $0.22 per diluted share in the prior
period.
 
 Our
financial position as of March 31, 2009 remains strong, as we had cash and cash
equivalents and short-term investments of $39,750, working capital of $130,001,
no long-term debt and shareholders’ equity of $139,555.
 
 Our
ongoing business is separated into three segments:  Health Sciences,
Chemicals & Colorants and Crop Protection.
  The
Health Sciences segment is our largest segment in terms of both sales and gross
profits. Products that fall within this segment include active pharmaceutical
ingredients (APIs), pharmaceutical intermediates, nutritionals and
biopharmaceuticals.
  16
  We
typically partner with both customers and suppliers years in advance of a drug
coming off patent to provide the generic equivalent.  We believe we
have a pipeline of new APIs poised to reach commercial levels over the coming
years as the patents on existing drugs expire, both in the United States and
Europe. In addition, we continue to explore opportunities to provide a
second-source option for existing generic drugs with approved abbreviated new
drug applications (ANDAs). The opportunities that we are looking for are to
supply the APIs for the more mature generic drugs where pricing has stabilized
following the dramatic decreases in price that these drugs experienced after
coming off patent.  As is the case in the generic industry, the
entrance into the market of other generic competition generally has a negative
impact on the pricing of the affected products.  According to a
Generic Pharmaceutical Association’s, April 2009 press release, generic drug
prices decreased by an average of 10.6% during 2008.  By leveraging
our worldwide sourcing, quality assurance and regulatory capabilities, we
believe we can be an alternative lower cost, second-source provider of existing
APIs to generic drug companies.
  The
Chemicals & Colorants segment is a major supplier to the many different
industries that require outstanding performance from chemical raw materials and
additives.  Products that fall within this segment include
intermediates for dyes, pigments and agrochemicals.  We provide
chemicals used to make plastics, surface coatings, textiles, lubricants, flavors
and fragrances. Many of our raw materials are also used in high-tech products
like high-end electronic parts (circuit boards and computer chips) and binders
for specialized rocket fuels. We are currently responding to the changing needs
of our customers in the color producing industry by taking our resources and
knowledge downstream as a supplier of select organic pigments. According to the
Federal Reserve statistical release described above, the production index for
durable goods contracted at an annual rate of more than 30% for the quarter
ended March 31, 2009.
  The Crop
Protection segment sells herbicides, fungicides, insecticides, and other
agricultural chemicals to customers, primarily located in the United States and
Western Europe. In the fiscal 2009 second quarter, we received our EPA
registration for Halosulfuron, a herbicide used to control sedge on rice,
vegetables and turf and ornamental grasses.  In our fiscal 2009 third
quarter, we began selling Halosulfuron for the current growing
season.  In addition, we have three products that we have already
filed with the EPA for registrations and several other products in various
stages of review.  Our plan is to continue to develop this pipeline
and bring to market additional products in a similar manner. In May 2008, we
sold an insecticide product to its patent owner in conjunction with litigation
settlement involving an expired license.
  Our main
business strengths are sourcing, quality assurance, regulatory support,
marketing and distribution. In fiscal 2009, we are developing an industrial
brand for Aceto called “Enabling Quality Worldwide” and are marketing this brand
globally. With a physical presence in ten countries, we distribute over 1000
pharmaceuticals and chemicals used principally as raw materials in the
pharmaceutical, agricultural, color, surface coating/ink and general chemical
consuming industries. We believe that we are currently the largest buyer of
pharmaceutical and specialty chemicals for export from China, purchasing from
over 500 different manufacturers.
 
 In this
MD&A section, we explain our general financial condition and results of
operations, including 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 section, refer to the accompanying condensed consolidated
statements of income, which present the results of our operations for the three
and nine months ended March 31, 2009 and 2008.  We analyze and explain
the differences between periods in the specific line items of the condensed
consolidated statements of income.
 
 17
 
 Critical
Accounting Estimates and Policies
 
 As
disclosed in our Form 10-K for the year ended June 30, 2008, the 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
relating to critical accounting estimates and policies 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 other indefinite-lived 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.
 
 Since
June 30, 2008, there have been no significant changes to the assumptions and
estimates related to those critical accounting estimates and
policies.
 
 RESULTS
OF OPERATIONS
 
 Nine
Months Ended March 31, 2009 Compared to Nine Months Ended March 31,
2008
 
 Net
      Sales by Segment
                      Nine
      months ended March 31,Comparison
      20092009
                    
                    
                    2008
                    
                    
                    Over/(Under) 2008%
      of
                    
                    
                    
                    
                    
                    %
      of
                    
                    
                    
                    
                    
                    $
                    
                    %Segment
                    
                    Net sales
                    
                    
                    total
                    
                    
                    Net sales
                    
                    
                    total
                    
                    
                    change
                    
                    
                    changeHealth
      Sciences
                    
                    $
                    143,863
                    
                    
                    
                    58.0
                    %
                    
                    $
                    148,522
                    
                    
                    
                    58.3
                    %
                    
                    $
                    (4,659
                    )
                    
                    
                    (3.1
                    %)Chemicals
      & Colorants
                    
                    
                    91,236
                    
                    
                    
                    36.8
                    
                    
                    
                    94,036
                    
                    
                    
                    36.9
                    
                    
                    
                    (2,800
                    )
                    
                    
                    (3.0
                    )Crop
      Protection
                    
                    
                    12,755
                    
                    
                    
                    5.2
                    
                    
                    
                    12,330
                    
                    
                    
                    4.8
                    
                    
                    
                    425
                    
                    
                    
                    3.4Net
      sales
                    
                    $
                    247,854
                    
                    
                    
                    100.0
                    %
                    
                    $
                    254,888
                    
                    
                    
                    100.0
                    %
                    
                    $
                    (7,034
                    )
                    
                    
                    (2.8
                    %)Gross
      Profit by Segment
                      Nine
      months ended March 31,Comparison
      20092009
                    
                    
                    2008
                    
                    
                    Over/(Under) 2008Gross
                    
                    
                    %
      of
                    
                    
                    Gross
                    
                    
                    %
      of
                    
                    
                    
                    
                    
                    
                    $
                    
                    %Segment
                    
                    Profit
                    
                    
                    sales
                    
                    
                    Profit
                    
                    
                    sales
                    
                    
                    change
                    
                    
                    ChangeHealth
      Sciences
                    
                    $
                    27,614
                    
                    
                    
                    19.2
                    %
                    
                    $
                    27,420
                    
                    
                    
                    18.5
                    %
                    
                    $
                    194
                    
                    
                    
                    0.7
                    %Chemicals
      & Colorants
                    
                    
                    13,088
                    
                    
                    
                    14.3
                    
                    
                    
                    13,323
                    
                    
                    
                    14.2
                    
                    
                    
                    (235
                    )
                    
                    
                    (1.8
                    )Crop
      Protection
                    
                    
                    3,235
                    
                    
                    
                    25.4
                    
                    
                    
                    2,342
                    
                    
                    
                    19.0
                    
                    
                    
                    893
                    
                    
                    
                    38.1Gross
      Profit
                    
                    $
                    43,937
                    
                    
                    
                    17.7
                    %
                    
                    $
                    43,085
                    
                    
                    
                    16.9
                    %
                    
                    $
                    852
                    
                    
                    
                    2.0
                    %
 
 18
 
 Net
Sales
 
 Net sales
decreased $7,034, or 2.8%, to $247,854 for the nine months ended March 31, 2009,
compared with $254,888 for the prior period.  We reported sales
decreases in our Health Sciences and Chemicals & Colorants segments which
were partially offset by a sales increase in our Crop Protection segment, as
explained below.
 
 Health
Sciences
 
 Net sales
for the Health Sciences segment decreased by $4,659 for the nine months ended
March 31, 2009, to $143,863, which represents a 3.1% decrease from net sales of
$148,522 for the prior period.  This decrease is due to various
factors including decreased sales from our foreign operations of $3,811,
specifically our European and Singapore operations and a $3,676 decline in sales
of domestic pharmaceutical intermediates, which represent key components used in
the manufacture of certain drug products. The overall decrease in sales for the
Health Sciences segment is offset, in part, by an increase in sales of $3,113 of
our domestic nutraceutical products, which represent raw materials used in the
production of nutritional supplements.
 
 Chemicals
& Colorants
 
 Net sales
for the Chemicals & Colorants segment decreased by $2,800 for the nine
months ended March 31, 2009, to $91,236, which represents a 3.0% decline from
net sales of $94,036 for the prior period.  Our chemical business is
diverse in terms of products, customers and consuming markets and is directly
impacted by the current economic recession.  The decrease in sales
from this segment is attributable to decreased sales of $3,006 in chemicals used
in aroma products, a decline of $1,228 in sales of color pigments, and a $1,428
drop in chemicals used to produce surface coatings. These decreases are
partially offset by an increase of $1,208 in sales of polymer additives and a
$1,180 increase in sales of chemicals utilized in the food, beverage and
cosmetic industries.
 
 Crop
Protection
 
 Net sales
for the Crop Protection segment increased to $12,755 for the nine months ended
March 31, 2009, an increase of $425, or 3.4%, from net sales of $12,330 for the
prior period.  The increase over the prior period is attributed to the
launch of Halosulfuron, a herbicide used to control sedge on rice, vegetables
and turf and ornamental grasses and an increase in sales of Asulam, a herbicide
used on sugar cane. The increase in Crop Protection sales is partially offset by
decreased sales of our sprout inhibitor products, which are utilized on potato
crops, as well as an insecticide in which we were involved in an antitrust case
related to certain licensed technology.   In May 2008, we sold
this insecticide product to its patent owner in conjunction with litigation
settlement involving an expired license.
 
 Gross
Profit
 
 Gross
profit increased $852 to $43,937 (17.7% of net sales) for the nine months ended
March 31, 2009, as compared to $43,085 (16.9% of net sales) for the prior
period.
 
 Health
Sciences
 
 Health
Sciences’ gross profit of $27,614 for the nine months ended March 31, 2009 was
relatively consistent to the $27,420 of gross profit in the prior
period.  Gross profit for the domestic pharmaceutical intermediates
declined by $337, offset in part, by an increase of $118 in gross profit in our
foreign operations, particular in our Shanghai operations.
 
 Chemicals
& Colorants
 
 Gross
profit for the nine months ended March 31, 2009 decreased by $235, or 1.8%, over
the prior period. The gross margin was up slightly at 14.3% for the nine months
ended March 31, 2009 compared to 14.2% for the prior period.  The
decrease in the gross profit primarily relates to overall decrease in sales
volume as well as unfavorable price mix on sales in our foreign
operations.
  19
 Crop
Protection
 
 Gross
profit for the Crop Protection segment increased to $3,235 for the nine months
ended March 31, 2009, versus $2,342 for the prior period, an increase of $893 or
38.1%.  This increase primarily relates to Halosulfuron, in which the
Company first commenced sales on this product in the third quarter of
2009.
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative expenses (SG&A) remained relatively flat at
$32,921 for the nine months ended March 31, 2009 compared to $32,924 for the
prior period.  As a percentage of sales, SG&A increased to 13.3%
for the nine months ended March 31, 2009 versus 12.9% for the prior period.
SG&A experienced an increase of $1,101 in personnel related costs, of which
$363 relates to our foreign operations and $738 relates to various factors
including annual salary increases and stock-based compensation. We also incurred
higher bad debt expense of $501 as a result of additional reserves. These
increases in SG&A are offset by a decline of $1,488 in legal costs from the
prior period for which there is no comparable amount in the current period.
These legal costs in the prior period related to an antitrust case that we
previously commenced against the owner of certain licensed technology used with
one of our crop protection products, which was settled in May 2008.
 
 Research
and Development Expenses
 
 Research
and development expenses (R&D) decreased $479 over the prior period to $153
for the nine months ended March 31, 2009 due to the abandonment of R&D
related to two finished dosage form generic pharmaceutical products that were to
be distributed in Europe.
 
 Operating
Income
 
 For the
nine months ended March 31, 2009, operating income was $10,863 compared to
$9,529 in the prior period, an increase of $1,334 or 14.0%.  This
increase was due to the overall increase in gross profit of $852 and to a $482
decline in R&D expenses and SG&A
 
 Interest
and Other Income, Net
 
 Interest
and other income, net was $465 for the nine months ended March 31, 2009, which
represents a decrease of $131 over the prior period mainly due to an increase in
foreign exchange losses and unrealized losses on trading securities, partly
offset by income from a joint venture.
 
 Provision
for Income Taxes
 
 The
effective tax rate for the nine months ended March 31, 2009 decreased to 32.7%
from 45.4% for the prior period.  The decrease in the effective tax
rate was primarily due to German tax reform, which was enacted in August 2007,
that reduced the German corporate headline tax rate for businesses from 40% to
30%, as well as implementing a cap on interest deductions and tightening the tax
basis for trade tax income. This tax rate reduction became effective for tax
years ending after January 1, 2008. Due to the future reduction in the overall
German tax rate, the deferred income tax asset was revalued during the month of
enactment of the tax reform, which was in the first quarter of fiscal 2008, and
therefore was reduced by approximately $1,429. The decrease in the effective tax
rate from the prior period is partially offset by charges, including an
approximate $295 tax charge related to the anticipated repatriation of earnings
from certain foreign subsidiaries.  Without these charges, we expect
the fiscal 2009 effective tax rate to be 29.0%. At this time, we do not expect
any further repatriation of earnings from our foreign subsidiaries.
 
 20
 
 Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
 
 Net
      Sales by Segment
                      Three
      months ended March 31,Comparison
      20092009
                    
                    
                    2008
                    
                    
                    Over/(Under) 2008%
      of
                    
                    
                    
                    
                    
                    %
      of
                    
                    
                    
                    
                    
                    $
                    
                    %Segment
                    
                    Net sales
                    
                    
                    total
                    
                    
                    Net sales
                    
                    
                    total
                    
                    
                    change
                    
                    
                    changeHealth
      Sciences
                    
                    $
                    44,549
                    
                    
                    
                    55.8
                    %
                    
                    $
                    58,199
                    
                    
                    
                    59.2
                    %
                    
                    $
                    (13,650
                    )
                    
                    
                    (23.5
                    %)Chemicals
      & Colorants
                    
                    
                    29,410
                    
                    
                    
                    36.9
                    
                    
                    
                    35,871
                    
                    
                    
                    36.5
                    
                    
                    
                    (6,461
                    )
                    
                    
                    (18.0
                    )Crop
      Protection
                    
                    
                    5,841
                    
                    
                    
                    7.3
                    
                    
                    
                    4,185
                    
                    
                    
                    4.3
                    
                    
                    
                    1,656
                    
                    
                    
                    39.6Net
      sales
                    
                    $
                    79,800
                    
                    
                    
                    100.0
                    %
                    
                    $
                    98,255
                    
                    
                    
                    100.0
                    %
                    
                    $
                    (18,455
                    )
                    
                    
                    (18.8
                    %)Gross
      Profit by Segment
                      Three
      months ended March 31,Comparison
      20092009
                    
                    
                    2008
                    
                    
                    Over/(Under) 2008Gross
                    
                    
                    %
      of
                    
                    
                    Gross
                    
                    
                    %
      of
                    
                    
                    
                    
                    
                    
                    $
                    
                    %Segment
                    
                    profit
                    
                    
                    sales
                    
                    
                    profit
                    
                    
                    sales
                    
                    
                    change
                    
                    
                    changeHealth
      Sciences
                    
                    $
                    7,071
                    
                    
                    
                    15.9
                    %
                    
                    $
                    9,963
                    
                    
                    
                    17.1
                    %
                    
                    $
                    (2,892
                    )
                    
                    
                    (29.0
                    %)Chemicals
      & Colorants
                    
                    
                    4,388
                    
                    
                    
                    14.9
                    
                    
                    
                    5,336
                    
                    
                    
                    14.9
                    
                    
                    
                    (948
                    )
                    
                    
                    (17.8
                    )Crop
      Protection
                    
                    
                    1,796
                    
                    
                    
                    30.7
                    
                    
                    
                    744
                    
                    
                    
                    17.8
                    
                    
                    
                    1,052
                    
                    
                    
                    141.4Gross
      profit
                    
                    $
                    13,255
                    
                    
                    
                    16.6
                    %
                    
                    $
                    16,043
                    
                    
                    
                    16.3
                    %
                    
                    $
                    (2,788
                    )
                    
                    
                    (17.4
                    %)
 
 Net
Sales
 
 Net sales
decreased $18,455, or 18.8%, to $79,800 for the three months ended March 31,
2009, compared with $98,255 for the prior period.  We reported sales
decreases in our Health Sciences and Chemicals & Colorants segments which
were partially offset by a sales increase in our Crop Protection segment, as
explained below.
 
 Health
Sciences
 
 Net sales
for the Health Sciences segment decreased by $13,650 for the three months ended
March 31, 2009, to $44,549, which represents a 23.5% decrease from net sales of
$58,199 for the prior period.  This decrease is partially due to a
decline of $2,338 in sales of our domestic pharmaceutical intermediates. Sales
in our domestic generics product group decreased by $3,614, as well as our
foreign operations, especially Europe, experienced a drop in sales of $8,218. As
previously mentioned, sale prices of generic drugs have decreased on average
10.6% in calendar 2008. In addition, we saw a decline in reorders of existing
products. We expect this difficult market to continue into the upcoming
months.
 
 Chemicals
& Colorants
 
 Net sales
for the Chemicals & Colorants segment were $29,410 for the three months
ended March 31, 2009, a decrease of $6,461 from net sales of $35,871 for the
prior period.  Our chemical business consists of a variety of
products, customers and consuming markets, most of which were negatively
affected by the difficult economic conditions.  The decrease of 18.0%,
over the prior period is consistent with the overall difficult market conditions
we are facing. The decrease is partially attributable to a decrease in sales
into the surface coatings industry of $3,666 and a decline of $587 in sales of
color pigments. Sales of chemicals used in aroma products also decreased by
$2,034 due to reduced demand.
  21
 Crop
Protection
 
 Net sales
for the Crop Protection segment increased to $5,841 for the three months ended
March 31, 2009, an increase of $1,656, or 39.6%, from net sales of $4,185 for
the prior period.  The increase over the prior period is attributed to
the launch of Halosulfuron, a herbicide used to control sedge on rice,
vegetables and turf and ornamental grasses and an increase in sales of Asulam, a
herbicide used on sugar cane. The increase in Crop Protection sales is partially
offset by decreased sales of our sprout inhibitor products, related to the
overall potato acreage which is down in the United States and Europe, as well as
an insecticide in which we were involved in an antitrust case related to certain
licensed technology.   In May 2008, we sold this insecticide
product to its patent owner in conjunction with litigation settlement involving
an expired license.
 
 Gross
Profit
 
 Gross
profit decreased to $13,255 (16.6% of net sales) for the three months ended
March 31, 2009, as compared to $16,043 (16.3% of net sales) for the prior
period.
 
 Health
Sciences
 
 Gross
profit for the three months ended March 31, 2009 decreased by $2,892, or 29.0%,
over the prior period. The gross margin declined to 15.9% for the three months
ended March 31, 2009 compared to 17.1% for the prior period.  The
decrease in gross profit was attributable to the overall decline in sales volume
and the decrease in gross margin primarily related to unfavorable product mix on
our domestic pharmaceutical intermediates.
 
 Chemicals
& Colorants
 
 Chemicals
and Colorants’ gross profit of $4,388 for the three months ended March 31, 2009
was $948 or 17.8% lower than the prior period.  The gross margin at
14.9% for the three months ended March 31, 2009 was consistent to the gross
margin for the prior period.  The decrease in the gross profit is due
to primarily sales volume decline in our domestic operations.
 
 Crop
Protection
 
 Gross
profit for the Crop Protection segment increased to $1,796 for the three months
ended March 31, 2009, versus $744 for the prior period, an increase of $1,052 or
141.4%.  Gross margin for the quarter also increased to 30.7% compared
to the prior period gross margin of 17.8%. The increase in the gross profit and
gross margin percentage primarily relates to Halosulfuron, in which the Company
first commenced sales of this product in the third quarter of 2009.
 
 Selling,
General and Administrative Expenses
 
 SG&A
decreased $1,102 or 9.5%, to $10,458 for the three months ended March 31, 2009
compared to $11,560 for the prior period.  As a percentage of sales,
SG&A increased to 13.1% for the three months ended March 31, 2009 versus
11.8% for the prior period. The decrease in SG&A relates primarily to a
decline of $614 in personnel related costs due primarily to decreased accrued
bonus expense as a result of decreased profitability. SG&A also decreased
due to a $262 drop in sales and marketing expenses, which is directly related to
the decline in sales for the third quarter.
  22
 Research
and Development Expenses
 
 R&D
decreased $279 over the prior period for the three months ended March 31, 2009
due to the abandonment of R&D related to two finished dosage form generic
pharmaceutical products that were to be distributed in Europe.
 
 Operating
Income
 
 For the
three months ended March 31, 2009, operating income was $2,797 compared to
$4,204 in the prior period, a decrease of $1,407 or 33.5%.  This
decrease was due to the overall decrease in gross profit of $2,788 offset by the
$1,102 decrease in SG&A and $279 decline in R&D expenses.
  Interest
and Other (Expense) Income, Net
 
 Interest
and other (expense) income, net was ($263) for the three months ended March 31,
2009, which represents an increase of $873 in expense over the $610 of income in
the prior period mainly due to an increase in foreign exchange losses, partly
offset by income from a joint venture.
 
 Provision
for Income Taxes
 
 The
effective tax rate for the three months ended March 31, 2009 decreased to 23.5%,
from 31.1% for the prior period.  The decrease in the effective tax
rate was primarily due to decreased earnings in domestic tax jurisdictions with
higher tax rates.
 
 Liquidity
and Capital Resources
 
 Cash
Flows
 
 At March
31, 2009, we had $39,263 in cash and cash equivalents, of which $31,255 was
outside the United States, $487 in short-term investments and no outstanding
bank loans.  Working capital was $130,001 at March 31, 2009 versus
$128,786 at June 30, 2008.  The $31,255 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. A
portion of our cash is held in operating accounts that are with third party
financial institutions. These balances exceed the Federal Deposit Insurance
Corporation (FDIC) insurance limits. 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 March 31, 2009 decreased $7,252 from the amount at June 30,
2008.  Operating activities for the nine months ended March 31, 2009
used cash of $579, for this period, as compared to cash provided by operations
of $167 for the comparable 2008 period. The $579 was comprised of $7,578 in net
income and $4,178 derived from adjustments for non-cash items less a net $12,335
decrease from changes in operating assets and liabilities. The non-cash items
included $1,258 in depreciation and amortization expense, $1,174 in non-cash
stock compensation expense, $520 for the provision for doubtful accounts and
$972 for the deferred income taxes provision. Trade accounts receivable
decreased $5,137 during the nine months ended March 31, 2009, due to decreased
sales during the third quarter of 2009 as compared to the fourth quarter of
2008, as well as an improvement in days sales outstanding. Inventories and
accounts payable decreased by approximately $4,499 and $16,534, respectively,
due primarily to a reduction of inventories in both our domestic Health Sciences
and Chemicals and Colorants segments as a result of the Company carrying less
inventory due to the current market conditions of the economy. In addition, the
Company carried more stock as of June 30, 2008 for certain products of both the
Chemicals and Colorants and Health Sciences segments that were purchased from
China, due to a supplier interruption related to the Olympics that were held in
China in August of 2008. Some of this additional stock did not ship until the
first and second quarters of 2009.  Accrued expenses and other
liabilities decreased $880 during the nine months ended March 31, 2009, due
primarily to a decrease in accrued compensation and a decline in accrued income
tax payable, due to the timing of income tax payments partially offset by an
increase in accrued expenses related to an increase in Value Added Tax (VAT) for
our foreign subsidiaries. Other receivables increased $3,884 due to an increase
in VAT taxes receivables in our European subsidiaries and increased royalty
receivables on certain Crop Protection products.   We do not
anticipate any significant impact on our liquidity and capital resources to fund
ongoing operating expenditures and the continuation of semi-annual cash
dividends for the next twelve months due to the decline in our cash position.
Our cash position at March 31, 2008 decreased $81 from the amount at June 30,
2007.  Operating activities for the nine months ended March 31, 2008
provided cash of $167, for this period, as compared to cash provided by
operations of $2,629 for the comparable 2007 period. The $167 was comprised of
$5,496 in net income and $4,003 derived from adjustments for non-cash items
offset by a net $9,332 decrease from changes in operating assets and
liabilities.
  23
  Investing
activities for the nine months ended March 31, 2009 used cash of $594 primarily
related to purchases and maturities of investments.  Investing
activities for the nine months ended March 31, 2008 provided cash of $548
primarily related to maturities and sales of available for sale investments
offset by the purchases of property and equipment.
 
 Financing
activities for the nine months ended March 31, 2009 used cash of $1,795
primarily from the payment of $2,476 of dividends and a $500 payment of a note
payable partly offset by proceeds from the exercise of stock options of $1,020.
Financing activities for the nine months ended March 31, 2008 used cash of
$3,602 primarily from the payments of dividends of $3,665.
 
 On May 7,
2009, the Company's board of directors declared a semi-annual cash dividend of
$0.10 per share to be distributed on June 26, 2009 to shareholders of record as
of June 15, 2009.
 
 Credit
Facilities
 
 We have
available credit facilities with certain foreign financial
institutions.  These facilities provide us with a line of credit of
$19,120, as of March 31, 2009.  We are not subject to any financial
covenants under these arrangements.
 
 In June
2007, we amended our revolving credit agreement with a financial institution
that expires June 30, 2010, and provides for available credit of
$10,000.  At March 31, 2009, we had utilized $13 in letters of credit
leaving $9,987 of this facility unused.  Under the credit agreement,
we may obtain credit through direct borrowings and letters of
credit.  Our obligations under the credit agreement are guaranteed by
certain of our subsidiaries and are secured by 65% of the capital of certain of
our non-domestic subsidiaries.  There is no borrowing base on the
credit agreement.  Interest under the credit agreement is at LIBOR
plus 1.50%.  The credit agreement contains several covenants
requiring, among other things, minimum levels of debt service and tangible net
worth.  We are also subject to certain restrictive debt covenants,
including covenants governing liens, limitations on indebtedness, guarantees,
sale of assets, sales of receivables, and loans and investments.  We
were in compliance with all covenants at March 31, 2009.
 
 Working
Capital Outlook
 
 Working
capital was $130,001 at March 31, 2009 versus $128,786 at June 30,
2008.  The increase in working capital was primarily attributable to
cash derived from net income and reduction of trade receivables and inventories
during the nine months.  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 Health Sciences business, we plan to advance a supplier $2,000 in the fourth
quarter of fiscal 2009.  In connection with our crop protection
business, we plan 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 $9,700 over the next five
quarters.    In the fourth quarter of fiscal 2009, we plan
to repatriate approximately $6,000 of earnings from certain foreign subsidiaries
to help finance these crop protection products.  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 and the anticipated continuation of
semi-annual cash dividends for the next twelve months.  We are
currently looking into obtaining additional credit facilities to enhance our
liquidity.
  24
 Impact
of New Accounting Pronouncements
  The
Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS No. 157) on July
1, 2008. SFAS No. 157 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. The adoption of SFAS No. 157 did
not have any impact on the Company’s condensed consolidated financial
statements.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115” (SFAS No. 159). SFAS No. 159 allows companies the choice to
measure financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been elected will
be recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Company did
not elect to adopt the fair value option under SFAS 159 for its existing
instruments.
 
 Emerging
Issues Task Force (EITF) Issue No. 06-11, “Accounting for Income Tax Benefits of
Dividends on Share-Based Payment Awards” (EITF No. 06-11) became effective in
the first quarter of 2009.  EITF No. 06-11 requires that the tax
benefit received on dividends associated with share-based awards that are
charged to retained earnings should be recorded in additional paid-in-capital
(APIC) and included in the APIC pool of excess tax benefits available to absorb
potential future tax deficiencies on share-based payment awards.  The
adoption of EITF No. 06-11 did not have a material impact on the Company’s
consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS No. 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company must adopt these new requirements in its first
quarter of fiscal 2010.  The adoption of this statement will impact
the manner in which the Company presents noncontrolling interests, but will not
impact its consolidated financial position or results of
operations.
 
 In
December 2007, the FASB approved the issuance of SFAS No. 141 (revised 2007)
“Business Combinations” (SFAS No. 141R). SFAS No. 141R establishes principles
and requirements for how the acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  The provisions for SFAS No. 141R are effective for
fiscal years beginning after December 15, 2008 and are applied prospectively to
business combinations completed on or after that date.  Early adoption
is not permitted. SFAS No. 141R is effective for the Company beginning in the
first quarter of fiscal 2010.  The Company is evaluating the impact of
SFAS No. 141R on its results of operations and financial condition.
 
 In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective
Date of FASB Statement No. 157” (FSP 157-2). FSP 157-2 delays the effective date
of SFAS No.157 for nonfinancial assets and nonfinancial liabilities, except for
certain items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company is currently
assessing the impact of SFAS No. 157 on its condensed consolidated financial
statements for items within the scope of FSP 157-2, which will become effective
beginning with our first quarter of fiscal 2010.
  25
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities— An Amendment of FASB Statement No. 133” (SFAS No. 161).
SFAS No. 161 requires enhanced qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
became effective in the third quarter of 2009. The adoption of SFAS No. 161 did
not have a material impact on the Company’s consolidated financial
statements.
 
 In June
2008, the FASB issued Staff Position EITF No. 03-06-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” (FSP EITF 03-06-1). FSP EITF 03-06-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in SFAS No. 128, “Earnings per Share”. The Company will adopt
FSP EITF 03-06-1 effective July 1, 2009. The Company is currently assessing the
impact of FSP EITF 03-06-1 on its consolidated financial
statements.
 
 Item
3.  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.
 
 Investment
Market Price Risk
 
 We had
short-term investments of $487 at March 31, 2009.  Those short-term
investments consisted of time deposits and corporate equity
securities.  Time deposits are short-term in nature and are
accordingly valued at cost plus accrued interest, which approximates fair value.
Corporate equity securities are recorded at fair value and have exposure to
price risk.  If this risk is estimated as the potential loss in fair
value resulting from a hypothetical 10% adverse change in prices quoted by stock
exchanges, the effect of that risk would be $29 as of March 31,
2009.  Actual results, however, may differ.
 
 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 March 31, 2009, we had foreign currency contracts
outstanding that had a notional amount of $33,049.  The difference
between the fair market value of the foreign currency contracts and the related
commitments at inception and the fair market value of the contracts and the
related commitments at March 31, 2009, 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.  On
March 31, 2009, we had translation exposure to various foreign currencies, with
the most significant being the Euro and the Chinese Renminbi.  The
potential loss as of March 31, 2009, resulting from a hypothetical 10% adverse
change in quoted foreign currency exchange rates amounted to
$7,479.  Actual results, however, 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 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.
 
 26
 
 Item
4.  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 provide reasonable assurance 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 March 31, 2009
and, based on their evaluation, have concluded that the disclosure controls and
procedures were effective as of such date.
  Changes
in Internal Control over Financial Reporting
  There has
been no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our
fiscal quarter ended March 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
 
 PART
II.  OTHER INFORMATION
 
 Item
1A.  Risk Factors
 
 In
addition to the other information set forth in this report, you should carefully
consider the risk factors disclosed under Part I – “Item 1A. Risk Factors” in
our Form 10-K for the year ended June 30, 2008 which could materially adversely
affect our business, financial condition, operating results and cash
flows.  The risks and uncertainties described in our Form 10-K for the
year ended June 30, 2008 are not the only ones we face.  Additionally,
risks and uncertainties not currently known to us or that we currently deem
immaterial also may materially adversely affect our business, financial
condition, operating results or cash flows.
  27
 Item
6. Exhibits
 
 The
exhibits filed as part of this report are listed below.
 
 15.1
                Awareness
      letter from independent registered public accounting
  firm31.1
                Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                Certification
      pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities and
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002
  28
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  
 ACETO
      CORPORATIONDATEMay 8,
      2009
                BY
      /s/ Douglas
      RothDouglas
      Roth, Chief Financial Officer(Principal
      Financial Officer)DATEMay 8,
      2009
                BY
      /s/ Leonard S.
      SchwartzLeonard
      S. Schwartz, Chairmanand
      Chief Executive Officer(Principal
      Executive Officer)








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