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, 2010


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 x No 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 o No 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
      (Do not check if a smaller reporting
      company)
            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 o  No x




The
registrant had 25,411,462 shares of common stock outstanding as of May 3,
2010.











ACETO
CORPORATION AND SUBSIDIARIES


QUARTERLY
REPORT FOR THE PERIOD ENDED MARCH 31, 2010




TABLE
OF CONTENTS


PART
      I. FINANCIAL INFORMATION
              
              4Item
      1.
              Financial
      Statements
              
              4Condensed
      Consolidated Balance Sheets – March 31, 2010 (unaudited) and June 30,
      2009
              
              4Condensed
      Consolidated Statements of Income – Nine Months Ended March 31, 2010 and
      2009 (unaudited)
              
              5Condensed
      Consolidated Statements of Income – Three Months Ended March 31, 2010 and
      2009 (unaudited)
              
              6Condensed
      Consolidated Statements of Cash Flows – Nine Months Ended March 31, 2010
      and 2009 (unaudited)
              
              7Notes
      to Condensed Consolidated Financial Statements (unaudited)
              
              8Report
      of Independent Registered Public Accounting Firm
              
              17Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              18Item
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              
              29Item
      4.
              Controls
      and Procedures
              
              30PART
      II. OTHER INFORMATION
              
              31Item
      1A.
              Risk
      Factors
              
              31Item
      6.
              Exhibits
              
              32Signatures
              
              
              33Exhibits
  
  PART
I. FINANCIAL INFORMATION


Item
1.  Financial Statements




ACETO
      CORPORATION AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED BALANCE SHEETS
              (in
      thousands, except per-share amounts)March
      31,
              2010
            
            
            June
      30,
              2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            38,298
            
            
            $
            57,761Investments
            
            
            608
            
            
            
            541Trade
      receivables, less allowance for doubtfulaccounts
      (March $1,090; June, $976)
            
            
            61,628
            
            
            
            46,996Other
      receivables
            
            
            13,229
            
            
            
            9,361Inventory
            
            
            69,408
            
            
            
            54,402Prepaid
      expenses and other current assets
            
            
            2,036
            
            
            
            1,006Deferred
      income tax asset, net
            
            
            1,536
            
            
            
            1,579Total
      current assets
            
            
            186,743
            
            
            
            171,646Long-term
      notes receivable
            
            
            250
            
            
            
            1,000Property
      and equipment, net
            
            
            7,055
            
            
            
            4,249Property
      held for sale
            
            
            3,752
            
            
            
            3,752Goodwill
            
            
            1,819
            
            
            
            1,861Intangible
      assets, net
            
            
            13,179
            
            
            
            11,518Deferred
      income tax asset, net
            
            
            2,627
            
            
            
            2,366Other
      assets
            
            
            10,969
            
            
            
            9,072TOTAL
      ASSETS
            
            $
            226,394
            
            
            $
            205,464LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            36,091
            
            
            $
            25,126Accrued
      expenses
            
            
            29,711
            
            
            
            20,739Deferred
      income tax liability
            
            
            1,072
            
            
            
            1,072Total
      current liabilities
            
            
            66,874
            
            
            
            46,937Long-term
      liabilities
            
            
            9,825
            
            
            
            9,017Environmental
      remediation liability
            
            
            7,451
            
            
            
            7,451Deferred
      income tax liability
            
            
            253
            
            
            
            491Total
      liabilities
            
            
            84,403
            
            
            
            63,896Commitments
      and contingencies (Note 7)Shareholders’
      equity:Common
      stock, $.01 par value, 40,000 shares authorized; 25,644 shares
      issued;  25,341 and 24,771 shares outstanding at March 31, 2010
      and June 30, 2009, respectively
            
            
            256
            
            
            
            256Capital
      in excess of par value
            
            
            53,902
            
            
            
            56,767Retained
      earnings
            
            
            85,264
            
            
            
            85,450Treasury
      stock, at cost, 303 and 873 shares at March 31, 2010 and June 30, 2009,
      respectively
            
            
            (2,929
            )
            
            
            (8,430
            )Accumulated
      other comprehensive income
            
            
            5,498
            
            
            
            7,525Total
      shareholders’ equity
            
            
            141,991
            
            
            
            141,568TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            226,394
            
            
            $
            205,464





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)Nine
      Months Ended
              March
      31,2010
            
            
            2009Net
      sales
            
            $
            240,866
            
            
            $
            247,854Cost
      of sales
            
            
            202,418
            
            
            
            203,917Gross
      profit
            
            
            38,448
            
            
            
            43,937Selling,
      general and administrative expenses
            
            
            34,443
            
            
            
            33,074Operating
      income
            
            
            4,005
            
            
            
            10,863Other
      (expense) income:Interest
      expense
            
            
            (146
            )
            
            
            (67
            )Interest
      and other income, net
            
            
            512
            
            
            
            465366
            
            
            
            398Income
      before income taxes
            
            
            4,371
            
            
            
            11,261Income
      tax provision
            
            
            2,028
            
            
            
            3,683Net
      income
            
            $
            2,343
            
            
            $
            7,578Net
      income per common share
            
            $
            0.09
            
            
            $
            0.31Diluted
      net income per common share
            
            $
            0.09
            
            
            $
            0.30Weighted
      average shares outstanding:Basic
            
            
            24,874
            
            
            
            24,457Diluted
            
            
            25,145
            
            
            
            24,976




See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.





5




ACETO
      CORPORATION AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME
              (unaudited
      and in thousands, except per-share amounts)Three
      Months Ended
              March
      31,2010
            
            
            2009Net
      sales
            
            $
            99,347
            
            
            $
            79,800Cost
      of sales
            
            
            83,495
            
            
            
            66,545Gross
      profit
            
            
            15,852
            
            
            
            13,255Selling,
      general and administrative expenses
            
            
            10,063
            
            
            
            10,458Operating
      income
            
            
            5,789
            
            
            
            2,797Other
      (expense) income:Interest
      expense
            
            
            (60
            )
            
            
            (5
            )Interest
      and other income (expense), net
            
            
            638
            
            
            
            (263
            )578
            
            
            
            (268
            )Income
      before income taxes
            
            
            6,367
            
            
            
            2,529Income
      tax provision
            
            
            2,526
            
            
            
            594Net
      income
            
            $
            3,841
            
            
            $
            1,935Net
      income per common share
            
            $
            0.15
            
            
            $
            0.08Diluted
      net income per common share
            
            $
            0.15
            
            
            $
            0.08Weighted
      average shares outstanding:Basic
            
            
            25,181
            
            
            
            24,569Diluted
            
            
            25,301
            
            
            
            25,052




See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.





6




ACETO
      CORPORATION AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
              (unaudited
      and in thousands)Nine
      Months Ended
              March
      31,2010
            
            
            2009Operating
      activities:Net
      income
            
            $
            2,343
            
            
            $
            7,578Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            1,910
            
            
            
            1,258Provision
      for doubtful accounts
            
            
            212
            
            
            
            520Non-cash
      stock compensation
            
            
            877
            
            
            
            1,174Non-cash
      inventory write-down
            
            
            859
            
            
            
            -Deferred
      income taxes (credits)
            
            
            (481
            )
            
            
            972Unrealized
      (gain) loss on trading securities
            
            
            (52
            )
            
            
            254Changes
      in assets and liabilities:Trade
      accounts receivable
            
            
            (15,763
            )
            
            
            5,137Other
      receivables
            
            
            (4,553
            )
            
            
            (3,884
            )Inventory
            
            
            (16,314
            )
            
            
            4,499Prepaid
      expenses and other current assets
            
            
            (1,050
            )
            
            
            (407
            )Other
      assets
            
            
            (1,125
            )
            
            
            (266
            )Accounts
      payable
            
            
            11,390
            
            
            
            (16,534
            )Other
      accrued expenses and liabilities
            
            
            10,034
            
            
            
            (880
            )Net
      cash used in operating activities
            
            
            (11,713
            )
            
            
            (579
            )Investing
      activities:Payment
      for net assets of business acquired
            
            
            (413
            )
            
            
            -Purchase
      of noncontrolling interest
            
            
            (460
            )
            
            
            -Payments
      received on notes receivable
            
            
            972
            
            
            
            413Purchases
      of property and equipment, net
            
            
            (3,846
            )
            
            
            (376
            )Purchases
      of investments
            
            
            -
            
            
            
            (10,204
            )Maturities
      of investments
            
            
            -
            
            
            
            9,993Payments
      for intangible assets
            
            
            (2,481
            )
            
            
            (420
            )Net
      cash used in investing activities
            
            
            (6,228
            )
            
            
            (594
            )Financing
      activities:Proceeds
      from exercise of stock options
            
            
            1,413
            
            
            
            1,020Excess
      tax benefit on stock option exercises and restricted stock
            
            
            371
            
            
            
            161Payment
      of cash dividends
            
            
            (2,529
            )
            
            
            (2,476
            )Payment
      of note payable-related party
            
            
            -
            
            
            
            (500
            )Borrowings
      of short-term bank loans
            
            
            -
            
            
            
            -Net
      cash used in financing activities
            
            
            (745
            )
            
            
            (1,795
            )Effect
      of exchange rate changes on cash
            
            
            (777
            )
            
            
            (4,284
            )Net
      decrease in cash
            
            
            (19,463
            )
            
            
            (7,252
            )Cash
      at beginning of period
            
            
            57,761
            
            
            
            46,515Cash
      at end of period
            
            $
            38,298
            
            
            $
            39,263




Non-Cash
Item




The
Company had a non-cash item excluded from the Condensed Consolidated Statement
of Cash Flows during the nine months ended March 31, 2010 of $2,189 related to
costs accrued for intangible assets.




See
accompanying notes to condensed consolidated financial statements and
accountants’ review report.





7





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 (U.S.
GAAP).  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, 2009.




Certain
reclassifications have been made to the prior period condensed consolidated
financial statements to conform to the current period presentation.






(2)  Goodwill
and Other Intangible Assets




Goodwill
of $1,819 and $1,861 as of March 31, 2010 and June 30, 2009, 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.




On March
1, 2010, the Company acquired certain assets of Andrews Paper & Chemical,
Co., Inc., a supplier of diazos and couplers to the paper, film, and electronics
industries for approximately $413 in cash. The acquisition was accounted for
using the purchase method of accounting, resulting in $237 of inventory, $565
for customer related intangibles, amortizable over ten years and deductible for
income tax purposes and $155 for technology-based intangibles, amortizable over
seven years and deductible for income tax purposes.  In addition, the
Company accrued a liability of approximately $544, which represents contingent
consideration related to the future gross profit earned on the type of products
purchased, with final payment anticipated to be paid within thirty days after
the second anniversary of the closing date. Results of operations for the period
from March 1, 2010 to March 31, 2010 are included within the Specialty Chemicals
Segment of the Company in the condensed consolidated statements of income for
the nine months ended March 31, 2010. Results of operations prior to the
acquisition are not material to the condensed consolidated statements of income
for the nine months ended March 31, 2010 and 2009.The
Company has determined that this acquisition does not constitute a material
business combination and therefore is not including pro forma financial
statements in this report.






(3)  Stock-Based
Compensation




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 have a term of ten years
from the date of grant.  Compensation expense was determined using the
Black-Scholes option pricing model. Total compensation expense related to stock
options for the nine months ended March 31, 2010 and 2009 was $363 and $545,
respectively and $0 and $180 for the three months ended March 31, 2010 and 2009,
respectively.




8




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


In
December 2009, the Company granted 51 shares of restricted common stock to its
non-employee directors, which vest over one year.  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.  The Company granted 41 shares of restricted common
stock and 3 restricted stock units in September 2008, which vested in September
2009.





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, 2010, the Company recorded stock-based compensation expense of
approximately $175 and $480, respectively, related to restricted common stock
and restricted stock units. 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. As of March 31, 2010, the total unrecognized compensation cost related to
restricted stock awards is $580.




The
Company’s policy is to satisfy stock-based compensation awards with treasury
shares, to the extent available.




(4)  Common
Stock




On May 6,
2010, the Company’s board of directors declared a regular semi-annual cash
dividend of $0.10 per share to be distributed on June 25, 2010 to shareholders
of record as of June 14, 2010.




On
December 10, 2009, the Company’s board of directors declared a regular
semi-annual cash dividend of $0.10 per share which was paid on January 15, 2010
to shareholders of record on December 24, 2009.




(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
      31,2010
            
            
            2009
            
            
            2010
            
            
            2009Weighted
      average shares outstanding
            
            
            24,874
            
            
            
            24,457
            
            
            
            25,181
            
            
            
            24,569Dilutive
      effect of stock options and restricted stock awards and
    units
            
            
            271
            
            
            
            519
            
            
            
            120
            
            
            
            483Diluted
      weighted average shares outstanding
            
            
            25,145
            
            
            
            24,976
            
            
            
            25,301
            
            
            
            25,052




There
were 1,749 and 1,607 common equivalent shares outstanding as of March 31, 2010
and 2009, respectively, that were not included in the calculation of diluted
income per common share for the nine months ended March 31, 2010 and 2009,
respectively, because their effect would have been
anti-dilutive.  There were 1,587 and 1,880 common equivalent shares
outstanding as of March 31, 2010 and 2009, respectively, that were not included
in the calculation of diluted income per common share for the three months ended
March 31, 2010 and 2009, respectively, because their effect would have been
anti-dilutive.





9


ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)




(6)  Comprehensive
Income (Loss)




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
      31,2010
            
            
            2009
            
            
            2010
            
            
            2009Comprehensive
      income (loss):Net
      income
            
            $
            2,343
            
            
            $
            7,578
            
            
            $
            3,841
            
            
            $
            1,935Foreign
      currency translationadjustment
            
            
            (2,027
            )
            
            
            (8,644
            )
            
            
            (3,016
            )
            
            
            (3,185
            )Total
            
            $
            316
            
            
            $
            (1,066
            )
            
            $
            825
            
            
            $
            (1,250
            )




The
financial statements of the Company’s foreign subsidiaries are translated into
U.S. dollars in accordance with generally accepted accounting principles. Where
the functional currency of a foreign subsidiary is its local currency, balance
sheet accounts are translated at the current exchange rate on the balance sheet
date 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, 2010 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)  Commitments,
Contingencies and Other Matters




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 PRP Group has begun to undertake cleanup. The PRP Group
is seeking a settlement of approximately $1,700 from the Company for its share
to remediate the site contamination. Although the Company acknowledges that it
shipped materials to the site for formulation over twenty years ago, the Company
believes that the evidence does not show that the hazardous materials sent by
Aceto to the site have significantly contributed to the contamination of the
environment and thus believes that, at most, it is a de minimus contributor to
the site contamination.  Accordingly, the Company believes that the
settlement offer is unreasonable. The impact of the resolution of this matter on
the Company’s results of operations in a particular reporting period is not
known.  However, management believes that the ultimate outcome of this
matter will not have a material adverse effect on the Company’s financial
condition or liquidity.





The
Company has environmental remediation obligations in connection with Arsynco,
Inc. (Arsynco), a subsidiary formerly involved in manufacturing chemicals
located in Carlstadt, New Jersey, which was closed in 1993 and is currently held
for sale.  During fiscal 2009, based on continued monitoring of the
contamination at the site and the approved plan of remediation, the Company
received an estimate from an environmental consultant stating that the costs of
remediation could be between $8,400 and $10,200.  As of March 31, 2010
and June 30, 2009, a liability of $8,400, is included in the accompanying
condensed consolidated balance sheet for this matter.  In accordance
with generally accepted accounting principles, management believes that the
majority of costs incurred to remediate the site will be capitalized in
preparing the property which is currently classified as held for
sale.  An appraisal of the fair value of the property by a third-party
appraiser supports the assumption that the expected fair value after the
remediation is in excess of the amount required to be capitalized. However,
these matters, if resolved in a manner different from those assumed in current
estimates, could have a material adverse effect on the Company’s financial
condition, operating results and cash flows when resolved in a future reporting
period.




10




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


In
connection with the environmental remediation obligation for Arsynco, in July
2009, the Company entered into a settlement agreement with BASF Corporation
(BASF), the former owners of the Arsynco property. According to the settlement
agreement, BASF will pay for a portion of the prior remediation costs and going
forward, will co-remediate the property with the Company. The contract states
that BASF, within twenty days of establishing a Trust Account, will pay $550
related to past response costs and pay a proportionate share of the future
remediation costs. Accordingly, the Company had recorded a gain of $550 for the
year ended June 30, 2009. This $550 gain relates to the partial reimbursement of
costs of approximately $1,200 that the Company had previously expensed. The
Company also recorded an additional receivable from BASF, with an offset against
property held for sale, for $3,780, representing its estimated portion of the
future remediation costs, which is included in the accompanying condensed
consolidated balance sheet as of March 31, 2010 and June 30, 2009.




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.





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, which requires payments for such
memberships. 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 five 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 $6,500 through fiscal 2011, of which $5,100 and $5,300 has been
accrued as of March 31, 2010 and June 30, 2009, respectively.




11




During
the second quarter of fiscal 2010, the Company recorded approximately $2,587 of
one-time costs associated with the separation of its former Chairman of the
Board of Directors and CEO, principally for salary and other related
compensation, as specified in his severance agreement, including a charge of $68
for stock-based compensation expense related to the modification of certain
stock options. The modification of the stock options was recorded as an increase
to capital in excess of par value. As of March 31, 2010, approximately $1,423
has been paid and approximately $1,096 remains accrued related to the separation
of the Company’s former Chairman and CEO, which is required to be paid through
the third quarter of fiscal 2012.  In addition, the Company completed
a rationalization review of both SG&A and certain inventory by product line
and has recorded charges of approximately $2,074 in the second quarter of fiscal
2010. The $2,074 consists of $1,215 one-time charge for personnel related costs
in conjunction with its cost reduction efforts and an $859 non-cash charge,
included in cost of sales, relating to the write-down of certain Health Sciences
and Specialty Chemicals inventories to their respective estimated net realizable
value. Of the $1,215 for personnel-related costs, $183 has been paid through
March 31, 2010 and approximately $1,032 remains accrued as of March 31, 2010,
which is anticipated to be paid through the second quarter of fiscal
2013.





Commercial
letters of credit are issued by the Company in the ordinary course of business
as requested by certain suppliers.  The Company had open letters of
credit of approximately $229 and $185 as of March 31, 2010 and June 30, 2009,
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.   In addition, the
Company received approximately $6,000 of customer advance payments, which are
included in accrued expenses in the condensed consolidated balance sheet at
March 31, 2010.




(8)
Fair Value Measurements




In
accordance with U.S. GAAP, the fair value hierarchy for instruments measured at
fair value is distinguished 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; and





Level
3 –   Unobservable inputs that are not corroborated by market
data.




On a
recurring basis, Aceto measures at fair value certain financial assets and
liabilities, which consist of cash equivalents, investments and foreign currency
contracts. The Company classifies cash equivalents and investments within Level
1 if quoted prices are available in active markets.  Level 1 assets
include instruments valued based on quoted market prices in active markets which
generally include corporate equity securities publicly traded on major
exchanges.  Time deposits are very short-term in nature and are
accordingly valued at cost plus accrued interest, which approximates fair value,
and are classified within Level 2 of the valuation hierarchy. The Company uses
foreign currency forward contracts (futures) to minimize the risk caused by
foreign currency fluctuation on its foreign currency receivables and payables by
purchasing futures with one of its financial institutions.  Futures
are traded on regulated U.S. and international exchanges and represent
commitments to purchase or sell a particular foreign currency at a future date
and at a specific price.   Aceto’s foreign currency derivative
contracts are classified within Level 2 as the fair value of these hedges is
primarily based on observable forward foreign exchange rates. At March 31, 2010,
the Company had foreign currency contracts outstanding that had a notional
amount of $31,542. Unrealized (losses) gains on hedging activities for the nine
months ended March 31, 2010 and 2009 was ($307) and $251, 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.





12


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, 2010:




Fair
      Value Measurements at March 31, 2010
      UsingQuoted
      Prices in Active Markets (Level 1)
            
            
            Significant
      Other Observable Inputs (Level 2)
            
            
            Significant
              Unobservable
      Inputs
              (Level
      3)
            
            
            TotalCash
      equivalents:Time
      deposits
            
            
            -
            
            
            $
            306
            
            
            
            -
            
            
            $
            306Investments:Trading
      securities
            
            $
            386
            
            
            
            -
            
            
            
            -
            
            
            
            386Time
      deposits
            
            
            -
            
            
            
            222
            
            
            
            -
            
            
            
            222Foreign currency
      contracts-assets (1)
            
            
            -
            
            
            
            137
            
            
            
            -
            
            
            
            137Foreign currency
      contracts-liabilities (2)
            
            
            -
            
            
            
            584
            
            
            
            -
            
            
            
            584





(1)
            Included
      in “Other receivables” in the accompanying Condensed Consolidated Balance
      Sheet as of March 31, 2010.


(2)           Included
in “Accrued expenses” in the accompanying Condensed Consolidated Balance Sheet
as of March 31, 2010.


Fair
      Value Measurements at June 30, 2009 UsingQuoted
      Prices in Active Markets (Level 1)
              
              
              SignificantOther
      Observable Inputs (Level 2)
              
              
              Significant
      Unobservable
      Inputs (Level
      3)
              
              TotalCash
      equivalents:Time
      deposits
              
              
              -
              
              
              $
              2,442
              
              
              
              -
              
              
              $
              2,442Investments:Trading
      securities
              
              $
              334
              
              
              
              -
              
              
              
              -
              
              
              
              334Time
      deposits
              
              
              -
              
              
              
              207
              
              
              
              -
              
              
              
              207Foreign currency
      contracts-assets (3)
              
              
              -
              
              
              
              1,183
              
              
              
              -
              
              
              
              1,183Foreign currency
      contracts-liabilities (4)
              
              
              -
              
              
              
              455
              
              
              
              -
              
              
              
              455





(3)
            Included
      in “Other receivables” in the accompanying Condensed Consolidated Balance
      Sheet as of June 30, 2009.


(4)           Included
in “Accrued expenses” in the accompanying Condensed Consolidated Balance Sheet
as of June 30, 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, 2010 and June 30,
2009.




The
portion of FASB Accounting Standards Codification (ASC) 820-10 corresponding to
the guidance in FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”
delayed the effective date of fair value measurements and disclosures under the
remainder of ASC 820-10 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until the
beginning of the Company’s first quarter beginning July 1, 2009. These include
goodwill and other non-amortizable intangible assets and long-lived assets. The
end of the delay for any required fair value measurements of the Company’s
non-financial assets and liabilities until July 1, 2009, did not have a
significant impact on its consolidated financial statements.




13




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair
Value Measurements,” which provides amendments to the FASB ASC Subtopic 820-10
that require new disclosures regarding (i) transfers in and out of Level 1 and
Level 2 fair value measurements and (ii) activity in Level 3 fair value
measurements. ASU 2010-06 also clarifies existing disclosures regarding (i) the
level of asset and liability disaggregation and (ii) fair value measurement
inputs and valuation techniques. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The disclosure impact of adoption of ASU 2010-06 on the Company’s
consolidated financial statements is not material.




The
carrying values of all financial instruments classified as a current asset or
current liability are deemed to approximate fair value because of the short
maturity of these instruments.  The difference between the fair value
of long-term notes receivable and their carrying value at both March 31, 2010
and June 30, 2009 was not material.  The fair value of the Company’s
notes receivable was based upon current rates offered for similar financial
instruments to the Company.




(9)  Other
Recent Accounting Pronouncements




ASC
105-10 (SFAS No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162”) establishes only two levels of U.S. GAAP, authoritative and
nonauthoritative. ASC 105-10 is the exclusive source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with GAAP, except for
rules and interpretive releases of the Securities and Exchange Commission (SEC),
which are sources of authoritative GAAP, for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
is nonauthoritative. ASC 105-10 became effective in the first quarter of 2010
and as ASC 105-10 was not intended to change or alter existing GAAP, it did not
have any impact on the Company’s consolidated financial statements.




ASC
810-10 (SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research Bulletin No 51”) 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. ASC 810-10 was effective for the Company on July 1,
2009.  The adoption of this statement did not have any impact on the
Company’s consolidated financial position or results of operations since in July
2009, the Company purchased the remaining noncontrolling interest of S.R.F.A.
for $460, which represents the historical cost of the noncontrolling interest,
and thus owns 100% of this entity.




ASC 805
(SFAS No. 141R, “Business Combinations”) 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 ASC 805-10 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.
Accordingly, the Company adopted this statement on July 1, 2009.The
Company applied the provisions of ASC 805 on its acquisition of Andrews Paper
& Chemical, Co., Inc.




14




ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


ASC
260-10 (FASB Staff Position EITF No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”)
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 accordance with U.S. GAAP. The
adoption of ASC 260-10 on July 1, 2009 did not have a material impact on the
Company’s consolidated financial statements.




ASC
825-10-50 (FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value
of Financial Instruments”) requires disclosures about fair value of financial
instruments for interim reporting periods. The guidance is effective for interim
reporting periods ending after June 15, 2009 and does not require disclosures
for earlier periods presented for comparative purposes at initial adoption. As
the guidance provides only disclosure requirements, the adoption of this
standard did not have a material impact on the Company’s financial condition or
operating results.




ASC
810-10 (SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”) changes the
consolidation model for variable interest entities (VIEs). ASC 810-10 requires
companies to qualitatively assess the determination of the primary beneficiary
of a VIE based on whether the company (1) has the power to direct matters that
most significantly impact the VIE’s economic performance, and (2) has the
obligation to absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. ASC 810-10 is effective for fiscal
years beginning after November 15, 2009, which for Aceto is fiscal 2011. The
Company is currently evaluating the impact of ASC 810-10 on its results of
operations and financial position.




In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05). This update provides amendments to ASC
Topic 820, “Fair Value Measurements and Disclosure” for the fair value
measurement of liabilities when a quoted price in an active market is not
available. The adoption of ASU 2009-05 on October 1, 2009 did not have any
impact on the Company’s consolidated financial statements.




(10)  Segment
Information




The
Company’s business is organized along product lines into three principal
segments: Health Sciences, Specialty Chemicals and Crop Protection.




Health
Sciences – includes APIs, pharmaceutical intermediates and
nutraceuticals.




Specialty
Chemicals- 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. In addition, Aceto is a supplier of diazos and
couplers to the paper, film and electronics industries. The Company changed the
name of this segment from Chemicals and Colorants to Specialty Chemicals in 2010
to more accurately reflect the scope of its business
activities.




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.





15





ACETO
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited
and in thousands, except per-share amounts)


Nine
Months Ended March 31, 2010 and 2009:


Health Sciences
            
            
            Specialty Chemicals
            
            
            Crop
              Protection
            
            
            Consolidated Totals2010Net
      sales
            
            $
            135,313
            
            
            $
            87,438
            
            
            $
            18,115
            
            
            $
            240,866Gross
      profit
            
            
            22,027
            
            
            
            13,986
            
            
            
            2,435
            
            
            
            38,4482009Net
      sales
            
            $
            143,863
            
            
            $
            91,236
            
            
            $
            12,755
            
            
            $
            247,854Gross
      profit
            
            
            27,614
            
            
            
            13,088
            
            
            
            3,235
            
            
            
            43,937




Three
Months Ended March 31, 2010 and 2009:


Health Sciences
            
            
            Specialty Chemicals
            
            
            Crop
              Protection
            
            
            Consolidated Totals2010Net
      sales
            
            $
            51,837
            
            
            $
            36,067
            
            
            $
            11,443
            
            
            $
            99,347Gross
      profit
            
            
            8,208
            
            
            
            5,989
            
            
            
            1,655
            
            
            
            15,8522009Net
      sales
            
            $
            44,549
            
            
            $
            29,410
            
            
            $
            5,841
            
            
            $
            79,800Gross
      profit
            
            
            7,071
            
            
            
            4,388
            
            
            
            1,796
            
            
            
            13,255




16




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, 2010 and the related condensed consolidated
statements of income for the three-month and nine-month periods ended March 31,
2010 and 2009, and the related condensed consolidated statements of cash flows
for the nine-month periods ended March 31, 2010 and 2009 included in the
accompanying Securities and Exchange Commission Form 10-Q for the period ended
March 31, 2010.  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, 2009, 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 11,
2009, 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, 2009, 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,
2010


17





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 contains forward-looking statements as that term is defined in
the federal securities laws.  The events described in forward-looking
statements contained in this Quarterly Report may not
occur.  Generally, these statements relate to our business plans or
strategies, projected or anticipated benefits or other consequences of our plans
or strategies, financing plans, projected or anticipated benefits from
acquisitions that we may make, or projections involving anticipated revenues,
earnings or other aspects of our operating results or financial position, and
the outcome of any contingencies.  Any such forward-looking statements
are based on current expectations, estimates and projections of
management.   We intend for these forward-looking statements to
be covered by the safe-harbor provisions for forward-looking
statements.  Words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their
opposites and similar expressions are intended to identify forward-looking
statements.  We caution you that these statements are not guarantees
of future performance or events and are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control, that may
influence the accuracy of the statements and the projections upon which the
statements are based.  Factors that could cause actual results to
differ materially from those set forth or implied by any forward-looking
statement include, but are not limited to, unforeseen environmental liabilities,
international military conflicts, the mix of products sold and the profit
margins thereon, order cancellation or a reduction in orders from customers,
disruption of supply chain due to trade matters, 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, economic and political conditions in the United States and
abroad, our ability to continue strong cost controls, as well as other risks and
uncertainties discussed in our reports filed with the Securities and Exchange
Commission, including, but not limited to, our Annual Report on Form 10-K for
the fiscal year ended June 30, 2009 and other filings.  Copies of
these filings are available at www.sec.gov.





Any one
or more of these uncertainties, risks and other influences could materially
affect our results of operations and whether forward-looking statements made by
us ultimately prove to be accurate.  Our actual results, performance
and achievements could differ materially from those expressed or implied in
these forward-looking statements.  We undertake no obligation to
publicly update or revise any forward-looking statements, whether from new
information, future events or otherwise.




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




There
continue to be signs of economic stabilization, as per an April 15, 2010 Federal
Reserve statistical release, domestic manufacturing output was up 4.6% from its
year earlier level.




We are
reporting net sales of $240,866 for the nine months ended March 31, 2010, which
represents a 2.8% decrease from the $247,854 reported in the comparable prior
period.  Gross profit for the nine months ended March 31, 2010 was
$38,448 and our gross margin was 16.0% as compared to gross profit of $43,937
and gross margin of 17.7% in the comparable prior period.  Our
selling, general and administrative costs (SG&A) for the nine months ended
March 31, 2010 increased 4.1%, when compared to $33,074 we reported in the prior
period.  We had a net income of $2,343 or $0.09 per diluted share,
compared to net income of $7,578, or $0.30 per diluted share in the prior
period.  The primary reason for the decline in income is due to
approximately $2,587 of one-time costs associated with the separation of our
former Chairman of the Board of Directors and CEO, which were recorded in the
nine months ended March 31, 2010. In addition, the Company completed an SG&A
rationalization review and review of its inventory by product line and has
recorded one-time charges of approximately $2,074 in the second quarter of
fiscal 2010.




18




Our
financial position as of March 31, 2010 remains strong, as we had cash and cash
equivalents and short-term investments of $38,906, working capital of $119,869,
no long-term debt and shareholders’ equity of $141,991.




Our
business is separated into three principal segments:  Health Sciences,
Specialty Chemicals 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 APIs, pharmaceutical
intermediates and nutraceuticals.




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 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. 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. Aceto has also moved
further down the supply chain and is now sourcing and distributing the finished
dosage form of generic drugs.




According
to an IMS Health press release on April 20, 2010, the size of the global market
for pharmaceuticals is expected to grow nearly $300 billion over the next five
years, reaching $1.1 trillion in 2014.  The 5% - 8% compound annual
growth rate during this period reflects the impact of leading products losing
patent protection in developed markets, as well as strong overall growth in the
world’s emerging countries.




The
Specialty Chemicals segment is a major supplier to the many different industries
that require outstanding performance from chemical raw materials and
additives.  Specialty Chemicals include a variety of 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. 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. In addition, Aceto is a leader in the supply of diazos
and couplers to the paper, film and electronics industries.




According
to the Federal Reserve statistical release described above, in the first quarter
of calendar year 2010, the index for consumer durables, which impacts the
Specialty Chemicals segment, expanded at an annual rate of 8.8% as the index was
supported by a further jump in automotive production.




The Crop
Protection segment sells herbicides, fungicides, insecticides, and other
agricultural chemicals to customers, primarily located in the United States and
Western Europe.  In a National Agricultural Statistics Services
release dated June 30, 2009, the total crop acreage planted in 2009 decreased by
1.2% to almost 321 million acres.  The number of peanut acres planted
in 2009 was down sharply; almost 30% from 2008 levels, and sugar cane acreage
was down 1.6% from 2008.




In fiscal
2009, we continued to add products to our Crop Protection portfolio when we
received EPA registrations for Halosulfuron and Glyphosate. Glyphosate is the
largest selling herbicide for both crop and non crop use sold in the United
States.  We began selling Glyphosate in this fiscal quarter.In
addition, we have three other products that we plan to file for registrations
with the EPA in fiscal year 2011. Our plan is to continue to develop this
pipeline and bring to market additional products in a similar
manner.




19




Our main
business strengths are sourcing, quality assurance, regulatory support,
marketing and distribution. In fiscal 2009, we developed an industrial brand for
Aceto called “Enabling Quality Worldwide” and we 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 one of the largest
merchant buyers 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, 2010 and 2009.  We analyze and explain
the differences between periods in the specific line items of the condensed
consolidated statements of income.




Critical
Accounting Estimates and Policies




As
disclosed in our Form 10-K for the year ended June 30, 2009, 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, 2009, there have been no significant changes to the assumptions and
estimates related to those critical accounting estimates and
policies.





20




RESULTS
OF OPERATIONS




Nine
Months Ended March 31, 2010 Compared to Nine Months Ended March 31,
2009




Net
      Sales by Segment
              Nine
      months ended March 31,Comparison
      20102010
            
            
            2009
            
            
            Over/(Under)
      2009%
      of
            
            
            
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            Net
      sales
            
            
            total
            
            
            Net
      sales
            
            
            total
            
            
            change
            
            
            changeHealth
      Sciences
            
            $
            135,313
            
            
            
            56.2
            %
            
            $
            143,863
            
            
            
            58.0
            %
            
            $
            (8,550
            )
            
            
            (5.9
            %)Specialty
      Chemicals
            
            
            87,438
            
            
            
            36.3
            
            
            
            91,236
            
            
            
            36.8
            
            
            
            (3,798
            )
            
            
            (4.2
            )Crop
      Protection
            
            
            18,115
            
            
            
            7.5
            
            
            
            12,755
            
            
            
            5.2
            
            
            
            5,360
            
            
            
            42.0Net
      sales
            
            $
            240,866
            
            
            
            100.0
            %
            
            $
            247,854
            
            
            
            100.0
            %
            
            $
            (6,988
            )
            
            
            (2.8
            %)Gross
      Profit by Segment
              Nine
      months ended March 31,Comparison
      20102010
            
            
            2009
            
            
            Over/(Under)
      2009Gross
            
            
            %
      of
            
            
            Gross
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            profit
            
            
            sales
            
            
            Profit
            
            
            sales
            
            
            change
            
            
            ChangeHealth
      Sciences
            
            $
            22,027
            
            
            
            16.3
            %
            
            $
            27,614
            
            
            
            19.2
            %
            
            $
            (5,587
            )
            
            
            (20.2
            %)Specialty
      Chemicals
            
            
            13,986
            
            
            
            16.0
            
            
            
            13,088
            
            
            
            14.3
            
            
            
            898
            
            
            
            6.9Crop
      Protection
            
            
            2,435
            
            
            
            13.4
            
            
            
            3,235
            
            
            
            25.4
            
            
            
            (800
            )
            
            
            (24.7
            )Gross
      Profit
            
            $
            38,448
            
            
            
            16.0
            %
            
            $
            43,937
            
            
            
            17.7
            %
            
            $
            (5,489
            )
            
            
            (12.5
            %)




Net
Sales




Net sales
decreased $6,988, or 2.8%, to $240,866 for the nine months ended March 31, 2010,
compared with $247,854 for the prior period.  We reported sales
decreases in our Health Sciences and Specialty Chemicals business segments,
offset by an increase in sales from our Crop Protection business as explained
below.




Health
Sciences




Net sales
for the Health Sciences segment decreased by $8,550 for the nine months ended
March 31, 2010, to $135,313, which represents a 5.9% decrease from net sales of
$143,863 for the prior period.  This decrease is predominantly due to
decreased sales from our foreign operations of $10,141, specifically our Asian
and The Netherlands operations, due primarily to weak demand from certain
customers. The decrease in Health Sciences sales is partially offset by $1,689
increase in domestic nutraceutical products, which represent raw materials used
in the production of nutritional supplements, due to increased penetration of
existing products across the entire customer base, as well as new customers. In
addition, growth in vitamin sales is attributed to increased sales
efforts.





21




Specialty
Chemicals




Net sales
for the Specialty Chemicals segment were $87,438 for the nine months ended March
31, 2010, a decrease of $3,798 or 4.2% from net sales of $91,236 for the prior
period.  Our Specialty Chemicals business is diverse in terms of
products, customers and consuming markets, including the automotive and housing
markets, and is directly impacted by market conditions in the economy. The
decrease in sales from this segment is attributable to a decline in sales of
$1,181 in chemicals used in aroma products, $1,050 in chemicals used to produce
surface coatings, $1,049 in products used in the treatment of metal and $3,381
of agricultural, dye, pigment and other intermediates. In addition, the prior
period also included a rise in prices in the chemical industry related to
increased demand for chemical products in China, as a direct result of the
supplier interruption in China due to the summer Olympics in August 2008. Aceto
was able to carry more stock in anticipation of the closing of certain factories
in China due to the Olympics.  Leading up to the Olympics, our
customers were willing to pay increased prices to ensure that they had enough
raw materials to finish calendar year 2008 and continued to pay those purchase
commitments which were at higher prices. Once the Olympics were over and the
purchase commitments ended, both demand and sales prices dropped. These
decreases are offset, in part, by a rise of $1,393 in sales of chemicals used in
the food, beverage and cosmetics industry due to a resurgence of a product
utilized in sunscreen and an increase in sales of specialty chemicals from our
foreign operations of $952.




Crop
Protection




Net sales
for the Crop Protection segment increased by 42% to $18,115 for the nine months
ended March 31, 2010, when compared to net sales of $12,755 for the prior period
due primarily to sales of glyphosate, which commenced in the third quarter of
2010.





Gross
Profit




Gross
profit decreased to $38,448 (16.0% of net sales) for the nine months ended March
31, 2010, as compared to $43,937 (17.7% of net sales) for the prior
period.  In December 2009, we completed a review of our inventory by
product line and recorded an $859 non-cash inventory write-down to its estimated
net realizable value, included in cost of sales, relating to certain Health
Sciences and Specialty Chemicals inventories.




Health
Sciences




Gross
profit for the nine months ended March 31, 2010 decreased by $5,587, or 20.2%,
over the prior period. The gross margin declined to 16.3% for the nine months
ended March 31, 2010 compared to 19.2% for the prior period.  The
decrease in gross profit was partially attributable to the overall decline in
sales volume. Our foreign operations, specifically Germany, experienced a drop
in gross profit of $5,234 over the prior period due to the reduction of reorders
of existing products that generally yield a more favorable gross
margin.




Specialty
Chemicals




Specialty
Chemicals’ gross profit of $13,986 for the nine months ended March 31, 2010 was
$898 or 6.9% higher than the prior period.  The gross margin at 16.0%
for the nine months ended March 31, 2010 was also higher than the prior period’s
gross margin of 14.3%.   The increase in the gross profit is due
primarily to increased gross profit of $614 from our foreign operations that
sell specialty chemicals.




Crop
Protection




Gross
profit for the Crop Protection segment decreased to $2,435 for the nine months
ended March 31, 2010, versus $3,235 for the prior period, a decrease of $800 or
24.7%.  Gross margin for the nine months also decreased to 13.4%
compared to the prior period gross margin of 25.4%. The decrease in the gross
profit and gross margin percentage is primarily attributable to increased
amortization expense related to product registrations and related data filed
with the United States Environmental Protection Agency as well as payments to
various task force groups and lower gross margin on certain sprout inhibitor
products and an herbicide used on sugar cane. These decreases are partially
offset by the gross profit related to our glyphosate product, which commenced
sales in the third quarter of fiscal 2010.




22




Selling,
General and Administrative Expenses





SG&A
increased $1,369 or 4.1%, to $34,443 for the nine months ended March 31, 2010
compared to $33,074 for the prior period.  As a percentage of sales,
SG&A increased to 14.3% for the nine months ended March 31, 2010 versus
13.3% for the prior period. The primary reason for the increase in SG&A is
due to approximately $2,587 of one-time costs associated with the separation of
the Company’s former Chairman of the Board of Directors and CEO, which were
recorded in the second quarter of fiscal 2010. In addition, the Company
completed an SG&A rationalization review and has recorded charges of
approximately $1,215 during the nine months ended March 31, 2010  for
personnel related costs in conjunction with our cost reduction efforts. The
increase in SG&A is partially offset by a decline of $1,623 in personnel
related costs due to decreased accrued bonus expense as a result of decreased
profitability, decrease in fringe benefits and a decline in stock-based
compensation expense. SG&A also decreased due to a $505 drop in sales and
marketing expenses, which is directly related to the decline in sales for the
first nine months of fiscal 2010 and a $312 decrease in bad debt expense due to
additional reserves recorded in the prior period, where there was no comparable
amount in the current period. In addition, in the prior period, we had $153 in
research and development expenses (R&D) with no comparable amount in the
nine months ended March 31, 2010 due to the abandonment in fiscal 2009 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, 2010, operating income was $4,005 compared to income
of $10,863 in the prior period, a decrease in operating income of $6,858 or
63.1%.  This decrease was due to the overall decrease in gross profit
of $5,489 and increase in SG&A of $1,369 from the comparable prior
period.




Interest
and Other Income, Net




Interest
and other income, net was $512, for the nine months ended March 31, 2010, which
is relatively consistent to the $465 of income in the prior period.




Provision
for Income Taxes




The
effective tax rate for the nine months ended March 31, 2010 was 46.4% versus
32.7% for the prior period.  The increase in the effective tax rate
was due to various factors including tax charges related to the reorganization
of our Shanghai operations and an increase in the expected mix of profits from
higher tax rate jurisdictions in 2010.





23





Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009




Net
      Sales by Segment
              Three
      months ended March 31,Comparison
      20102010
            
            
            2009
            
            
            Over/(Under)
      2009%
      of
            
            
            
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            Net
      sales
            
            
            total
            
            
            Net
      sales
            
            
            total
            
            
            change
            
            
            changeHealth
      Sciences
            
            $
            51,837
            
            
            
            52.2
            %
            
            $
            44,549
            
            
            
            55.8
            %
            
            $
            7,288
            
            
            
            16.4
            %Specialty
      Chemicals
            
            
            36,067
            
            
            
            36.3
            
            
            
            29,410
            
            
            
            36.9
            
            
            
            6,657
            
            
            
            22.6Crop
      Protection
            
            
            11,443
            
            
            
            11.5
            
            
            
            5,841
            
            
            
            7.3
            
            
            
            5,602
            
            
            
            95.9Net
      sales
            
            $
            99,347
            
            
            
            100.0
            %
            
            $
            79,800
            
            
            
            100.0
            %
            
            $
            19,547
            
            
            
            24.5
            %Gross
      Profit by Segment
              Three
      months ended March 31,Comparison
      20102010
            
            
            2009
            
            
            Over/(Under)
      2009Gross
            
            
            %
      of
            
            
            Gross
            
            
            %
      of
            
            
            $
            
            
            %Segment
            
            profit
            
            
            sales
            
            
            profit
            
            
            sales
            
            
            change
            
            
            changeHealth
      Sciences
            
            $
            8,208
            
            
            
            15.8
            %
            
            $
            7,071
            
            
            
            15.9
            %
            
            $
            1,137
            
            
            
            16.1
            %Specialty
      Chemicals
            
            
            5,989
            
            
            
            16.6
            
            
            
            4,388
            
            
            
            14.9
            
            
            
            1,601
            
            
            
            36.5Crop
      Protection
            
            
            1,655
            
            
            
            14.5
            
            
            
            1,796
            
            
            
            30.7
            
            
            
            (141
            )
            
            
            (7.9
            )Gross
      profit
            
            $
            15,852
            
            
            
            16.0
            %
            
            $
            13,255
            
            
            
            16.6
            %
            
            $
            2,597
            
            
            
            19.6
            %




Net
Sales




Net sales
increased $19,547, or 24.5%, to $99,347 for the three months ended March 31,
2010, compared with $79,800 for the prior period.  We reported sales
increases in all three of our business segments.




Health
Sciences




Net sales
for the Health Sciences segment increased $7,288 or 16.4% to $51,837 for the
three months ended March 31, 2010, when compared to the prior period. Overall,
the domestic Health Sciences group had an increase of $7,908, when compared to
the prior period, which represents increases in both our domestic generics
product group of $4,189 and our domestic nutraceutical products of $1,634. The
increase in our domestic generics product group is due to the realization of new
products from our pipeline as well as the increase in reorders of existing
products.  The increase in domestic nutraceutical products, which
represent raw materials used in the production of nutritional supplements, is
due to increased penetration of existing products across the entire customer
base, as well as new customers. In addition, growth in vitamin sales is
attributed to increased sales efforts. Health Sciences’ sales also increased due
to a rise in sales of domestic pharmaceutical intermediates, which represent key
components used in the manufacture of certain drug products, by
$1,488.





24





Specialty
Chemicals




Net sales
for the Specialty Chemicals segment were $36,067 for the three months ended
March 31, 2010, an increase of $6,657 from net sales of $29,410 for the prior
period.  Our chemical business consists of a variety of products,
customers and consuming markets, most of which is affected by current economic
conditions.   Based upon the statistical releases mentioned
above, it appears that consumer market conditions are improving, in particular
in the automotive industry. Sales of our chemicals used in surface coatings
increased $2,802 from the prior period, as well as sales of chemicals used in
the food, beverage and cosmetics industries had risen by $1,170 due to a
resurgence of a product utilized in sunscreen. In addition, we experienced an
increase in sales of specialty chemicals from our foreign operations of
$1,588.




Crop
Protection




Net sales
for the Crop Protection segment increased to $11,443 for the three months ended
March 31, 2010, an increase of $5,602, or 95.9%, from net sales of $5,841 for
the prior period.  The increase over the prior period is due primarily
to sales of glyphosate, which commenced in the third quarter of
2010.




Gross
Profit




Gross
profit increased to $15,852 (16.0% of net sales) for the three months ended
March 31, 2010, as compared to $13,255 (16.6% of net sales) for the prior
period.




Health
Sciences




Health
Sciences’ gross profit increased to $8,208 for the three months ended March 31,
2010 when compared to the prior period of $7,071. The gross margin remained
relatively consistent at 15.8%, for the three months ended March 31, 2010, when
compared to the prior period of 15.9%. The increase in gross profit in the
Health Sciences segment primarily relates to increased sales volume in both our
domestic generics product group and our domestic nutraceutical
products.




Specialty
Chemicals




Specialty
Chemicals’ gross profit of $5,989 for the three months ended March 31, 2010 was
$1,601 or 36.5% higher than the prior period.  The gross margin at
16.6% for the three months ended March 31, 2010 was also higher than the prior
period’s gross margin of 14.9%.   The increase in the gross
profit is due primarily to increased gross profit of $615 from our foreign
operations that sell specialty chemicals, as well as overall sales volume
increases.




Crop
Protection




Gross
profit for the Crop Protection segment decreased to $1,655 for the three months
ended March 31, 2010, versus $1,796 for the prior period, a decrease of $141 or
7.9%.  Gross margin for the quarter also decreased to 14.5% compared
to the prior period gross margin of 30.7%. The decrease in the gross profit and
gross margin percentage is primarily attributable to increased amortization
expense related to product registrations and related data filed with the United
States Environmental Protection Agency as well as payments to various task force
groups and lower gross margin on an herbicide used on sugar cane. These
decreases are partially offset by the gross profit related to our glyphosate
product, which commenced sales in the third quarter of fiscal 2010.





25




Selling,
General and Administrative Expenses





SG&A
decreased $395 or 3.8%, to $10,063 for the three months ended March 31, 2010
compared to $10,458 for the prior period.  As a percentage of sales,
SG&A decreased to 10.1% for the three months ended March 31, 2010 versus
13.1% for the prior period. The primary reason for the decrease in SG&A is
due to the decline in personnel related costs.




Operating
Income




For the
three months ended March 31, 2010, operating income was $5,789 compared to
$2,797 in the prior period, an increase of $2,992 or 107.0%.  This
increase was due to the overall increase in gross profit of $2,597 and the
decline in SG&A of $395 from the comparable prior period.




Interest
and Other Income (Expense), Net




Interest
and other income (expense), net was $638 of income for the three months ended
March 31, 2010, which represents an increase of $901 of income over the ($263)
of expense in the prior period mainly due to a decrease in foreign exchange
losses and an increase in income related to a joint venture.




Provision
for Income Taxes




The
effective tax rate for the three months ended March 31, 2010 was 40.0% versus an
income tax provision of 23.5% for the prior period. The increase in the
effective tax rate is due to an increase in the expected mix of profits from
higher tax rate jurisdictions in 2010.




Liquidity
and Capital Resources




Cash
Flows




At March
31, 2010, we had $38,298 in cash and cash equivalents, of which $29,553 was
outside the United States, $608 in short-term investments and no outstanding
bank loans.  Working capital was $119,869 at March 31, 2010 versus
$124,709 at June 30, 2009.  The $29,553 of cash held outside of the
United States is fully accessible to meet any liquidity needs of Aceto in the
particular countries outside of the United States in which it 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 would 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.




26




Our cash
position at March 31, 2010 decreased $19,463 from the amount at June 30,
2009.  Operating activities for the nine months ended March 31, 2010
used cash of $11,713, for this period, as compared to cash used in operations of
$579 for the comparable 2009 period. The $11,713 was comprised of $2,343 in net
income and $3,325 derived from adjustments for non-cash items less a net $17,381
decrease from changes in operating assets and liabilities. The non-cash items
included $1,910 in depreciation and amortization expense, $859 non-cash
inventory write-down and $877 in non-cash stock compensation expense. Trade
accounts receivable increased $15,763 during the nine months ended March 31,
2010, due to increased sales during the third quarter of 2010 as compared to the
fourth quarter of 2009, as well as an increase in days sales outstanding, from
June 30, 2009. Inventories and accounts payable increased by approximately
$16,314 and $11,390, respectively, due primarily to Crop Protection purchases of
Glyphosate and Halosulfuron, for sales anticipated to occur in the fourth
quarter of 2010. Inventories and accounts payable have also increased related to
purchases of domestic Specialty Chemicals, as a result of a ramp-up in orders
for products expected to be shipped in the fourth quarter of 2010. Other accrued
expenses and liabilities increased $10,034 due to advance payments from
customers, increase in Value Added Tax (VAT) for our foreign subsidiaries,
particularly Germany, and an increase in accrued expenses related to a joint
venture.  Payments on the $1,096 liability at March 31, 2010 related
to the Company’s former Chairman and CEO are required to be made through the
third quarter of fiscal 2012 and payments on the $1,032 accrual at March 31,
2010 for personnel related costs in conjunction with our cost reduction efforts
are anticipated to be made through the second quarter of fiscal 2013.Other
receivables increased $4,553 due to increased receivables related to advance
payments to suppliers, an increase in income taxes receivables and an increase
in VAT taxes receivables in our European subsidiaries. Other assets increased
$1,125 due primarily to receivables related to a joint venture. 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, 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 primary reason
for the decrease in cash during the nine months ended March 31 2009 relates
primarily to the decrease in accounts payable and inventories, 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 at that time.




Investing
activities for the nine months ended March 31, 2010 used cash of $6,228
primarily related to purchases of noncontrolling interest, property and
equipment and payments for intangible assets and net assets of business
acquired, offset by payments received on notes receivable. The purchase of
property and equipment included the purchase of land and building for the future
site of our global headquarters. Investing activities for the nine months ended
March 31, 2009 used cash of $594 primarily related to purchases and maturities
of investments.




Financing
activities for the nine months ended March 31, 2010 used cash of $745 primarily
from the payment of $2,529 of dividends, offset by $1,413 of proceeds from the
exercise of stock options.  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.




Credit
Facilities




We have
available credit facilities with certain foreign financial
institutions.  These facilities provide us with lines of credit of
$19,142, as of March 31, 2010.  We are not subject to any financial
covenants under these arrangements.




In June
2007, we amended our revolving credit agreement with a financial institution,
which provided for available credit of $10,000.  At March 31, 2010, we
had utilized $229 in letters of credit leaving $9,771 of this facility
unused.  We were in compliance with all covenants at March 31,
2010.




In April
2010, we amended our revolving credit agreement (the “New Credit Agreement”),
which expires December 31, 2012, and provides for available credit of
$25,000.   The New Credit Agreement replaces the previous
revolving credit agreement in its entirety. Under the New Credit Agreement, we
may obtain credit through direct borrowings and letters of
credit.  Interest under the New Credit Agreement is at LIBOR plus
2.00%.  The New Credit Agreement contains several financial covenants
including maintaining a minimum level of debt service. We are also subject to
certain restrictive debt covenants, including covenants governing liens,
limitations on indebtedness, limitations on cash dividends, guarantees, sale of
assets, sales of receivables, and loans and investments.




27




Working
Capital Outlook




Working
capital was $119,869 at March 31, 2010 versus $124,709 at June 30,
2009.  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 crop protection
business, we plan to continue to acquire product registrations and related data
filed with the United States Environmental Protection Agency as well as payments
to various task force groups, which could approximate $6,500 through fiscal
2011.  We continue to believe it is beneficial to us to make advance
inventory purchases of Glyphosate, which will be substantial for the remainder
of fiscal 2010. In March 2010, we purchased a building in Port Washington, New
York to be the site of our future global headquarters. It is anticipated that we
will move our corporate offices into the new building on or about April 2011,
when the lease at our current location in Lake Success, New York
expires.  It is anticipated that the total amount expended on the new
facility could approximate $7,500. In addition, the Company is contemplating a
mortgage on the new facility, in the amount of $3,000 to $4,000, to free up
working capital.




In
connection with Arsynco, the Company could pay out approximately $1,000 in
fiscal 2011, related to the environmental remediation obligation.




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.




Impact
of New Accounting Pronouncements




The
portion of FASB Accounting Standards Codification (ASC) 820-10 corresponding to
the guidance in FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”
delayed the effective date of fair value measurements and disclosures under the
remainder of ASC 820-10 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until the
beginning of the our first quarter beginning July 1, 2009. These include
goodwill and other non-amortizable intangible assets and long-lived assets. The
end of the delay for any required fair value measurements of the Company’s
non-financial assets and liabilities until July 1, 2009, did not have a
significant impact on our consolidated financial statements.




ASC
105-10 (SFAS No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162”) establishes only two levels of U.S. GAAP, authoritative and
nonauthoritative. ASC 105-10 is the exclusive source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with GAAP, except for
rules and interpretive releases of the Securities and Exchange Commission (SEC),
which are sources of authoritative GAAP, for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
is nonauthoritative. ASC 105-10 became effective in the first quarter of 2010
and as ASC 105-10 was not intended to change or alter existing GAAP, it did not
have any impact on the Company’s consolidated financial statements.




ASC
810-10 (SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research Bulletin No 51”) 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. ASC 810-10 was effective for the Company on July 1,
2009.  The adoption of this statement did not have any impact on the
Company’s consolidated financial position or results of operations since in July
2009, the Company purchased the remaining noncontrolling interest of S.R.F.A.
for $460, which represents the historical cost of the noncontrolling interest,
and thus owns 100% of this entity.




ASC 805
(SFAS No. 141R, “Business Combinations”) 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 ASC 805-10 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.
Accordingly, the Company adopted this statement on July 1, 2009.The
Company applied the provisions of ASC 805 on its acquisition of Andrews Paper
& Chemical, Co., Inc.




28


.


ASC
260-10 (FASB Staff Position EITF No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”)
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 accordance with U.S. GAAP. The
adoption of ASC 260-10 on July 1, 2009 did not have a material impact on the
Company’s consolidated financial statements.




ASC
825-10-50 (FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value
of Financial Instruments”) requires disclosures about fair value of financial
instruments for interim reporting periods. The guidance is effective for interim
reporting periods ending after June 15, 2009 and does not require disclosures
for earlier periods presented for comparative purposes at initial adoption. As
the guidance provides only disclosure requirements, the adoption of this
standard did not have a material impact on the Company’s financial condition or
operating results.




ASC
810-10 (SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”) changes the
consolidation model for variable interest entities (VIEs). ASC 810-10 requires
companies to qualitatively assess the determination of the primary beneficiary
of a VIE based on whether the company (1) has the power to direct matters that
most significantly impact the VIE’s economic performance, and (2) has the
obligation to absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. ASC 810-10 is effective for fiscal
years beginning after November 15, 2009, which for us is fiscal 2011. We are
currently evaluating the impact of ASC 810-10 on our results of operations and
financial position.




In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05). This update provides amendments to ASC
Topic 820, “Fair Value Measurements and Disclosure” for the fair value
measurement of liabilities when a quoted price in an active market is not
available. The adoption of ASU 2009-05 on October 1, 2009 did not have any
impact on the Company’s consolidated financial statements.




In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair
Value Measurements,” which provides amendments to the FASB ASC Subtopic 820-10
that require new disclosures regarding (i) transfers in and out of Level 1 and
Level 2 fair value measurements and (ii) activity in Level 3 fair value
measurements. ASU 2010-06 also clarifies existing disclosures regarding (i) the
level of asset and liability disaggregation and (ii) fair value measurement
inputs and valuation techniques. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The disclosure impact of adoption of ASU 2010-06 on the Company’s
consolidated financial statements is not material.




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 $608 at March 31, 2010.  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 $39 as of March 31,
2010.  Actual results, however, may differ.




29




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, 2010, we had foreign currency contracts
outstanding that had a notional amount of $31,542.  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, 2010, 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, 2010, 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, 2010, resulting from a hypothetical 10% adverse
change in quoted foreign currency exchange rates amounted to
$6,261.  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.




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, 2010
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, 2010 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.





30




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- in “Item 1A. Risk Factors” in
our Form 10-K for the year ended June 30, 2009 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, 2009 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.












31




Item
6. Exhibits




10.1
            Amended
      and Restated Credit Agreement, dated as of April 23, 2010, among Aceto
      Corporation, Aceto Agricultural Chemicals Corporation, CDC Products
      Corporation, Aceto Pharma Corp., Aceto Realty LLC, Acci Realty Corp.,
      Arsynco Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to
      Exhibit 10.1 to the Company’s current report on Form 8-K dated April 28,
      2010).10.2
            Amended
      and Restated Revolving Credit Note, dated April 23, 2010, among Aceto
      Corporation, Aceto Agricultural Chemicals Corporation, CDC Products
      Corporation, Aceto Pharma Corp., Aceto Realty LLC, Acci Realty Corp.,
      Arsynco Inc. and JPMorgan Chase Bank, N.A.(incorporated
      by reference to Exhibit 10.2 to the Company’s current report on Form 8-K
      dated April 28, 2010).10.3
            Reaffirmation
      Agreement, dated as of April 23, 2010, among Aceto Corporation, Aceto
      Agricultural Chemicals Corporation, CDC Products Corporation, Aceto Pharma
      Corp., Aceto Realty LLC, Acci Realty Corp., Arsynco Inc. and JPMorgan
      Chase Bank, N.A.(incorporated
      by reference to Exhibit 10.3 to the Company’s current report on Form 8-K
      dated April 28, 2010).15.1
            Letter
      re unaudited interim financial information31.1
            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




32





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
      CORPORATIONDate
              May 7, 2010
              
              By
              /s/ Douglas
      RothDouglas
      Roth, Chief Financial Officer(Principal Financial
      Officer)  Date
                May 7, 2010
                
                By
                /s/ Vincent
      G. MiataVincent
      G. Miata, Chief Executive Officer and President(Principal
      Executive Officer)