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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark one)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended July 31, 2011
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-29278
 KMG CHEMICALS, INC.
  Texas
(State or other jurisdiction of 
incorporation or organization)
    
    75-2640529
(I.R.S. Employer
Identification No.)
 9555 W. Sam Houston Parkway S., Suite 600
Houston, Texas 77099
 (713) 600-3800
  Title of Each Class
    
    Name of each Exchange on which RegisteredCommon Stock, $.01 par value
    
    The Nasdaq Global Market
  Title of Each Class
    
    
    Name of each Exchange on which Registered
  o þ
 o þ
 þ o
 o o
 o
  Large Accelerated Filer o   
    Accelerated Filer þ
    Non-Accelerated Filer o
    Smaller Reporting Company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASER OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-KSIGNATURESExhibit 21.1Exhibit 23.1Exhibit 31Exhibit 32    Table of Contents  
 PART I
 
 ITEM 1. BUSINESS
 Company Overview
  
    
    provide an opportunity to obtain a significant share of the market segment through
further acquisitions and organic growth;
    
    are of a size that larger industry participants generally find too small to be
attractive;
    
    have niche products with well established and proven commercial uses;
    
    offer products that have moved well beyond their discovery phase and into their
consolidation phase and require little or no on-going research and development expenditures;
and
    
    have significant barriers to entry.
   Business Strategy
  
    
    Operate. We seek to increase the profitability and maximize the cash flow and return on
invested capital of our businesses by focusing on customer satisfaction, rational pricing
policies, optimization of operating assets, efficient management of raw material purchasing
and finished goods distribution, and maintaining a low overhead structure.
    
    Acquire. The cash flow generated by the businesses that we operate provides us with the
ability to pursue further acquisitions in order to build on one of our existing segments, or
to establish a new business platform for future growth. We screen though many market
segments and acquisition candidates to find opportunities that exhibit the characteristics
described above. We systematically approach identified acquisition candidates to attempt to
structure an acquisition that meets our financial requirements. We typically do not spend a
material sum of money on third party services in pursuit of an acquisition candidate until
we feel the opportunity has a reasonable likelihood of meeting our financial requirements
and of closing.
    
    Integrate. We have consistently been improving our ability as an organization to
efficiently integrate progressively larger acquisitions. Our focus is to maintain reliable
service to our customers during the integration period, identify and harvest the long-term
synergies, and efficiently absorb acquisitions into our operations. An effective integration
strategy sets the stage for optimized operations.
  2




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Business Segments
 Electronic Chemicals.
 Wood Treating ChemicalsPenta and Creosote.
 Animal Health Products.
 Suppliers
   3




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Customers
  Marketing
  Geographical Information
  Competition
     4




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 
 Employees
  Environmental and Safety Matters
   United States Regulation.
  5




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Clean Air Act
 Greenhouse Gas Regulation
   Occupational Safety.
 Foreign Regulation.
  6




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Licenses, Permits and Product Registrations.
 Available Information
 www.kmgchemicals.com
 www.sec.gov
 
 ITEM 1A. RISK FACTORS
 You should carefully consider the risks described below, together with all of the other
information included in this report. We believe the risks and uncertainties described below are the
most significant we face. The occurrence of any of the following risks could materially harm our
business, financial condition or results of operations. In that case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
 Risks Relating to Our Business
 The industries in which we operate are competitive. This competition may prevent us from raising
prices at the same pace as our costs increase, making it difficult for us to maintain existing
business and win new business.
  We may experience a reduced demand for our wood treating chemicals if the demand for the wood
products on which those chemicals are used decreases, which may adversely affect our business,
results of operations, cash flow and financial condition.
   7




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The industries that we compete in are subject to economic downturns.
  A significant portion of our revenue and operating income from our electronic chemicals and
creosote segments are concentrated in a small number of customers.
  If we are unable to identify, fund and execute new acquisitions, we will not be able to execute a
key element of our business strategy.
   We may experience increased costs and production delays if suppliers fail to deliver materials or
if prices increase for raw materials and other goods and services that we purchase from third
parties.
  Increases in the price of our primary raw materials for our wood treating chemicals business may
decrease our profitability and adversely affect our liquidity, cash flow, financial condition and
results of operations.
    8




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We are dependent on a limited number of suppliers for co-solvent, creosote and several of our
animal health pesticides, the loss of any one of which could have a material adverse effect on our
financial condition and results of operations.
   Our profitability could be adversely affected by high petroleum prices.
  We will continue to pursue new acquisitions or joint ventures, and any such transaction could
result in operating or management problems that adversely affect operating results. We remain
subject to the ongoing risks of successfully managing the acquisitions and joint ventures that are
completed.
   Our ability to make payments on our debt will be contingent on our future operating performance,
which will depend on a number of factors that are outside of our control.
  
    
    we must dedicate a substantial portion of our cash flows from operations to the payment
of our indebtedness, reducing the funds available for future working capital requirements,
capital expenditures, acquisitions or other general corporate requirements;
  9




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
    
    a significant portion of our borrowings are, and will continue to be, at variable rates
of interest, which may result in higher interest expense in the event of increases in
interest rates;
    
    we may be more vulnerable to a downturn in the segments in which we operate or a downturn
in the economy in general;
    
    we may be limited in our flexibility to plan for, or react to, changes in our businesses
and the segments in which we operate;
    
    we may be placed at a competitive disadvantage compared to our competitors that have less
debt;
    
    we may be limited in our ability to react to unforeseen increases in certain costs and
obligations arising in our businesses, including environmental liabilities;
    
    we may determine it to be necessary to dispose of certain assets or one or more of our
businesses to reduce our debt; and
    
    our ability to borrow additional funds may be limited.
  Restrictions in our debt agreements could limit our growth and our ability to respond to changing
conditions.
    If our products are not re-registered by the EPA or are re-registered subject to new restrictions,
our ability to sell our products may be curtailed or significantly limited.
   10




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Our products may be rendered obsolete or less attractive by changes in industry requirements or by
supply-chain driven pressures to shift to environmentally preferable alternatives.
   We may be unable to identify liabilities associated with the properties that may be acquired or
obtain protection from sellers against them.
  We are dependent upon many critical systems and processes, many of which are dependent upon
hardware that is concentrated in a limited number of locations. If a catastrophe were to occur at
one or more of those locations, it could have a material adverse effect on our business.
   Weather may impact adversely our ability to conduct business.
   11




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The distribution and sale of our products is subject to prior governmental approvals and thereafter
ongoing governmental regulation.
   The Registration Evaluation and Authorization of Chemicals (REACH) legislation may affect our
ability to manufacture and sell certain products in the European Union.
  We are subject to extensive environmental laws and regulations and may incur costs that have a
material adverse effect on our financial condition as a result of violations of or liabilities
under environmental laws and regulations.
  
    
    the treatment, storage and disposal of wastes;
    
    the investigation and remediation of contaminated soil and groundwater;
    
    the discharge of effluents into waterways;
    
    the emission of substances into the air; and
    
    other matters relating to environmental protection and various health and safety matters.
   12




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Our use of hazardous materials exposes us to potential liabilities.
  Our business success depends significantly on the reliability and sufficiency of our manufacturing
facilities.
  Our business is subject to many operational risks for which we may not be adequately insured.
   Our business may be adversely affected by cyclical and seasonal effects.
  We depend on our senior management team and the loss of any member could adversely affect our
operations.
   13




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If we are unable to successfully negotiate with the labor unions representing our employees, we may
experience a material work stoppage.
  We are subject to possible risk of terrorist attacks and, in Mexico, to, narcotics gang disruption,
each of which could adversely affect our business.
  We are subject to risks inherent in foreign operations, including changes in social, political and
economic conditions.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Owned/
    
    Lease ExpirationLocation
    
    Primary Use
    
    Approximate Size
    
    Leased
    
    DateHouston, Texas
    
    Corporate Office
    
    17,527 square feet
    
    Leased
    
    January 2017Elwood, Kansas
    
    Manufacture and Warehouse: Animal Health Products
    
    14.9 acres
    
    Owned
    
    N/AMatamoros, Mexico
    
    Manufacture and Warehouse: Penta
    
    13.0 acres
    
    Owned
    
    N/ATuscaloosa, Alabama
    
    Formulation and Distribution: Penta
    
    2.0 acres
    
    Owned
    
    N/APueblo, Colorado
    
    Manufacture and Warehouse: Electronic Chemicals
    
    37.4 acres
    
    Owned
    
    N/AHollister, California
    
    Manufacture and Warehouse: Electronic Chemicals
    
    4.4 acres
    
    Owned
    
    N/AMilan, Italy
    
    Manufacture and Warehouse: Electronic Chemicals
    
    7.3 acres
    
    Owned
    
    N/A
    14




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ITEM 3. LEGAL PROCEEDINGS
  Albaugh, Inc. vs. Arsonate Herbicide Products, Limited.
 Adolfo Cazares Rosas, et
al vs. KMG de Mexico and Guillermo Villarreal Adolfo Cazares, Luis Escudero and Juan Cue vs. KMG de Mexico and Guillermo Villarreal
  In re
Spansion, Inc., et al. and Pirinate Consulting Group LLC, Claims Agent for the Chapter 11 Estate of
Spansion, Inc., et al. vs. KMG Electronic Chemicals, Inc.,
  15




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John Bailey,
et al vs. Cleveland G. Meredith et al Thompson et al vs. Meredith et al.
    16




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASER OF EQUITY SECURITIES
  Common Stock Prices
    
    
    Dividends Declared and PaidHigh
    
    
    Low
    
    
    Per Share
    
    
    AmountFiscal 2011First Quarter
    
    $
    15.95
    
    
    $
    12.80
    
    
    $
    0.02
    
    
    $
    226,000Second Quarter
    
    
    17.68
    
    
    
    13.80
    
    
    
    0.02
    
    
    
    226,000Third Quarter
    
    
    20.69
    
    
    
    16.83
    
    
    
    0.025
    
    
    
    283,000Fourth Quarter
    
    
    20.60
    
    
    
    16.21
    
    
    
    0.025
    
    
    
    283,000Fiscal 2010First Quarter
    
    $
    12.97
    
    
    $
    7.34
    
    
    $
    0.02
    
    
    $
    222,000Second Quarter
    
    
    19.15
    
    
    
    12.10
    
    
    
    0.02
    
    
    
    223,000Third Quarter
    
    
    21.80
    
    
    
    11.85
    
    
    
    0.02
    
    
    
    224,000Fourth Quarter
    
    
    19.01
    
    
    
    12.62
    
    
    
    0.02
    
    
    
    225,000
    17




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Number of securities to be
    
    
    Weighted-average exercise
    
    
    Number of securities available forissued upon exercise of
    
    
    price of outstanding
    
    
    future issuance under equityoutstanding options,
    
    
    options,
    
    
    compensation plans (excludingwarrants and rights
    
    
    warrants and rights
    
    
    securities reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Plan Category
Equity compensation
plans approved by
security holders
    
    
    222,000
    (1)
    
    $
    3.98
    
    
    
    611,464Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    222,000
    
    
    $
    3.98
    
    
    
    611,464
 
 (1)
    
    Includes unvested options to purchase 45,000 shares of common stock.  18




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ITEM 6. SELECTED FINANCIAL DATA
  Year Ended July 31,2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007(Amounts in thousands, except per share data)Statement of Income Data (1):Net sales
    
    $
    266,356
    
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394
    
    
    $
    86,171Cost of sales
    
    
    194,968
    
    
    
    138,937
    
    
    
    126,553
    
    
    
    107,563
    
    
    
    55,735Gross profit
    
    
    71,388
    
    
    
    69,691
    
    
    
    64,167
    
    
    
    46,831
    
    
    
    30,436Distribution
expenses (2)
    
    
    28,957
    
    
    
    19,313
    
    
    
    20,096
    
    
    
    14,843
    
    
    
    3,032Selling,
general & administrative expenses (2)
    
    
    24,775
    
    
    
    23,399
    
    
    
    23,222
    
    
    
    20,495
    
    
    
    12,286Operating income
    
    
    17,656
    
    
    
    26,979
    
    
    
    20,849
    
    
    
    11,493
    
    
    
    15,118Interest income
    
    
    1
    
    
    
    5
    
    
    
    7
    
    
    
    438
    
    
    
    560Interest expense
    
    
    (2,336
    )
    
    
    (2,252
    )
    
    
    (3,032
    )
    
    
    (2,670
    )
    
    
    (945
    )Other income (expense), net
    
    
    (208
    )
    
    
    (211
    )
    
    
    (340
    )
    
    
    (55
    )
    
    
    6Total other expense, net
    
    
    (2,543
    )
    
    
    (2,458
    )
    
    
    (3,365
    )
    
    
    (2,287
    )
    
    
    (379
    )Income from continuing operations before
income taxes
    
    
    15,113
    
    
    
    24,521
    
    
    
    17,484
    
    
    
    9,206
    
    
    
    14,739Provision for income taxes
    
    
    (5,302
    )
    
    
    (9,191
    )
    
    
    (7,248
    )
    
    
    (3,550
    )
    
    
    (5,576
    )Income from continuing operations
    
    
    9,811
    
    
    
    15,330
    
    
    
    10,236
    
    
    
    5,656
    
    
    
    9,163Loss from discontinued operations
    
    
    (82
    )
    
    
    
    
    
    
    (21
    )
    
    
    (281
    )
    
    
    (314
    )Net income
    
    $
    9,729
    
    
    $
    15,330
    
    
    $
    10,215
    
    
    $
    5,375
    
    
    $
    8,849Earnings per share from continuing
operations-basic
    
    $
    0.87
    
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.52
    
    
    $
    0.87Loss per share from discontinued
operations-basic
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    (0.03
    )
    
    
    (0.03
    )Earnings per share-basic
    
    $
    0.86
    
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.49
    
    
    $
    0.84Earnings per share from continuing
operations-diluted
    
    $
    0.86
    
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.50
    
    
    $
    0.83Loss per share from discontinued
operations-diluted
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.03
    )Earnings per share-diluted
    
    $
    0.85
    
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.48
    
    
    $
    0.80Weighted average shares outstanding-basic
    
    
    11,309
    
    
    
    11,183
    
    
    
    11,085
    
    
    
    10,978
    
    
    
    10,573Weighted average shares outstanding-diluted
    
    
    11,489
    
    
    
    11,422
    
    
    
    11,230
    
    
    
    11,232
    
    
    
    11,034Cash Flow Data (1):Net cash provided by operating activities
    
    $
    12,713
    
    
    $
    14,948
    
    
    $
    26,502
    
    
    $
    15,668
    
    
    $
    8,968Net cash used in investing activities
    
    
    8,007
    
    
    
    29,677
    
    
    
    6,268
    
    
    
    75,540
    
    
    
    802Net cash provided by (used in) financing
activities
    
    
    (7,823
    )
    
    
    12,616
    
    
    
    (15,442
    )
    
    
    46,442
    
    
    
    (3,330
    )Payment of dividends
    
    
    1,017
    
    
    
    894
    
    
    
    887
    
    
    
    877
    
    
    
    791Depreciation and amortization
    
    
    7,354
    
    
    
    6,711
    
    
    
    6,168
    
    
    
    5,665
    
    
    
    3,832Impairment charge
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    102
    
    
    
    Additions to property, plant and equipment
    
    
    8,268
    
    
    
    3,015
    
    
    
    3,009
    
    
    
    2,729
    
    
    
    581Balance Sheet Data (1):Total assets
    
    $
    186,589
    
    
    $
    176,021
    
    
    $
    143,508
    
    
    $
    155,798
    
    
    $
    81,233Long-term debt, net of current portion
    
    
    41,279
    
    
    
    51,333
    
    
    
    39,326
    
    
    
    53,516
    
    
    
    10,468Total stockholders equity
    
    
    96,530
    
    
    
    84,778
    
    
    
    70,977
    
    
    
    63,687
    
    
    
    56,410
 
 (1)
    
    Our historical results are not necessarily indicative of results to be expected for any
future period. The comparability of the data is affected by our acquisitions since 2007.(2)
    
    Certain reclassifications of prior year amounts have been
made to conform to current year presentation.  19




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the Selected Financial Data section of this report and our
consolidated financial statements and the related notes and other financial information included
elsewhere in this report. In addition to historical financial information, the following discussion
and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results and timing of selected events may differ materially from those anticipated in
these forward-looking statements as a result of many factors, including those discussed under the
section entitled Risk Factors and elsewhere in this report.
 Introduction
    
    
    fluctuations in sales volumes;
    
    raw material pricing and availability;
    
    our ability to acquire and integrate new products and businesses; and
    
    the difference between prices received by us for our specialty chemical products and the
costs to produce those products.
 Acquisitions
     20




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Results of Operations
 Segment Data
  Year Ended July 31,2011
    
    
    2010
    
    
    2009(Amounts in thousands)Sales:Electronic Chemicals
    
    $
    151,481
    
    
    $
    111,990
    
    
    $
    85,824Penta
    
    
    23,582
    
    
    
    22,803
    
    
    
    26,189Creosote
    
    
    80,533
    
    
    
    63,204
    
    
    
    67,776Animal Health
    
    
    10,760
    
    
    
    10,631
    
    
    
    10,931Total sales for reportable segments
    
    $
    266,356
    
    
    $
    208,628
    
    
    $
    190,720
 Segment Sales
     21




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Segment Income (Loss) from Operations
      22




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Net Sales and Gross Profit
 Net Sales and Gross Profit for Fiscal Year 2011 vs. Fiscal Year 2010.
    Net Sales and Gross Profit for Fiscal Year 2010 vs. Fiscal Year 2009.
   Distribution and Selling, General and Administrative Expenses
 Distribution and Selling, General and Administrative for Fiscal Year 2011 vs. Fiscal Year
2010.
      23




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Distribution and Selling, General and Administrative for Fiscal Year 2010 vs. Fiscal Year
2009.
    Interest Expense
  Income Taxes
  Liquidity and Capital Resources
 Cash Flows
    24




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$3.4 million
   Working Capital
  Long Term Obligations
  Ratio of Funded Debt to EBITDA
    
    MarginEqual to or greater than 3.0 to 1.0
    
    
    2.75
    %Equal to or greater than 2.5 to 1.0, but less than 3.0 to 1.0
    
    
    2.50
    %Equal to or greater than 2.0 to 1.0, but less than 2.5 to 1.0
    
    
    2.25
    %Equal to or greater than 1.5 to 1.0, but less than 2.0 to 1.0
    
    
    2.00
    %Less than 1.5 to 1.0
    
    
    1.75
    %
  25




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Capital Expenditures
  Environmental Expenditures
    26




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Contractual Obligations
  Payments Due by Period (in thousands)More thanTotal
    
    
    1 Year
    
    
    2-5 Years
    
    
    5 YearsLong-term debt
    
    $
    49,279
    
    
    $
    8,000
    
    
    $
    41,279
    
    
    
    Estimated interest payments on debt (1)
    
    
    5,698
    
    
    
    2,049
    
    
    
    3,649
    
    
    
    Operating leases
    
    
    6,647
    
    
    
    2,247
    
    
    
    4,220
    
    
    
    180Other long-term liabilities (2)
    
    
    610
    
    
    
    61
    
    
    
    244
    
    
    
    305Purchase obligations (3)
    
    
    293,118
    
    
    
    87,832
    
    
    
    167,722
    
    
    
    37,564Total
    
    
    355,352
    
    
    
    100,189
    
    
    
    217,114
    
    
    
    38,049
 
 (1)
    
    Estimated payments are based on interest rates as of the end of July 2011.(2)
    
    Post retirement benefit obligations for a supplemental executive retirement plan for one of
our executives.(3)
    
    Consists primarily of raw materials purchase contracts. These are typically not fixed prices
arrangements. The prices are based on the prevailing market prices. Outlook for Fiscal Year 2012
   Off-Balance Sheet Arrangements
  Recent Accounting Standards
    27




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Critical Accounting Policies
  Revenue Recognition 
 Allowance for Doubtful Accounts 
 Goodwill 
 Impairment of Long-Lived Assets 
  28




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Income Taxes 
  Inventory Valuation 
 Disclosure Regarding Forward Looking Statements
   
    
    the loss of primary customers;
    
    our ability to implement productivity improvements, cost reduction initiatives or
facilities expansions;
    
    market developments affecting, and other changes in, the demand for our products and the
entry of new competitors or the introduction of new competing products;
    
    availability or increases in the price of our primary raw materials or active
ingredients;
    
    the timing of planned capital expenditures;
    
    our ability to identify, develop or acquire, and market additional product lines and
businesses necessary to implement our business strategy and our ability to finance such
acquisitions and development;
    
    the condition of the capital markets generally, which will be affected by interest rates,
foreign currency fluctuations and general economic conditions;
  29




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##### Table of Contents




    
    cost and other effects of legal and administrative proceedings, settlements,
investigations and claims, including environmental liabilities which may not be covered by
indemnity or insurance;
    
    the effects of weather, earthquakes, other natural disasters and terrorist attacks;
    
    the ability to obtain registration and re-registration of our products under applicable
law;
    
    the political and economic climate in the foreign or domestic jurisdictions in which we
conduct business; and
    
    other United States or foreign regulatory or legislative developments which affect the
demand for our products generally or increase the environmental compliance cost for our
products or impose liabilities on the manufacturers and distributors of such products.
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity
    Foreign Currency Exchange Rate Sensitivity
    30




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Index to Consolidated Financial Statements
 Consolidated Financial StatementsReports of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of July 31, 2011 and 2010Consolidated Statements of Income for the Years Ended July 31, 2011, 2010 and 2009Consolidated Statements of Stockholders Equity for the Years Ended July 31, 2011, 2010 and 2009Consolidated Statements of Cash Flows for the Years Ended July 31, 2011, 2010 and 2009Notes to Consolidated Financial Statements
  31




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control-Integrated Framework
  
  32




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control-Integrated Framework
       
  33




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##### Table of Contents



2011
    
    
    2010ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,826
    
    
    $
    4,728Accounts receivable:Trade, net of allowances of $414 at July 31, 2011 and $260 at July 31, 2010
    
    
    36,410
    
    
    
    30,214Other
    
    
    4,359
    
    
    
    2,864Inventories, net
    
    
    41,770
    
    
    
    39,102Current deferred tax assets
    
    
    726
    
    
    
    672Prepaid expenses and other current assets
    
    
    2,126
    
    
    
    1,882Total current assets
    
    
    87,217
    
    
    
    79,462PROPERTY, PLANT AND EQUIPMENT, net
    
    
    71,826
    
    
    
    68,645DEFERRED TAX ASSETS
    
    
    1,176
    
    
    
    606GOODWILL
    
    
    3,778
    
    
    
    3,778INTANGIBLE ASSETS, net
    
    
    19,493
    
    
    
    20,534RESTRICTED CASH
    
    
    
    
    
    
    189OTHER ASSETS, net
    
    
    3,099
    
    
    
    2,807TOTAL ASSETS
    
    $
    186,589
    
    
    $
    176,021LIABILITIES & STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    24,899
    
    
    $
    20,899Accrued liabilities
    
    
    6,235
    
    
    
    7,147Book overdraft
    
    
    2,852
    
    
    
    Current deferred tax liabilities
    
    
    7
    
    
    
    28Current portion of long-term debt
    
    
    8,000
    
    
    
    8,000Total current liabilities
    
    
    41,993
    
    
    
    36,074LONG-TERM DEBT, net of current portion
    
    
    41,279
    
    
    
    51,333DEFERRED TAX LIABILITIES
    
    
    5,381
    
    
    
    2,644OTHER LONG-TERM LIABILITIES
    
    
    1,406
    
    
    
    1,192Total liabilities
    
    
    90,059
    
    
    
    91,243COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock, $.01 par value, 10,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.01 par value, 40,000,000 shares authorized, 11,318,941
shares issued and outstanding at July 31, 2011 and 11,229,487 shares
issued and outstanding at July 31, 2010
    
    
    113
    
    
    
    112Additional paid-in capital
    
    
    25,256
    
    
    
    24,319Accumulated other comprehensive loss
    
    
    (1,233
    )
    
    
    (3,335
    )Retained earnings
    
    
    72,394
    
    
    
    63,682Total stockholders equity
    
    
    96,530
    
    
    
    84,778TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    186,589
    
    
    $
    176,021
   34




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##### Table of Contents



2011
    
    
    2010
    
    
    2009NET SALES
    
    $
    266,356
    
    
    $
    208,628
    
    
    $
    190,720COST OF SALES
    
    
    194,968
    
    
    
    138,937
    
    
    
    126,553Gross Profit
    
    
    71,388
    
    
    
    69,691
    
    
    
    64,167DISTRIBUTION EXPENSES
    
    
    28,957
    
    
    
    19,313
    
    
    
    20,096SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    24,775
    
    
    
    23,399
    
    
    
    23,222Operating income
    
    
    17,656
    
    
    
    26,979
    
    
    
    20,849OTHER INCOME (EXPENSE):Interest income
    
    
    1
    
    
    
    5
    
    
    
    7Interest expense
    
    
    (2,336
    )
    
    
    (2,252
    )
    
    
    (3,032
    )Other, net
    
    
    (208
    )
    
    
    (211
    )
    
    
    (340
    )Total other expense, net
    
    
    (2,543
    )
    
    
    (2,458
    )
    
    
    (3,365
    )INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    15,113
    
    
    
    24,521
    
    
    
    17,484Provision for income taxes
    
    
    (5,302
    )
    
    
    (9,191
    )
    
    
    (7,248
    )INCOME FROM CONTINUING OPERATIONS
    
    
    9,811
    
    
    
    15,330
    
    
    
    10,236DISCONTINUED OPERATIONSLoss from discontinued operations, before income taxes
    
    
    (120
    )
    
    
    
    
    
    
    (29
    )Income tax benefit
    
    
    38
    
    
    
    
    
    
    
    8Loss from discontinued operations
    
    
    (82
    )
    
    
    
    
    
    
    (21
    )NET INCOME
    
    $
    9,729
    
    
    $
    15,330
    
    
    $
    10,215EARNINGS PER SHARE:BasicIncome from continuing operations
    
    $
    0.87
    
    
    $
    1.37
    
    
    $
    0.92Loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    Net income
    
    $
    0.86
    
    
    $
    1.37
    
    
    $
    0.92DilutedIncome from continuing operations
    
    $
    0.86
    
    
    $
    1.34
    
    
    $
    0.91Loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    Net income
    
    $
    0.85
    
    
    $
    1.34
    
    
    $
    0.91WEIGHTED AVERAGE SHARES OUTSTANDING:Basic
    
    
    11,309
    
    
    
    11,183
    
    
    
    11,085Diluted
    
    
    11,489
    
    
    
    11,422
    
    
    
    11,230
   35




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##### Table of Contents



AccumulatedCommon Stock
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    TotalShares
    
    
    Par
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersIssued
    
    
    Value
    
    
    Capital
    
    
    Income (loss)
    
    
    Earnings
    
    
    EquityBALANCE AT JULY 31, 2008
    
    
    11,035
    
    
    $
    110
    
    
    $
    22,525
    
    
    $
    1,134
    
    
    $
    39,918
    
    
    $
    63,687Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (887
    )
    
    
    (887
    )Stock options/warrants exercised
    
    
    45
    
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    119Restricted stock issued
    
    
    21
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    391
    
    
    
    
    
    
    
    
    
    
    
    391Tax benefit
from stock-based awards
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,215
    
    
    
    10,215Loss on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,598
    )
    
    
    
    
    
    
    (2,598
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,617BALANCE AT JULY 31, 2009
    
    
    11,101
    
    
    $
    111
    
    
    $
    23,084
    
    
    $
    (1,464
    )
    
    $
    49,246
    
    
    $
    70,977Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (894
    )
    
    
    (894
    )Stock options/warrants exercised
    
    
    61
    
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    138Restricted stock issued
    
    
    67
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    768
    
    
    
    
    
    
    
    
    
    
    
    768Tax benefit from stock-based
awards
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    330Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,330
    
    
    
    15,330Loss on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,871
    )
    
    
    
    
    
    
    (1,871
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,459BALANCE AT JULY 31, 2010
    
    
    11,229
    
    
    $
    112
    
    
    $
    24,319
    
    
    $
    (3,335
    )
    
    $
    63,682
    
    
    $
    84,778Cash dividends ($0.09 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,017
    )
    
    
    (1,017
    )Stock options/warrants exercised
    
    
    50
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Restricted stock issued
    
    
    40
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    542
    
    
    
    
    
    
    
    
    
    
    
    542Tax benefit from stock-based
awards
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    196Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,729
    
    
    
    9,729Gain on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,102
    
    
    
    
    
    
    
    2,102Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,831BALANCE AT JULY 31, 2011
    
    
    11,319
    
    
    $
    113
    
    
    $
    25,256
    
    
    $
    (1,233
    )
    
    $
    72,394
    
    
    $
    96,530
   36




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##### Table of Contents



2011
    
    
    2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    9,729
    
    
    $
    15,330
    
    
    $
    10,215Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    7,354
    
    
    
    6,711
    
    
    
    6,168Amortization of loan costs included in interest expense
    
    
    109
    
    
    
    95
    
    
    
    88Impairment on assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    15Stock-based compensation expense
    
    
    542
    
    
    
    768
    
    
    
    391Bad debt expense
    
    
    154
    
    
    
    63
    
    
    
    253Inventory valuation adjustment
    
    
    (94
    )
    
    
    (104
    )
    
    
    766(Gain) Loss on disposal of property
    
    
    112
    
    
    
    (13
    )
    
    
    87Deferred rental income
    
    
    
    
    
    
    
    
    
    
    (48
    )Deferred income tax expense
    
    
    2,083
    
    
    
    1,804
    
    
    
    1,123Tax benefit from stock-based awards
    
    
    (196
    )
    
    
    (330
    )
    
    
    (50
    )Changes in operating assets and liabilities, net of effects of acquisition:Accounts receivable  trade
    
    
    (5,909
    )
    
    
    (9,293
    )
    
    
    16,503Accounts receivable  other
    
    
    (1,370
    )
    
    
    (1,084
    )
    
    
    107Inventories
    
    
    (2,230
    )
    
    
    (3,507
    )
    
    
    (3,355
    )Prepaid expenses and other current assets
    
    
    (1,128
    )
    
    
    (124
    )
    
    
    (486
    )Accounts payable
    
    
    3,792
    
    
    
    4,432
    
    
    
    (6,015
    )Accrued liabilities
    
    
    (235
    )
    
    
    200
    
    
    
    740Net cash provided by operating activities
    
    
    12,713
    
    
    
    14,948
    
    
    
    26,502CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment
    
    
    (8,268
    )
    
    
    (3,015
    )
    
    
    (3,009
    )Cash used in connection with electronic chemicals acquisition
    
    
    
    
    
    
    
    
    
    
    (3,257
    )Cash used in connection with General Chemical acquisition
    
    
    
    
    
    
    (26,784
    )
    
    
    Proceeds from sale of property
    
    
    60
    
    
    
    17
    
    
    
    Change in restricted cash
    
    
    201
    
    
    
    105
    
    
    
    (2
    )Net cash used in investing activities
    
    
    (8,007
    )
    
    
    (29,677
    )
    
    
    (6,268
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net borrowings (payments) under revolver credit agreement
    
    
    (2,054
    )
    
    
    20,000
    
    
    
    (5,224
    )Principal payments on borrowings on term loan
    
    
    (8,000
    )
    
    
    (6,958
    )
    
    
    (9,500
    )Proceeds from exercise of stock options and warrants
    
    
    200
    
    
    
    138
    
    
    
    119Tax benefit from stock-based awards
    
    
    196
    
    
    
    330
    
    
    
    50Book overdraft
    
    
    2,852
    
    
    
    
    
    
    
    Payment of dividends
    
    
    (1,017
    )
    
    
    (894
    )
    
    
    (887
    )Net cash (used in) provided by financing activities
    
    
    (7,823
    )
    
    
    12,616
    
    
    
    (15,442
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    215
    
    
    
    (333
    )
    
    
    (223
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (2,902
    )
    
    
    (2,446
    )
    
    
    4,569CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    4,728
    
    
    
    7,174
    
    
    
    2,605CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    1,826
    
    
    $
    4,728
    
    
    $
    7,174SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    2,294
    
    
    $
    2,109
    
    
    $
    2,980Cash paid for income taxes
    
    $
    4,387
    
    
    $
    10,427
    
    
    $
    2,821
   37




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
  Principles of Consolidation
 Use of Estimates
 Reclassifications
 Cash and Cash Equivalents
 Restricted Cash
 Fair
Value of Financial Instruments
 Accounts Receivable
   38




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##### Table of Contents



Inventories
 Property, Plant, and Equipment
   Asset
Class
    
    Life (Years)Building
    
    15 to 30Plant
    
    10 to 18Equipment
    
    3 to 10Leasehold improvements
    
    remaining life of the lease
  Intangible Assets
 Goodwill
 Impairment of Long-Lived Assets
 Revenue Recognition
 Cost of Sales
  39




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##### Table of Contents



Distribution Expenses
 Selling, General and Administrative Expenses
 Advertising Costs
 Shipping and Handling Costs
 Income Taxes
 Earnings Per Share
 Foreign Currency Translation
  Stock-Based Compensation
 Recent Accounting Standards
    40




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##### Table of Contents



2. ACQUISITIONS
    Consideration:Cash
    
    $
    26,784Fair value of identifiable assets acquired:Inventory, net of allowance
    
    $
    7,604Property, plant and equipment
    
    
    17,706Intangible assets:Value of product qualifications
    
    
    1,300Non-compete agreement
    
    
    150Total intangible assets
    
    
    1,450Other
    
    
    24Total identifiable assets acquired
    
    $
    26,784
  41




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##### Table of Contents



(Unaudited) (in thousands,except per share data)2010
    
    
    2009Revenues
    
    $
    236,847
    
    
    $
    240,599Operating income
    
    
    28,613
    
    
    
    23,111Net income
    
    
    16,368
    
    
    
    11,346Earnings per share  basic
    
    $
    1.46
    
    
    $
    1.02
  3. INVENTORIES
  2011
    
    
    2010Raw materials and supplies
    
    $
    9,914
    
    
    $
    8,578Finished products
    
    
    32,189
    
    
    
    30,942Less reserve for inventory obsolescence
    
    
    (333
    )
    
    
    (418
    )Inventories, net
    
    $
    41,770
    
    
    $
    39,102
 4. PROPERTY, PLANT AND EQUIPMENT
  2011
    
    
    2010Land
    
    $
    10,081
    
    
    $
    9,428Buildings and improvements
    
    
    35,795
    
    
    
    34,399Equipment
    
    
    44,098
    
    
    
    40,195Leasehold improvements
    
    
    143
    
    
    
    13290,117
    
    
    
    84,154Less accumulated depreciation and amortization
    
    
    (24,388
    )
    
    
    (18,054
    )65,729
    
    
    
    66,100Construction-in-progress
    
    
    6,097
    
    
    
    2,545Property, plant and equipment, net
    
    $
    71,826
    
    
    $
    68,645
 5. INCOME TAXES
  2011
    
    
    2010
    
    
    2009United States
    
    $
    14,350
    
    
    $
    22,590
    
    
    $
    17,833Foreign
    
    
    763
    
    
    
    1,931
    
    
    
    (349
    )Income from continuing operations before income taxes
    
    $
    15,113
    
    
    $
    24,521
    
    
    $
    17,484
  42




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##### Table of Contents



2011
    
    
    2010
    
    
    2009Current:Federal
    
    $
    1,968
    
    
    $
    5,932
    
    
    $
    5,279Foreign
    
    
    513
    
    
    
    487
    
    
    
    242State
    
    
    738
    
    
    
    968
    
    
    
    7583,219
    
    
    
    7,387
    
    
    
    6,279Deferred:Federal
    
    
    2,546
    
    
    
    1,625
    
    
    
    628Foreign
    
    
    (648
    )
    
    
    17
    
    
    
    288State
    
    
    185
    
    
    
    162
    
    
    
    532,083
    
    
    
    1,804
    
    
    
    969Total
    
    $
    5,302
    
    
    $
    9,191
    
    
    $
    7,248
  2011
    
    
    2010Deferred tax assets:Current deferred tax assets:Bad debt expense
    
    $
    67
    
    
    $
    8Inventory
    
    
    737
    
    
    
    698Accrued liabilities
    
    
    419
    
    
    
    515Less: valuation allowance
    
    
    
    
    
    
    (99
    )Total current deferred tax assets
    
    $
    1,223
    
    
    $
    1,122Non-current deferred tax assetsNet operating loss
    
    $
    592
    
    
    $
    607Difference in depreciable basis of property
    
    
    701
    
    
    
    649Deferred compensation
    
    
    553
    
    
    
    581Less: valuation allowance
    
    
    
    
    
    
    (529
    )Total non-current deferred tax assets
    
    $
    1,846
    
    
    $
    1,308Deferred tax liabilities:Current deferred tax liabilities:Prepaid assets
    
    $
    (504
    )
    
    $
    (478
    )Non-current deferred tax liabilities:Inventory
    
    $
    
    
    
    $
    (14
    )Difference in amortization basis of intangibles
    
    
    (2,027
    )
    
    
    (1,408
    )Difference in depreciable basis of property
    
    
    (4,024
    )
    
    
    (1,924
    )Total non-current deferred tax liabilities
    
    
    (6,051
    )
    
    
    (3,346
    )Net current deferred tax asset
    
    $
    719
    
    
    $
    644Net non-current deferred tax liability
    
    $
    (4,205
    )
    
    $
    (2,038
    )
  43




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2011
    
    
    2010
    
    
    2009Income taxes at the federal statutory rate
    
    $
    5,289
    
    
    $
    8,582
    
    
    $
    6,119Effect of foreign operations
    
    
    230
    
    
    
    711
    
    
    
    91Valuation allowance
    
    
    (627
    )
    
    
    (882
    )
    
    
    1,509Currency exchange loss
    
    
    
    
    
    
    
    
    
    
    (949
    )State income taxes, net of federal income tax effect
    
    
    671
    
    
    
    802
    
    
    
    548Other
    
    
    (261
    )
    
    
    (22
    )
    
    
    (70
    )Total
    
    $
    5,302
    
    
    $
    9,191
    
    
    $
    7,248
  44




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##### Table of Contents



6. INTANGIBLE ASSETS
  Number of YearsWeighted Average
    
    
    
    
    
    
    July 31, 2011
    
    
    July 31, 2010Range of
    
    
    Amortization
    
    
    Original
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated
    
    
    Carryinguseful life
    
    

    Period
    
    
    Cost
    
    
    Amortization
    
    
    Amount
    
    
    Amortization
    
    
    AmountIntangible assets subject to
amortization:Creosote supply contract
    
    
    10
    
    
    
    10.0
    
    
    $
    4,000
    
    
    $
    (3,955
    )
    
    $
    45
    
    
    $
    (3,689
    )
    
    $
    311Animal health trademarks
    
    
    4-5
    
    
    
    4.1
    
    
    
    364
    
    
    
    (364
    )
    
    
    
    
    
    
    (359
    )
    
    
    5Animal health product registrations
and other related assets
    
    
    5-20
    
    
    
    18.4
    
    
    
    6,165
    
    
    
    (2,005
    )
    
    
    4,160
    
    
    
    (1,667
    )
    
    
    4,498Electronic chemicals-related contracts
    
    
    3-8
    
    
    
    3.8
    
    
    
    1,164
    
    
    
    (1,014
    )
    
    
    150
    
    
    
    (844
    )
    
    
    320Electronic chemicals-related
trademarks and patents
    
    
    10-15
    
    
    
    12.0
    
    
    
    117
    
    
    
    (36
    )
    
    
    81
    
    
    
    (26
    )
    
    
    91Electronic chemicalsvalue of
product qualifications
    
    
    5
    
    
    
    5.0
    
    
    
    1,300
    
    
    
    (347
    )
    
    
    953
    
    
    
    (95
    )
    
    
    1,205Total intangible assets subject to
amortization
    
    
    
    
    
    
    12.8
    
    
    $
    13,110
    
    
    $
    (7,721
    )
    
    
    5,389
    
    
    $
    (6,680
    )
    
    
    6,430Intangible assets not subject to
amortization:Creosote product registrations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,339
    
    
    
    
    
    
    
    5,339Penta product registrations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,765
    
    
    
    
    
    
    
    8,765Total intangible assets not subject
to amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,104
    
    
    
    
    
    
    
    14,104Total intangible assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,493
    
    
    
    
    
    
    $
    20,534
   45




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##### Table of Contents



7. LONG-TERM OBLIGATIONS
  July 31,
    
    
    July 31,2011
    
    
    2010Senior Secured Debt:Note Purchase Agreement, maturing on December 31, 2014, interest rate of 7.43%
    
    $
    20,000
    
    
    $
    20,000Secured Debt:Term Loan Facility, maturing on December 31, 2012, variable interest rates
based on LIBOR plus 2.00% (2.19% at July 31, 2011)
    
    
    11,333
    
    
    
    19,333Revolving Loan Facility, maturing on December 31, 2012, variable interest
rates based on LIBOR plus 2.00% (2.19% at July 31, 2011)
    
    
    17,946
    
    
    
    20,000Total debt
    
    
    49,279
    
    
    
    59,333Current portion of long-term debt
    
    
    (8,000
    )
    
    
    (8,000
    )Long-term debt, net of current portion
    
    $
    41,279
    
    
    $
    51,333
  Ratio of Funded Debt to EBITDA
    
    MarginEqual to or greater than 3.0 to 1.0
    
    
    2.75
    %Equal to or greater than 2.5 to 1.0, but less than 3.0 to 1.0
    
    
    2.50
    %Equal to or greater than 2.0 to 1.0, but less than 2.5 to 1.0
    
    
    2.25
    %Equal to or greater than 1.5 to 1.0, but less than 2.0 to 1.0
    
    
    2.00
    %Less than 1.5 to 1.0
    
    
    1.75
    %
       Total
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016
    
    
    ThereafterLong-term debt
    
    $
    49,279
    
    
    $
    8,000
    
    
    $
    21,279
    
    
    $
    
    
    
    $
    20,000
    
    
    $
    
    
    
    $
    
 8. COMMITMENTS AND CONTINGENCIES
 Contractual Obligations 
 Total
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016
    
    
    ThereafterOperating leases
    
    $
    6,647
    
    
    $
    2,247
    
    
    $
    1,980
    
    
    $
    1,511
    
    
    $
    403
    
    
    $
    326
    
    
    $
    180Purchase obligations (1)
    
    
    293,118
    
    
    
    87,832
    
    
    
    58,036
    
    
    
    39,701
    
    
    
    35,886
    
    
    
    34,099
    
    
    
    37,564Total
    
    $
    299,765
    
    
    $
    90,079
    
    
    $
    60,016
    
    
    $
    41,212
    
    
    $
    36,289
    
    
    $
    34,425
    
    
    $
    37,744
 
 (1)
    
    Consists primarily of raw materials purchase contracts. These are typically not fixed price
arrangements. The prices are based on the prevailing market prices.   46




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##### Table of Contents



Environmental
   Litigation and Other Contingencies
  Albaugh, Inc. vs. Arsonate Herbicide Products, Limited.
 Adolfo Cazares Rosas, et
al vs. KMG de Mexico and Guillermo Villarreal Adolfo Cazares, Luis Escudero and Juan Cue vs. KMG de Mexico and Guillermo Villarreal
   47




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##### Table of Contents



In re
Spansion, Inc., et al. and Pirinate Consulting Group LLC, Claims Agent for the Chapter 11 Estate of
Spansion, Inc., et al. vs. KMG Electronic Chemicals, Inc.,
 John
Bailey, et al vs. Cleveland G. Meredith et al Thompson et al vs. Meredith et al.
  9. EMPLOYEE BENEFIT PLANS
    48




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##### Table of Contents



10. EARNINGS PER SHARE
  Year Ended2011
    
    
    2010
    
    
    2009(Amounts in thousands, except per share data)Income from continuing operations
    
    $
    9,811
    
    
    $
    15,330
    
    
    $
    10,236Loss from discontinued operations
    
    
    (82
    )
    
    
    
    
    
    
    (21
    )Net income
    
    $
    9,729
    
    
    $
    15,330
    
    
    $
    10,215Weighted average shares outstanding  basic
    
    
    11,309
    
    
    
    11,183
    
    
    
    11,085Dilutive effect of options/warrants and stock awards
    
    
    180
    
    
    
    239
    
    
    
    145Weighted average shares outstanding  diluted
    
    
    11,489
    
    
    
    11,422
    
    
    
    11,230BASIC EARNINGS PER SHARE:Basic earnings per share from continuing operations
    
    $
    0.87
    
    
    $
    1.37
    
    
    $
    0.92Basic earnings per share on loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    Basic earnings per share
    
    $
    0.86
    
    
    $
    1.37
    
    
    $
    0.92DILUTED EARNINGS PER SHARE:Diluted earnings per share from continuing operations
    
    $
    0.86
    
    
    $
    1.34
    
    
    $
    0.91Diluted earnings per share on loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    Diluted earnings per share
    
    $
    0.85
    
    
    $
    1.34
    
    
    $
    0.91
  11. STOCK-BASED COMPENSATION
 Stock-Based Incentive Plans
    49




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Accounting for Stock-Based Compensation
    Stock Options
 Employee Options
 Weighted-AverageShares
    
    
    Exercise PriceOutstanding on August 1, 2010
    
    
    272,000
    
    
    $
    3.98Granted
    
    
    
    
    
    
    Exercised
    
    
    (50,000
    )
    
    
    4.00Forfeited/Expired
    
    
    
    
    
    
    Outstanding on July 31, 2011
    
    
    222,000
    
    
    
    3.98
  50




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##### Table of Contents



Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Contractual
    
    
    Intrinsic ValueOutstanding
    
    
    per Share
    
    
    Term (years)
    
    
    (in thousands) (1)Fully vested and currently
exercisable
    
    
    177,000
    
    
    $
    3.88
    
    
    
    5.4
    
    
    $
    2,280Expected to vest
    
    
    45,000
    
    
    
    4.37
    
    
    
    11.6
    
    
    
    557Total outstanding stock options
    
    
    222,000
    
    
    
    3.98
    
    
    
    6.6
    
    
    $
    2,837
 
 (1)
    
    The aggregate intrinsic value is computed based on the closing price of the Companys stock on
July 29, 2011.   Performance Shares
   51




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##### Table of Contents



Actual or
    
    
    Actual SharesMaximum
    
    
    
    
    
    
    3-Year
    
    
    Expected
    
    
    Vested orAward
    
    
    Grant Date
    
    
    Measurement
    
    
    Percentage of
    
    
    Shares ProjectedDate of Grant
    
    Series Award
    
    
    (Shares)
    
    
    Fair Value
    
    
    Period Ending
    
    
    Vesting (1)
    
    
    to Vest (1)Fiscal Year 2011 Award12/7/2010
    
    Series 1
    
    
    61,980
    
    
    $
    15.65
    
    
    
    07/31/2013
    
    
    
    47.50
    %
    
    
    29,44112/7/2010
    
    Series 2
    
    
    41,318
    
    
    $
    15.65
    
    
    
    07/31/2013
    
    
    
    0.00
    %
    
    
    103,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,441Fiscal Year 2010 Award3/17/2010
    
    Series 1
    
    
    63,605
    
    
    $
    15.55
    
    
    
    07/31/2012
    
    
    
    30.00
    %
    
    
    19,0813/17/2010
    
    Series 2
    
    
    42,402
    
    
    $
    15.55
    
    
    
    07/31/2012
    
    
    
    20.00
    %
    
    
    8,480106,007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,561Fiscal Year 2009 Award12/2/2008
    
    Series 1
    
    
    54,745
    
    
    $
    3.19
    
    
    
    07/31/2011
    
    
    
    36.25
    %
    
    
    19,84512/2/2008
    
    Series 2
    
    
    36,497
    
    
    $
    3.19
    
    
    
    07/31/2011
    
    
    
    0.00
    %
    
    
    91,242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,845Total
    
    
    300,547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,847
 
 (1)
    
    For performance shares granted on December 2, 2008, the above table represents the actual
percentage vesting and shares vested as of the end of the measurement period ended July 31, 2011.
For the other performance share grants identified in the above table, the information set forth is
the expected vesting percentage and the shares projected to vest.     Time-Based Shares
   52




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Weighted-AverageGrant-DateShares
    
    
    Fair ValueNon-vested on August 1, 2010
    
    
    24,070
    
    
    $
    12.66Granted
    
    
    27,515
    
    
    
    17.06Vested (1)
    
    
    (26,646
    )
    
    
    12.84Forfeited
    
    
    
    
    
    
    Non-vested on July 31, 2011
    
    
    24,939
    
    
    
    16.03
 
 (1)
    
    During the twelve month period ended July 31, 2011 there were 28,713 shares that vested with a
weighted-average grant-date fair value of $13.04. However, the number of shares presented in the
table as vested was adjusted downward for 2,067 shares that had been granted to non-employee
directors in fiscal year 2010, but which did not vest. The number of shares granted was calculated
based on the aggregate monetary value of the award divided by the Companys closing stock price on
the date of grant. The number of shares that vested at the end of each three month service period
over the twelve month service period ended November 30, 2010 was based on the Companys closing
stock price at the end of each of the three month periods.   12. DISCONTINUED OPERATIONS
 ,
  53




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13. SEGMENT INFORMATION
  2011
    
    
    2010
    
    
    2009(Amounts in thousands)SalesElectronic Chemicals
    
    $
    151,481
    
    
    $
    111,990
    
    
    $
    85,824Penta
    
    
    23,582
    
    
    
    22,803
    
    
    
    26,189Creosote
    
    
    80,533
    
    
    
    63,204
    
    
    
    67,776Animal Health
    
    
    10,760
    
    
    
    10,631
    
    
    
    10,931Total sales for reportable segments
    
    $
    266,356
    
    
    $
    208,628
    
    
    $
    190,720Depreciation and amortizationElectronic Chemicals
    
    $
    5,607
    
    
    $
    4,784
    
    
    $
    3,451Penta
    
    
    520
    
    
    
    608
    
    
    
    1,405Creosote
    
    
    294
    
    
    
    286
    
    
    
    292Animal Health
    
    
    664
    
    
    
    766
    
    
    
    769Other  general corporate
    
    
    269
    
    
    
    267
    
    
    
    251Total consolidated depreciation and amortization
    
    $
    7,354
    
    
    $
    6,711
    
    
    $
    6,168Segment income (loss) from operations (1)Electronic Chemicals
    
    $
    6,205
    
    
    $
    8,379
    
    
    $
    1,482Penta
    
    
    6,512
    
    
    
    7,109
    
    
    
    8,718Creosote
    
    
    8,254
    
    
    
    15,898
    
    
    
    13,436Animal Health
    
    
    61
    
    
    
    (86
    )
    
    
    132Total segment income from operations
    
    $
    21,032
    
    
    $
    31,300
    
    
    $
    23,768Capital expendituresElectronic Chemicals
    
    $
    7,359
    
    
    $
    29,066
    
    
    $
    2,111Penta
    
    
    354
    
    
    
    444
    
    
    
    822Creosote
    
    
    
    
    
    
    38
    
    
    
    52Animal Health
    
    
    17
    
    
    
    64
    
    
    
    4Included in acquisition
    
    
    
    
    
    
    (26,784
    )
    
    
    (324
    )Other  general corporate
    
    
    538
    
    
    
    187
    
    
    
    344Total capital expenditures
    
    $
    8,268
    
    
    $
    3,015
    
    
    $
    3,009Total assetsElectronic Chemicals
    
    $
    116,139
    
    
    $
    109,367Penta
    
    
    21,004
    
    
    
    20,094Creosote
    
    
    24,913
    
    
    
    21,731Animal Health
    
    
    15,074
    
    
    
    15,950Total assets for reportable segments
    
    $
    177,130
    
    
    $
    167,142
 
 (1)
    
    Segment income (loss) from operations includes allocated corporate overhead expenses. During
the first quarter of fiscal year 2011, the Company changed the method it uses to allocate
these costs to its reportable segments which is based on segment net sales. As a result prior
year amounts have been reclassified to reflect the current year method.  54




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##### Table of Contents



2011
    
    
    2010
    
    
    2009(Amounts in thousands)Electronic Chemicals
    
    $
    4,066
    
    
    $
    4,065
    
    
    $
    3,328Penta
    
    
    807
    
    
    
    828
    
    
    
    1,016Creosote
    
    
    2,530
    
    
    
    2,294
    
    
    
    2,628Animal Health
    
    
    521
    
    
    
    386
    
    
    
    424Total corporate overhead expense allocation
    
    $
    7,924
    
    
    $
    7,573
    
    
    $
    7,396
   2011
    
    
    2010
    
    
    2009Assets:Total assets for reportable segments
    
    $
    177,130
    
    
    $
    167,142Total assets for discontinued operations (1)
    
    
    644
    
    
    
    739Cash and cash equivalents
    
    
    1,479
    
    
    
    3,073Prepaid and other current assets
    
    
    3,749
    
    
    
    2,174Other
    
    
    3,587
    
    
    
    2,893Total assets
    
    $
    186,589
    
    
    $
    176,021Sales:Total sales for reportable segments
    
    $
    266,356
    
    
    $
    208,628
    
    
    $
    190,720Net sales
    
    $
    266,356
    
    
    $
    208,628
    
    
    $
    190,720Segment income from operations:Total segment income from operations(2)
    
    $
    21,032
    
    
    $
    31,300
    
    
    $
    23,768Other corporate expense(2)
    
    
    (3,376
    )
    
    
    (4,321
    )
    
    
    (2,919
    )Operating income
    
    
    17,656
    
    
    
    26,979
    
    
    
    20,849Interest income
    
    
    1
    
    
    
    5
    
    
    
    7Interest expense
    
    
    (2,336
    )
    
    
    (2,252
    )
    
    
    (3,032
    )Other expense, net
    
    
    (208
    )
    
    
    (211
    )
    
    
    (340
    )Income from continuing operations before income taxes
    
    $
    15,113
    
    
    $
    24,521
    
    
    $
    17,484
  2011
    
    
    2010
    
    
    2009Net sales:United States
    
    $
    228,922
    
    
    $
    175,170
    
    
    $
    162,379International
    
    
    37,434
    
    
    
    33,458
    
    
    
    28,341Net sales
    
    $
    266,356
    
    
    $
    208,628
    
    
    $
    190,720Property, plant and equipment, net:United States
    
    $
    53,039
    
    
    $
    50,856International
    
    
    18,787
    
    
    
    17,789Property, plant and equipment, net
    
    $
    71,826
    
    
    $
    68,645
 
 (1)
    
    Includes approximately $644,000 and $739,000 of deferred tax assets as of July 31, 2011 and
2010, respectively, related to discontinued operations.  55




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##### Table of Contents



(2)
    
    Other corporate expense primarily represents employee stock-based compensation expenses and
those expenses associated with the Companys operation as a public entity such as board
compensation, audit expense and fees related to the listing of our stock. Beginning in the first
quarter of 2011, the Company changed the method it uses to allocate certain corporate overhead
costs to its reportable segments, and accordingly prior year amounts have been reclassified to
reflect the current year method. 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Amounts in thousands, except per share data)Year Ended July 31, 2011Net sales
    
    $
    62,104
    
    
    $
    64,936
    
    
    $
    65,074
    
    
    $
    74,242Gross profit
    
    
    17,368
    
    
    
    18,266
    
    
    
    17,754
    
    
    
    18,000Operating income
    
    
    5,560
    
    
    
    4,806
    
    
    
    4,583
    
    
    
    2,707Income from continuing operations before
income taxes
    
    
    5,017
    
    
    
    3,966
    
    
    
    4,062
    
    
    
    2,068Net income
    
    
    3,516
    
    
    
    2,424
    
    
    
    2,607
    
    
    
    1,182Earnings Per share:Income per share from continuing operations- basic
    
    $
    0.31
    
    
    $
    0.21
    
    
    $
    0.23
    
    
    $
    0.10- diluted
    
    
    0.31
    
    
    
    0.21
    
    
    
    0.23
    
    
    
    0.10Net income per share- basic
    
    
    0.31
    
    
    
    0.21
    
    
    
    0.23
    
    
    
    0.10- diluted
    
    
    0.31
    
    
    
    0.21
    
    
    
    0.23
    
    
    
    0.10Year Ended July 31, 2010Net sales
    
    $
    49,414
    
    
    $
    45,134
    
    
    $
    51,614
    
    
    $
    62,466Gross profit
    
    
    18,391
    
    
    
    16,712
    
    
    
    15,956
    
    
    
    18,632Operating income
    
    
    7,950
    
    
    
    6,924
    
    
    
    5,832
    
    
    
    6,273Income from continuing operations before
income taxes
    
    
    7,366
    
    
    
    6,319
    
    
    
    5,224
    
    
    
    5,612Net income
    
    
    4,620
    
    
    
    3,963
    
    
    
    3,342
    
    
    
    3,405Earnings Per share:Income per share from continuing operations- basic
    
    $
    0.41
    
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.30- diluted
    
    
    0.41
    
    
    
    0.35
    
    
    
    0.29
    
    
    
    0.30Net income per share- basic
    
    
    0.41
    
    
    
    0.36
    
    
    
    0.30
    
    
    
    0.30- diluted
    
    
    0.41
    
    
    
    0.35
    
    
    
    0.29
    
    
    
    0.30
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
  Internal
ControlIntegrated Framework
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
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PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
 (a)
    
    The financial statements filed as part of this report in Item 8 are listed in the Index to
Financial Statements contained in that item.
 (b)
    
    The following documents are filed as exhibits. Documents marked with an asterisk (*) are
management contracts or compensatory plans, and portions of documents marked with a dagger ()
have been granted confidential treatment.
 2.1
    
    Asset Purchase Agreement dated June 7, 2005 between the
company and Basic Chemicals Company, LLC, filed previously as
Exhibit 10.26 to the companys report on Form 8-K filed June
13, 2005 and incorporated herein by reference.2.2
    
    Asset Purchase Agreement dated February 22, 2006 between the
company and Boehringer Ingelheim Vetmedica, Inc., filed
previously as Exhibit 10.30 to the companys report on Form
8-K filed February 27, 2006, and incorporated herein by
reference.2.3
    
    Asset Purchase Agreement by and among Wood Protection
Products, Inc., KMG-Bernuth, Inc. and James R. Forshaw filed
previously as Exhibit 2.1(v) to the companys report on Form
8-K filed December 19, 2003, and incorporated herein by
reference.2.4
    
    Asset Purchase Agreement dated October 19, 2007 between the
company and Air Products and Chemicals, Inc., filed previously
as Exhibit 10.36 to the companys report on Form 8-K filed
October 24, 2007, and incorporated herein by this reference.2.5
    
    Asset Purchase Agreement dated February 25, 2010 between the
company and General Chemical Performance Products LLC, filed
previously as Exhibit 2.5 to the companys report on Form 10-Q
filed March 12, 2010, and incorporated herein by reference.3.1
    
    Restated and Amended Articles of Incorporation filed as
Exhibit 3(i) to the companys filed as Exhibit 3(i) to the
companys Form 10-QSB12G filed December 6, 1996, incorporated
in this report.3.2
    
    Bylaws filed as Exhibit 3(ii) to the companys Form 10-QSB12G
filed December 6, 1996, incorporated in this report.3.3
    
    Articles of Amendment to Restated and Amended Articles of
Incorporation, filed December 11, 1997 filed as Exhibit 3 to
the companys second quarter 1998 report on Form 10-QSB filed
December 12, 1997, incorporated in this report.4.1
    
    Form of Common Stock Certificate filed as Exhibit 4.1 to the
companys Form 10-QSB12G filed December 6, 1996, incorporated
in this report.10.11
    
    Creosote Supply Agreement dated November 1, 1998 between
Rütgers and the company filed as Exhibit 10.20 to the
companys second quarter 1999 report on Form 10-QSB filed
March 12, 1999, incorporated in this report.10.12*
    
    1996 Stock Option Plan filed as Exhibit 10.4 to the companys
Form 10-QSB12G filed December 6, 1996, incorporated in this
report.10.13*
    
    Stock Option Agreement dated October 17, 1996 with Thomas H.
Mitchell filed as Exhibit 10.5 to the companys Form 10-QSB12G
filed December 6, 1996, incorporated in this report.10.15*
    
    Employment Agreement with Thomas H. Mitchell dated July 11,
2001 filed as Exhibit 10.25 to the companys 2001 report on
Form 10-K filed October 24, 2001, incorporated in this report.10.16*
    
    Employment Agreement with John V. Sobchak dated June 26, 2001
filed as Exhibit 10.26 to the companys 2001 report on Form
10-K filed October 24, 2001, incorporated in this report.10.17*
    
    Employment Agreement with Roger C. Jackson dated August 1,
2002 filed as Exhibit 10.31 to the companys 2003 report on
Form 10-K filed October 23, 2003, incorporated in this report.10.18*
    
    Employment Agreement with J. Neal Butler dated March 8, 2004
filed as Exhibit 10.18 to the companys 2004 report on Form
10-K filed October 15, 2004, and incorporated herein by
reference.
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##### Table of Contents



10.19*
    
    Supplemental Executive Retirement Plan dated effective August
1, 2001 filed as Exhibit 10.27 to the companys 2001 report on
Form 10-K filed October 24, 2001, incorporated in this report.10.20
    
    Direct Stock Purchase Plan filed as Exhibit 99.1 to the
companys report on Form 8 K filed February 14, 2002,
incorporated in this report.10.21*
    
    2004 Long-Term Incentive Compensation Plan filed as Exhibit
10.21 to the companys report on Form 10-Q filed December 15,
2004, incorporated in this report.10.28*
    
    Performance-Based Restricted Stock Agreement, Series 1 dated
September 2, 2005 filed as Exhibit 10.28 to the companys
report on Form 8-K filed September 7, 2005.10.29*
    
    Performance-Based Restricted Stock Agreement, Series 2 dated
September 2, 2005 filed as Exhibit 10.29 to the companys
report on Form 8-K filed September 7, 2005.10.34
    
    Sales Agreement with Koppers, Inc. dated May 8, 2007, filed as
Exhibit 10.34 to the companys report on Form 10-Q filed June
5, 2007.10.37
    
    Transition Services Agreement with Air Products and Chemicals,
Inc. dated December 31, 2007 filed as Exhibit 10.37 to the
companys report on Form 8-K filed January 7, 2008, and
incorporated herein by this reference.10.38
    
    Custom Manufacture Agreement with Air Products and Chemicals,
Inc. dated December 31, 2007 filed as Exhibit 10.38 to the
companys report on Form 8-K filed January 7, 2008, and
incorporated herein by this reference.10.39
    
    Amended and Restated Credit Agreement with Wachovia Bank,
National Association dated December 31, 2007 initially filed
as Exhibit 10.39 to the companys report on Form 8-K filed
January 7, 2008, and re-filed on March 12, 2010 to the
companys report on Form 10-Q, and incorporated herein by this
reference.10.40
    
    Note Purchase Agreement with The Prudential Insurance Company
of America dated December 31, 2007 filed as Exhibit 10.40 to
the companys report on Form 8-K filed January 7, 2008, and
incorporated herein by this reference.10.41
    
    Agreement with Acme Chemical Marketing, LLC dated February 14,
2008 filed as Exhibit 10.41, to the companys report on Form
8-K filed February 21, 2007, and incorporated herein.10.42*
    
    Executive Severance Plan, dated October 10, 2008, by and
between the Company and its Eligible Employees filed as
Exhibit 10.42, to the companys report on Form 8-K filed
October 13, 2008, and incorporated herein by this reference.10.43
    
    First Amendment to Amended and Restated Credit Agreement and
Amended Pledge Agreement with Wachovia Bank, National
Association dated effective January 30, 2009 filed as Exhibit
10.43, to the companys report on Form 10-Q filed on March 12,
2009, and incorporated herein by this reference.10.44
    
    Amendment No. 1 to Note Purchase Agreement with The Prudential
Insurance Company of America dated effective January 30, 2009
filed as Exhibit 10.44, to the companys report on Form 10-Q
filed on March 12, 2009, and incorporated herein by this
reference.10.45
    
    Purchase Agreement dated December 31, 2007 with Intel
Corporation filed as Exhibit 10.45 to the companys report on
Form 8-K filed May 13, 2009, incorporated herein by this
reference.10.46*
    
    2009 Long Term Incentive Plan of the Company, filed as Exhibit
10.46 to the companys report on Form 10-K filed October 14,
2009 and incorporated herein by this reference.10.47
    
    Second Amendment to Amended and Restated Credit Agreement with
Wachovia Bank, National Association dated March 18, 2010 filed
as Exhibit 10.47, to the companys report on Form 8-K filed on
March 30, 2010, and incorporated herein by this reference.
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##### Table of Contents



10.48
    
    Amendment No. 2 to Note Purchase Agreement and Limited Consent
with The Prudential Insurance Company of America dated March
18, 2010 filed as Exhibit 10.48, to the companys report on
Form 8-K filed on March 30, 2010, and incorporated herein by
this reference.21.1
    
    Subsidiaries of the company.23.1
    
    Consent of UHY LLP.31
    
    Certificates under Section 302 the Sarbanes-Oxley Act of 2002
of the Chief Executive Officer and the Chief Financial
Officer.32
    
    Certificates under Section 906 of the Sarbanes-Oxley Act of
2002 of the Chief Executive Officer and the Chief Financial
Officer.
 (c)
    
    Schedule II-Valuation and Qualifying Accounts and Reserves. All other schedules are omitted
because they are not applicable or the required information is contained in the applicable
financial statements of notes thereto.
 KMG Chemicals, Inc.
Schedule II  Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atbeginning
    
    
    Charged to costs
    
    
    Additions/
    
    
    endDescription
    
    of period
    
    
    and expenses
    
    
    Deductions
    
    
    of periodYear ended July 31, 2011:Allowance for doubtful accounts
    
    $
    260,000
    
    
    $
    154,000
    
    
    $
    
    
    
    $
    414,000Inventory obsolescence
    
    
    418,000
    
    
    
    (34,000
    )
    
    
    (51,000
    )
    
    
    333,000Valuation allowance on
deferred tax assets
    
    
    627,000
    
    
    
    (627,000
    )
    
    
    
    
    
    
    Year ended July 31, 2010:Allowance for doubtful accounts
    
    $
    595,000
    
    
    $
    63,000
    
    
    $
    (398,000
    )
    
    $
    260,000Inventory obsolescence
    
    
    395,000
    
    
    
    171,000
    
    
    
    (148,000
    )
    
    
    418,000Valuation allowance on
deferred tax assets
    
    
    1,509,000
    
    
    
    (882,000
    )
    
    
    
    
    
    
    627,000Year ended July 31, 2009:Allowance for doubtful accounts
    
    $
    342,000
    
    
    $
    253,000
    
    
    $
    
    
    
    $
    595,000Inventory obsolescence
    
    
    484,000
    
    
    
    
    
    
    
    (89,000
    )
    
    
    395,000Valuation allowance on
deferred tax assets
    
    
    
    
    
    
    1,509,000
    
    
    
    
    
    
    
    1,509,000
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##### Table of Contents



SIGNATURES
  KMG CHEMICALS, INC.By:
    
    /s/ J. Neal Butler

J. Neal Butler, President, Chief Executive Officer
    
    
    
    Date: October 14, 2011and Director
  By:
    
    /s/ John V. Sobchak

John V. Sobchak, Vice President
    
    
    
    Date: October 14, 2011and Chief Financial OfficerBy:
    
    /s/ Jack North

Jack North, Controller and
    
    
    
    Date: October 14, 2011Chief Accounting OfficerBy:
    
    /s/ David L. Hatcher

David L. Hatcher,
    
    
    
    Date: October 14, 2011Director and Chairman of the BoardBy:
    
    /s/ Gerald G. Ermentrout

Gerald G. Ermentrout, Director
    
    
    
    Date: October 14, 2011By:
    
    /s/ Christopher T. Fraser

Christopher T. Fraser, Director
    
    
    
    Date: October 14, 2011By:
    
    /s/ George W. Gilman

George W. Gilman, Director
    
    
    
    Date: October 14, 2011By:
    
    /s/ John C. Hunter, III

John C. Hunter, III, Director
    
    
    
    Date: October 14, 2011By:
    
    /s/ Fred C. Leonard

Fred C. Leonard III, Director
    
    
    
    Date: October 14, 2011By:
    
    /s/ Stephen A. Thorington

Stephen A. Thorington, Director
    
    
    
    Date: October 14, 2011By:
    
    /s/ Karen A. Twitchell

Karen A. Twitchell, Director
    
    
    
    Date: October 14, 2011By:
    
    /s/ Richard L. Urbanowski

Richard L. Urbanowski, Director
    
    
    
    Date: October 14, 2011
  61