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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, 2010
 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
    
    75-2640529(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
 Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes o No o
 o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o
 Yes o No 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 IIIITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-KSIGNATURESExhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    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 Preserving ChemicalsPenta and Creosote.
  Animal Health Products.
  3




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Suppliers
    Customers
  Marketing
  Geographical Information
  Competition
   4




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 
 Employees
  Environmental and Safety Matters
    5




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United States Regulation.
    Foreign Regulation.
 Licenses, Permits and Product Registrations.
  6




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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 preserving 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.
     The industries that we compete in are subject to economic downturns.
   7




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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 preserving 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;
 
    
    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;
  9




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
    
    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.
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We depend on our senior management team and the loss of any member could adversely affect our
operations.
  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
    
    September 2013Elwood, 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
 John Bailey, et al vs Cleveland G. Meredith et al Thompson et al vs Meredith
et al.
 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
   15




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASER OF
EQUITY SECURITIES
  
    
    the high and low sale prices for our common stock as reported by the Nasdaq
Global Market during fiscal years 2010 and 2009; and
    
    the quarterly dividends we declared and paid during fiscal years 2010 and 2009.
 Common Stock Prices
    
    
    Dividends Declared and PaidHigh
    
    
    Low
    
    
    Per Share
    
    
    AmountFiscal 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
    
    
    
    225,000Fiscal 2009First Quarter
    
    $
    11.92
    
    
    $
    3.93
    
    
    $
    0.02
    
    
    $
    221,000Second Quarter
    
    
    6.49
    
    
    
    2.25
    
    
    
    0.02
    
    
    
    222,000Third Quarter
    
    
    5.73
    
    
    
    3.75
    
    
    
    0.02
    
    
    
    222,000Fourth Quarter
    
    
    9.01
    
    
    
    5.41
    
    
    
    0.02
    
    
    
    222,000
    16




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ITEM 6. SELECTED FINANCIAL DATA
  Year Ended July 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Amounts in thousands, except per share data)Statement of Income Data (1):Net sales
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394
    
    
    $
    86,171
    
    
    $
    67,200Cost of sales
    
    
    138,937
    
    
    
    126,553
    
    
    
    107,563
    
    
    
    55,735
    
    
    
    43,575Gross profit
    
    
    69,691
    
    
    
    64,167
    
    
    
    46,831
    
    
    
    30,436
    
    
    
    23,625Distribution expenses
    
    
    19,910
    
    
    
    20,646
    
    
    
    15,192
    
    
    
    3,064
    
    
    
    4,512Selling, general & administrative expenses
    
    
    22,802
    
    
    
    22,672
    
    
    
    20,146
    
    
    
    12,254
    
    
    
    9,190Operating income
    
    
    26,979
    
    
    
    20,849
    
    
    
    11,493
    
    
    
    15,118
    
    
    
    9,923Interest income
    
    
    5
    
    
    
    7
    
    
    
    438
    
    
    
    560
    
    
    
    281Interest expense
    
    
    (2,252
    )
    
    
    (3,032
    )
    
    
    (2,670
    )
    
    
    (945
    )
    
    
    (1,044
    )Other income (expense), net
    
    
    (211
    )
    
    
    (340
    )
    
    
    (55
    )
    
    
    6
    
    
    
    (35
    )Total other income (expense), net
    
    
    (2,458
    )
    
    
    (3,365
    )
    
    
    (2,287
    )
    
    
    (379
    )
    
    
    (798
    )Income from continuing operations before income
taxes
    
    
    24,521
    
    
    
    17,484
    
    
    
    9,206
    
    
    
    14,739
    
    
    
    9,125Provision for income taxes
    
    
    (9,191
    )
    
    
    (7,248
    )
    
    
    (3,550
    )
    
    
    (5,576
    )
    
    
    (3,190
    )Income from continuing operations
    
    
    15,330
    
    
    
    10,236
    
    
    
    5,656
    
    
    
    9,163
    
    
    
    5,935Loss from discontinued operations
    
    
    
    
    
    
    (21
    )
    
    
    (281
    )
    
    
    (314
    )
    
    
    (2,159
    )Net income
    
    $
    15,330
    
    
    $
    10,215
    
    
    $
    5,375
    
    
    $
    8,849
    
    
    $
    3,776Earnings per share from continuing operations-basic
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.52
    
    
    $
    0.87
    
    
    $
    0.66Loss per share from discontinued operations-basic
    
    
    
    
    
    
    
    
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    (0.24
    )Earnings per share-basic
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.49
    
    
    $
    0.84
    
    
    $
    0.42Earnings per share from continuing
operations-diluted
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.50
    
    
    $
    0.83
    
    
    $
    0.63Loss per share from discontinued operations-diluted
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.23
    )Earnings per share-diluted
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.48
    
    
    $
    0.80
    
    
    $
    0.40Weighted average shares outstanding-basic
    
    
    11,183
    
    
    
    11,085
    
    
    
    10,978
    
    
    
    10,573
    
    
    
    8,914Weighted average shares outstanding-diluted
    
    
    11,422
    
    
    
    11,230
    
    
    
    11,232
    
    
    
    11,034
    
    
    
    9,447Cash Flow Data (1):Net cash provided by operating activities
    
    $
    14,948
    
    
    $
    26,502
    
    
    $
    15,668
    
    
    $
    8,968
    
    
    $
    7,055Net cash used in investing activities
    
    
    29,677
    
    
    
    6,268
    
    
    
    75,540
    
    
    
    802
    
    
    
    10,967Net cash provided by (used in) financing activities
    
    
    12,616
    
    
    
    (15,442
    )
    
    
    46,442
    
    
    
    (3,330
    )
    
    
    6,300Payment of dividends
    
    
    894
    
    
    
    887
    
    
    
    877
    
    
    
    791
    
    
    
    660Depreciation and amortization
    
    
    6,711
    
    
    
    6,168
    
    
    
    5,665
    
    
    
    3,832
    
    
    
    3,889Impairment charge
    
    
    
    
    
    
    15
    
    
    
    102
    
    
    
    
    
    
    
    2,368Additions to property, plant and equipment
    
    
    3,015
    
    
    
    3,009
    
    
    
    2,729
    
    
    
    581
    
    
    
    2,085Balance Sheet Data (1):Total assets
    
    $
    176,021
    
    
    $
    143,508
    
    
    $
    155,798
    
    
    $
    81,233
    
    
    $
    72,702Long-term debt, net of current portion
    
    
    51,333
    
    
    
    39,326
    
    
    
    53,516
    
    
    
    10,468
    
    
    
    13,981Total stockholders equity
    
    
    84,778
    
    
    
    70,977
    
    
    
    63,687
    
    
    
    56,410
    
    
    
    46,918
 
 (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 2006.  17




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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
     18




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Results of Operations
 Segment Data
  Year Ended July 31,2010
    
    
    2009
    
    
    2008(Amounts in thousands)Sales:Electronic Chemicals
    
    $
    111,990
    
    
    $
    85,824
    
    
    $
    61,169Penta
    
    
    22,803
    
    
    
    26,189
    
    
    
    26,366Creosote
    
    
    63,204
    
    
    
    67,776
    
    
    
    55,207Animal Health
    
    
    10,631
    
    
    
    10,931
    
    
    
    11,652Total sales for reportable segments
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394
 Segment Sales
    19




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Segment Income from Operations
     20




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Net Sales and Gross Profit
 Net Sales and Gross Profit for Fiscal Year 2010 vs. Fiscal Year 2009.
     Net Sales and Gross Profit for Fiscal Year 2009 vs. Fiscal Year 2008.
     21




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Distribution and Selling, General and Administrative Expenses
 Distribution and Selling, General and Administrative for Fiscal Year 2010 vs. Fiscal Year
2009.
    Distribution and Selling, General and Administrative for Fiscal Year 2009 vs. Fiscal Year
2008.
     Interest Expense
   22




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Income Taxes
  Liquidity and Capital Resources
 Cash Flows
       23




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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
    %
    24




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Capital Expenditures
  Environmental Expenditures
   Contractual Obligations
  Payments Due by Period (in thousands)More thanTotal
    
    
    1 Year
    
    
    2-5 Years
    
    
    5 YearsLong-term debt
    
    $
    59,333
    
    
    $
    8,000
    
    
    $
    51,333
    
    
    
    Estimated interest payments on debt (1)
    
    
    7,790
    
    
    
    2,258
    
    
    
    5,532
    
    
    
    Operating leases
    
    
    4,417
    
    
    
    1,390
    
    
    
    3,027
    
    
    
    Other long-term liabilities (2)
    
    
    577
    
    
    
    
    
    
    
    577
    
    
    
    Purchase obligations (3)
    
    
    226,345
    
    
    
    69,292
    
    
    
    121,182
    
    
    
    35,871Total
    
    
    298,462
    
    
    
    80,940
    
    
    
    181,651
    
    
    
    35,871
  25




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(1)
    
    Estimated payments are based on interest rates as of the end of July 2010.(2)
    
    Post retirement benefit obligations.(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 2011
      Off-Balance Sheet Arrangements
  Recent Accounting Standards
   26




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Critical Accounting Policies
  Revenue Recognition 
  27




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Allowance for Doubtful Accounts 
 Goodwill 
 Impairment of Long-Lived Assets 
 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 introduction of new competing products;
 
    
    availability or increases in the price of our primary raw materials or active
ingredients;
  28




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
    
    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;
 
    
    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
   29




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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 Firm
    
    
    31Consolidated Balance Sheets as of July 31, 2010 and 2009
    
    
    33Consolidated Statements of Income for the Years Ended July 31, 2010, 2009 and 2008
    
    
    34Consolidated Statements of Stockholders Equity for the Years Ended July 31, 2010, 2009 and 2008
    
    
    35Consolidated Statements of Cash Flows for the Years Ended July 31, 2010, 2009 and 2008
    
    
    36Notes to Consolidated Financial Statements
    
    
    37
  30




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
Control-Integrated Framework
  
  31




---



##### Table of Contents



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




---



##### Table of Contents



2010
    
    
    2009ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    4,728
    
    
    $
    7,174Accounts receivable:Trade, net of allowances of $260 at July 31, 2010 and $595 at July 31, 2009
    
    
    30,214
    
    
    
    21,206Other
    
    
    2,864
    
    
    
    1,896Inventories, net
    
    
    39,102
    
    
    
    28,163Current deferred tax assets
    
    
    672
    
    
    
    698Prepaid expenses and other current assets
    
    
    1,882
    
    
    
    1,638Total current assets
    
    
    79,462
    
    
    
    60,775PROPERTY, PLANT AND EQUIPMENT, net
    
    
    68,645
    
    
    
    54,834DEFERRED TAX ASSETS
    
    
    606
    
    
    
    923GOODWILL
    
    
    3,778
    
    
    
    3,778INTANGIBLE ASSETS, net
    
    
    20,534
    
    
    
    20,149RESTRICTED CASH
    
    
    189
    
    
    
    313OTHER ASSETS, net
    
    
    2,807
    
    
    
    2,736TOTAL ASSETS
    
    $
    176,021
    
    
    $
    143,508LIABILITIES & STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    20,899
    
    
    $
    16,606Accrued liabilities
    
    
    7,147
    
    
    
    7,151Current deferred tax liabilities
    
    
    28
    
    
    
    328Current portion of long-term debt
    
    
    8,000
    
    
    
    6,966Total current liabilities
    
    
    36,074
    
    
    
    31,051LONG-TERM DEBT, net of current portion
    
    
    51,333
    
    
    
    39,326DEFERRED TAX LIABILITIES
    
    
    2,644
    
    
    
    874OTHER LONG-TERM LIABILITIES
    
    
    1,192
    
    
    
    1,280Total liabilities
    
    
    91,243
    
    
    
    72,531COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock, $.01 par value, 10,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.01 par value, 40,000,000 shares authorized, 11,229,487 shares
issued and outstanding at July 31, 2010 and 11,101,345 shares issued and
outstanding at
July 31, 2009
    
    
    112
    
    
    
    111Additional paid-in capital
    
    
    24,319
    
    
    
    23,084Accumulated other comprehensive loss
    
    
    (3,335
    )
    
    
    (1,464
    )Retained earnings
    
    
    63,682
    
    
    
    49,246Total stockholders equity
    
    
    84,778
    
    
    
    70,977TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    176,021
    
    
    $
    143,508
   33




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##### Table of Contents



2010
    
    
    2009
    
    
    2008NET SALES
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394COST OF SALES
    
    
    138,937
    
    
    
    126,553
    
    
    
    107,563Gross Profit
    
    
    69,691
    
    
    
    64,167
    
    
    
    46,831DISTRIBUTION EXPENSES
    
    
    19,910
    
    
    
    20,646
    
    
    
    15,192SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    22,802
    
    
    
    22,672
    
    
    
    20,146Operating income
    
    
    26,979
    
    
    
    20,849
    
    
    
    11,493OTHER INCOME (EXPENSE):Interest income
    
    
    5
    
    
    
    7
    
    
    
    438Interest expense
    
    
    (2,252
    )
    
    
    (3,032
    )
    
    
    (2,670
    )Other, net
    
    
    (211
    )
    
    
    (340
    )
    
    
    (55
    )Total other expense, net
    
    
    (2,458
    )
    
    
    (3,365
    )
    
    
    (2,287
    )INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    24,521
    
    
    
    17,484
    
    
    
    9,206Provision for income taxes
    
    
    (9,191
    )
    
    
    (7,248
    )
    
    
    (3,550
    )INCOME FROM CONTINUING OPERATIONS
    
    
    15,330
    
    
    
    10,236
    
    
    
    5,656DISCONTINUED OPERATIONSLoss from discontinued operations, before income taxes
    
    
    
    
    
    
    (29
    )
    
    
    (425
    )Income tax benefit
    
    
    
    
    
    
    8
    
    
    
    144Loss from discontinued operations
    
    
    
    
    
    
    (21
    )
    
    
    (281
    )NET INCOME
    
    $
    15,330
    
    
    $
    10,215
    
    
    $
    5,375EARNINGS PER SHARE:BasicIncome from continuing operations
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.52Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.03
    )Net income
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.49DilutedIncome from continuing operations
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.50Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Net income
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.48WEIGHTED AVERAGE SHARES OUTSTANDING:Basic
    
    
    11,183
    
    
    
    11,085
    
    
    
    10,978Diluted
    
    
    11,422
    
    
    
    11,230
    
    
    
    11,232
   34




---



##### Table of Contents



AccumulatedCommon Stock
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    TotalShares
    
    
    Par
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersIssued
    
    
    Value
    
    
    Capital
    
    
    Income (loss)
    
    
    Earnings
    
    
    EquityBALANCE AT AUGUST 1, 2007
    
    
    10,774
    
    
    $
    108
    
    
    $
    20,882
    
    
    $
    
    
    
    $
    35,420
    
    
    $
    56,410Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (877
    )
    
    
    (877
    )Stock options/warrants exercised
    
    
    195
    
    
    
    1
    
    
    
    537
    
    
    
    
    
    
    
    
    
    
    
    538Restricted stock issued
    
    
    66
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    751
    
    
    
    
    
    
    
    
    
    
    
    751Tax benefit from stock-based awards
    
    
    
    
    
    
    
    
    
    
    356
    
    
    
    
    
    
    
    
    
    
    
    356Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,375
    
    
    
    5,375Gain on foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,134
    
    
    
    
    
    
    
    1,134Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,509BALANCE 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
    
    
    $
    84,778
   35




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##### Table of Contents



2010
    
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    15,330
    
    
    $
    10,215
    
    
    $
    5,375Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    6,711
    
    
    
    6,168
    
    
    
    5,665Amortization of loan costs included in interest expense
    
    
    95
    
    
    
    88
    
    
    
    51Impairment on assets of discontinued operations
    
    
    
    
    
    
    15
    
    
    
    102Stock-based compensation expense
    
    
    768
    
    
    
    391
    
    
    
    751Bad debt expense
    
    
    63
    
    
    
    253
    
    
    
    Inventory valuation adjustment
    
    
    (104
    )
    
    
    766
    
    
    
    (Gain) Loss on disposal of property
    
    
    (13
    )
    
    
    87
    
    
    
    13Deferred rental income
    
    
    
    
    
    
    (48
    )
    
    
    (86
    )Deferred income tax expense (benefit)
    
    
    1,804
    
    
    
    1,123
    
    
    
    (600
    )Tax benefit from stock-based awards
    
    
    (330
    )
    
    
    (50
    )
    
    
    (356
    )Changes in operating assets and liabilities, net of effects of acquisition:Accounts receivable  trade
    
    
    (9,293
    )
    
    
    16,503
    
    
    
    (12,757
    )Accounts receivable  other
    
    
    (1,084
    )
    
    
    107
    
    
    
    (914
    )Inventories
    
    
    (3,507
    )
    
    
    (3,355
    )
    
    
    983Prepaid expenses and other current assets
    
    
    (124
    )
    
    
    (486
    )
    
    
    (1,264
    )Accounts payable
    
    
    4,432
    
    
    
    (6,015
    )
    
    
    14,824Accrued liabilities
    
    
    200
    
    
    
    740
    
    
    
    3,881Net cash provided by operating activities
    
    
    14,948
    
    
    
    26,502
    
    
    
    15,668CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment
    
    
    (3,015
    )
    
    
    (3,009
    )
    
    
    (2,729
    )Cash used in connection with electronic chemicals acquisition
    
    
    
    
    
    
    (3,257
    )
    
    
    (72,468
    )Cash used in connection with General Chemical acquisition
    
    
    (26,784
    )
    
    
    
    
    
    
    Proceeds from sale of property
    
    
    17
    
    
    
    
    
    
    
    Change in restricted cash
    
    
    105
    
    
    
    (2
    )
    
    
    (343
    )Net cash used in investing activities
    
    
    (29,677
    )
    
    
    (6,268
    )
    
    
    (75,540
    )CASH FLOWS FROM FINANCING ACTIVITIES:Deferred financing cost
    
    
    
    
    
    
    
    
    
    
    (466
    )Net borrowings (payments) under revolver credit agreement
    
    
    20,000
    
    
    
    (5,224
    )
    
    
    5,224Proceeds from borrowings on term loans
    
    
    
    
    
    
    
    
    
    
    55,000Principal payments on borrowings on term loan
    
    
    (6,958
    )
    
    
    (9,500
    )
    
    
    (13,333
    )Proceeds from exercise of stock options and warrants
    
    
    138
    
    
    
    119
    
    
    
    538Tax benefit from stock-based awards
    
    
    330
    
    
    
    50
    
    
    
    356Payment of dividends
    
    
    (894
    )
    
    
    (887
    )
    
    
    (877
    )Net cash (used in) provided by financing activities
    
    
    12,616
    
    
    
    (15,442
    )
    
    
    46,442EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    (333
    )
    
    
    (223
    )
    
    
    31NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (2,446
    )
    
    
    4,569
    
    
    
    (13,399
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    7,174
    
    
    
    2,605
    
    
    
    16,004CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    4,728
    
    
    $
    7,174
    
    
    $
    2,605SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    2,109
    
    
    $
    2,980
    
    
    $
    2,492Cash paid for income taxes
    
    $
    10,427
    
    
    $
    2,821
    
    
    $
    3,983
   36




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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
   37




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##### Table of Contents



Inventories
 Property, Plant, and Equipment
   Asset Description
    
    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
 Selling, General and Administrative Expenses
 Advertising Costs
  38




---



##### Table of Contents



Shipping and Handling Costs
 Income Taxes
 Earnings Per Share
 Foreign Currency Translation
  Stock-Based Compensation
 Recent Accounting Standards
    39




---



##### Table of Contents



2. ACQUISITIONS
    40




---



##### Table of Contents



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
   (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
    41




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##### Table of Contents



Cash paid to seller
    
    $
    71,863Employee retention bonus accrual
    
    
    1,014Other costs of acquisition
    
    
    2,849Total
    
    $
    75,726
   Accounts receivable, net of allowance
    
    $
    14,250Inventory, net of allowance
    
    
    13,650Property, plant and equipment
    
    
    48,771Intangible assets:Non-compete agreement
    
    
    93Patent
    
    
    72Trademarks
    
    
    47Manufacturing agreement
    
    
    919Total intangible assets
    
    
    1,131Assumed liabilities
    
    
    (2,076
    )Total acquired assets, net of assumed liabilities
    
    $
    75,726
  (Unaudited)Year EndedJuly 31, 2008Revenues
    
    $
    193,841Operating income
    
    
    15,573Net income
    
    
    7,449Earnings per share  basic
    
    $
    0.68
 3. INVENTORIES, NET
  2010
    
    
    2009Raw materials and supplies
    
    $
    8,578
    
    
    $
    5,865Finished products
    
    
    30,942
    
    
    
    22,693Less reserve for inventory obsolescence
    
    
    (418
    )
    
    
    (395
    )Inventories, net
    
    $
    39,102
    
    
    $
    28,163
  42




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##### Table of Contents



4. PROPERTY, PLANT AND EQUIPMENT
  2010
    
    
    2009Land
    
    $
    9,428
    
    
    $
    8,946Buildings and improvements
    
    
    34,399
    
    
    
    30,546Equipment
    
    
    40,195
    
    
    
    26,679Leasehold improvements
    
    
    132
    
    
    
    15384,154
    
    
    
    66,324Less accumulated depreciation and amortization
    
    
    (18,054
    )
    
    
    (12,605
    )66,100
    
    
    
    53,719Construction-in-progress
    
    
    2,545
    
    
    
    1,115Property, plant and equipment, net
    
    $
    68,645
    
    
    $
    54,834
 5. INCOME TAXES
  2010
    
    
    2009
    
    
    2008United States
    
    $
    22,590
    
    
    $
    17,833
    
    
    $
    9,548Foreign
    
    
    1,931
    
    
    
    (349
    )
    
    
    (342
    )Income from continuing operations before income taxes
    
    $
    24,521
    
    
    $
    17,484
    
    
    $
    9,206
  2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    5,932
    
    
    $
    5,279
    
    
    $
    3,398Foreign
    
    
    487
    
    
    
    242
    
    
    
    395State
    
    
    968
    
    
    
    758
    
    
    
    4617,387
    
    
    
    6,279
    
    
    
    4,254Deferred:Federal
    
    
    1,625
    
    
    
    628
    
    
    
    (262
    )Foreign
    
    
    17
    
    
    
    288
    
    
    
    (419
    )State
    
    
    162
    
    
    
    53
    
    
    
    (23
    )1,804
    
    
    
    969
    
    
    
    (704
    )Total
    
    $
    9,191
    
    
    $
    7,248
    
    
    $
    3,550
  43




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##### Table of Contents



2010
    
    
    2009Deferred tax assets:Current deferred tax assets:Bad debt expense
    
    $
    8
    
    
    $
    114Inventory
    
    
    698
    
    
    
    642Accrued liabilities
    
    
    515
    
    
    
    310Less: valuation allowance
    
    
    (99
    )
    
    
    (78
    )Total current deferred tax assets
    
    $
    1,122
    
    
    $
    988Non-current deferred tax assetsNet operating loss
    
    $
    607
    
    
    $
    1,715Difference in depreciable basis of property
    
    
    649
    
    
    
    678Deferred compensation
    
    
    581
    
    
    
    507Less: valuation allowance
    
    
    (529
    )
    
    
    (1,431
    )Total non-current deferred tax assets
    
    $
    1,308
    
    
    $
    1,469Deferred tax liabilities:Current deferred tax liabilities:Prepaid assets
    
    $
    (478
    )
    
    $
    (618
    )Non-current deferred tax liabilities:Inventory
    
    
    (14
    )
    
    
    (44
    )Difference in amortization basis of intangibles
    
    
    (1,408
    )
    
    
    (770
    )Difference
in depreciable basis of property
    
    
    (1,924
    )
    
    
    (606
    )Total non-current deferred tax liabilities
    
    
    (3,346
    )
    
    
    (1,420
    )Net current deferred tax asset
    
    $
    644
    
    
    $
    370Net non-current deferred tax asset (liability)
    
    $
    (2,038
    )
    
    $
    49
     44




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##### Table of Contents



2010
    
    
    2009
    
    
    2008Income taxes at the federal statutory rate
    
    $
    8,582
    
    
    $
    6,119
    
    
    $
    3,130Effect of foreign operations
    
    
    711
    
    
    
    91
    
    
    
    91Valuation allowance
    
    
    (882
    )
    
    
    1,509
    
    
    
    Currency exchange loss
    
    
    
    
    
    
    (949
    )
    
    
    State income taxes, net of federal income tax effect
    
    
    802
    
    
    
    548
    
    
    
    292Other
    
    
    (22
    )
    
    
    (70
    )
    
    
    37Total
    
    $
    9,191
    
    
    $
    7,248
    
    
    $
    3,550
 6. INTANGIBLE ASSETS
  July 31, 2010Original
    
    
    Accumulated
    
    
    CarryingCost
    
    
    Amortization
    
    
    AmountIntangible assets subject to amortization: (range of useful life):Creosote supply contract (10 years)
    
    $
    4,000
    
    
    $
    (3,689
    )
    
    $
    311Other creosote related assets (5 years)
    
    
    131
    
    
    
    (131
    )
    
    
    Penta supply contract and other related assets (3-5 years)
    
    
    7,288
    
    
    
    (7,288
    )
    
    
    Animal health trademarks (4-5 years)
    
    
    364
    
    
    
    (359
    )
    
    
    5Animal health product registrations and other related assets (5-20 years)
    
    
    6,165
    
    
    
    (1,667
    )
    
    
    4,498Electronic chemicals-related contracts (3-8 years)
    
    
    1,164
    
    
    
    (844
    )
    
    
    320Electronic chemicals-related trademarks and patents (10-15 years)
    
    
    117
    
    
    
    (26
    )
    
    
    91Electronic chemicals-value of product qualifications (5 years)
    
    
    1,300
    
    
    
    (95
    )
    
    
    1,205Total intangible assets subject to amortization
    
    $
    20,529
    
    
    $
    (14,099
    )
    
    
    6,430Intangible assets not subject to amortization:Creosote product registrations and other creosote related assets
    
    
    
    
    
    
    
    
    
    
    5,339Penta product registrations
    
    
    
    
    
    
    
    
    
    
    8,765Total intangible assets not subject to amortization
    
    
    
    
    
    
    
    
    
    
    14,104Total intangible assets, net
    
    
    
    
    
    
    
    
    
    $
    20,534
 July 31, 2009Original
    
    
    Accumulated
    
    
    CarryingCost
    
    
    Amortization
    
    
    AmountIntangible assets subject to amortization: (range of useful life):Creosote supply contract (10 years)
    
    $
    4,000
    
    
    $
    (3,422
    )
    
    $
    578Other creosote related assets (5 years)
    
    
    131
    
    
    
    (129
    )
    
    
    2Penta supply contract and other related assets (3-5 years)
    
    
    7,288
    
    
    
    (7,273
    )
    
    
    15Animal health trademarks (4-5 years)
    
    
    364
    
    
    
    (349
    )
    
    
    15Animal health product registrations and other related assets (5-20 years)
    
    
    6,165
    
    
    
    (1,328
    )
    
    
    4,837Electronic chemicals-related contracts (3-5 years)
    
    
    1,014
    
    
    
    (516
    )
    
    
    498Electronic chemicals-related trademarks and patents (10-15 years)
    
    
    117
    
    
    
    (17
    )
    
    
    100Total intangible assets subject to amortization
    
    $
    19,079
    
    
    $
    (13,034
    )
    
    
    6,045Intangible assets not subject to amortization:Creosote product registrations and other creosote related assets
    
    
    
    
    
    
    
    
    
    
    5,339Penta product registrations
    
    
    
    
    
    
    
    
    
    
    8,765Total intangible assets not subject to amortization
    
    
    
    
    
    
    
    
    
    
    14,104Total intangible assets, net
    
    
    
    
    
    
    
    
    
    $
    20,149
  45




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##### Table of Contents



7. LONG-TERM OBLIGATIONS
  July 31,
    
    
    July 31,2010
    
    
    2009Senior 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 1.75% (2.10% at July 31, 2010)
    
    
    19,333
    
    
    
    26,292Revolving Loan Facility, maturing on December 31, 2012, variable interest
rates based on LIBOR plus 1.75% (2.10% at July 31, 2010)
    
    
    20,000
    
    
    
    Total debt
    
    
    59,333
    
    
    
    46,292Current portion of long-term debt
    
    
    (8,000
    )
    
    
    (6,966
    )Long-term debt, net of current portion
    
    $
    51,333
    
    
    $
    39,326
  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
    %
      46




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##### Table of Contents



Total
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    ThereafterLong-term debt
    
    $
    59,333
    
    
    $
    8,000
    
    
    $
    8,000
    
    
    $
    23,333
    
    
    $
    
    
    
    $
    20,000
    
    
    $
    
 8. COMMITMENTS AND CONTINGENCIES
 Contractual Obligations 
 Total
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    ThereafterOperating leases
    
    $
    4,417
    
    
    $
    1,390
    
    
    $
    1,261
    
    
    $
    1,028
    
    
    $
    712
    
    
    $
    26
    
    
    $
    Purchase obligations (1)
    
    
    226,345
    
    
    
    69,292
    
    
    
    44,274
    
    
    
    26,236
    
    
    
    25,945
    
    
    
    24,726
    
    
    
    35,871Total
    
    $
    230,762
    
    
    $
    70,682
    
    
    $
    45,535
    
    
    $
    27,264
    
    
    $
    26,657
    
    
    $
    24,752
    
    
    $
    35,871
 
 (1)
    
    Consists primarily of raw materials purchase contracts. These are typically not
fixed price arrangements. The prices are based on the prevailing market prices.  Environmental
   Litigation John Bailey, et al vs Cleveland G.
Meredith et al Thompson et al vs Meredith et al
 Albaugh, Inc. vs. Arsonate Herbicide Products, Limited.
  47




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##### Table of Contents



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
  9. EMPLOYEE BENEFIT PLANS
    48




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##### Table of Contents



10. EARNINGS PER SHARE
  Year Ended2010
    
    
    2009
    
    
    2008(Amounts in thousands, except per share data)Income from continuing operations
    
    $
    15,330
    
    
    $
    10,236
    
    
    $
    5,656Loss from discontinued operations
    
    
    
    
    
    
    (21
    )
    
    
    (281
    )Net income
    
    $
    15,330
    
    
    $
    10,215
    
    
    $
    5,375Weighted average shares outstanding  basic
    
    
    11,183
    
    
    
    11,085
    
    
    
    10,978Dilutive effect of options/warrants and stock awards
    
    
    239
    
    
    
    145
    
    
    
    254Weighted average shares outstanding  diluted
    
    
    11,422
    
    
    
    11,230
    
    
    
    11,232BASIC EARNINGS PER SHARE:Basic earnings per share from continuing operations
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.52Basic earnings per share on loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    (0.03
    )Basic earnings per share
    
    $
    1.37
    
    
    $
    0.92
    
    
    $
    0.49DILUTED EARNINGS PER SHARE:Diluted earnings per share from continuing operations
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.50Diluted earnings per share on loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Diluted earnings per share
    
    $
    1.34
    
    
    $
    0.91
    
    
    $
    0.48
  11. STOCK-BASED COMPENSATION
 Stock-Based Incentive Plans
    49




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##### Table of Contents



Accounting for Stock-Based Compensation
    Stock Options
 Employee Options
 Weighted-AverageShares
    
    
    Exercise PriceOutstanding on August 1, 2009
    
    
    339,500
    
    
    
    3.97Granted
    
    
    
    
    
    
    Exercised (1)
    
    
    (67,500
    )
    
    
    3.92Forfeited/Expired
    
    
    
    
    
    
    Outstanding on July 31, 2010
    
    
    272,000
    
    
    
    3.98
 
 (1)
    
    Includes options to purchase 40,000 shares of the Companys stock which were
exercised as a net settlement. The net settlement resulted in the issuance of 33,482
shares of the Companys stock and reflects the gross number of options available for
exercise reduced by the number of options equaling the aggregate exercise price which
were surrendered to the Company in consideration of the exercise price. There was no
cash received by the Company on the net settlement.  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
    
    
    209,500
    
    
    $
    3.88
    
    
    
    4.95
    
    
    $
    2,366Expected to vest
    
    
    62,500
    
    
    $
    4.34
    
    
    
    12.06
    
    
    
    677Total outstanding stock options
    
    
    272,000
    
    
    $
    3.98
    
    
    
    6.59
    
    
    $
    3,043
 
 (1)
    
    The aggregate intrinsic value is computed based on the closing price of the
Companys stock on July 30, 2010.   Non-employee options.
 Performance Shares
   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
2010 Award3/17/2010
    
    Series 1
    
    
    63,605
    
    
    $
    15.55
    
    
    
    07/31/2012
    
    
    
    100
    %
    
    
    63,6053/17/2010
    
    Series 2
    
    
    42,402
    
    
    $
    15.55
    
    
    
    07/31/2012
    
    
    
    100
    %
    
    
    42,402106,007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,007Fiscal Year
2009 Award12/2/2008
    
    Series 1
    
    
    54,745
    
    
    $
    3.19
    
    
    
    07/31/2011
    
    
    
    55
    %
    
    
    30,11012/2/2008
    
    Series 2
    
    
    36,497
    
    
    $
    3.19
    
    
    
    07/31/2011
    
    
    
    20
    %
    
    
    7,29991,242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,409Fiscal Year
2008 Award03/03/2008
    
    Series 1
    
    
    23,220
    
    
    $
    16.76
    
    
    
    07/31/2010
    
    
    
    52.5
    %
    
    
    12,19203/03/2008
    
    Series 2
    
    
    15,480
    
    
    $
    16.76
    
    
    
    07/31/2010
    
    
    
    0
    %
    
    
    38,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,192Total
    
    
    235,949
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,608
 
 (1)
    
    For performance shares granted on March 3, 2008, the above table represents the
actual percentage vesting and shares vested as of the end of the measurement period ended
July 31, 2010. 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.  51




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##### Table of Contents



Time-Based Shares
    52




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##### Table of Contents



Weighted-AverageGrant-DateShares
    
    
    Fair ValueNon-vested on August 1, 2009
    
    
    31,959
    
    
    $
    6.61Granted (1)
    
    
    32,091
    
    
    
    15.61Vested
    
    
    (37,629
    )
    
    
    9.83Forfeited (2)
    
    
    (2,351
    )
    
    
    15.95Non-vested on July 31, 2010
    
    
    24,070
    
    
    
    12.66
 
 (1)
    
    Includes the fiscal year 2010 non-employee director awards calculated based on the
aggregate value of the award of $391,667 divided by the Companys closing stock price on
the respective date of grant. The number of shares reflected here does not represent the
number of shares previously vested or expected to vest, since the shares vested are
determined on the last trading day at the end of each three-month service period
beginning December 1, 2009.(2)
    
    Includes the forfeited portion of a time-based award to a director who left the
Board of Directors in February 2010.   12. DISCONTINUED OPERATIONS
 ,
  53




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##### Table of Contents



13. SEGMENT INFORMATION
   2010
    
    
    2009
    
    
    2008(Amounts in thousands)SalesElectronic Chemicals
    
    $
    111,990
    
    
    $
    85,824
    
    
    $
    61,169Penta
    
    
    22,803
    
    
    
    26,189
    
    
    
    26,366Creosote
    
    
    63,204
    
    
    
    67,776
    
    
    
    55,207Animal Health
    
    
    10,631
    
    
    
    10,931
    
    
    
    11,652Total sales for reportable segments
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394Depreciation and amortizationElectronic Chemicals
    
    $
    4,784
    
    
    $
    3,451
    
    
    $
    1,879Penta
    
    
    608
    
    
    
    1,405
    
    
    
    2,525Creosote
    
    
    286
    
    
    
    292
    
    
    
    298Animal Health
    
    
    766
    
    
    
    769
    
    
    
    852Discontinued operations
    
    
    
    
    
    
    
    
    
    
    15Other  general corporate
    
    
    267
    
    
    
    251
    
    
    
    96Total consolidated depreciation and amortization
    
    $
    6,711
    
    
    $
    6,168
    
    
    $
    5,665Segment income from operationsElectronic Chemicals
    
    $
    11,015
    
    
    $
    3,695
    
    
    $
    2,107Penta
    
    
    7,630
    
    
    
    9,021
    
    
    
    6,273Creosote
    
    
    17,804
    
    
    
    15,645
    
    
    
    9,136Animal Health
    
    
    19
    
    
    
    200
    
    
    
    816Total segment income from operations
    
    $
    36,468
    
    
    $
    28,561
    
    
    $
    18,332Capital expendituresElectronic Chemicals
    
    $
    29,066
    
    
    $
    2,111
    
    
    $
    51,328Penta
    
    
    444
    
    
    
    822
    
    
    
    307Creosote
    
    
    38
    
    
    
    52
    
    
    
    Animal Health
    
    
    64
    
    
    
    4
    
    
    
    81Included in acquisition
    
    
    (26,784
    )
    
    
    (324
    )
    
    
    (49,576
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    Other  general corporate
    
    
    187
    
    
    
    344
    
    
    
    589Total capital expenditures
    
    $
    3,015
    
    
    $
    3,009
    
    
    $
    2,729Total assetsElectronic Chemicals
    
    $
    109,367
    
    
    $
    75,868Penta
    
    
    20,094
    
    
    
    20,169Creosote
    
    
    21,731
    
    
    
    18,894Animal Health
    
    
    15,950
    
    
    
    17,157Total assets for reportable segments
    
    $
    167,142
    
    
    $
    132,088
 
 (1)
    
    For fiscal years 2010, 2009 and 2008, sales to one customer of our electronic
chemicals segment represented approximately 17%, 14% and 10%, respectively, of the
Companys revenue. No other customers accounted for 10% or more of the Companys
revenues.  54




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##### Table of Contents



2010
    
    
    2009
    
    
    2008Assets:Total assets for reportable segments
    
    $
    167,142
    
    
    $
    132,088Total assets for discontinued operations (1)
    
    
    739
    
    
    
    856Cash and cash equivalents
    
    
    3,073
    
    
    
    6,613Prepaid and other current assets
    
    
    2,174
    
    
    
    1,070Other
    
    
    2,893
    
    
    
    2,881Total assets
    
    $
    176,021
    
    
    $
    143,508Sales:Total sales for reportable segments
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394Net sales
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394Segment income from operations:Total segment income from operations
    
    $
    36,468
    
    
    $
    28,561
    
    
    $
    18,332Other corporate expense
    
    
    (9,489
    )
    
    
    (7,712
    )
    
    
    (6,839
    )Operating income
    
    
    26,979
    
    
    
    20,849
    
    
    
    11,493Interest income
    
    
    5
    
    
    
    7
    
    
    
    438Interest expense
    
    
    (2,252
    )
    
    
    (3,032
    )
    
    
    (2,670
    )Other expense, net
    
    
    (211
    )
    
    
    (340
    )
    
    
    (55
    )Income from continuing operations before income taxes
    
    $
    24,521
    
    
    $
    17,484
    
    
    $
    9,206
  2010
    
    
    2009
    
    
    2008Net sales:United States
    
    $
    175,170
    
    
    $
    162,379
    
    
    $
    133,991International
    
    
    33,458
    
    
    
    28,341
    
    
    
    20,403Net sales
    
    $
    208,628
    
    
    $
    190,720
    
    
    $
    154,394Property, plant and equipment, net:United States
    
    $
    50,856
    
    
    $
    35,653International
    
    
    17,789
    
    
    
    19,181Property, plant and equipment, net
    
    $
    68,645
    
    
    $
    54,834
 
 (1)
    
    Includes approximately $739,000 and $830,000 of deferred tax assets as of July
31, 2010 and 2009, respectively, related to discontinued operations.   55




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##### Table of Contents



14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Amounts in thousands, except per share data)Year 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
    
    
    
    0.30Year Ended July 31, 2009Net sales
    
    $
    52,233
    
    
    $
    44,207
    
    
    $
    45,869
    
    
    $
    48,411Gross profit
    
    
    15,530
    
    
    
    13,736
    
    
    
    15,350
    
    
    
    19,551Operating income
    
    
    3,525
    
    
    
    2,507
    
    
    
    5,440
    
    
    
    9,377Income from continuing operations before
income taxes
    
    
    2,615
    
    
    
    1,479
    
    
    
    4,694
    
    
    
    8,696Net income
    
    
    1,616
    
    
    
    903
    
    
    
    2,782
    
    
    
    4,914Earnings Per share:Income per share from continuing operations- basic
    
    $
    0.15
    
    
    $
    0.08
    
    
    $
    0.25
    
    
    $
    0.44- diluted
    
    
    0.14
    
    
    
    0.08
    
    
    
    0.25
    
    
    
    0.44Net income per share- basic
    
    
    0.15
    
    
    
    0.08
    
    
    
    0.25
    
    
    
    0.44- diluted
    
    
    0.14
    
    
    
    0.08
    
    
    
    0.25
    
    
    
    0.44
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   56




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
  Internal
ControlIntegrated Framework
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
   57




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##### Table of Contents



PART III
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Number of securities to be
    
    
    
    
    
    
    Number of securities available forissued upon exercise of
    
    
    Weighted-average exercise
    
    
    future issuance under equityoutstanding options,
    
    
    price of outstanding 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
    
    
    272,000
    (1)
    
    $
    3.98
    
    
    
    663,400Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    272,000
    
    
    $
    3.98
    
    
    
    663,400
 
 (1)
    
    Includes unvested options to purchase 62,500 shares of common stock.  58




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##### Table of Contents



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 VFT 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.
  59




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##### Table of Contents



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.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.
  60




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##### Table of Contents



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.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, 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
    
    
    
    
    
    
    
    1,509,000Year ended July 31, 2008:Allowance for doubtful accounts
    
    $
    48,000
    
    
    $
    
    
    
    $
    294,000
    (1)
    
    $
    342,000Inventory obsolescence
    
    
    
    
    
    
    
    
    
    
    484,000
    (1)
    
    
    484,000Valuation allowance on deferred tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Additions to the allowance for doubtful accounts and inventory obsolescence in fiscal year
2008 were due to amounts related to the acquisition of the electronic chemicals business.  61




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##### Table of Contents



SIGNATURES
   By:
    
    /s/ J. Neal Butler
    
    
    
    Date: October 14, 2010J. Neal Butler, Presidentand Chief Executive Officer
  By:
    
    /s/ John V. Sobchak
    
    
    
    Date: October 14, 2010John V. Sobchak, Vice Presidentand Chief Financial OfficerBy:
    
    /s/ H. L. Sarles
    
    
    
    Date: October 14, 2010H. L. Sarles, Controller and 
Chief Accounting OfficerBy:
    
    /s/ David L. Hatcher
    
    
    
    Date: October 14, 2010David L. Hatcher,Director and Chairman of the BoardBy:
    
    /s/ Gerald G. Ermentrout
    
    
    
    Date: October 14, 2010Gerald G. Ermentrout, DirectorBy:
    
    /s/ Christopher T. Fraser
    
    
    
    Date: October 14, 2010Christopher T. FraserBy:
    
    /s/ George W. Gilman
    
    
    
    Date: October 14, 2010George W. Gilman, DirectorBy:
    
    /s/ Fred C. Leonard
    
    
    
    Date: October 14, 2010Fred C. Leonard III, DirectorBy:
    
    /s/ Stephen A. Thorington
    
    
    
    Date: October 14, 2010Stephen A. Thorington, DirectorBy:
    
    /s/ Karen A. Twitchell
    
    
    
    Date: October 14, 2010Karen A. Twitchell, DirectorBy:
    
    /s/ Richard L. Urbanowski
    
    
    
    Date: October 14, 2010Richard L. Urbanowski, Director
  62