|ACETO CORP filed this Form 10-K/A on 11/09/2017|
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Gross profit for the Performance Chemicals segment increased to $36,153 for the year ended June 30, 2016, versus $33,002 for the prior year, an increase of $3,151, or 9.5%. The gross margin at 21.3% for the year ended June 30, 2016 was also higher than the prior year’s gross margin of 19.1%. The increase in gross profit was due to $2,292 rise in gross profit for the Agricultural Protection Products business, primarily due to increased sales volume of a wide-range insecticide that is used on various crops, a sprout inhibitor that extends the storage life of potatoes, as well as an herbicide used to control sedge on rice. The Performance Chemicals segment also experienced favorable gross margin impact in the Specialty Chemicals business resulting in overall increased gross profit of $859, due to a decline in sales of lower margin products, as well as $376 of duty refunds related to the Generalized System of Preferences, a tariff system which expired in July 2013 and was not renewed until July 2015. In addition, both gross profit and gross margin of the Specialty Chemicals business were favorably impacted by the overall decline in costs of products sourced from China, due to the devaluation of the Chinese Renminbi.
Selling, General and Administrative Expenses
SG&A increased $3,661, or 5.0%, to $76,820 for the year ended June 30, 2016 compared to $73,159 for the prior year. As a percentage of sales, SG&A increased from 13.5% to 13.8% for the year ended June 30, 2016 versus the prior year. The increase in SG&A is primarily due to increased stock-based compensation expense of $2,182. SG&A for the year ended June 30, 2016 also included $1,213 of transaction costs related to a potential acquisition of a target company that we evaluated during the year but ultimately determined not to pursue, as well as a $1,313 environmental remediation charge related to Arsynco. These increases in SG&A were offset in part by an $833 reversal of contingent consideration related to the PACK acquisition and a $241 reversal of contingent consideration related to the acquisition of a company in France, due to management’s evaluation and assessment of the potential earnout amounts defined in the purchase agreements. SG&A for the prior year included a $1,618 environmental remediation charge related to Arsynco and $3,468 reversal of contingent consideration related to the PACK acquisition.
Research and Development Expenses
Research and development expenses (“R&D”) increased $1,995 or 33.6% to $7,937 for the year ended June 30, 2016 compared to $5,942 for the prior year. R&D expenses represent investment in our generic finished dosage form product pipeline. The majority of the R&D expenses are milestone based, which will likely cause fluctuation from quarter to quarter.
Fiscal 2016 operating income was $58,028 compared to $52,326 in the prior year, an increase of $5,702 or 10.9%.
Interest expense was $6,997 for the year ended June 30, 2016, an increase of $3,043 from the prior year. The increase is primarily due to a $420 payment associated with the termination of an interest rate swap, as well as $2,974 amortization of the debt discount associated with the offering of Convertible Senior Notes.
Interest and Other Income, Net
Interest and other income, net was $2,823 for the year ended June 30, 2016, an increase of $1,337 from the prior year, primarily due to decreases in unrealized foreign exchange losses as well as an increase in income related to a joint venture for one of our agricultural protection products. For the year ended June 30, 2015, we experienced unrealized foreign exchange losses resulting from mark-to-market valuation of foreign currency futures contracts and the strong U.S. dollar compared to the Euro.
Provision for Income Taxes
The effective tax rate for the year ended June 30, 2016 decreased to 35.4% compared to 38.1% for the prior year. The decrease in the effective tax rate was due to the mix of profits from the lower tax rate jurisdictions of Europe and Asia compared to the Federal tax rate in the United States as well as a change in the business allocation percentages in certain states in the U.S.
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