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10-K/A
ACETO CORP filed this Form 10-K/A on 11/09/2017
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ACETO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2017, 2016 AND 2015

(in thousands, except per-share amounts)

 

Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. Other rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote customer loyalty and increase product sales. These rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other promotional programs are incentive programs offered to the customers. The Company provides a provision for government reimbursed rebates and other rebates at the time of sale based on contracted rates and historical redemption rates. Assumptions used to establish the provision include level of customer inventories, contract sales mix and average contract pricing. Aceto regularly reviews the information related to these estimates and adjusts the provision accordingly.

 

Sales discount accruals are based on payment terms extended to customers.

 

The following table summarizes activity in the consolidated balance sheet for contra assets and liability for price concessions for the years ended June 30, 2017, 2016 and 2015:

 

   Accruals for Chargebacks, Rebates, Returns and Other Allowances     
           Government   Other   Sales 
   Chargebacks   Returns   Reimbursed Rebates   Rebates   Discounts 
Balance at June 30, 2014  $10,986   $20,249   $1,005   $3,630   $690 
Current year provision   208,965    21,403    4,259    36,923    9,381 
Credits issued during the year   (187,784)   (10,960)   (4,326)   (36,218)   (7,389)
Balance at June 30, 2015  $32,167   $30,692   $938   $4,335   $2,682 
Current year provision   247,186    7,618    5,124    90,915    10,267 
Credits issued during the year   (256,638)   (15,482)   (4,750)   (88,048)   (10,526)
Balance at June 30, 2016  $22,715   $22,828   $1,312   $7,202   $2,423 
Acquisitions   23,526    1,496    4,500    28,944    2,360 
Current year provision   431,606    19,666    7,694    162,023    20,129 
Credits issued during the year   (417,928)   (11,631)   (4,642)   (158,836)   (18,875)
Balance at June 30, 2017  $59,919   $32,359   $8,864   $39,333   $6,037 

 

Credits issued during a given period represent cash payments or credit memos issued to the Company’s customers as settlement for the related reserve. Management has the experience and access to relevant information that it believes is necessary to reasonably estimate the amounts of such deductions from gross revenues. The Company regularly reviews the information related to these estimates and adjusts its reserves accordingly, if and when actual experience differs from previous estimates. The Company has not experienced any significant changes in its estimates as it relates to its chargebacks, rebates or sales discounts in each of the years in the three year period ended June 30, 2017. During the year ended June 30, 2015, the Company recorded $3,497 in additional gross profit related to a change in estimate for product returns due to the most recent returns experience. The Company had not experienced any significant changes in its estimates as it relates to its product returns during the years ended June 30, 2017 and June 30, 2016.

 

Partnered Products

 

The Company has various products that are subject to one of two types of collaborative arrangements with certain pharmaceutical companies. One type of arrangement relates to the Company’s finished dosage form generics business acting strictly as a distributor and purchasing products at arm’s length; in that type of arrangement, there is no profit sharing element. The second type of collaborative arrangement results in a profit sharing agreement between the Company and a developer and/or manufacturer of a finished dosage form generic drug. Both types of collaborative arrangements are conducted in the ordinary course of Rising’s business. The nature and purpose of both of these arrangements is for the Company to act as a distributor of finished dose products to its customers.  Under these arrangements, the Company maintains distribution rights with respect to specific drugs within the U.S. marketplace.  Generally, the distribution rights are exclusive rights in the territory.  In certain arrangements, the Company is required to maintain service level minimums including, but not limited to, market share and purchase levels, in order to preserve the exclusive rights.  The Company’s accounting policy with respect to these collaborative arrangements calls for the Company to present the sales and associated costs on a gross basis, with the amounts of the shared profits earned by the pharmaceutical companies on sales of these products, if applicable, included in cost of sales in the consolidated statements of income. The shared profits are settled on a quarterly basis. For each of the fiscal years 2017, 2016 and 2015, there was approximately $54,454, $41,036 and $51,352 respectively, of shared profits included in cost of sales, related to these types of collaborative arrangements. In the case of a collaborative arrangement where the Company solely acts as a distributor and purchases product at arm’s length, the costs of those purchases are included as a cost of sales similar to any other purchase arrangement.

 

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