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Aceto Corporation (NASDAQ:ACET)

Q1 2010 Earnings Call

November 6, 2009 10:00 am ET

Executives

Ted Ayvas – Director Investor Relations

Vincent Miata – President

Albert Eilender – Non Executive Chairman of the Board

Douglas Roth – Chief Executive Officer

Analysts

Daniel Rizzo – Sidoti & Company

Kevin McCanine – Main Line Capital

[Lester Petrezzi – Private Investor]

[Alan Brotstchein – AB Analytical Services]

Roland Philini – Southpaw Investments]

Eugene Fox – Cardinal Capital Management

Operator

Welcome to the Aceto Corporation’s fiscal 2010 first quarter financial results finance release and conference call. This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1033 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

These forward-looking statements are based on current expectations, estimates and projections of management. Aceto intends for these forward-looking statements to be covered by the Safe Harbor Provisions for the forward-looking statements. Words such as anticipate, expect, intend, plans, beliefs, seeks, estimates or variations of such words are intended to identify such forward-looking statements.

The forward-looking statements contained in this conference call include but are not limited to statements regarding the improvement of the general economy, the future progress of our initiatives, viability of finished dosage from generic drugs as a long term business opportunity, our ability to capitalize on the generic protection market growth and our ability to use financial strength to take advantage of future business opportunities.

All forward-looking statements made on this conference call are made as the date of this call and Aceto assume no obligation to update these forward-looking statements whether as a result of new information, future events or otherwise other than as required by law.

The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements. These uncertainties include but are not limited to the risk factors discussed in management’s discussion and analysis sections in our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. Copies of these filings are available at www.sec.com.

(Operator Instructions) I will now turn the call over to Mr. Ted Avis.

Ted Avis

Good morning and welcome to Aceto Corporation’s fiscal 2010 first quarter conference call and audio webcast. With me today are Albert Eilender, our Non-Executive Chairman of the Board, Vincent Miata, our President and Douglas Roth, our Chief Financial Officer.

During the call, Al will discuss the recently announced management realignment. Doug will give an overview of the company’s results for the fiscal first quarter ended September 30, 2009 and Vince will discuss the performance of our business segments and provide an update on our various business initiatives. Following that, we will open the call for questions.

Now I’d like to turn the call over to Vince Miata.

Vincent Miata

Good morning everyone. Before Doug discusses our fiscal first quarter results, I want to take this opportunity to introduce Al Eilender who on October 21, of this year was named Non Executive Chairman of the Board of Aceto. Al has been a Board member since 2000 and has served as the lead independent director of the company for the past four years.

With that as some background, I want to turn the call over to Al Eilender.

Albert Eilender

Good morning everyone. As Non Executive Chairman, my primary focus will be on Board and corporate governance issues, investor relations activities and the long term strategic development and growth of Aceto.

With the global management team, we anticipate improved growth and profitability of our core business as well as an invigorated effort for external expansion. Be assured that even though we are confident that in time the general economy will noticeably improve, we are re-evaluating how we allocate our efforts and financial resources as well as the steps we can take now to manage Aceto through this difficult period.

Before I turn the call back over to Vincent, I would be remiss if I didn’t take a minute to address what I am sure is on most of your minds; the management realignment announcement that we made about two weeks ago.

In that press release, we announced than Len Swartz would be leaving the company on November 20 of this year and that the company had decided to separate the office of Chairman of the Board from that of Chief Executive Officer.

The company believes that this new structure will allow for worldwide growth and profitability enhancement as the economy begins to emerge from the current recession. Vince Miata, President of Aceto, assumed the responsibilities of Chief Executive Officer effective October 21. Vince has been with the company for 30 years in a variety of executive positions, most recently filling the office of the Presidency in January of 2009.

The Board, on the recommendation of the independent directors has included Vince’s name on the slate of nominees for Director to be voted on by shareholders at the company’s annual meeting of shareholders in December. Vince will now be responsible for all of Aceto’s worldwide operations.

I know many of you want to know more about what seems to be the sudden departure of Len Swartz from the company. I have spoken to many investors in the past two weeks and one of the first questions I got was, “Was Len’s departure related to any type of financial impropriatary?”

I can assure you that there was no corporate financial improprietary that led Len to leave the company. The Board of Aceto believes that it sends a clear signal that succession planning was in place when Vince was promoted to the Presidency at the beginning of the year. Len is currently working at the details of the separation from the company and so we do not want to speak for him. Unfortunately, that is all we can say about his departure at this time.

I would now like to turn the call over to Doug Roth to discuss the company’s first quarter financial results.

Douglas Roth

Good morning everyone. In the first quarter Aceto’s net sales decreased 25% to $72 million compared to $94 million which we reported in the first quarter of fiscal 2009. Gross profit also decreased by 38% to $12 million compared to $19 million in the year ago quarter.

SG&A expenses decreased 17% to $10 million compared to $12 million in last year’s first quarter. Therefore, net income decreased by 78% to $1 million compared to $5 million in the 2009 comparable quarter. Earnings per diluted share were $0.04 in the first fiscal quarter compared to $0.18 per diluted share that we reported a year ago.

Now I’d like to turn the call over to Vince Miata to discuss the performance of our business segments as well as our business initiatives.

Vince Miata

Good morning everyone again. Let’s look at the business segments. During the first fiscal quarter the global economic conditions which we’ve seen for the past 12 to 18 months continued to negatively impact our results.

The decrease in sales affected us across almost all of our global operations in part due to the fact that our customers are closely managing their inventory levels to coincide with their own reduced demand.

During the quarter sales in our Health Science segment declined approximately 30% from the 2009 comparable quarter. This was primarily due to a decrease in reorders of existing products and overall competitive market pressures including a general push by governments to lower health care costs both in the U.S. as well as overseas.

In our Chemicals and Colorants business segment, sales declines by almost 18% to the fiscal 2009 first quarter largely due to the overall economic condition of both the automotive and housing markets.

Sales in our Crop Protection segment remained relatively unchanged, $3.4 million for the quarter.

I’d like to now take a look at the company’s business initiatives and provide you with a brief update. Regarding our animal vaccine project, we’ve completed all of the testing requirements of the USDA and we are now in the process of compiling the data for submission to the agency.

With respect to our initiative to enter the Japanese pharmaceutical market, we continue to move forward, albeit slowly. We have progressed here from trial orders we initially received to larger commercial orders and we continue to view this as a good long term business opportunity for Aceto.

For our efforts to sell finished generic drugs, this too has proven to be more challenging than we originally anticipated. We still believe though that this will prove to be a viable, long term business opportunity for Aceto and we’re working diligently to evaluate and enhance our pipeline of products.

In our Crop Protection business, we have entered the glyphsate market for the 2010 growing season. In addition, we have other crop protection products that we plan EPA registrations. Generally speaking, the U.S. market for generic crop protection products continues to grow and Aceto is well positioned to leverage our core business competencies; sourcing, regulatory support and marketing so we can capitalize on this trend.

In conclusion, as we move forward we believe the strength of our balance sheet puts us in a position to take advantage of business opportunities when they present themselves going forward. As the economy begins to show subtle signs that the worst may be behind us, we remain optimistic about the future prospects for Aceto.

And now I’d like to open up the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Daniel Rizzo – Sidoti & Company.

Daniel Rizzo – Sidoti & Company

You indicated that you’re re-evaluating how you allocate your efforts and financial resources. Does that mean you’re considering discontinuing one of the strategic initiatives or looking in a completely different direction?

Vincent Miata

No, not at all. What we’re really saying is that we’ve been through a rough patch as I said and we’re looking at all the costs associated with doing our business, making sure they stand and stand up to scrutiny. The business initiatives are well thought out and they’re being deployed as planned.

Daniel Rizzo – Sidoti & Company

You said you’re seeing signs of improvement. Have you seen a bottom do you think in your core businesses in Health Science and Chemicals and Colorants?

Vincent Miata

The differences between Health Sciences and Chemicals and Colorants needs some clarification. In the Heath Science, it’s partly recession related of course and what we’re seeing there is the pressure on the health care systems in the U.S. which if you pick up a newspaper, of course you read about and overseas as well.

And that’s working its way from the pressure the insurance companies and the purveyors of finished drugs up the supply chain to the API players of which Aceto is one. So in that respect one could argue that the recession is having that type of an impact on us.

Of course on the Chemicals and Colorants side, its economy driven and we’re seeing some small signs of recovery. When people are postpone a car, or they postpone an improvement on their home or they postpone buying a home, this all has an upstream effect on us. And because we’re so basic in our raw materials, we tend to be the last one to see it going down and the last one to see it coming up toward the top of the supply chain with our Chemicals.

Operator

Your next question comes from Kevin McCanine – Main Line Capital.

Kevin McCanine – Main Line Capital

In the quarter your cash current assets cash went down just under $7 million. Your inventory went down just slightly. Your dividend is not being earned right now. That’s approximately what $1.25 million per quarter? Where did the cash go?

Douglas Roth

If you take a look at the balance sheet, most of the cash went to pay the accounts payable. Accounts payable decreased by $25 million to $22 million and also during the quarter there were payments for taxes and for 2009 fiscal bonuses.

Kevin McCanine – Main Line Capital

Is there a breakout on what those bonus levels are?

Douglas Roth

Yes, it’s in the proxy.

Kevin McCanine – Main Line Capital

And dividend at about $1.25 million per quarter, you’re not earning that right now? Do you have a comment on that?

Albert Eilender

The dividend question is going to be taken up by the Board in December and it in fact already on the proposed agenda for our Board meeting, so at that time we will evaluate it and come to some sort of decision. But at this point we’re not prepared to discuss what our plans are for the dividend going forward.

Operator

Your next question comes from [Lester Petrezzi – Private Investor]

[Lester Petrezzi – Private Investor]

I read with interest your letter to the shareholders and the 10-K and I took particular note of at least what I perceive to be a change in tone in the language particularly regarding the strategic initiatives. Could you elaborate on this and also on what you described as an invigorated external expansion effort? And in a related sort of way, what assurance can you provide us going forward that you’re play more invigorated and a more rigorous approach to the vetting early on and the planning early on of any new strategic initiatives that you might identify.

Vincent Miata

As we said in the letter that accompanies the proxy, we think about growth as a two pronged approach. There are things we will undertake to grow our core business, whether it be chemicals, colorants, our ag products; these could be product line expansions, geographic expansions or acquisitions that drop into our colorants business structure.

The second prong is strategies or initiatives which would expand our business interests outside the core. In fact if you go back, you’d look at that pet vaccine project would be sort of an example of such an undertaking.

The only think we could say is that going forward we will endeavor to thoroughly vet any initiatives for free things. I guess the first thing would be a market need. The market drives everything, so that would be sort of our first criteria.

The second criteria we would look at is the potential for us being successful in bringing that concept to fruition. And I guess the third things would be, because we’re a small company with limited resources, any initiative which we would undertake would come through the first two steps of the process, would have to bring a meaningful addition to our bottom line.

I think going forward we would be more formal in our selection process. Not that we may not stumble, it’s just that our internal process for any undertaking either internally developed or through an acquisition would be evaluated using the three steps I talked about.

So I hope that answers your questions.

Operator

Your next question comes from [Alan Brotstchein – AB Analytical Services]

[Alan Brotstchein – AB Analytical Services]

Could you please tell us how you envision your leadership to be different than the former leadership? I think I’ve seen some of that from the previous answer, but do you care to elaborate further?

Vincent Miata

If you were to know me, and maybe over time if I get to meet you face to face, you will know me, I tend to be a lot more analytical. I tend to be very deliberate in terms of my thought process and I’m very careful in what I say and when I say it.

I don’t go off prematurely on anything. So maybe what you’re going to see is a more analytical, studied response, maybe less words, but certainly I’m full of enthusiasm and full of optimism.

I’m very knowledgeable if I can say that about the business, having been with it virtually all of my working career. But there is stylistic differences between me and my predecessor that become apparent as you get to know me. I don’t know if that’s sufficient to answer your questions.

[Alan Brotstchein – AB Analytical Services]

That’s a great start to an answer. I guess my read is that your background is more operations and Len’s was more sales.

Vincent Miata

Let me clarify. I came up through the sales. Everybody here as a distribution organization, you cut your teeth on sales and marketing. Even to this day I still keep pieces of it so I stay fresh.

Again, I’m part and parcel of what we do here from the genesis of the product right through to the sale. The difference is I tend to be a little bit more low profile. If I can use the word, I tend to be a little bit more cerebral. I tend to be a little bit more reticent sometimes. I’m not as voluble as Len. I’m certainly optimistic, but I’m more deliberate.

And I tend to be like I said earlier, very, very analytical particularly about business initiatives and making sure that the expectations that we create are in fact realistic and I’m confident going forward on that basis.

[Alan Brotstchein – AB Analytical Services]

That leads to my second questions which is the company has not had a tendency to provide guidance of any sort, and I know we’ve been in tough times economically so that’s, even companies that in the past may have provided guidance haven’t been doing so. But going forward is this something that you believe would be in the shareholder interest to lay out some of your financial objectives?

Albert Eilender

Essentially we did provide guidance at one time, and we decided at the Board that we didn’t think it was in the best interest to do so, and the real reason for that is sort of twofold. Number one, our business tends to be pretty opportunistic. We have a hard time really forecasting what things are going to be like in a given quarter, and rather than go through the highs and lows of either making or missing any guidance, we thought it would be in everyone’s best interest if we tried of have a more open style with you in regards to what we were working on, but not really trying to put dollars and cents in the forecast.

We want to look at this more long term and a lot of the things that we are doing are geared towards that end. We realize that quarterly results are important. We’re certainly cognizant of the effect it has on the investor community as well as our stock price. But again, we just don’t feel that going forward with guidance is anyone’s best interest. So we are not considering re-instituting that.

Vincent Miata

I’m going to put an operational spin on what Al just said because it is important and very true. If you look at our business, what we are in a very, very generic sense a middle man. Our intellectual property, our people of course, our knowledge of markets, our knowledge of customer’s needs our knowledge of technology changes. But at the end of the day, we’re staying in the middle of a transaction.

And we’re always subject to attrition with products and it’s very, very difficult for us to manage as middle people in creating the value that we need to create to stay in business. It’s very difficult to manage and to quantify a quarter to quarter performance.

I had to get up as a distributor and my people work with me and worry about whether or not a given order for a given customer is going to fall in the first quarter or the second quarter, I’d be doing a disservice to the very job I’ve been asked to do.

When you look at a distribution company like Aceto, I think it’s very important to understand that it’s necessary for us to take a longer term view. It really, really is. It’s not an excuse. It’s just a statement of fact of our business model.

So I hope that adds some additional clarity for you.

[Alan Brotstchein – AB Analytical Services]

It does. I understand on a quarterly basis. I still believe that it would be useful to have some sort of targets whether its earnings, returning capital, whatever it is for shareholders to understand the long term value that you hope to drive.

You look at the balance sheet, you have a ton of cash and my understanding is it’s primarily offshore. Can you update us both on the size and any efforts that you have to bring it onshore?

Douglas Roth

I don’t know how long you’ve been following the company but you’re right. Our balance sheet we have approximately $50 million or $51 million as of September 30. Roughly $20 million to $21 million is here domestically and the balance is overseas. Last year, whenever you repatriate money to the U.S., there’s a tax toll along the way whether it’s in Europe, or here in the U.S. and last year we took an opportunity due to the expected cash requirements of our agricultural business, we brought back approximately $6 million U.S. at a relatively low tax rate. Above that number, you pay a large tax toll.

[Alan Brotstchein – AB Analytical Services]

I understand. Are there any incremental efforts ongoing to find, I was listening to a call yesterday, a different company, different industry, but they’re able to repatriate some money at an effective tax rate of 6%.

Douglas Roth

That’s what we took advantage of last year, but that ship has sailed and we took advantage of that. Everything after that is more. And to be honest with you, we don’t necessarily need the money here because we are investing in our European and our overseas operations too, and there’s no real requirement to have it all in one bank account in New York City.

[Alan Brotstchein – AB Analytical Services]

On the inventory, you’ve done a good job of getting it down to some degree, but what is your view on your current inventory level and can you describe any sort of obsolescence risk. Is this something that we should be concerned about? As a distributor, are you left holding stuff that you can’t sell or is this just economic delays basically on what you’re holding?

Vincent Miata

First of all, in our business we are stocking distributors for the plethora of customers in chemical consuming industries that we call upon. So we have to be very smart about inventory levels. We brought it down as you very well know from its high a year ago. There were some reasons that we talked about in prior conference calls why that occurred.

Again, going back to what I said earlier, as a middle person and making sure that we create that value to stay in the middle of a transaction, we can’t get too crazy with inventory. That’s point number one.

Point number two is, because most of our sourcing as you probably know are from far flung places like China and India, there is an optimum turn that’s a lot lower if you will than a domestic guy where you can crank out a widget and have it to the customer in a couple of weeks.

We have sailing times of a month or longer sometimes from some of our factories and that fact commensurate with that desire to never run out of stock, requires us to have inventory levels higher than based on whatever metric you use in comparing us to a domestic distributor or a U.S. manufacturer.

As far as the obsolescence question, one of the things I did as the Senior V.P. and President and continue to do is watch inventory. We have a very rigorous monthly turn analysis, aging analysis of our stocks. We have a little bit of obsolescence. Quarterly we take that of course, put the charges in our financials and are constantly looking at the turns to optimize the turn for reasons I gave you earlier with just the governance of our inventory which is a very, very large portion of our liability.

So I hope you have no concerns. We’ve been doing this 60 years. We know what we’re doing when it comes to managing inventory.

Operator

Your next question comes from [Roland Philini – Southpaw Investments]

[Roland Philini – Southpaw Investments]

Given the new management structure, I mostly have some housekeeping type questions. First I just wanted to thank both Albert and Vince for their straightforward explanation of the results. You have set a much different tone than Lenny. His optimism and energy I’m sure will be missed.

However, given the actual results over the last year and the flat stock price since 2003, we believe it’s better to be realistic than hopeful at this time. As you know we’ve been investors in Aceto for over a decade and have certainly been patient.

That leads me to my first question, from last quarter’s call, Lenny stated that you are now in the process of compiling data for submission to the agency, and it now appears we are still in the process of compiling data for submission. Can you add a little color to that and give us a clue as to how much longer the compiling will take and if there’s any kind of minimum time before we hear back from the government once it’s finally submitted.

Vincent Miata

Let me speak very, very candidly about that. As I said earlier, Len was the eternal optimist. Perhaps we were a little early in prognostications on this business. This is going to be a viable, successful business. I’m not going to quantify it because that’s not my style.

But one of the things we’ve learned the hard way is how very long and difficult and time consuming process it is to get a product like through, in this case, the USDA. Again, we’re distributors. Normally we’re coming in and working with customers or suppliers with the regulatory bodies.

In this case, this was like Al spoke of earlier. It was a diversification effort. We’re very far along, but my God, it’s taken a lot longer than Len or myself or anybody else under this roof had ever envisioned.

We’ve done everything the UDSA has asked. The data is being compiling. We’ll have the submission to them, that’s the operative word, to them by the end of the year. You’re guess is as good as mine. I just can’t call it because our track record has been so piss poor, excuse the expression, but we were optimistic it’s going to happen soon.

I will tell you we’re already setting ourselves up for our distribution channels so that once the license is granted we can take advantage of it and get started with this take forever business initiative. I can’t be more colorful than that or more specific. I’m sorry.

[Roland Philini – Southpaw Investments]

Regarding the glyphsate market, at last quarter we discussed how the market is huge and one of Aceto’s biggest opportunities since the Swizzer Haul acquisition, are you in agreement that this is a huge opportunity for Aceto and given that the Chinese have been here already and on the last call we discussed how other players have much higher inventory costs that Aceto, how long do you see that cost advantage lasting. In other words, once our competitors sell off their highest cost inventory, what advantage will Aceto have over the next say three years?

Vincent Miata

The glyphsate was a very deliberate, well researched, conscious decision on our part to enter. As I believe Len has said earlier, it’s a little different from our other crop protection offerings in that it’s not niche. It’s a commodity. Consistent with a commodity are of course the gyrations in prices going up and down.

We are extremely confident, extremely confident that we will be successful. Don’t ask me specifics because as I said, it’s wrapped up in a lot of business confidentiality. One thing you have to understand, the value we bring to all of our products and in a major way glyphsate is our ability to source correctly.

We believe that that approach was applied consistently to glyphsate and irrespective of the fact that prices have declined dramatically, and if you follow Monsanto and the other players, I don’t have to quantify that.

We are confident that we will buy it right and we’ll be able to make a profit. It was very, very carefully thought out.

[Roland Philini – Southpaw Investments]

On the generic drug front you stated that our effort to sell finished doses for generic drugs has proven to be more challenging than we had originally anticipated. We still believe that it will still prove out to be viable and the long term business opportunity for Aceto, working diligently to enhance our pipeline of products.

Could you add a little more color to that and what has proven to be most challenging as a result of how far off we are from the initial plans a year or two ago?

Vincent Miata

What we’ve done, again without too much detail because I can’t speak to it, is we jigger our approach to distribution. We’ve taken a more reasoned, logical approach to leveraging the sourcing we have into formulative finished dosage products and getting them out to the market.

We’re very, very confident that we’re on a very good track. Again I can’t quantify it but we are already seeing revenues here and the future looks quite good, and it was basically due to just some rethinking about once we get to that point, how we get it into the hands of the buyers of these types of products.

[Roland Philini – Southpaw Investments]

So that the biggest challenge, is that sort of marketing effort?

Vincent Miata

We had a different approach, but perhaps I can characterize a little bit more. Egotistic, a little less leveraged. Now we’re a lot more leveraged, a lot of egotistic if you will in our approach. And it’s going to pay dividends. It’s paying them now and it’s paying them going forward.

[Roland Philini – Southpaw Investments]

Management and the Board have talked about acquisitions being accretive only. Is that still the plan and are there any realistic opportunities for us in the next two to three quarters, and if not, are we going to use some of the cash to buy back stock?

Albert Eilender

To begin with, everybody wants to make accretive acquisitions and clearly we’re no different from anybody else. The only difference is we would say it just a little bit differently. I think we would say that when it comes to acquisition, we would want an acquisition to be structured so that within a reasonable period of time after the acquisition, it is accretive.

But it isn’t a black and white as accretive day one, maybe not even year one. We won’t do anything that would be risky, but I think that we’re a little bit more open to what the expectation should be for an acquisition that makes sense for us.

And again, it has to do each one is going to be evaluated individually on its merits. So no black and white answer on that, but I think we’re going to be a little bit more aggressive in looking at some opportunities and hopefully be able to growth the business both by adding to our core and through expansion of our activities through the acquisition route.

[Roland Philini – Southpaw Investments]

Are there any realistic opportunities in the next few quarters?

Albert Eilender

Our policy is only to say that we will not discuss any acquisition activities until we have a deal, so we’re not going forecast. We’re always talking to people. We were talking to people yesterday, today and tomorrow, but we’re not going to give any color to that until there’s something tangible to announce.

Operator

Your next question comes from Eugene Fox – Cardinal Capital Management.

Eugene Fox – Cardinal Capital Management

Seasonality in the glyphsate business, can you talk to it?

Vincent Miata

In what respect? It’s a seasonal business. I’m not a, obviously I’m not directly involved but I’ve been a quick study on the ins and outs of crop protection over the last year and a half. We believe that the first half of the calendar year, if I’m not mistaken is where most of the business comes just because of the growing season.

I don’t know what else to say. To add a little bit more color because from a modeling perspective, maybe a little bit more familiar, but historically and last year maybe was a little bit abnormal, but my understanding is approximately 15% to 20% are sold in the December quarter, 15% to 20% in the March quarter and the balance is in the June quarter.

Last year it was a little bit different and you had maybe 5% in the December quarter, 10% in the March quarter and the balance then in our fiscal fourth, but in the June quarter.

Eugene Fox – Cardinal Capital Management

Because of your role as distributors, is there any reason to think that your sales wouldn’t essentially mirror that?

Vincent Miata

No. we anticipate being a rising and falling with the seasonality of the business. No reason to anticipate anything differently.

Eugene Fox – Cardinal Capital Management

Could you talk about any focus on any new EPA license efforts relative to what Len had mentioned last quarter?

Vincent Miata

Beyond what we’ve disclosed, we have a pipeline of things in various stages of consideration. To Al’s point, we research them well. We make sure they’re right for us and we make sure that there’s a return on efforts and dollars expended. But no, we’ve not disclosed anything beyond glyphsate which was done last quarter.

Operator

Your next question comes from Kevin McCanine – Main Line Capital.

Kevin McCanine – Main Line Capital

Your honesty and disclosure here is really something to behold. You guys are really having a great call here and it might be something to be hopefully repeated in future presentations. It’s led me to think of a question that maybe you’ll answer it.

Knowing that anyone who works for the company for 30 some odd years doesn’t normally leave in the middle of a business week with their fingernails intact. Do you have any idea as to what it might cost to separate from Mr. Swartz, or will he become any kind of an advisor to the company?

Albert Eilender

It’s redundant in a sense because we did say it at the outset. The company’s letter about Len’s transition. Until that process is concluded, we’re not going to comment beyond the public announcements.

If I have to give you some more color, I would have to say that we hope that around the time of our annual meeting which is December 10, that we would be able to give you some more clarity on this point.

As for the last part of your question, there is no anticipation that Len would be involved with the company going forward in any consulting or advisory capacity.

Operator

Your next question comes from [Alan Brotstchein – AB Analytical Services]

[Alan Brotstchein – AB Analytical Services]

I’m curious about the bonus system you used. It seems like the performance in 2009 was way below par. I haven’t worked through all the numbers but the bonuses, I know some of it is paid in stock that is a nice feature, that you don’t just pay cash, but can you address that. And also, would you expect Al to change the compensation structure going forward at all in terms of not the level of the compensation but the metrics that drive payment to your top executives?

Albert Eilender

Let’s start with the bonus payments that we currently awarded. We disclosed in our CD&A last year what the system was for our bonus calculation and the compensation committee of which I was a member basically followed that disclosure. The disclosure had to do with some hard number accountability and some soft goals, and that’s exactly what we did with coming up with the numbers.

They are what they are based on what we had disclosed the formula would be. We didn’t really do much to dance around with people’s expectations. We had made a commitment to the shareholders to institute a new compensation plan, and that’s basically what we did.

Going forward, I would have to say that we awhile ago, had employed the Hay Group to do a study of our compensation practices with regards to the management team, and the Hay Group came back and essentially said that the compensation for the executive team was pretty much right on target.

The total amounts may need to be skewed a little bit so that there’s more long term incentives compensation and less on the annual side, but that’s something we’re looking at and if we had more stock in the kitty, we would probably skew it a little bit more and a little bit faster.

But notwithstanding that, in our currency D&A we talk about what the bonus plan is going to be going forward. The metrics I think are going to be pretty much the same. If anything it’s going to be a little bit more performance based and a little bit more based on numbers, trying to take a little bit of subjectivity out of it and so be more transparent as to what people are doing and what they’re earning in the way of total compensation.

[Alan Brotstchein – AB Analytical Services]

If I could make some unsolicited suggestions, or actually just one. It seems to me as an investor to be aligned, obviously using equity which you seem to be addressing would be one issue, but the other one is, rather than just have it based on sales and earnings, but you have a finite amount of capital that needs to employed effectively and that should be an overriding goal. But that’s just my view. I’m hoping that as you look at things you’ll consider putting in some other types of metrics to drive compensation.

Albert Eilender

I think you’re right and one of the things that we’ve been talking about is what we call the soft goals and they’re not all that soft. But the new soft goals are going to address things exactly like that; how we use the capital and what return we get on that money, whether it be through investments or through just better use of our resources. I agree 100%.

Operator

There are no further questions. I’d like to turn the call back over to Mr. Miata.

Vincent Miata

I just want to wrap it up by thanking you for your participation, thanking you for your patience through this transition period of upper management. I can assure you we continue to move forward. I’m extremely optimistic. We have to get through this economic tsunami that the whole world has been dealing with. We’ll get there. We’ll be returning to better numbers and I look forward to meeting you one on one as I traverse the country to try to tell you what a great company Aceto is. Thanks and have a great day.

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Source: Aceto Corporation Q1 2010 Earnings Call Transcript
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