[LETTERHEAD OF AMERICAN PACIFIC CORPORATION]
April 7, 2005
Via EDGAR AND OVERNIGHT MAIL
Scott Watkinson
Division of Corporation Finance
United States Securities and Exchange Commission
Mail Stop 0304
450 Fifth Street, N.W.
Washington, D.C. 20549-0510
| Re: | Form 10-K for the fiscal year ended September 30, 2004 Form 10-Q for the period ended December 31, 2004 File No. 1-8137 |
Dear Mr. Watkinson:
As we discussed yesterday, a page was inadvertently omitted from Supplement Number 6 contained in supplemental information filed on behalf of America Pacific Corporation with our letter to you dated March 25, 2005. We have filed a corrected version of the supplemental information under cover of this letter which includes the omitted page.
Should you have any further questions or comments regarding the above-referenced filing, please feel free to contact the undersigned at (702) 699-4166 or our counsel, John Campbell of Morrison & Foerster LLP at (415) 268-7197 or Lior Zorea of Morrison & Foerster LLP at (415) 268-6832. Thank you for your assistance.
| Very truly yours, | ||||
| /s/ Seth L. Van Voorhees | ||||
| Seth L. Van Voorhees, Vice President, Treasurer, Chief Financial Officer and Secretary | ||||
Supplements to SEC Response Letter
SUPPLEMENT 1
Item 6. Selected Financial Data
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA FOR THE YEARS ENDED SEPTEMBER 30,
| 2004(1) | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
| (in thousands except per share amounts) | ||||||||||||||||||||
| STATEMENT OF OPERATIONS DATA: | ||||||||||||||||||||
| Sales and operating revenues | $ | 59,489 | $ | 68,866 | $ | 73,588 | $ | 63,089 | $ | 67,369 | ||||||||||
| Cost of sales | 40,246 | 37,349 | 43,529 | 38,186 | 44,279 | |||||||||||||||
| Gross profit | 19,243 | 31,517 | 30,059 | 24,903 | 23,090 | |||||||||||||||
| Operating expenses | 21,493 | 14,480 | 13,776 | 10,050 | 10,236 | |||||||||||||||
| Impairment charge | 9,084 | |||||||||||||||||||
| Operating (loss) income | (2,250 | ) | 17,037 | 16,283 | 14,853 | 3,770 | ||||||||||||||
| Interest income | 1,102 | 912 | 945 | 1,877 | 1,987 | |||||||||||||||
| Interest expense | 532 | 1,696 | 4,180 | 4,467 | 5,568 | |||||||||||||||
| Other expense (income) | 450 | 760 | ||||||||||||||||||
| Loss on Debt Extinguishments | 1,522 | 149 | 1,594 | |||||||||||||||||
| Income (loss) before cumulative effect | (2,130 | ) | 13,971 | 12,899 | 12,263 | (1,405 | ) | |||||||||||||
| Income taxes | (2,502 | ) | 4,611 | 4,257 | 4,537 | (15,136 | ) | |||||||||||||
| Cumulative effect | 769 | |||||||||||||||||||
| Net (loss) income | (397 | ) | 9,360 | 8,642 | 7,726 | 13,731 | ||||||||||||||
| Basic net income per share | (0.05 | ) | 1.29 | 1.21 | 1.10 | 1.88 | ||||||||||||||
| Diluted net income per share | $ | (0.05 | ) | $ | 1.27 | $ | 1.18 | $ | 1.10 | $ | 1.86 | |||||||||
| BALANCE SHEET DATA: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 23,777 | $ | 27,140 | $ | 65,826 | $ | 51,471 | $ | 30,128 | ||||||||||
| Inventories and receivables | 30,058 | 22,885 | 21,156 | 19,736 | 20,813 | |||||||||||||||
| Property, plant and equipment – net | 16,573 | 9,223 | 7,918 | 7,503 | 7,460 | |||||||||||||||
| Intangible assets – net | 13,679 | 17,579 | 21,297 | 25,411 | 29,805 | |||||||||||||||
| Deferred income taxes | 11,905 | 10,307 | 10,128 | 11,103 | 15,406 | |||||||||||||||
| Total assets | 100,628 | 101,685 | 131,971 | 123,042 | 117,590 | |||||||||||||||
| Working capital | 44,691 | 42,599 | 81,783 | 67,426 | 43,362 | |||||||||||||||
| Long-term debt | 40,600 | 44,175 | 44,175 | |||||||||||||||||
| Shareholders’ equity | $ | 84,800 | $ | 84,834 | $ | 76,241 | $ | 66,955 | $ | 59,609 | ||||||||||
| OTHER DATA: | ||||||||||||||||||||
| Capital expenditures | $ | 1,093 | $ | 3,119 | $ | 2,080 | $ | 1,624 | $ | 2,458 | ||||||||||
| Depreciation and amortization | $ | 5,737 | $ | 5,794 | $ | 6,384 | $ | 6,303 | $ | 8,931 | ||||||||||
| Dividends per common share | $ | 0.42 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||||
| Closing stock price | $ | 7.47 | $ | 8.48 | $ | 8.49 | $ | 7.10 | $ | 6.19 | ||||||||||
| (1) | As discussed in Note 1 to our Consolidated Financial Statements, the consolidation of the ES joint venture as of March 31, 2004 significantly changes various line items of our balance sheet, statement of operations and cash flow presentations as compared to financial presentations in earlier reports. |
SUPPLEMENT 2
AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
| For the three months ended | For the nine months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Sales and Operating Revenues | $ | $ | 15,829,000 | $ | $ | 39,410,000 | ||||||||||
| Cost of Sales | 10,994,000 | 26,717,000 | ||||||||||||||
| Gross Profit | 4,835,000 | 12,693,000 | ||||||||||||||
| Operating Expenses | 5,638,000 | 15,505,000 | ||||||||||||||
| Operating Income (Loss) | (803,000 | ) | (2,812,000 | ) | ||||||||||||
| Interest Income | 262,000 | 815,000 | ||||||||||||||
| Interest Expense | 265,000 | 265,000 | ||||||||||||||
| Other Income (Expense) | — | 450,000 | ||||||||||||||
| Income (Loss) Before Income Taxes and Cumulative Effect | (806,000 | ) | (2,712,000 | ) | ||||||||||||
| Income Taxes (Benefit) | (282,000 | ) | (949,000 | ) | ||||||||||||
| Cumulative Effect of Accounting Adjustment | — | 769,000 | ||||||||||||||
| Net Income (Loss) | $ | $ | (524,000 | ) | $ | $ | (2,532,000 | ) | ||||||||
| Basic Net Income (Loss) Per Share | $ | $ | (0.07 | ) | $ | $ | (0.35 | ) | ||||||||
| Basic Net Income (Loss) Before Cumulative Effect Per Share | $ | $ | (0.11 | ) | $ | $ | (0.37 | ) | ||||||||
| Average Shares Outstanding | 7,292,000 | 7,278,000 | ||||||||||||||
| Diluted Net Income (Loss) Per Share | $ | $ | (0.07 | ) | $ | $ | (0.35 | ) | ||||||||
| Diluted Net Income (Loss) Before Cumulative Effect Per Share | $ | $ | (0.11 | ) | $ | $ | (0.37 | ) | ||||||||
| Diluted Shares | 7,292,000 | 7,278,000 | ||||||||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements.
SUPPLEMENT 3
AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
| 2004 | 2003 | 2002 | ||||||||||
| SALES AND OPERATING REVENUES | $ | 59,489,000 | $ | 68,866,000 | $ | 73,588,000 | ||||||
| COST OF SALES | 40,246,000 | 37,349,000 | 43,529,000 | |||||||||
| GROSS PROFIT | 19,243,000 | 31,517,000 | 30,059,000 | |||||||||
| OPERATING EXPENSES | 21,493,000 | 14,480,000 | 13,776,000 | |||||||||
| OPERATING (LOSS) INCOME | (2,250,000 | ) | 17,037,000 | 16,283,000 | ||||||||
| INTEREST INCOME | 1,102,000 | 912,000 | 945,000 | |||||||||
| INTEREST EXPENSE | 532,000 | 1,696,000 | 4,180,000 | |||||||||
| OTHER EXPENSE (INCOME) | 450,000 | 760,000 | ||||||||||
| LOSS ON DEBT EXTINGUISHMENTS | 1,522,000 | 149,000 | ||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT | (2,130,000 | ) | 13,971,000 | 12,899,000 | ||||||||
| PROVISION (BENEFIT) FOR INCOME TAXES | (2,502,000 | ) | 4,611,000 | 4,257,000 | ||||||||
| INCOME BEFORE CUMULATIVE EFFECT | 372,000 | 9,360,000 | 8,642,000 | |||||||||
| CUMULATIVE EFFECT ACCOUNTING ADJUSTMENT | 769,000 | |||||||||||
| NET (LOSS) INCOME | $ | (397,000 | ) | $ | 9,360,000 | $ | 8,642,000 | |||||
| BASIC NET (LOSS) INCOME PER SHARE | $ | (0.05 | ) | $ | 1.29 | $ | 1.21 | |||||
| BASIC LOSS (INCOME) BEFORE CUMULATIVE EFFECT | $ | 0.05 | $ | 1.29 | $ | 1.21 | ||||||
| AVERAGE SHARES OUTSTANDING | 7,281,000 | 7,253,000 | 7,145,000 | |||||||||
| DILUTED NET (LOSS) INCOME PER SHARE | $ | (0.05 | ) | $ | 1.27 | $ | 1.18 | |||||
| DILUTED (LOSS) INCOME BEFORE CUMULATIVE EFFECT PER SHARE | $ | 0.05 | $ | 1.27 | $ | 1.18 | ||||||
| DILUTED SHARES | 7,328,000 | 7,353,000 | 7,335,000 | |||||||||
See Notes to Consolidated Financial Statements.
SUPPLEMENT 4
AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
| For the Quarter ended | For the twelve months ended | |||||||||||||||||||
| December 31, 2003 | March 31, 2004 | June 30, 2004 | September 30, 2004 | September 30, 2004 | ||||||||||||||||
| SALES AND OPERATING REVENUES | $ | 4,794,000 | $ | 18,787,000 | $ | 15,829,000 | $ | 20,079,000 | $ | 59,489,000 | ||||||||||
| COST OF SALES | 4,324,000 | 11,398,000 | 10,994,000 | 13,530,000 | 40,246,000 | |||||||||||||||
| GROSS PROFIT | 470,000 | 7,389,000 | 4,835,000 | 6,549,000 | 19,243,000 | |||||||||||||||
| OPERATING EXPENSES | 3,764,000 | 6,102,000 | 5,638,000 | 5,989,000 | 21,493,000 | |||||||||||||||
| OPERATING (LOSS) INCOME | (3,294,000 | ) | 1,287,000 | (803,000 | ) | 560,000 | (2,250,000 | ) | ||||||||||||
| INTEREST INCOME | 131,000 | 309,000 | 262,000 | 287,000 | 1,102,000 | |||||||||||||||
| INTEREST EXPENSE | 265,000 | 267,000 | 532,000 | |||||||||||||||||
| OTHER EXPENSE (INCOME) | 340,000 | 110,000 | 450,000 | |||||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT | (3,390,000 | ) | 1,486,000 | (806,000 | ) | 580,000 | (2,130,000 | ) | ||||||||||||
| PROVISION (BENEFIT) FOR INCOME TAXES | (1,186,000 | ) | 520,000 | (282,000 | ) | (1,554,000 | ) | (2,502,000 | ) | |||||||||||
| (LOSS) INCOME BEFORE CUMULATIVE EFFECT | (2,204,000 | ) | 966,000 | (524,000 | ) | 2,134,000 | 372,000 | |||||||||||||
| CUMULATIVE EFFECT ACCOUNTING ADJUSTMENT | 769,000 | 769,000 | ||||||||||||||||||
| NET (LOSS) INCOME | $ | (2,204,000 | ) | $ | 197,000 | $ | (524,000 | ) | $ | 2,134,000 | ( $397,000 | ) | ||||||||
| BASIC NET (LOSS) INCOME PER SHARE | $ | (0.30 | ) | $ | 0.13 | $ | (0.07 | ) | $ | 0.30 | $ | 0.05 | ||||||||
| BASIC LOSS (INCOME) BEFORE CUMULATIVE EFFECT | $ | (0.30 | ) | $ | 0.03 | $ | (0.07 | ) | $ | 0.30 | $ | (0.05 | ) | |||||||
| AVERAGE SHARES OUTSTANDING | 7,256,000 | 7,285,000 | 7,292,000 | 7,145,000 | 7,145,000 | |||||||||||||||
| DILUTED NET (LOSS) INCOME PER SHARE | $ | (0.30 | ) | $ | 0.13 | $ | (0.07 | ) | $ | 0.30 | $ | 0.05 | ||||||||
| DILUTED (LOSS) INCOME BEFORE CUMULATIVE EFFECT PER SHARE | $ | (0.30 | ) | $ | 0.03 | $ | (0.07 | ) | $ | 0.30 | $ | (0.05 | ) | |||||||
| DILUTED SHARES | 7,256,000 | 7,363,000 | 7,292,000 | 7,335,000 | 7,335,000 | |||||||||||||||
SUPPLEMENT 5
ENERGETIC SYSTEMS
| For the Six Months | For the Fiscal Year | For the Fiscal Year | ||||||||||
| Ended March 30, | Ended September 30, | Ended September 30, | ||||||||||
| 2004 | 2003 | 2002 | ||||||||||
| Interest Income | $ | 402,000 | $ | 620,000 | $ | — | ||||||
| Preferred Stock Dividend Received by the Company | $ | — | $ | — | $ | — | ||||||
SUPPLEMENT 6
Significant Subsidiary Test for Purposes of S-X Rule 3.09 and 4.08(g)
| I. Investment Test | ||||||||||||
| Investments in and advances (including current | ||||||||||||
| and noncurrent) to potentially significant | ||||||||||||
| subsidiary by— | ||||||||||||
| Parent | (A | ) | 10,393,000 | |||||||||
| Parent’s other subsidiaries | (B | ) | 0 | |||||||||
| Total, (A) plus (B) | (C-1 | ) | 10,393,000 | |||||||||
| Total for a group of unconsolidated subsidiaries | (C-2 | ) | 10,393,000 | |||||||||
| II. Asset test | ||||||||||||
| Consolidated assets (Note 1) | (D | ) | 101,685,000 | |||||||||
| 10% of (D) = | (E-1 | ) | 10,168,000 | |||||||||
| 20% of (D) = | (E-2 | ) | 20,337,000 | |||||||||
| Total assets of potentially significant | ||||||||||||
| subsidiary (after intercompany eliminations) | ||||||||||||
| (Note 2) | (F | ) | 12,242,000 | |||||||||
| Percent of ownership of potentially significant | ||||||||||||
| subsidiary by parent and parent’s other | ||||||||||||
| subsidiaries | (G | ) | 50 | % | ||||||||
| Proportionate share of total assets, (F) times (G) | (H-1 | ) | 6,121,000 | |||||||||
| Proportionate share of total assets for a group | ||||||||||||
| of unconsolidated subsidiaries calculated based | ||||||||||||
| on the parent’s combined percentage ownership of | ||||||||||||
| each unconsolidated subsidiary multiplied by | ||||||||||||
| their respective total assets. | (H-2 | ) | 6,121,000 | |||||||||
| TEST IS | ||||||||
| MET | ||||||||
| 50%-or-Less-Owned Persons: | YES | NO | ||||||
| On an individual basis, if (C-1) is greater than (E-1) or (H-1) is greater than (E-1), the test is met, the potentially significant subsidiary is significant, and summarized financial information must be furnished in the footnotes to the consolidated financial statements. | X | |||||||
| On a group basis, if (C-2) is greater than (E-1) or (H-2) is greater than (E-1), the test is met, the group is significant, and summarized financial information must be furnished in the footnotes to the consolidated financial statements. | X | |||||||
| On an individual basis, if C-1 is greater than E-2, the test is met, the potentially significant subsidiary is significant, and separate statements must be filed. | X | |||||||
| Subsidiaries Not Consolidated: | ||||||||
| Rule 4.08(g)—Summarized financial information must be furnished in the footnotes to the consolidated financial statements. | X | |||||||
| Rule 3.09(a)—On an individual basis, if C-1 is greater than E-2 or H-1 is greater than E-2, the test is met, the potentially significant subsidiary is significant, and separate statements must be filed. | X | |||||||
Notes to Test:
| 1. | After normal intercompany eliminations, but without elimination of investments in and advances to unconsolidated subsidiaries or 50%-or-less persons. | |||||||
| 2. | a. | If tested subsidiary (or group) has an equity interest in other unconsolidated subsidiaries (or an equity interest in 50%-or-less-owned persons), do not substitute its proportional share of their assets for investments in and advances to those companies. | ||||||
| b. | Reduce the tested subsidiary’s total assets for any receivables from companies included in the consolidated statements. | |||||||
| c. | Do not eliminate receivables from other unconsolidated and 50%-or-less-owned persons. | |||||||
Income Test
| (1 | ) | Consolidated income (loss) | ||||||||||||||||
| From continuing operations (before income taxes, | 13,971,000 | |||||||||||||||||
| extraordinary items, and the cumulative effect of an accounting change). This amount includes pretax equity income of unconsolidated subsidiaries and 50%-or-less-owned companies whose operations are continuing. | (I-1) | |||||||||||||||||
| Enter amount from (T) here | (I-2) | 10,114,400 | ||||||||||||||||
| Using the greater of the (I-1) or (I-2), calculate: | 2,794,200 | 1,397,100 | ||||||||||||||||
| 20% of (I)-10% (I) | (J-1) | (J-2) | ||||||||||||||||
| (2 | ) | Income (loss) of tested subsidiary | NA | |||||||||||||||
| Continuing operations of tested subsidiary (before income taxes, extraordinary items, and the cumulative effect of an accounting change). | (K) | |||||||||||||||||
| Intercompany profits of tested subsidiary, before | NA | |||||||||||||||||
| income taxes. | (L) | |||||||||||||||||
| Total, (K) less (L) | (M) | (1,515,000 | ) | |||||||||||||||
| Proportionate share of income, (M) times (D) | (N-1) | (760,000 | ) | |||||||||||||||
| Proportionate share of income for a group of | (760,000 | ) | ||||||||||||||||
| unconsolidated subsidiaries calculated based on the parent’s combined ownership of each unconsolidated subsidiary times their respective | ||||||||||||||||||
| income | (N-2) | |||||||||||||||||
| TEST IS | ||||||||||||||||||
| MET | ||||||||||||||||||
| YES | NO | |||||||||||||||||
| On an individual basis, if both (N-1) and (J-1) are positive figures and (N-1) is greater than (J-1), the test is met—the subsidiary is significant and separate financial statements are filed. | X | |||||||||||||||||
| For the group of unconsolidated subsidiaries, if (N-2) and (J-2) are positive figures and (N-2) is greater than (J-2), the group is significant and summarized financial information must be furnished in the footnotes to the consolidated financial statements. | X | |||||||||||||||||
| (3 | ) | If either (N) or (J), but not both, are loss figures, the test is made by comparing the potentially significant subsidiary (N-1) with the consolidated figures excluding the income or loss of the potentially significant subsidiary—as follows: | ||||||||||||||||
| Consolidated income (loss) using the greater of (I-1) or (I-2) | (O) | 13,971,000 | ||||||||||||||||
| Add back potentially significant subsidiary’s (or group’s) income (loss) if included in consolidation | (P) | (760,000 | ) | |||||||||||||||
| Consolidated income (loss) exclusive of tested subsidiary (or group) (O) less (P) | (Q) | 14,731,000 | ||||||||||||||||
| 20% of (Q) | (R) | 2,946,200 |
| TEST IS | ||||||||||||||||
| MET | ||||||||||||||||
| YES | NO | |||||||||||||||
| If (P) is greater than (R) disregard positive or negative—the test is met and the subsidiary (or group) is a significant subsidiary and separate information is required. | X | |||||||||||||||
| (4 | ) | Average Consolidated Income Rule. | ||||||||||||||
| Note: | The following rule is not applicable to registrants with a loss for the most current year. It is also not applicable, in any circumstances, to the tested subsidiary. | |||||||||||||||
| If income of the registrant and its subsidiaries consolidated for the most recent fiscal year is at least 10 percent lower than average of the income for the last five fiscal years, such average income should be used for computational purposes. | ||||||||||||||||
| Average consolidated income—from continuing operations (before income taxes, extraordinary items, and the cumulative effect of an accounting change). Loss years should be omitted. | ||||||||||||||||
| This year | 13,971,000 | |||||||||||||||
| 1st preceding year | 12,899,000 | |||||||||||||||
| 2nd preceding year | 12,263,000 | |||||||||||||||
| 3rd preceding year | Loss | |||||||||||||||
| 4th preceding year | 11,439,000 | |||||||||||||||
| Total | (S) | 50,572,000 | ||||||||||||||
| Average—(S) divided by 5, even if loss years are excluded from numerator | (T) | 10,114,400 | ||||||||||||||
SUPPLEMENT 7
ENERGETIC SYSTEMS
| For the Six | For the Fiscal Year | For the Fiscal Year | ||||||||||
| Months Ended March | Ended September 30, | Ended September 30, | ||||||||||
| 31, 2004 | 2003 | 2002 | ||||||||||
| Pre-Tax Income | $ | (1,345,105 | ) | $ | (1,578,259 | ) | $ | — | ||||
| Total Preferred Stock Dividend | $ | — | $ | — | $ | — | ||||||
| Portion of Total Preferred Stock Dividend Paid to the Company | $ | — | $ | — | $ | — | ||||||
SUPPLEMENT 8
Bill and Hold Invoicing ($)
| 1Q | 2Q | 3Q | 4Q | Full Year | ||||||||||||||||
| FY 2004 | — | 13,331,758 | 5,513,567 | 12,358,501 | 31,203,826 | |||||||||||||||
| FY 2003 | 10,026,458 | 15,917,582 | 10,571,933 | 11,328,183 | 47,844,156 | |||||||||||||||
SUPPLEMENT 9
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 2004 and 2003 are summarized as follows:
| 2004 | 2003 | |||||||
| Land | $ | 310,000 | $ | 117,000 | ||||
| Buildings, | 4,426,000 | 1,885,000 | ||||||
| Machinery and equipment | 24,253,000 | 17,580,000 | ||||||
| Construction | 1,260,000 | 1,029,000 | ||||||
| Total | 30,269,000 | 20,611,000 | ||||||
| Less: accumulated depreciation | (13,696,000 | ) | (11,388,000 | ) | ||||
| Property, plant and equipment, net | $ | 16,573,000 | $ | 9,223,000 | ||||
Depreciation expense was approximately $1.8 million, $1.8 million and $2.2 million during the years ended September 30, 2004, 2003 and 2002, respectively. The increase in building, machinery and equipment in 2004 was principally attributed to the consolidation of ES.
SUPPLEMENT 10
EMPLOYEE BENEFIT PLANS
We maintain a group health and life benefit plan, an employee stock ownership plan (“ESOP”) that includes a Section 401(k) feature, a defined benefit pension plan (the “Plan”), and a supplemental executive retirement plan (“SERP”). The ESOP permits employees to make contributions. Plan benefits are paid based on an average of earnings, retirement age, and length of service, among other factors.
The tables below provide relevant financial information about the Plan as of and for the fiscal years ended September 30:
| Defined Benefit Pension Plan | ||||||||
| 9/30/2004 | 9/30/2003 | |||||||
A. Change in Benefit Obligation | ||||||||
| 1. Benefit obligation at beginning of year | $ | 25,255,000 | $ | 20,160,000 | ||||
| 2. Service cost | 944,000 | 770,000 | ||||||
| 3. Interest cost | 1,466,000 | 1,388,000 | ||||||
| 4. Plan participants’ contributions | 0 | 0 | ||||||
| 5. Actuarial (gains)/losses | 225,000 | 3,488,000 | ||||||
| 6. Foreign currency exchange rate changes | 0 | 0 | ||||||
| 7. Benefits paid | (791,000 | ) | (791,000 | ) | ||||
| 8. Plan Amendments | 0 | 240,000 | ||||||
| 9. Business Combination/Divestitures | 0 | 0 | ||||||
| 10. Curtailments/Settlements/Termination Benefits | 0 | 0 | ||||||
| 11. Other Events | 0 | 0 | ||||||
12. Benefit obligation at end of year | $ | 27,099,000 | $ | 25,255,000 | ||||
B. Change in Plan Assets | ||||||||
| 1. Fair value of plan assets at beginning of year | $ | 13,968,000 | $ | 11,232,000 | ||||
| 2. Actual return on plan assets | 1,770,000 | 1,717,000 | ||||||
| 3. Foreign currency exchange rate changes | 0 | 0 | ||||||
| 4. Employer contribution | 1,707,000 | 1,810,000 | ||||||
| 5. Plan participants’ contributions | 0 | 0 | ||||||
| 6. Benefits paid | (791,000 | ) | (791,000 | ) | ||||
| 7. Business Combination/Divestitures | 0 | 0 | ||||||
| 8. Curtailments/Settlements/Termination Benefits | 0 | 0 | ||||||
| 9. Other Events | 0 | 0 | ||||||
10. Fair value of plan assets at end of year | $ | 16,654,000 | $ | 13,968,000 | ||||
C. Reconciliation of Funded Status | ||||||||
| 1. Funded status (B.10 - A.12) | $ | (10,444,000 | ) | $ | (11,287,000 | ) | ||
| 2. Contribution adjustment | 0 | 0 | ||||||
| 3. Amount not Recognized in the Statement of Financial Position | 0 | 0 | ||||||
| 4. Unrecognized net actuarial (gains)/losses | 7,186,000 | 8,040,000 | ||||||
| 5. Unrecognized transition obligation | 0 | 0 | ||||||
| 6. Unrecognized prior service cost | 405,000 | 462,000 | ||||||
7. Net amount recognized | $ | (2,854,000 | ) | $ | (2,785,000 | ) | ||
D. Amounts Recognized in the Financial Statement | ||||||||
| 1. Prepaid benefit cost | $ | 0 | $ | 0 | ||||
| 2. Accrued benefit liability | (4,466,000 | ) | (5,587,000 | ) | ||||
| 3. Intangible assets | 405,000 | 461,000 | ||||||
| 4. Accumulated other comprehensive income (pre-tax) | 1,207,000 | 2,341,000 | ||||||
5. Net amount recognized | $ | (2,854,000 | ) | $ | (2,785,000 | ) | ||
The accumulated benefit obligation for the pension plan was $21,120,000 and $19,555,000 at September 30, 2004 and September 30, 2003, respectively.
E. Information for pension plan with an accumulated benefit obligation in excess of plan assets | ||||||||
| 1. Projected benefit obligation | 27,099,000 | 25,255,000 | ||||||
| 2. Accumulated benefit obligation | 21,120,000 | 19,555,000 | ||||||
| 3. Fair value of plan asset | 16,654,000 | 13,968,000 | ||||||
F. Components of Net Periodic Benefit Cost | ||||||||
| 1. Service cost | $ | 945,000 | $ | 770,000 | ||||
| 2. Interest cost | 1,466,000 | 1,388,000 | ||||||
| 3. Expected return on assets | (1,165,000 | ) | (930,000 | ) | ||||
| 4. Amortization of net transition amount | 0 | 0 | ||||||
| 5. Amortization of prior service cost | 58,000 | 58,000 | ||||||
| 6. Recognized net (gain) or loss | 474,000 | 388,000 | ||||||
| 7. Business Combination/Divestitures | 0 | 0 | ||||||
| 8. Curtailments/Settlements/Termination Benefits | 0 | 0 | ||||||
| 9. Other Events | 0 | 0 | ||||||
10. Net periodic benefit cost | $ | 1,778,000 | $ | 1,673,000 | ||||
G Additional Information | ||||||||
| Increase in minimum liability included in other comprehensive income (pre-tax) | (1,133,000 | ) | 511,000 | |||||
H. Actuarial Assumptions | ||||||||
Weighted-average assumptions used to determine benefit obligations at September 30 | 9/30/2004 | 9/30/2003 | ||||||
| Discount rate | 6.00 | % | 6.00 | % | ||||
| Rate of Compensation Increase | 4.50 | % | 4.50 | % | ||||
| Mortality | RP-2000 | GAM-1983 | ||||||
| Measurement Date | 9/30/2004 | 9/30/2003 | ||||||
Weighted-average assumptions used to determine net periodic benefit cost for years ended September 30 | ||||||||
| Discount rate | 6.00 | % | 6.75 | % | ||||
| Expected Return on Plan Assets | 8.00 | % | 8.00 | % | ||||
| Rate of Compensation Increase | 4.50 | % | 4.50 | % | ||||
| Mortality | GAM-1983 | GAM-1983 | ||||||
The expected return on plan assets was determined based on historical and expected future returns of the various asset classes, using the target allocations described below. Specifically, the expected return on equities is 9.5%, the expected return on debt instruments is 6.0%, and the expected return on short term investments is 5.0%.
I. Plan Assets
| Target | Actual | Actual | ||||||||||
| Asset Category | 2005 | 9/30/2004 | 9/30/2003 | |||||||||
| Equity securities | 64 | % | 64 | % | 58 | % | ||||||
| Debt securities | 14 | % | 14 | % | 13 | % | ||||||
| Real estate | 0 | % | 0 | % | 0 | % | ||||||
| Other | 22 | % | 22 | % | 29 | % | ||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
The general principles guiding investment of U.S. pension assets are those embodied in the Employee Retirement Income Security Act of 1974 (ERISA). These principles include discharging the company’s investment responsibilities for the exclusive benefit of plan participants and in accordance with the “prudent expert” standard and other ERISA rules and regulations. The company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Plan assets are managed by professional investment firms unrelated to the company.
J. Contributions
American Pacific Corporation expects to contribute $1,613,000 to the pension plan in 2005.
K. Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
| 2005 | 985,000 | |||
| 2006 | 1,003,000 | |||
| 2007 | 1,029,000 | |||
| 2008 | 1,065,000 | |||
| 2009 | 1,125,000 | |||
| Years 2010 - 2014 | 5,999,000 |
Participants in the SERP include our current and former Chief Executive Officer. The tables below provide relevant financial information about the SERP as of and for the fiscal years ended September 30:
Supplemental Executive Retirement Plan
| 9/30/2004 | 9/30/2003 | |||||||
A. Change in Benefit Obligation | ||||||||
| 1. Benefit obligation at beginning of year | $ | 2,987,000 | $ | 2,631,000 | ||||
| 2. Service cost | 18,000 | 18,000 | ||||||
| 3. Interest cost | 183,000 | 183,000 | ||||||
| 4. Plan participants’ contributions | 0 | 0 | ||||||
| 5. Actuarial (gains)/losses | 75,000 | 282,000 | ||||||
| 6. Foreign currency exchange rate changes | 0 | 0 | ||||||
| 7. Benefits paid | (723,000 | ) | (126,000 | ) | ||||
| 8. Plan Amendments | 0 | 0 | ||||||
| 9. Business Combination/Divestitures | 0 | 0 | ||||||
| 10. Curtailments/Settlements/Termination Benefits | 0 | 0 | ||||||
| 11. Other Events | 0 | 0 | ||||||
12. Benefit obligation at end of year | $ | 2,540,000 | $ | 2,987,000 | ||||
B. Change in Plan Assets | ||||||||
| 1. Fair value of plan assets at beginning of year | $ | 0 | $ | 0 | ||||
| 2. Actual return on plan assets | 0 | 0 | ||||||
| 3. Foreign currency exchange rate changes | 0 | 0 | ||||||
| 4. Employer contribution | 722,919 | 126,000 | ||||||
| 5. Plan participants’ contributions | 0 | 0 | ||||||
| 6. Benefits paid | (722,919 | ) | (126,000 | ) | ||||
| 7. Business Combination/Divestitures | 0 | 0 | ||||||
| 8. Curtailments/Settlements/Termination Benefits | 0 | 0 | ||||||
| 9. Other Events | 0 | 0 | ||||||
10. Fair value of plan assets at end of year | $ | 0 | $ | 0 | ||||
C. Reconciliation of Funded Status | ||||||||
| 1. Funded status (B.10 - A.12) | $ | (2,540,000 | ) | $ | (2,987,000 | ) | ||
| 2. Contribution adjustment | 0 | 0 | ||||||
| 3. Amount not Recognized in the Statement of Financial Position | 0 | 0 | ||||||
| 4. Unrecognized net actuarial (gains)/losses | 631,000 | 585,000 | ||||||
| 5. Unrecognized transition obligation | 0 | 0 | ||||||
| 6. Unrecognized prior service cost | 142,000 | 185,000 | ||||||
7. Net amount recognized | $ | (1,767,000 | ) | $ | (2,217,000 | ) | ||
D. Amounts Recognized in the Financial Statement | ||||||||
| 1. Prepaid benefit cost | $ | 0 | $ | 0 | ||||
| 2. Accrued benefit liability | (2,540,000 | ) | (2,293,000 | ) | ||||
| 3. Intangible assets | 142,000 | 76,000 | ||||||
| 4. Accumulated other comprehensive income (pre-tax) | 631,000 | 0 | ||||||
5. Net amount recognized | $ | (1,767,000 | ) | $ | (2,217,000 | ) | ||
The accumulated benefit obligation for the pension plan was $2,540,287 and $2,293,187 at September 30, 2004 and September 30, 2003, respectively.
E. Information for pension plan with an accumulated benefit obligation in excess of plan assets | ||||||||
| 1. Projected benefit obligation | 2,540,000 | 2,987,000 | ||||||
| 2. Accumulated benefit obligation | 2,540,000 | 2,293,000 | ||||||
| 3. Fair value of plan asset | 0 | 0 | ||||||
F. Components of Net Periodic Benefit Cost | ||||||||
| 1. Service cost | $ | 18,000 | $ | 18,000 | ||||
| 2. Interest cost | 183,000 | 183,000 | ||||||
| 3. Expected return on assets | 0 | 0 | ||||||
| 4. Amortization of net transition amount | 0 | 0 | ||||||
| 5. Amortization of prior service cost | 42,000 | 43,000 | ||||||
| 6. Recognized net (gain) or loss | 29,000 | 12,000 | ||||||
| 7. Business Combination/Divestitures | 0 | 0 | ||||||
| 8. Curtailments/Settlements/Termination Benefits | 0 | 0 | ||||||
| 9. Other Events | 0 | 0 | ||||||
10. Net periodic benefit cost | $ | 272,000 | $ | 256,000 | ||||
G Additional Information | ||||||||
| Increase in minimum liability included in other comprehensive income (pre-tax) | 632,000 | 0 | ||||||
H. Actuarial Assumptions | ||||||||
Weighted-average assumptions used to determine benefit obligations at September 30 | 9/30/2004 | 9/30/2003 | ||||||
| Discount rate | 6.00 | % | 6.00 | % | ||||
| Rate of Compensation Increase | 4.50 | % | 4.50 | % | ||||
| Mortality | RP-2000 | GAM-1983 | ||||||
Weighted-average assumptions used to determine net periodic benefit cost for years ended September 30 | ||||||||
| Discount rate | 6.00 | % | 6.75 | % | ||||
| Rate of Compensation Increase | 4.50 | % | 4.50 | % | ||||
| Mortality | GAM-1983 | GAM-1983 | ||||||
I. Contributions
American Pacific Corporation expects to contribute $126,000 to the pension plan in 2005.
J. Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate,
are expected to be paid:
| 2005 | 126,000 | |||||
| 2006 | 126,000 | |||||
| 2007 | 215,000 | |||||
| 2008 | 303,000 | |||||
| 2009 | 303,000 | |||||
| Years 2010 - 2014 | 1,517,000 |
