The Specialty Chemicals segment accounts for approximately 71% and 94% of our revenues during the three-month periods ended March 31, 2005 and 2004, respectively.
Perchlorate chemicals account for a major portion of the Specialty Chemicals segment revenues. In general, demand for Grade I AP is driven by a relatively small number of Department of Defense (“DOD”) and National Aeronautics and Space Administration (“NASA”) contractors. As a result, any one individual AP customer usually accounts for a significant portion of our revenues.
In connection with the Acquisition, we entered into an agreement with the Thiokol Propulsion Division of Alcoa (“Thiokol”) with respect to the supply of AP through the year 2008. The agreement, as amended, provides that during its term Thiokol will make all of its AP purchases from us. In addition to the Grade I AP purchased from us, Thiokol may use AP inventoried by it in prior years. The agreement also establishes a pricing matrix under which Grade I AP unit prices vary inversely with the quantity of Grade I AP sold by us to all of our customers. Grade I AP unit prices in the matrix at all quantity levels escalate each year through fiscal 2003 and, in fiscal 2004, were adjusted downward by approximately 20%. Such downward adjustment had the effect of reducing revenues and operating cash flows on Grade I AP sold to Thiokol by 20% in fiscal 2004. After the adjustment, AP unit prices continue to escalate each year through fiscal 2008.
In connection with the Acquisition, we entered into an agreement with Alliant Techsystems, Inc. (“Alliant”) to extend an existing agreement through the year 2008. The agreement establishes prices for any Grade I AP purchased by Alliant from us during the term of the agreement as extended. Under this agreement, Alliant agrees to use its efforts to cause our Grade I AP to be qualified on all new and current programs served by Alliant’s Bacchus Works.
During 2001, Alliant acquired Thiokol. We have agreed with Alliant that the individual agreements in place prior to Alliant’s acquisition of Thiokol remain in place. All Thiokol programs existing at the time of the Alliant acquisition (principally the Space Shuttle and Minuteman) will continue to be priced under the Thiokol Agreement. All Alliant programs (principally the Delta, Pegasus and Titan) will be priced under the Alliant Agreement.
Since the Acquisition, our annual sales volumes of Grade I AP have been approximately 20.2 million, 16.4 million, 12.6 million, 16.4 million and 15.5 million pounds during the 1999, 2000, 2001, 2002 and 2003 fiscal years (ended September 30) respectively. Prior to the Space Shuttle Columbia disaster on February 1, 2003, and based principally upon information we had received from our major customers, we previously estimated that annual demand for Grade I AP would range between 16.0 million and 20.0 million pounds over the next several years.
The suspension of Space Shuttle missions since the Columbia disaster reduced the sales volume of our Grade I AP products in fiscal 2004 to 11.2 million pounds. This reduced sales volume exceeded the actual consumption of Grade I AP product by our customers. As a result, our customers’ inventory levels of Grade I AP increased throughout the year. The Space Shuttle is currently expected to resume flights beginning in July 2005 with four to five flights per year thereafter, although there is no assurance in this regard. Based principally upon market information we received from our customers, we currently estimate that our annual sales volumes of Grade I AP will range between 10.0 and 13.0 million pounds over the next three years. In addition, the new space exploration initiative for NASA announced by President Bush in January 2004 could have a significant impact on the demand for Grade I AP, however, the ultimate impact from this initiative remains uncertain at this time.
We also produce and sell other perchlorates. Other perchlorates have a wide range of prices per pound, depending upon the type and grade of the product. We have experienced a change in the sales mix of other perchlorates, from lower price per pound products to higher price and margin per pound products. Other perchlorates are used in a variety of applications, including munitions, explosives, propellants, and initiators. Some of these applications are in a development phase, and there can be no assurance that sales of the higher price and higher margin products will continue. A significant reduction in these sales would have a material adverse effect on our results of operations and financial condition.
Other significant sales contributors to the Specialty Chemicals segment are: (i) packaged explosives, (ii) sodium azide, and (iii) Halotron ® fire extinguishing agents.
As discussed in Note 1 to the Condensed Consolidated Financial Statements, we began consolidating the financial performance of our ES packaged explosive joint venture as of March 31, 2004. Geographic markets for ES products include the US, Canada and Mexico. The primary buyers of Slurry Explosives Corp.’s products are explosive distributors who provide products and services to companies in the aggregates, construction, Eastern U.S. coal, precious mineral and metal mining industries.
Overall consumption of commercial explosives is expected to increase throughout 2005, in line with improved performance of the economy in general, and more specifically the aggregates, construction, Eastern U.S. coal, and metal mining sectors. We also expect Congress to pass a new, multi-year Transportation Bill in 2005, and as this works its way through the construction industry it will stimulate spending on new road construction, as well as infrastructure maintenance and renewal. The bill has already passed the House vote, and it is currently before the Senate. Passage of the bill will increase demand for package products used in road construction and quarrying, particular the Company’s Presplit product line and the new emulsion products. Significant investments have also been made in the development of new Presplit formulations manufactured under private label, and we expect the product to be well received by the market. The increased mining activity in the coal industry seen during 2004 is expected to continue as long as there is no significant downturn in the price of oil and natural gas, with coal being broadly recognized as a leading future commodity in the energy sector. We expect sales of products sold to the Eastern U.S. coal industry to remain robust in 2006.
Worldwide demand for sodium azide has declined considerably over the last several years. Currently, worldwide demand for sodium azide is substantially less than worldwide supply. Based principally upon market information received from airbag inflator manufacturers, we expect sodium azide use to continue to decline and that inflators using sodium azide will be phased out over some period of time.
Halotron is designed to replace halon-based fire extinguishing systems. Accordingly, demand for Halotron depends upon a number of factors including the willingness of commercial, government, and military consumers to switch from halon-based systems, the effects of competing products, as well as existing and potential governmental regulations.
Aerospace Equipment Segment:
The newly formed Aerospace Equipment segment accounts for approximately 16% of our revenues during the six-month period ended March 31, 2005. Prior to this most recent six month period, the segment did not exist.
The ISP business is the sole contributor to the Aerospace Equipment segment. The ISP business manufactures in-space propulsion thrusters that are either monopropellant or bipropellant based products. Monopropellant thrusters utilize a single liquid fuel source (typically hydrazine), whereas bipropellant thrusters use a combination of a liquid fuel (typically monomethylhydrazine) and an oxidizer.
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The selection of a propulsion system is based on the satellite’s or spacecraft’s mission and encompasses a variety of factors. The factors generally include type of mission, mission length, type of orbit, mass, type of launch vehicle and price. The ISP business supplies both government and commercial satellite customers. Sales to these customers are usually awarded based on product performance, pricing, and reliability.
The market for ISP products is expected to grow modestly over the next several years. Government funding for defense, earth observation and space systems satellites is stable, but continued budget pressure will stretch some of these programs. Funding for missile defense programs is also expected to remain flat given budget pressures. The commercial satellite industry is expecting higher growth as a result of demand from broadband, HDTV and communications applications. Higher growth rates are expected in the markets for ISP products after the next several years as a result of the replacement of existing military and defense communications constellation systems.
Other Businesses Segment:
The Other Businesses segment accounts for approximately 11% and 5% of our revenues during the six-month periods ended March 31, 2005 and 2004, respectively. This segment included sales from our real estate and water treatment equipment businesses.
Real estate sales accounted for approximately 9% and 0% of our revenues during the six-month periods ended March 31, 2005 and 2004, respectively. We have approximately 2 acres remaining in our Nevada portfolio and real estate sales will cease after the sale of this property.
We sell electrochemical equipment used to purify air or water in municipal, industrial and power generation applications. At the heart of these systems is a proprietary bi-polar electrochemical cell which uses brine or seawater to produce the necessary chemicals. We compete with companies that utilize other technologies and those that utilize technologies similar to ours. Our success depends principally upon our ability to be cost competitive and, at the same time, to provide a quality product.
Cost of Sales:
The principal elements comprising our cost of sales are raw materials, electric power, labor, manufacturing overhead, depreciation and amortization and the book basis in real estate sold. The major raw materials used in our production processes are graphite, sodium chlorate, ammonia, hydrochloric acid, sodium metal, nitrous oxide and HCFC 123. Significant increases in the cost of raw materials may have an adverse impact on margins if we are unable to pass along such increases to our customers.
Prices paid by us for raw materials have historically been relatively stable, although we have experienced cost increases on certain raw materials. All the raw materials used in our manufacturing processes have been available in commercial quantities. Although we recently had some difficulty in obtaining graphite, significant progress has been made in establishing an assured source of supply. We continue to explore other technologies that would reduce our dependence on graphite. A substantial portion of the total cash costs of operating our specialty chemical plants, consisting mostly of labor and overhead, are largely fixed in nature.
Net Income (Loss):
Although our net income (loss) and diluted net income (loss) per common share have not been subject to seasonal fluctuations, they have been and are expected to continue to be subject to variations from quarter to quarter and year to year due to the following factors, among others: (i) as discussed in Note 5
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to our Condensed Consolidated Financial Statements, we may incur material legal and other costs associated with certain litigation and contingencies; (ii) the magnitude, pricing and timing of perchlorate chemicals, sodium azide, Halotron, packaged explosives and water treatment equipment sales in the future is uncertain; (iii) weighted average common and common equivalent shares for purposes of calculating diluted net income per common share are subject to significant fluctuations based upon changes in the market price of our Common Stock due to outstanding warrants and options; (iv) the results of periodic reviews of impairment issues; and (v) the ability to pass on increases in raw material costs to our customers.
Critical Accounting Policies and the Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.
Application of the critical accounting policies discussed below requires management’s significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. However, the Company is not currently aware of any reasonably likely events or circumstances that would result in materially different results.
Sales and Revenue Recognition:
Sales of the specialty chemicals and water treatment products are recognized when persuasive evidence of an arrangement exists, shipment has been made, title passes, the price is fixed or determinable and collectibility is reasonably assured. We offer some of our perchlorate product customers the option, at their request, of storing purchased materials in our Cedar City facility (“Bill and Hold” transactions). We recognize the revenue and profit from these Bill and Hold transactions at the point at which the risks of ownership and transfer of title are transferred to the customers. Sales of the water treatment equipment segment are recognized when the product is shipped. We receive cash for the full amount of real estate sales at the time of closing which is when we record the sale.
Depreciable Lives of Plant and Equipment:
Plant and equipment is recorded at cost and depreciated using the straight-line method, which deducts equal amounts of cost of each asset from earnings every year over its estimated economic useful life. Economic useful life is the duration of time the asset is expected to be productively employed by the company, which may be less than its physical life. Management’s assumptions on the following factors, among others, affect the determination of estimated economic useful life: wear and tear, obsolescence, technical standards, contract life, changes in market demand and raw material availability.
The estimated economic useful life of an asset is monitored to determine its appropriateness, especially in light of changed business circumstances. For example, changes in technological advances, changes in the estimated future demand for products, or excessive wear and tear may result in a shorter estimated useful life than originally anticipated. In these cases, the Company would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis.
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Impairment of Long-Lived Assets - Plant and Equipment:
Plant and equipment held for use is grouped for impairment testing at the lowest level for which there are identifiable cash flows. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company assesses recoverability by comparing the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the assets. If an asset group is considered impaired, the impairment loss to be recognized would be measured as the amount by which the asset group’s carrying amount exceeds its fair value. Assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell.
The estimate of plant and equipment fair value is based on estimated discounted future cash flows expected to be generated by the asset group. The assumptions underlying cash flow projections represent management’s best estimates at the time of the impairment review. Factors that management must estimate include: industry and market conditions, sales volume and prices, costs to produce and inflation. Changes in key assumptions or actual conditions which differ from estimates could result in an impairment charge. The Company uses reasonable and supportable assumptions when performing impairment reviews and cannot predict the occurrence of future events and circumstances that could result in impairment charges.
Impairment of Long-Lived Assets – Goodwill and Intangible Assets:
The purchase method of accounting for business combinations requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the net tangible and identifiable intangible assets. Goodwill represents the excess of the aggregate purchase price over the fair value of net assets of an acquired entity. The Company currently has no goodwill in its financial statements. Disclosures related to intangible assets are included in Note 1.
The Company performs an impairment test annually in the fourth quarter of the fiscal year. In addition, additional tests will be conducted if changes in circumstances indicate a potential impairment exists. The impairment test requires the Company to compare the fair value of business reporting units to carrying value. The results of the impairment tests have indicated fair value amounts exceeded carrying amounts.
The Company primarily uses the present value of future cash flows to determine fair value. The Company’s valuation model assumes a five-year growth period for the business and an estimated exit trading multiple. Management judgment is required in the estimation of future operating results and to determine the appropriate exit multiple. The exit multiple is determined from comparable industry transactions. Future operating results and exit multiples could reasonably differ from the estimates.
Income Taxes:
We account for income taxes using the asset and liability approach required by SFAS No. 109. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of our assets and liabilities. Future tax benefits attributable to temporary differences are recognized to the extent that realization of such benefits are more likely than not. These future tax benefits are measured by applying currently enacted tax rates.
Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed.
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Deferred tax assets are recorded for operating losses and tax credit carryforwards. However, when there are not sufficient sources of future taxable income to realize the benefit of the operating loss or tax credit carryforwards, these deferred tax assets are reduced by a valuation allowance. A valuation allowance is recognized if, based on the weight of available evidence, it is considered more likely than not that some portion or all of the deferred tax asset will not be realized. The factors used to assess the likelihood of realization include forecasted future taxable income and available tax planning strategies that could be implemented to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits. The effect of a change in the valuation allowance is reported in the current period tax expense.
Pension Benefits:
The Company sponsors defined benefit pension plans in various forms for employees who meet eligibility requirements. Several assumptions and statistical variables are used in actuarial models to calculate the pension expense and liability related to the various plans. Assumptions about the discount rate, the expected rate of return on plan assets and the future rate of compensation increases are determined by the Company. The actuarial models also use assumptions on demographic factors such as retirement, mortality and turnover. Depending on the assumptions selected, pension expense could vary significantly and could have a material effect on reported earnings. The assumptions used can also materially affect the measurement of benefit obligations. Information with respect to pension expenses and liabilities, together with the impact of changes in key assumptions is discussed in Note 8 to our Consolidated Financial Statements included in our September 30, 2004 Annual Report on Form 10-K.
Other areas in which significant uncertainties exist include, but are not limited to, projected costs to be incurred in connection with environmental matters, tax matters, the resolution of litigation, and the recoverability of investments in and advances to our ES joint venture. A discussion of environmental and legal matters is included in Note 5 to our Condensed Consolidated Financial Statements. Information on some of the key estimates and assumptions on which our annual provision for income taxes is based may be found in Note 7 to our Consolidated Financial Statements included in our September 30, 2004 Annual Report on Form 10-K.
Actual results will inevitably differ to some extent from the estimates on which our Condensed Consolidated Financial Statements are prepared at any given point in time. Despite these inherent limitations, we believe that our Management’s Discussion and Analysis and Condensed Consolidated Financial Statements provide a meaningful and fair perspective on our Company.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
Sales and Operating Revenues:
For the three months ended March 31, 2005, sales decreased by $0.3 million, or 1% to $18.5 million from $18.8 million in the corresponding period of the prior year. This decrease was attributable to a decrease in Specialty Chemicals segment sales of $4.6 million. In comparison to the comparable period in the prior year, the decline in Specialty Chemicals segment sales was substantially offset by the $2.1 million of sales from (i) our recently acquired ISP business whose financial results are reported in our new Aerospace Equipment segment and (ii) the $2.2 million increase in Other Businesses segment sales.
The decline in Specialty Chemicals segment sales volume during the three month period ending March 31 was principally due to lower levels of perchlorate sales in comparison to the comparable period in the prior year. The increased sales volumes of our Other Businesses segment was principally due to a higher level of real estate activity completed during the period in comparison to the comparable period in the prior year.
Cost of Sales:
Cost of sales increased $0.6 million, or 5%, in the three months ended March 31, 2005, to $12.0 million from $11.4 million in the comparable period in the prior year. As a percentage of sales, cost of sales was 65% in the second quarter of fiscal 2005, compared to 61% in the comparable period in the prior year.
The increase in cost of sales during in the three months ended March 31, 2005 versus the corresponding period ended March 31, 2004, was principally a result of higher cost of sales from our Aerospace Equipment and Other Businesses segments, which were partially offset by lower cost of sales from our Specialty Chemicals segment.
Operating Expenses:
Operating (selling, general and administrative) expenses increased $1.0 million, or 17%, in the three months ended March 31, 2005, to $7.1 million from $6.1 million in the corresponding period of 2004. The increase in operating expenses was due primarily to: (i) the consolidation of our packaged explosive joint venture as of the third quarter of fiscal 2004, (ii) the addition of the ISP business into the newly formed Aerospace Equipment segment on October 1, 2004, (iii) an increase in environmental remediation expenditures, and (iv) corporate development costs.
Interest Income/Interest and Other Expense:
Interest income decreased to $0.1 million in the three months ended March 31, 2005, from $0.3 million in the corresponding period of the prior year. Interest and other expense decreased to $42,000 in the three months ended March 31, 2005, from $0.1 million in the corresponding period of the prior year. The decline in: (i) interest income and (ii) interest and other expense, for the three month period ending March 31 was primarily as a result of the elimination of interest and other expense from the consolidation of our packaged explosive joint venture.
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Six Months Ended March 31, 2005 Compared to Six Months Ended March 31, 2004
Sales and Operating Revenues:
For the six months ended March 31, 2005, sales increased by $13.2 million, or 56% to $36.8 million from $23.6 million in comparison to the comparable period in the prior year. This increase was attributable to (i) an increase in Specialty Chemicals and Other Businesses segment sales of $4.4 million and $2.9 million respectively, and (ii) $5.9 million of sales from our ISP business whose financial results are reported in our new Aerospace Equipment segment.
In comparison to the comparable period in the prior year, the increase in Specialty Chemicals segment sales during the six month period ending March 31 resulted principally from higher sales volume of perchlorate chemicals and the inclusion of our packaged explosives sales in our financial results in fiscal 2005 in comparison to the comparable period in the prior year. The increased sales volume in our Other Businesses segment was principally due to a higher level of real estate activity completed during the period in comparison to the comparable period in the prior year.
Cost of Sales:
Cost of sales increased $8.8 million, or 56%, in the six months ended March 31, 2005, to $24.5 million from $15.7 million in the corresponding period of the prior year. As a percentage of sales, cost of sales was 67% in the first six months of fiscal 2005 and fiscal 2004.
The increase in cost of sales during in the six months ended March 31, 2005 versus the corresponding period ended March 31, 2004, was principally a result of higher Specialty Chemicals and Other Businesses segment sales respectively. In addition, our recently acquired ISP business also increased our cost of sales for the six months ended March 31, 2005.
Operating Expenses:
Operating (selling, general and administrative) expenses increased $3.9 million, or 40%, in the six months ended March 31, 2005, to $13.8 million from $9.9 million in the corresponding period of 2004. The increase in operating expenses was due primarily to: (i) the consolidation of the our packaged explosive joint venture as of the third quarter of fiscal 2004, (ii) the addition of the ISP business into the newly formed Aerospace Equipment segment on October 1, 2004, (iii) an increase in environmental remediation expenditures, and (iv) corporate development costs.
Interest Income/Interest and Other Expense:
Interest income decreased to $0.3 million in the six months ended March 31, 2005, from $0.5 million in the corresponding period of the prior year. Interest and other expense decreased to $0.1 million in the six months ended March 31, 2005, from $0.4 million in the corresponding period of the prior year. The decline in: (i) interest income and (ii) interest and other expense, for the six month period ending March 31 was primarily as a result of the elimination of interest and other expense from the consolidation of our packaged explosive joint venture.
INFLATION
General inflation did not have a significant effect on our sales and operating revenues or costs during the three months ended March 31, 2005 and 2004. General inflation may have an effect on gross profit in the future as certain of our agreements relating to Grade I AP, sodium azide, in-space propulsion thrusters require fixed prices, although certain of such agreements contain escalation features that should somewhat insulate us from increases in costs associated with inflation.
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LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $9.8 million and $7.1 million during the six months ended March 31, 2005 and 2004, respectively. The increase in cash flows from operating activities was primarily due to higher sales volumes. We believe that our cash flows from operations and existing cash balances will be adequate for the foreseeable future to satisfy the needs of our operations, including the repurchase of our Common Stock and/or dividends under the Program. However, the resolution of litigation and contingencies, and the timing, pricing and magnitude of orders for our products may have an effect on the use and availability of cash.
Capital expenditures were $1.1 million and $0.8 million during the six months ended March 31, 2005 and 2004, respectively. Capital expenditures relate principally to specialty chemicals segment capital improvement projects. Capital expenditures are expected to be funded from existing cash balances and operating cash flows.
We did not repurchase any of our Common Stock during the six-month period ended March 31, 2005. As a result of the exercise of stock options, we issued 5,000 shares, for an aggregate price of $24,000, of our Common Stock during the six-month period ended March 31, 2005.
As a result of the litigation and contingencies discussed in Note 5 to our Condensed Consolidated Financial Statements, we have incurred legal and other costs, and we may incur material legal and other costs associated with the resolution of litigation and contingencies in future periods. Any such costs, to the extent not recovered by insurance, would adversely affect our liquidity. We are currently unable to predict or quantify the amount or range of such costs or the period of time over which such costs may be incurred.
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ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Various discussions in this Quarterly Report on Form 10-Q contain forward-looking statements concerning our future products, expenses, revenue, liquidity and cash needs, as well as our plans and strategies. These forward-looking statements are based on current expectations and we assume no obligation to update this information. Numerous factors could cause our actual results to differ significantly from the results described in these forward-looking statements, including the following risk factors.
1. | (a) Declining demand (including excess customer inventories) or downward pricing pressure for our products as a result of general or specific economic conditions, (b) governmental budget decreases affecting the DOD or NASA, including the status of the Space Shuttle Program (including President Bush’s current plan to ultimately terminate shuttle operations), that would cause further decreases in demand for Grade I AP, (c) technological advances and improvements with respect to existing or new competitive products causing a reduction or elimination of demand for Grade I AP and other perchlorates, sodium azide, Halotron, explosives or thrusters (d) the ability and desire of purchasers to change existing products or substitute other products for our products based upon perceived quality, environmental effects and pricing, and (e) the fact that perchlorate chemicals, sodium azide, Halotron and our water treatment products have limited applications and highly concentrated customer bases. |
| |
2. | The cost and effects of legal and administrative proceedings, settlements and investigations, particularly those investigations described in Note 5 to our Condensed Consolidated Financial Statements, as well as the costs resulting from regulatory and environmental matters that may have a negative impact on sales or costs. |
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3. | Our ability to profitably integrate, manage and operate new businesses and/or investments competitively and cost effectively (including recently acquired ES and Ampac-ISP). |
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4. | Competitive factors including, but not limited to, our limitations respecting financial resources and our ability to compete against companies with substantially greater resources, significant excess market supply in the sodium azide market and in the perchlorate market, potential patent coverage issues, and the development or penetration of competing new products, particularly in the propulsion, airbag inflation, fire extinguishing and explosives businesses. |
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5. | Underutilization of our manufacturing facilities resulting in production inefficiencies and increased costs, the inability to recover facility costs, reductions in margins, and impairment issues. |
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6. | The near depletion of our Clark County, Nevada commercial real estate, with only 2 acres remaining for sale. |
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7. | The effects of, and changes in, trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies or similar organizations, including, but not limited to, environmental, safety and transportation issues. |
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8. | The dependence upon a single facility for the production of most of our products. |
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9. | Provisions of our Certificate of Incorporation and Bylaws and Series D Preferred Stock, and the dividend of preference stock purchase rights and related Rights Agreement, could have the effect of making it more difficult for potential acquirors to obtain a control position in us. |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates, commodity prices and foreign currency exchange rates. We did not have any long-term debt outstanding for the period ending March 31, 2005 and 2004, respectively. As of March 31, 2005, we did not have any derivative-based financial instruments. However, the amount of any outstanding debt may fluctuate and we may at some time be subject to financing risk. There have been no material changes in market risk since March 31, 2005.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation as of March 31, 2005, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) were effective as of such date to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Voting results of matters submitted to a vote of Security Holders at our Annual Meeting of Stockholders held on March 8, 2005 were as follows:
Item No. 1 – Election of Class A Directors (through March 2007).
Name | | Votes For | | Votes Withheld |
| |
| |
|
John R. Gibson | | 6,122,510 | | 980,000 |
Jan H. Loeb | | 6,155,037 | | 947,473 |
Item No. 2 – Election of Class B Directors (through March 2008).
Name | | Votes For | | Votes Withheld |
| |
| |
|
Norval F. Pohl | | 6,145,185 | | 957,325 |
C. Keith Rooker | | 5,464,983 | | 1,637,527 |
Jane L. Williams | | 6,141,185 | | 931,325 |
Mr. Rooker received less than 80% (approximately 76.9%) of the votes cast. Accordingly, under the Registrant’s Certificate of Incorporation and Bylaws, he will remain in office, but must be renominated for election by the stockholders at the next Annual Meeting in March 2006.
Item No. 3 – Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm:
Votes For | | Against | | Abstained |
| |
| |
|
6,675,288 | | 9,165 | | 418,057 |
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) | | Exhibits |
| | | | |
| | Exhibit No. | | Description |
| |
| |
|
| | 31.1 | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | | |
| | 31.2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | | |
| | 32.1 | | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | | |
| | 32.2 | | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | | |
b) | | Reports on Form 8-K |
| | |
| | We filed a Current Report on Form 8-K on February 11, 2005, announcing our financial results for the first quarter of fiscal year 2005. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| AMERICAN PACIFIC CORPORATION |
| |
Date: May 12, 2005 | /s/ JOHN R. GIBSON |
|
|
| John R. Gibson
Chief Executive Officer and President |
| |
Date: May 12, 2005 | /s/ SETH L. VAN VOORHEES |
|
|
| Seth L. Van Voorhees
Vice President, Treasurer, Chief Financial
Officer & Secretary |
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