SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d)
-
of the Securities Exchange Act of 1934
For Quarterly Period Ended December 31, 2000
Commission File Number 1-8137
OR
Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
AMERICAN PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-6490478
(State or other jurisdiction (IRS Employer
of incorporation or Identification No.)
organization)
3770 Howard Hughes Parkway, Suite 300
Las Vegas, NV 89109
(Address of principal executive offices) (Zip Code)
(702) 735-2200
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ No / /
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 7,051,655 as of
February 6, 2001.
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements.
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The information required by Rule 10-01 of Regulation S-X is provided
on pages 4 through 10 of this Report on Form 10-Q.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
---------------------
The information required by Item 303 of Regulation S-K is provided on
pages 11 through 15 of this Report on Form 10-Q.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.
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The Company has certain fixed-rate debt which it believes to have a
fair value that approximates reported amounts. The Company believes
that any market risk arising from these financial instruments is not
material.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
-----------------
The information required by Item 103 of Regulation S-K is provided on
pages 8 and 9 of this report on Form 10-Q.
ITEM 2. Changes in Securities and Use of Proceeds.
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None.
ITEM 3. Defaults Upon Senior Securities.
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None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
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None.
ITEM 5. Other Information.
-----------------
None.
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
a) None.
b) None.
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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: February 7, 2001 /s/ John R. Gibson
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John R. Gibson
Chief Executive Officer and President
Date: February 7, 2001 /s/ David N. keys
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David N. Keys
Executive Vice President,
Chief Financial Officer, Secretary
and Treasurer; Principal Financial
and Accounting Officer
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
For the Three Months Ended December 31,
(Unaudited)
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2000 1999
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Sales and Operating Revenues $ 11,879,000 $ 20,976,000
Cost of Sales 9,165,000 12,403,000
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Gross Profit 2,714,000 8,573,000
Operating Expenses 2,120,000 2,425,000
------------ ------------
Operating Income 594,000 6,148,000
Net Interest and Other Expense 666,000 1,124,000
------------ ------------
Income (Loss) Before Income Taxes (72,000) 5,024,000
Income Taxes (27,000)
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Net Income (Loss) $ (45,000) $ 5,024,000
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Basic Net Income (Loss) Per Share $ (.01) $ .64
------------ ------------
Average Shares Outstanding 7,071,000 7,802,000
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Diluted Net Income (Loss) Per Share $ (.01) $ .64
------------ ------------
Diluted Shares 7,074,000 7,878,000
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See the accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
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December 31, September 30,
2000 2000
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 30,925,000 $ 30,128,000
Accounts and Notes Receivable 9,684,000 9,461,000
Related Party Notes and Accrued Interest Receivable 472,000 477,000
Inventories 13,403,000 10,875,000
Prepaid Expenses and Other Assets 1,180,000 661,000
Deferred Income Taxes 677,000 650,000
---------------------------------
Total Current Assets 56,341,000 52,252,000
Property, Plant and Equipment, Net 6,841,000 7,064,000
Intangible Assets, Net 28,698,000 29,805,000
Real Estate Equity Investments 4,948,000 6,838,000
Development Property 5,360,000 5,482,000
Deferred Income Taxes 14,756,000 14,756,000
Other Assets, Net 1,313,000 1,393,000
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TOTAL ASSETS $118,257,000 $117,590,000
---------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
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December 31, September 30,
2000 2000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 9,260,000 $ 8,494,000
-----------------------------------
Total Current Liabilities 9,260,000 8,494,000
Long-Term Debt 44,175,000 44,175,000
SERP Obligation and Other Non-Current Liabilities 1,796,000 1,743,000
-----------------------------------
TOTAL LIABILITIES 55,231,000 54,412,000
-----------------------------------
Commitments and Contingencies
Warrants to Purchase Common Stock 3,569,000 3,569,000
Shareholders' Equity:
Common Stock 852,000 852,000
Capital in Excess of Par Value 80,094,000 80,094,000
Accumulated Deficit (9,593,000) (9,548,000)
Treasury Stock (11,829,000) (11,722,000)
Receivable from the Sale of Stock (67,000) (67,000)
-----------------------------------
Total Shareholders' Equity 59,457,000 59,609,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 118,257,000 $ 117,590,000
-----------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31,
(Unaudited)
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2000 1999
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Cash Flows From Operating Activities $ (886,000) $ 8,049,000
-----------------------------------
Cash Flows From Investing Activities:
Capital Expenditures (100,000) (166,000)
Return of Capital on Real Estate Equity Investments 1,890,000 1,617,000
-----------------------------------
Net Cash From Investing Activities 1,790,000 1,451,000
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Cash Flows From Financing Activities:
Debt Related Payments (1,195,000)
Issuance of Common Stock 321,000
Treasury Stock Acquired (107,000) (742,000)
-----------------------------------
Net Cash From Financing Activities (107,000) (1,616,000)
-----------------------------------
Net Change in Cash and Cash Equivalents 797,000 7,884,000
Cash and Cash Equivalents, Beginning of Period 30,128,000 40,434,000
-----------------------------------
Cash and Cash Equivalents, End of Period $ 30,925,000 $ 48,318,000
-----------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
1. BASIS OF REPORTING
The accompanying Condensed Consolidated Financial Statements are unaudited
and do not include certain information and disclosures included in the
Annual Report on Form 10-K of American Pacific Corporation (the
"Company"). The Condensed Consolidated Balance Sheet as of September 30,
2000, was derived from the Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended September 30,
2000. Such statements should therefore be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30,
2000. In the opinion of Management, however, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation have
been included. The operating results and cash flows for the three-month
period ended December 31, 2000 are not necessarily indicative of the
results that will be achieved for the full fiscal year or for future
periods.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates used by the Company include estimated useful lives for
depreciable and amortizable assets, estimated valuation of deferred taxes,
provisions, if any, for certain accrued liabilities, and estimated cash
flows in assessing the recoverability of long-lived assets. Actual results
may differ from these and other estimates.
2. NET INCOME (LOSS) PER COMMON SHARE
Basic per share amounts are computed by dividing net income (loss) by
average shares outstanding during the period. Diluted per share amounts
are computed by dividing net income (loss) by average shares outstanding
plus the dilutive effect of common share equivalents. The effect of stock
options and warrants outstanding to purchase approximately 2.9 million
shares of common stock were not included in diluted per share calculations
during the three-month periods ended December 31, 2000 and 1999, since the
average exercise price of such options and warrants was greater than the
average price of the Company's common stock during these periods.
3. INVENTORIES
Inventories consist of the following:
December 31, September 30,
2000 2000
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Work-in-process $ 10,055,000 $ 8,429,000
Raw materials and supplies 3,348,000 2,446,000
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Total $ 13,403,000 $ 10,875,000
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4. COMMITMENTS AND CONTINGENCIES
Trace amounts of perchlorate chemicals have been found in Lake Mead. Clark
County, Nevada, where Lake Mead is situated, is the location of Kerr-McGee
Chemical's ("Kerr-McGee") ammonium perchlorate ("AP") operations, and was
the location of the Company's AP operations until May 1988. The Company is
cooperating with State and local agencies, and with Kerr-McGee and other
interested firms, in the investigation and evaluation of the source or
sources of these trace amounts, possible environmental impacts, and
potential remediation methods. Until these investigations and evaluations
have reached definitive conclusions, it will not be possible for the
Company to determine the extent to which, if at all,
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the Company may be called upon to contribute to or assist with future
remediation efforts, or the financial impact, if any, of such cooperation,
contributions or assistance. Accordingly, no accrual for potential costs
has been made in the accompanying Condensed Consolidated Financial
Statements.
In 1999, two lawsuits were filed in Utah state court against the Company
and certain unrelated equipment and product manufacturers claiming
unspecified monetary damages as a result of a fire and explosion on July
30, 1997, at the Company's AP production facility that resulted in the
death of one employee and the injury of three employees. The Company
believes that it has statutory immunity as an employer under the
applicable worker's compensation laws of the State of Utah and that there
was no negligence on the part of the Company that contributed to the
incident. The lawsuits are currently in a discovery phase.
5. ELECTRIC ENERGY
Electric energy is one of the Company's primary raw material costs for the
production of AP. The Company is a party to an agreement with Utah Power
("UP") for its electrical requirements. The agreement provided for the
supply of power for a minimum of a ten-year period, which began in 1989.
This agreement had a three year notice of termination provision and, on
April 7, 1999, UP provided written notice of termination, effective April
7, 2002.
The Company has recently experienced unusual increases in its monthly
power bills at its Utah production facilities as compared to average
historical monthly amounts. For the months of November and December 2000,
the Company received power bills from UP totaling $600,000 and $932,000,
which were respectively, $432,000 and $771,000 in excess of average
historical monthly amounts. The Company believes that UP has improperly
calculated replacement energy costs and has also breached the agreement by
failing to comply with the advance notice provisions of the agreement. The
Company is disputing the January 2001 (see below) and the November and
December 2000 power bills, as well as those of earlier periods.
In the first quarter of fiscal 2001, the Company implemented a plan to
reduce power consumption at its Utah plant operations. By the middle of
January 2001, the Company had reduced power consumption by more than 50%.
For the month of January 2001, the Company received a $410,000 power bill
from UP. As part of this power consumption reduction, the Company has
incurred additional costs, principally in the area of purchased raw
materials.
The Company is pursuing recovery of improper excess power charges from UP
through negotiation or other alternatives and is seeking to cause UP to
comply with the provisions of the agreement. The outcome of this process
is uncertain. Absent recovery of the disputed charges and future
compliance by UP with the agreement, the increases in power bills have had
and would continue to have a material adverse effect on the Company's
operating results and financial position.
6. INCOME TAXES
The Company's effective income tax rates were approximately 37% and 0%
during the three-month periods ended December 31, 2000 and 1999,
respectively. In fiscal 1997, the Company established a deferred tax
valuation allowance. In the fourth quarter of fiscal 2000, the Company
released its deferred tax valuation allowance and recognized approximately
$15.4 million in net deferred tax assets.
7. REAL ESTATE EQUITY INVESTMENTS
The Company's interest in Gibson Ranch Limited Liability Company ("GRLLC")
is accounted for using the equity method. GRLLC operates on a calendar
year. The Company recognizes its share of the earnings of GRLLC (after
amortization of differences in basis) on a current quarterly basis.
Summarized financial information for GRLLC as of and for the three-month
periods ended December 31, 2000 and 1999, was as follows:
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December 31, 2000 December 31, 1999
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Income Statement:
Revenues $ 13,889,000 $ 12,838,000
Gross Profit 1,613,000 1,533,000
Operating Expenses 352,000 417,000
Net Income $ 1,277,000 $ 1,125,000
8. SEGMENT INFORMATION
The Company's three reportable operating segments are specialty chemicals,
environmental protection equipment and real estate sales and development.
These segments are based upon business units that offer distinct products
and services, are operationally managed separately and produce products
using different production methods.
The Company evaluates the performance of each operating segment and
allocates resources based upon operating income or loss before an
allocation of interest expense and income taxes. The accounting policies
of each reportable operating segment are the same as those of the Company.
The Company's specialty chemicals segment manufacturers and sells
perchlorate chemicals used principally in solid rocket propellants for the
space shuttle and defense programs, sodium azide used principally in the
inflation of certain automotive airbag systems and Halotron(TM) I, a clean
gas fire extinguishing agent designed to replace Halon 1211. The specialty
chemicals segment production facilities are located in Iron County, Utah.
The Company's environmental protection equipment operating segment
designs, manufactures and markets systems for the control of noxious
odors, the disinfection of waste water streams and the treatment of
seawater. These operations are also located in Iron County, Utah.
At December 31, 2000, the Company's real estate operating segment had
approximately 65 remaining acres of improved land in the Gibson Business
Park near Las Vegas, Nevada, that is held for development and sale. Recent
activity has consisted of sales of land parcels. Although not included in
operating activities, this segment also has an equity investment in a
residential joint venture that is located across the street from the
Gibson Business Park. (See Note 7).
Additional information about the Company's operations in different
segments for the three months ended December 31, is provided below.
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2000 1999
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Revenues:
Specialty chemicals $ 11,194,000 $ 19,354,000
Environmental protection 213,000 472,000
Real estate 472,000 1,150,000
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Total revenues $ 11,879,000 $ 20,976,000
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Operating income (loss):
Specialty chemicals $ 480,000 $ 5,676,000
Environmental protection (73,000) (38,000)
Real estate 187,000 728,000
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Total segment operating income 594,000 6,366,000
Unallocated net expenses (principally net interest) 666,000 1,342,000
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Income (loss) before income taxes $ (72,000) $ 5,024,000
===========================================
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company is principally engaged in the production of AP for the aerospace and
national defense industries. In addition, the Company produces and sells sodium
azide, the primary component of a gas generant used in certain automotive airbag
safety systems, and Halotron(TM), a chemical used in fire extinguishing systems
ranging from portable fire extinguishers to airport firefighting vehicles. The
perchlorate, sodium azide and Halotron(TM) facilities are located on the
Company's property in Southern Utah and the chemicals produced and sold at these
facilities collectively represent the Company's specialty chemical segment. The
Company's other lines of business include the development of real estate in
Nevada and the production of environmental protection equipment, including waste
and seawater treatment systems.
In 1998, the Company sold $75.0 million of unsecured senior notes (the "Notes"),
consummated an acquisition (the "Acquisition") of certain assets from Kerr-McGee
and purchased and retired the remaining $25.0 million principal amount balance
outstanding of subordinated secured notes (the "Azide Notes"). Upon consummation
of the Acquisition, the Company effectively became the sole North American
producer of AP.
Sales and Operating Revenues. Sales of the Company's perchlorate chemical
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products, consisting mostly of AP sales, accounted for approximately 65% and 74%
of revenues during the three-month periods ended December 31, 2000 and 1999,
respectively. In general, demand for AP is driven by a relatively small number
of DOD and NASA contractors; as a result, any one individual AP customer usually
accounts for a significant portion of the Company's revenues.
Sodium azide sales accounted for approximately 19% and 15% of revenues during
the three-month periods ended December 31, 2000 and 1999, respectively. The
Company's principal sodium azide customer accounted for approximately 85% of
such revenues.
Sales of Halotron(TM) amounted to approximately 10% and 3% of revenues during
the three-month periods ended December 31, 2000 and 1999, respectively.
Halotron(TM) is designed to replace halon-based fire extinguishing systems.
Accordingly, demand for Halotron(TM) depends upon a number of factors including
the willingness of consumers to switch from halon-based systems, as well as
existing and potential governmental regulations.
Real estate and related sales amounted to approximately 4% and 5% of revenues
during the three-month periods ended December 31, 2000 and 1999, respectively.
The nature of real estate development and sales is such that the Company is
unable reliably to predict any pattern of future real estate sales or the
recognition of the equity in earnings of real estate ventures.
Environmental protection equipment sales accounted for approximately 2% and 3%
of revenues during the three-month periods ended December 31, 2000 and 1999,
respectively.
Cost of Sales. The principal elements comprising the Company's cost of sales are
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raw materials, electric power (see below), labor, manufacturing overhead and the
book basis of real estate sold. The major raw materials used by the Company in
its 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 the Company is
unable to pass along such increases to its customers. The Company is currently
purchasing greater quantities of certain raw materials because of recent
excessive power costs (see below). Prices paid by the Company for raw materials
have historically been relatively stable, although the Company has recently
experienced cost increases on certain raw materials, particularly on HCFC 123
and those requiring substantial energy costs to produce. All the raw materials
used in the Company's manufacturing processes have been available in commercial
quantities, and the Company
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has had no difficulty obtaining necessary raw materials. A substantial portion
of the total costs of operating the Company's specialty chemical plants,
consisting mostly of labor and overhead, are largely fixed in nature.
As discussed in Note 5 to the Condensed Consolidated Financial Statements of the
Company, the Company has recently experienced unusual increases in its monthly
power bills at its Utah production facilities as compared to average historical
monthly amounts. During the first quarter of fiscal 2001, the Company received
power bills from UP that were in total approximately $1.3 million in excess of
average historical amounts. The Company believes that UP has improperly
calculated replacement energy costs and has also breached the agreement by
failing to comply with the advance notice provisions of the agreement. The
Company is pursuing recovery of improper excess power charges from UP through
negotiation or other alternatives and is seeking to cause UP to comply with the
provisions of the Agreement. The outcome of this process is uncertain. Absent
recovery of the disputed charges and future compliance by UP with the agreement,
the increases in power bills have had and would continue to have a material
adverse effect on the Company's operating results and financial position.
Income Taxes. The Company's effective income tax rates were approximately 37%
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and 0% during the three-month periods ended December 31, 2000 and 1999,
respectively. In fiscal 1997, the Company established a deferred tax valuation
allowance. In the fourth quarter of fiscal 2000, the Company released its
deferred tax valuation allowance and recognized approximately $15.4 million in
net deferred tax assets.
Net Income (Loss). Although the Company's net income (loss) and diluted net
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income (loss) per 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 4 of Notes to Condensed Consolidated Financial Statements, the
Company may incur material legal and other costs associated with certain
litigation and contingencies; (ii) the timing of real estate and related sales
and the equity in earnings of real estate ventures is not predictable; (iii) the
recognition of revenues from environmental protection equipment orders not
accounted for as long-term contracts depends upon orders generated and the
timing of shipment of the equipment; (iv) weighted average common and common
equivalent shares for purposes of calculating diluted net income per share are
subject to significant fluctuations based upon changes in the market price of
the Company's Common Stock due to outstanding warrants and options; (v) the
results of periodic reviews of impairment issues; and (vi) the magnitude,
pricing and timing of AP, sodium azide, Halotron(TM), and environmental
protection equipment sales in the future is uncertain. (See "Forward Looking
Statements/Risk Factors" below.)
RESULTS OF OPERATIONS
Three Months Ended December 31, 2000 Compared to Three Months Ended December 31,
1999
Sales and Operating Revenues. Sales decreased $9.1 million, or 43%, during the
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three months ended December 31, 2000, to $11.9 million from $21.0 million in the
corresponding period of the prior year. This decrease was principally
attributable to decreased sales of specialty chemicals. Specialty chemical sales
decreased approximately $8.2 million principally due to decreased AP and sodium
azide shipments.
In March 2000, the Company received notification from Thiokol Propulsion
("Thiokol") of a change in the fiscal 2000 purchase order for AP that resulted
in a decrease of approximately 3.23 million pounds of AP (from 10.48 million
pounds of AP). The Company submitted a price adjustment claim under the change
order and, in September 2000, negotiated and settled the claim which resulted in
a $3.0 million payment from Thiokol. Sales volume levels for AP declined from
approximately 20.2 million pounds in fiscal 1999 to approximately 16.4 million
pounds in fiscal 2000. The Company expects sales volumes for AP in fiscal 2001
to decrease further to between 13.0 million and 15.0 million pounds. The recent
weakness in sales volumes is primarily attributable to lower requirements for
applications in certain commercial space launch vehicles used primarily in
satellite launches, particularly telecommunication satellites. In addition,
purchases of AP for use in the solid rocket motors for the Space Shuttle, as
evidenced by the change order referred to above, have declined as a result of
existing excess inventory levels. The Company believes that such excess should
be
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reduced over the next few years considering the number of shuttle flights
planned for the construction and servicing of the International Space Station.
The Company also understands that existing plans call for significant AP
requirements over the next several years for use in the Minuteman program.
Accordingly, the Company believes that the estimated future AP requirements for
these two programs should bring North American demand for AP back to an annual
level of between 16.0 and 20.0 million pounds over the next few years, although
there can be no assurance given with respect to these estimates. The Company has
no ability to influence the demand for AP.
Cost of Sales. Cost of sales decreased $3.2 million, or 26%, in the three months
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ended December 31, 2000, to $9.2 million from $12.4 million in the corresponding
period of the prior year. As a percentage of sales, cost of sales was 77% in the
first quarter of fiscal 2001, compared to 59% in the first quarter of fiscal
2000. Such increase was principally due to lower AP and sodium azide sales
volumes and the significant increase in power costs as discussed above.
Operating Expenses. Operating (selling, general and administrative) expenses
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decreased $0.3 million, or 13%, in the three months ended December 31, 2000, to
$2.1 million from $2.4 million in the corresponding period of 1999.
Net Interest Expense. Net interest and other expense decreased to $0.7 million
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in the three months ended December 31, 2000, from $1.1 million in the
corresponding period of the prior year, as a result of lower average debt
balances.
Segment Operating Income (Loss). Operating income (loss) of the Company's
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industry segments during the three-month periods ended December 31, 2000 and
1999 was as follows:
2000 1999
---------------- ---------------
Specialty chemicals $ 480,000 $ 5,676,000
Environmental protection equipment (73,000) (38,000)
Real Estate 187,000 728,000
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Total $ 594,000 $ 6,366,000
=========== ===========
The decrease in operating income in the Company's specialty chemical industry
segment was attributable to the decrease in sales and the increase in power
costs discussed above. The decrease in operating performance of the
environmental protection equipment segment was primarily due to decreased sales.
The decrease in real estate segment operating income was attributable to
decreased land sales.
INFLATION
General inflation did not have a significant effect on the Company's sales and
operating revenues or costs during the three-month periods ended December 31,
2000 or 1999. General inflation may have an effect on gross profit in the future
as certain of the Company's agreements with AP and sodium azide customers
require fixed prices, although certain of such agreements contain escalation
features that should somewhat insulate the Company from increases in costs
associated with inflation. As discussed above, the Company has recently
experienced significant increases in certain raw material costs and power costs,
although the Company believes that such increases are not specifically related
to the effects of general inflation.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $(0.9) million and $8.0 million during
the three months ended December 31, 2000 and 1999, respectively. Cash flows from
operating activities decreased principally as a result of a decrease in sales
and an increase in costs in the Company's specialty chemicals segment. The
Company believes that its cash flows from operations and existing cash balances
will be adequate for the
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foreseeable future to satisfy the needs of its operations. However, the results
of the Company's dispute concerning its power agreement, the resolution of
contingencies and litigation, and the timing, pricing and magnitude of orders
for AP, sodium azide and Halotron(TM), may have an effect on the use and
availability of cash.
Capital expenditures were $0.1 million during the three months ended December
31, 2000, compared to $0.2 million during the same period last year. Capital
expenditures are budgeted to amount to approximately $2.5 million in fiscal 2001
and are expected to relate primarily to specialty chemical segment capital
improvement projects.
During the three-month period ended December 31, 2000, the Company received cash
of approximately $1.9 million relating to the return of capital invested in
GRLLC. The Company currently anticipates that cash returns of invested capital
and equity in earnings will continue through the conclusion of the project
currently projected to be the end of calendar 2001.
During the three-month period ended December 31, 2000, the Company spent
approximately $0.1 million on the repurchase of its Common Stock. The Company
intends to continue its stock repurchase program but has not determined how many
additional shares will be purchased or the time period during which purchases,
if any, will be made, particularly in light of the power costs currently being
incurred.
FORWARD-LOOKING STATEMENTS/RISK FACTORS
Certain matters discussed in this Report may be forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, but are
not limited to, the risk factors set forth below.
The following risk factors, among others, may cause the Company's operating
results and/or financial position to be adversely affected from time to time:
1. (a) Declining demand (including excess customer inventories) or
downward pricing pressure for the Company's products as a result
of general or specific economic conditions, (b) governmental
budget decreases affecting the DOD or NASA that would cause a
decrease in demand for AP, (c) the results achieved by the
Suspension Agreement resulting from the Company's anti-dumping
petition against foreign sodium azide producers and the possible
termination of such agreement, (d) technological advances and
improvements with respect to existing or new competitive products
causing a reduction or elimination of demand for AP, sodium azide
or Halotron(TM), (e) the ability and desire of purchasers to
change existing products or substitute other products for the
Company's products based upon perceived quality, environmental
effects and pricing, (f) the outcome of the Company's dispute
concerning its power agreement, and (g) the fact that perchlorate
chemicals, sodium azide, Halotron(TM)and the Company's
environmental products have limited applications and highly
concentrated customer bases.
2. Competitive factors including, but not limited to, the Company's
limitations respecting financial resources and its ability to
compete against companies with substantially greater resources,
significant excess market supply in the sodium azide market and
recently in the perchlorate market, potential patent coverage
issues, and the development or penetration of competing new
products, particularly in the propulsion, airbag inflation and
fire extinguishing businesses.
3. Underutilization of the Company's manufacturing facilities
resulting in production inefficiencies and increased costs, the
inability to recover facility costs and reductions in margins.
4. Risks associated with the Company's real estate activities,
including, but not limited to, dependence upon the Las Vegas
commercial, industrial and residential real estate markets,
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changes in general or local economic conditions, interest rate
fluctuations affecting the availability and cost of financing,
the performance of the managing partner of its residential real
estate joint venture (GRLLC) and regulatory and environmental
matters that may have a negative impact on sales or costs.
5. 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.
6. The cost and effects of legal and administrative proceedings,
settlements and investigations, particularly those investigations
described in Note 4 of Notes to Condensed Consolidated Financial
Statements and claims made by or against the Company relative to
patents or property rights.
7. The results of the Company's periodic review of impairment issues
under the provisions of SFAS No. 121.
8. The dependence upon a single facility for the production of most
of the Company's products.
9. Provisions of the Company's Certificate of Incorporation and
By-laws and Series D Preferred Stock, 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 the Company.
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