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, 1998
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: 8,176,037 as of
January 31, 1999.
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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 9 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
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The information required by Item 303 of Regulation S-K is provided on
pages 10 through 14 of this Report on Form 10-Q.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
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None.
ITEM 2. Changes in Securities
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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
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None.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
a) 10.1 Amended and Restated American Pacific Corporation Supplemental
Executive Retirement Plan, effective January 1, 1999.
27. Financial Data Schedules. This Exhibit is filed in connection
with the Registrant's electronic filing.
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 11, 1999 /s/ JOHN R. GIBSON
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John R. Gibson
Chief Executive Officer and President
Date: February 11, 1999 /s/ DAVID N. KEYS
-----------------
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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1998 1997
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Sales and Operating Revenues $18,854,000 $11,268,000
Cost of Sales 11,588,000 8,106,000
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Gross Profit 7,266,000 3,162,000
Operating Expenses 2,492,000 2,183,000
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Operating Income 4,774,000 979,000
Equity in Earnings of Real Estate Venture 300,000
Net Interest and Other Expense 1,473,000 713,000
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Income Before Provision for Income Taxes 3,301,000 566,000
Provision for Income Taxes ----------- -----------
Net Income $ 3,301,000 $ 566,000
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Basic Net Income Per Share $ .40 $.07
Average Shares Outstanding 8,189,000 8,138,000
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Diluted Net Income Per Share $ .40 $.07
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Diluted Shares 8,244,000 8,217,000
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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,
1998 1998
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 30,109,000 $ 20,389,000
Accounts and Notes Receivable 4,744,000 8,927,000
Related Party Notes Receivable 510,000 536,000
Inventories 11,368,000 13,730,000
Prepaid Expenses and Other Assets 1,273,000 839,000
Restricted Cash 1,178,000 1,176,000
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Total Current Assets 49,182,000 45,597,000
Property, Plant and Equipment, Net 20,332,000 19,529,000
Intangible Assets, Net 37,228,000 38,252,000
Development Property 6,750,000 7,036,000
Real Estate Equity Investments 16,648,000 17,112,000
Other Assets, Net 3,067,000 3,233,000
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TOTAL ASSETS $133,207,000 $130,759,000
============ ============
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,
1998 1998
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 9,279,000 $ 9,635,000
Current Portion of Long-Term Debt 1,178,000 1,176,000
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Total Current Liabilities 10,457,000 10,811,000
Long-Term Debt 70,000,000 70,000,000
Long-Term Payables 2,141,000 2,350,000
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TOTAL LIABILITIES 82,598,000 83,161,000
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Commitments and Contingencies
Warrants to Purchase Common Stock 3,569,000 3,569,000
Shareholders' Equity:
Common Stock 842,000 842,000
Capital in Excess of Par Value 79,488,000 79,488,000
Accumulated Deficit (31,417,000) (34,718,000)
Treasury Stock (1,786,000) (1,486,000)
Receivable from the Sale of Stock (87,000) (97,000)
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Total Shareholders' Equity 47,040,000 44,029,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $133,207,000 $130,759,000
============ ============
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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1998 1997
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Cash Provided by (Used For) Operating Activities $11,261,000 $(5,470,000)
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Cash Flows Provided by (Used For) Investing Activities:
Capital Expenditures (1,705,000) (969,000)
Real estate equity investment capital activity 464,000 1,713,000
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Net Cash Provided by (Used For) Investing Activities (1,241,000) 744,000
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Cash Flows From Financing Activities:
Principal Payments on Debt (1,166,000)
Treasury Stock Acquired (300,000)
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Net Cash Used For Financing Activities (300,000) (1,166,000)
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Net Increase (Decrease) in Cash and
Cash Equivalents 9,720,000 (5,892,000)
Cash and Cash Equivalents, Beginning of Period 20,389,000 18,881,000
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Cash and Cash Equivalents, End of Period $30,109,000 $12,989,000
=========== ===========
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, 1998 was
derived from the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1998.
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, 1998.
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, 1998 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 generally
accepted accounting principles 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 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, the
estimated valuation allowance for deferred tax assets, and estimated cash
flows in assessing the recoverability of long-lived assets. Actual results
may differ from estimates.
2. NET INCOME PER COMMON SHARE
Basic per share amounts are computed by dividing net income by average
shares outstanding during the period. Diluted net income per share amounts
are computed by dividing net income by average shares outstanding plus the
dilutive effect of common share equivalents. The effect of stock options
and warrants outstanding to purchase approximately 3,160,000 and 3,229,000
shares of common stock were not included in diluted per share calculations
during the three-month periods ended December 31, 1998 and 1997,
respectively, 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,
1998 1998
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Work-in-process $ 6,550,000 $ 8,685,000
Raw materials and supplies 4,818,000 5,045,000
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Total $11,368,000 $13,730,000
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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 Corporation'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
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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, 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.
5. INCOME TAXES
The Company established a valuation allowance for deferred tax assets in
the amount of $10.4 million as of September 30, 1997. At September 30,
1998, the balance of the valuation allowance was $10,993,000. The
Company's effective tax rate will be 0% until its net operating losses
expire or the Company has taxable income in an amount sufficient to
eliminate the need for the valuation allowance.
6. 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 equity in GRLLC on a current
quarterly basis. Summarized financial information for GRLLC as of and for
the three-month period ended December 31, 1998 was as follows:
As of and for the
Three-Month
Period Ended
December 31, 1998
-----------------
Income Statement:
Revenues $13,550,000
Gross Profit 1,059,000
Operating Expenses 419,000
Net Income $ 662,000
Balance Sheet:
Assets $25,635,000
Liabilities 12,676,000
Equity $12,959,000
GRLLC's balance sheet is not classified. Assets consist principally of
inventories and liabilities consist principally of Notes and accounts
payable. Inventories were $21,320,000 at December 31, 1998.
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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 automotive airbag safety
systems, and Halotron, a chemical used in fire suppression systems ranging from
portable fire extinguishers to airport firefighting vehicles. The perchlorate,
sodium azide and Halotron 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.
The Company has incurred net losses during its last three fiscal years and an
operating loss during the fiscal year ended September 30, 1997. As a result,
pre-tax income has not been sufficient to recover interest charges.
The Company believes that North American AP demand is currently approximately 20
to 25 million pounds annually. However, supply capacity has historically been
substantially in excess of these estimated demand levels. In an effort to
rationalize the economics of the existing AP market, the Company entered into a
Purchase Agreement with Kerr-McGee. On March 12, 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 repurchased 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 almost entirely of AP sales, accounted for approximately
66% and 50% of revenues during the three-month periods ended December 31, 1998
and 1997, 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 20% and 32% of revenues during
the three-month periods ended December 31, 1998 and 1997, respectively. In the
summer of 1998, shipments of sodium azide were negatively impacted by a labor
strike at certain General Motor's ("GM") facilities. Shipments of sodium azide
increased significantly in the first quarter of fiscal 1999 as compared to the
fourth quarter of fiscal 1998.
Sales of Halotron(TM) amounted to approximately 1% of revenues during the three-
month periods ended December 31, 1998 and 1997. Halotron(TM) is designed to
replace halon-based fire suppression 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 9% and 15% of revenues
during the three-month periods ended December 31, 1998 and 1997, 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 4% and 2%
of revenues during the three-month periods ended December 31, 1998 and 1997,
respectively. It is currently anticipated that sales of this segment will be
adversely affected in fiscal 1999 and perhaps beyond by the continuing adverse
economic developments and conditions in the Company's foreign markets
(particularly Asian markets).
Cost of Sales. The principal elements comprising the Company's cost of sales
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are raw materials, electric power, labor, manufacturing overhead and the basis
in real estate sold. The major raw materials used by the Company in its
production processes are graphite, sodium chlorate, ammonia, hydrochloric acid,
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sodium metal, and nitrous oxide. 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, although all the raw materials used in
the Company's manufacturing processes have historically been available in
commercial quantities, and the Company has had no difficulty obtaining necessary
raw materials.
Raw material, electric power and labor costs have not changed significantly
recently. The costs of operating the Company's specialty chemical plants are,
however, largely fixed. Accordingly, the Company believes that the additional
AP sales volume resulting from the Acquisition should continue to generate
significant incremental cash flow because of the operating leverage associated
with the perchlorate plant. However, amortization of the Acquisition costs is
estimated to amount to approximately $4.0 million annually.
Income Taxes. The Company's effective income tax rates were 0% during the
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three-month periods ended December 31, 1998 and 1997. The Company's effective
income tax rate decreased to 0% during these periods as a result of the
establishment of a $10.4 million deferred tax valuation allowance in the fourth
quarter of fiscal 1997. The Company's effective tax rate will be 0% until the
Company's net operating losses expire or the Company has taxable income in an
amount sufficient to eliminate the need for the valuation allowance.
Net Income. Although the Company's net income and diluted net income per common
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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 costs associated with certain contingencies; (ii) timing of real
estate and related sales and 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 common 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; and (v) 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, 1998 Compared to Three Months Ended December 31,
1997
Sales and Operating Revenues. Sales increased $7.6 million, or 67%, during the
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three months ended December 31, 1998, to $18.9 million from $11.3 million in the
corresponding period of the prior year. This increase was principally
attributable to increased sales of specialty chemicals. Perchlorate chemical
sales increased approximately $6.9 million principally as a result of the
consummation of the Acquisition. Environmental protection equipment sales
increased approximately $0.5 million due primarily to the timing of the shipment
of certain equipment.
Cost of Sales. Cost of sales increased $3.5 million, or 43%, in the three
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months ended December 31, 1998, to $11.6 million from $8.1 million in the
corresponding period of the prior year. Such increase was principally due to an
increase in costs associated with perchlorate operations. The increase in
perchlorate costs was due to increased volumes and amortization of costs
associated with the Acquisition. As a percentage of sales, cost of sales
decreased in the three months ended December 31, 1998, to 62% as compared to 72%
in the corresponding period of the prior year. This decrease was due
principally to the increase in perchlorate sales volume.
Operating Expenses. Operating (selling, general and administrative) expenses
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increased $0.3 million, or 14%, in the three months ended December 31, 1998, to
$2.5 million from $2.2 million in the corresponding period of 1997.
Net Interest Expense. Net interest and other expense increased to $1.5 million
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in the three months ended December 31, 1998, from $0.7 million in the
corresponding period of the prior year as a result of the issuance of the Notes
in March 1998.
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Equity in Earnings of Real Estate Venture. The Company's share of equity in its
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Ventana Canyon joint venture was $0 million and $0.3 million during the three-
month periods ended December 31, 1998 and 1997, respectively. The joint venture
has historically operated at or near a break-even point on residential activity
and has generated net income on sales of improved land.
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, 1998 and
1997 was as follows:
1998 1997
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Specialty chemicals $3,713,000 $ 95,000
Environmental protection equipment (7,000) (164,000)
Real Estate 1,311,000 868,000
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Total $5,017,000 $ 799,000
========== =========
The increase in operating income in the Company's specialty chemical industry
segment was attributable to the increase in perchlorate sales referred to above.
The decrease in environmental protection equipment segment operating loss was
primarily due to increased sales. The increase in real estate segment operating
income was attributable to improved margins on land sales.
Inflation
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, 1998 or
1997. 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.
Liquidity and Capital Resources
In March 1998, the Company sold Notes in the principal amount of $75.0 million,
acquired certain assets from Kerr-McGee for a cash purchase price of $39.0
million and paid $28.2 million to repurchase the remaining $25.0 million
principal amount outstanding of the Azide Notes
Cash flows provided by operating activities were $11.3 million during the three-
months ended December 31, 1998. The Company used cash in operations of $5.5
million during the first quarter of last fiscal year. Cash flows from operating
activities increased in the first three months of fiscal 1998 principally as a
result of increased sales and margins in the Company's specialty chemical
operations. The Company believes that its cash flows from operations and
existing cash balances will be adequate for the foreseeable future to satisfy
the needs of its operations. However, the resolution of contingencies, 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 $1.7 million during the three months ended December
31, 1998, compared to $1.0 million during the same period last year. Capital
expenditures are budgeted to amount to approximately $4.5 million in fiscal 1999
and relate principally to specialty chemical segment capital improvement
projects.
During the three-month period ended December 31, 1998, the Company received cash
of approximately $0.5 million relating to the return of capital invested in the
Ventana Canyon joint venture. 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.
As a result of the contingencies discussed in Note 4 of Notes to Condensed
Consolidated Financial Statements, the Company has incurred legal and other
costs, and it may incur material legal and other costs associated with the
resolution of contingencies in future periods. Any such costs, to the extent
borne by the Company and not recovered through insurance, would adversely affect
the Company's
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liquidity. The Company is currently unable to predict or quantify the amount or
range of such costs, if any, or the period of time over which such costs will be
incurred.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations.
The Company is currently in the process of evaluating and resolving the problems
that might be associated with the Year 2000 issue. The Company's Year 2000
project has four major components:
1. Evaluation of all major manufacturing and business computing systems to
determine which systems are Year 2000 compliant.
2. For each computing system found not to be Year 2000 compliant, development
of a strategy to replace, modify or upgrade the system to a Year 2000
compliant system.
3. Evaluation of core vendors for Year 2000 compliance.
4. Preparation of contingency plans.
The Company's evaluation found that the most critical digital control system,
which is used in the manufacture of specialty chemical products, is Year 2000
compliant. The Company has received a letter of certification from its vendor,
and the Company has tested the system by turning the dates forward on the
computers to the year 2000, and all systems functioned normally.
The Company's accounting system is being upgraded to a Year 2000 compliant
version. This upgrade is in process, and should be completed in the second
quarter of fiscal 1999. New maintenance and manufacturing (MRP) software
packages are currently being implemented, and each is certified and tested as
Year 2000 compliant.
The majority of PC computers used by the Company are Pentium class, running
Microsoft's Windows 95 operating system, and are Year 2000 compliant. The
Company's file servers are running on Pentium computers with Microsoft NT 4.0,
and each of these is also certified Year 2000 compliant. The Company also uses
Microsoft's office suite, which is Year 2000 compliant.
During the evaluation phase of its Year 2000 project, the Company identified
certain potential issues related to many of its programmable logic controller
units used in the manufacturing process and certain of the Company's laboratory
instruments and the computers and software with which they operate. The Company
is in the process of updating the equipment that is not Year 2000 compliant.
The Company is also in the process of developing contingency plans for the Year
2000 issue.
The Company recently reevaluated its estimates and assumptions of the costs
directly associated with its Year 2000 project and currently estimates that
approximately $0.5 million in costs will be incurred that are directly
associated with the project. Through December 31, 1998, the Company had
incurred approximately $0.3 million in costs that were directly related to its
Year 2000 project.
Given the inherent risks for a project of this nature, the timing and costs
involved could differ materially from those anticipated by the Company. There
can be no assurance that the Year 2000 project will be completed on schedule or
within budget.
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.
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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 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 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, and (f) 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 AP and sodium azide
markets and the development or penetration of competing new
products, particularly in the propulsion, airbag inflation and
fire suppression 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,
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 (Ventana Canyon Joint Venture) 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. Integration of new customers and the ability to meet additional
production and delivery requirements resulting from the
Acquisition.
8. The results of the Company's periodic review of impairment issues
under the provisions of SFAS No. 121.
9. The dependence upon a single facility for the production of most
of the Company's products.
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