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, 2001
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: 7,055,000 as of January 31,
2002.
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.
---------------------
The information required by Item 303 of Regulation S-K is provided on
pages 10 through 13 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
page 9 of this report on Form 10-Q.
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.
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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 6, 2002 /s/ John R. Gibson
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John R. Gibson
Chief Executive Officer and President
Date: February 6, 2002 /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)
================================================================================================================
2001 2000
- ----------------------------------------------------------------------------------------------------------------
Sales and Operating Revenues $ 13,117,000 $ 11,879,000
Cost of Sales 9,278,000 9,165,000
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Gross Profit 3,839,000 2,714,000
Operating Expenses 3,004,000 2,120,000
------------------------------------------
Operating Income 835,000 594,000
Net Interest and Other Expense 843,000 666,000
------------------------------------------
Loss Before Income Taxes (8,000) (72,000)
Income Taxes (3,000) (27,000)
------------------------------------------
Net Loss $ (5,000) $ (45,000)
------------------------------------------
Basic Net Loss Per Share $ (.00) $ (.01)
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Average Shares Outstanding 7,005,000 7,071,000
------------------------------------------
Diluted Net Loss Per Share $ (.00) $ (.01)
------------------------------------------
Diluted Shares 7,005,000 7,071,000
------------------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
December 31, September 30,
2001 2001
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 54,398,000 $ 51,471,000
Accounts and Notes Receivable 4,603,000 5,401,000
Related Party Notes and Accrued Interest Receivable 414,000 427,000
Inventories 17,074,000 13,908,000
Prepaid Expenses and Other Assets 1,361,000 770,000
Deferred Income Taxes 500,000 443,000
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Total Current Assets 78,350,000 72,420,000
Property, Plant and Equipment, Net 7,075,000 7,107,000
Intangible Assets, Net 24,304,000 25,411,000
Development Property 3,241,000 4,780,000
Deferred Income Taxes 10,826,000 10,660,000
Other Assets, Net 1,844,000 2,664,000
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TOTAL ASSETS $125,640,000 $123,042,000
-----------------------------------------
See the accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
December 31, September 30,
2001 2001
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 8,617,000 $ 6,371,000
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Total Current Liabilities 8,617,000 6,371,000
Long-Term Debt 44,175,000 44,175,000
SERP Obligation 2,010,000 1,972,000
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TOTAL LIABILITIES 54,802,000 52,518,000
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Commitments and Contingencies
Warrants to Purchase Common Stock 3,569,000 3,569,000
Shareholders' Equity:
Common Stock 861,000 852,000
Capital in Excess of Par Value 80,646,000 80,106,000
Accumulated Deficit (1,827,000) (1,822,000)
Treasury Stock (12,400,000) (12,170,000)
Receivable from the Sale of Stock (11,000) (11,000)
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Total Shareholders' Equity 67,269,000 66,955,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $125,640,000 $123,042,000
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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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2001 2000
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Cash Flows From Operating Activities $ 2,257,000 $ (886,000)
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Cash Flows From Investing Activities:
Capital Expenditures (385,000) (100,000)
Real Estate Venture Returns 736,000 1,890,000
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Net Cash From Investing Activities 351,000 1,790,000
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Cash Flows From Financing Activities:
Issuance of Common Stock 549,000
Treasury Stock Acquired (230,000) (107,000)
----------------------------
Net Cash From Financing Activities 319,000 (107,000)
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Net Change in Cash and Cash Equivalents 2,927,000 797,000
Cash and Cash Equivalents, Beginning of Period 51,471,000 30,128,000
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Cash and Cash Equivalents, End of Period $54,398,000 $30,925,000
----------------------------
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, 2001, was
derived from the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended September 30, 2001.
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, 2001.
In the opinion of Management, however, all adjustments necessary for a fair
presentation have been included. The operating results and cash flows for
the three-month period ended December 31, 2001 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, potential estimated valuation
allowances for 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.
During the first quarter of fiscal 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets". The adoption of SFAS No. 142 did not have a material
effect on the Company's results of operations or financial position. Under
the provisions of SFAS No. 142, the Company's intangible assets
(substantially all related to the Company's perchlorate acquisition in
fiscal 1998) will continue to be amortized under their originally assigned
lives. At December 31, 2001, the Company's intangible assets had a gross
carrying value of approximately $41.5 million and accumulated amortization
of approximately $17.2 million. Amortization expense was approximately $1.0
million during the three months ended December 31, 2001 and 2000.
Amortization expense is estimated to amount to approximately $3.9 million
in each of the years during the five-year period ending September 30, 2007.
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. Since the Company incurred
a net loss during the three-month periods ended December 31, 2001 and 2000,
the effect of outstanding stock options and warrants were not included in
diluted per share calculations.
3. INVENTORIES
Inventories consist of the following:
December 31, September 30,
2001 2001
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Work-in-process $ 10,340,000 $ 8,239,000
Raw materials and supplies 6,734,000 5,669,000
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Total $ 17,074,000 $ 13,908,000
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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, 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.
5. 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 manufactures 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) clean gas
fire extinguishing agents designed to replace halons. 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, 2001, the Company's real estate operating segment had
approximately 48 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.
Additional information about the Company's operations in different segments
for the three months ended December 31, is provided below.
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2001 2000
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Revenues:
Specialty chemicals $ 9,722,000 $11,194,000
Environmental protection 379,000 213,000
Real estate 3,016,000 472,000
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Total revenues $13,117,000 $11,879,000
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Operating income (loss):
Specialty chemicals $ (234,000) $ 480,000
Environmental protection (227,000) (73,000)
Real estate 1,296,000 187,000
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Total segment operating income 835,000 594,000
Unallocated net expenses (principally net interest) 843,000 666,000
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Loss before income taxes $ (8,000) $ (72,000)
==========================
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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 chemicals 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.
Sales and Operating Revenues. Sales of the Company's perchlorate chemical
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products, consisting mostly of AP sales, accounted for approximately 48% and 65%
of revenues during the three-month periods ended December 31, 2001 and 2000,
respectively. In general, demand for 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 the Company's revenues.
Sodium azide sales accounted for approximately 21% and 19% of revenues during
the three-month periods ended December 31, 2001 and 2000, respectively. The
Company's principal sodium azide customer accounted for approximately 66% of
such revenues.
Sales of Halotron(TM) amounted to approximately 6% and 10% of revenues during
the three-month periods ended December 31, 2001 and 2000, 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 23% and 4% of revenues
during the three-month periods ended December 31, 2001 and 2000, 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% of
revenues during the three-month periods ended December 31, 2001 and 2000.
Cost of Sales. The principal elements comprising the Company's cost of sales
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are raw materials, electric power (see below), labor, manufacturing overhead,
depreciation and amortization 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.
During the first quarter of fiscal 2001, the Company received power bills from
Utah Power that were approximately $1.3 million in excess of average historical
quarterly amounts. During this period, the Company purchased greater quantities
of certain raw materials because of these excessive power costs. In the second
half of fiscal 2001, the Company recovered the excessive power costs through a
settlement and curtailment arrangement with Utah Power.
Prices paid by the Company for raw materials have historically been relatively
stable, although the Company has experienced cost increases on certain raw
materials, particularly on HCFC 123, used in the production of
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Halotron(TM). All the raw materials used in the Company's manufacturing
processes have been available in commercial quantities, and the Company has had
no difficulty obtaining necessary raw materials. A substantial portion of the
total cash costs of operating the Company's specialty chemical plants,
consisting mostly of labor and overhead, are largely fixed in nature.
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
is not predictable; (iii) 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; (iv) the results of
periodic reviews of impairment issues; (v) the ability to pass on increases in
raw material costs to customers; 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, 2001 Compared to Three Months Ended December 31,
2000
Sales and Operating Revenues. Sales increased $1.2 million, or 10%, during the
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three months ended December 31, 2001, to $13.1 million from $11.9 million in the
corresponding period of the prior year. This increase was principally
attributable to an increase in real estate sales that was partially offset by a
decrease in specialty chemical sales.
Perchlorate chemical sales decreased approximately 20% in the first quarter of
fiscal 2002, compared to the first quarter of fiscal 2001. The weakness during
the first quarter was expected and is primarily due to the timing of AP
shipments. The Company expects AP sales volumes to increase substantially in
fiscal 2002 as compared to fiscal 2001. The Company currently estimates that AP
sales volumes will be in a range of between 16.0 and 17.0 million pounds during
2002. This compares to AP shipments of approximately 12.6 million pounds in
fiscal 2001. The expected increase in AP sales volumes in fiscal 2002 as
compared to fiscal 2001 results principally from an increase in AP used in the
Minuteman program and AP used in commercial space launch vehicles. However, not
all of the expected AP sales volume in fiscal 2002 is subject to purchase orders
and, accordingly, there can be no assurance given with respect to the AP sales
volume estimate for fiscal 2002. The Company has no ability to influence the
demand for AP.
Cost of Sales. Cost of sales increased $0.1 million, or 1%, in the three months
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ended December 31, 2001, to $9.3 million from $9.2 million in the corresponding
period of the prior year. As a percentage of sales, cost of sales was 70% in
the first quarter of fiscal 2002, compared to 77% in the first quarter of fiscal
2001. This decrease was principally due to the excessive power costs incurred
in the first quarter of fiscal 2001 (see above), offset in part by a decrease in
specialty chemicals sales volumes.
Operating Expenses. Operating (selling, general and administrative) expenses
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increased $0.9 million, or 43%, in the three months ended December 31, 2001, to
$3.0 million from $2.1 million in the corresponding period of 2000. The
increase was primarily attributable to costs incurred in connection with
facility security reviews, certain corporate and product development activities,
and an increase in costs associated with most areas of insurance coverage. A
significant portion of the increase in costs relate to specific activities that
may not continue to be pursued in the future.
Net Interest Expense. Net interest and other expense increased to $0.8 million
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in the three months ended December 31, 2001, from $0.7 million in the
corresponding period of the prior year, as a result of lower interest rates
earned on cash and cash equivalents balances.
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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, 2001 and
2000 was as follows:
2001 2000
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Specialty chemicals $ (234,000) $ 480,000
Environmental protection equipment (227,000) (73,000)
Real Estate 1,296,000 187,000
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Total $ 835,000 $ 594,000
=========== ==========
The decrease in operating income in the Company's specialty chemical industry
segment was attributable to decreased sales and increased operating expenses.
Such decrease was partially offset by excessive power costs incurred in the
first quarter of fiscal 2000 as discussed above. The increase in real estate
segment operating income was attributable to increased 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,
2001 and 2000. 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $2.3 million and $(0.9) million during
the three months ended December 31, 2001 and 2000, respectively. Cash flows
from operating activities increased principally as a result of increased real
estate sales. 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, including debt repayments. However, 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 $0.4 million during the three months ended December
31, 2001, compared to $0.1 million during the same period last year. Capital
expenditures relate primarily to specialty chemical segment capital improvement
projects.
In December 2001, the Company made an offer to purchase approximately $3.6
million of its Senior Unsecured Notes (the "Notes") at 102% of par. In January
2002, the offer was accepted and the Company purchased approximately $3.6
million in principal amount of Notes at a cost of approximately $3.7 million.
During the three-month period ended December 31, 2001, the Company spent
approximately $0.2 million on the repurchase of its Common Stock. The Company
may (but is not obligated to) continue to repurchase its Common Stock, but has
not determined how many additional shares will be purchased or the time period
during which purchases, if any, will be made. The Company is limited in its
ability to use cash to repurchase stock by certain covenants in an Indenture
governing the Notes.
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:
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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) future power costs, 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 and
industrial real estate markets, changes in general or local economic
conditions, interest rate fluctuations affecting the availability and
cost of financing, 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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